Claim for deduction, omitted in the return can be made for the first time before the appellate authorities
Very often the tax payer realises that he omitted to claim certain deductions, only long after he had filed the return. The circumstances would be such that the tax payer would not be even eligible to file a valid revised return.
2. In Goetze (India) Limited v. Commissioner of Income-tax, (2006) 157 Taxman 1 the Supreme Court referring to its own earlier decision in National Thermal Power Company Limited vs. Commissioner of Income-tax 229 ITR 383, held that before the AO the assessee could not make a claim for deduction otherwise than by filing a revised return. In that case after the return was filed, the assessee sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income tax Act to make an amendment in the return of income by making an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee’s appeal. The Tribunal, however, allowed the Department’s appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Company Limited 229 ITR 383 contending that the assessee could raise points of law even before the Tribunal. The Supreme Court, in Goetze (India) Limited v. Commissioner of Income-tax -(2006) 157 Taxman 1, dismissing the assessee’s appeal held:-
“4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961. There shall be no order as to costs.”
3. Thus the Supreme Court, in that case, while holding that an AO could entertain a claim only if made in the return/revised return, did not expressly decide the question whether the ITAT acting u/s 254 could entertain the claim if made before it for the first time. Neither did the SC express any opinion whether a similar power could be exercised by the Commissioner of Income Tax(Appeals).
4. However the issue came up for consideration recently before the Mumbai High Court in CIT v PRUTHVI BROKERS & SHAREHOLDERS PVT LTD – INCOME TAX APPEAL NO. 3908 of 2010 decided by the Court on June 21, 2012
5. There, the appeal related to the assessment year 2004-05. The assessee had claimed a deduction u/s 43B in respect of payment of SEBI fees of Rs.10,00,000/- relevant to A.Y 2005-06. Thus, admittedly, for the relevant A.Y, ie; A.Y 2004-05, the assessee was not entitled to a deduction in respect of the said payments. The assessee, in the course of the proceedings before the AO, stated that the claim was made through inadvertence. The respondent, however, made a claim of Rs.40,00,000/- u/s 43-B also being payment of the SEBI fees but made on 9th May, 2003 i.e. in the A.Y in question, AY 2004-05. The AO rejected the claim on the ground that he had no authority to allow any relief or deduction which had not been claimed in the return. The CIT(A) allowed the assessee’s claim for deduction u/s 43B. The Tribunal dismissed the Revenue’s Appeal.
The High Court decided in favour of the assessee.
6. The position of law can be summarised thus
i) Can a deduction omitted to be claimed in the return, be claimed before the AO otherwise than by filing a valid revised return? No; Goetze (India) Limited v. Commissioner of Income-tax, (2006) 157 Taxman 1
ii) Can a deduction omitted to be claimed before the AO be claimed for the first time before the ITAT? Yes National Thermal Power Company Limited v. Commissioner of Income-tax, (1998) 229 ITR 383
iii) Can a deduction omitted to be claimed in the return and not entertained by the AO on the ground that it was claimed otherwise than by filing a valid revised return, be claimed in appeal? Yes CIT Vs PRUTHVI BROKERS & SHAREHOLDERS PVT LTD INCOME TAX APPEAL NO. 3908 of 2010 decided by the Mumbai High Court on June 21, 2012
iv) For the CIT-A/ITAT to entertain the new claim is it necessary that the claim should be one which became available only on account of change of circumstances or law? No CIT Vs PRUTHVI BROKERS & SHAREHOLDERS PVT LTD INCOME TAX APPEAL NO. 3908 of 2010 decided by the Mumbai High Court on June 21, 2012
v) Can the CIT-A/ITAT entertain a claim made newly, but had been available even when the return was filed? Yes CIT Vs M/s PRUTHVI BROKERS & SHAREHOLDERS PVT LTD INCOME TAX APPEAL NO. 3908 of 2010 decided by the Mumbai High Court on June 21, 2012
vi) When it has been judicially held that the jurisdiction/power of the appellate authority is co-terminus with that of the assessing officer, how can the appellate authority entertain a claim not made in the return, which claim the AO is not empowered to entertain? — see para 11 in CIT Vs M/s PRUTHVI BROKERS & SHAREHOLDERS PVT LTD INCOME TAX APPEAL NO. 3908 of 2010 decided by the Mumbai High Court on June 21, 2012
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