2025 (6) TMI 311 - AT - Income Tax

Disallowance u/s.10 towards professional tax - addition in the hands of the assessee is on account of mismatch of data reflected in Form No.26AS and Form No.16 - CIT(A) noted that there were certain discrepancies in the return filed by the assessee by not correctly filing in the data in the correct rows and columns in the return which has resulted into the impugned disallowance/additions while processing of return by the CPC HELD THAT - Assessee has placed on record relevant documents to justify his claim which is on account of errors committed by his employer while furnishing its TDS statement. Considering the facts of the case and material placed on record we find it appropriate to remit the matter back to the file of Ld. Jurisdictional Assessing Officer (JAO) for the limited purpose of verification of factual details furnished by the assessee. Ld. JAO is directed to conduct proper verification in the matter and satisfy himself with regard to the claim made by the assessee. JAO may also exercise powers available under the Act to ascertain correctness of the amount from the employer of the assessee. Accordingly grounds raised by the assessee are allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal are:

(a) Whether the disallowance of a sum of Rs. 2,92,522/- claimed as exempt allowances under section 10 of the Income Tax Act, 1961, was justified, given the facts and documents submitted by the assessee;

(b) Whether the levy of interest under sections 234A, 234B, and 234C of the Income Tax Act, 1961, was appropriate;

(c) Whether the initiation of penalty proceedings under section 271(1)(c) of the Income Tax Act, 1961, was warranted in the facts and circumstances of the case;

(d) Ancillary to the above, whether the discrepancies and mismatches in the data filed by the employer and reflected in Form 26AS and Form 16 could justify any adverse action against the assessee;

(e) The procedural correctness of the assessment and the extent of verification required to establish the correctness of the claimed exemptions and allowances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Disallowance of Allowances Claimed as Exempt under Section 10

Relevant legal framework and precedents: Section 10 of the Income Tax Act, 1961, exempts certain allowances from taxable income. The employer's Form 16 and the assessee's return are primary documents reflecting such exemptions. The principle that income should be assessed on the correct facts and that exemptions legitimately claimed cannot be disallowed without valid cause is well established.

Court's interpretation and reasoning: The Tribunal observed that the assessee claimed allowances aggregating Rs. 2,82,929/- under section 10, including house rent allowance and child education allowance, which were accepted by the employer and reflected in Form 16 Part B. The assessee's gross salary and perquisites were also consistent across Form 16 and Form 26AS, except for certain discrepancies arising from errors in data uploaded by the employer.

Key evidence and findings: The assessee produced corroborative evidence including Form 16 issued by the employer, Form 26AS, and computations of income and tax. The Tribunal noted that the employer had accepted the exemption claims in its TDS statement and Form 16, which should ordinarily be conclusive unless rebutted by contrary evidence.

Application of law to facts: The Tribunal found that the disallowance by the Centralized Processing Centre (CPC) was primarily due to data mismatches caused by errors on the employer's part. Since the employer had accepted the exemption claims, the assessee should not be penalized for such errors. The Tribunal emphasized the principle that the correct income should be brought to tax, and any mismatch due to employer's filing errors cannot be the basis for addition against the assessee.

Treatment of competing arguments: The Revenue relied on the order of the Commissioner of Income Tax (Appeals), which upheld the disallowance based on discrepancies in the return. The Tribunal, however, gave greater weight to the documentary evidence submitted by the assessee and the employer's acceptance of the exemptions.

Conclusions: The Tribunal concluded that the disallowance was not justified on the facts and directed a verification of the factual details by the assessing officer to ascertain the correctness of the exemption claims.

Issue (b): Levy of Interest under Sections 234A, 234B, and 234C

Relevant legal framework: Sections 234A, 234B, and 234C pertain to interest for defaults in furnishing return of income, non-payment or short payment of advance tax, and deferment of advance tax installments respectively.

Court's interpretation and reasoning: The Tribunal did not make a direct finding on the levy of interest but implicitly indicated that since the primary addition/disallowance was not sustainable without verification, the levy of interest based on such addition also required reconsideration.

Application of law to facts: Since the correctness of income was to be verified afresh, the basis for interest calculation would also change accordingly.

Conclusions: The Tribunal allowed the ground relating to interest for statistical purposes, implying reconsideration after verification.

Issue (c): Initiation of Penalty Proceedings under Section 271(1)(c)

Relevant legal framework: Section 271(1)(c) penalizes concealment of income or furnishing of inaccurate particulars of income. The penalty can only be imposed if there is clear evidence of concealment or inaccuracy.

Court's interpretation and reasoning: The Tribunal noted that the assessee had not concealed income nor furnished inaccurate particulars intentionally. The discrepancies arose due to employer's errors in TDS statements and data uploading, which were beyond the assessee's control.

Application of law to facts: The Tribunal held that penalty proceedings were not justified on the facts and should be reconsidered after proper verification.

Conclusions: The penalty ground was allowed for statistical purposes, subject to the outcome of verification.

Issue (d): Discrepancies in Data Filed by Employer and Mismatches in Form 26AS and Form 16

Relevant legal framework: The correctness of TDS data and income particulars is essential for assessment. However, errors in employer's filings should not be imputed to the assessee without proper inquiry.

Court's interpretation and reasoning: The Tribunal acknowledged that the mismatches were due to errors committed by the employer while uploading TDS data. It held that such errors cannot be the basis for raising demand or disallowance against the assessee without proper verification.

Application of law to facts: The Tribunal directed the Assessing Officer to verify the facts and ascertain correctness from the employer, giving the assessee reasonable opportunity to present submissions.

Conclusions: The Tribunal remitted the matter for fresh verification and assessment.

Issue (e): Procedural Correctness and Verification

Relevant legal framework: Assessing Officers have the duty to verify the correctness of claims made in returns and to conduct inquiries as necessary before making additions or disallowances.

Court's interpretation and reasoning: The Tribunal found that the impugned order was based on processing of return without adequate verification of the discrepancies and claims made by the assessee.

Application of law to facts: The Tribunal directed remand to the jurisdictional Assessing Officer for detailed verification and fresh adjudication in accordance with law.

Conclusions: The procedural aspect required correction by remand for proper inquiry and opportunity of hearing.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"Considering the facts of the case and material placed on record, we find it appropriate to remit the matter back to the file of Ld. Jurisdictional Assessing Officer (JAO) for the limited purpose of verification of factual details furnished by the assessee. Ld. JAO is directed to conduct proper verification in the matter and satisfy himself with regard to the claim made by the assessee. Ld.JAO may also exercise powers available under the Act to ascertain correctness of the amount from the employer of the assessee. Needless to say that assessee be given reasonable opportunity of being heard and to make any further submission, if so required. Considering all the submissions and verification as well as enquiry, Ld. JAO may pass the order afresh in accordance with the provisions of law."

Core principles established include:

- The employer's acceptance of exemption claims in Form 16 and TDS statements is a significant factor and cannot be lightly disregarded.

- Errors or mismatches arising from employer's data uploading cannot be the basis for disallowance or addition without proper verification.

- The assessee should not be penalized for discrepancies caused by third parties (employer) without evidence of concealment or inaccurate particulars on the assessee's part.

- Assessing Officers must conduct thorough verification and provide reasonable opportunity to the assessee before making adverse orders.

Final determinations on each issue were reserved pending fresh verification, with the appeal allowed for statistical purposes and remanded for fresh adjudication consistent with the above principles.