CPC's rectification order taxing assessee at normal rates instead of section 115BAA rates held invalid

ITAT Pune held that CPC's rectification order u/s 154 taxing assessee at normal rates instead of lower rates under section 115BAA was invalid. Assessee had validly exercised option under 115BAA for reduced tax liability, which CPC initially accepted but later rejected without reasons or opportunity of hearing. Since assessee neither withdrew option nor violated provisions, CPC was unjustified in enhancing tax liability. However, ITAT upheld CIT(A)/NFAC's direction to AO for TDS verification, finding no infirmity in remand order for credit verification.

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Issues Involved:

1. Validity of the rectification order under Section 154 of the Income Tax Act, 1961, regarding the computation of tax liability under Section 115BAA.
2. Incorrect computation of tax liability by the CPC under regular provisions instead of Section 115BAA.
3. Restriction of TDS credit without justification.

Detailed Analysis:

1. Validity of the Rectification Order under Section 154:

The primary issue concerns the rectification order passed by the CPC without providing an opportunity to the assessee or assigning any reason for rejecting the option exercised under Section 115BAA. The assessee argued that the rectification order was invalid in law, as the CPC had accepted the option under Section 115BAA in the preceding assessment year and the assessee had not withdrawn this option. The Tribunal found that the CPC was not justified in raising the demand by taxing the assessee at the normal rate instead of the provisions of Section 115BAA. The Tribunal held that the rectification order under Section 154 was invalid to the extent of taxing the assessee at the normal rate, thereby allowing grounds of appeal No.1 to 4 raised by the assessee.

2. Incorrect Computation of Tax Liability:

The assessee contended that the CPC incorrectly computed the tax liability under regular provisions, disregarding the option exercised under Section 115BAA. The Tribunal noted that the provisions of Section 115BAA allow a domestic company to compute income tax at a lower rate if certain conditions are met. The CPC had accepted this option for the assessment year 2020-21, and the assessee had not withdrawn this option for the impugned assessment year. The Tribunal emphasized that once the option under Section 115BAA is exercised, it cannot be subsequently withdrawn. Therefore, the CPC's action of taxing the assessee at the normal rate was unjustified, and the Tribunal allowed the appeal on this issue.

3. Restriction of TDS Credit:

The assessee also challenged the CPC's action of restricting the TDS credit to a lesser amount without providing any reason. The Tribunal upheld the order of the Ld. CIT(A) / NFAC, which directed the Assessing Officer to verify the TDS claim and give necessary credit after verification. The Tribunal found no infirmity in restoring the matter to the file of the Assessing Officer for verification, as this issue required further factual examination. Consequently, the Tribunal dismissed ground No.5 raised by the assessee.

Conclusion:

The Tribunal partially allowed the appeal filed by the assessee. It declared the rectification order under Section 154 invalid concerning the computation of tax liability under Section 115BAA, while upholding the Ld. CIT(A) / NFAC's decision to verify the TDS claim at the level of the Assessing Officer.

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