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

[C.A. DEV KUMAR KOTHARI]

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

CA Dev Kumar Kothari

Synopsis:

Assessee need to make claims in return or revised return. In case of e-filing of return assessee is not able to make additional claim for consideration of the AO. Thus on contentious issues the assessee, if want to play safe, cannot make a valid claim when return is filed online. Similarly some issues need explanations. Therefore, it is suggested that in ITR forms there should be scope to file additional sheets for explanations and further claims for consideration of the AO. In view of complexity of law, there should also be specific provisions under law to enable assessee to make further claims before primary authority like AO to ensure that tax base is computed correctly and excessive tax paid due to complexity, uncertainty or ignorance of law, can be refunded on application before the primary authority at any time to ensure that wrongly paid excessive tax is refunded by the government to the tax payer and government do not retain wrongly paid/ collected tax.

 Links and references:

Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.

Goetz India Ltd. v. CIT, [2006 -TMI - 5171 - Supreme Court]

CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 - SUPREME Court]

 National Thermal power Co. Ltd. v. CIT [1996 -TMI - 5626 - SUPREME Court].

Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax [1999 -TMI - 16114 - DELHI High Court]

Kedarnath Jute 82 ITR 383 (SC).

CIT V Agarwal Transformers P. Ltd [2002 -TMI - 12300 - RAJASTHAN High Court].

Claim in return of income:

A claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims.  In the ITR’s assessee need to provide computation of income. If a claim is not made, it may not be accepted by the AO while making assessment in summary manner by accepting the return.

Sheets for explanations and further claims- suggestions:

In the existing electronic ITR forms up to AY 2010-11 there was no scope to attach explanations or further claims in the return forms. Therefore, assessee is not able to explain certain claims about which an explanatory note is desirable. Assessee cannot also make request to the AO to consider additional claims.

In the ITR forms extra sheets in word document form or in Excess form can be provided to enable assessee to (explain claims made in the return and to make further claims for consideration of the AO)

Claims about contentions issues:

A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return. Tax laws are very complex and on many issues there can be difference of opinion. Therefore, assessee must have option to put forth his claim in some or other manner in the ITR and request the AO to consider the same over and above the income shown in the return. In case of physical returns assessee had such option to make further claims for consideration of the AO by appending such claims below the computation attached to the return. However, in case of ITR’s filed electronically such option is not available.

Paper returns vis a vis e-filing;

When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same because they are not required to be filed as per law and circulars etc. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation. In such situation assessee should also be ready to face penalty proceedings.    

Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:

The Supreme Court In case of Goetz India Ltd. v. CIT, [2006 -TMI - 5171 - SUPREME Court] held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.

In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income.  The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return.  The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.

Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return.  Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.

Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of ‘play safe’ prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.

Though return is significant, however, it is not final about tax base:

Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee.  Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed.  The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.

Claims having some doubts.

Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item.  However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer. 

Claim in the original return is best way:

The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.

Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed. 

 Suggested way to claim in case of doubtful claims:

The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed.  However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return.  Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -

A. The Return is without prejudice:

On the cover of the return or other documents and on the acknowledgment “WITHOUT PREJUDICE”, should be written. However, it is not possible in case of e-returns.

 Illustration of further claims:

Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue. 

B. Claims for consideration of the assessing officer

In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:

a)      Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd  [2002 -TMI - 12300 - RAJASTHAN High Court]. Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.

b)      Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court.  In earlier year the CIT (A) / Tribunal has allowed such interest.  However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…

c)       Deductions of provident fund, ESI has not been made as payment was made after 15^th April but before the due date for filing of the return.  In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.

     d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain.  However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account.  Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade.  Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income. 

Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.

C. A general clause for consideration of the AO

Below the computation following general clauses in form of prayer may be given

We have made the computation of income as per our understanding and as advised by our tax consultant.  We have made some claims for your kind consideration as noted above.  However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance.  We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.

In case of e-return:

When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.

It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.

