Rectification application for tax credits and interest calculation not decided within six months is remanded, with AO directed to complete rectification within one month.
Issue:
When an assessee files a rectification application under Section 154 of the Income-tax Act, 1961, providing relevant information regarding tax payments, interest calculations, and TDS credits, but the Assessing Officer (AO) fails to pass a rectification order within the statutory six-month period, whether the matter should be remanded to the AO for verification and a decision within a specific timeframe.
Facts:
- For Assessment Year 2018-19, the Assessing Officer (AO) had completed the final assessment order. At the time of completing this order, certain information (credits, interest calculations, etc.) was not available with the AO, as he relied on information available in the ITBA (Income Tax Business Application) system.
- The assessee subsequently filed a rectification application under Section 154, providing relevant information concerning:
- Payment of tax.
- Other claims under Section 234C (interest for default in payment of advance tax).
- Interest calculation.
- Difference of TDS (Tax Deducted at Source) credit.
- Difference of short advance tax payment.
- Interest under Section 244A (interest on refunds).
- It is a statutory duty imposed on the Assessing Officer to complete the rectification process within six months from the end of the month in which the application is received.
- The assessee had not received any rectification order for the application filed more than six months prior, despite subsequent follow-ups.
Decision:
The court held in favor of the assessee (by remanding the matter). It ruled that since the assessee had not received any rectification order for the application filed beyond six months and subsequent follow-up, the relevant information was to be remitted back to the file of the Assessing Officer. The AO was directed to verify the claim of the assessee as per the Act, after giving them a proper opportunity of being heard, and to complete the rectification process within one month of receiving this order.
Key Takeaways:
- Duty to Rectify (Section 154): Section 154 provides for rectification of any mistake “apparent from the record.” When an assessee points out such a mistake (like incorrect credits or interest calculations that can be verified from records), the AO has a statutory duty to consider and pass an order on the rectification application.
- Statutory Time Limit for Rectification: Section 154(8) mandates that no order under this section shall be passed after the expiry of four years from the end of the financial year in which the order sought to be rectified was passed. More importantly, Section 154(5) requires the authority to pass an order on an application for rectification within six months from the end of the month in which the application is received. The AO’s failure to adhere to this six-month deadline is a procedural lapse.
- “Mistake Apparent from Record”: Claims regarding tax payments, TDS credits, and interest calculations (especially those verifiable against system data or bank records) often qualify as “mistakes apparent from record” which can be rectified under Section 154.
- Consequences of Delay/Inaction by AO: When the AO fails to act within the statutory time limit on a rectification application, courts typically intervene to direct compliance.
- Remand for Expeditious Decision: The court’s decision to remand the matter with a strict one-month deadline highlights the urgency for the AO to comply with statutory timelines and address the assessee’s genuine claims.
- Opportunity of Hearing: The direction for the AO to give a proper opportunity of being heard reinforces the principles of natural justice even in rectification proceedings.
- Relief to Assessee: This judgment provides relief to the assessee by ensuring their rectification application is finally addressed and that any legitimate claims for correct tax liability or refunds are processed.
IN THE ITAT MUMBAI BENCH ‘I’
Orient Overseas Container Line Ltd.
v.
DCIT
Amit Shukla, Judicial member
and S. Rifaur Rahman, Accountant member
and S. Rifaur Rahman, Accountant member
IT Appeal NO. 826 (MUM) of 2022
[Assessment Year 2018-19]
[Assessment Year 2018-19]
AUGUST 23, 2022
Nikhil Tiwari for the Appellant. Ms. Bharati Singh for the Respondent.
ORDER
S. Rifaur Rahman, Accountant Member.- This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (DRP-2), Mumbai-1 [hereinafter in short “Ld.DRP”] dated 31.01.2022 for the A.Y. 2018-19 passed u/s. 144C(5) of Income-tax Act, 1961 (in short “Act”).
2. Brief facts of the case are, assessee filed its return of income on 30.11.2018 declaring total income of Rs.76,27,82,420/- and claim of prepaid taxes of Rs.36,60,13,506/-. Subsequently assessee filed revised return of income on 31.03.2018 declaring total income of Rs.76,36,71,290/- and claim of prepaid taxes of Rs.36,63,87,406/-. The return was selected for scrutiny and accordingly, notices u/s. 143(2) and 142(1) were issued and served on the assessee. In response assessee efiled relevant information through ITBA System.
