2016 (9) TMI 1003 - AT - Income Tax

Rectification application u/s. 154 - Held that - There is no dispute that the impugned assessment year is the first year of filing electronic return. The Central Board of Direct Taxes has also issued a circular no. 6/2008 dated 18-07-2008 advising the assessees to retain with themselves all annexures relating to computation of income, TDS/TCS certificates, challans, counterfoils relating to advance and self assessment taxes and audit report to be produced as and when called by the Assessing Officer. We repeat that neither there is any such call or intimation of processing forthcoming from the case file. Both the lower authorities are fair enough in not specifically rejecting assessee s plea of having incorporated an incorrect figure of ₹ 3,33,426/- as extracted from her rectification petition. We come to pages 10 to 13 of the paper book stating gross total income of ₹ 35,62,254/- along with nil tax payable, purchases of ₹ 3,33,426/-, profits before taxes of ₹ 34,87,179/- and aggregate income of ₹ 1,38,790/-; respectively. Her P & L account at page 33 of the case file reveals purchase figures of ₹ 35,33,426/- resulting in net profits of ₹ 1,64,716.75/-. These figures are based on duly audited books. There is no issue before us on correctness thereof. We observe in totality of all these facts that the only option before this assessee was to file for the impugned rectification u/s. 154 of the act in view of the correct figures given in her P & L account and books which were retained as per the Board s circular hereinabove (supra).

Summary

Issues Involved:
1. Rejection of rectification application under Section 154 of the Income Tax Act, 1961.
2. Validity of demand raised without serving intimation under Section 143(1) of the Income Tax Act, 1961.

Issue-Wise Detailed Analysis:

1. Rejection of Rectification Application under Section 154 of the Income Tax Act, 1961:
The assessee filed a return on 09-09-2008 declaring an income of ?1,38,792 and claiming a refund of ?6,647. The return was not processed under Section 143(1), and no intimation was issued. Subsequently, a demand notice dated 16-07-2012 for ?14,37,190 was issued. The assessee filed a rectification application under Section 154 on 10-10-2013, citing a mistake in the return where the purchase figure was incorrectly entered as ?3,33,426 instead of ?35,33,426, along with other omitted expenses.

The Assessing Officer (AO) rejected the rectification application, stating that the only option available was to file a revised return, as the mistake did not constitute an arithmetic error or an incorrect claim apparent from the return. The CIT(A) upheld the AO's decision, noting that the issue did not fall under the purview of Section 154, which only allows rectification of mistakes apparent from the record. The CIT(A) emphasized that the mistake required verification and deliberation, which is beyond the scope of Section 154.

The Tribunal, however, observed that the assessee's case involved the first year of filing an electronic return and noted that the Central Board of Direct Taxes (CBDT) had issued a circular advising assessees to retain relevant documents for verification. The Tribunal found no specific rejection of the assessee’s claim of incorrect figures by the lower authorities. It referred to the correct figures in the assessee's Profit & Loss account and books, which were retained as per the CBDT circular. Citing a similar case (ITO vs. Smt. Mandira D. Bakharia), the Tribunal accepted the assessee’s rectification claim and directed the AO to allow the rectification petition and compute the appropriate taxable income.

2. Validity of Demand Raised Without Serving Intimation under Section 143(1):
The assessee contended that the demand raised was invalid as no intimation under Section 143(1) was served. The CIT(A) did not adjudicate this contention, stating that it did not arise from the grounds of appeal.

The Tribunal did not specifically address this issue in its final decision but focused on the rectification application under Section 154. The acceptance of the rectification claim implicitly addressed the issue of the demand's validity, as the rectification would lead to a recomputation of the taxable income and the corresponding demand.

Conclusion:
The Tribunal allowed the assessee's appeal, directing the AO to accept the rectification application under Section 154 and recompute the taxable income based on the correct figures provided in the Profit & Loss account and books. The assessee succeeded in her appeal, and the order was pronounced in open court on 16-08-2016.