SANDEEP JAIN,JAIPUR vs. DCIT, CIRCLE-1, JAIPUR

“4.5 The First issue pertains to non-acceptance of revised return and treating the additional income offered therein as concealed income. Though as per the extant provisions of section 139(5) for AY 2017-18 the appellant claims that he has revised the I.T. return as per law. But while quoting the section he convenient by forgets about the words "discovers any omission or any wrong statement therein" mentioned in section. The word discover means a voluntary detection, the word omission also presumes a genuine oversight. But in the present case the appellant had made an intentional decision to disclose some Income in the return while attempting to not disclose some other income. Though both of them are being received from the same country and are received in the same bank account. But after the receipt of notice u/s 143(2) the appellant knows that his bank Account and affairs would get scrutinized and there is no chance of the non- disclosed receipt going undetected, he opts for revising the return. Hence the revision of return is not an act of volition and cannot be said to be done on discovery of an omission. The act of omission in the present case was itself a willful omission, so there is no case of its subsequent discovery.

4.6 The notice u/s 143(2) provides an opportunity to the assesse to produce or cause to produce any evidence on which the assesse may rely in support of the return filed. The return of the appellant is selected for examination of foreign asset. This present system of selection of cases for scrutiny is based on certain information in the possession of department and on the basis of these mismatches the cases get picked for scrutiny. But that does not mean that such system should open window for assesse to take chances. That is if their return is not selected for scrutiny they can get away by paying less taxes Sanddep Jain vs. DCIT and if the return gets picked up for scrutiny then revise the return. I don't think the intent of the legislature is to promote such behavior. Rather strict interpretation of law is required so that there is more honest and voluntary compliance in disclosing full and true particulars of income. In the present case the appellant would have never revised the return had his case not been selected for limited scrutiny or any notice issued u/s 143(2). I see no reason to interfere with the decision of the AO hot to acknowledge the revised return as it violates the spirit of the section 139(5) regarding the revision of retum and he is correct in treating as information collected during assessment proceeding. The AO is also correct in initiating penalty proceeding.

Even the original return was filed on 30.10.2017 which was due on 31.07.2017 ENT (extended due date 05.08.2017) in AY 2017-18 (ITR-2). That is, it was late and there is no provision for revising a late return, Horice here also the AO is correct in rejecting the revised return.

4.7 The second issue is regarding not giving full credit for the taxes paid as per the DTAA. Dispute in this appeal is related to the tax paid to State Government of USA only. The assessing officer has restricted the credit of income tax paid to USA Federal Government only and has not given the credit of State Income tax paid by the appellant. He is of the opinion that as there is no mention of state income tax in DTAA with USA, hence relief is restricted to the tax paid to Federal Government only. The relevant provisions of Indian Income- tax (Section 90 of Income-tax Act 1961) is as follows:-

Section 90 of Income-Tax Act.

(2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under subsection (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.

4.8 Most of the adjudicating authorities are of the opinion that when it is tax paid on the income, relief should be granted for the purpose of section 90 of Indian Income-tax Act.

4.9 The Co-ordinate Bench of ITAT in the case of Tata Sons Ltd vs. DCIT (2011) (Mum), decided the issue in favour of the tax payer. While doing so, the ITAT observed as follows:

Tax treaties override the provisions of the Income-tax Act, 1961, only to the extent the provisions of the tax treaties are beneficial to the assessee.

In other words, a person cannot be worse off visa-vis the provisions of theIncome-tax Act, even when a tax treaty applies in his case. Section 90(2) statesthat even in relation to the assessee to whom a tax treaty applies "the provisionsof this Act shall apply to the extent they are more beneficial to that assessee".

Section 91 is applicable only in the cases where India has not entered into a double taxation avoidance agreement with respective jurisdiction, but the scheme of the section 91, read along with section 90, does not reflect any such limitation, and section 91 is thus required to be treated as general in application As far as section 91 is concerned, it does not discriminate between taxes levied by the Federal Governments and taxes levied by the State Government It will be so for the reason that State Income tax will also be added to Income-tax abroad, and the aggregate of taxes so paid will be eligible for tax relief - of course subject to tax rate on which such income is actually taxed in India.

