Whether AO must take income declared by assessee in original ITR as returned income while computing income u/s 143(3) instead of assessed income u/s 143(1) ?

Ranuj Nagrik Sahakari Bank Ltd Vs ITO

ITA No. 1885/Ahd/2018

Short Overview of the case: 

Assessee, a co-operative bank, had filed ITR, declaring total income at Rs. 32,01,050/-.

Return was processed u/s 143(1) by CPC, determining total income at Rs. 37,66,260 and raising demand of Rs. 2,10,030/-.

Thereafter, assessment order u/s 143(3) was passed in which returned income was taken at Rs. 37,66,260/- and assessed income at Rs. 40,20,286/- by making addition/disallowance of Rs. 2,54,026/-.

Assessee noticed that there was apparent error in considering figure of returned income while computing assessed income u/s 143(3).

 Assessee filed rectification application u/s 154, requesting to consider income returned by assessee as per return of income of Rs. 32,01,050/- instead of income assessed by CPC u/s 143(1) at Rs. 37,66,259/- for computation of income u/s 143(3).

AO rejected the application stating it was barred by limitation. On assessee’s appeal, as CIT(A) confirmed AO’s action, assessee filed present appeal.

On Appeal, ITAT on the issue as to whether AO must take income declared by assessee in original ITR as returned income while computing income u/s 143(3) instead of assessed income u/s 143(1) held it as yes.

AO had taken income of Rs. 37,66,259/- assessed u/s 143(1) by CPC as returned income, instead of returned income of Rs. 32,01,050/- declared by assessee in its original return.

AO ought to have taken figure of income declared by assessee in original return of income as “returned income” while computing income u/s 143(3) instead of “assessed income” u/s 143(1) as “returned income”.

The mistake was self-evident and apparent from record for rectifying which assessee had filed rectification application u/s 154 that was rejected by AO stating that it was barred by limitation. This foundational fact was not inquired into by both authorities below in course of rectification proceedings u/s 154 but the application was simply dismissed on ground of limitation.

 Assessee had filed application u/s 154 on 20.1.2017 against order passed u/s 143(3) on 13.11.2012. Rectification of an order could be made within 4 years from end of FY in which order sought to be amended was passed.

Thus, in present case period for filing application would expire only on 31.3.2017.

 Hence, assessee’s application u/s 154 was within limitation period. As mistake pointed out by assessee in impugned assessment order was self-evident and apparent on face of record, lower authorities were not justified in rejecting the application u/s 154.

Thus, AO was directed to consider income declared by assessee in its return of income, while computing assessed income u/s 143(3).