CLAIM FOR RELIEF OF REBATE OUTSIDE REVISED RETURN OF INCOME

Several Benches of the Tribunal and the Courts, after due consideration of the said decision of the Apex Court, have permitted the assessee to stake a fresh claim, which claim was not made while filing the return of income or by revising the same in time, either by filing an application during the course of the assessment or, at the least, while adjudicating the appeal. At a time when it appeared that the law was reasonably settled on the subject, the recent decision of the Kerala High Court has warned the assessee that the last word on the subject has not yet been said. It held that the claim for relief, not made vide a return, revised or otherwise, could not be made before the A.O. or even before the appellate authorities.

RAGHAVAN NAIR’S CASE
The issue recently came up for the consideration of the Kerala High Court in the case of Raghavan Nair, 402 ITR 400. The assessee had received a certain sum of money during F.Y. 2014-15 pertaining to A.Y. 2015-16 by way of compensation for land acquired from him for a Government project. The assessee offered the receipt for taxation in filing the return of income under the head capital gains. During the course of the scrutiny assessment, the assessee claimed that the compensation received was not taxable in the light of section 96 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013. The assessee requested for the relief vide a letter which was denied by the A.O., against which the assessee filed a writ petition before the Court.

The Court noted that the assessee, when he was made to understand that he had no liability to pay tax on capital gains, could not file a revised return since the time for filing the revised return had expired by the time he came to know that there was no such liability to pay tax.

At the hearing, the Court held that it was the duty of the A.O. to refrain from assessing an income even if the same had been included by mistake by the assessee in his return of income filed. The Court held that the decision of the Supreme Court was not applicable to the facts of the case by explaining the implication of the decision of the Apex Court as: ‘The question that arose in Goetze (India) Ltd.’s case (Supra) was whether an assessee could make a claim for deduction other than by filing a revised return. As noted above, the question in the case on hand is whether the A.O. is precluded from considering an objection as to his authority to make an assessment u/s 143 merely for the reason that the petitioner has included in his return an amount which is exempted from payment of tax and that he could not file a revised return to rectify the said mistake in the return. The decision of the Apex Court in the Goetze case has, therefore, no application to the facts of the present case.’

The High Court held that this was a clear case where the A.O. had penalised the assessee for having paid tax on an income which was not exigible to tax. It noted that in the light of the mandate under article 265 of the Constitution, no tax should be levied or collected except by authority of law. The Court relied on the observations of the Apex Court in the case of Shelly Products 129 Taxman 271:

‘We cannot lose sight of the fact that the failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self-assessment tax which is in excess of his liability on the basis of the return furnished, or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of the assessment proceeding. He can certainly make such a claim also before the authority concerned calculating the refund. Similarly, if he 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 authority, 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, on being satisfied, shall grant appropriate relief. In cases governed by section 240 of the Act, an obligation is cast upon the Revenue to refund the amount to the assessee without his having to make any claim in that behalf. In appropriate cases, therefore, it is open to the assessee to bring facts to the notice of the authority concerned on the basis of the return furnished, which may have a bearing on the quantum of the refund, such as those the assessee could have urged u/s 237 of the Act. The authority, for the limited purpose of calculating the amount to be refunded u/s 240 of the Act, may take all such facts into consideration and calculate the amount to be refunded. So viewed, an assessee will not be placed in a more disadvantageous position than what he would have been, had an assessment been made in accordance with law.’

Accordingly, the Court held that the A.O. should not have taxed the income that was not liable to tax even where the assessee had offered such an income for taxation and had not filed the revised return of income.

PARAGON BIOMEDICAL INDIA (P) LTD.’S CASE
The issue recently again came before the Kerala High Court in the case of Paragon Biomedical India (P) Ltd. 438 ITR 227 (Ker). In this case, the assessee had claimed a deduction u/s 10B which was disallowed by the A.O. In the appeal to the CIT(A), the assessee modified the claim for deduction from section 10B to section 10A, which was allowed by the CIT(A). On appeal by the Revenue, the Tribunal held that the CIT(A) was justified in allowing the alternative claim of deduction u/s 10A and confirmed the order of the Commissioner (Appeals) that permitted the assessee to claim the deduction under a different provision of law than the one that was applied for while filing the return of income.

On further appeal, the High Court, however, reversed the order of the Tribunal and held the order to be contrary to the principles laid down by the Apex Court in the cases of Goetze (India) Ltd. (Supra) and Ramakrishna Deo 35 ITR 312. In the light of the said decisions, the High Court termed the orders of the CIT(A) and the Tribunal as both illegal and untenable. The Court, in deciding the case, found that the decisions in the cases of National Thermal Power Co. Ltd. 229 ITR 383 (SC) and Goetze did not conflict with each other, as NTPC’s decision did not in any way relate to the power of the A.O. to entertain a claim for deduction otherwise than by filing a revised return.