The tax relief under section 91 thus worked out to at least 38%, as against tax credit of only 35% admissible under the tax treaty. In such a situation, the assessee would be entitled to relief under section 91 in respect of federal as well as state taxes, and that relief being more beneficial to the assessee vis-a-vis tax credit under the applicable tax treaty, the provisions of section 91 will appily to state Income-taxes as well Even though ITAT had held that in principle, state income taxes paid in USA were eligible for the purpose of computing admissible tax credit under Section 91, ITAT was aware of the fact that Section 91 refers to a situation in which the assessee has paid tax in any country with which there is no agreement under section 90 for the relief or avoidance of double taxation and that there is indeed an agreement under section 90 with United States of America ME TAX DEPAR If we adopt a literal interpretation of this provision, and bearing in mind the undisputed position that tax credit provisions under section 91 are more beneficial to the assessee vis-à-vis the tax credit provisions in related tax treaties Inasmuch as while section 91 permits credit for all income taxes paid abroad - whether state or federal, relevant tax treaties permit credits in respect of only federal taxes, it will result in a situation that an assessee will be worse off as a result of the provisions of tax treaties.

In the case before us, tax credit provisions in Indo US tax treaty were less advantageous to the assessee, but just because there is a tax treaty between India and USA, the benefits of the domestic law provisions were being declined to the assessee In case of any conflict between the provisions of the agreement and the Act, the provisions of the agreement would prevail over the provisions of the Act, as is also clear from section 90(2).

Section 90(2) makes it clear that "where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax, or for avoidance of double taxation, then in relation to the assessee to whom such agreement applies, the provisions of the Act shall apply to the extent they are more beneficial to that assessee".

It would thus appear that the treaty override is only restricted to the extent it is beneficial to a taxpayer.

In this view of the matter, and further to the observations made by us in our order on the cross appeal, in our considered view, the provisions of Section 91 are to be treated as Sanddep Jain vs. DCIT general in application and these provisions can yield to the treaty provisions only to the extent the provisions of the treaty are beneficial to the assessee; that is not the case so far as question of tax credits in respect of state income taxes paid in USA are concerned.

Accordingly, even though the assessee was covered by the scope of India US and India Canada tax treaties, so far as tax credits in respect of taxes paid in these countries are concerned, the provisions of Section 91, being beneficial to the assessee, hold the field. As Section 91 did not discriminate between state and federal taxes, and in effect provides for both these types of income taxes to be taken into account for the purpose of tax credits against Indian income tax liability, the assessee is, in principle, entitled to tax credits in respect of the same.

Whether the benefit conferred u/s 91 can be extended to the income tax paid in foreign jurisdictions pertaining to the federal tax and state tax?

4.10 The question was answered by the Karnataka High Court in case of Wipro Ltd vs Deputy CIT wherein it was held as under.

The said provision provided for deduction of the tax paid in any country from the Indian Income-tax payable by him of a sum calculated on such doubly taxed income even though there was no agreement under section 90 for the relief or avoidance of double taxation.

Explanation (iv) that defined Income-tax in relation to any country, included any excess profit tax or business profits tax charged on the profits by the Government of any part of that country or a local authority in that country.

Therefore, the intention of Parliament was very clear. The Income-tax in relation to any country included Income-tax paid in any part of the country or a local authority.

It applied to cases where in a federal structure a citizen was made to pay federal Income- tax and also the State income tax.

The Income-tax in relation to any country included Income-tax paid not only to the Federal Government of that country, but also any Income-tax charged by any part of that country meaning a State or a local authority, and the assessee would be entitled to the relief of double taxation benefit with respect to the latter payment also.

Sanddep Jain vs. DCIT Therefore, even in the absence of an agreement under section 90, by virtue of the statutory provision, the benefit conferred under section 91 was extended to the Income- tax paid in foreign jurisdictions.

India had entered into an agreement with the federal country and not with any State within that country.

In order to extend the benefit of relief or avoidance of double taxation, the aforesaid Explanation made it clear that Income tax in relation to any country included the Income tax paid to the Government of any part of that country or a local authority in that country.

Therefore, even though, India had not entered into any agreement with the State of a country and if the assessee has paid Income-tax to that State, the Income- tax paid in relation to that State was also eligible for being given credit to the assessee in India.

4.11 From the above discussion it has become crystal clear that appellant assessee was entitled to get the credit of both the Income-tax paid either to Federal Government of USA or to State Government of USA. The adjudicating authorities are very much clear in their verdict that if anyone has confusion of its allowability under section 90 then the provisions of section 91 will become operational. Provisions of section 91 are general in nature and applicable to every type of assessee. Intention of law is very clear that the provisions of section 91, being beneficial to the assessee will hold the field.

4.12 As Section 91 did not discriminate between state and federal taxes, and in effect provides for both these types of income taxes to be taken into account for the purpose of tax credits against Indian income tax liability, the assessee is, in principle, entitled to tax credits in respect of the same.

