one my client has been issued notice for assessment year 2011-12. Interest on borrowed capital for let out property was rs.500000/- but only 150000/- was claimed in the return of income.
Now time limit for filing revised return has also expired ( 1 year from the end of relevant assessment year i.e. 31.03.2013 or before completion of assessment - whichever is earlier).
Is there any provision which allows for filing revised return and claiming refund in the assessment ?
21 November 2013
There are certain case laws which have been conflicting as to the stand of admissibility or otherwise of such expenditure claimed as deduction during the assessment proceedings.
Will post them at the earliest.
However, please take note of the position to be taken in this case.
21 November 2013
Entertainment of Additional Claim - Powers of Assessing & Appellate authorities
MANY a times, assessees mistakenly fail to claim certain deductions/exemptions in the Income tax returns filed by them. Also there are situations wherein the assessees realise that additional claim for deductions/exemptions could have been made for a particular deduction/exemption on account of judicial pronouncements delivered after the filing of return of income. In such situations, if the time limit for filing revised returns has already expired, then assessees tend to make additional claim for deductions/exemptions by filing a letter with the assessing authority/appellate authorities during the course of assessment or appeals requesting them to grant the benefit of deductions/exemptions.
The question that arises for consideration in such cases is whether the assessing authority or appellate authorities have powers to entertain additional claim for deductions/exemptions, which are not claimed in the return of income?
Powers of the assessing authority to entertain additional claim:
Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs. Commissioner of Income Tax (2006-TIOL-198-SC-IT) had an occasion to deal this issue. In this case, Hon'ble Supreme Court held that additional claim cannot be made before the assessing officer, as there is no provision under the Income Tax Act to make amendment in the return without filing a revised return. Hon'ble Supreme Court further stated that this decision was limited to the power of assessing authority to entertain claim for deduction other wise than by revised return and it does not impinge on the power of the Tribunal.
Hence based on the above decision of the Hon'ble Supreme Court, Assessing officer does not have a power to entertain additional claim, unless such a claim is made in the revised return filed within the due date for revised return.
Powers of the Commissioner (Appeals) to entertain additional claim:
Powers of the Commissioner (A) are enshrined in Section 251 of the Income Tax Act. Section 251(1) (a) states that the Commissioner (A) in disposing of an appeal against an order of assessment, may confirm, reduce, enhance or annul the assessment.
Three member bench of Hon'ble Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (2002-TIOL-828-SC-IT-LB) discussed the scope of section 31(3) (a) of the Income Tax Act, 1922 [which is almost identical to section 251(1) (a)] and had held as under:
"If an appeal lies, section 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under section 31(3)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is conterminous with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do"
Hence the Hon'ble Supreme Court in the case of CIT vs. Kanpur Coal Syndicate (supra) held that the Commissioner (A) has the powers to entertain additional claim.
However, a Two Member bench of Hon'ble Supreme Court in the case of Addl. CIT vs. Gurjargravures P. Ltd. [(1978) 111 ITR 1 SC] took a different view and held that in absence of any claim for deduction made by the assessee before the Income Tax officer, the assessee will not be entitled to claim such deduction before Commissioner (A). In this decision, the Hon'ble Supreme Court further held that:
"The above observations do not rule out a case for raising an additional ground before the Appellate Assistant Commissioner if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made, or that the ground became available on account of change of circumstances or law. There may be several factors justifying raising of such new plea in appeal, and each case has to be considered on its own facts. If the Appellate Assistant Commissioner is satisfied he would be acting within his jurisdiction in considering the question so raised in all its aspects. Of course, while permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason. He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The satisfaction of the Appellate Assistant Commissioner depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose."
Three member bench of Hon'ble Supreme Court in the case of Jute Corporation of India Ltd. Vs. Commissioner of Income Tax and another [(1991) 187 ITR 0688 SC] had an occasion to deal with both the above judgments. After considering the judgement of CIT vs. Kanpur Coal Syndicate (2002-TIOL-828-SC-IT-LB), it held as under :
"The above observations are squarely applicable to the interpretation of Section 251(1) (a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing 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 appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer."
Hon'ble Supreme Court in above case also agreed that the view taken by the two member bench in the case of Addl. CIT vs. Gurjargravures P. Ltd. (supra) appeared to be in conflict with the view taken by the three member bench in the case of CIT vs. Kanpur Coal Syndicate (supra). The decision of the three member bench in the case of CIT vs. Kanpur Coal Syndicate was not brought to the notice of the two member bench in the case of Addl. CIT vs. Gurjargravures P. Ltd. (supra). The Hon'ble Supreme Court further held that the decision of the three member bench would prevail and hold good.
Hence the Hon'ble Supreme Court upheld the powers of the Commissioner (A) to entertain additional claims. This judgment has been followed by various high courts. Recently Bombay High Court in case of CIT vs. M/s. Pruthvi Brokers and Shareholders Pvt. Limited (2012-TIOL-489-HC-MUM-IT) relying on the above judgments held that Commissioner (A) has the power to entertain additional claim.
Hence based on the abovementioned judicial pronouncements, Commissioner (A) has powers to entertain additional claim on the issues pertaining to question of facts or law, investigate the correctness of the claim and then at its discretion decide whether to entertain or reject such a claim.
Powers of the Tribunal to entertain additional claim:
Section 254(1) of the Income Tax Act states that the Appellate Tribunal, may after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit.
Hon'ble Supreme Court in the case of National Thermal Power Company Limited (NTPC) vs. Commissioner of Income Tax (2002-TIOL-279-SC-IT) while dealing with this issue, held as under:
"Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. 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, we do not see any reason why the assessee should be 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. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department has a right to file appeal/cross objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier�
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�The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see why such a question should not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee"
Hon'ble Supreme Court in the above judgment held that the Tribunal has the discretion to allow or not allow any new ground to be raised. It further held that Tribunal has the right to entertain new grounds, in respect of the matters, wherein the facts are already on records.
This judgment has been followed by various High Courts. Recently Bombay High Court in the case of CIT vs. M/s. Pruthvi Brokers and Shareholders Pvt. Limited = (2012-TIOL-489-HC-MUM-IT) relying on the above judgment held that Tribunal has the power to entertain additional claims.
The powers of the Tribunal to entertain additional claim is discretionary and is only in respect of those issues wherein relevant facts are on record. Hence this would be possible mainly when additional claim is made on account of question of law arising from the facts which are on record in the assessment proceedings.
Conclusion:
Assessing officer does not have powers to entertain additional claim for deductions/exemptions, unless the return of income is revised by the assessee.
Commissioner (A) has the powers to entertain additional claim for deductions/exemptions on the issues pertaining to question of facts or law.
Tribunal has the powers to entertain additional claim for deductions/exemptions, on the question of law, in respect of issues wherein relevant facts are on record.
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