The withdrawal of a prior appeal concerning an addition does not preclude an assessee from challenging the same addition on merits in a subsequent assessment, as the tax authority is under a statutory obligation to make a correct assessment of income in accordance with law.

ORDER UNDER SECTION 255(4) OF THE I.T. ACT, 1961

O R D E R

PER NIKHIL CHOUDHARY, A.M.:

This appeal had been filed by the assessee against the order of the ld. CIT(A)-3, Lucknow dated 19.10.2015 passed under section 250 of the Income Tax Act, 1961 which in turn had arisen from the assessment order passed by the ld. AO under section 153C r.w.s.153A and 143(3) of the Income Tax Act, 1961 for the assessment year 2005-06 on 30.03.2013. The appeal was heard by the Division Bench of the Income Tax Appellate Tribunal, Allahabad Bench.

2. Since there was difference of opinion between the Hon’ble Judicial Member and Hon’ble Accountant Member, who originally heard the appeals, the issue was referred to the Hon’ble Third Member. The following questions were referred to Hon’ble Third Member for his opinion, reads as under:-

“1. Whether in the facts and circumstances of the case, ground nos. 1, 2 and 3 of the assessee’s appeal in ITA No. 502/ALLD/2015 deserve dismissal as cannot be agitated in this appeal or is to be decided in merits.”

3. The Hon’ble Accountant Member had held that the addition made under section 40(a)(ia) of the Income Tax Act, 1961 in the assessment order passed by the AO under section 153C r.w.s. 153A and 143(3) was a mere reiteration of the addition made by the AO in the original assessment order passed under section 143(3) and since the appeal against the said order had been withdrawn by the assessee, therefore, the issue could not be agitated while challenging the assessment order dated 30.03.2013, passed by the AO under section 153C r.w.s. 143(3) r.w.s. 153A.

4. On the other hand, the Hon’ble Judicial Member had held that once the Tribunal had consciously allowed the assessee to withdraw the appeal in ITA No. 238/ALLD/2009 which had the solitary issue of disallowance under section 40(a)(ia), which was repeated by the AO in the assessment order passed under section 153C r.w.s. 143(3) and was also a common issue in appeal in ITA No. 502/ALLD/2015, then the judicial conscience demanded that the issue which was common in both the appeals had to be decided on the merits instead of dismissing the ground on the basis of technicalities. Accordingly, he had set aside the issue to the file of the AO to re-adjudicate after proper verification and examination of facts and the record, regarding the nature of payments.

5. The Hon’ble Third Member, after considering the facts of the case, had held that the mere withdrawal of the appeal against the assessment order passed under section 143(3) of the Act would not make a disallowance valid and legal without rebutting the contentions of the assessee that disputed such disallowance. The Assessing Officer was under statutory obligation to make correct assessment of income in accordance with the applicable provisions of law and the withdrawal of the appeal against the assessment order passed under section 143(3) of the Act could not be a reason for shutting the door for the appeal against invalid disallowance of expenditure, which was otherwise provided for under the law. Therefore, the Hon’ble Third Member agreed with the views of the Hon’ble Judicial Member that the contention of the assessee was required to be looked into and held that ground no. 1 as held by assessee in ITA No. 502/ALLD/2015 did not deserve to be dismissed. With regard to ground no. 2, the Hon’ble Third Member held that since the order of the Hon’ble Judicial Member had not agitated the same separately in his order, he was unable to decide whether the ground needed dismissal or not. Ground no. 3 was held to be general in natur