The recent rejection of a rectification request under Section 154 of the Income Tax Act, 1961, by the Income Tax Department without providing any explanation has drawn criticism. This lack of transparency poses significant challenges for taxpayers. When errors occur in tax returns, Section 154 provides a mechanism for rectification. However, the arbitrary rejection of such requests without justification creates unnecessary obstacles. Taxpayers are left with the burden of proving their case and navigating the appeal process, while also contributing to the increased workload of higher appellate authorities (CIT(A) and ITAT). This situation arises primarily due to errors and omissions committed by lower-level tax officials.
Regrettably, the Income Tax Department frequently rejects rectification requests, necessitating the filing of appeals to seek redress. This necessitates a meticulous approach to drafting an appeal. To facilitate this process and enhance understanding, this document outlines key considerations and relevant judicial pronouncements.
Point 1: Rejection Without Communicating Proper Reason or No Communication
A recurring issue within the Income Tax Department is the rejection of rectification requests without formal notices or explanations being provided to the taxpayer. In many instances, the rejection is noted on the Income Tax Portal with no clear communication regarding the reasons behind the decision. This lack of transparency has resulted in numerous appeals, with courts consistently ruling in favor of the assessee when proper reasoning is absent.
Judicial Precedents Supporting the Assessee's Position
Several recent rulings have highlighted the importance of providing reasons for decisions affecting the taxpayer's interests:
Sohum Charitable Trust, Faridabad vs Cit Exemption, Chandigarh on 10 October, 2023 ITA No. 1487/Del/2023
5. We find that main grievance of the assessee is that the notice calling for certain details issued by the ld CIT(E) were uploaded only in the income tax e filing portal and the same were not sent to the assessee by email which is mandate of section 282 of the Act. Accordingly, the assessee could not respond to the various notices. Considering this fact, we deed it fit that assessee has sufficient cause in not responding to the notices issued by the ld CIT(E) and accordingly, we feel that assessee should be given one more effective opportunity to furnish the requisite details that were called for by the ld CIT(E). We find that under identical circumstances, the coordinate Page | 3 Sohum Charitable Trust bench of Chandigarh Tribunal in the case of SantKabirMahasbha Vs. CIT(E) in ITA No. 84/Chd/2023 dated 23.08.2023 has restored the issue to the file of ld CIT(E) with a direction to serve notice of hearing through physical mode as well as through electronic mode on the assessee. Accordingly, the case is restored to the file of the ld CIT(E) for de novo adjudication in accordance with the law. Respectfully following the same, the grounds raised by the assessee are allowed for statistical purposes.
6. In the result, the appeal of the assessee is allowed for statistical purposes.
SantKabir Mahasbha Vs. CIT(E) in ITA No. 84/Chd/2023 dated 23.08.2023
3. At the outset, the ld. Counsel for the assessee has invited our attention to the impugned order of the ld.CIT(E) to submit that the same is an ex-parte order. He has submitted that the ld.CIT(E) has summarily rejected the application of the assessee without giving any opportunity of hearing to the assessee to present its case. He has submitted that no notice of date of hearing was served by the ld.CIT(E), either through physical mode or through e-mail etc. That the notice of date of hearing was allegedly uploaded on Income Tax Portal and the assessee was not aware of uploading of any such notice regarding date of hearing. That no service of notice was ever affected on the assessee.
4. The ld. DR could not rebut the aforesaid factual position.
5. We have heard the rival contentions. Merely uploading of information about the date of hearing on the Income Tax Portal is not an effective service of notice as per the provisions of Section 282 of the Income Tax Act. The impugned order of the ld.CIT(E) is, therefore, not sustainable in the eyes of law. The same is hereby set aside with a direction to the ld.CIT(E) to decide the appeal of the assessee afresh after giving proper and adequate opportunity to the assessee to present its case. The ld. CIT (E) will serve notice of hearing through physical mode as well as through electronic mode upon the assessee.
6. The appeal of the assessee is treated as allowed for statistical purposes.
The Legal Duty to Communicate Reasons
These cases underscore the legal requirement for the Income Tax Department to provide clear reasons for decisions that affect the taxpayer. The failure to issue a valid notice or communicate reasons for rejecting a rectification request undermines the principles of transparency and fairness in the tax system.