OBSERVATIONS
Article 265 of the Constitution of India provides that any retention of tax collected, which is not otherwise payable, would be illegal and unconstitutional. Retaining the mandate of the Constitution, the Board vide Circular 14(XL-35) dated 11th July, 1955 reiterated that the taxing authority cannot collect or retain tax that is not authorised by law and further that it was the duty of the assessing authority to ensure that a relief allowable to an assessee in law shall be allowed to him even where such a claim is not made by him in filing the return of income.

An A.O. has been vested with the power to assess the total income and in doing so he has wide powers to bring to tax any income, whether or not disclosed in the return of income. He also has the powers to rectify any mistakes. The Board has invested in him the power to grant the reliefs and rebates that an assessee is entitled to but has failed to claim while filing the return of income. [CBDT Circular No. 14 dated 11th July, 1955]. This Circular is relied upon by the Courts to hold that an A.O. is duty-bound to grant such reliefs and rebates that an assessee is entitled to, based on the records available, even where not claimed by the assessee in filing the return of income or otherwise.

Section 139(5) provides for filing of a revised return of income in cases where the return furnished contains any omission or any wrong statement within the prescribed time independent of the powers and the duties of the A.O. It was a largely settled understanding that an assessee could make a claim for a relief or rebate, during the course of assessment, by filing a petition without filing a revised return of income even after the time of filing such return has expired. The Apex Court, however, in one of the decisions (Goetze), held that a rebate or a relief can be claimed by an assessee only by filing of a revised return of income. This decision has posed various challenges, some of which are:

• Whether an A.O. can entertain a petition outside of the revised return and allow a relief claimed by the assessee.
• Whether an A.O. is duty-bound to allow a relief even where not claimed in the return filed by the assessee where no petition or revised return is filed.
• Whether an A.O. is bound to allow such a relief where the material for such relief is available on his records though no petition or revised return is filed.
• Whether an A.O. is required to allow a petition for a modified claim for relief, which was otherwise claimed differently in the return of income filed, without insisting on the revised return of income.
• Whether an appellate authority, being CIT(A) or the Tribunal, can entertain a petition for a relief not claimed or allowed in any of the above situations.

Section 143, as noted above, has invested the A.O. with wide powers in assessing the total income and bringing to tax the true or real income of the assessee, whether or not disclosed in the return of income, even where no return has been filed by an assessee. Sections 250(5) and 251(1) have invested a CIT(A) with powers that are consistently held by the Courts to be coterminus with the powers of an A.O.; he can do everything that an A.O. could have done and has all those powers which an A.O. has, besides the power of enhancement of an income that has not been brought to tax by the A.O. in the course of adjudicating an appeal, subject to a limitation in respect of the new source of income. The appellate Tribunal is vested with powers u/s 254(1) that are held to be wide enough to include entertaining a claim for the first time, subject to certain limitations.

By now it is the settled position in law that the appellate authorities have the power to entertain a new or a fresh claim for relief made by the assessee for the first time before them subject to providing an opportunity to the A.O. to put up his case. This is clear from the reference to the following important decisions:

The Supreme Court in the case of Jute Corporation of India Ltd., 187 ITR 688 dealt with a case where the assessee, during the pendency of its appeal before the AAC, raised an additional ground claiming deduction of certain amount on account of liability of disputed purchase tax, not claimed while filing the return of income. The AAC permitted the assessee to raise the additional ground and after hearing the ITO, accepted the assessee’s claim and allowed the deduction. However, the Tribunal held that the AAC had no jurisdiction to entertain the additional ground or to grant relief to the assessee on a ground which had not been raised before the ITO. On appeal to the Supreme Court, the Court, following its decision in the case of Kanpur Coal Syndicate, 53 ITR 225, delivered by a Bench of three judges and dissenting from its later decision in the case of Gurjaragraveurs (P) Ltd., 111 ITR 1 delivered by a Bench of two judges, held as under:

‘The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the appellate authority in entertaining an additional ground in appeal. In the absence of any statutory provision, the general principle relating to the amplitude of the appellate authority’s power being coterminous with that of the initial authority should normally be applicable. If the tax liability of the assessee is admitted and if the ITO is afforded an opportunity of hearing by the appellate authority in allowing the assessee’s claim for deduction on the settled view of law, there appears to be no good reason to curtail the powers of the appellate authority u/s 251(1)(a). Even otherwise an appellate authority while hearing an appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it, subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appeared to be no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO.’

