Fresh Claim outside Return of Income or in Appeal

In this Article, the learned Authors have done a detailed analysis of this decision in view of various judicial pronouncements.

An assessee is required to file his return of income, u/s. 139(1), before the due date specified in Explanation 2 to that section. In case he discovers any omission or any wrong statement in such return of income, he can file a revised return before the expiry of one year from the end of the relevant assessment year, or before the completion of assessment, whichever is earlier, in accordance with the provisions of section 139(5).

Very often, the assessee discovers a mistake or omission in the return of income after the expiry of the time prescribed for revision of his return of income u/s. 139(5). This generally happens during the course of assessment proceedings u/s. 143(2), which normally take place only towards the end of the time limit for completion of assessment, which is two years from the end of the relevant assessment year. The issue arises whether in such cases the assessee can make a claim for a deduction, before the assessing officer or before the appellate authorities, which has not been claimed in the return of income, when he is not in a position to revise his return of income. The Income-tax Department is of the view that such a claim can be made only through a revised return of income filed in time. Relying on the decision of the Supreme Court in the case of Goetze (India) Ltd vs. CIT 284 ITR 323, the department contends that no such claim can be made outside the revised return of income. The case of the assessees has been that any rightful claim whenever made, should be allowed, if not by the assessing officer, at least by the Commissioner(Appeals) or the Income Tax Appellate Tribunal, a stand that is objected to by the Income-tax department on the ground that any claim not considered by the assessing officer cannot be considered by the Commissioner (Appeals) or the Income Tax Appellate Tribunal.

While the Mumbai bench and other benches of the tribunal has taken the view that the decision of the Supreme Court in Goetze India’s case does not apply to the claim made before the appellate authorities, who can consider any additional claim at their discretion, the Chennai bench of the tribunal has recently taken a contrary view holding that a claim not made before the assessing officer could not be considered by the Commissioner (Appeals).

Mahindra & Mahindra’s case
The issue came up before the Mumbai bench of the Income Tax Appellate Tribunal in the case of Mahindra & Mahindra Ltd vs. Addl. CIT 29 ITR (Trib) 95.

In this case, during the course of the assessment proceedings, the assessee filed a letter with the assessing officer pointing out that the sale proceeds of R & D assets had been added to taxable income u/s. 41(1) in the computation of income, but the sale proceeds had already been reduced from R & D expenses claimed for the year u/s. 35(2AB). Effectively, the same income had been offered to tax twice through oversight. It was therefore claimed by the assessee, during the course of the assessment proceedings, that the addition made to the taxable income u/s. 41(1), in computing the total income, be ignored.

The assessing officer rejected the assessee’s claim on the ground that such a claim was not arising out of the return of income and that such a claim could only be made by filing a revised return of income, in view of the decision of the Supreme Court in Goetze India’s case(supra). The action of the assessing officer was confirmed by the Commissioner (Appeals).

On appeal by the assessee, the Tribunal noted that the Bombay High Court, in the case of Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336, had held that even if a claim was not made before the assessing officer, it could be made before the appellate authorities. The tribunal therefore held that an assessee was entitled to raise not merely additional legal submissions before the appellate authorities, but was also entitled to raise additional claims before them. According to the Tribunal, the appellate authorities had the discretion whether or not to permit such additional claims to be raised, but it could not be said that they had no jurisdiction to consider the same. They therefore had the jurisdiction to entertain a new claim, but that they may choose not to exercise their jurisdiction in a given case was another matter.

The Tribunal therefore held that the claim of the assessee, made before the assessing officer and also made before the appellate authorities, was to be allowed, subject to verification of the evidence filed by the assessee before the assessing officer.

Chiranjeevi Wind Energy’s case
The issue again came up before the Chennai bench of the Tribunal in the case of Chiranjeevi Wind Energy Ltd. vs. ACIT 29 ITR (Trib) 534.

