2021 (4) TMI 1034 - HC - Income Tax

Rectification application u/s 154 - application under section 264 has been dismissed/rejected - rectify the mistake of the mis-recording of long-term capital gains in the order under section 143 (1) of the Income Tax Act as being in an inadvertent error as the same had already been considered in the return for the A. Y. 2017-18, assessment in respect of which had already been completed under section 143 (3) of the Income Tax Act - - HELD THAT - In a situation where there is an appeal that lies to the Commissioner appeals and which has not been made and the time to make such an appeal has not expired in that case the Principal Commissioner or Commissioner cannot revise any order in respect of which such appeal lies. The language is quite clear that the two conditions are cumulative viz there should be an appeal which lies but has not been made and the time for filing such appeal has not expired in such a case the Principal Commissioner cannot revise. However, if the time for making such an appeal has expired then it would be imperative that the Principal Commissioner would exercise his powers of revision under section 264. The other or second situation is when the Petitioner assessee has not waived his right of appeal; even in such a situation the Commissioner cannot exercise his powers of revision under section 264 (4) (a). In clause (a) of section 264 (4), in the language between filing of an appeal and the expiry of such period and the waiver of the assessee to his right of appeal there is an or thereby meaning that there is an option i.e either the assessee should not have filed an appeal and the period of filing the same should have expired or he should have waived such right. Therefore, there are two situations which are contemplated in said sub-section (4) (a) of section 264. The section cannot be interpreted to mean that for the Principal Commissioner to exercise his powers of revision under section 264 not only that the time for filing the appeal should have expired but also that the assessee should have waived his right of appeal. We are afraid that, that is not how the section can be read. In the facts of the case, Petitioner has not filed appeal against order under section 143 (1) under section 246-A of the Income Tax Act and the time of 30 days to file the same has also admittedly expired. In our view, once such an option has been exercised, a plain reading of the section suggests that it would not then be necessary for Petitioner to waive such right. That waiver would have been necessary if the time to file the appeal would not have expired. Also the argument of the Revenue to say that the Petitioner can still file the appeal by filing an application for condonation of delay, is in our view, not proper and would be a fallacious proposition as after the period of 30 days, there is no right of appeal but an appeal would rest on the discretion of the Appellate Authority to condone delay upon sufficient cause being shown. In matters like these, where the errors can be rectified by the authorities, the whole idea of relegating or subjecting the assessee to the appeal machinery or even discretionary jurisdiction of high court, in our view, is uncalled for and would be wholly avoidable. The provisions in the Income Tax Act for rectification, revision under section 264 are meant for the benefit of the assessee and not to put him to inconvenience. That cannot and could not have been the object of these provisions. We do not find any statement either in the impugned order or in the reply to state that the case of the Petitioner seeking remedy of the purported error was not bona fide. Order passed by the 2nd Respondent- Principal Commissioner is unsustainable and deserves to be set-aside.

Summary

Issues Involved:

1. Validity of the rejection of the revision petition under Section 264 of the Income Tax Act.
2. Applicability of Section 264(4) regarding the alternate remedy of appeal.
3. Examination of the merits of the case concerning the erroneous inclusion of long-term capital gains.

Detailed Analysis:

1. Validity of the Rejection of the Revision Petition:

The petitioner challenged the order dated 12 February 2021, passed by the Principal Commissioner of Income Tax, which rejected the revision petition under Section 264 of the Income Tax Act. The petitioner argued that the Principal Commissioner misconstrued the provisions of Section 264 by not considering the application on its merits and dismissing it on the grounds of an alternate remedy. The petitioner had not filed an appeal under Section 246A against the order dated 2 May 2019, and the time limit for filing such an appeal had expired. Therefore, the Principal Commissioner should have considered the revision application on its merits.

2. Applicability of Section 264(4) Regarding the Alternate Remedy of Appeal:

The Principal Commissioner dismissed the revision application under Section 264, citing that the petitioner had an alternate effective remedy of appeal and had not waived the right of appeal as per Section 264(4) of the Income Tax Act. The court analyzed Section 264(4), which mandates that the Commissioner shall not revise any order if an appeal against the order lies but has not been made, and the time within which such appeal may be made has not expired, or if the assessee has not waived the right of appeal. The court concluded that these conditions are cumulative, and if the time for making such an appeal has expired, the Principal Commissioner should exercise his powers of revision under Section 264. Since the petitioner did not file an appeal within the stipulated time, the Principal Commissioner should have considered the revision application on its merits.

3. Examination of the Merits of the Case Concerning the Erroneous Inclusion of Long-Term Capital Gains:

The petitioner’s return for the Assessment Year 2018-19 erroneously included long-term capital gains of ?3,07,60,800, which had already been accounted for in the previous assessment year (2017-18). This error was inadvertently made by the petitioner’s accountant. The petitioner filed a rectification application under Section 154, which was rejected. Subsequently, the petitioner approached the Principal Commissioner under Section 264, seeking a revision of the order passed under Section 143(1). The court referred to the Delhi High Court’s decision in Vijay Gupta v/s. Commissioner of Income Tax, which emphasized that the powers under Section 264 are wide and intended to correct errors, including those made by the assessee. The court also cited its decision in Universal Packaging and Others v/s. Commissioner of Income Tax, which held that non-speaking orders that do not consider the merits of the case violate the principles of natural justice.

Conclusion:

The court found that the Principal Commissioner failed to exercise the jurisdiction vested in him by dismissing the revision application on technical grounds without considering the merits. The court set aside the order dated 12 February 2021 and directed the Principal Commissioner to decide the application afresh on its merits, after hearing the petitioner and passing a reasoned order in line with the court’s discussion.

Order:

The petition was allowed, and the Principal Commissioner was directed to reconsider the application under Section 264 on its merits. No order as to costs was made. The parties were instructed to act on a copy of the court’s order authenticated by the associate of the court.