Double Disallowance Not Permissible: Delhi HC Directs Rectification of ₹1.37 Cr Demand on Portronics [Read Order]

The Delhi High Court ruled that a demand arising from a double disallowance caused by a technical error in the income tax return cannot be sustained and must be rectified, and restrained recovery of the demand until such rectification is completed.

The petitioner, Portronics Digital Private Limited, challenged an intimation issued under Section 143(1) of the Income Tax Act, 1961 for Assessment Year 2024-25, through which a demand of ₹1.37 crore was raised. The case arose when the company, while filing its return of income, had already added back certain expenses amounting to ₹4.26 crore in its profit and loss account.

Subsequently, the Centralised Processing Centre (CPC) issued a notice seeking clarification. Although the petitioner submitted its explanation, the system processed without considering such clarification, resulting in a double disallowance of the amount.

This led to the issuance of a demand which, according to the counsel of petitioner, was entirely erroneous and arose only due to incorrect reporting in the relevant schedule of the return. Therefore, approaching the High Court challenging the intimation and the consequential demand, submitting that the error occurred due to an inadvertent technical mistake in filling the relevant schedule, and not due to concealment or misreporting.

The petitioner admitted that the amount had already been disallowed by the assessee suo motu while filing the return. Whereas, the Revenue contended that the CPC functions through automated systems and therefore could not account for errors unless corrected through a rectification application. Subsequently, if the petitioner filed a rectification application with corrected particulars in the appropriate schedules, the issue of double addition would be resolved.

Justice Dinesh Mehta and Justice Vinod Kumar, comparing the quorum observed that the demand had arisen purely due to a technical error and that the same amount had been added twice, once voluntarily by the assessee and again by automated processing, leading to double disallowance which could not be sustained in law.

The Court directed the petitioner to file a rectification application with corrected details and ordered the tax authorities to process in accordance with law. Further, directed that no coercive action for recovery of the demand shall be taken until the rectification application is decided.

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