2023 (3) TMI 1193 - AT - Income Tax

Erroneous order of CIT(A) - Processing of return of income by the CPC u/s 143(1) - Addition of income being interest on PPF and interest on REC tax free bonds - Scope of double taxation as assessee has specifically claimed these two items being interest on PPF account and interest on REC bonds as exempt income u/s 10 - HELD THAT - CIT(A) without considering the main grievance of the assessee regarding double taxation of the income already declared by the assessee in the return of income as well as taxation of the exempt income has confirmed the adjustment / additions made by the CPC by ignoring the bare facts available on record in the return of income, submissions of the assessee as well as the facts reported in the tax audit report. It is not the case that the assessee has claimed the rental income and interest income on saving bank and FD as well as dividend income are not liable to be taxed but the assessee has pleaded before the CIT(A) that these incomes are already declared by the assessee and due tax was paid while filing the return of income. This fact has been completely ignored by the CIT(A) while passing the impugned order. The two item of income being interest on PPF and interest on REC bonds which are exempt incomes under section 10 of the Income Tax Act are also overlooked by the CIT(A) while passing the impugned order. It appears that the CIT(A) has simply confirmed the adjustments made by the CPC by referring to the guidance note on the tax audit under section 44AB and ignoring relevant and crucial fact that the rental income as well as income from other source has already been declared by the assessee in the return of income and adjustment to that extent has resulted double taxation of the income already declared by the assessee and further the exempt income has been taxed by the CPC which is absolutely against the provisions of the Income Tax Act. Hence, we find that the impugned order has been passed by the CIT(A) mechanically without application of mind which has forced the assessee to file this second appeal and suffered financial loss on account of appeal fee of Rs. 10,000/- and the litigation expenditure including the counsel fees etc., as well as mental agony and suffering therefore, this Bench takes a serious view of the matter regarding the callous approach of the CIT(A) while passing the impugned order. Accordingly, the additions / adjustments made by the CPC are deleted. Appeal of the assessee is allowed.

Summary

Issues Involved:
1. Double taxation of income already declared.
2. Taxation of exempt income.
3. Mechanical adjustment by CPC without considering facts.

Summary:

1. Double Taxation of Income Already Declared:
The assessee argued that the authorities erroneously made additions aggregating to Rs. 15,21,060/- without considering that this income had already been offered to taxation in the original return filed under section 139(1) of the Income Tax Act, 1961. The CPC, Bengaluru, while processing the return under section 143(1)(a), made adjustments which resulted in double taxation of income already declared under the heads "income from house property"� and "income from other sources."� The Tribunal found that the income from house property and other sources had indeed been declared by the assessee in the return of income, thus confirming the occurrence of double taxation.

2. Taxation of Exempt Income:
The assessee also contended that the CPC taxed exempt incomes, specifically interest on PPF and interest on REC Bonds, which were duly reported as exempt under section 10 of the Income Tax Act. The Tribunal noted that the interest on PPF and REC Bonds were exempt under section 10(15)(iv)(h) and should not have been included in the taxable income. The Tribunal highlighted that the CPC's adjustment, which included these exempt incomes, was highly unjustified and against the provisions of the Income Tax Act.

3. Mechanical Adjustment by CPC Without Considering Facts:
The Tribunal criticized the CPC for making adjustments mechanically based on the tax audit report without considering the actual facts and details provided in the return of income. The tax auditor had reported the income under Clause 16(d) of Form 3CB, which the CPC treated as additional income, leading to incorrect adjustments. The Tribunal emphasized that the CIT(A) also failed to consider the main grievances of the assessee regarding double taxation and taxation of exempt income, thereby passing the order mechanically without application of mind.

Conclusion:
The Tribunal concluded that the adjustments made by the CPC were erroneous, resulting in double taxation and taxation of exempt income. The Tribunal deleted the additions/adjustments made by the CPC and directed a copy of the order to be sent to the Chairman of C.B.D.T. for taking appropriate measures to avoid such hardships for honest taxpayers. The appeal of the assessee was allowed.