Importance of Proper Communication in the Rectification Process
Section 282 of the Income Tax Act requires that notices be issued in both physical and electronic formats to ensure that the taxpayer is fully informed. When the Income Tax Department fails to adhere to these requirements, it can result in significant procedural irregularities. The law mandates that the assessee be given a fair opportunity to respond to any communication from the department. Rejection of rectification requests without valid reasons or proper notice violates this fundamental principle of natural justice.
Point Number 2: The Role of CBDT's Circular and the Duty of Tax Officers
The Central Board of Direct Taxes (CBDT), through its Circular No. 014(XL-35)/1955 dated 11th April 1955, has emphasized that tax officers are responsible for ensuring the correct computation of income in accordance with the law. The Circular also mandates that officers must guide taxpayers regarding potential benefits they are entitled to, including rectifying obvious errors that are evident on the face of the record.
Despite this clear guidance, there have been instances where rectification requests under Section 154 have been rejected without valid communication. This practice contradicts the spirit of the law, which emphasizes transparency and clear communication from tax authorities.
Judicial Rulings on Rectification Requests
Judicial precedents emphasize that the rejection of a rectification request under Section 154 should occur only when there is no clear or apparent error in the record. When a mistake is evident on the face of the record, the Assessing Officer is required to make the necessary correction without unnecessary delay. Failure to rectify such errors can lead to unfair tax assessments and legal complications.
One landmark case exemplifying this issue is ITAT Rajkot In The Case Of Smt. DinumatibenDamjibhaiShilu, Rajkot Vs. The Income Tax Officer, Ward-2 (2) (5), Rajkot ITA 195/RJT/2022
7. Having found, as above, that there were apparent and obvious mistakes in the return filed by the assessee, from the record itself, which was brought to the notice of the AO immediately on receiving intimation, and which mistake on merits the AO admitted to also, we find no reason for rejecting the assessee's claim of rectification under section 154 of the Act. Even otherwise, CBDT vide its Circular No.014(XL-35)/1955 dated 11.4.1955 has long back laid down the duty of its officer to compute correct income in law and even advise the assessee as to its benefit. In the present case, it appears that the Revenue officers have not acted in accordance with their duty so laid down by the CBDT.
8. In view of the above, we direct that rectification sought by the assessee of excluding the exempt income from its computation of income be done by the AO and necessary relief to that extent be granted to the assessee.
10. In view of the above, the appeal of the assessee is allowed.
Case Example: Rectification of Clerical Errors in ITR Filing
In a separate case, the assessee failed to mention its 12A/12AA registration number in the ITR due to a technical error or clerical mistake. Despite holding a valid registration, the rectification request under Section 154 was rejected by the Income Tax Department without providing any explanation. Judicial precedents, however, have consistently held that such minor clerical errors should not invalidate an exemption claim under Sections 11 to 13 of the Income Tax Act.
ITAT Delhi in the matter of Arya Samaj G.K.-II (Regd.), New Delhi vs. ITO, Exemption Ward-1(1), Bangalore on 5th March 2020 (I.T.A. No. 1013/DEL/2019). In this case, the assessee had not mentioned its registration under Section 12A/12AA, but the ITAT Delhi granted exemption to the assessee, highlighting that the omission did not invalidate the claim for exemption.
8. After considering the aforesaid submissions and on perusal of the material placed on record, it is an undisputed fact that assessee is a charitable trust and looking to its charitable activities it was granted registration u/s.12A. The assessee has been complying with conditions laid down in Section 11 to 13 and in all the years benefit of Section 11 has been granted. While filing the return of income online electronically, certain mistakes were made in ticking of certain circle as highlighted in the foregoing paragraphs. For example, instead of clicking 'yes' whether assessee is registered u/s.12A/12AA, by mistake assessee has clicked 'No' and similarly from other typographical mistakes wherein assessee has either clicked the word 'Nil' or 'No' against certain column. Due to this mistake, deduction claimed has been disallowed while processing the return of income by the CPC. Once, the assessee has brought on record that not only it is registered u/s.12A but has also filed form 10B, then it is incumbent upon the Assessing Officer to allow the benefit of Section 11 and compute the income in accordance with law, when it brought to his notice. Certain clerical/typographical mistake in filing of return of income cannot deny the benefit which is otherwise available under the provisions of the Act, especially when such defect or mistake is brought to the notice of the Assessing Officer. The reasoning given by the Ld. CIT(A) to deny the deduction simply on the ground that assessee itself has mentioned that it was not registered u/s.12A has filled up the columns wrongly cannot be upheld. A typographical mistake or minor procedural lapse cannot act as an estoppel to deny statutory benefit to the assessee unless statute lays down the condition for claiming benefit or deduction or there is statutory violation. Looking to the facts and circumstances of the case, we direct the Assessing Officer to verify the claim of the assessee and compute the income in accordance with law as contained in Sections 11 to 13 and grant exemption/benefit allowable to the assessee. Accordingly, the appeal of the assessee is treated as allowed for statistical purposes.