4.13 On the facts and circumstances of case and the judicial ruling discussed in foregoing paras. The appellant is entitled to take the credit for the taxes paid.

5. In nutshell the appeal of the appellant is partly allowed.”

2.2. Your honor, if we look at the provisions of section 139(5) of the Income Tax Act, which governs the law relating to the revised return as applicable for AY 2017-18, there are certain conditions to be satisfied to file a revised return, which are as below. * The original return should be furnished u/s 139(1) or u/s 139(4). * The assessee discovers any omission or any wrong statement in the return * The revised return can be filed within 1 year from the end of relevant assessment year or before the completion of assessment, whichever is earlier. 2.3. The assessee has filed his original return on 30-10-2017 u/s 139(1). The hon'ble CIT(Appeals) has mentioned in his order that the return is filed late and due to this the revised return is invalid. In this regard I humbly submit before your kind honor that w.e.f. AY 2017-18, the section 139(5) was amended and from this assessment year onwards even the belated returns can be revised. So this contention of hon'ble CIT (Appeals) does not hold valid in the eyes of the law. Further, the assessee filed his revised return on 25-03-2019 which is also well within the time allowed u/s 139(5).

Sanddep Jain vs. DCIT 2.4. The main contention of the Id. assessing officer is that the assessee has revised his return only after issue of notice u/s 143(2). Hon'ble CIT Appeals also presumed and held in his order that the assessee would never have revised the return had his case not been selected for scrutiny. 2.5. Here, I would like to mention that in AY 2017-18, the assessee has earned the foreign income for the first time. Before this he was not having any foreign income. During the year he received a total amount of Rs. 4695502/- on two different dates via regular banking channel towards his share of profits from LLCs in US. So, accordingly he declared such amount received as foreign income in his original income tax return. 2.6. Later on when he received and analyzed the copy of his US tax return, he came to know that in US he has paid tax on an income of Rs. 5106818/- (INR equivalent of USD). The reason of this difference was that in US tax return, the income was included on accrual basis. 2.7. As the assessee earned the foreign income for the first time in the year under consideration, to bring harmony in the calculation of foreign income of the assessment year under consideration as well as of the coming assessment years, he revised his return and increased his foreign income calculated on accrual basis. There was no other change in his income in the revised return. There was never any malafide intention on the part of the assessee to hide any information from the Id. assessing officer. 2.8. The Id. assessing officer and Id. CIT(A) has alleged that the assessee increased his income in the revised return only because his case was selected under scrutiny. He would not have revised his return otherwise. 2.9. This presumption of malafide intention on the part of the assessee is totally baseless. The assessee is an honest tax payer and he is discharging all his due tax liability in a legal and timely manner. He revised his return only to bring harmony in the mode of calculation of his foreign income in the assessment year under consideration as well as in the future assessment years. 2.10. The assessee is among the high tax payers and is honestly paying considerable amount of tax to the government. There was not a single adverse observation by the ld. assessing officer about his declared income in the assessment order. This fact is also evident from the assessment order itself where no addition is made in the income of the assessee. The income declared in the revised return is accepted with no variation. So this clearly proves that there is no malafide intention to conceal anything on the part of the assessee. The inherent presumption of the ld. Assessing officer and hon'ble CIT (Appeals) is totally incorrect. 2.11. It can be clearly seen from the assessment order that when it comes to assessing the income, the Id. Assessing officer accepts the revised return and income declared in it. He does not make any other addition in the assessment order. But when it comes to initiating the penalty proceedings, he conveniently treats the revised return as information on record and treats it an invalid return. This clearly shows the selective approach of the Id. Assessing officer. 2.12. Further, in the assessment order, Id. Assessing officer has mentioned that the as per the provisions of section 139(5), the revised return cannot be filed after issuance of notice u/s 143(2). 2.13. The law relating to this is very much clear on this aspect. There is no such restriction in the law that the return cannot be revised once notice u/s 143(2) is issued. The only restriction is that Sanddep Jain vs. DCIT the return can be revised before expiry of one year from the end of relevant assessment year or before the completion of the assessment whichever is earlier. 2.14. The assessee filed his revised return on 25-03-2019 which is well within the time allowed u/s 139(5). By imposing this condition that the assessee cannot revise his return after issue of notice u/s 143(2), is the ld. assessing officer is trying to imply that mere issue of notice u/s 143(2) tantamount to the completion of assessment? The answer to this is quite obvious, "No". The issue of notice u/s 143(2) does not mean the completion of the assessment. In fact, it is the starting point of the assessment. 2.15. This question has also been dealt with by Hon'ble ITAT Mumbai Bench in the case of Mahesh H Hinduja V Income Tax Officer Ward 21(3)(3) Mumbai, Order dated 20-06-2018, where it has been held that; "There is no bar/restriction in the provisions of section 139(5) of the Act that the assessee cannot file a revised return of income after issuance of notice u/s 143(2) of the Act. It is trite law, the assessee can file a revised return of income even in the course of the assessment proceedings, provided, the time limit prescribed under section 139(5) is available. That being the case, the revised return of income filed by the assessee under section 139(5) of the Act cannot be held as invalid." 2.16. Further a similar question was also dealt with by this Hon'ble Jaipur Bench of ITAT in the case of SMS-AAMW Tollways Pvt Ltd Vs The DCIT Central Circle-3, Jaipur in in order dated 13-07-2022 in which it has been held that; "Considering the various decisions referred by the Id. AR and also considered by ld. CIT(A) and there being no contrary decision so cited on behalf of revenue, we find no infirmity in the order of ld. CIT(A) particularly when the revised return was filed within the statutory time limits provided under the Act. In view of the above discussion the ground of appeal taken by the revenue is rejected." 2.17. Thus from above discussion also it is crystal clear that there is no restriction in the law that the income tax return cannot be revised after issue of notice u/s 143(2). The assessee has satisfied all the necessary conditions to file the revised return u/s 139(5). So, treating this revised return as invalid is totally against the law and principles of natural justice.

