The Rajkot bench of the Income Tax Appellate Tribunal(ITAT) has held that the tax Department can’t take advantage of the right of assessee when claiminga deduction under the wrong section.
M/s. J. Doshi & Co., the assessee is a partnership firm engaged in the business of retail trading of iron bars and is being assessed to tax at Rajkot. The assessee filed its physical return of income on 28-08-2014 followed by an e-filing on 21-32016 declaring a loss of 22,699/-.
The assessee had declared income under section 44AD of the Act showing a net profit of 1,38,279/-calculated at 8% of the total turnover of 17,28,483/- after claiming interest and remuneration to partners of 1,10,978/- and 50,000 respectively and accordingly net loss was declared at 22,699/-. The assessee thereafter received notice under section 139(9) of the Act directing the assessee to rectify the defect as indicated in the said notice within 15 days of receipt thereof.
The said notice was however received by the assessee on 23-02-2017 at which point in time, the time allowed to remove the defect had expired. The same notice was again received by the assessee by way of email on 23-04-2017, but the assessee was unable to e-file any responses since the time for rectifying the mistake had already expired. The assessee thereafter received intimation under section 143(1) of the Act dated 27-03-2017 vide which the CPC did not allow the interest and remuneration paid to partners and assessed the return loss at in income of 1,38,280/-.
The mistake committed by the assessee at the time of filing the return of income was that the assessee was not required to maintain the books of accounts since the return was filed under section 44AD of the Act.
It was observed that at the time of filing the return of income, the assessee inadvertently made certain errors as a result of which the remuneration and interest paid to partners were not allowed to the assessee. The reason for the denial of deduction was that the assessee has filed a return of income under the wrong provisions.
A Coram comprising of Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member observed that in the case of DevendraPai[2022] it was held that “AO is not supposed to take advantage of the assessee’s ignorance to collect tax more than legitimate tax.”
In light of the above-said principles, the ITAT restored the file to the assessing officer to grant a fresh opportunity of hearing to the assessee, and if the assessee can substantiate its claim as stated before us, then an opportunity may be granted for the assessee to rectify the inadvertent mistake made by the assessee in filing the return of income, which could not be rectified since notice under section 139(9) of the Act could not be served on the assessee within time to enable the assessee to rectify the mistake which had been done in the return of income.
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