In this case, the assessee had claimed deduction of Rs. 10,78,976 u/s. 80-IB before the assessing officer which deduction was allowed by the assessing officer. The assessee however raised an issue of additional/ higher deduction of Rs. 50,61,142 u/s. 80-IB before the Commissioner(Appeals), on the ground that the action by the assessing officer, in disallowing certain other claims, has resulted in assessment of the total income at a higher figure and as a consequence thereof the assessee was qualified to claim a higher deduction u/s. 80IB. The Commissioner(Appeals) did not entertain such a claim presumably, on the ground that such a claim was permissible only by filing a revised return of income by relying on the decision of the Supreme court in the Goetze (India)’s case (supra).

On further appeal by the assessee, it was contended by the assessee that it was entitled to a higher deduction on account of the additions to the qualifying income returned by it. The Tribunal noted that the claim made by the assessee of Rs. 10,78,976, was allowed by the assessing officer. Higher deduction claim was never made before the assessing officer and was made before the Commissioner(Appeals) for the first time. It therefore rejected the assessee’s claim for allowance of higher deduction u/s. 80-IB.

Observations
It is a matter of serious concern that the Chennai bench of the Tribunal, in a somewhat brief decision, brushed off the claim of the assessee without considering the developed case law on the subject, in favour of the entertainment of the claim. No specific reason has been given by the tribunal but for stating that the claim was not made before the assessing officer, not realising that the need for the claim arose for the first time on account of the higher assessment by the assessing officer. It was the ground that became available to the assessee on account of the change in circumstances and the same did not exist at the time of filing the return of income.

The Bombay High Court, in the case of Pruthvi Brokers & Shareholders (supra) has discussed the issue in great detail. It observed as under:

“A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims not made in the return filed by it.

From a consideration of decision of the Supreme Court in the case of Jute Corpn. of India Ltd. vs. CIT 187 ITR 688, it is clear 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. They have the jurisdiction to entertain the new claim. That they may choose not to exercise their jurisdiction in a given case is another matter.”

The high court in that case further held that the decision in the Jute Corporation’s case (supra)  did  not curtail  the ambit of the jurisdiction of the appellate authorities stipulated earlier. it did not restrict the new/additional grounds that might be taken by the assessee before the appellate authority only to those that were not available when the return was filed or even when the assessment order  was  made.  The  appellate  authorities  therefore have jurisdiction to deal not merely with additional grounds which became available on account of change of circumstances or law, but with additional grounds which were available even when the return was filed. Similarly, in National Thermal Power Corpn. Ltd. vs. CIT 229 ITR 383, the  supreme  Court  held  that  the  power  of  the tribunal is expressed in the widest possible terms. It noted that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. As observed by the supreme Court, if, for example, as a result of a judicial decision given while the appeal is pending before the tribunal,  it  is  found  that  a  non-taxable  item  is  taxed  or a permissible deduction is denied, the assessee is not prevented from raising that question before the tribunal for the first time, so long as the relevant facts are on record in respect of that item. It therefore held that the tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier.

The Bombay high Court, in another judgment in the case of Balmukund Acharya vs. Dy CIT ITA No.217 of 2001 dated 19-12-2008 (reported on www.itatonline.org), has taken the view that even in the case of an intimation u/s.143(1), where the assessee had erroneously offered certain capital gains to tax in the return of income and the returned income was accepted, in appeal, the assessee was entitled to claim that the income which was wrongly offered to tax cannot be taxed.

Importantly, the Supreme Court, in Goetze India’s case (supra), has made it clear that the issue in that case was limited to the power of the assessing authority, and did not  impinge  on  the  power  of  the  income  tax appellate tribunal u/s. 254.

Therefore,   given   the   wide   powers   of   the   appellate authorities, an additional claim can be raised before the appellate authorities, even if it has not been raised before the assessing officer nor claimed in the return of income.

It is interesting to note that the CBdt, as far back as in 1955, vide its Circular no. 14-XL(35) dated 11-04-1955, have stated that:

“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.”