3. To Sum up 3.1. To conclude our submission, we would like to summarize before your kind honor that;  The assessee increased his income in the revised return only to bring harmony in calculation of his foreign income from receipt basis to accrual basis.  Assessee has satisfied all the conditions of section 139(5) in revising his return.  He is an honest tax payer and has no malafide intention to conceal any information from the department.  The income declared in the revised return has duly been accepted by the learned assessing officer without any variation.

Sanddep Jain vs. DCIT  It is well settled law that the return can be revised after issue of notice u/s 143(2) and even during the assessment proceedings within the time allowed u/s 139(5).  The presumption of malafide intention by the Id. Assessing officer and hon'ble CIT (Appeals) is baseless.  And hence the revised return filed by the assessee should be treated as a valid return.

3.2. So in view of above submission, we request your kind honor to allow the relief to the assessee and treat the revised return filed by him as a valid return.” 6. Per contra, the ld. DR supported the orders of the lower authorities and filed a written submission, which is reproduced as under:-

Kindly refer to your office letter No. Addl. CIT(DR-II)/ITAT/JPR/2022- 23/252 dated 08.08.2023 on the above mentioned subject wherein comments on assessee's Paper Book and documents (with special emphasis on para 2.3 and 2.4 at page no 3 of the paper book) were directed to be submitted. Point wise comments in the above case are as under:- 2. Regarding point no. 2.3 & 2.4 wherein the assessee has stated that the Revised Return of Income u/s 139(5) is valid. In this connection it submitted that contention of the assessee is not true. As in the instant case the assessee has filed revised Return of Income on 25.03.2019 increasing the foreign income and claiming relief u/s 90 of LT. Act Though as per the extant provisions of section 139(5) for A.Y. 2017-18 the appellant claims that he has revised the I.T. Return as per law. But while quoting the section he convenient by forgets about the words discovers any omission or any wrong statement therein" mentioned in section. The word discover means a voluntary detection, the word omission also presumes a genuine oversight. But in the present case the appellant had made an intentional decision to disclose some income in the Return while attempting to not disclose some other income. Though both of them are being received from the same country and are received in the same bank account. But after the receipt of notice u/s 143(2) the appellant knows that his bank Account and affairs would get scrutinized and there is no chance of the non-disclosed receipt going undetected, he opts for revising the return. Hence the revision of return is not an act of volition and cannot be said to be done on discovery of an omission. The act of omission in the present case was itself a willful omission, so there is no case of its subsequent discovery.

