WHETHER THE TAX BENEFITS / DEDUCTIONS NOT CLAIMED IN INCOME-TAX RETURN CAN BE CLAIMED BY ANY OTHER ROUTE.

WHETHER THE TAX BENEFITS / DEDUCTIONS NOT CLAIMED IN INCOME-TAX RETURN CAN BE CLAIMED BY ANY OTHER ROUTE.

The normal procedure of claiming any benefit or deduction in Income-tax is by claiming it in Income-tax Returns (‘ITR’) and if there are any errors or omission’s persisting in original return same can be rectified by furnishing a revised return as per section 139(5) of Income-tax Act, 1961 (‘The Act’). This is the regular course of action where errors can be taken care. However, there can be situation where errors could not be identified in due time and accordingly could not be revised/rectified or there is change in circumstances owing to which the stand taken at time of furnishing the return is now changed.

Is there any way, other than revising the ITR, to make a claim or rectify the mistake which remained or persisted in ITR furnished?

I.            In case where Assessment proceedings are pending

Whether, requesting the Assessing Officer (‘AO’) during assessment proceedings to accept the claim will help and accordingly, whether AO has the power to accept any claim during the assessment proceedings Whether,

II.           In case where No regular assessment proceedings are pending

1)   Whether, provisions of section 154 of the Act relating to the rectifications can be of help

2)   Whether, provisions of section 264 could be of help

Let’s discuss these different angles in light of various judgement's of judiciary.

I.   Where Assessment proceedings are pending.

Whether assessee can make a claim which is not made in ITR or revised ITR before the AO during the regular assessment proceedings.

The assessment procedure in the law of Income-tax Act is to assess the correct income of the assessee. As per section 4 of the Act, what can be taxed is Total Income and that also of respective person pertaining to respective assessment year. That is to say, it can be said that Correct Income is assessed only when,

-      Correct person is taxed

-      Taxed in Correct year

-      Correct amount of Total Income is taxed

-      Correct rates of tax are charged

Give the background, in case any mistake or incorrect computation is being done by assessee and same cannot be revised by him then, whether the AO has power to entertain any fresh claim is the question.

Because, the power of assessing officer is quasi-judicial power and he can act only within the ambit of law authorizing him. That is, to do or to abstain from doing is to be within four corners of the Act.

As per Hon’ble Supreme Court’s judgement in case of Goetz (India) Limited (2006) 284 ITR 323 had affirmed that the power of AO is limited and cannot entertain any claim made for the first time. That is to say, AO do not have power to entertain any FRESH CLAIM (relevant part of order is as under)

“The decision in question is that the power of the Tribunal under s. 254 of the IT Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the AO to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Tribunal under s. 254 of the IT Act, 1961. There shall be no order as to costs.”

So, the aspect which needs to be looked into is whether the claim made is altogether a fresh claim or not.

Fresh claim refers to a claim which was not at all made in ITR. That is to say, not even an incorrect view of any expenditure/deduction was taken which can then be said as a claim which was taken but since same was not correct it needs to be corrected at assessment level.

It is very well settled principle in law of income-tax that the assessing officer is required to assess the income correctly. On the similar footings, there is an old Circular issued by the Central Board of Direct Taxes Circular No: 14 (XL-35) dated April 11, 1955. It states: 

"Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assessee on whom it is imposed by law, officers should

(a) Draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

(b) Freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."

For instance, where assessee has already made a claim of expenditure and then while computing total income same was disallowed owing to Incorrect Application of Law and accordingly, said expenditure was disallowed by himself. Therefore, the Appellant with Bonafide intention can make a request before the AO to make correct assessment of Income by allowing the deduction.

