2025 (6) TMI 811 - AT - Income Tax

Denial of Benefit of the new tax regime u/s 115BAC claimed in revised return - assessee originally opted for old tax regime taxation but subsequently the assessee opted for new tax regime by filing a revised return - original return was processed and assessee was granted benefit available to the assessee as deduction under Chapter VIA of the Act in the old regime but when the revised return was processed the assessee was denied the benefit of new regime as well as was not allowed the deductions which assessee should have been allowed in the old tax regime HELD THAT - According to the provisions of section 115BAC(2) if income of the assessee is chargeable to tax under that section assessee is not allowed the benefit of items specified in sub-section (2). The assessee is also deemed to have been allowed the deduction for losses and depreciation as per sub-section (3). However if the assessee is assessed to tax in the old regime and not u/s. 115BAC assessee is to be allowed the benefit of items specified in sub-sections (2) (3) of section 115BAC of the Act. In this case assessee has been taxed not in the new regime but in the old regime assessee must be allowed the claim under the sub-sections (2) (3) of section 115BAC. These details are available in the original return processed by the CPC. We direct the AO to grant the benefit of deductions available to the assessee which are denied in the new regime as mentioned in sub-sections (2) (3) of section 115BAC of the Act. Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] exceeded their jurisdiction in making adjustments under sections 143(1) and 154 of the Income-tax Act, 1961 (the Act) without proper authority.
• Whether the impugned intimation and rectification orders were passed without granting the assessee an opportunity of hearing, thereby violating principles of natural justice.
• Whether the AO and CIT(A) erred in denying the benefit of the new tax regime under section 115BAC of the Act to the assessee who filed a revised return opting for this regime.
• Whether the revised return filed by the assessee replaces the original return for all intents and purposes, including eligibility for section 115BAC benefits.
• Whether, in the event of denial of the new tax regime benefit, the assessee is entitled to claim deductions available under the old tax regime, particularly under Chapter VIA of the Act.
• Whether the demand raised and levy of interest under sections 234A/B/C and notice under section 156 of the Act were justified.
• Whether the impugned adjustments were based on mere presumptions and surmises and thus liable to be deleted.
• Whether the orders passed suffer from non-application of mind and are therefore liable to be quashed.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Jurisdiction of AO and CIT(A) under sections 143(1) and 154

Legal Framework and Precedents: Section 143(1) of the Act deals with summary assessment of income tax returns, allowing the AO to make limited adjustments. Section 154 provides for rectification of mistakes apparent from record. Jurisdiction under these provisions is circumscribed and cannot be used to make substantive changes beyond the scope authorized by law.

Court's Interpretation and Reasoning: The Tribunal observed that the AO and CIT(A) incorporated adjustments in the intimation and rectification orders that allegedly exceeded the scope of sections 143(1) and 154. However, the Tribunal did not find sufficient merit in the assessee's contention that such jurisdiction was exceeded, as the adjustments related to processing of returns and rectification of errors in tax computation.

Application of Law to Facts: The AO initially processed the original return under section 143(1), accepting it. The revised return was processed subsequently, and rectification orders under section 154 were passed denying certain benefits. The Tribunal noted that the AO acted within the scope of these provisions in processing and rectifying the returns.

Conclusion: The Tribunal did not uphold the contention that the AO and CIT(A) exceeded their jurisdiction under sections 143(1) and 154.

Issue 2: Violation of principles of natural justice

Legal Framework: Principles of natural justice require that a person affected by a decision should be given an opportunity to be heard before adverse orders are passed.

Court's Interpretation: The assessee argued that the impugned intimation and rectification orders were passed without giving a hearing opportunity. The Tribunal found that the processing of returns under section 143(1) and rectification under section 154 are summary in nature and do not mandate a hearing opportunity.

Conclusion: The Tribunal rejected the claim of violation of natural justice principles in this context.

Issue 3 and 4: Denial of benefit under section 115BAC and effect of revised return

Legal Framework: Section 115BAC provides an optional new tax regime with concessional tax rates but disallows various deductions and exemptions available under the old regime. The assessee can opt for this regime by filing a return accordingly. The revised return replaces the original return for all purposes.

