Claiming Deductions and Tax Benefits not claimed in Income Tax Returns

 

Background

 

Tax payers sometimes fail to claim / short claim certain deductions/exemptions in the Income tax returns filed. Assessee also realise that additional claim for deductions/exemptions could have been made for a particular deduction/exemption on account of / Retrospective amendments  / Judicial pronouncements delivered and other reasons after the filing of return of income. 

 

In such situations, if the time limit for filing revised returns has already expired or cases where Returns cannot be revised, then Assessees tend to make additional  / Revised claims for deductions / exemptions by filing a letter with the Authorities at various levels requesting them to grant the benefit of deductions/exemptions. 

 

The Important question that arises for consideration in such cases is whether the authorities can deny any additional claim for deductions /exemptions, which are not claimed in the return of income by the Assessee?

 

Indian Constitution

 

Article 265 of the Constitution of India lays down that no tax shall be levied except by authority of law. Hence only legitimate tax can be recovered and even a concession by a tax-payer does not give authority to the tax collector to recover more than what is due from him under the law. 

 

Extract of Article 265 of Constitution of India

 

“265. Taxes not to be imposed save by authority of law No tax shall be levied or collected except by authority of law” 

 

CBDT Circular on Assessee’s Rights 

 

There is an old Circular issued by the Central Board of Direct Taxes Circular No: 14 (XL-35) dated April 11, 1955. It states:

 

"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 matter 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 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 assessee 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 as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs."

 

The above circular has been judicially noted and approved in many judgments and has been relied upon in support of the Assessees claim. 

 

Supreme Court: New Claims need n’t be accepted by Assessing Officers when made by Assessees through a Letter, if same isn’t claimed in return filed under section 139

Goetze (India) Ltd. v. CIT [TS-21-SC-2006-O] judgment dated 24-3-2006 

 

The assessee filed its return of income on 30-11-1195 for A.Y. 1995-96. During assessment proceedings it sought to claim a deduction by way of a letter dated 12-1-1988. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income-tax Act to make amendment in the return of income otherwise than by revising the return. 

 

In appeal before the CIT (A), the Assessees claim was allowed. However the ITAT allowed Departments' appeal against the order by CIT (A). The assessee in appeal before the Supreme Court relied upon the Apex Court' decision in National Thermal Power Co. Ltd. v. CIT [TS-18-SC-1996-O] to contend that it was open to assessee to raise the points of law even before the Tribunal. 

 

The Apex Court held that the claim of deduction not made in the return cannot be entertained by the assessing officer otherwise than by filing a revised return. The court also held that the decision does not impinge upon the powers of the Tribunal under section 254 of the Act. 

 

This judgment in Goetze's' case is generally relied upon by the Assessing Officers, ignoring Article 265 of the Indian Constitution and CBDT Circular No. 14(XL-35) cited above in dis-allowing deductions / claims made by the Assesses for the first time. 

 

Distinction between a Fresh Claim and Revised Claim 

 

A distinction is required to be made between an additional / fresh claim made and Revision of claim .In caseswhere necessary evidence in respect of a claim is already on record but the Section / mode / method / Quantum of deduction needs revision due to various factors, such claims through letter shave to be accepted by the Assessing Officers.

 

In such cases there is already a claim by the assessee and there being no fresh claim the judgment in Goetze's case, with due respect shall not be applicable. 

 

The Allahabad High Court in CIT v. Dhampur Sugar Ltd. [TS-5083-HC-1972(ALLAHABAD)-O] made a distinction between revised return and a correction of return. It held that: 

"There is distinction between a revised return and a correction of return. If the assessee files some application for correcting a return already filed or making amends therein, it would not mean that he has filed a revised return. It will retain the character of an original return. But once the revised return is filed, the original return must be taken to have been withdrawn and to have been substituted by a fresh return for the purpose of assessment." 

