2023 (3) TMI 607 - AT - Income Tax

Appeal allowed for accumulation benefit under Section 11(2) - ITAT emphasizes rectification under Section 154 for justice.

The ITAT allowed the appeal, directing authorities to grant the benefit of accumulation u/s 11(2) amounting to Rs. 34,73,760 to the assessee for the ... Deduction u/s 11(1) - benefit of accumulation u/s 11 - HELD THAT:- The right person in right manner and shall not disallow the eligible deductions on mere technicalities. The Revenue Authorities ought to have followed the ratio laid down by the Hon’ble Delhi High Court in the case of Pawan Kumar Agarwal [2014 (5) TMI 449 - DELHI HIGH COURT] and should have been allowed the benefit of accumulation u/s 11 Sub Section 2 of the Act to the assessee. We allow the assessee’s Grounds of appeal and direct the authorities to allow the benefit of accumulation u/s 11 sub Clause 2 of the Act to the assessee. Appeal of the assessee is allowed. 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessee/charitable trust is entitled to claim the benefit of accumulation under section 11(2) where funds were set apart and Form No. 10 was filed but the return/audit report inadvertently recorded the deduction under section 11(1) instead of section 11(2). 2. Whether an application for rectification under section 154 can be invoked to correct the aforesaid mistake apparent from record (a 'punching'/clerical error) after processing by CPC and issuance of intimation under section 143(1), so as to allow the section 11(2) accumulation claim. 3. Whether a subsequently furnished revised audit report in Form No. 10B or a revised return filed after processing can be taken into account to cure the original misdescription for the purpose of allowing the section 11(2) claim. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Entitlement to accumulation under section 11(2) despite misdescription under section 11(1) Legal framework: Section 11(2) permits deduction for amounts set apart or accumulated for specified charitable purposes, subject to conditions and the filing of required forms (Form No. 10 and audit report in Form No. 10B). Section 11(1) deals with amounts applied to charitable purposes during the previous year. Compliance with statutory forms and the substantive eligibility to claim deduction are material. Precedent treatment: The Revenue did not dispute substantive eligibility for section 11(2) relief. The Tribunal referenced higher-court authority (a relevant High Court decision) that treats technical mistakes in the recording of claims as corrigible when the assessee is substantively entitled. Interpretation and reasoning: The Tribunal examined the record and found no dispute on the substantive entitlement to accumulate Rs.34,73,760. The error was one of expression/punching - claiming under the wrong sub-section (11(1) instead of 11(2)) - rather than a dispute over the factual or legal eligibility. Denial of the accumulation solely on this technical misdescription offends the principle that taxation must reach the right persons in the right manner and that mere formalistic objection should not defeat substantive rights. Ratio vs. Obiter: Ratio - where a trust is substantively eligible under section 11(2), a mere misdescription in the return/audit report does not extinguish the entitlement; authorities must give effect to substantive claims when record supports them. Obiter - observations on broader policy against technicalities reiterate existing jurisprudential trends but are ancillary to the decision. Conclusion: The Tribunal concluded that the assessee was entitled to the accumulation deduction under section 11(2) in amount of Rs.34,73,760 and directed allowance of the same, because the mistake was clerical and did not negate substantive eligibility. Issue 2 - Availability and scope of rectification under section 154 to correct the mistake apparent from record Legal framework: Section 154 empowers an income-tax authority to amend any order or intimation to rectify any 'mistake apparent from the record,' and permits amendment of an intimation issued under section 143(1). The provision contemplates correction of mistakes arising from the record and, in light of subsection (1A) and subordinate provisions, can operate even after appellate consideration in certain respects. Precedent treatment: The Tribunal relied upon binding guidance from the High Court (as cited) which interprets 'mistake apparent from record' broadly to include mistakes committed by the parties (not only by authorities) and recognizes that rectification under section 154 can extend to amend intimation orders under section 143(1) even after appellate proceedings in appropriate circumstances. The Tribunal stated that technicalities should not obscure justice and that the controlling phrase is 'any mistake,' a wide connotation. Interpretation and reasoning: The authorities (CPC and the Commissioner of Income Tax (Appeals)) rejected the section 154 application on the ground that there was 'no prima facie error' in the intimation and that the Form 10B/audit report on record did not indicate accumulation under section 11(2) at the time of issuance. The Tribunal, adopting the High Court's approach, held that section 154 is available to rectify a clear clerical/punching error where the material shows entitlement, and that the Revenue could not refuse rectification purely on formality when the substantive right exists. The Tribunal emphasized that rectification power extends to correcting mistakes in intimation issued under section 143(1) and that justice requires remedying party-made mistakes where the record supports correction. Ratio vs. Obiter: Ratio - section 154 may be validly invoked to correct a mistake apparent from the record consisting of inadvertent misclassification of a deduction subsection, when the assessee is substantively entitled; denial of rectification on pure technicality is impermissible. Obiter - broader policy remarks about non-technical adjudication and taxing the right person in the right manner supplement but do not expand the statutory text beyond precedent. Conclusion: The Tribunal held that rectification under section 154 should have been allowed to correct the punching/clerical error and that the rejection by CPC and confirmation by the CIT(A) was erroneous; rectification is appropriate to give effect to the section 11(2) accumulation claim. Issue 3 - Effect of subsequently filed revised Form 10B / revised return and admissibility after intimation Legal framework: Returns, audit reports and statutory forms constitute the documentary basis for claims under section 11. Amendments to returns or supplementary documents filed after processing may be admissible in some contexts, but generally cannot be used to alter a concluded assessment/intimation except under statutory correction mechanisms (e.g., section 154) or where law permits revision. Precedent treatment: The authorities noted that a revised Form 10B was subsequently furnished but declined to take it into account in rectification proceedings, treating the later document as ineffective to cure the original defect for the purpose of section 154. The Tribunal accepted that while the revised Form 10B filed subsequently cannot, by itself, retrospectively alter the original intimation, the rectification power under section 154 could correct the original misdescription if the mistake is apparent from record and the substantive entitlement is established. Interpretation and reasoning: The Tribunal distinguished between relying solely on a belated revised form and using section 154 to correct an apparent mistake in the original record. It observed that the filing of a revised audit report does not supplant the need for rectification of the original intimation, but rectification can be ordered where the mistake is apparent and the claim is substantively valid. Thus, the revised Form 10B is not the operative basis for relief; section 154 rectification is. Ratio vs. Obiter: Ratio - a belated revised Form 10B/return does not automatically cure the original misdescription; however, rectification under section 154 can be the correct remedy to give effect to the entitlement if the mistake is apparent from the record. Obiter - procedural admonitions about timing and formality remain advisory. Conclusion: The Tribunal held that while the revised Form 10B could not be simply taken as retroactive cure, the rectification power under section 154 should have been exercised to correct the obvious clerical mistake and thereby permit the allowance of accumulation under section 11(2). Overall Disposition The Tribunal allowed the appeal, directed that the amount accumulated under section 11(2) (Rs.34,73,760) be allowed, and ordered the authorities to give effect to the deduction by rectifying the intimation/order under section 154, applying the cited High Court precedent on the liberal scope of 'mistake apparent from the record.' The holding is that substantive eligibility cannot be defeated by mere technical/clerical misdescription in statutory forms and that section 154 affords a proper corrective remedy in such circumstances.