DCIT Vs Om Siddhakala Associates (Supreme Court of India)
The respondent-assessee challenged before the Bombay High Court an order dated 28 March 2023 rejecting its application under Section 264 of the Income Tax Act, 1961. The application concerned the assessee’s contention regarding the tolerance limit between declared sales consideration and stamp duty valuation under Section 43CA. Respondent No. 3 had rejected the claim, observing that the 5% tolerance limit introduced by the Finance Act, 2018 with effect from 1 April 2019, and subsequently enhanced to 10% by the Finance Act, 2020 with effect from 1 April 2021, operated prospectively.
Before the High Court, reliance was placed on an ITAT, Pune order. Referring to Union of India and Others v. Kamlakshi Finance Corporation Ltd., the High Court held that Revenue authorities were required to follow binding decisions of higher appellate authorities. It therefore quashed the order dated 28 March 2023 and remanded the matter to Respondent No. 3 for de-novo consideration in accordance with the law laid down by the ITAT, with directions for personal hearing and a reasoned order.
The Department challenged the High Court’s remand before the Supreme Court. The Department submitted that the demand was based on the returns filed by the assessee and that the claim could not be raised under Section 264 without first filing a revised return. The assessee submitted that the High Court had merely remanded the matter and that all contentions could be raised before the appropriate authority.
The Supreme Court held that the remand was not permissible in the facts and circumstances. The assessee had filed a self-assessment return, which was processed by the Centralised Processing Centre, Income Tax Department, Bengaluru, followed by an intimation under Section 143(1) and a demand under Section 156. The assessee subsequently invoked Section 264, but had not raised the tolerance-limit issue in the self-assessment return or revised the assessment within the prescribed period.
The Supreme Court held that the assessee could have revised the return within the time provided under the Act. Having failed to do so, the assessee could not seek revision under Section 264 in a manner that effectively amounted to revising the return after expiry of the prescribed period. The Court described this as an attempt to revise the return “under the garb of a revision.”
Accordingly, the Supreme Court set aside the Bombay High Court’s judgment. It further held that any reassessment made pursuant to the High Court’s remand would have no effect, being dependent upon the remand order. The assessee was required to pay tax on the basis of the returns filed, on which the intimation and demand had been issued. The Supreme Court expressly stated that it had not decided whether the tolerance limit under Section 43CA was retrospective or prospective. The appeal was allowed to that extent.
Read HC Judgment in this case: Subordinate Authorities Must Unreservedly Follow Orders of Highest Appellate Authorities
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
Delay condoned. Leave granted.
2. The appeal is from an order in the Writ Petition, which remanded the matter to be considered afresh.
3. We heard learned Standing Counsel appearing for the Department and learned Counsel for the respondent. While learned Counsel for the Department submits that the demand raised was in accordance with the returns filed. Without filing a revised return, the demand was challenged under Section 264 of the Income Tax Act, 19611, which when dismissed, the respondent-assessee had approached the High Court. The claim raised could not have been made especially, since there was no revision of returns filed by the assessee. The learned Counsel for the assessee on the other hand submits that the impugned order is a mere remand made and all contentions could be raised before the appropriate authority.
4. We are not convinced that the remand, in the facts and circumstances of the case, was permissible. Admittedly, on self-assessment, a return was filed by the assessee which was processed by the Centralised Processing Centre, Income Tax Department, Bengaluru and a notice was issued under Section 143(1) and a subsequent notice under Section 156, demanding the outstanding tax as coming out from the returns filed on self-assessment. The respondent filed a revision invoking Section 264 of the Act before the Principal Commissioner of Income Tax, who rejected the same on the ground that there was unexplained delay, the tolerance limits as coming out from Section 43CA were only prospective and that by side-wind the attempt is to revise the return, after the period had expired, by invoking Section 264.
5. The issue of tolerance limit was not raised in the self-assessment nor was the assessment revised within the time provided. The High Court, hence, fell in error, insofar as the remand made. The assessee having not claimed the same in the returns filed could have revised the return within the time provided under the Act. When that was not done, there is no question of revision under Section 264, which would be an attempt to revise the return under the garb of a revision.
6. Learned Counsel for the respondent-assessee submits that there has been re-assessment made after remand. Necessarily, if the remand order is set aside, the order passed on re-assessment will also have no effect, being a dependent order. We hence set aside the impugned judgment of the High Court and as a consequence any re-assessment made would not be applicable. The assessee would have to pay tax on the basis of the returns filed on which an intimation was issued and a demand raised.
7. The appeal is allowed to that extent clearly observing that we have not entered into the question of whether the tolerance limit would be retrospective or prospective.
8. Pending application(s), if any, shall also stand disposed of.
Notes:
1 For brevity, ‘the Act’
