2024 (4) TMI 51 - AT - Income Tax

Rectification u/s 154 application rejected as being time barred - claim of deduction of his entire income u/s 80P was denied in entirety - clock for the four year limitation seeking rectification - HELD THAT - Department admitted that it has no details of service of intimation to the assessee u/s 143(1) of the Act for all the impugned assessment years before us. The clock for the four year limitation seeking rectification starts ticking the moment the assessee is in receipt of the order. Without his being aware of any such order passed there is no question of the time barring period ticking into motion for the simple reason that the assessee is in a position to act upon it and seek rectification only when he is aware of such order passed. In the present case Department has nothing to prove that the intimation was at any time was served on the assessee. Therefore there arises no question of calculating the period of limitation of four years from the date of passing of intimation u/s 143(1) of the Act i.e. from the year 2010 for holding the assesses application seeking rectification as barred by limitation. Also noted that the assessee had duly responded to the demand notices which were issued to it in consequence to the intimation made u/s 143(1) of the Act challenging it constantly and well within the period of four years of the intimation made on the assessee. It was only finally when the AO did not do the needful with respect to the demand raised that it ultimately moved an application in the year 2022 again seeking rectification in the intimation made u/s 143(1). Therefore for all purposes the assessee was all along from the beginning since it became aware of some intimation having been made u/s 143(1) seeking rectification in the same and therefore the rejection of its application as being time barred is not in conformity with law. The order of the ld. CIT(A) holding so therefore is set aside. We hold that the assessee s application seeking rectification of the intimation was well within the stipulated time and therefore needed to be entertained. On merits assessee has demonstrated before us that its claim of deduction u/s 80P(2) was denied for the reason that the assessee had claimed the same on interest income earned from nationalized banks which was not allowable in terms of Section 80P(2)(d) of the Act. On facts of the case assessee has demonstrated before us that its entire profits did not comprise only of interest earned from nationalized banks and it included even profits earned from its activity of providing credit facilities to members. That on facts therefore the intimation made u/s 143(1) of the Act contained mistake apparent from record which needed rectification. AO had given the assessee no opportunity of hearing at all and even the ld. CIT(A) had failed to consider this fact which was evident from the record. Even otherwise he has contended that even on law he was entitled to claim deduction u/s 80P(2)(a)(i) of the Act on the interest earned on deposits made in banks since these deposits were made in the course of carrying out the normal activity of the assessee co-operative society of providing credit facility to its members and the interest incomes earned therefore constitute income earned from the said activity entitled to deduction u/s 80P(2). Thus as noted authorities have failed to adjudicate the issue in the light of the correct facts of the case and the judicial propositions cited by assessee before us we consider it fit to restore the issue back to the AO to consider the application of the assessee filed u/s 154 afresh and decide the same giving due opportunity of hearing to the assessee considering all the facts relating to the issue as also the law on the same. Appeals of the assessee are allowed for statistical purposes.

Issues Involved:
1. Rejection of rectification application u/s 154 of the Act.
2. Denial of deduction u/s 80P(2) of the Act.
3. Treatment of interest income as income from other sources.
4. Procedural aspects regarding service of intimation u/s 143(1).
5. Calculation of period of limitation for rectification application.

Summary:

1. Rejection of Rectification Application u/s 154:
The assessee, a Co-operative Society, filed appeals against the CIT(A)'s orders rejecting its rectification application u/s 154 of the Act. The rectification application was filed to correct the denial of deduction u/s 80P(2) in the intimation u/s 143(1). The CIT(A) upheld the Assessing Officer's decision that the application was time-barred.

2. Denial of Deduction u/s 80P(2):
For AYs 2010-11 to 2013-14, the assessee claimed deduction u/s 80P(2) and filed Nil returns. However, the Assessing Officer denied the deduction, treating the income as from other sources. The CIT(A) also confirmed the denial of deduction on merits.

3. Treatment of Interest Income:
The CIT(A) and Assessing Officer treated the interest income earned from FDs in nationalized banks as income from other sources, not eligible for deduction u/s 80P(2)(d). The assessee contended that the interest income was from credit facilities to members, thus eligible for deduction u/s 80P(2)(a)(i).

4. Procedural Aspects Regarding Service of Intimation u/s 143(1):
The assessee argued that the intimation u/s 143(1) was never served, and it only became aware through demand notices. The Department admitted it had no records of the service of intimation. The Tribunal held that without proof of service, the period of limitation for rectification did not start.

5. Calculation of Period of Limitation for Rectification Application:
The Tribunal agreed with the assessee that the rectification application was not time-barred since the intimation was never served. The Tribunal noted that the assessee had continuously sought rectification within the prescribed period and rejected the CIT(A)'s finding of time-barred application.

Conclusion:
The Tribunal set aside the CIT(A)'s order, holding that the assessee's rectification application was within the stipulated time and should be entertained. The issue was restored to the Assessing Officer for fresh consideration, giving due opportunity to the assessee. All appeals were allowed for statistical purposes.

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