TRIMBAK SHRIPAD DHARURKAR,PUNE vs. ITO WARD 4(4), PUNE

Whether the question as to the appellant being a Government employee or not is to be decided after examination of facts and a long drawn process of inquiry and would not fall within the scope of a mistake apparent from record.

Whether the Order u/s 154 rectifying the intimation u/s 143(1)(a) is beyond the scope of permissible adjustment u/s 143(1)(a) in view of the facts that the claim u/s 10(10AA) is not an incorrect claim apparent from any information in the return of income

Whether on the facts and circumstances of the cases the addition of Rs.9,55,800/-on account of disallowance of exemption u/s 10(10AA) on the ground that the appellant is a "non-government/government employee is justified when the appellant is a former employee of PMPML which is a government body carrying out public function cannot be said to be a non-government employee.

The appellant craves leave to add, alter, modify or substitute any ground of appeal at the time of hearing." Findings & Analysis :

We have heard both the parties and perused the records. In this case, Assessee is an individual. He filed Return of Income for A.Y.2018-19 on 18.08.2018 under section 139(1) of the Act. During the year in the Return of Income, assessee claimed Leave Encashment exempt under section 10(10AA) of the Act of Rs.9,55,800/-. Assessee also claimed Gratuity of Rs.7,00,000/-\exempt u/s.10(10) of the Act. Assessee in the Return of Income had shown total income of Rs.12,31,980/- after claiming the said exemptions. The order u/s.143(1) was passed by DCIT(CPC) on 25.09.2018 accepting the Returned income of Rs.12,31,980/-.

1 Then, an order u/s.154 of the Act, was passed on 29.10.2021 by the ADIT(CPC) disallowing assessee's claim of exemption for Leave Encashment and made addition of Rs.6,55,800/-. Aggrieved by the order u/s.154 of the Act, Assessee filed appeal before the ld.CIT(A).

2 Ld.CIT(A) upheld the addition made by the Assessing Officer(AO).

Aggrieved by the order of the ld.CIT(A), Assessee filed appeal before this Tribunal.

Ld.AR took us through the order u/s.154 of the Act and pleaded that the ADIT-CPC i.e.Assessing Officer passed rectification order u/s.154 of the Act, three times. Once in the order u/s.154, ADIT(CPC) disallowed assessee's claim of exemption for Leave Encashment, then subsequently suo-moto passed an order u/s.154 and allowed the assessee's claim of exemption for Leave Encashment. Then, again the ADIT-CPC passed an order u/s.154 disallowing assessee's claim of exemptions. Ld.AR pleaded that this itself shows that the issue is debatable issue and hence, outside the purview of Section 154 of the Act. Ld.AR also pleaded that no opportunity has been provided during entire proceedings u/s.154 of the Act. Ld.AR also submitted that this kind of disallowance is outside the purview of Section 143(1) also.

We have gone through the impugned order u/s.154 of the Act, dated 29.10.2021. The reason mentioned on page no.4 of the said order for rectification is reproduced here as under : “It has been informed to the assessee by a notice from CPC regarding a claim in the return for A.Y.2018-19 which is not allowable. In the return, leave encashment in excess of Rs.3 lakhs has been claimed as exempt, u/s 10(10AA) of the Income Tax Act. In the case of other than government employees, maximum exemption allowable is Rs.3 Lakhs. In the intimation under 143(1)(a), full exemption as claimed in the return, was allowed though assessee is not a government employee as per the details in the return. Hence, an order u/s 154 was passed, restricting the claim of Rs.3 Lakhs. However, the order u/s 154 was erroneously taken up for rectification again, whereby full exemption, as claimed in the return, was allowed. As the assessee's claim of exemption, in excess of Rs 3 lakhs, is erroneous and is a mistake apparent from records, the exemption u/s 10(10AA) is restricted to Rs.3 lakhs in this order." (Emphasis supplied)

1 Thus, it is clear from the “Reasons for Rectification” mentioned in the "impugned order u/s.154" that initially, u/s.143(1) of the Act, Assessee's claim for exemption was allowed fully. Then, by rectification u/s.154 of the Act, it was restricted to Rs.3,00,000/- only. However, this order u/s.154 of the Act was again rectified u/s.154 and assessee's claim for exemption of Leave Encashment u/s.10(10AA) of the Act, was fully allowed i.e.Rs.9,55,800/- was allowed as exempt income. Then, the ADIT- CPC again passed an order restricting the Leave Encashment exemption to Rs.3 lakhs. Assessee is in appeal before us against the said order. We agree with the ld.AR that once Revenue has allowed Assessee's claim for exemption of leave encashment u/s.10(10AA) of the Act for entire amount of Rs.9,55,800/- u/s.143(1) and then, u/s.154 of the Act, then, the impugned order dated 29.10.2021 passed u/s.154 of the Act, again restricting the assessee's claim to Rs.3,00,000/- is outside the purview of Section 154 of the Act. Under section 154 of the Act, only an apparent mistake from record can be rectified. In this case, the same office i.e.ADIT(CPC) had allowed assessee's claim of exemption for entire amount of Rs.9,55,800/- twice i.e.once u/s.143(1) of the Act and then u/s.154 of the Act, shows that the ADIT(CPC) had applied his mind and consciously taken the decision based on the facts of the case to allow exemption u/s.10(10AA) of the Act, for the entire amount. In these facts, the ADIT(CPC) has not brought on record how the earlier order u/s.154 allowing entire exemption claim was wrong. The ADIT(CPC) has not explained how the assessee was held to be eligible in earlier order u/s.154, becomes ineligible. In these circumstances, the third order u/s.154 of the Act, dated 29.10.2021 cannot be upheld as there is no apparent mistake evident from the record in the order allowing exemption fully. Only apparent mistakes can be rectified.

1 Therefore, the impugned order u/s.154 of the Act, dated 29.10.2021 is held to be bad in law. In these facts and circumstances of the case, we allow the grounds of appeal raised by the assessee.

In the result, appeal of the assessee is allowed. Order pronounced in the open Court on 16 May, 2025. (VINAY BHAMORE) JUDICIAL MEMBER (DIPAK P.RIPOTE) ACCOUNTANT MEMBER पुणे / Pune; दिनांक / Dated: 16 May, 2025/ SGR आदेशकीप्रतिलिपिअग्रेषित /