2019 (11) TMI 322 - AT - Income Tax

Rectification of mistake u/s 154 - Addition on account of commission received - said amount of commission received was already offered to tax for the assessment year 2007-08 but inadvertently the assessee again offered the said amount to tax for the year under consideration while filing the return under section 139(1) - HELD THAT - Inadvertent mistake to offer the said income to tax was brought to the notice of the AO, the AO was under obligation to take the necessary steps under section 154 to correct the said mistake in the return of income filed under section 139(1) of the Act. Since it is not a claim of deduction made by the assessee in the return of income filed in response to notice under section 148, therefore, it would not amount to claim any benefit in the said return which was not claimed in the return of income filed under section 139(1) but it is only a rectification of a bonafide mistake and, therefore, the AO was required to assess only the correct income for the year under consideration and not to take the advantage of the mistake committed by the assessee. Hence income on account of commission received from the Insurance Company was already offered to tax for the assessment year 2007-08, the same cannot be taxed for the year under consideration. Accordingly to that extent the assessment order is required to be rectified under section 154 and the amount of commission shall be deleted from the total income of the assessee. Rejecting the claim of deduction u/s 54 - house was constructed within a short period - HELD THAT - Assessee s house construction could not be completed within a short span of two months and it took more than that time, once the construction could have been completed within three years from the date of sale of existing asset, the claim of the assessee is eligible. The AO has not conducted any enquiry to dispute the claim of existence of the residential house. Once the house was actually constructed after purchasing of the plot of land, then the construction is possible only after the said purchase vide sale deed dated 4th February, 2008. Hence once the assessee has brought on record the evidence to show that the house was in existence and the plot of land was purchased vide registered sale deed, then in the absence of contrary material to disprove the said fact, the claim of the assessee cannot be denied merely on suspicion and conjectures. The funds for construction of the house were also explained by the assessee through her bank account and, therefore, the said objection of the AO is also contrary to the facts emerging from record. Accordingly when there was sufficient time with the assessee to complete the construction then the claim of the assessee that the house was constructed within a short period cannot be a reason for denial of the claim under section 54 of the Act. Appeal of the assessee is allowed.

Summary

Issues involved:
1. Addition of commission received by the assessee.
2. Rejection of deduction under section 54 of the Income Tax Act.

Issue 1: Addition of commission received by the assessee
The assessee appealed against an addition of ?30,670 on account of commission received, which was already offered for taxation in the preceding assessment year. The AO added this amount to the total income, which the assessee contended was an inadvertent mistake. The tribunal noted that the reassessment proceedings are for the benefit of revenue, not the assessee. However, the tribunal held that the AO should have corrected the mistake under section 154 instead of taxing the same income twice. The tribunal directed the AO to delete the amount of ?30,670 from the total income.

Issue 2: Rejection of deduction under section 54 of the Income Tax Act
The AO denied the assessee's claim of deduction under section 54, citing doubts about the construction of a house within the stipulated time and the source of funds. The tribunal observed that the purchase of the residential plot was not disputed, and the denial of the claim was based on insufficient evidence. The tribunal noted that the assessee had withdrawn cash from her bank account, which explained the construction expenditure. Additionally, the tribunal found that the house construction within two months was not a reason to deny the claim, as the completion within three years from the sale date made the claim valid. The tribunal allowed the assessee's claim under section 54, quashing the orders of the authorities below.

In conclusion, the tribunal allowed the appeal of the assessee, directing the AO to rectify the assessment order by deleting the commission amount and allowing the deduction under section 54 of the Income Tax Act.