M/s. SANCHIT SOFTWARE AND SOLUTION PRIVATE LIMITED vs. COMMISSIONER OF INCOME TAX-8 MUMBAI

JUDGMENT (PER M.S.SANKLECHA, J.)  : By this petition under Article 226 of the Constitution   of   India,   the   petitioner   challenges the   order   dated   07.02.2011   passed   by   the Commissioner of Income Tax under Section 264 of the Income   Tax   Act,   1961   ('the   Act')   dismissing   the petitioner's revision application.   The challenge is to the failure of the Commissioner of Income Tax to   exercise   juri iction   vested   in   her   under Section 264 of the Act.

learnt

that its Chartered Accountant’s   office   had   erred   in   not   having SNC 3/21 WP 783-12.doc Uploaded on - 21/08/2020 claimed the exemption of dividend income and long term capital gains under Section 10(34) and   10(38)   of   the   Act   respectively   while computing   the   return   of   income.   It   appeared that   at   page   11   of   the   return   of   income   as filed   where   the   computation   of   total   income was worked out by mistake income in the form of dividend and long term capital gains were included in the total income though in law had to be excluded from total income under section 10 of the Act.   That this was an inadvertent error   is   obvious   from   the   fact   that   in   the return   of   income   itself   at   page   no.24,   the petitioner had claimed the dividend income and long   term   capital   gains   as   being   exempt,   as income not to be included in total Income. d) Immediately   on   realization   of   the above mistake in view of the intimation dated 16.10.2008   under   section   143(1)   of   the   act, the petitioner on 01.02.2010 filed a revised return   of   income   electronically   with   the SNC 4/21 WP 783-12.doc Uploaded on - 21/08/2020 respondent.   In the revised return of income, the petitioner at page 11 in the column titled computation of total income, did not include dividend income and long term capital gains. This correctly reflected the absence of profit by the petitioner for assessment year 2007­08 under the Act.  Consequently, the petitioner’s liability to pay tax was correctly reflected on the basis of its book profit under Section 115(J)(B) of the Act as was in fact declared in   the   return   of   income   as   originally electronically lodged on 25.10.2007. However, the   revised   return   of   income   was   not   taken cognizance   of   /processed   by   the   respondent’s electronic   system,   as   the   same   was   filed beyond   the   period   of   limitation   as   provided under section 139(5) of the Act. e) Therefore,

on 08.02.2010

the Petitioner   filed   an   application   seeking rectification under section 154 of the Act of the intimation

dated

“   2. ………   On   consideration   of   the assessee's   petition,   it   is   seen that:­ i) The   original   return   was filed on 25.10.2007 and processed on 16.10.2008. As per section 139(5) of the   Act,   the   assessee   could   have SNC 7/21 WP 783-12.doc Uploaded on - 21/08/2020 furnished   the   revised   return   at   any time   before   the   expiry   of   one   year from   the   end   of   the   relevant assessment  year or  before completion of   the   assessment,   whichever   is earlier.     Thus,   the   assessee   could have   furnished   a   revised   return   by 31.03.2009   whereas   admittedly,   the revised   return   has   been   filed   on 01.02.2010   and hence is not a valid return in terms of 139(5) of the Act. Therefore, no cognizance can be taken of the said return. ii) As per Section 264 of the Act, the C.I.T. may pass an order in respect of any order under the Act not being an order prejudicial to the assessee. It   is   seen   that   the intimation   u/s.   143(1)   is   based   on the return of the assessee  in which the   claims   u/s.   10(34)   and   u/s. 10(38)   were   admittedly   not   made   by the   assessee.    Hence,   it   cannot   be said that the intimation u/s. 143(1) is   erroneous   since   the   same   is squarely based on the return filed by the assessee u/s. 139(1) of the Act. As   stated   above,   the   second   return filed by  the assessee is non­est  as it is not a valid return u/s. 139(5) of the Act.  Further consideration of the various

documents,

ledger accounts   etc.   furnished   by   the assessee during the  proceedings u/s. 264 of the Act is outside the scope of section 143(1) of the Act.  Hence, no such direction can be given to the A.O.   to   consider   the   various   claims of   the   assessee   for   the   purpose   of section 143 (1) of the Act.

the application

for rectification   made   on   8.02.2010,   under section 154 of the Act has not been disposed of   as   yet,   the   same     will   not   serve   any purpose.  This was in view of the fact that the Assessing Officer would consider himself bound   by   the   order   dated   7th  April,   2011, under section 264 of the Act.  Consequently, no relief can be expected from the assessing officer   on   the   pending   rectification application.