3. Assessee is a company incorporated under Companies Ordinance of Hong Kong. It is engaged in the business of operation of ships in international traffic. Its revenue consists of freight income and ancillary’s charges such as terminal handling charges, demurrage charges etc., In absence of Double Taxation Avoidance Agreement (DTAA) with Hong Kong, Assessee has offered to tax the entire income (Freight Income and ancillary income) under presumptive scheme of taxation u/s. 44B of the Act.
4. Assessing Officer completed the draft Assessment Order u/s. 143(3) of the Act on 21.04.2021 determining the total income as per provisions of section 44B of the Act and added @7.5% including service tax and GST collected to the extent of Rs.6,93,46,454/-. Aggrieved assessee filed objection before DRP on the issue of adding service tax and GST while computing the gross receipts for presumptive taxation u/s. 44B of the Act. DRP considered the submissions of the assessee and held that the ground of objection raised on issue of adding service tax and GST for computation of the presumptive taxation in favour of the assessee. Accordingly, Assessing Officer completed the final Assessment Order by considering the gross total income at Rs.76,36,71,291/- and determined the gross tax payable on total income at Rs.33,03,64,200/-. Further, Assessing Officer calculated the interest u/s. 234C of the Act to the extent of Rs.8,60,814/-and determined the total tax liability at Rs.33,12,25,014/-. While giving credit Assessing Officer has considered TDS Rs.1,38,91,173/-, advance tax Rs.32,22,96,892/- and assessee has paid self-assessment tax at Rs.2,91,34,427/-. Therefore, the total tax paid by the assessee are Rs.36,53,22,492/-. Therefore, assessee has paid more than the tax liability. Therefore, Assessing Officer has refunded Rs.3,40,97,478/-.
5. Subsequently, assessee filed rectification application u/s. 154 of the Act on 05.04.2022 by bringing to the notice of the Assessing Officer certain mistakes apparent on record. For the sake of clarity, it is reproduced below: –
“Shot Grant of credit of Tax deducted at source CTDS)
1.1 For the captioned AY, an amount of Rs. 1,43,26,628 was claimed as TDh by OOCLL in the return of income (copy of ITR-V is enclosed as Annexure 4). However, in the computation sheet attached with the above final assessment order, TDh credit was restricted to Rs. 1,38,91,173 which has resulted in a short credit of Rs. 4,35,455.
1.2 In this regard, we would like to bring to your goodself’s attention that the Assessee has offered Rs. 8,88,871 interest on income-tax refund. On the said interest, your goodself had deducted TDS of Rs. 3,73,540. However, the same is appearing under Part D (Details of Paid Refund) of Form 26AS and not appearing under Part A (Details of Tax Deducted at hource). Details of TDS deducted as appearing on the NSDL Portal is enclosed as Annexure 5 for your goodself’s reference.
1.3 Further, with regard to the balance short TDS credit of Rs. 61,915, your goodself would appreciate that the total TDS credit of Rs. 1,45,59,236 as appearing in the Form 26AS (updated as on 1 April 2022) is more than the actual TDS credit of Rs. 1,39,53,088 (excluding TDS deducted on interest on income-tax refund) claimed by the Company in the return of income. Formatted version of TDS entries in Form 26AS is enclosed as Annexure 6.
1.4 In view of the above, we request your goodself to kindly rectify the said mistake apparent from record andgrant balance TDS credit of Rs. 4,35,455.
2. Short Grant of credit of Advance taxes paid
2.1. For the captioned AY, OOCLL claimed credit of advance tax amounting to Rs. 32,29,25,991 in the return of income. However, in the above final assessment order, credit for Advance tax was restricted to Rs. 32,22,96,892. Accordingly, there is a short credit of advance tax of Rs. 6,29,099.
2.2. We are submitting hereunder a reconciliation of advance tax and self-assessment tax appearing in Form 26AS vis-a-vis advance taxes claimed in the tax return foryourready reference:
| Particulars | Amout (Rs.) |
| Total advance tax as per Form 26AS | 32,29,51,811 |
| Total self-assessment tax as per Form 26AS | 2,91,34,427 |
| Total credit of taxes as per 26AS (other than TDS) | 35,20,86,238 |
| Less: Advance tax paid in AY 201 8-1 9 for vessels sailed in AY 201 9-20 and the same was claimed in AY 2019-20 (details enclosed as Annexure 7) | (6,54,919) |
| Add: Advance tax paid in AY 2017-18 for vessels sailed in AY 2018-19 and the same was claimed in AY 2018-19 (details enclosed as Annexure 8) | 6,29,099 |
| Total claim of taxes as per tax return (other than TDS) | 35,20,60,418 |
| Less: Self-assessment tax (claimed and allowed in assessment) | 2,91,34,427 |
| Advance tax claimed in the tax return | 32,29,25,991 |
2.3. In view of the above, we request your goodself to kindly rectify the mistakes apparent from record and grant the credit of balance advance tax of Rs. 6,29,099. 3. Incorrect levy of interest under Section 234C of the Act
