2024 (6) TMI 1229 - AT - Income Tax

Rectification of mistake u/s 154 for denial of exemption u/s 11 - rectification application as filed beyond the time limit - AO found that the income was wrongly shown under business income instead of income from other sources thus denying exemption - prima facie mistake committed by the assessee society wherein incorrect input were given in the return filed and it is for this reason that the CPC while processing the return did not give the deduction claimed u/s 11 of the I.T Act - revised return of income has been submitted rectifying the mistake initially committed while disclosing the income whereby the income has now been disclosed under the head income from other sources . HELD THAT - The fact of the matter is that it was not a rectification application simpliciter u/s 154 but actually a return of income revising the head of income disclosing the income under the correct head of income in the hands of the assessee society and rest all particulars remaining the same. The said return of income was in substance a return filed under section 139(5) though wrongly mentioned as filed u/s 139(4) for the simple reason that in the present case, the assessee has already filed the original return of income and question of filing the belated return of income u/s 139(4) doesn t arise. The said revised return of income has been filed within the stipulated time frame as so prescribed u/s 139(5) of the Act and given that no intimation u/s 143(1) has been issued by the CPC Bangalore within stipulated period of one year from end of the financial year in which return was so filed, it shall be deemed that such return of income has been accepted by the Revenue and no adjustment is warranted. Thus, both the lower authorities have failed to take into consideration revised return of income so filed and were swayed by the fact that it was a rectification application u/s 154 of the Act. Even for the sake of argument, it is considered as a rectification application, the fact of the matter is that a mistake has occurred while filing the original return of income and within 15 days of receiving the intimation u/s 143(1), the assessee has moved the rectification application u/s 154(2) and in terms of section 154(8), it was incumbent on part of the CPC to pass an order within six months of receipt of the rectification application and given that the same has not been passed, it will be taken as deemed acceptance on part of the CPC Bangalore that they have accepted the rectification application so filed. As far as the second rectification application is concerned, we are unable to appreciate the reasoning adopted by the AO while rejecting the application. The AO has stated that the CPC has rightly processed the return of income failing to appreciate that the assessee has filed a revised return of income which has not been processed by the CPC and secondly, what details have not been given by the assessee has not been specified by the AO while rejecting the application. Thus all necessary particulars have been disclosed in the revised return of income in terms of receipts and utilization, and there is no justification in denying the claim of exemption u/s 11 to the assessee society and the same is hereby directed to be given as so claimed in the return of income. Appeal of the assessee is allowed.

Summary

Issues:
Appeal against rejection of rectification application u/s 154 for denial of exemption u/s 11 and time limit for filing rectification application.

Analysis:
1. The assessee filed a rectification request after CPC denied exemption u/s 11 in the intimation under section 143(1). The AO rejected the rectification application stating that CPC processed the return correctly. The AO found that the income was wrongly shown under "business income" instead of "income from other sources," leading to the denial of the exemption. The AO held that the rectification application lacked merit.

2. The Ld. CIT(A) upheld the AO's decision, stating that the appellant society could have filed a revised return instead of a rectification application. The Ld. CIT(A) dismissed the grounds taken by the appellant, emphasizing that the rectification application was filed beyond the statutory time limit of four years from the end of the financial year. The Ld. CIT(A) found the rectification application untimely and dismissed the appeal.

3. The assessee contended that the rectification application was filed within 15 days of receiving the intimation from CPC. The assessee filed a revised return under section 139(5) rectifying the income disclosure error. The tribunal noted that the rectification application was, in essence, a revised return under section 139(5) and was timely filed. The tribunal held that the lower authorities failed to consider the revised return filed by the assessee and wrongly treated it as a rectification application u/s 154.

4. The tribunal determined that the revised return disclosed all necessary particulars regarding receipts and utilization, justifying the exemption u/s 11. The tribunal directed the exemption to be granted as claimed in the return of income. The tribunal allowed the appeal, emphasizing that the rectification application was, in substance, a revised return filed within the prescribed time frame.

In conclusion, the tribunal allowed the appeal, overturning the decisions of the lower authorities and directing the grant of exemption u/s 11 as claimed in the revised return of income.