Sanddep Jain vs. DCIT The notice u/s 143(2) provides an opportunity to the assessee to produce or cause to produce any evidence on which the assessee may rely in support of the return filed The return of the appellant is selected for examination of foreign asset. This present system of selection of cases for scrutiny is based on certain information in the possession of department and on the basis of these mismatches the cases get picked for scrutiny. But that does not mean that such system should open window for assesse to take chances. That is if their return is not selected for scrutiny they can get away by paying less taxes and if the return gets picked up for scrutiny then revise the return. The intent of the legislature is not to promote such behaviour. Rather strict interpretation of law is required so that there is more honest and voluntary compliance in disclosing full and true particulars of income. In the present case the assessee would never have revised the return had his case not been selected for limited scrutiny or any notice issued u/s 143(2). Therefore, the revised return can not be acknowledged as it violates the spirit of the section 139(5) regarding the revision of return and it is to be treated as information collected during assessment proceeding. In para 2.3, the assessee has mentioned that Ld. CIT(A) in his order has held that the original return filed by assessee on 31.10.2017 was filed after due date and due to this revised return is invalid. The assessee has claimed that with effect from AY 2017-18, the section 139(5) has been amended and from this assessment year onwards, even the belated returns can be revised and so the observation of Ld. CIT(A) is not correct. This claim of the assessee is examined and it appears to be correct as section 139(5) has been amended with effect from AY 2017-18 and therefore, in AY 2017-18, original return u/s 139(1) as well as belated return filed u/s 139(4) could also be revised. However, as discussed above, since the action of the assessee in filing revised return was not a case of voluntary detection or genuine oversight so this revised return does not fall in the preview of section 139(5) and hence it was validly treated as invalid by the AO as well as Ld.CIT(A).

3. Regarding point no. 2.5 to 2.7 it is submitted that the assessee's submission that earlier the income was declared on receipt bases and later on getting copy of personal ITR filing in USA was made on the basis of accrued income does not appear to be correct as the return of income filed with U.S., higher has been filed on June, 09, 2017 which is much before the date of filing return u/s 139(1) i.e. 30.10.2017. Submitted for your perusal and kind consideration.”

Sanddep Jain vs. DCIT 7. We have heard the rival contentions and perused material available on record. As we note from the record that the assessee has filed the original return of income at Rs. 1,07,61,130/- thereafter during the pendency of assessment proceedings after the issue of notice U/s 143(2) of the Act. The assessee filed revised return on 25.03.2019 declaring total income of Rs. 1,11,72,770/-. The contention of the lower authorities is that since the assessee has filed the return after the time line prescribed u/s 139(5) of the Act, the revised return was not taken into consideration by the lower authorities and thereafter the assessee was aggrieved by that finding of the lower authorities. The assessee has preferred the present appeal solely challenging that finding. As We note that it is not under dispute that in this case the assessee has filed the revised return before completion of the assessment. Similar issue of filing the revised return during pendency of the assessment proceedings deal with by the High Court of Gujarat in the case of Cheldas Khushalas Patel and Ors. Commissioner of Income Tax on 31 January, 1992, 1992 196 ITR 200 Guj wherein the Hon’ble High Court held as under:-

“7. The Commissioner, in the case of the firm, refused to waive penalty and interest for the assessment years 1976-77 and 1977-78 only on the ground that the returns filed beyond the prescribed period could not be considered to be returns in the eye of law. As pointed out above, since the returns for Sanddep Jain vs. DCIT the said two assessment years were filed beyond the period prescribed for making assessment, the Income-tax Officer issued notice under section 148 of the Act and at the request of the petitioners treated the returns which were earlier filed as returns filed in response to the notice under section 148. It is urged on behalf of the Revenue that disclosure of income voluntarily and in good faith, as envisaged under sub-clauses (a) and (c) of sub-section (1), could be made only by filing a valid return and, if disclosure was not made by a valid return, such disclosure could not be considered, even if it was made voluntarily and in good faith

Respectfully following the finding of the Hon’ble Gujarat High Court wherein the similar view is taken that if the assessee filed the letter / computation at the time of the assessment proceeding and such disclosure could be treated as disclosure of income made by the assessee. In terms of these observation the appeal of the assessee is allowed.

In the result, the appeal of the assessee is allowed.

Order pronounced in the open court on 04/10/2024.

Sd/- Sd/- ¼jkBkSM deys'k t;UrHkkbZ ½ ¼MkWa-,l-lhrky{eh½ (RATHOD KAMLESH JAYANTBHAI) (Dr. S. Seethalakshmi) ys[kk lnL; @Accountant Member U;kf;d lnL;@Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 04/10/2024 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू 1. The Appellant- Sandeep Jain, Jaipur. 2. izR;FkhZ@ The Respondent- DCIT, Circle-1,Jaipur. 3. vk;dj vk;qDr@ The ld CIT Sanddep Jain vs. DCIT 4. vk;dj vk;qDr¼vihy½@The ld CIT(A) 5. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए Jंपचनत 6. xkMZ QkbZy@ Guard File vkns'kkuqlkj@ By order,

सहायक पंजीकार@Aेेजज. त्महपेजतंत