2021 (12) TMI 639 - AT - Income Tax

Denial of exemption u/s 10(25)(ii) - filling of return in the abbreviated name - Addition of interest income solely on the ground of not filing return in the complete name of the assessee i.e. Indo Euro Chemical Services Limited Employees Provident Fund covered under FPS rather filed the return in the abbreviated name as IECS Ltd. Employees P.F. Covered under FPS - HELD THAT - Adjustment made by the Revenue Department by denying the exemption claimed by the assessee u/s 10(25)(ii) of the Act cannot be and shall not be subject matter of section 143(1) of the Act. This can only be done u/s 143(3) of the Act. Because u/s 143(1) returned filed by the assessee should be accepted. So, we are of the considered view that when undisputedly assessee has been accorded registration under Rule 3(1) Part A of the Fourth Schedule of the Act vide order dated 03.03.1979 (supra), there is no scope for the Revenue to deny the exemption claimed u/s 10(25)(ii) of the Act on hyper technical grounds. As decided in EASTER INDUSTRIES LTD VERSUS UNION OF INDIA 2012 (5) TMI 397 - DELHI HIGH COURT proof in support of the claim is not furnished by the assessee, then, for the lack of proof, no disallowance or an adjustment can be made. The only option which is open to the Income-tax Officer in such a case is that he can require the assessee to furnish proof in which case he will presumably have to issue notice u/s 143(2) In the instant case, it is also undisputed fact that no notice u/s 143(2) of the Act was ever issued to the assessee rather arbitrarily declined to accept the exempt income of ₹ 60,88,057/- which was claimed as exempt u/s 10(25)(ii) of the Act by the assessee and the same has been adjusted against the income of the assessee and assessment has been framed at ₹ 60,88,057/- as against nil income claimed by the assessee in its return. We are of the considered view that ld. CIT (A) has erred in dismissing the rectification application filed by the assessee u/s 154 of the Act by denying a relief otherwise available to the assessee u/s 10(25)(ii) - we direct the AO to allow relief to the assessee by allowing exemption u/s 10(25)(ii) of the Act after due verification qua the abbreviated name mentioned by the assessee in its return in the light of the order for according exemption to the assessee. - Decided in favour of assessee.

Summary

Issues:
1. Validity of order passed u/s 154 by the assessing officer.
2. Addition of income by treating exempt income as taxable.
3. Recognition of approved provident fund and exemption under section 10(25).
4. Correct appraisal of facts for treating exempt income as taxable.
5. Denial of sufficient opportunity to the assessee.

Analysis:
1. The appellant, a recognized provident fund under the Employees Provident Fund Act, challenged the order passed by the Commissioner of Income-tax (Appeals) for the assessment year 2014-15. The appellant contended that the order passed under section 154 by the assessing officer was incorrect and legally flawed.

2. The assessing officer made an addition of ?60,88,057 as income by treating the exempt income under section 10(25) earned by the approved provident fund as taxable. The appellant argued that this addition was erroneous and the Commissioner of Income-tax (Appeals) upheld this addition incorrectly.

3. The assessing officer also erred in making the addition of ?60,88,057 as income by disregarding the exemption claimed under section 10(25) and ignoring the certificate issued by the Commissioner of Income Tax for recognition as an Approved Provident Fund. The appellant contested this treatment of exempt income as taxable.

4. The Commissioner of Income-tax (Appeals) upheld the addition of ?60,88,057 as income by treating the exempt income earned from the approved provident fund as taxable, based on a factually incorrect appraisal of facts. The appellant argued that this decision was erroneous.

5. The Commissioner of Income-tax (Appeals) confirmed the addition of ?60,88,057 as income by treating the exempt income earned from the approved provident fund as taxable without providing sufficient opportunity to the assessee to be heard, rendering the order legally incorrect. The appellant claimed that the denial of a fair opportunity was a violation of the law.

In the detailed analysis, it was established that the appellant, a recognized provident fund, was entitled to the exemption under section 10(25)(ii) of the Act. The denial of this exemption based on technical grounds was deemed unjustified. The Tribunal referred to a similar judgment by the Delhi High Court to support the appellant's claim. It was concluded that the assessing officer erred in denying the exemption without issuing a notice under section 143(2) of the Act. The Tribunal directed the assessing officer to allow the exemption under section 10(25)(ii) after verifying the details provided by the appellant. Consequently, the appeal filed by the appellant was allowed.