DY. COMMISSIONER OF INCOME TAX , CENTRAL CIRCLE-3(1), HYDERABAD vs. UPPALA PRADEEP KUMAR , HYDERABAD

Both the assessees are brothers and facts and issues in both the cases are the same. Therefore, for the sake of brevity and ready reference, the facts in the case of Shri Pradeep Kumar Uppala in are referred to hereunder:

Brief facts of the case are that both the assessees are individuals. They filed their respective returns of income for the relevant A.Y. Their returns were selected for scrutiny and notices u/s 143(2) were issued respectively. Later, the assessees filed their revised returns of income on 27.8.2015 declaring lower income than the income declared in their original returns of income. In response to the notices u/s 143(2), the assessee’s Counsel appeared before the AO and submitted that the remuneration and the interest on their capital, though was not debited nor paid to the assessees’ by the partnership firm, Sri Krishna Jewellery Mart, was erroneously declared in their returns of income and therefore, they requested for acceptance of the revised returns of income. The AO considered the same and accepted the assessees’ contentions and thus the income declared by them in the revised returns of income was accepted.

Thereafter, the CIT perused the assessment record of both the assessees u/s 263 of the Act, and observed that the assessees were not entitled to file the revised returns of income as the original returns were filed u/s 139(4) and not u/s 139 (1) of the Act. Further, he also held that the assessment order was passed by the AO u/s 143(3) of the Act, without application of mind and therefore, it is erroneous in so far as it is prejudicial to the interest of the Revenue. He held that the AO ought to have recognized the revenue expenses on accrual basis and therefore, the remuneration and interest offered in the original returns of income should have been brought to tax. He accordingly directed the AO to redo the assessment afresh after examining the issue and after providing reasonable opportunity to the assessees. Against this order of the CIT u/s 263 of the Act, the respective assessees are in appeal before this Tribunal, by raising the following grounds which are common in both the appeals: “1. Your appellant submits that issue of notice uls 263 of the Income tax Act, 1961 is bad in law.

The learned Counsel for the assessee, Shri M.V. Anil Kumar, reiterated the submissions made by the assessee before the CIT and has also drawn our attention to the relevant papers wherein the firm, Sri Krishna Jewellery Mart had not debited nor claimed the expenditure of payment of remuneration and interest to the partners in its books of account. He submitted that erroneously, the assessees had offered the income in their original returns of income but subsequently, they have revised their returns of income and the AO has considered the same and rightly accepted the revised returns. Therefore, the assessment orders are neither erroneous nor prejudicial to the interest of the Revenue.

The learned DR, on the other hand, supported the orders of the CIT (A) and submitted that the original returns of income were filed u/s 139(4) and therefore, a revised return could not be filed u/s 139(5) of the Act and therefore, the revised returns of income should not have been considered by the AO making the assessment order erroneous and prejudicial to the interest of Revenue.

Having regard to the rival contentions and the material on record, we find that both the assessees before us are the partners of Sri Krishna Jewellery Mart. The firm has filed its return of income on 29.9.2013 and from the Schedule 15 to the P&L A/c which is ‘selling, general and administrative expenditure’, it is seen that for the relevant year, the firm has not claimed any payment of interest or remuneration to the partners. We find that the assessees have filed their returns of income on 29.3.2014 i.e. subsequent to the filing of the returns of income by the firm. The firm has not revised its returns of income, but it is the assessees who have revised their returns of income. Therefore, the claim of the assessees that they have erroneously offered the income to tax is not an after thought or a wrong claim. When it was brought to the notice of the AO by way of a revised return, the AO has accepted the revised returns of income. Now, the question is whether a return filed u/s 139(4) can be revised u/s 139(5) of the Act. The relevant A.Y before us is 2013-14 and during the relevant A.Y, section 139(5) allowed filing of revised return only if the original return was filed u/s 139(1) or in response to notice issued u/s 142(1) of the Act. By Finance Act of 2016, section 139(5) has been substituted permitting the returns filed u/s 139(1) and 139(4) to be revised and it is applicable w.e.f. 1.4.2017 i.e. A.Y 2017-18 onwards. Therefore, the revised return of income by the respective assessees are invalid and therefore, the assessment order is erroneous. But, during the course of assessment, the assessee can point out any mistake in the return of income and it is the duty of the AO to compute the correct income of the assessee. The CBDT vide Circular No.14 of 1955 dated 11.4.1955 has held that the Officers of the Department must not take advantage of ignorance of the assessee about his rights and it is their duty to assist the tax payer in every reasonable way particularly in the matter of claiming and securing reliefs. The Hon'ble Supreme Court in the case of CIT vs. Shelly Products reported in 261 ITR 367 (S.C) has held as under: “We cannot lose sight of the fact that the failure or inability of the revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than in what he would have been if a fresh assessment was made. In a case where an assessee chooses to deposit by way of abundant caution advance tax or self- assessment tax which is in excess of his liability on the basis of return furnished or there is any arithmetical error or inaccuracy, it is open to him to claim refund of the excess tax paid in the course of assessment proceeding. He can certainly make such a claim also before the concerned authority calculating the refund. Similarly, if he has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income-tax, or is not income within the contemplation of law, he may likewise bring this to the notice of the assessing authority, which if satisfied, may grant him relief and refund the tax paid in excess, if any”.

The Hon'ble Allahabad High Court in the case of CIT vs. Lucknow Public Educational Society, in Income Tax Appeal No.134 of 2007 also reported in (TS-5024-HC-2009 Allahabad)-0) has considered similar circumstances wherein the original return was filed late, due to which, the revised return was treated by the AO as nonest, the Hon'ble High Court held that a claim to which the assessee is legally entitled cannot be denied by the AO on technical grounds, even if such a claim has not been made by the assessee. Hence in this case, the assessee during the assessment proceedings made the claim and the AO after due verification has accepted the assessee’s claim. Further, since the firm has not claimed the expenditure, there is no loss to the Revenue and the same cannot be brought to tax in the hands of the assessees without receipt or even credit to their a/c. Thus, there is also no prejudice caused to the Revenue. In view of the same, the orders u/s 263 in the case of both the assessees’ are not sustainable and are accordingly set aside.

In the result, assessee’s appeals are allowed. The Revenue’s appeals are against the relief given by the CIT (A) in the appeal against the consequential order passed by the AO u/s 143(3) r.w.s. 263 of the I.T. Act. Since the very basis i.e. orders u/s 263 are set aside, the consequential orders have no legs to stand and therefore, the Revenue’s appeals are infructuous. Further, the appeal in is below the tax effect. Therefore, this appeal is liable to be dismissed on account of low tax effect as well.

In the result, assessee’s appeals are allowed and the Revenue’s appeals are dismissed. Order pronounced in the Open Court on 3d March, 2021.