2008 (1) TMI 438 - AT - Income Tax

Summary

Issues Involved:
1. Withdrawal of interest allowed under Section 244A of the Income Tax Act, 1961.
2. Validity of return of income not accompanied by a power of attorney.
3. Applicability of Section 154 for rectification of mistakes apparent from the record.

Issue-wise Detailed Analysis:

1. Withdrawal of Interest Allowed under Section 244A:
The primary issue in this case revolved around the withdrawal of interest under Section 244A of the Income Tax Act, 1961. The Assessing Officer (AO) initially allowed interest on the refund due to the assessee while processing the return of income under Section 143(1). However, the AO later noticed that the assessee had not enclosed a copy of the power of attorney in favor of Mr. Jesus M. Barasaoin, who signed and verified the return as required under Section 140(c) of the Act. Consequently, the AO issued a notice under Section 154 expressing his intention to withdraw the interest granted from the date of filing the return to the date of filing the power of attorney. The AO withdrew the interest for the period from November 2002 to February 2003, attributing the delay to the assessee.

2. Validity of Return of Income Not Accompanied by a Power of Attorney:
The CIT(A) upheld the AO's decision, treating the return as invalid and defective due to the non-filing of the power of attorney. The CIT(A) reasoned that the delay from November 2002 to February 2003 was attributable to the assessee, justifying the withdrawal of interest under Section 244A. The CIT(A) concluded that the return was defective until the power of attorney was filed on February 17, 2003.

3. Applicability of Section 154 for Rectification of Mistakes Apparent from the Record:
The assessee argued that the non-filing of the power of attorney was a procedural irregularity and not a fatal defect. They contended that the return was processed under Section 143(1), and interest on the refund was granted under Section 244A. The assessee submitted that the defect was rectified once the power of attorney was filed, and the denial of interest would amount to a penalty. They relied on various judicial decisions and a CBDT circular explaining the provisions of Section 244A. The assessee also argued that the issue was debatable and not subject to rectification under Section 154.

Tribunal's Findings:
The Tribunal examined the legislative intent behind Section 140(c) and the judicial precedents on the matter. It noted that the non-filing of the power of attorney was a curable procedural irregularity and not an illegality. The Tribunal emphasized that a return not signed by the authorized person could not be treated as non est (non-existent) and that the defect could be rectified. It referred to various judicial pronouncements, including the Hon'ble Supreme Court's decision in Commr. of Agrl. IT vs. Keshab Chandra Mandal, which held that a return not properly signed or verified was a curable defect.

The Tribunal further observed that Section 292B of the Income Tax Act, 1961, intended to ensure that an inconsequential technicality did not defeat justice. It held that the non-filing of the power of attorney was not a defect within the meaning of Section 139(9) and, therefore, the return could not be treated as defective under that section. The Tribunal concluded that the AO's action of treating the return as non est and withdrawing the interest under Section 244A was not justified.

Conclusion:
The Tribunal allowed the assessee's appeal, holding that the authorities below erred in applying Section 154 to treat the return as non est during the period of irregularity. The Tribunal decided that the assessee was eligible for interest under Section 244A for the period in question, setting aside the orders of the AO and CIT(A).