2023 (12) TMI 341 - AT - Income Tax

Rectification u/s 154 - applicability of section 115BBDA - Assessee earned dividend income from mutual funds which were exempt from taxation u/s 10(35) - as argued assessee having not earned dividend exempt u/s 10(34) of the Act, therefore the invocation of section 115BBDA to the dividend income earned by the assessee was a mistake needing rectification - HELD THAT - Section 115BBDA of the Act levies special rate of tax only on dividend income earned from domestic companies if exceeding Rs. 10 lakhs. This dividend income is exempt upto Rs. 10 lakhs under section 10(34) - The assessee has claimed to have earned dividend income from mutual fund which are exempt u/s 10(35) of the Act. Evidence to this effect was also filed by way of statement of Mutual Fund. The assessee had clearly demonstrated the inapplicability of section 115BBDA of the Act to the facts of her case. In the light of the same the Ld.CIT(A) s order upholding the rejection of her application seeking rectification to this effect is clearly untenable more particularly since we find that the Ld.CIT(A) has not even cared to deal with the contention of the assessee before upholding the order of CPC . Thus we hold, the rectification application filed by the assessee needs to be allowed. In view of the above the order of the CPC/AO, rejecting the assessee s rectification application seeking deletion of addition made to her income of dividend income earned from mutual fund and subjected to tax at 10%, is set aside. The CPC/ AO is directed to allow the rectification application of the assessee and delete the adjustment made to her income, taxed at the rate of 10%. Appeal of the assessee are allowed.

Summary

Issues Involved:
The appeal filed by the assessee against the order passed by the Commissioner of Income Tax(Appeals) upholding the rejection by the Centralized Processing Centre (CPC) of the rectification application made under section 154 of the Act for the Assessment Year 2018-19.

Rectification Application Dispute:
The assessee challenged the addition of Rs. 50,65,550 treated as dividend income under section 10(34) of the IT Act, contending that the income was from mutual funds exempt under section 10(35) of the Act. The initial intimation under section 143(1) accepted the income as exempt, but a subsequent rectification order incorrectly added the amount to the income. The Tribunal found a clear mistake in the CPC's order, as the rectification did not correct the income returned by the assessee, leading to a computational error.

Violation of Natural Justice:
The CPC's order, without providing an opportunity of hearing to the assessee, and the absence of a notice prior to the computation of income under section 154 of the Act were deemed as a gross violation of natural justice principles. The Tribunal held that the order was unsustainable in law due to these procedural irregularities.

Rectification Application for Exempt Income:
The assessee sought rectification of the order, highlighting that the dividend income from mutual funds was exempt under section 10(35) and not subject to tax at a special rate under section 115BBDA. The Tribunal agreed with the assessee's contention, emphasizing that the provisions of the Act exempted such income from taxation, and the rejection of the rectification application was unjustified.

Legal Findings and Decision:
The Tribunal allowed the assessee's rectification application, directing the deletion of the addition made to her income from dividend income earned from mutual funds. The order rejecting the rectification application was set aside, and the CPC/AO was instructed to delete the adjustment made to the income taxed at the special rate. Consequently, the grounds of appeal of the assessee were upheld, and the appeal was allowed on 6th December, 2023, at Ahmedabad.

This summary provides a detailed overview of the legal judgment, outlining the issues involved, the disputes regarding the rectification application, the violation of natural justice, the application for exempt income, and the final legal findings and decision of the Tribunal.