The Income Tax Appellate Tribunal (ITAT) Delhi has directed a refund of ₹9.91 lakh to a senior citizen who mistakenly paid tax on exempt interest from IIFCL and REC bonds. This case highlights how taxpayers can rectify clerical errors in their returns under Section 154 of the Income-tax Act, even if initial requests are denied by tax officers.
In a decision favoring taxpayer rights, the Income Tax Appellate Tribunal (ITAT) Delhi has ordered a refund of ₹9.91 lakh for a senior citizen residing in Gurugram. The dispute arose after the individual inadvertently declared ₹25.42 lakh in interest earned from India Infrastructure Finance Company Limited (IIFCL) and Rural Electrification Corporation (REC) bonds as taxable income during the 2022-23 assessment year. Since interest from these specific government bonds is exempt under Section 10(15)(iv)(h) of the Income-tax Act, this clerical error led to an unnecessary tax burden.
The taxpayer initially sought to correct this mistake through a rectification application under Section 154 of the Income-tax Act. However, the jurisdictional assessing officer declined the request. The officer relied on the Supreme Court ruling in Goetze (India) Ltd. v. CIT, which limits the authority of tax officers to entertain fresh claims not included in the original return. The ITAT Delhi bench, however, disagreed with this narrow application. The tribunal clarified that the taxpayer’s request was not a new claim but a correction of an apparent error based on existing records, which is permissible under the law.
To support this, the ITAT cited the precedent set in the Kapil Dev Nikhanj case, confirming that appellate authorities maintain the power to address and rectify mistakes in records. The tribunal also emphasized the mandate of Article 265 of the Constitution of India, which stipulates that no tax shall be levied or collected except by the authority of law. Because the interest in question was statutorily tax-exempt, the tribunal ruled that the collected tax was invalid and ordered the refund to be processed, along with applicable interest.
This ruling serves as a useful reminder for taxpayers to carefully review their income classification, especially regarding tax-free bonds or other exempt earnings. It also underscores that procedural barriers should not prevent the correction of genuine clerical mistakes. For those facing similar issues, the outcome highlights that a formal rejection by an assessing officer is not the final word, as taxpayers have the legal right to challenge administrative oversights through the appellate process.