However, till such option is not available the assessee can do the following:

File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.

Revised return may be filed

A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1).  A belated return cannot be revised.  Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.

The CIT (A) has power co-terminus with assessing officer-

A new twist is likely to take place:

Earlier, generally the AO,  Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.

After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.

Earlier rulings on powers of CIT (A) and ITAT:

Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, [1990 -TMI - 5320 - SUPREME Court] power of ITAT in case of National Thermal power Co. Ltd. v. CIT [1996 -TMI - 5626 - SUPREME Court] also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that  “ However, we make it clear that the issue in this 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.”

The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.

In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 82 ITR 383 (SC)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.  

Judgment of Delhi High Court on power of ITAT:

In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.

Delhi High Court upheld the tribunal’s decision.

An analysis of Delhi High Court’s ruling:

In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax [2006 -TMI - 5171 - SUPREME Court] wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.

High Court referred to judgment of the Supreme Court in  National Thermal Power Co. Ltd. v. CIT [1996 -TMI - 5626 - SUPREME Court]. where the Supreme Court observed that:- '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. 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 assessees as well as the Department have a right to file an 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.'

Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to  Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax [1999 -TMI - 16114 - DELHI High Court] wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.

In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax [1990 -TMI - 5320 - SUPREME Court]. about powers of CIT(A). Therein  the Supreme Court observed that:-'An appellate 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 is no good reason 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. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'

Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.

The purpose of different proceedings is to have assessment as per law:

We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc.  The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim. 

Amendment is desirable to permit additional claims:

Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe.  In such circumstances, most of the assessee would prefer to adopt ‘play safe’ approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws. Judgment in case of Goetz need reconsideration:

The author feels that the judgment of the Supreme Court in case of Goetz (India) Ltd needs reconsideration. As per recent trend of frequent reconsideration of judgments we find that  tax laws are so complex that even a judgment of the Supreme Court may not be final because in future other bench or larger bench of the Supreme Court  may doubt its correctness and modify the earlier judgments. A claim which is not allowed may attract penalty. Therefore, the assessee must have an option to prefer further claims before the AO for his consideration even if the amount is not claimed in the computation of tax base. There is time gap between filing of return and assessment, during this period there can be change in opinions and legal position. Therefore, it is very much necessary that assessee is given an option to make further claims before the AO at any time before completion of assessment and even thereafter.   

Amendment in law is also desirable to ensure that excessively paid tax is refunded:

The law should also be amended to provide an option to the assessee to prefer claims for the consideration of the AO and appellate authorities so that computation of income and tax can be as per law. In case excessive tax has been paid due to ignorance or complexity or uncertainty of law, the assessee must have an easy way to claim refund of excess tax paid without need to approach courts by way of writ petitions. The Rule is clear that the government can retain only tax as per law. However, it is very difficult to get refund if by mistake assessee had paid excessive tax.   

Conclusions:

In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim.  Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer.  There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims. The law must also be amended to provide for an easy way so that the tax payer can claim relief before the primary authority like the Assessing Officer.

*****

Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. [2008 -TMI - 3591 - HIGH COURT OF DELHI]

Avery Cycle Industries Limited. Versus Commissioner Of Income-Tax. [2007 -TMI - 13490 - PUNJAB AND HARYANA High Court]

Summary:

Recently the Supreme Court has held that a claim made otherwise than in the return or a revised return, simply by way of a letter for claim cannot be entertained by the assessing officer. Some claim which may involve litigation, preferably may not be claimed in the main computation part but by way of additional claims for consideration of the assessing officer, so that the assessee retain his rights of such claims to be adjudicated by assessing officer and in case of need by appellate authorities. The assessee can avoid  worry about additional liabilities. An amendment in law is desirable to permit additional claims by way of letters.

Recent judgment of the Supreme Court.

Return and its significance.

Claims having some doubts.

Claim in the original return is best way.

Suggested  way to claim in case of doubtful claims.

