Procedure is handmaid of justice – ITAT deleted addition made as a consequence of filing wrong ITR by assessee.
In a recent judgment, ITAT Chandigarh has held that procedure is handmaid of justice. Assessee cannot be said to gain anything by filing a wrong ITR intentionally, knowing that it would heavily prejudice its interest.
ABCAUS Case Law Citation:
4283 (2024) (10) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the adjustment made by the CPC Bangaluru u/s 143(1)(a)(iii) on account of difference in Income from other Sources as shown in the Income Tax Return and the Tax Audit Report in Form No. 26AS.
The CPC Bengaluru had made an adjustment under the head ‘Income from other Sources’, towards interest income as per information reflected in Form No. 26AS in the form of TDS deducted u/s 194A of the Income Tax Act, 1961 (the Act). This amount was, however, not disclosed in the ITR-1 filed by the assessee for the relevant assessment year under consideration.
The assessee explained that he had taken a loan from a third party and transferred the same to his Company. The interest received on this loan from the Company was repaid to the third party, i.e., the party from whom he in turn had taken a loan to advance fund to the company. The amount of interest received from the company and the amount of interest paid to third party during the year was the same. It was due to this fact that after claiming deduction under section 57 of the Act, income was shown at nil.
The CIT(A) held that the assessee had chosen to file a wrong ITR, being ITR 1 to disclose the true and correct income of the assessee for the year, wherein there was no provision to simultaneously report the quantum of income from other sources and the eligible deduction u/s 57(iii) of the Act.
The CIT(A) observed that beyond the statement of the assessee that the loan funds had been diverted, there was no evidence that the EMIs of the loan had been directly remitted by third party to the company. Even if the stand of the assessee were true, TDS u/s 194A of the Act would have been deducted, treating the company as the deductee; that to the contrary, when the assessee appeared as the deductee in Form No. 26AS, it is his duty to disclose the receipts in the ITR filed; that even if the claim is factually correct, unless the ITR exhibits the treatment given, the CPC cannot be faulted.
The Tribunal observed that CIT(A), did not dispute the claim of the assessee to be factually correct. It was only that since assessee erroneously filed his return of income in ITR 1, that he could not state the correct income. This was so because, as also observed by the CIT(A), in ITR 1, there was no provision to report the income from other sources and the eligible deduction u/s u/s 57(iii) of the Act simultaneously.
The Tribunal further observed that it was not disputed that the assessee took a loan from a third party and transferred the same to his Company. The interest received on this loan from the Company of the Assessee was repaid to the third party, i.e., the party from whom the loan was taken by the Assessee. The amount of interest received and the amount of interest paid during the year was the same. It was due to this fact that after claiming deduction under section 57 of the Act, income was shown at nil. The Assessing Officer CPC did not allow any deduction u/s 57 of the Act, but made addition on account of interest received by the assessee from his Company.
The Tribunal also observed that all the above facts were duly disclosed by the Assessee before the CIT(A) by way of Statement of Facts. The CIT(A) had nowhere disputed these facts and as noted, he had circumlocutionally held them to be correct. He had only gone by the fact that the assessee had chosen a wrong ITR, i.e., ITR 1.
The Tribunal opined that filing wrong ITR was an inadvertent error of the assessee, and it cannot erase the undisputed facts. It is trite law that procedure is handmaid of justice. Otherwise too, the assessee cannot be said to gain anything by filing a wrong ITR intentionally, knowing that ITR 1 would heavily prejudice the interest of the Assessee, which had come about by passing of CPC order, wrongly confirmed by the CIT(A). Whereas, the whole issue was a case of gift from his son to the assessee, from the account of the company formed outside India.
Accordingly, the Tribunal held that order of the CIT(A) was unjustified and set aside and quashed it. The impugned addition was deleted.
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