Court's Interpretation and Reasoning: The assessee originally filed return under the old regime, claiming deductions under Chapter VIA. Subsequently, she filed a revised return opting for the new regime under section 115BAC. The AO processed the revised return but denied the benefit of section 115BAC and raised a demand. The CIT(A) upheld this denial. The Tribunal noted that if the new regime under section 115BAC is not accepted, the assessment must be made under the old regime, allowing the deductions permissible therein.

Key Evidence and Findings: The original return claimed deductions under Chapter VIA and was accepted by the AO. The revised return opted for the new regime but was denied its benefits. The Tribunal found that the AO and CIT(A) erred in denying both the benefit of the new regime and the deductions under the old regime.

Application of Law to Facts: The Tribunal held that since the assessee was ultimately assessed under the old regime (due to denial of section 115BAC benefit), she must be allowed the deductions available under the old regime, as per subsections (2) and (3) of section 115BAC.

Treatment of Competing Arguments: The Revenue contended that the denial of section 115BAC benefit was justified and that the revised return was processed accordingly. The assessee argued for allowance of old regime deductions if new regime benefits were denied. The Tribunal sided with the assessee on this point.

Conclusion: The Tribunal directed the AO to grant the deductions under the old regime to the assessee, as claimed in the original return, since the new regime benefits were denied.

Issue 5: Claim for deductions under old regime when new regime is denied

This issue is integrally linked with the above and was specifically allowed by the Tribunal. The Tribunal emphasized that the assessee cannot be denied both the benefit of the new regime and the deductions available under the old regime. The AO was directed to allow the deductions under Chapter VIA as per the original return.

Issue 6: Legitimacy of demand notice under section 156 and levy of interest under sections 234A/B/C

The assessee challenged the raising of demand and levy of interest. The Tribunal did not find any specific merit in these grounds as no detailed submissions or findings were recorded on these points. The demand and interest levies were upheld as per the orders of the lower authorities.

Issue 7: Whether impugned adjustments were based on mere presumption and surmises

The assessee contended that the adjustments were not based on evidence but on presumptions. The Tribunal found no support for this contention in the record, as the adjustments related to processing of returns and tax computations under the Act's provisions. Hence, this ground was dismissed.

Issue 8: Non-application of mind and errors in the impugned order

The assessee alleged the orders were passed without application of mind. The Tribunal found that the CIT(A) did not consider the issue of allowing old regime deductions when new regime benefits were denied, which was a significant omission. Accordingly, the Tribunal partly allowed the appeal directing the AO to allow such deductions. Other grounds alleging errors and non-application of mind were not pressed or found substantiated.

3. SIGNIFICANT HOLDINGS

The Tribunal made the following crucial legal determinations:

"According to the provisions of section 115BAC(2), if income of the assessee is chargeable to tax under that section, assessee is not allowed the benefit of items specified in sub-section (2). The assessee is also deemed to have been allowed the deduction for losses and depreciation as per sub-section (3). However, if the assessee is assessed to tax in the old regime and not u/s. 115BAC, assessee is to be allowed the benefit of items specified in sub-sections (2) & (3) of section 115BAC of the Act."

"In this case, assessee has been taxed not in the new regime, but in the old regime, assessee must be allowed the claim under the sub-sections (2) & (3) of section 115BAC. These details are available in the original return processed by the CPC. In view of this, we direct the ld. AO to grant the benefit of deductions available to the assessee which are denied in the new regime as mentioned in sub-sections (2) & (3) of section 115BAC of the Act."

Core principles established include:

• The revised return replaces the original return, but if the revised return opting for the new tax regime is denied benefit under section 115BAC, the assessment must be made under the old regime.
• When assessed under the old regime, the assessee is entitled to claim deductions available therein, including under Chapter VIA, even if the revised return opted for the new regime.
• Summary assessments and rectifications under sections 143(1) and 154 do not mandate hearing opportunities as per natural justice principles.
• Jurisdiction of AO and CIT(A) under sections 143(1) and 154 is limited but was not exceeded in this case.

Final determinations on each issue resulted in the partial allowance of the appeal, specifically directing the AO to grant the deductions under the old regime, while other grounds were dismissed.