ITAT Pune Confirms Valid Rectification Under Section 154 Within Extended Limitation

The Pune Bench of the Income Tax Appellate Tribunal has clarified an important issue on the interplay between Section 154(7) of the Income Tax Act 1961, the COVID-19 related relaxation law under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA), and the limitation extensions granted by the Supreme Court.

In Jalgaon Peoples Co-op. Bank Limited Vs ITO (ITAT Pune), the Tribunal upheld a rectification order passed under Section 154 read with Section 143(1) for Assessment Year (AY) 2015-16, rejecting the assessee’s plea that the order was time-barred and beyond the scope of rectification.

This decision is significant for all assessees where departmental actions—especially rectification orders—were undertaken during or around the COVID-19 relaxation period.

Background of the Dispute

Return Filing and Processing for AY 2015-16

  • The assessee, a co-operative bank, filed its original return of income for AY 2015-16 on 29.09.2015, declaring income of about Rs. 9.14 crore.
  • A revised return was subsequently filed on 30.04.2016, declaring an enhanced income of Rs. 10.51 crore.
  • The revised return was processed under Section 143(1) on 15.09.2016, and the returned income was accepted without any adjustment.
  • No regular assessment under Section 143(3) and no reassessment under Section 147 was initiated for this year.

Assessment for AY 2014-15 and Its Impact

For the immediately preceding year:

  • For AY 2014-15, an order was passed under Section 143(3) read with Section 263 on **16.10.2019`.
  • In that order, an addition of Rs. 12.80 crore was made on account of bad debts.
  • As a result, the returned loss of Rs. 17.54 crore for AY 2014-15 was reduced to about Rs. 4.73 crore, thereby curtailing the loss available for carry forward.

Set-Off of Brought Forward Losses in AY 2015-16

While examining the record for AY 2015-16:

  • The Assessing Officer (AO) noticed that the assessee had:

    • Set off brought forward business loss of around Rs. 14.41 crore, and
    • Claimed unabsorbed depreciation of approximately Rs. 3.18 crore
      against its business income for AY 2015-16.

  • In the AO’s view, after considering the reduced loss determined for AY 2014-15 (Section 143(3) r.w.s. 263), the assessee was eligible to set off only Rs. 4.73 crore of business loss in AY 2015-16.

  • Consequently, the AO believed there was excess set-off of brought forward loss in AY 2015-16 and that the intimation under Section 143(1) required rectification.

Rectification Proceedings Under Section 154

Issue of Notice and Assessee’s Objections

  • A notice under Section 154 was issued on 20.08.2021 proposing rectification of the intimation issued under Section 143(1) for AY 2015-16.
  • The assessee objected, with primary contentions that:
    • The proposed change did not amount to a “mistake apparent from the record” as required by Section 154.
    • The additions made for AY 2014-15 were sub judice, as the assessee had filed appeal proceedings, and
    • Hence, the rectification should be kept in abeyance until the appeal for AY 2014-15 was finally resolved.

AO’s Rectification Order

  • The AO rejected the objections and took note that the Tribunal had already dismissed the assessee’s appeal against the order under Section 263 for AY 2014-15, confirming the addition.
  • Thereafter, on 17.09.2021, a rectification order under Section 154 read with Section 143(1) was passed.
  • The order:
    • Modified the quantum of brought forward loss allowed in AY 2015-16,
    • Took into account that the assessee had already used the loss of AY 2014-15, which stood reduced due to the addition of Rs. 12.80 crore, and
    • Recomputed the total income at Rs. 23.32 crore for AY 2015-16.

Appeal Before the Commissioner (Appeals)/NFAC