SNC 11/21 WP 783-12.doc Uploaded on - 21/08/2020 In  view of  the above submissions, it was  prayed that   the   order   dated   07.04.2011   of   the Commissioner of Income  tax be quashed and he  be directed   to   pass   a   fresh   order   directing   the Assessing   officer   to   recompute   the   income   in accordance with law. 4 As   against   the   above,   Mr.   Tejveer   Singh learned Counsel for the Respondent in support of the impugned order submits as under: a) The order dated 07.02.2011 passed by the   Commissioner   of   Income   Tax   under Section   264   of   the   Act   calls   for   no interference   in   the   exercise   of   power under Section 264 as the intimation dated 16.10.2008   is   based   on   the   return   of income filed by the petitioner itself; b)         The   power   under   Section   264   is circumscribed   by   the   scope   of   power available under Section 143(1) of the Act. In   the   circumstances,   what   could   not   be done   by   the   Assessing   Officer   while SNC 12/21 WP 783-12.doc Uploaded on - 21/08/2020 exercising   powers   under   Section   143(1) cannot   be   done   by   the   Commissioner   of Income Tax in Revision under Section 264 of the Act; c) The   power   of   the   Commissioner under   Section   264   is   only   restricted   to the record available before the Assessing Officer   which   can   be     examined   by   the Commissioner  either on her own motion or on   application   by   the   assessee.     In   the circumstances,   the   other   evidence   sought to be brought on record to establish the mistake   by   the   assessee   cannot   be considered   by   the   Commissioner   under Section 264 of the Act. d) Prior   to   1999,   Section   143 provided an explanation to the effect that an intimation under Section 143(1) of the Act would be considered to be an order for the   purposes   of   Section   264   of   the   Act. The aforesaid explanation has been omitted w.e.f.   1999   and   remedy   against   erroneous SNC 13/21 WP 783-12.doc Uploaded on - 21/08/2020 intimation   is   provided   under   Section 154(1)(b) of the Act.   This would be one more   reason   to   support   the   submission that   the   intimation   under   Section   143(1) of   the   Act   not   being   an   order   is   not amenable to revisional juri iction under Section   264   of   the   Act.   The   appropriate remedy for the petitioner in the present circumstances   would   be   to   pursue   their application   for   rectification   under section 154 of the Act pending before the Assessing Officer. 5 In any civilized system, the assessee is bound to pay the tax which he liable under the law to  the  Government.    The Government  on  the  other hand is obliged to collect only that amount of tax which   is   legally   payable   by   an   assessee.     The entire object of administration of tax is to secure the revenue for the development of the Country and not to charge assessee more tax than that which  is due   and   payable   by   the   assessee.     It   is   in SNC 14/21 WP 783-12.doc Uploaded on - 21/08/2020 aforesaid   circumstances   that   as   far   back   as   in 11/04/1955    the Central Board  of  Direct Tax had issued a circular directing Assessing Officer not to   take  advantage  of   assessee's  ignorance  and/or mistake. The relevant portion of the above Circular is as under:

“3. Officers   of   the   Department must not take advantage of ignorance of an assessee as to his rights.   It is   one   of   their   duties   to   assist   a taxpayer   in   every   reasonable   way, particularly   in   the   of   claiming   and securing   reliefs   and   in   this   regard the   officers   should   take   the initiative in guiding a taxpayer where proceedings   or   other   particulars before them indicate that some refund or   relief   is   due   to   him.     This attitude   would,   in   the   long   run, benefit them indicate that some refund or   relief   is   due   to   him.     This attitude   would,   in   the   long   run, benefit   the   Department   for   it   would inspire confidence in him that he may be sure of getting a square deal from the Department.   Although, therefore, the   responsibility   for   claiming refunds   and   reliefs   rests   with assessees   on   whom   it   is   imposed   by law, officers should:­ (a) draw   their   attention   to any refunds or reliefs to which they appear   to   be   clearly   entitled   but which they have omitted to claim for some reason or other; (b) freely   advise   them   when approached by them so to their rights SNC 15/21 WP 783-12.doc Uploaded on - 21/08/2020 and   liabilities   and   as   to   the procedure to be adopted for claiming refunds and reliefs.”

Therefore the above Circular should always be borne in mind by the officers of the respondent­ revenue while administering the said Act. 6 There is a fundamental error in the impugned order   dated   7.04.2011,   as   it   proceeds   on   the erroneous basis that the petitioner had admittedly not   claimed   the   benefit   of   Sections   10(34)   and 10(38)   of   the   Act   in   respect   of   it's   dividend income   and   long   term   capital   gains   on   sale   of shares respectively in its return of income.   In fact, in the return of income, the petitioner had admittedly sought to exclude it's dividend income and long  term  capital  gains from  sale  of  shares under section 10 of the Act as is evident from page 24 of the return of income.  However, at page 11 of the   return   of   income   as   filed   originally   on 25.10.2005, the petitioner, by mistake, omitted to exclude the dividend income and income from long SNC 16/21 WP 783-12.doc Uploaded on - 21/08/2020 term   capital   gains   from   the   total   income   being declared  by it.    We reproduce  herein  below, the relevant extracts: Extract at Page 11 of the Return of Income 1) Income from house property (4c of Scheduled-HP) (enter nil if loss) NIL 2) Profits and gains from business or profession i) Profit and gains from business other than speculative business (A37 of Schedule-BP) (center nil If loss) (2i) NIL ii) Profit and gains from speculative (B41 of Schedule-BP) (enter nil if loss (2ii) NIL iii) Total (2i + 2ii) (2iii) NIL 3) Capital Gains a) Short term i) Short-term (under section 11A (A7 of Schedule CG) (3ai) NIL ii) Short-term (others) (A8 of Schedule-CG) (3aii) NIL iii) Total short-term(3ai + 3aii) (enter nil if loss (3aiii) NIL b) Long-term (B6 of Schedule-CG) (enter nil if loss) (3b) 680914 c) Total expenses gains (3aiii + 3b) (3c) 680914 4) Income from other sources a) From sources other than from owning race horses (3 of Schedule OS) (enter nil if loss) (4a) 110651 b) From owning race horses (4c of Schedule OS) (enter nil if loss) (4b) NIL c) Total (a + b) (4c) 110651 5) Total (1 + 2iii + 3xc + 4c) 5) 791565 6) Losses of current year to be set off against 5 (total of 2vi,3vi and 4vi of Schedule CYLA) 6) NIL 7) Balance after set off current year losses (5 – 6) 7) 791565 8) Brought forward losses to be set off against 7 (total of 2vi, 3vi and 4vi of Schedule BFLA) 8) NIL SNC 17/21 WP 783-12.doc Uploaded on - 21/08/2020

