ITAT rules provident fund withdrawal after 5+ years employment exempt under section 10(12), deletes taxable addition

ITAT Mumbai ruled in favor of the assessee regarding rectification of income computation under section 154. The case involved treatment of Rs. 3,291,601 withdrawn from provident fund as taxable income. The assessee, employed with previous employer for over five years (September 2009 to February 2015), had properly disclosed the withdrawal as exempt income under section 10(12). ITAT found lower authorities erred in treating the amount as taxable without considering evidence in rectification applications. The tribunal directed deletion of the addition, confirming the provident fund withdrawal was exempt under section 10(12).

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Issues Involved:
The judgment involves issues related to the rectification order passed under section 154 of The Income Tax Act, discrepancy in income computation, and the treatment of withdrawn amount from provident fund as taxable income.

Rectification Order u/s 154:
The assessee filed an appeal against the appellate order passed by the National Faceless Appeal Centre, challenging the rectification order passed under section 154 of The Income Tax Act. The appellant raised grounds questioning the legality of the assessment order and the violation of natural justice. The dispute arose due to inconsistencies in the income declared by the assessee and the details in Form 26AS, leading to adjustments under section 143(1)(a) of the act.

Treatment of Withdrawn Amount from Provident Fund:
The main contention revolved around the treatment of the amount withdrawn by the assessee from his provident fund account. The Centralised Processing Centre made adjustments, considering the withdrawn amount as taxable income, leading to additions in the total income. The appellant argued that the withdrawn sum was exempt under section 10(12) of the act as it was accumulated during his employment with the previous employer for more than five years.

Appellate Proceedings:
The Assistant Commissioner of Income Tax rejected the rectification application, stating that the income was not disclosed as exempt in the original return. The National Faceless Appeal Centre also dismissed the appeal, upholding the decision of the AO. However, the Appellate Tribunal ruled in favor of the assessee, emphasizing that the withdrawn amount from the provident fund was exempt income under section 10(12) of the act.

Conclusion:
The Appellate Tribunal directed the assessing officer to delete the addition made to the income, considering the withdrawn amount as exempt under section 10(12) of the act. As a result, the appeal filed by the assessee was allowed, and the addition of the withdrawn sum to the total income was overturned.

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