1 Section 253 – An erroneous disallowance made by the assessee in its return of income on account of non-deduction of tax at source which disallowance was not contested before CIT(A) can be challenged by the assessee, for the first time, before the Tribunal.

If the stand of the
assessee is found to be correct and if it results in income being assessed
lower than returned income, that would be the true and correct income of the
assessee and it would be the duty of the revenue to assess the correct tax
liability of the assessee.

FACTS 

The assessee, in his return
of income for AY 2007-08, disallowed a sum of Rs. 3,17,32,735 u/s. 40(a)(ia) of
the Act.  Since this disallowance was
made voluntarily in the return of income, the assessee did not contest it in an
appeal filed before CIT(A) against the assessment order. 

In Assessment Year 2008-09,
the deduction was claimed in the return of income and same was disallowed by
the Assessing Officer (AO). This disallowance was contested in an appeal before
CIT(A) who allowed the deduction to the extent of Rs. 96,38,366 after
examination of copies of challans and other documents.

Subsequent to the passing
of the order by CIT(A), the assessee bank observed that in respect of
disallowance amounting to Rs. 99,32,277 out of Rs. 3,17,32,735, the provisions
of TDS are not applicable at all and consequently the provisions of section
40(a)(ia) are not attracted.

For the first time in an
appeal before the Tribunal, the assessee took an additional ground that the AO
be directed to allow deduction of Rs. 99,32,277 after verification of all
necessary documents in support of the claim of the assessee.

Before the Tribunal, it was
contended that the assessee never had an occasion to address this issue before
the lower authorities and hence had no option but to file an additional ground
before the Tribunal. It was also submitted that since the issue has not been
examined by the lower authorities, in order to appreciate the contentions of
the assessee, it could be remanded to the file of the AO. The revenue had no
objection except that it would result in an assessment being framed at lesser
than returned income.

HELD 

As regards the contention
of the revenue that the assessment would be framed at lesser than returned
income, the Tribunal noted the observations of the Calcutta High Court in the
case of Mayank Poddar (HUF) vs. WTO [2003] 262 ITR 633 (Cal.) and
observed that it is now well settled that there is no estoppel against the
statute. It observed that the assessee is only pleading for claim of deduction
which had been erroneously disallowed by it in the return of income and
considered as such by the AO in the assessment. Though there was no occasion
for the revenue to adjudicate this issue on merits, the revenue could not take
advantage of the mistake committed by the assessee. The scheme of taxation is
primarily governed by the principles laid down in the Constitution of India and
as per Article 265 of the Constitution of India, no tax shall be levied or
collected unless by an authority of law. When a particular item is not to be
taxed as per statute, then taxing the same would amount to violation of
constitutional principles and revenue would be unjustly enriched by the same.
Hence, in the process of verification by the AO, if the stand of the assessee
is found to be correct and if it results in income being assessed lower than
the returned income, that would be the true and correct income of the assessee
and it would be the duty of the revenue to assess the correct tax liability of
the assessee.

Having made the aforesaid
observations, the Tribunal, in the interest of justice and fair play, remanded
the issue to the file of the AO for adjudication of merits.

The additional ground of
appeal filed by the assessee was allowed.