The Supreme Court in the case of Nirbheram Deluram, 91 Taxman 181 (SC) held that the first appellant authority could modify an assessment on a ground not raised before an A.O. following Jute Corporation of India Ltd.’s case (Supra) which had held that the first appellate authority could permit an additional ground not raised before the A.O.

The Kerala High Court, in the case of V. Subhramoniya Iyer, 113 ITR 685, held that the first appellate authority had the power to substitute the order of an A.O. with his own order and the Gujarat High Court in the case of Ahmedabad Crucible Co., 206 ITR 574 held that the powers of the first appellate authority extended beyond the subject matter of assessment, which powers were held to include the power to make an addition on a ground not considered by the A.O.

The Supreme Court in the National Thermal Power Corporation case (Supra) confirmed the judicial view that in cases where a non-taxable receipt was taxed or a permissible deduction was denied, there was no reason why the assessee should be prevented from raising the claim before the second appellate authority for the first time, so long as the relevant facts were on record pertaining to the claim. This condition of the availability of the evidence on records is also waived where the fresh issue relates to the moot question of law or goes to the root of the appeal. Even otherwise, the courts are liberal in upholding the powers of the second appellate authorities generally to entertain a lawful claim.

This understanding and the contours of law are not sought to be disturbed even by the decision of the Apex Court delivered in the Goetze case, which rather confirmed that the said decision was independent of the powers of the appellate authorities. In fact, the appellate authorities regularly entertained a fresh claim by relying on the said decision. It is this settled position of law, even post-Goetze, that is sought to be disturbed by the recent Kerala High Court decision in the case of Paragon Biomedical (Supra) when holding that the claim made before the A.O., outside the revised return of income, was not entertainable. Even when the CIT(A) entertained and allowed such a claim, the said claim was found to be not permissible in law by the Court.

And even prior to the decision of the Kerala High Court, the Madras High Court in the case of Shriram Investments Ltd. (TCA No. 344 of 2005) and the Chennai Bench of the Tribunal in the case of Litostroj, 54 SOT 37 (URO) following the said Madras High Court decision, had held that relief could have been claimed only by filing a revised return of income.

We are of the considered opinion that the position in law settled by the series of Supreme Court decisions permitting the assessee to raise a new or a fresh claim before the appellate authorities is nowhere unsettled by the decision in Paragon Biomedical and a few other cases. In fact, had these decisions of the Supreme Court been cited before the High Court, the decision of the Court would surely have been otherwise. The case before the Kerala High Court was not represented by the assessee before the Court and the representative of the Revenue seems to have failed to bring these cases to the notice of the Court. [Please see Pruthvi Stock Brokers Ltd., 23 taxmann.com 23 (Bom); Kotak Mahindra Bank Ltd., 130 taxmann.com 352 (Kar); Ajay G. Piramal Foundation, 228 Taxman 332 (Del).]

The real issue of the assessee’s power to claim a relief or a rebate outside of a revised return of income, under a petition to the A.O. during the course of assessment, appears to have been soft-pedalled by the Courts either by holding that the A.O. was duty-bound, under the Circular No. 14 of 1955, to allow the relief on his own based on records available, as was done in the cases of Sesa Goa Ltd., 117 taxmann.com 548 (Bom) or CMS Securitas, 82 taxmann.com 319 (Mum) or Perlos, ITA No. 1037/Madras/2013, to name a few, and alternatively by holding that the claim for relief, made outside the revised return before the A.O. was not a new or a fresh claim but was a modified claim based on a mistaken provision of law or the quantum or the failure to claim a relief for which the reports and other material were available on record, as was held in the cases of Malayala Manorama, 409 ITR 358 (Ker), Ramco Engineering, 332 ITR 306 (P&H), Influence, 55 taxmann.com 192 (Del), Shri Balaji Sago Agro, 53 SOT 15 (Mad), Perlos, ITA No. 1037/Madras/2013 and also in Raghavan Nair (Supra), 402 ITR 400 by the same Kerala High Court. [Please also see Sam Global, 360 ITR 682 (Del), Jai Parabolic, 306 ITR 42 (Del), Natraj Stationery, 312 ITR 22 (Del) and Rose Services, 326 ITR 100 (Del).]

A fresh claim for relief is different from a revised claim for relief. In cases where a claim has been made while filing the return of income and is modified or is enhanced or is made under a different provision of the law, the case can be classified as a case of a revised claim, and not a fresh claim. The outcome can be different in cases where the evidence in support of the fresh claim is available on record, from cases where such evidence is not available on record.