The law developed, post Goetze (india)’s case, has made it abundantly clear that:

a)    an assessee is entitled to make a fresh claim for deduction or relief before the appellate authorities, during the course of the appellate proceedings, irrespective of the claim not being made by revising the return of income or before the assessing officer during the course of the assessment proceedings. The decision in Goetze (India)’s case has not prohibited such a claim before the appellate authorities.
b)    an assessing officer when confronted with the valid claim, though not made in the return of income or the revised return of income, is required to consider the same on merits and not reject simply on the ground that the claim was made outside the return of income.

In CIT vs. Jai Parabolic Springs Ltd. 306 ITR 42 (Del), the  delhi high Court held that the tribunal had power to allow deduction for expenditure to assessee to which it was otherwise entitled to even though no claim was made by the assessee in the return of income. in this case, the decision of Supreme Court in Goetze (India) Ltd. was considered. Again, the Cochin tribunal in the case of Thomas Kurian 303 ITR (AT) 110 (Coch), held that the Cit(a) had the power to entertain a claim not made in the return of income. In   Lupin Agrochemicals Ltd. ITA No. 3178 (Mum), the case of Goetze (I) Ltd. was considered and it was held that said decision did not prevent an assessee to make legal claim in assessment proceedings and that such claim could be made even in appellant proceedings. In Abbey Chemicals 94 TTJ (Ahd) 275, it was held that the Cit(a) having allowed assessee’s claim for exemption u/s. 10B after considering the facts of the case as well as the case law, could not recall his order by taking recourse to section 154, as the error of judgement, if any, committed by the CIT (A), tcould not be qualified as a “mistake” within the meaning of section 154.

The position in respect of the eligibility of the assessee to place a fresh claim, before the assessing officer, is equally good. in Chicago Pneumatic Ind. Ltd. 15 SOT 252 (Mum), the mumbai tribunal  held  that  the  a.o.  was obliged to give relief to the assessee even where the same was not claimed by the assessee by way of    a revised return. In the above case, it was observed   that the government was entitled to collect only the tax legitimately due to it and therefore one had to look into the duties of the a.o. rather than his powers to avoid undue  hardship  to  the  assessees.  the  hon.  Tribunal also referred to the CBDT Circular No. 14 (XL-35) dt. 11.04.1955, which directed the officers as back in 1955 to draw attention of the assessees to refunds and reliefs to which they were entitled but had failed to claim for some reason  or  the  other.  The  case  also  referred  to  another Circular No. F-81/27/65-IT (B) dt. 18.05.1965 and stated that the above circulars were binding on the departmental authorities.  the  above  decision  was  considered  and followed  by  the  hon.  mumbai  tribunal  in  the  case  of Emerson Network Power Ind. 27 SOT 593 (Mum) wherein the Mumbai tribunal held that the assessing officer was obliged to consider the legitimate claim of the assessee made before him but not made in the return of income or by a revised return. In  Rajasthan Commercial House v/s. DCIT,  26 SOT 51 (Uro) (Jodh),  the jodhpur tribunal held that relief claimed by the assessee could be allowed by the a.o. when such claim was made by the assessee vide a rectification application u/s. 154. Also see Dodsal Pvt. Ltd. ITA No. 680/M/04 (Mum). Lastly, the Bombay high court in the case of Balmukund Acharya ITA No. 217 of 2001 (Bom) dated 19-12-2008 again confirmed the power and the duty of the assessing officer when it inter alia held that the authorities under the act were under  an obligation to act in accordance with law and that tax could be collected only as provided under the act and that if any assessee, under a mistake, misconception or on not being properly instructed was over assessed, the authorities under the act were required to assist him and ensure that only legitimate taxes due were collected.

Today, the state of affairs are such that, leave aside the tax payers being advised of reliefs due to them, any claim for such relief by them is denied by Assessing Officers, and when entertained by the appellate authorities, is strongly resisted in appeal, sometimes even by taking the matter to the high Court or supreme Court. What is perhaps required is a change in approach of the income- tax department, where only fair share of taxes is collected, and not maximum tax by any means.  This would perhaps require not just changes to law, but change in attitude of the tax authorities. No government should be happy by short changing its citizens and surely not when they are ignorant of their rights and reliefs.