2022 (1) TMI 1047 - AT - Income Tax

Rectification order passed u/s.154 - Period of limitation - HELD THAT - When an order is rectified by an order of rectification u/s.154 of the Act, the time limit is to be reckoned as per the provisions of Section 154(7) of the Act. The provisions of section 154(7) of the Act makes it clear that except orders u/s.155 or 186(4) of the Act, no rectification order can be passed after the expiry of 4 years from the date of order sought to be rectified. Thus, the date of original order is the commencing point of limitation even if that order is in between these 4 years being subjected to a rectification on a later date, the commencing point of limitation remains the same date of the original order and not the later date of its subsequent rectification or subsequent application. In the present case before us there is no controversy about first order or second order but order under rectification is only the order passed by CPC, Bengaluru u/s.143(1) i.e., intimation or processing of return of income vide letter dated 05.03.2012. The rectification order by the AO u/s.154 of the Act was passed only on 20.06.2016. It means, that the rectification order u/s.154 of the Act in the present case can be passed upto 31.03.2016 and not beyond that. In the given facts and circumstances and above legal position discussed, we are of the view that the rectification order passed u/s.154 of the Act is clearly barred by limitation and hence, on this sole ground, the order is quashed. Credit of TDS - We are convinced that in term of the above CBDT Circular No.73(F.No.245/13/71-A PAC) dated 07.01.1972, the AO has to allow the credit of TDS as per law after verifying the TDS certificates. AO is ordered accordingly.

Summary

Issues Involved:
1. Whether the Assessing Officer (AO) can change the head of income in rectification proceedings under section 154 of the Income Tax Act?
2. Can the AO make rectification under section 154 without issuing a show cause notice and providing a reasonable opportunity of being heard?
3. Can the AO treat income disclosed under "Long Term Capital Gain" as "Income from Other Sources" in rectification proceedings?
4. Is the rectification order barred by limitation as per the provisions of Section 154(7) of the Act?

Analysis:

Issue 1: Head of Income Change in Rectification Proceedings
The first issue raised was whether the AO can change the head of income from "Long Term Capital Gain" to "Income from Other Sources" in rectification proceedings under section 154. The Tribunal examined the facts and legal provisions, ultimately deciding in favor of the assessee that such a change was not permissible.

Issue 2: Show Cause Notice and Opportunity of Being Heard
The second issue pertained to whether the AO can make rectifications under section 154 without issuing a show cause notice and providing a reasonable opportunity of being heard. The Tribunal emphasized the importance of adhering to procedural requirements and found in favor of the assessee, stressing the necessity of due process.

Issue 3: Treatment of Income in Rectification Proceedings
The third issue involved the treatment of income disclosed under "Long Term Capital Gain" as "Income from Other Sources" in rectification proceedings. The Tribunal examined the contentious nature of this issue and concluded that the AO's treatment was debatable, ultimately ruling in favor of the assessee.

Issue 4: Barred by Limitation
The crucial issue was whether the rectification order was barred by limitation as per Section 154(7) of the Act. The Tribunal extensively analyzed the timeline of events, relevant legal provisions, and precedents. It held that the rectification order passed by the AO was indeed barred by limitation, thereby quashing the order on this ground alone.

Additional Grounds and Alternative Claims
The Tribunal also considered additional grounds raised by the assessee regarding limitation and the credit of TDS. It admitted the jurisdictional issue of limitation based on legal precedents and ordered the AO to allow the credit of TDS in accordance with the law and relevant circulars.

Conclusion
In conclusion, the Tribunal allowed both appeals of the assessees based on the issues discussed, primarily ruling in favor of the assessee on the grounds of limitation and procedural fairness. The orders were pronounced in Chennai on 24th January 2022.