9. In the result, the appeal of the assessee is allowed for statistical purposes.
Also similar case come in front of Madras High Court in the case of AKR Academy, vs The Commissioner of Income Tax (Exemption) W.P.No.14990 of 2024
5. In the affidavit in support of this writ petition, the petitioner has stated that the Trust was set up with the object of promoting education. The Trust was granted approval under Section 10(23C) of the Income-tax Act in the year 2013. The impugned order does not contain any indication that the Trust is not entitled to exemption. Indeed, the first respondent has examined the returns of income of the petitioner for assessment years 2017-18 and 2019-20. Those returns of income would clearly indicate whether the assessee claimed exemption during those years. After examining those returns of income, the only observation of the first respondent is that the petitioner made errors while filing returns in respect of those years also. As correctly submitted by learned counsel for the petitioner, wide powers are conferred under Section 264 provided the party concerned has not filed an appeal against the relevant order. Without examining the petitioner's request on merits, the first respondent has rejected the application on the ground of delay. Therefore, the matter requires reconsideration.
6. For reasons set out above, the impugned order dated 18.03.2024 is set aside and the matter is remanded to the first respondent for judis reconsideration. The first respondent is directed to reconsider the matter by taking into account the observations set out in this order and issue a fresh order within three months from the date of receipt of a copy of this order.
Delhi High Court in the case of Shree Bhavani Power Projects Pvt Ltd vs Income Tax Officer, Ward 23(3), &Anr. on 14 August, 2024 W.P.(C) 8972/2019 allowed exemption even the assessee failed to filed form 10B
31. One of the reasons which appears to have weighed upon the Supreme Court while rendering its decision in Wipro Limited was of Section 10B being an exemption provision. This is evident from the Supreme Court significantly observing that Section 10B(8) being an exemption provision not being liable to be compared with Section 32(1)(ii-a) and which was concerned with a claim for additional depreciation. Regard must also be had to the fact that Section 10B(1) is essentially concerned with the grant of exemptions to newly established hundred per cent export-oriented undertakings and the deduction of profits and gains derived by such an enterprise. Sub-section (8) thereof enables an assessee to opt out of the exemption provisions contained therein subject to a requisite declaration being submitted. Since such a declaration would have an immediate and indelible bearing on the assessment of the Return of Income itself, it would clearly be liable to be viewed as a mandatory requirement warranting such a declaration being made at the outset itself and the statutory prescriptions made in that regard being liable to be strictly adhered to.
32. The aforesaid position may be contrasted with Section 80-IA(7), and which is principally concerned with deductions that may be claimed and the Audit Report being made available for examination by the AO. In these writ petitions, we are in any case concerned solely with whether a failure to digitally upload the Audit Report could be said to be destructive. It is for the aforenoted reasons that we are inclined to hold that Wipro Limited is distinguishable and that it would be the principles enunciated in G.M. Knitting which would govern the present matters.
33. Accordingly, and for all the aforesaid reasons, we allow the instant writ petitions. We thus quash the impugned notices issued under Section 148 of the Act dated 26 March 2019 and the consequent initiation of reassessment proceedings for AYs 2013-14 and 2014-15.
From the above judgment it is ample clear that if there is any error while filling of ITR doesn't effect the right of assessee to claim exemption u/s 11 to 13 of the Income tax act for the addition is made only on the basis of non-mentioning of section no. 12A/12AA in the ITR doesn't disallow the expenses.
Conclusion
The rejection of rectification requests under Section 154 without providing valid reasons or proper communication continues to be a significant issue within the Income Tax Department. Judicial precedents consistently reinforce the importance of transparency, fairness, and proper communication in the tax assessment process. The Income Tax Department must adhere to these principles to ensure that taxpayers are given a fair opportunity to claim their rightful exemptions and deductions. If you have any further questions or require clarification, please do not hesitate to contact me.
The author can be reached at varunmukeshgupta96@gmail.com.
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