Unnecessary litigation by revenue even before the Supreme Court, on settled legal position about power of Tribunal to admit new claims.

[DEV KUMAR KOTHARI]

Unnecessary litigation by revenue even before the Supreme Court, on settled legal position about power of Tribunal to admit new claims.

2022 (4) TMI 694 - SUPREME COURT

Wipro Fin. Case -WIPRO FINANCE LTD. VERSUS COMMISSIONER OF INCOME TAX

NTPC case -National Thermal Power Co. Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME COURT about powers of Tribunal to entertain new / additional claims even before first time before Tribunal.

GOETZE (INDIA) LIMITED VERSUS COMMISSIONER OF INCOME-TAX [2006 (3) TMI 75 - SUPREME COURT] - about powers of AO. In this judgment, powers of ITAT and CIT(A) have not been curtailed.

Other related judgments:

CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) - This is about powers of CIT(A) to admit new claims in first appeal , which were not preferred in ITR or before AO.

Some of earlier articles on related matters for detailed discussions:

CLAIMS IN RETURN OR OTHERWISE – A NEW APPROACH AND AMENDMENT IS REQUIRED IN VIEW OF E-FILING OF RETURN  An Article By: - C.A. DEV KUMAR KOTHARI

February 18, 2011

INCOME TAX RETURN (ITR) FORMS- suggestions for additional claims and explanations by way of separate sheets.

An Article By: - C.A. DEV KUMAR KOTHARI

March 16, 2011

INCOME TAX RETURN (ITR) FORMS- suggestions for additional claims and explanations by way of separate sheets.

CA Dev Kumar Kothari

Deficiencies in ITR form should not prevent assesse from preferring legal claims.

An Article By: - CA DEV KUMAR KOTHARI

November 6, 2019 in this article special study was with reference to 2019 (11) TMI 150 - BOMBAY HIGH COURT - SAMIR NARAIN BHOJWANI VERSUS DEPUTY COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 3 (4) , MUMBAI & ORS. WRIT PETITION NO. 2825 OF 2019 Dated: - 22 October 2019

Facts of the case of Wipro Fin.

Admittedly in ITR assessee claimed lesser amount as revenue expenditure , on account of foreign currency additional liability at time of repayment of loan. In accounts a part of  such expenditure was capitalized and on that part depreciation was claimed. Before Tribunal for the first time , further claim was made that a part of expenditure which was capitalized was also revenue expenditure. Therefore, additional claim was preferred for first time before the Tribunal to claim the same as revenue expenditure.

From case of Wipro Finance (supra)- relevant portion for new or

additional claim before ITAT with highlights added by author:

Claim raised for the first time before the ITAT - whether since the appellant in its return had taken a conscious explicit plea with regard to the part of the claim being ascribable to capital expenditure and partly to revenue expenditure, it was not open for the appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure -

Analysis from judgment / Order of the Supreme Court:

In the appeal before the ITAT, the appellant not only claimed deduction in respect of loss of ₹ 1,10,53,909/arising on account of exchange fluctuation, but also set up a fresh claim in respect of revenue expenses to the tune of ₹ 2,46,04,418/, erroneously capitalized in the returns.

The ITAT entertained this fresh claim set forth by the appellant and recorded in its judgment that the department’s representative had no objection in that regard.

Additionally, the ITAT adverted to the NTPC case  for entertaining fresh claim of the appellant in exercise of powers under Section 254 of the 1961 Act.

On behalf of revenue the matter was carried before the High Court. The following question is relevant about power of ITAT to admit  fresh claim:

“(4) Whether on facts and in the circumstances of the case, the Tribunal is justified in allowing the additional claim of ₹ 2,46,04,418.00 for the assessment year 199798 holding that the capitalisation of the said sum is to be treated as revenue expenses? (in ITA No. 633/04 only).”

The High Court vide impugned judgment has reversed the view taken by the ITAT, mainly observing that the ITAT had not recorded sufficient reasons in support of its conclusion and in any case, the conclusion was without any basis.