A. The Return is without prejudice.

B. Claims for consideration of the assessing officer.

C. A general clause for consideration of the AO.

Revised return may be filed.

The CIT(A) has power co-terminus with assessing officer.

Earlier rulings on powers of CIT(A) and ITAT.

Amendment is desirable to permit additional claims.

Conclusions.

Recent judgment of the Supreme Court:

In case of Goetz India Ltd. v. CIT, [2006 -TMI - 5171 - SUPREME Court] the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. Assessee merely made a further claim vide a letter filed with the assessing officer claiming certain deductions, which were not claimed in the return of income.  The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return.  The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return can not be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.

Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return.  Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may loose the relief.

Return and its significance.

Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon which the assessing officer proceeds to assess the assessee.  Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed.  The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return.

Claims having some doubts.

Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item.  However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer. 

Claim in the original return is best way:

The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.

Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed. 

Suggested way to claim in case of doubtful claims:

The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim made is disallowed.  However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return.  Therefore, the following course of action may be adopted: -

A. The Return is without prejudice:

On the cover of the return and on the acknowledgment “WITHOUT PREJUDICE”, should be written.

 Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue. 

B. Claims for consideration of the assessing officer

 In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:

d)      Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd  [2002 -TMI - 12300 - RAJASTHAN High Court] Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.

e)      Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court.  In earlier year the CIT (A) / Tribunal has allowed such interest.  However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…

f)       Deductions of provident fund, ESI has not been made as payment was made after 15^th April but before the due date for filing of the return.  In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.

d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain.  However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account.  Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade.  Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment.  Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income. 

Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.

C. A general clause for consideration of the AO

Below the computation following general clauses in form of prayer may be given

We have made the computation of income as per our understanding and as advised by our tax consultant.  We have made some claims for your kind consideration as noted above.  However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance.  We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.

Revised return may be filed

A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1).  A belated return cannot be revised.  Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.

The CIT (A) has power co-terminus with assessing officer-

A new twist is likely to take place:

Earlier, generally the Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.

 Earlier rulings on powers of CIT (A) and ITAT:

Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, [1990 -TMI - 5320 - SUPREME Court]. power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 - SUPREME Court also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that  “ However, we make it clear that the issue in this 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.”

The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz.

In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 82 ITR 383 (SC)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.  

Amendment is desirable to permit additional claims:

Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe.  In such circumstances, most of the assessee would prefer to adopt ‘play safe’ approach. Returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time limit to file a revised return might have lapsed. In such  circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.

Conclusions:

In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim.  Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer.  There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation it self, therefore, claims made by way of notes to the computation or otherwise in the return will be sufficient to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities.

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In Jute Corporation of India Ltd. v. CIT, [1990 -TMI - 5320 - SUPREME Court]. it was held by the Supreme Court that the Commissioner (Appeal) / (AAC)(Appeal) has all the powers which the original authority may have in deciding the question before it subject to restrictions or limitations, if any, prescribed by the statutory provisions.  The CIT (A) has all the powers over assessment, which the assessing Officer has.  The CIT (A) can consider what the assessing officer has omitted to do.  In CIT v. Jute Corporation of India, [1990 -TMI - 5320 - SUPREME Court] it is held that –

The appellant, a Government corporation engaged in the jute industry, had not claimed any deduction of purchase tax liability in its return for the assessment year 1974-75 in the belief that it was not liable to purchase tax under the Bengal Raw Jute Taxation Act, 1941.  Later on, the appellant was assessed to the purchase tax, but it disputed the liability and preferred an appeal and obtained a stay order.  In an appeal before the Appellate Assistant Commissioner, the appellant raised an additional ground for deduction of the purchase tax on the ground that the tax liability should be deducted in computing its profits, in view of the decision of the Supreme Court in Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363.  The Appellate Assistant Commissioner permitted the appellant to raise the additional ground and, after hearing the Income-tax Officer, allowed the claim.  On appeal, the Appellate Tribunal, placing reliance on the decision of the Supreme Court in the case of Gurjargravures P. Ltd. [1977 -TMI - 6523 - SUPREME Court]. held that the Appellate Assistant Commissioner had no jurisdiction to entertain the additional claim.  Both the Tribunal and the High Court rejected the respective applications of the appellant for reference.  On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that, since the tax liability was admitted, the Income-tax Officer was afforded an opportunity of being heard, and the appellant’s claim was based on the settled view of the law, the Appellate Assistant Commissioner had jurisdiction to permit the appellant to raise the additional ground.