The assessee had asked for re-computation of deduction under section 80-IB. Relying on Goetze (India) Ltd. (supra) the Revenue rejected the claim. As the assessee had not made any new claim the court held that the said decision may not be squarely applicable. It held that the Courts have taken a pragmatic view and not the technical view as what is required to be determined is the taxable income of the assessee in accordance with the law. In this sense, assessment proceedings are not adversarial in nature.

 

[CIT v. Natraj Stationery Products (P) Ltd., [TS-121-HC-2008(DEL)-O] 

 

Since claim of depreciation at a higher rate, as made before the Assessing Officer is not at all a new claim, as held in ‘JCIT vs. Hero Honda Finlease Ltd.’ [TS-5186-ITAT-2008(DELHI)-O], whereas ‘Goetze (India) Ltd.’ is with regard to only a new claim made in the assessment and not concerning modification of claim;

 

[Solaris Bio Chemicals Limited, Vs. DCIT, [TS-5929-ITAT-2012(DELHI)-O]

 

HC dismisses Revenue’s appeal, allows Sec 10A deduction on the basis of revised computation of income filed by assessee during assessment proceedings; Notes that pursuant to revised computation, loss shown for Sec 10A unit was revised at an income upon correcting error made in classifying revenues pertaining to Sec 10A and non-10A units, however AO refused to take cognizance of the revised computation in absence of a revised return filed by assessee relying on SC ruling in Goetze (India) Ltd.; Relies on co-ordinate bench rulings in Western India Shipyard Limited, Sam Global Securities Ltd., Influence and Jai Parabolic Springs Ltd. and Bombay HC ruling in Pruthvi Brokers & Share holders (P) Ltd. to hold that SC ruling in Goetze (India) “would not apply if the Assessee had not made a new claim but had asked for recomputation of the deduction”;

 

[CIT VS E FUNDS INTERNATIONAL INDIA PVT LTD [TS-5509-HC-2015(DELHI)-O]

 

Appellate Authoritiescan admit new ground or evidence either suo motu or at the invitation of the parties

 

Section 251 of the Act describes the powers of the Appellate Commissioner in such an appeal. Under Section 251(1)(a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment.

 

Explanation to Section 251 also provides that In disposing of an appeal, the Commissioner (Appeals) may consider and decide any matter arising out of the proceedings in which the order appealed against was passed, not withstanding that such matter was not raised before the Commissioner (Appeals) by the appellant. 

 

Section 254 of the Income-tax Act, provides that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. 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. 

 

The Judgement in Goetze's' Case makes it clear that the question addressed is limited to the power of the assessing authority and does not impinge on the power of the Income Tax Appellate Commissioner or the Tribunal under section 251 and 254 of the Income Tax Act, 1961. 

 

Supreme Court of India in National Thermal Power Co. Ltd. vs Commissioner Of Income Tax on 4 December, 1996 [Equivalent citations: [TS-18-SC-1996-O], has answered the following important question of law 

 

Where on the facts found by the authorities below a question of law arises (though not raised beforethe authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdictionto examine the same ?

 

Under Section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders there on as it thinks fit. 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 taxliability of an assessee in accordance with law….

 

   We do not see any reason to restrict the power of the Tribunal underSection 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department has 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.

 

6. In the case of Jute Corporation of India Ltd. v. CIT. This Court, while dealing with the powers ofthe Appellate Assistant Commissioner observed that an appellate authority has all the powers whichthe original authority may have in deciding the question before it subject to the restrictions orlimitations, 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 mayhave in the matter….

 

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. Undoubtedly, the Tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see 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.

 

8. The reframed question, therefore, is answered in the affirmative, i.e., the Tribunal has jurisdictionto examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. We remand the proceedings to the Tribunal for consideration of the new grounds raised by the assessee on the merits. 

