ITAT Invalidates Rectification Proceedings As Interest Was Already Charged Under Section 234C; AO Cannot Revise It Later

The ITAT Kolkata held the entire rectification proceeding invalid, as the Assessing Officer (AO) had initially calculated the Section 234C interest at Rs 7.82 lakh and it later increased the amount via rectification order, which is unfair as per the law.

When the “Compute Tax” option was selected on the income tax portal, the interest of Rs 8.22 lakh was automatically calculated in the case of the assessee, Novel Suppliers Private Limited; however, as per the assessee’s taxable income, the ideal interest should have been Rs 7.82 lakh. Since there is no option available on the portal to manually correct this mistake, the assessee had to complete the filing process.

According to the judgement, “The interest u/s 234C of the Act was automatically calculated at Rs.8,22,523/- when the compute tax button was pressed, whereas the correct and actual interest comes to Rs.7,82,999/-, but since there was no option to correct the mistake, the return has to be efiled. The assessee had to pay a sum of Rs.8,22,523/- as interest u/s 234C of the Act.”

Later, when the return was processed by the Central Processing Centre (CPC) under Section 143(1) of the Income Tax Act, the mistake was corrected, and the ideal interest was calculated at Rs 7.28 lakh. The same amount was also considered by the Assessing Officer (AO) while completing the scrutiny assessment of the assessee’s return under Section 143(3) for the AY 2017-18.

The AO later in 2023, initiated rectification proceedings against the assessee under Section 154, where it increased the interest demand from Rs 7.28 lakh to Rs 8.22 lakh and completed the rectification proceedings. Being aggrieved with the rectification order, the assessee filed an appeal before the Income Tax Appellate Tribunal (ITAT), Kolkata, arguing that the original assessment had correctly computed the interest and the rectification order is unfair as per the law; hence, it is liable to be quashed.

When the tribunal analysed the facts of the case, it noted that both the CPC and the Assessing Officer, had initially calculated the interest demand of Rs 7.28 lakh; hence, the AO cannot later revise the demand by initiating rectification proceedings unless there is a glaring, non-debatable error. The Tribunal held that there was no apparent mistake in the assessment order, and the impugned rectification proceedings were wrongly initiated.

The tribunal had noted that the “rectification order passed by the AO u/s 154/143(3) of the Act, dated 11.08.2023 is wrong and cannot be sustained, as there is no mistake in the assessment order passed u/s 143(3) of the Act. In our opinion, the proceedings u/s 154 of the Act were invalidly and wrongly initiated by Assessing Officer.”

Consequently, both the rectification proceedings and the order were quashed.