2023 (9) TMI 1159 - AT - Income Tax

Rectification of mistake - adjustment made u/s 143(1)(a)(vi) to the returned income in respect of presumptive income declared u/s. 44AD - HELD THAT - As the position is that the assessee filed return declaring total income u/s. 44AD; the gross receipts for the application of section 44AD exceeded the amount as per Form No.26AS; and the AO issued intimation by invoking clause (vi) of section 143(1)(a). In such circumstances, the Intimation, making adjustment by invoking clause (vi) of section 143(1)(a), is evidently debarred as violating the prescription of Instruction No.10/2017, which is binding on the Departmental Officers. We, therefore, hold that the ld. CIT(A) was not justified in confirming the disallowance contrary to the mandate and ambit of section 143(1)(a)(vi) - The impugned order is overturned to this extent. Once it is held that the adjustment could not have been made in terms of section 143(1)(a)(vi) to the returned income in respect of presumptive income declared u/s. 44AD, naturally, there was no reason to rectify the already and correctly rectified Intimation for reaching a fresh conclusion that the adjustment made in the original Intimation u/s. 143(1) was correct and the rectification order was not passed correctly. We, therefore, set-aside the impugned order. Assessee appeal allowed.

Summary

Issues Involved:
The judgment involves issues related to the assessment year 2017-18, specifically concerning the application of sections 44AD and 44ADA, the adjustment made under section 143(1)(a)(vi) of the Income Tax Act, and the rectification orders passed by the Assessing Officer.

Details of the Judgment:

Issue 1: Adjustment under section 143(1)(a)(vi)
The assessee declared total income and gross receipts under section 44AD, which exceeded the stipulated minimum rate. The Intimation u/s. 143(1) made an adjustment based on inconsistency in amounts between the return and Form 26AS. The CIT(A) upheld the addition, but the Tribunal found the adjustment unwarranted. It noted that the provision under section 143(1)(a)(vi) applied only for the relevant assessment year and that the assessee's gross receipts were not omitted or understated. The Tribunal held that the adjustment was in violation of Instruction No.10/2017 and overturned the CIT(A)'s decision.

Issue 2: Rectification Orders
The assessee filed a rectification application against the initial Intimation u/s. 143(1), stating the incorrect application of section 44ADA. The AO rectified the order, but later issued another rectification holding the receipts as professional under section 44ADA. The CIT(A) dismissed the appeals against both rectification orders. The Tribunal, after overturning the adjustment under section 143(1)(a)(vi), set aside the rectification orders as they were based on the incorrect adjustment. Consequently, both appeals were allowed.

In conclusion, the Tribunal held that the adjustment made under section 143(1)(a)(vi) was unjustified, as the assessee's declaration under section 44AD did not warrant such an adjustment. The rectification orders were set aside in light of the incorrect adjustment. The judgment provides clarity on the application of provisions related to presumptive income schemes and the importance of adhering to relevant instructions and guidelines in income tax assessments.