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Facts
The assessee filed its return of income declaring Rs.52,49,050 for AY 2017-18. The case was selected for limited scrutiny regarding claimed relief under Section 89 and discrepancies in salary and total taxable income compared to Form 26AS and TDS returns. The main issue was the assessee's claim of interest received as compensation, not taxable, while the AO disputed the relief calculation.
Held
The Tribunal held that the Assessing Officer had initially disallowed the claim for relief under Section 89(1) but subsequently rectified this by passing an order under Section 154. Therefore, there was no liability on the part of the assessee concerning this disallowance. The CIT(A)'s confirmation of the addition was found to be infructuous.
Key Issues
Whether the interest received by the assessee, granted by the High Court, is taxable or constitutes compensation exempt from tax. Whether the disallowance of relief under Section 89(1) by the AO was correctly rectified and if the CIT(A) erred in confirming the addition after rectification.
Sections Cited
143(1), 143(2), 142(1), 89(1), 154, 270A, 56, 57, 143(3)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘B’: NEW DELHI
(Assessment Year: 2017-18) Krishana Shanwal, vs. DCIT, Hisar Circle, House No.155, Sector 15A, Hisar. Hisar – 125 001 (Haryana). (PAN : BTOPS9929Q) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri Kuldip Khera, CA REVENUE BY : Shri Rajesh Kumar Dhanesta, Sr. DR Date of Hearing : 30.06.2025 Date of Order : 30.06.2025 O R D E R
PER S.RIFAUR RAHMAN,AM:
This appeal has been filed by the assessee against the order of ld. Addl./JCIT (A), Agra [“ld. JCIT(A)”, for short] dated 30.12.2024 for the Assessment Year 2017-18.
Brief facts of the case are, assessee filed its return of income on 21.08.2017 declaring an income of Rs.52,49,050/- for the AY 2017-18. The return was processed under section 143(1) of the Income-tax Act, 1961 (for short ‘the Act’). The case was selected for limited scrutiny under CASS for the following issues :-
(i) The assessee has claimed substantial relief u/s 89. (ii) Salary income shown in ITR is less than the salary income as per form 26AS. (iii) Total taxable income shown in ITR is significantly less than the total taxable income shown in Annexure II of TDS Return of employer in Form 24Q.
Accordingly, notices u/s 143(2) and 142 (1) along with questionnaire were issued and served on the assessee. The main issue in this case was that income disclosed by the assessee is less than the income on which TDS was deducted. The assessee has explained the difference as the assessee received salary in arrears with interest amounting to Rs.68,15,882/- and out of which, the interest on the arrears was not considered in the income while calculating the tax payable thereon. The assessee was asked to explain why his claim of deduction u/s 89(1) not be recalculated as per the provisions of law. In compliance, assessee submitted that the amount of Rs.15,66,832/- is compensation in the shape of interest, the interest was granted by the Hon’ble Court. Therefore, it was submitted that the same is not taxable by relying on the decision of Hon’ble Punjab & Haryana High Court in the case of CIT vs. Chiranji Lal Multani Mal Rai Bahadur (P) Ltd. After considering the above facts on record, the Assessing Officer observed that Hon’ble court has held that the retirement benefit will be realised by the bank @ 9% and the relevant order of Hon’ble High Court was reproduced at page 2 of the assessment order, also the benefit arrived to the assessee is tabulated at page 3 of the assessment order. The Assessing Officer recalculated the benefit of deduction u/s 89(1) of the Act Rs.Nil against the relief claimed by the assessee amounting to Rs.9,28,962/-. Accordingly, he disallowed the relief claimed by the assessee to the extent of Rs.9,28,962/-.
Aggrieved, assessee preferred an appeal before the ld. CIT (A) and ld. CIT (A) after considering the detailed submissions of the assessee dismissed the appeal filed by the assessee with the observation that the plea of the assessee was already rectified by the Assessing Officer by passing a rectification order u/s 154 of the Act and with regard to taxability of interest, the same was rejected for the reason that the amount represent taxable income.