Hon’ble Delhi High court has adjudicated similar matter in case of C.I.T. Vs. Bharat General Reinsurance Co. Ltd., 1971, 81 ITR 303 (Delhi). In this case the assessee itself had included dividend income in its return for the year in question. However, the assessee itself challenged the validity of taxing the dividend during the year of assessment in question. The Hon’ble High Court held that merely because the assessee wrongly includes the income in his return for the particular year, it cannot confer jurisdiction on the A.O. to tax that income in that year, even though legally such income did not pertain to that year. The relevant part of the judgement on pp.307 & 308 of the Report, is reproduced as follows:

“It is true that the assessee itself had included that dividend income in its return for the year in question but there is no estoppel in the Income-tax Act and the assessee having itself challenged the validity of taxing the dividend during the year of assessment in question, it must be taken that it had resiled from the position which it had wrongly taken while filing the return. Quite apart from it, it is incumbent on the income-tax department to find out whether a particular income was assessable in the particular year or not. Merely because the assessee wrongly included the income in its return for a particular year, it cannot confer jurisdiction on the department to tax that income in that year even though legally such income did not pertain to that year” (paragraph No. 13 of the order)

Though above judgement is pertaining to period before Hon’ble SC’s Decision in case of Goetz India Limited but the issue decided by the Hon’ble Delhi HC is still valid as both the decisions are not contradictory but providing the way to make the assessment.

Further, Hon’ble Kerala High Court in case of Raghvan Nair Vs. ACIT [2018] Taxmann.com 212 (Kerala) in a case similar to the case of appellant had distinguished the Hon’ble SC’s judgement in case of Goetz India Limited. The issue before Hon’ble Kerala HC was that whether Capital gain, which was exempt, though taxed by the assessee can be rectified by the AO in light of Goetz India Limited’s Decisions. Hon’ble Court held that, in case where assessee has already included a income in his return which should be exempt has not been impacted from Goetz India Limited’s Judgement. Further, Hon’ble Court has relied on Supreme Court’s own judgement in case of CIT v. Shelly Products [2003] 129 Taxman 271/261 ITR 367 wherein it is held that AO if satisfied that assessee ‘has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing officer, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the authority concerned in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief’

Hon’ble SC’s decision in case of Goetz India Ltd is regarding AO’s Power to allow claim made by the Assessee by filing a letter. Whereas, it is clearly, not regarding the legality of claim/ view already taken by the assessee

Further, in case where the claim made by Assessee is altogether new claim then he can prefer an appeal and claim at that level. It is purely open for the Appellate Authorities to entertain the claim made by the Appellant and accordingly decide on the same as per provisions of section 251 of the Act.

SC’s decision in Goetz India Limited elucidates the power of the Assessing Officer only. Relevant part of SC’s order is as under,

“However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Tribunal under s. 254 of the IT Act, 1961. There shall be no order as to costs”

Above view is duly being adjudicated by various courts some of them are as under,

CIT v. Pruthvi Brokers & Shareholders Pvt. Ltdv(2012) 349 ITR 336 (Bom.)

Herein it was held that, It is well settled that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same,

Para 23 of the case is reproduced for ready reference

“23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254.”

The Commissioner Of Income Tax vs M/S. Abhinitha Foundation Pvt Ltd (Madras HC) delivered on 06/06/2017, wherein Hon’ble court held that,

“18.In sum, what emerges from a perusal of the ratio of the judgments cited above, in particular, the judgments rendered by the Supreme Court in GOETZE's case and National Thermal Power Co. Ltd.'s case, and those, rendered by the Division Bench of this Court in Ramco Cements Ltd. and CIT vs Malind Laboratories P. Ltd., as also the judgments of the Delhi High Court in Sam Global Securities Ltd.'s case and Jai Parabolic Springs Ltd.'s case, that, even if, the claim made by the assessee company does not form part of the original return or even the revised return, it could still be considered, if, the relevant material was available on record, either by the appellate authorities, (which includes both the CIT (A) and the Tribunal) by themselves, or on remand, by the Assessing Officer. In the instant case, the Tribunal, on perusal of the record, found that the relevant material qua the claim made by the assessee company under Section 80 IB (10) of the Act was placed on record by the assessee company during the assessment proceedings and therefore, it deemed it fit to direct its reexamination by the Assessing Officer.

18.1.In our opinion, the view taken by the Tribunal is unexceptionable and therefore, does not merit any interference.”