 

Snapshots of Judicial Consensus on the Subject:

 

Following are the judicial pronouncements supporting powers of Appellate Commissioner and Tribunal to accept new grounds / Claims raised for the first time either suo motu or at the invitation of parties 

 

Commissioner of Income Tax v. Jai Parabolic Springs Ltd. [TS-5472-HC-2008(DELHI)-O]

The Hon'ble Delhi High Court held that:

 

"17. In Goetze (India) Limited v. Commissioner of Income Tax [TS-21-SC-2006-O]  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." 

 

CIT v. Ramco International [TS-132-HC-2008(P & H)-O] 

 

The assessee did not make a claim for deduction u/s. 80IB in the return. The assessee however filed Form 80CCB and other relevant documents during assessment proceedings. The claim was disallowed by the assessing officer. The CIT(A) allowed the claim. The ITAT upheld the order by CIT(A). The High Court upheld the ITAT order. 

 

Commissioner of Income Tax v. Rose Services Apartment India P. Ltd., [TS-5186-HC-2009(DELHI)-O] 

 

Relying upon the decision of the Supreme Court in National Thermal Power Co. Ltd. [TS-18-SC-1996-O], the Court rejected the plea of the Revenue that the Tribunal could not have entertained the plea, holding that the tribunal was empowered to deal with the issue and was entitled to determine the claim of loss, if at all, under one section/provision or the other. 

 

CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. – [TS-463-HC-2012(BOM)-O] 

 

It is well settled that an assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same.

 

Chicago Pneumatic India Ltd. v. Deputy Commissioner of Income Tax [TS-5164-ITAT-2007(MUMBAI)-O] 

 

It has been held that even though the assessee did not revise its claim under sections 80HH and 80-I, in the revised return, the IT authorities were obliged to consider the revised figures placed before them during assessment. 

 

Thomas Kurian v. Assistant Commissioner of Income Tax [TS-5350-ITAT-2006(COCHIN)-O]

 

AO being a quasi-judicial authority, once having noted in the assessment order that assessee had export turnover, was duty bound to ask the assessee as to why he had not claimed deduction under section 80HHC. The matter was remanded to the AO to decide Assessees claim for deduction under section 80HHC. 

 

CIT v. Rose Services Apartment India (P) Ltd [TS-5186-HC-2009(DELHI)-O]

 

Relying upon the decision of the Supreme Court in National Thermal Power Co. Ltd. (supra),a Division Bench of this Court rejected the plea of theRevenue that the tribunal could not have entertained the plea, holding that the tribunal was empowered to deal withthe issue and was entitled to determine the claim of loss, ifat all, under one section/provision or the other. 

 

CIT v. Jindal Saw Pipes Ltd [TS-5642-HC-2010(DELHI)-O]

 

Decision in Goetze (India) Ltd. (supra) was againrelied upon by the Revenue in CIT v. Jindal Saw Pipes Ltd [TS-5642-HC-2010(DELHI)-O] but the contention was not accepted, observing that the tribunal’s jurisdiction is comprehensive and as similates issues in the appeal from the order of the CIT (Appeals) and the tribunal has the discretion to allow a new ground to be raised. 

 

CIT vs. Jai Parabolic Springs Ltd." [TS-5472-HC-2008(DELHI)-O],

 

It was held that the CIT (A) had the jurisdiction to entertain the additional claim not filed before the Assessing Officer. 

 

CIT vs. Lucknow Public Educational Society", [TS-5024-HC-2009(ALLAHABAD)-O]

 

The original return had been filed late, due to which, the revised return was treated by the Assessing Officer as a nonest, it was held that a claim to which the assessee is legally entitled cannot be denied by the Assessing Officer on technical grounds, even if such a claim has not been made by the assessee. 

 

Rachhpal Singh vs. Income-tax Officer" [TS-5088-ITAT-2005(Amritsar)-O]

 

The assessee withdrew its claim before the Assessing Officer considering that it was not entitled to such claim. Subsequently, the assessee made that very claim before the appellate authority, which was accepted. 

 

Deepak Nitrite Ltd. vs. CIT", [TS-5560-HC-2008(GUJARAT)-O]