Relief u/s 89(1) on Salary Arrears Already Rectified: ITAT Deletes Addition, Holds CIT(A)’s Observation on Interest Income Infructuous [Read Order]

The Delhi bench of Income Tax Appellate Tribunal (ITAT) deleted the addition since the relief under Section 89 (1) had already been granted via the AO’s rectification and held that the CIT(A)’s observation on the interest was infructuous.

In the instant case, the assessee, Krishana Shanwal filed the return of income declaring an income of Rs. 52,49,050/- for the AY 2017-18. The return was processed under section 143(1) of the Income-tax Act, 196. The case was selected for limited scrutiny.

Accordingly, notices were issued and served on the assessee. The main issue in this case was that the income disclosed by the assessee was less than the income on which TDS was deducted.

The assessee has explained the difference as the assessee received salary in arrears with interest amounting to Rs..68,15,882/-, and out of which, the interest on the arrears was not considered in the income while calculating the tax payable thereon. The assessee was asked to explain why his claim of deduction under Section 89(1) should not be recalculated as per the provisions of law.

In compliance, the assessee submitted that the amount of Rs.. 15,66,832/- is compensation in the shape of interest, the interest was granted by the Hon’ble Court. Therefore, it was submitted that the same is not taxable by relying on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Chiranji Lal Multani Mal Rai Bahadur (P) Ltd.

After considering the above facts on record, the AO observed that the Hon’ble court has held that the retirement benefit will be realised by the bank @ 9%.

The AO recalculated the benefit of deduction under Section 89(1) of the Act and found that it is Rs.Nil against the relief claimed by the assessee, amounting to Rs. 9,28,962/-. Accordingly, he disallowed the relief claimed by the assessee to the extent of Rs 9,28,962/-.

Aggrieved, the assessee preferred an appeal before the CIT (A) and CIT (A), after considering the detailed submissions of the assessee, dismissed the appeal filed by the assessee with the observation that the plea of the assessee was already rectified by the AO by passing a rectification order under Section 154 of the Act and about the taxability of interest, the same was rejected for the reason that the amount represents taxable income.

Aggrieved by this order, the assessee filed an appeal before the Tribunal

The assessee brought notice to the assessment order wherein the AO has disallowed the claim of the assessee under Section 89(1) of the Act, and the same was rectified by the Assessing

Officer by passing a rectification order under Section 154 of the Act.

The assessee submitted that since the issue under consideration raised by the AO had already reached finality by rectifying the above under Section 154 of the Act, he submitted that the addition made by the AO is only to the benefit under Section 89(1) and not as interest as observed by the CIT (A).

The Tribunal observed that the AO had made the addition rejecting the claim of the assessee under Section 89(1) of the Act, and subsequently, the AO had rectified the same by passing the order under Section 154 of the Act.

As such, there is no liability on the part of the assessee. It was further observed that the assessee preferred an appeal before the CIT(A) and CIT (A) has considered the rectification order passed under Section 154; however confirmed the addition made by the AO with the observation that the interest granted by the Hon’ble High Court is taxable in nature.

The two-member bench of Satbeer Singh Godara (Judicial Member) and S.Rifaur Rahman

(Accountant Member) further observed that the addition made by the AO was deleted by him by passing a rectification order under Section 154 of the Act relating to the deduction claimed under Section 89(1)of the Act. As such, AO has not made any addition to earnings of interest income; therefore, the observation of the CIT (A) is infructuous and accordingly, the appeal filed by the assessee is allowed.

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