2023 (11) TMI 329 - AT - Income Tax

Foreign company wins rectification case as income reduced to Rs. 2.71 crore after revised TDS filings under section 154

ITAT Delhi ruled in favor of a foreign company regarding rectification under section 154 for incorrect income determination. The CPC failed to consider ... Determination of correct income - Scope of rectification u/s 154 - AO not reducing the income of the assessee in consonance with reduction of TDS credit thereon as per revised Form No. 26AS - Form 26AS had undergone change because of filing of revised TDS for the second time - income of the assessee is only FTS assessed on gross basis and assessee being a foreign company had not maintained books of account in India - request of the assessee was rejected by the CIT(A) on the ground that as per section 143(1) prima facie adjustment could be carried out by the CPC only for addition to income on the basis of Form 26AS and there is no scope for the revenue to reduce the income offered by the assessee. HELD THAT:- In this first revised 26AS, the income of the assessee reflected thereon is only Rs. 2,71,80,917/- but this income figure has not been considered by the ld CPC. Again, Form 26AS had undergone change because of filing of revised TDS for the second time by the aforesaid two deductors having great impact on the income and TDS of the assessee. Hence, the assessee had rightly brought out this fact before the ld CIT(A). We are unable to comprehend ourselves to accept the argument advanced by the ld DR as the provisions of section 154 of the Act are meant only to rectify any mistake apparent on record. The assessee in the instant case had duly brought to the knowledge of the ld CIT(A) that income of the assessee had been wrongly determined by the ld CPC and that the correct income figure of the assessee would be Rs. 2,90,10,368/- and TDS thereon of Rs. 29,78,210/-. Infact the provisions of section 154(5) of the Act also provides for reduction in the income of the assessee for which rectification u/s 154 could be done. If the contention of the revenue has to be accepted then the provisions of section 154(5) of the Act would become otiose. In any case, it is well settled that the revenue cannot be unjustly enriched and in genuine cases, the assessed income could very well go below the returned income. Reliance in this regard is placed on the decision of the Hon’ble Gujarat High Court in the case of Gujarat Gas Company [2000 (4) TMI 19 - GUJARAT HIGH COURT]. Similarly in the case of CIT Vs. Milton Laminates Ltd [2013 (3) TMI 192 - GUJARAT HIGH COURT] had held that assessed income could go below the returned income if the circumstances of the case so warrant. Thus we direct the ld AO to determine the income of the assessee and grant TDS credit - Decided in favour of assessee. Issues involved: The appeal concerns the correctness of the order passed by the Commissioner of Income Tax (Appeals) under section 250 of the Income-tax Act, 1961, against the order of assessment passed by the Assessing Officer. The main issue is whether the Assessing Officer was justified in not reducing the income of the assessee in line with the reduction of TDS credit as per the revised Form No. 26AS.Summary of Judgment:Issue 1: Correctness of CIT(A)'s Decision on Reduction of Income and TDS CreditThe assessee contended that the correct income should be assessed at a lower figure of Rs. 2,90,10,368/- and TDS credit at Rs. 29,78,210/- due to errors in the original TDS returns of the deductors. The Commissioner of Income Tax (Appeals) rejected this plea, stating that adjustments based on Form 26AS could only be made for additions to income, not reductions. The Tribunal disagreed, noting that the provisions of section 154 of the Act allow for rectification of errors that reduce the liability of the assessee. Citing legal precedents, the Tribunal emphasized that assessed income could legitimately fall below the returned income in genuine cases. Therefore, the Tribunal directed the Assessing Officer to determine the income as claimed by the assessee and grant the appropriate TDS credit.Key Points:- The assessee's income and TDS credit were originally based on Form 26AS, which was later revised due to errors in the deductors' TDS returns.- The Commissioner of Income Tax (Appeals) refused to reduce the income of the assessee in line with the revised TDS credit, citing limitations under section 143(1) of the Act.- The Tribunal held that the provisions of section 154 allow for rectification of errors that reduce the assessee's liability, contrary to the CIT(A)'s decision.- Legal precedents were cited to support the Tribunal's decision that assessed income can be lower than the returned income in appropriate circumstances.- The Tribunal directed the Assessing Officer to determine the income at the revised figure of Rs. 2,90,10,368/- and grant TDS credit accordingly, in favor of the assessee. This judgment highlights the importance of rectifying errors that reduce the liability of the assessee, even if it results in the assessed income being lower than the returned income. The Tribunal's decision serves to ensure fairness and prevent unjust enrichment of the revenue authorities.