Since the ordinary procedure for calling for a statement of the case and thereupon decide the matter afresh would be time-consuming, the Supreme Court granted special leave against the order of the Tribunal, set aside the order and remitted the matter to the Tribunal to consider the merits of the deduction claimed.

CIT v. Kanpur Coal Syndicate [1964 -TMI - 49377 - SUPREME Court]. relied on.

CIT (Addl.) v. Gurjargravures P. Ltd. [1977 -TMI - 6523 - SUPREME Court]. doubted but distinguished.

Rai Kumar Srimal v. CIT [1974 -TMI - 39531 - CALCUTTA High Court]. approved.

Decision of the Calcutta High Court in Jute Corporation of India Ltd. v. CIT [1980 -TMI - 36032 - CALCUTTA High Court]. reversed.

By the Court : (i) Power to tax on discovery of a new source of income is quite different from granting deduction on the admitted facts fully supported by the decision of the Supreme Court.  If the tax liability of the assessee is admitted and if the Income-tax Officer is afforded an opportunity of hearing by the appellate authority in allowing the assessee’s claim for deduction on the settled view of the law, there is no good reason to curtail the powers of the appellate authority under section 251(1)(a) of the Income-tax Act, 1961.

(ii) An appellate 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 is no good reason 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.

(iii) The observations in the case of Gurjargravures P. Ltd. [1977 -TMI - 6523 - SUPREME Court] 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 the stage when the return was filed or when the assessment order was made or if the ground became available on account of change of circumstances or law.  There may be several factors justifying the raising of such a new plea in an 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.  He must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons.  While permitting the assessee to raise an additional ground, the Appellate Assistant Commissioner should exercise his discretion in accordance with law and reason.

Cases referred to :

CIT v. McMillan and Co. [1957 -TMI - 75376 - SUPREME COURT].

CIT v. Shapoorji Pallonji Mistry [1962 -TMI - 49476 - SUPREME Court].

Kedarnath Jute Mfg. Co. Ltd. v. CIT [1971] 82 ITR 363 (SC)

Narrondas Manordass v. CIT [1957] 31 ITR 909(SC).

Power of Tribunal

In National Thermal Co. Ltd. v. CIT [1996 -TMI - 5626 - SUPREME Court]. the Supreme Court considered the power of Tribunal and inter alia held as follows:-

The Tribunal has the discretion to allow or not to allow a new ground to be raised.  When the Tribunal is only required to consider the question of law arising from facts which are on records in the assessment proceedings, there is no reason 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.

That Tribunal had jurisdiction to examine a question of law which arose from the facts as found by the Income-tax Authorities and having a bearing on the tax liability of the assessee.

Thus, it appears that the Tribunal can consider additional claims by way of additional grounds raised before it either by of original grounds or additional grounds, only if the relevant facts are found in the assessment records.  Therefore, in respect of claims it is necessary that the claim should be found in the assessment record.  Earlier the appellate authorities namely, Commissioner(Appeal) and Tribunal considered additional claims even if they were raised by way of letter filed before the assessing officer for the reason that some facts relevant to the claim were found in the assessment record but not considered by the assessing officer.  However, now after the judgment in the case of Goetze India Ltd. it appears that there must be some mention about the claim in the return and accompanying documents filed before the assessing officer so that the claim can be praised before appellate authorities.

Goetze (India) Limited. Versus Commissioner Of Income-Tax. [2006 -TMI - 5171 - Supreme Court]