While deciding the instant case Hon’ble Madras HC had duly referred the following cases which are mainly referred by the courts in deciding the issue on hand

1)        GOETZE (India) Ltd. vs. CIT (SC) (2006) 284 ITR 323

2)        CIT vs. Pruthvi Brokers & Shareholders P. Ltd., (2012) 349 ITR 336 (Bom.) (Favour of Appellant)

3)        Jute Corporation of India Ltd. v. CIT (1991) 187 ITR 688 (Favour of Appellant)

4)        National Thermal Power Co. Ltd. vs. CIT, (1998) 229 ITR 383 (SC) (Favour of appellant)

CIT vs. Jai Parabolic Springs Ltd (Delhi HC) (2008) 306 ITR 42

Hon’ble Delhi High court held that the CIT (A) had the jurisdiction to entertain the additional claim not filed before the Assessing Officer

Therefore, in case the AO does not allow the claim of assessee then the route to get the claim allowed is to prefer an appeal before appellate authorities.

Thus to conclude,

1)   If any claim which  cannot be categorized as to be made for the first time should be entertained by the AO

2)   In case of any new/ fresh claim, CIT(A) and ITAT has authority to entertain and consider any new claim.

II.  Where no regular assessment proceedings are pending

1)   Whether provisions of section 154 of the Act relating to the rectifications can be of help.

The provision of section 154 is enacted to rectify the mistake which is apparent from the record. Relevant part of the section is as under,

‘Rectification of mistake.

154. (1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 may,—

(a)  amend any order passed by it under the provisions of this Act;

(b)  amend any intimation or deemed intimation under sub-section (1) of section 143;’

Therefore, our question, whether any claim which was not made while filing return of income can be made by filing a rectification application u/s 154, can only be answered once the phrase ‘Mistake apparent from record’ is decoded. Particularly, it is important to know what does the legislature intends to mean by the word ‘record’.

The word ‘Record’ refers to records which are available with the tax authorities while passing an order. Any fresh document brought for first time before the authorities will not for part of record.

As per Hon’ble Supreme Court’s Judgement in case of CIT V Keshri Metal (P.) Ltd [1999] 237 ITR 165(SC) Under section 154, there has to be a mistake apparent from the record. In other words, a look at the record must show that there has been an error and that error may be rectified. Reference to documents outside the record and the law is impermissible when applying the provisions of section 154.

That is, benefit of 154 can be used only when the document or information is available with the assessing authorities to form a view and pass the order. In case, any document relied by the assessee for rectifying is produced for the first time it will not partake the nature of Record which was available with the AO. To put it shortly, there has to be mistake which is apparent and whether it is apparent or not can be culled out from records only. Accordingly, rectification can be done if there is mistake which is emanating from the records.

The discussion in which we are into, is regarding the deduction, benefit etc. which the assessee has mistakenly forgotten to claim in his return of income (including revised return) wherein the authority passing the order do not have the documents on the basis of which the assessee is making a claim. In such situations, considering Hon’ble Supreme Courts judgement in case of Keshri Metal (Supra), provision of section 154 would not be of help.

However, in cases where Department has information relating to the income of assessee (like 26AS statement, Tax Audit reports of firm where assessee is partner etc.) in such cases this information should be considered as record available with the department which should be considered while conducting and completing the assessment [including 143(1) proceedings]. Anyways, department uses these information for reopening or conducting the assessments then it is always available with the authorities for their perusal at their discretion. Accordingly, in case where assessee has mistakenly declared higher income which is apparent from such records that the declared income is on higher side then ideally the rectification request of assessee considering those documents should be entertained.

2)   Whether, provisions of section 264 could be of help .

As per provisions of section 264 of the Act, The Principal Commissioner (‘PCIT’) or the Commissioner (‘CIT’) has got the power to revise any order in the interest of assessee. Said power can be utilized by the PCIT or CIT suo-moto or on an application by the assessee. Thereafter, P/CIT

- Shall call for record of any proceeding in which such order is passed

- May make or cause such inquiry and

- Pass the revisionary order (not unfavorable to the assessee)

Whether intimation u/s 143(1) is an Order

Section 154 and 264 provides that any order passed by the authority can be rectified / revised. So, in the instant case, where no assessment proceedings are pending, what would be the order against which a rectification application can be filed?