9) Gross total income (7 – 8) (also 5vii of Schedule BFLA) 9) 791565 10 Deductions under Chapter VI-A (I of Schedule VI-A) 10) NIL 11 Total income (9 – 10) 11) 791565 12 Net agricultural income/any other income for rate purpose (4 of Schedule EI) 12) NIL 13 `Aggregate income' (11 + 120 13) 791565 14 Losses of current year to be carried forward (total of xi of Schedule CFL) 14) 89633 15 Deemed total income under section 115JB (6 of Schedule MAT) 15) 584041 Extract at Page 24 of the Return of Income Schedule EI – Details of Exempt Income (Income not to be included in Total income) 1) Interest income 1) NIL 2) Dividend income 2) 110651 3) Long-term capital gains on which Securities Transaction Tax is paid 3) 680914 4) Net Agriculture income(other than income to be excluded under rule 7, 7A, 7B or 8) 4) NIL 5) Share in the profit of firm/AOP etc. 5) NIL 6) Others 6) NIL 7) Total (1+2+3+4+5+6) 7) 791565 7 Therefore, in view of the above it is clear that the Commissioner of Income­tax in the order dated  7.04.2011  committed  a  fundamental  error  in proceeding   on   the   basis   that   no   deduction   on account of dividend income and income form capital gains   under   Section   10   of   the   Act   was   claimed.

Therefore   there   is   an   error   on   the   face   of   the order   dated   7.04.2011   and   the   same     is   not SNC 18/21 WP 783-12.doc Uploaded on - 21/08/2020 sustainable.

In   view   of   the   above,   we   are   not considering   the   other   submissions   made   and authorities cited by Mr. Shah with regard to the scope of revisional juri iction and the objection of   the   respondent   with   regard   to   the maintainability of a revisional application before the Commissioner of Income­tax.  At this stage, we deem it appropriate to set aside the order dated 7.04. 2011 of the Commissioner of Income­tax and remand the matter to her for fresh consideration keeping   all   the   contentions   open   on   both   sides, including   the   maintainability   of   a   revision application. 9 At the same time, it must be pointed out that the   petitioner's   application   for   rectification filed on 8.02.2010, has not yet been disposed of. The   apprehension   of   the   petitioner   that   the Assessing Officer would consider himself bound by the findings in the order dated 7.04.2011, of the SNC 19/21 WP 783-12.doc Uploaded on - 21/08/2020 Commissioner  of  Income­tax,  is  not   well  founded. The impugned order was not based on the merits of the matter and has no relevance to the application under   section   154. In   any   event,   now   that   the order   dated   7.04.2011,   of   the   Commissioner   of Income­tax under section 264 of the Act has been set  aside  for  fresh  consideration,   the  Assessing Officer   would   be   bound   to   and   is   directed   to consider the rectification application filed by the petitioner   on   its   own   merits,   without   being influenced by the impugned order or awaiting the

result   of   the   revisional   proceedings   before   the Commissioner of Income­tax on remand. 10  We are conscious of the fact that in terms of sub­section   (8)   of   Section   154   of   the   Act,   a Rectification   application   has   to   be   disposed   of within six months from the date of the application for   rectification.   Therefore   we   direct   the Assessing  Officer  to  treat  the   application  dated 8.02.2010 as a fresh application received on the date a copy of his order is served upon his office. SNC 20/21 WP 783-12.doc Uploaded on - 21/08/2020 We   would   appreciate   if   the   Assessing   Officer disposes   of   the   rectification   application   dated 8.02.2010, filed under section 154 of the said Act at the earliest, preferably within six weeks from the receipt of this order. 11 The Writ Petition is allowed in the above terms.   There   shall,   however,   be   no   order   as   to costs. (M.S. SANKLECHA, J.) (S.J.VAZIFDAR, J.) SNC 21/21 WP 783-12.doc Uploaded on - 21/08/2020 Powered by TCPDF (www.tcpdf.org)