Aggrieved, assessee is in appeal before us raising following grounds of appeal:-
1. The order of the Honorable CIT(A) is bad in law and against the facts placed on the file as the Honorable CIT (A) erred in Jaw in confirming the disallowance of interest received by the assessee on the orders of the Honorable Punjab & Haryana High Court under its Discretionary powers.
2. The Honorable CIT(A) erred in law in confirming the addition of Rs.15.66.832/~ made by the learned AO in the Computation Sheet Only. which was prepared to give effect of order u/s 154 of the Income Tax Act, 1961 without speaking a single word about the addition of Rs.15,66.832/- in his order passed under Section 143(3) or in order passed under Section 154 of the Income Tax Act, 1961 on account of interest granted by the Honorable Punjab & Haryana High Court under the Discretionary powers under Article 22.6 of the Constitution of India.
3. The Honorable CIT(A) and the learned AO further erred in law in not allowing 50% rebate under Section 56 read with Section 57 of the Income Tax Act, 1961 on the interest received on the orders of the Honorable Court when they refused to accept the claim of the assessee to treat the interest received under the Discretionary power of The Honorable Punjab & Haryana High Court under Article 226 of the Constitution of India as compensation as Exempt Income.
4. The Honorable CIT (A) has erred in law in confirming the initiation of penalty proceedings by the learned AO on the addition of Rs.15,66,832/- made in the Computation Sheet as the penalty proceedings u/s 270A of the Income Tax Act. 1961 were initiated on the tax rebate amount of Rs.9,28,962.00 claimed as relief under Section 89 of the Income Tax Act. 1961. The assessee had not made any mistake in calculation of relief while filing her income tax return and had rightly and lawfully claimed the relief. After passing of order u/s 143(3), the assessee made an application under Section 154 of the Income Tax Act, 1961 and the learned AO allowed the full tax rebate of Rs.9,28,962.00.”
6. At the time of hearing, ld. AR of the assessee brought to our notice page 5 of the assessment order wherein Assessing Officer has disallowed the claim of the assessee u/s 89(1) of the Act and the same was rectified by the Assessing Officer by passing a rectification order u/s 154 of the Act which is placed at page 51 of the paper book. He also brought to our notice the calculation at page 54 of the paper book wherein Assessing Officer has taken the aggregate tax liability of Rs.9,24,623/- and since the assessee has already paid the due tax of Rs.18,50,000/- by way of TDS, the assessee was allowed to claim the refund of Rs.9,25,377/-. Since the issue under consideration raised by the Assessing Officer was already reached finality by rectifying the above u/s 154 of the Act, he submitted that the addition made by the Assessing Officer is only relating to the benefit u/s 89(1) and not as interest as observed by the ld. CIT (A). Accordingly, he prayed that the same may be deleted.
7. On the other hand, ld. DR of the Revenue brought to our notice page 4 of the ld. CIT (A) and relied on the same.
Considered the rival submissions and material placed on record. We observe that the Assessing Officer has made the addition rejecting the claim of the assessee u/s 89(1) of the Act and subsequently the Assessing Officer has 154 of the Act. As such, there is no liability on the part of the assessee. Meanwhile, assessee preferred an appeal before the ld. CIT(A) and ld. CIT (A) has considered the rectification order passed u/s 154, however confirmed the addition made by the Assessing Officer with the observation that interest granted by Hon’ble High Court is taxable in nature. However, on verification of the facts available on record, we observe that addition made by the Assessing Officer was deleted by him by passing rectification order u/s 154 of the Act relating to the deduction claimed u/s 89(1) of the Act. As such, Assessing Officer has not made any addition on earning of interest income, therefore, the observation of the ld. CIT (A) is infructuous and accordingly, the appeal filed by the assessee is allowed.
In the result, the appeal of the assessee is allowed. Order pronounced in the open court on this 30th day of June, 2025.