The issue of an assessee’s right to claim a relief or a rebate, outside the revised return of income post Goetze, has been addressed directly in the case of CMS Securitas Ltd., 82 taxmann.com 319 by the Mumbai Bench of the Tribunal in favour of the assessee, while the Chennai Bench of the Tribunal in the case of Litostroj, 54 SOT 37 (URO), following an unreported decision of the Madras High Court in the case of Shriram Investments Ltd. [T.C. (A) No. 344 of 2005, dated 16th June, 2011] restored the matter to the file of the A.O. to verify the facts, instead of upholding the power of the CIT(A) to entertain a fresh claim.

In Goetze the question raised in the appeal by the assessee related to whether the assessee could make a claim for deduction other than by filing a revised return by way of a letter before the A.O. The deduction was disallowed by the A.O. on the ground that there was no provision under the Act to make an amendment in the return of income by an application at the assessment stage without revising the return. In the appeal, the assessee had relied upon the decision in the case of National Thermal Power Co. Ltd. (Supra) to contend that it was open to the assessee to raise the points of law even before the appellate Tribunal. The Court noted that the said decision dealt with the power of the Tribunal to entertain a claim where the facts relating to the law were available on record, and that it did not in any way relate to the power of the A.O. to entertain a claim for deduction otherwise than by filing a revised return; and that the NTPC decision could not be relied upon to allow the claim before the A.O. outside the revised return of income. The appeal of the assessee was dismissed by clarifying that the issue in the case was limited to the power of the assessing authority and did not impinge on the power of the appellate Tribunal u/s 254.

The better view therefore is that the appellate authority certainly has the right to consider a fresh or revised claim made by the assessee in appeal, and certainly so in respect of a claim made for which the relevant facts are already on record.

Besides the issue under consideration w.r.t. section 139(5), the issues regularly arise where a fresh claim is sought to be made while filing the return in response to a notice u/s 153A / 153C, abated or not, or section 148, or where such a claim is sought to be made in a revision application u/s 264 or by filing rectification u/s 154 or on application u/s 119(2)(b).

A fresh claim was held to be permissible in the return filed in response to notice u/s 153A / 153C in case of abated assessment [JSW Steel Ltd., 422 ITR 71 (Bom), B.G. Shirke Construction Technology (P) Ltd., 79 taxmann.com 306 (Bom)] and where assessment was unabated and incriminating documents were found for that year [Sheth Developers (P) Ltd., 210 Taxman 208 (Mag)(Bom), Neeraj Jindal, 393 ITR 1 (Del), Kirit Dahyabhai Patel, 80 taxmann.com 162 (Guj), Shrikant Mohta, 414 ITR 270 (Cal)]. In contrast, the courts in a few other cases have held that the assessee is not permitted to stake such a fresh claim that was not made in the return filed u/s 139.

In the context of the return of income filed in response to a notice u/s 148, it was held that a fresh claim was not permissible in the cases of Caixa Economica De Goa, 210 ITR 719 (Bom), Satyamangalam Agricultural Producer’s Co-operative Marketing Society Ltd.,357 ITR 347 (Mad) and K. Sudhakar S. Shanbhag, 241 ITR 865 (Bom).

In contrast, a fresh claim was held to be permissible in filing a revision application u/s 264. [Vijay Gupta, 386 ITR 643 (Del), Assam Roofing Ltd., 43 taxmann.com 316 (Gau), S.R. Koshti, 276 ITR 165 (Guj), Sharp Tools, 421 ITR 90 (Mad), Shri Hingulambika Co-operative Housing Society Ltd. 81 taxmann.com 157 (Kar), Agarwal Yuva Mandal, 395 ITR 502 (Ker), EBR Enterprises, 415 ITR 139 (Bom), Kewal Krishan Jain, 42 taxmann.com 84 (P&H).]

In the cases of Curewel (India) Ltd., 269 Taxman 397 (Del) it was held permissible to place a fresh claim while an assessment is being made afresh in pursuance of an order setting aside the original order of assessment. But see also Saheli Synthetics (P) Ltd., 302 ITR 126 (Guj).

In filing an application for rectification u/s 154, it was held permissible to file a fresh claim [Nagaraj & Co. (P) Ltd., 425 ITR 412 (Mad), Anchor Pressings (P) Ltd., 161 ITR 159 (SC), Gujarat State Seeds Corpn. Ltd., 370 ITR 666 (Guj) and NHPC Ltd., 399 ITR 275 (P&H).]

An assessee who has missed making a claim in the return of income, may explore the possibility of filing an application to the CBDT u/s 119(2)(b) for permitting the filing of a revised return of income after the expiry of the time u/s 139(5). [Mrs. Leena R. Phadnis,387 ITR 721 (Bom), Mahalakshmi Co-operative Bank Ltd., 358 ITR 23 (Kar) and Labh Singh, 111 taxmann.com 53 (HP).]