2005 (2) TMI 429 - AT - Income Tax

Exemption in respect of interest on FDRs in NRE account u/s 10(4) - challenged the Order passed u/s 154 - fresh evidence in the form of bank certificate - Whether there is a mistake in the intimation or deemed intimation is to be seen in the light of powers conferred u/s 143(1) - HELD THAT - The certificate of the Bank, which indicated that money kept in the NRE account was as per guidelines of Reserve Bank of India, went to the very root of the issue. The CIT(A) has inherent powers to admit such evidence under Sub Rule 4 of Rule 46A of the Income-tax Rules. This would have helped the cause for justice. He should have appreciated that orders were passed u/s 154 and not u/s 143(3). Therefore, in my view, CIT(A) was not justified in declining to admit such evidence. It is no doubt true that powers have been conferred on the Assessing Officer to rectify intimation or deemed intimation u/s 143(1). But such power has to be seen in the light of powers conferred u/s 143(1). The returns were processed u/s 143(1) on 28-3-2000. Provisions of section 143 have been drastically amended by the Finance Act, 1999 w.e.f. 1-6-1999. Highlights of these amendments are that powers of the Assessing Officer to make adjustments u/s 143(1)(a) and consequent levy of additional tax u/s 143(1A) have been taken away. Since the action of the Assessing Officer for withdrawing exemption of interest u/s 10(4) of the Act falls outside the scope of powers conferred u/s 143(1), the Assessing Officer had no jurisdiction to pass orders u/s 154(1)(b). Even if the assessee had agreed before the Assessing Officer due to wrong appreciation of law, such agreement would have not made the illegal orders as legal because the Assessing Officer had no authority or jurisdiction to do so. Therefore, such orders are bad in law and void ab intio and deserve to be quashed on this ground itself. In the present case, returns were filed on 31-12-1998 and 15-12-2000. Therefore, the time limit for issue of notices u/s 143(2) expired before 31-12-2001. The present orders u/s 154 have been passed on 14-2-2002 i.e., after the expiry of time limit of issue of notices u/s 143(2). In any case, section 154 cannot be substituted for issue of notices u/s 143(2). Thus, I am of the considered opinion that CIT(A) was not justified in sustaining the orders of Assessing Officer passed u/s 154. Accordingly, I quash the orders of Assessing Officer passed u/s 154 and resultant orders of CIT(A) and allow the grounds of appeals of the assessee for all the assessment years. In the result, all the appeals filed by the assessee for the assessment years from 1997-98 to 2000-01 are allowed.

Issues Involved:

1. Jurisdiction of the Assessing Officer u/s 154.
2. Admission of additional evidence by CIT(A).
3. Residential status determination under FERA vs. Income-tax Act.
4. Scope of rectification powers under section 154.
5. Charging of interest u/s 234A, 234B, and 234C.

Summary:

1. Jurisdiction of the Assessing Officer u/s 154:

The primary issue raised was whether the CIT(A) was justified in sustaining the orders passed by the Assessing Officer u/s 154, which were claimed to be without jurisdiction. The assessee contended that the interest on FDRs in Non-resident External Account was exempt u/s 10(4). The Assessing Officer initially allowed this exemption but later issued show-cause notices u/s 154, proposing to add the interest on the ground that the status shown in the returns was 'Resident'. The assessee agreed to the addition under a wrong appreciation of law, leading to the orders passed u/s 154.

2. Admission of additional evidence by CIT(A):

The assessee argued that CIT(A) was not justified in not admitting the evidence and the bank certificate indicating that the interest on FDRs was exempt u/s 10(4). The CIT(A) upheld the Assessing Officer's orders, stating that the assessee had agreed to the addition and had not requested the admission of additional evidence during the appellate proceedings.

3. Residential status determination under FERA vs. Income-tax Act:

The assessee submitted that the authorities wrongly interpreted the provisions of section 10(4) by considering the residential status under the Income-tax Act instead of the Foreign Exchange Regulation Act (FERA). The interest on amounts in the NRE account should be exempt if the person is a resident outside India as defined in FERA or permitted by the Reserve Bank of India to maintain such an account.

4. Scope of rectification powers under section 154:

The learned counsel for the assessee argued that the Assessing Officer's powers u/s 154 are limited to rectifying mistakes that are glaring, patent, and obvious. The issue of exemption u/s 10(4) was debatable and required further investigation, falling outside the scope of section 154. The CIT(A)'s approach was criticized for being overly technical rather than focusing on justice.

5. Charging of interest u/s 234A, 234B, and 234C:

Since the orders passed u/s 154 were quashed, the issue of charging interest u/s 234A, 234B, and 234C became inconsequential and was disposed of accordingly.

Conclusion:

The tribunal found that the CIT(A) was not justified in sustaining the orders of the Assessing Officer passed u/s 154. The orders were quashed, and the appeals for all assessment years were allowed. The tribunal emphasized that the Assessing Officer's powers u/s 154 are limited and cannot be used to make adjustments or disallow claims that require further investigation.

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