The Income Tax Appellate Tribunal Surat invalidated a rectification order that had added Rs 5.02 lakh back to a retiree's taxable income. Represented by chartered accountant Bhupendra Mehta, the taxpayer successfully argued that the assessing officer failed to record mandatory reasons prior to amending the assessment. Although the tribunal overturned the adjustment due to procedural violations, it noted that the applicable legal exemption threshold for the relevant year was actually Rs 3 lakh rather than the full Rs 8.02 lakh received.
Key points
Tax authorities cannot enhance taxable income or reduce a refund under Section 154 withou…: Tax authorities cannot enhance taxable income or reduce a refund under Section 154 without recording specific reasons.
Revenue officials are legally required to grant taxpayers a reasonable opportunity to be…: Revenue officials are legally required to grant taxpayers a reasonable opportunity to be heard before altering processed returns.
Procedural invalidations by the tribunal do not automatically confirm the substantive tax…: Procedural invalidations by the tribunal do not automatically confirm the substantive tax-free status of sums exceeding legal limits.
Sources checked by our analysis pipeline: 1
When Mr Patel from Bharuch, Gujarat, retired from a well-respected company, he received Rs 8.02 lakh as leave encashment. However, for reasons unknown, his company’s HR department recorded only Rs 3 lakh as the income tax exempted amount for leave encashment in the salary certificate. Nonetheless, Patel filed his income tax return (ITR) claiming a tax refund of Rs 1.53 lakh and sought full income tax exemption on his Rs 8.02 lakh leave encashment under Section 10(10AA)(ii) of the Income Tax Act, 1961.
This created problems as Patel’s salary certificate mentioned that his income tax exemption on leave encashment is restricted to Rs 3 lakh while Patel had claimed full Rs 8.02 lakh income tax exemption in his ITR.
Initially this issue was overlooked by the Income Tax Department and his ITR was successfully processed with Rs 1.54 lakh tax refund including Rs 1,280 interest for delay in tax refund. But later on the ADIT, CPC Bengaluru noticed this discrepancy between Patel’s claim and his company’s salary certificate and so on November 1, 2021, took action against it. On that…
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