Rectification of income tax intimation cannot rescind an admitted deduction without reasons, notice and opportunity to be heard.

Rectification of an income tax intimation withdrawing an earlier allowed deduction under the law was held improper where no material showed a mistake apparent on the face of the record and no reasons, notice or opportunity to be heard were given; the applicable principle requires that rectification must correct a demonstrable clerical or arithmetic error and cannot be used to change an admitted claim by fresh assessment without due process, and therefore the withdrawal was set aside and the deduction directed to be allowed as per the original intimation.

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Issues: (i) Whether the rectification order passed by CPC, Bengaluru under section 154 of the Income-tax Act, 1961 which disallowed the assessee's deduction claimed under section 10AA of the Income-tax Act, 1961 (after the claim was allowed in intimation under section 143(1) of the Income-tax Act, 1961) without issuing any show-cause notice or specifying reasons and without affording opportunity of hearing, was sustainable.

Analysis: The assessee filed return and claimed deduction under section 10AA of the Income-tax Act, 1961 with required audit documentation. The CPC/AO issued intimation under section 143(1) of the Income-tax Act, 1961 which recorded allowance of the section 10AA claim. Thereafter, on a rectification application, CPC passed an order under section 154 of the Income-tax Act, 1961 dated 15-06-2021 denying the section 10AA deduction for the first time without stating reasons or issuing any notice or show-cause and without affording opportunity to the assessee. The Tribunal examined the record and found no material demonstrating a mistake apparent on the face of the record that would justify withdrawal of the allowance made in the intimation under section 143(1). The Tribunal applied principles relating to rectification of intimation/orders and the requirement of providing opportunity before altering an admitted claim, and concluded that the action amounted to a change of opinion taken without due process.

Conclusion: The rectification order dated 15-06-2021 to the extent it denied the deduction claimed under section 10AA of the Income-tax Act, 1961 is set aside and the AO is directed to allow the section 10AA deduction as recorded in the intimation under section 143(1) of the Income-tax Act, 1961.

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