2024 (6) TMI 877 - AT - Income Tax

AO must conduct proper inquiry before charging tax on partnership interest income under section 154

ITAT Jaipur allowed the assessee's appeal regarding rectification of mistake under section 154 concerning correct income charging. The tribunal found an ... Rectification of mistake - charging the correct income in the hands of the assessee - whether the assessee has received interest from the partnership firm? - HELD THAT:- It appears to be mistake apparent from the record and therefore, the application filed by the assessee u/s 154 is required to be adjudicated on merit and therefore, considering that aspect of the matter, we set aside the matter with a direction to the AO to make necessary inquiry and obtained evidence from the assessee and considered the plea of the assessee on merits and charged the tax in accordance with law based on the correct income. We get strength to support of our wherein on the similar circumstances the co ordinate bench of Mumbai has considered the plea of the assessee. Out of the judgment so relied upon by the assessee we find that on the similar circumstances as that of the assessee was in the case of Shri Sumanchandra G. Mehta [2013 (12) TMI 358 - ITAT MUMBAI] Thus we direct the AO to decide the application of the assessee filed u/s.154 after making necessary relief and decide the issue of charging the correct income in the hands of the assessee. In terms of these observations, the appeal of the assessee is allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether an assessing officer/CIT(A) may refuse rectification under Section 154 of the Income-tax Act for an apparent clerical error in an e-filed return caused by incorrect data entry (wrong punching of interest amount), when a corrected return was e-filed and the corrected ITR-V was also dispatched before processing/intimation? 2. Whether the filing of a corrected return after the original e-filing (but before processing/intimation) constitutes a 'revised return' for the purpose of amending the original return, or whether rectification under Section 154 is the appropriate remedy for an evident mistake apparent on the record? 3. Whether the principle that tax cannot be retained without authority of law (Article 265) requires acceptance of a rectification under Section 154 where the intimation under Section 143(1) is based on an evidently erroneous figure? ISSUE-WISE DETAILED ANALYSIS Issue 1: Applicability of Section 154 rectification to an apparent clerical error in e-filed return (wrong punching of income) Legal framework: Section 154 permits rectification of 'mistake apparent from the record' in any order passed by an income-tax authority. The processing of e-filed returns and issuance of intimation under Section 143(1) is based on the data as processed by CPC/AO. Precedent Treatment: The lower authority relied on higher court authority holding that a return cannot be amended except by filing a revised return. Coordinate-bench authorities, however, in comparable technology-error scenarios have allowed rectification by AO under Section 154 where the mistake is a manifest data-entry/processing error. Interpretation and reasoning: The Tribunal treated the discrepancy between the two e-filed returns (original with interest punched as a much larger amount and corrected return showing the true, much smaller interest) as a factual/clerical error apparent on the face of the record. The Tribunal emphasized that the corrected return and ITR-V were dispatched (hard copies) and that the intimation was issued on the basis of the original erroneous entry. Given the obvious numerical mismatch and supporting audit/returns documents, the Tribunal found it appropriate to remit the matter to the AO for inquiry and consideration under Section 154 rather than uphold a blanket refusal. Ratio vs. Obiter: Ratio - where a manifest numerical entry error in an e-filed return is supported by contemporaneous corrected filing and documentary evidence, AO should examine and, if satisfied, rectify under Section 154; AO's mere reliance on initial processing without inquiry is not sufficient to deny rectification. Obiter - comments on broader policy of CBDT e-filing rules and technology limitations. Conclusions: The Tribunal set aside the rejection of the Section 154 application and directed the AO to make necessary inquiries, obtain evidence, and decide the rectification application on merits to ensure tax is charged on correct income. Issue 2: Whether corrected filing after original e-filing constitutes a 'revised return' or is to be treated as a clerical correction via Section 154 Legal framework: The statutory scheme distinguishes between a revised return (specific provision for replacing an earlier return, subject to time/conditions) and rectification of orders under Section 154 for mistakes apparent on record. The ability to revise depends on statutory timelines (e.g., section governing revised returns) and factual compliance with those conditions. Precedent Treatment: The lower authority applied a principle from higher jurisprudence that an assessee cannot amend his return except by filing a revised return, and treated the corrected filing (filed after due date) as not amounting to a permissible revision. Coordinate benches in factually similar cases involving e-filing/processing errors have distinguished such higher authority where the error is clerical/technical and the corrected filing along with evidence shows the mistake was apparent. Interpretation and reasoning: The Tribunal recognized the distinction between a substantive amendment seeking new claims/deductions and a factual correction caused by a technological/data-entry error. It treated the corrected filing and ITR-V submitted contemporaneously to CPC as evidence that the original processing error was inadvertent and apparent. Consequently, rather than treating the corrected filing purely through the lens of revised-return rules, the Tribunal directed adjudication under Section 154, allowing the AO to rectify the intimation based on the correct figure after inquiry. Ratio vs. Obiter: Ratio - corrected e-filings that demonstrably rectify an obvious data-entry/technical error may be dealt with by rectification under Section 154 even when formal conditions for a 'revised return' are not met; the proper course is AO inquiry and adjudication on merits. Obiter - the extent to which this approach applies to non-apparent or substantive changes was not decided. Conclusions: The Tribunal concluded that the corrected filing evidenced an apparent mistake, making Section 154 an appropriate remedy; it remitted the matter to AO for fact-finding and correction rather than endorsing dismissal on the ground that no revised return was filed. Issue 3: Constitutional dimension - whether failure to rectify an apparent error in intimation conflicts with the principle that no tax can be retained without authority of law Legal framework: Article 265 (principle that tax collection must have legal authority) implies that tax should be levied only on legally established income; administrative action must accord with statutory provisions. Section 154 provides a statutory mechanism to correct mistakes apparent on the face of record, thereby aligning assessment/intimation with lawful taxability. Precedent Treatment: The Tribunal referred to coordinate authority decisions where refusal to rectify manifest processing errors was viewed as unjust, observing that taxpayers should not be penalized for technological or inadvertent mistakes when statutory rectification is available. Interpretation and reasoning: The Tribunal implicitly accepted that allowing an intimation to stand based on manifestly erroneous figures would run contrary to the principle that tax must be imposed only with lawful basis. That supports permitting rectification under Section 154 where the record plainly shows an error and documentary evidence supports the correct figure. Ratio vs. Obiter: Ratio - when intimation under Section 143(1) is based on an apparent clerical error, denying a statutory rectification remedy may result in tax being retained without proper legal basis; AO should therefore examine Section 154 claims to prevent unlawful retention. Obiter - the Tribunal did not engage in a full constitutional adjudication but applied the principle to support remand for proper statutory exercise. Conclusions: The Tribunal endorsed correction to align tax demand with lawful income determination and directed AO to decide the Section 154 application on merits, thereby preventing retention of tax on an incorrect basis. Cross-references and Final Direction The Tribunal distinguished the lower authority's reliance on higher court dicta restricting amendments to returns to the revised-return mechanism by referencing coordinate-bench authorities that allowed rectification in comparable e-filing/technical error situations. On that basis, the Tribunal remitted the matter to the AO with direction to make necessary inquiries, obtain evidence, and decide the Section 154 application so that tax is charged according to the correct income figure.