Tribunal grants appeal for rectification of tax return, exempts income under IT Act

The Tribunal allowed the appeal of the assessee in a case concerning the rectification of an intimation under section 143(1) of the Income Tax Act. The Tribunal found that the inclusion of tax-exempt income in the total income returned by the assessee could be rectified under section 154 of the Act. Clear mistakes were identified in the return, and the rectification sought by the assessee to exclude exempt income was deemed valid. The Tribunal directed the Assessing Officer to rectify the computation by excluding the exempt income and granting necessary relief to the assessee.

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Issues:
Rectification of intimation under section 143(1) of the Income Tax Act for including tax-exempt income in the total income returned by the assessee.

Analysis:
The appeal was filed against the order passed by the Commissioner of Income-Tax (Appeals) regarding the rectification application filed by the assessee. The issue arose when the intimation made under section 143(1) of the Act raised a tax demand, denying relief under section 89(1) of the Act. The assessee had disclosed income from salary, claimed relief under section 89(1), and subsequently filed a rectification application seeking to exclude exempt income inadvertently included in the return. The AO rejected the rectification request, stating that a revised return needed to be filed within the allowed time. The ld.CIT(A) upheld this decision.

The main issue was whether the inclusion of tax-exempt income in the total income returned by the assessee could be rectified under section 154 of the Act. The AO accepted that the exempt income had been included in the return. The error was deemed apparent from the record, as the income declared far exceeded the salary reflected in Form No.16, and there was no basis for claiming relief under section 89(1) of the Act. The assessee's explanation of the inadvertent inclusion of exempt income and relief claimed constituted rectification of apparent mistakes.

The Tribunal found that there were clear mistakes in the return filed by the assessee, evident from the record and admitted by the AO. The rectification sought by the assessee to exclude exempt income from the income computation was deemed valid. Referring to a CBDT circular, the Tribunal highlighted the duty of Revenue officers to compute correct income and advise the assessee accordingly. The Tribunal directed the AO to rectify the computation by excluding the exempt income and granting necessary relief to the assessee. Consequently, the appeal of the assessee was allowed.

The judgment was pronounced in the Court on 28th February 2023 at Ahmedabad.

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