Is rejection of rectification petition justified ?

1) Assessee (domestic company) filed return u/s 139(1) of the I T Act in the month of October 2022 for the assessment year 2022-2023 declaring a total income of NIL and claiming TDS Refund of Rs.3.00 lakhs.

2) The return was processed under 143(1) wherein certain expenses amounting to Rs. 50000.00 were disallowed u/s 43B and worked out tax payable thereon @ 26% amounting to be Rs.13000.00

3) As a result of this, net amount refunded was (Rs.3.00 lakhs - Rs.0.13 lakh), i.e. Rs.2.87 lakhs along with interest u/s 244A.

4) The fact is that the assessee was having brought forward business losses of Rs.60.00 lakhs pertaining to Asst Year 2016-2017.

5) The assessee was having total income of Rs.40.00 lakhs during the financial year 2021-2022 which it had set-off from brought forward business losses of Rs.60.00 lakhs and carried forward the remaining business losses of Rs.20.00 lakhs to the subsequent year.

6) Having received income tax refund lesser by Rs.13000.00 due to disallowance of Rs.50000.00, the assessee sought to file rectification u/s 154 of the I T Act by adjusting Rs.50000.00 from the remaining carry forward business losses of Rs.20.00 lakhs resulting into carry forward of business losses of Rs.19.50 lakhs to subsequent year.

7) Rectification petition u/s 154 was rejected by CPC stating that there is no mistake apparent from record since fresh claims of BFLA is being made in the rectification petition.

Is the action to reject section 154 petition correct ?

8) Is appeal u/s 246A the only recourse available?

Regards,

Great question, Dipjyoti! Let me break down the issue and the correct legal position regarding rejection of rectification petitions under Section 154 of the Income Tax Act.

Facts Summary:

Assessee filed return under Section 139(1) declaring NIL income but claiming TDS refund.
Return processed under Section 143(1) with disallowance of expenses under Section 43B.
Disallowance caused reduction of refund by ₹13,000.
Assessee had brought forward business losses (BFLA) from earlier years.
The assessee wanted to adjust the disallowed expenses against BFLA via rectification under Section 154.
CPC rejected the rectification stating no mistake apparent from record because fresh claims of BFLA were made in rectification.
Question: Is rejection justified? Is appeal under Section 246A the only recourse?

Legal Position on Rectification Petition u/s 154:

When can rectification be filed?

Rectification can be filed to correct “mistake apparent from the record”.
This means the mistake should be obvious and not require elaborate arguments or fresh claims.
It cannot be used to make a fresh claim or to introduce new facts.

Application to the case:

The assessee is trying to adjust expenses against brought forward losses, which were not claimed in original return or assessment order.
This adjustment amounts to a fresh claim, not a correction of an apparent mistake.
Hence, CPC’s rejection on the basis that there is no mistake apparent from record is legally justified.

Is Appeal under Section 246A the only recourse?

Yes, since rectification under Section 154 is meant only for apparent mistakes, fresh claims like adjusting BFLA must be pursued by filing an appeal.
Appeal under Section 246A to the Commissioner of Income Tax (Appeals) is the proper channel to challenge the order and make the fresh claim.
The assessee can also consider filing a revised return (if time permits), but this is a separate matter.

Summary:

Issue	Answer
Is rejection of rectification u/s 154 justified?	Yes, because no apparent mistake; fresh claim of BFLA not allowed in rectification.
Is appeal u/s 246A the only recourse?	Yes, filing an appeal before CIT(A) is the correct remedy for fresh claims.