3.1 Your goodself has computed interest under section 234C of the Act at Rs. 8,60,814.
3.2 In view of the above, we request your goodself to kindly rectify the mistake apparent from record and delete the interest levied of Rs. 8,60,814. 4. Consequential grant of interest under Section 244A
4.1. On perusal of the computation of income attached along with assessment order dated 28 February 2022, we understand that refund of Rs. 3,40,97,478 has been determined.
4.2. However, we wish to highlight that no interest is computed on the refund determined in the computation sheet. Hence, we request your goodself to kindly rectify the said mistake apparent from record and compute interest under section 244A of the Act correctly. Further, once the mistakes apparent from record as discussed in Para 1 to 3 above are rectified and interest under Section 244A is correctly computed thereon, Assessee will be eligible for a total refund of Rs. 4,36,83,056 (including interest u/s 244A of the Act amounting to Rs. 76,60,210). “
6. Since assessee has not received any rectification order for the rectification application filed by the assessee before the Assessing Officer beyond six months and subsequent follow up, therefore Aggrieved assessee is in appeal before us raising following grounds in its appeal: -.
“On the facts and in the circumstances of the case and in law, the learned AO has:
SHORT GRANT OF CREDIT FOR TAX DEDUCTED A T SOURCE (TDS) OF RS. 4,35,455
1. Erred in restricting the TDS credit to Rs. 1,38,91,173 as against Rs. 1,43,26,628 as claimed by the Appellant in the return of income, thereby arbitrarily reducing the TDS credit claim by Rs. 4,35,455.
2. Erred in not considering the fact that out of the total TDS
credit shortgranted, TDS credit amounting to Rs. 3,73,540 pertained to TDS deducted by the Income-tax Department on interest on income tax refund, offered to tax in this year and the balance TDS credit of Rs. 61,915 is appearing in Form 26AS.
SHORT GRANT OF ADVANCE TAX AMOUNTING TO RS. 6,29,099
3. Erred in granting credit for advance tax of Rs. 32,22,96,892 as against Rs. 32,29,25,991 claimed by the Appellant in the return of income, thereby shortgrant ofadvance tax credit by Rs. 6,29,099.
ERRONEOUS LEVY OF INTEREST UNDER SECTION 234C OF RS. 8,60,814
4. Erred in levying interest under Section 234C of the Act amounting to Rs. 8,60,814, without appreciating that interest under Section 234C of the Act would apply only basis returned income.
5. Without prejudice to the above, if correct credit for advance tax and TDS given to the Appellant, no interest under Section 234C would arise.
SHORT GRANT OF INTEREST UNDER SECTION 244A OF THE ACT
6. Erred in not computing interest under Section 244A ofthe Act on the refund determined in the assessment order.
7. Without prejudice to the above, interest on income-tax refund to be allowed pursuant to the provisions of Section 244A after providing correct credit for advance tax and TDS to the Appellant. “
7. At the time of hearing Ld. AR of the assessee brought to our notice the above facts on record and prayed that this issue maybe remitted back to the file of the Assessing Officer to verify the claim of the assessee and prayed that proper direction may be given to the Assessing Officer in this regard.
8. On the other hand, Ld. DR submitted that the tax credit and various issues raised by the assessee are system derived and Assessing Officer is not able to execute the same in time. However, she also favored the plea of the assessee to remit the issue back to the file of the Assessing Officer.
9. Considered the rival submissions and material placed on record, we observe that Assessing Officer has completed the final Assessment Order and has taken credits as per the information available in ITBA System. Therefore, certain informations were not available with him at the time of completion of the final Assessment Order. However, assessee has filed rectification application u/s. 154 of the Act and it is the duty imposed on the Assessing Officer to complete the rectification process within six months. Even otherwise the Assessing Officer should have intimated the same. However, the assessee has filed the relevant information on the payment of tax and other claims u/s. 234C, interest calculation, difference of TDS credit, difference of short advance tax payment and interest u/s.244A of the Act before us. These informations are remitted back to the file of the Assessing Officer to verify the claim of the assessee as per the Act after giving them a proper opportunity of being heard and we direct the Assessing Officer to complete the rectification within one month on receipt of this order. Accordingly, ground raised by the assessee are allowed for statistical purpose.
10. In the result, appeal filed by the assessee is allowed.