In such cases, Intimation received u/s 143(1) of the Act is an order and against which rectification needs to be sought.

The issue whether, order u/s 143(1) can be considered as an “Order” to revise the same was adjudicated by various High Courts have ruled in favour of assessee.

Certain relevant judgements are as under

a)     M/S. Epcos Electronic Components S.A Vs. Union Of India & Ors. [W.P (C ) 10417/2018 ]

b)     Vijay Gupta Vs. Commissioner Of Income Tax Delhi –Iii 2016 68 Taxman.Com 131 (Del).

c)     CIT Va. K.V. Manakaram [2000] 245 ITR 353/111 Taxman 439 (Ker.),

d)     Assam Roofing Ltd. Vs. CIT [2014] 43 Taxmann. Com 316 (Gau)

e)     S.R. Koshti Vs. CIT [2005] 275 ITR 165/146 Taxman 335 (Guj.).

The issue which was adjudicated in these cases by Hon’ble Courts was whether a revision petition under Section 264 of the Act is maintainable to rectify the mistake committed by the Assessee while filing its return for the AY in question and which return has been accepted by the Department by issuing an intimation under Section 143 (1) of the Act.

Further, while adjudicating the said issue, Counsel representing revenue had relied upon the case of Assistant Commissioner of Income Tax vs. Rajesh Jhaveri Stock Brokers Private Limited (2008) 14 SCC 208 “to urge that an intimation under Section 143 (1) of the Act could not be treated as an “order” and therefore no petition under Section 264 of the Act could be maintained against such “intimation”.” (Paragraph No. 12 of M/S. Epcos Electronic Components S.A V. Union Of India & Ors. [W.P (C ) 10417/2018 ] )

For which Hon’ble Court observed that

“the decision in Rajesh Jhaveri Stock Brokers Private Limited was in the context of Sections 147 and 148 of the Act. If the original assessment was under Section 143(3) of the Act then the proviso to Section 147 would be attracted and the procedure prescribed thereunder for re-opening an assessment would have to be followed. On the other hand, if the return had been accepted by the Department by a mere intimation under Section 143(1) of the Act, then a different set of consequences would ensue and there would be then no requirement for the department, if it were to re-open the assessment, to follow the procedure it would have to had the assessment order been passed under Section 143(3) of the Act.”

(Paragraph No. 14 of M/S. Epcos Electronic Components S.A V. Union Of India & Ors. [W.P (C ) 10417/2018 ] )

And Accordingly, Hon’ble Delhi High Court in case of Epcos Electronic Components S.A (Supra) referring other High Court Judgements held as under,

“17. This Court therefore disagrees with the view expressed by the CIT i.e. Respondent No.2 in the impugned order and holds that a revision petition under Section 264 of the Act would be maintainable vis-a-vis an intimation under Section 143(1) of the Act, by the Assessee.”

Thus, to sum up, even the order (intimation) u/s 143(1) of the Act is an order against which revision petition can be filed u/s 264 of the Act. Accordingly, on the similar footings, 143(1) is to be considered as an order even for rectification provision of section 154 of the Act.

To conclude, in cases where regular assessment proceedings are not conducted, provisions of section 154 and 264 of the Act could be of help in case where the records available with the department can demonstrate that the claim of assessee needs to be rectified or revised. Further, even intimation u/s 143(1) for these provisions is to be considered as an “Order”.

Thanks and Regards,
Bhuvanesh V Kankani
B Com, CA , LLB

+91 9421847944

Disclaimer: Above article is a personal opinion of the author. Author has tried to collect relevant information and accordingly presented the same. Above article should not be considered as a piece of advice and not be relied wholly by anyone for their or their clients purpose. The interpretation made by the author is by presuming certain facts/ instances/ situations which may not be existing in every situation accordingly the reader is requested to consider this article merely as a reference and not as a pure advice. Author won’t be responsible for any repercussions emerging due to reliance placed by anyone on this article. Thanks.

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