The Supreme Court heard Mr. S. Ganesh, learned senior counsel for the appellant and Mr. Vikramjit Banerjee, and learned Additional Solicitor General appearing for the respondent.

The learned ASG appearing for the department argued on following points:

1. The appellant in its return had taken a conscious explicit plea with regard to the part of the claim being ascribable to capital expenditure and partly to revenue expenditure; it was not open for the appellant to plead for the first time before the ITAT that the entire claim must be treated as revenue expenditure.
2.  It was not open to the ITAT to entertain such fresh claim for the first time.

The Supreme Court viewed as follows:

              This submission needs to be rejected.

              In the first place, the ITAT was conscious about the fact that this claim was set up by the appellant for the first time before it, and was clearly inconsistent and contrary to the stand taken in the return filed by the appellant for the concerned assessment year including the noting made by the officials of the appellant.

Still the ITAT entertained the claim as permissible, even though for the first time before the ITAT, in appeal under Section 254 of the 1961 Act, by relying on the case of NTPC

The ITAT has also expressly recorded the no objection given by the representative of the department, allowing the appellant to set up the fresh claim to treat the amount declared as capital expenditure in the returns (as originally filed), as revenue expenditure. As a result, the objection now taken by the department cannot be countenanced.

              Learned ASG had placed reliance on the decision in Goetze. According to him, the decision in National Thermal Power Co. Ltd. supra at footnote No. 4 merely permits raising of a new ground concerning the claim already mentioned in the returns and not an inconsistent or contrary plea or a new claim.

Their lordships viewed that “we are not impressed by this argument. For, the observations in the decision in Goetze (India) Ltd. supra at footnote No. 10 itself make it amply clear that such limitation would apply to the “assessing authority”, but not impinge upon the plenary powers of the ITAT bestowed under Section 254 of the Act. In other words, this decision is of no avail to the department.

Thus the impugned judgment and order of the High Court was set aside and instead, the decision of the ITAT dated 3.6.2004 in favor of the appellant was affirmed and restored.

Supreme Court also issued consequential directions:

             A, As a result of allowing the entire claim of the appellant to the tune of ₹ 3,56,57,727 being revenue expenditure, suitable amends will have to be effected in the final assessment order passed by the assessing officer for the concerned assessment year, thereby treating the consequential benefits such as depreciation availed by the appellantassessee in relation to the stated amount towards exchange fluctuation related to leased assets capitalised (being ₹ 2,46,04,418/), as unavailable and nonest.

Un-necessary litigation:

In case of Wipro Finance, as we can observe, firstly department has appealed before the High Court.

It may be that due to oversight or due to suppression of things, honorable High Court did not consider admission of Departmental Representative before ITAT about no objection to admit new claim for the first time before ITAT and may be somehow a new approach, which is opposed to the law laid down in NTPC case was not followed.  In fact, the ruling in case of Goetze, about powers of ITAT were also not considered. This caused reversal of judgment of High Court by the Supreme Court.

Tax laws are complex and are ever changing due to amendments, and judgments rendered by Courts. Therefore, many times it become necessary to prefer new claims which were not made in ITR due to any reason. Time for filing of revised ROI may not be available. If in absence of claim in ITR is not entertained at any stage, it can lead to  gross injustice by way of excessive assessment and tax collection and related problems of tax payers.

Therefore, there should be provision to allow revising of ROI, if subsequent development suggests need to file revised ITR.

If matter is open in scrutiny assessment or appeal, the law should specifically allow permission to prefer additional claims even before the AO. In fact if a relief is allowable the AO must be duty bound to allow the same without taking advantage of ignorance or mistake of assessee.

Purpose of assessment and appeals is to ensure that proper determination of income and tax is made. This should not be restricted to increasing income as per ITR, rather it must also ensure that excessive tax is not collected by not allowing claims allowable but not claimed by assessee.