Revenue can’t take advantage of mistakes of assessee, ITAT remands claim of exemption u/s 10(23C)(iiiad) to AO

Revenue can not take advantage of mistakes of assessee, ITAT remands claim of exemption u/s 10(23C)(iiiad) to AO

In a recent judgment, ITAT Lucknow remanded the claim of exemption u/s 10(23C)(iiiad) to AO as assessee by inadvertent typographical mistake wrongly claiming exemption u/s 10(23C)(iv) instead of correct section u/s 10(23C)(iiiad) of the Act.

ABCAUS Case Law Citation:
5048 (2026) (02) abcaus.in ITAT

In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the exemption u/s 10(23C)(iiiad) of income tax act 1961 and made addition during AY 2018-19.

The return filed by the assessee was processed by CPC u/s 143(1) of Income Tax Act, 1961 (the Act) and intimation was issued to the assessee u/s 143(1) wherein adjustment was made and the assessee’s as against returned income of Rs. Nil. The adjustment was made disallowing assessee’s claim for exempted income.

The assessee filed application for rectification u/s 154 of the Act, submitting that there was an inadvertent typographical mistake in wrongly making claim of exempted income u/s 10(23C)(iv) instead of the correct section 10(23C)(iiiad).

The application for rectification order u/s 154 of the Act was rejected and the addition was retained.

The CIT(A) observed that the error in filing the ITR was accepted by the appellant in its submission. CPC had rightly acted within its purview of law, as the denial of exemption is due to the error of the appellant in filing of the return.

The CIT(A) held that for rectifying the error in the ITR, there are legal remedies available for eg. Revising the return with in time, if beyond time revising the return with condonation from the jurisdictional PCIT/CCIT as mandated by the CBDT guidelines. Appellant may explore such legal remedies available to it. Neither the AO-CPC nor the JC appeals can condone the delay of revising the return or alter the data filed in the ITR.

Before the Tribunal, the assessee relied upon the CBDT Circular No.14 (XL35), dated 11.04.1955. He also placed reliance on the order of the Lucknow Bench of ITAT wherein the Bench directed the AO to allow the claim of the assessee u/s 10(23C)(iiiab)  despite assessee had made an inadvertent mistake in the filing of return where the claim of exemption was made u/s. 10(23C)(vi) of the Act.

The Tribunal opined that the processing of returns and issuance of intimation u/s 143(1) of the Act is a computerized process in which there is no application of human mind. However, an order passed for disposal of the assessee’s application for rectification u/s 154 of the Act as well as the order passed by the learned CIT(A),  are outcomes of due application of human mind by concerned authorities. These orders cannot be passed mechanically without considering the facts and circumstances of the case and the material brought on record by the assessee. Merely because the assessee’s claim for exemption was rejected under section 143(1) of the Act in a mechanical manner by the computerized system, owing to an inadvertent mistake in quoting the correct provision; the authorities deciding the rectification application under section 154 and the appeal proceedings are not bound by such automated and mechanical outcome.

The Tribunal took cognizance of Central Board of Direct Taxes Circular No. 14 (XL-35) of 1955 dated 11.04.1955 wherein it was stated that officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him.

The Tribunal noted that the said circular states that although, the responsibility for claiming refunds and reliefs rests with assessees on whom it is imposed by law, officers should  (a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; (b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.

The Tribunal set aside the order of CIT(A) and the matter relating to the assessee’s claim for exemption u/s 10(23C)(iiiad) of the Act was remanded to the file of the Assessing Officer, with a direction to pass an appropriate order in accordance with law after examining the merits of the assessee’s claim u/s 10(23C)(iiiad) of the Act.

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