2012 (7) TMI 158 - HC - Income Tax

Admissibility of claim of deduction not made in the original return and not supported by a revised return - assessee s claimed deduction u/s 43B - Held that - Even assuming that the AO is not entitled to grant a deduction on the basis of a letter requesting an amendment to the return filed the appellate authorities are entitled to consider the claim and to adjudicate the same - 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 - There appears to be no good reason and none was placed 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 - The appellate authorities have the discretion whether or not to permit such additional claims to be raised. The conclusion that the error in not claiming the deduction in the return of income was inadvertent cannot be faulted for more than one reason. It is a finding of fact which cannot be termed perverse. There is nothing on record that militates against the finding. The appellant has not suggested much less established that the omission was deliberate mala-fide or even otherwise. The inference that the omission was inadvertent is therefore irresistible

Summary

The core legal questions considered by the Court in this appeal under section 260-A of the Income Tax Act, 1961, are:

(A) Whether an assessee can amend a return filed by him to make an additional claim for deduction other than by filing a revised return;

(B) Whether the Income Tax Appellate Tribunal (ITAT) was correct in law in holding that a claim of deduction not made in the original return and not supported by a revised return is admissible;

(C) Whether the Assessing Officer (AO) has jurisdiction to entertain a claim made by an assessee after filing the original return otherwise than by filing a revised return.

Issue-wise detailed analysis:

Issue (A) and (B): Entitlement of an assessee to raise additional claims/deductions not made in the original return without filing a revised return

The Court examined the legal framework relating to the powers of appellate authorities under the Income Tax Act, particularly the powers of the Commissioner of Income Tax (Appeals) [CIT(A)] and the ITAT under sections 251 and 254 respectively. The jurisprudence establishes that appellate authorities have plenary powers co-terminus with the Assessing Officer, enabling them to confirm, reduce, enhance, annul, or remand assessments. This includes the power to entertain additional grounds and claims not raised before the AO.

The Court relied heavily on the Supreme Court's decision in Jute Corporation of India Limited v. CIT, where it was held that the appellate authorities have jurisdiction to entertain additional grounds or claims even if not raised before the AO. The Court emphasized that the phrase "could not have been raised" should be construed liberally, not strictly, to include cases where the ground existed at the time of filing the return but was not raised due to inadvertence or bona fide reasons. The appellate authorities have discretion to allow such claims, and the existence of jurisdiction is distinct from the exercise of discretion.

Further, the Full Bench of this Court in Ahmedabad Electricity Limited v. CIT reiterated that the appellate authorities have wide powers to ensure correct tax liability, including entertaining new claims even if they existed at the time of return filing but were omitted.

The Court also referred to the Supreme Court's ruling in National Thermal Power Company Limited v. CIT, which clarified that the ITAT has the jurisdiction to examine questions of law arising on facts found by lower authorities even if not raised earlier. The power of the Tribunal under section 254 is expressed in the widest terms to ensure correct tax liability assessment.

Applying these precedents, the Court found that the CIT(A) and the ITAT rightly exercised their jurisdiction and discretion to entertain and allow the respondent's claim for deduction under section 43B, despite it not being claimed in the original return or supported by a revised return. The omission was found to be inadvertent, and the respondent was entitled to the deduction as a matter of law.

Issue (C): Jurisdiction of the Assessing Officer to entertain additional claims without a revised return

The Court acknowledged that the Assessing Officer may not have jurisdiction to entertain a claim made by an assessee after filing the original return unless a revised return is filed. This position was not disputed by the amicus curiae and was accepted for the purpose of this appeal. The Court clarified that this limitation on the AO's jurisdiction does not extend to the appellate authorities.

In this context, the Court referred to the Supreme Court's decision in Goetze (India) Limited v. CIT, which held that the assessing authority cannot entertain a claim for deduction otherwise than by filing a revised return. However, this decision does not impinge on the powers of the appellate authorities to entertain such claims. The Court emphasized that the power of the appellate authorities to consider additional claims remains intact and was not negated by the Supreme Court in the said judgment.

The Division Bench of the Delhi High Court in Commissioner of Income-tax v. Jai Parabolic Springs Limited was also cited, which upheld that there is no prohibition on the powers of the Tribunal to entertain additional grounds for a just decision, reinforcing the distinction between the powers of the AO and appellate authorities.

Key evidence and findings

The respondent filed the original return for AY 2004-05 without claiming the full deduction under section 43B for SEBI fees paid during the relevant financial year. The respondent admitted the omission was inadvertent and made the claim during assessment proceedings and before the CIT(A) and ITAT, producing documentary evidence of payment amounting to Rs. 40,00,000/-.

The AO rejected the claim on jurisdictional grounds. The CIT(A) and the ITAT, after considering the evidence and relevant law, allowed the deduction and directed the AO to compute tax liability accordingly.

The Court found no reason to interfere with the findings of fact that the omission was inadvertent and that the respondent was entitled to the deduction. There was no suggestion or evidence of mala fide or deliberate omission.

Treatment of competing arguments

The appellant argued that the claim could only be made by filing a revised return and that the AO had no jurisdiction to entertain the claim otherwise. The appellant also relied on the Supreme Court decision in Goetze to contend that the claim was inadmissible.

The Court distinguished the Goetze decision as limited to the powers of the AO and emphasized the broader powers of appellate authorities to entertain additional claims. The Court also rejected the appellant's contention that the appellate authorities lacked jurisdiction to entertain the claim, relying on binding precedents establishing the plenary powers of appellate authorities.

Conclusions

The Court concluded that the CIT(A) and ITAT had jurisdiction and rightly exercised discretion to entertain and allow the respondent's additional claim for deduction under section 43B, despite it not being claimed in the original return or supported by a revised return. The omission was inadvertent, and the respondent was entitled to the deduction as a matter of law.

The limitation on the AO's jurisdiction to entertain such claims without a revised return does not affect the appellate authorities' power to do so. The appeal was dismissed.

Significant holdings include the following verbatim excerpts:

"The power of the Appellate Assistant Commissioner is co-terminus with that of 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."

"The words 'could not have been raised' must, therefore, be construed liberally and not strictly."

"The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law... 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)."

"The issue in the case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."

Core principles established:

• Appellate authorities under the Income Tax Act have plenary powers co-terminus with the AO and can entertain additional claims and grounds not raised before the AO, including claims not made in the original return.
• The jurisdiction of appellate authorities to entertain additional claims is distinct from the exercise of discretion; they may refuse to entertain claims, but cannot deny jurisdiction.
• The omission to claim a deduction in the return may be excused as inadvertent, and the assessee is not prejudiced if entitled to the deduction.
• The AO's jurisdiction to entertain additional claims without a revised return is limited, but this limitation does not restrict the powers of appellate authorities.
• Supreme Court precedents support a liberal construction of the powers of appellate authorities to ensure correct tax liability assessment.

Final determinations on each issue:

(A) An assessee can raise additional claims for deduction before appellate authorities even if not claimed in the original return and without filing a revised return.

(B) The ITAT was correct in law to hold that a claim of deduction not made in the original return and not supported by a revised return is admissible before appellate authorities.

(C) The AO does not have jurisdiction to entertain such claims without a revised return, but this limitation does not affect the jurisdiction of appellate authorities to consider and allow such claims.