A taxpayer is supposed to report accurate income and claim eligible deductions while filing Income tax Return. An exemption or deduction intentionally claimed can be considered tax evasion where as an exemption lawfully claimed where one is entitled to even if by mistake claimed under wrong section, such exemption cannot be denied. The statute frame laws to enable proper functioning of tax systems and penalize intentional defaulters rather than harassing a tax payer who unintentionally makes mistakes and thus law must be construed accordingly by the Assessing Authorities. Even the Hon’ble Supreme Court is of the view that “Where two views are possible, view in assessee’s favour has to be adopted.” – CIT v. Vegetable Products Ltd. 88 ITR 192
University of Burdwan C/o S. N. Ghosh & Associates Vs ACIT (ITAT Kolkata)
ITAT Kolkata held that inadvertent mistake of claiming exemption under section 10(23C)(vi)of the Income Tax Act instead of section 10(23C)(iiiab) of the Income Tax Act is mistake apparent from record which is rectifiable under the provisions of section 154 of the Income Tax Act.
Arya Samaj v.Income-tax Officer [2023] 151 taxmann.com 488 (Delhi – Trib.)
Where assessee-trust claimed certain amount as exempt under section 11(1A), however due to wrong on information filled in column A(i) of ITR-7, CPC denied exemption to assessee, matter was to be remanded to Assessing Officer to consider return and mistake in filling column A(i) be rectified
It was held that – S. 12A : Registration-Trust or institution-Mistakenly claimed exemption u/s 10(23C)-Directed to allow exemption under section 12A. [S. 10(23C)]
Assessee in earlier years had been claiming exemption under section 10(23C) and it got registration under section 12A on 2-9-2014 and it in return filed for the assessment year 2014-15 claimed exempt income under section 10(23C) instead of claiming same under section 12A of the Act. Held that mistake had occurred as a human error and the Assessing Officer was directed to allow an exemption under section 12A of the Act. (AY. 2014-15)
Income-tax Officer v. Accentia Technologies Ltd [2014] 52 taxmann.com 89 (Mumbai – Trib.)
Deduction under section 10A cannot be denied merely because at time of filing of return, claim had mistakenly been made under section 10B
Commissioner of Income-tax-II, Lucknow v. Lucknow Public Educational Society [2009] 183 Taxman 62 (Allahabad)
Section11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment year 2001-02 – Assessee was a society registered under section 12A – It filed return of income claiming exemption under section 10(23C) – Later on, it came to know that it was not entitled to exemption under section 10(23C) and, therefore, it filed a revised return claiming exemption under section 11 and enclosed audit report therewith – Assessing Officer, however, did not take cognizance of audit report treating revised return as non est on ground that original return was filed after due date and completed assessment on basis of original return wherein exemption under section 11 was not claimed and claim was made for exemption under section 10(23) which was not available to assessee – Whether Assessing Officer was wrong in treating revised return as ‘non est’ as he himself had passed an order under section 143(3) on basis of original return where assessee was legally entitled to exemption under section 11, if not under section 10(23C) – Held, yes – Whether department should not take advantage of ignorance of assessee and, hence, it was duty of Assessing Officer to ask information from assessee before denying exemption under section 11 to which assessee was legally entitled – Held, yes – Whether, therefore, Tribunal was justified in granting exemption under section 11 to assessee – Held, yes
M/s. Annam Software Pvt. Ltd. Vs Commissioner of Income-Tax (ITAT Chennai)
Respectfully following decision of Madras High Court in the case of CIT Vs. Heartland KG Information, wherein it was held that even though the assessee originally claimed relief under section 10B, it was cautious enough to make an alternative plea under section 10A in view of the fact that the assessee’s vendor had the benefit under section 10A . In any event, even assuming for a moment, the assessee had not referred to the section correctly, the fact remained that if the claim could be favourably considered under any of those special deduction provisions and on the conditions specified therein being satisfied, there did not exist any justifiable ground for the Revenue to contend that the assessee shall not been titled to have the benefit of section 10A. The assessee was entitled to exemption under section 10A . Thus, the matter was remitted back to the file of Assessing Officer with a direction to consider the claim of the assessee under section 10A after examining the allow ability of the claim afresh in accordance with law.
I would like to draw your kind attention to the Circular No 14(XL-35) dated 11.04.1955 which read as under:-
Administrative instructions for guidance of Income-tax Officers on matters pertaining to assessment
1. The Board have issued instructions from time to time in regard to the attitude which the Officers of the Department should adopt in dealing with assessees in matters affecting their interests and convenience. It appears that these instructions are not being uniformly followed.
2. Complaints are still being received that while Income-tax Officers are prompt in making assessments likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to assessees under the Act. Dilatoriness or indifference in dealing with refund claims (either under section 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs.
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 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.
4. Public Relation Officers have been appointed at important centres, but by the very nature of their duties, their field of activity is bound to be limited.
The following examples (which are by no means exhaustive) indicate the attitude which officers should adopt :
(1) Section 17(1) of the 1922 Act [section 113 of the 1961 Act] – While dealing with the assessment of a non-resident assessee the officer should bring to his notice that he may exercise the option to pay tax on his Indian income with reference to his total world income if it is to his advantage.
(2) Section 18(3), (3A), (3B) and (3D) of the 1922 Act [sections 193, 197(1), 195(1), 195(2) and 194 of the 1961 Act] – The officer should in every appropriate case bring to the assessee’s notice the possibility of obtaining a certificate authorising deduction of income-tax at a rate less than the maximum or deduction of super tax at a rate lower than the flat rate, as the case may be.
(3) Section 25(3) and 25(4) of the 1922 Act – The mandatory relief about exemption from tax must be granted whether claimed or not ; the other relief about substitution, if not time barred, must be brought to the notice of a taxpayer.
(4) Section 26A of the 1922 Act [sections 184 to 186 of the 1961 Act] – The benefit to be obtained by registration should be explained in appropriate cases. Where an application for registration presented by a firm is found defective, the officer should point out the defect to it and give it an opportunity to present a proper application.
(5) Section 33A of the 1922 Act [section 264 of the 1961 Act] – Cases in which the Income-tax Officer or the Assistant Commissioner thinks that an assessment should be revised, must be brought to the notice of the Commissioner of Income-tax.
(6) Section 35 of the 1922 Act [sections 154 and 155 of the 1961 Act] – Mistakes should be rectified as soon as they are discovered without waiting for an assessee to point them out.
(7) Section 60(2) of the 1922 Act [sections 89(1) and 103 of the 1961 Act] – Cases where relief can properly be given under this sub-section should be reported to the Board.
5. While officers should, when requested, freely advice assessees the way in which entries should be made in various forms, they should not themselves make any in them on their behalf. Where such advice is given, it should be clearly explained to them that they are responsible for the entries made in any form and that they cannot be allowed to plead that they were made under official instructions. This equally applies to the Public Relation Officers.
6.The intention of this circular is not that tax due should not be charged or that any favour should be shown to anybody in the matter of assessment, or that where investigations are called for, they should not be made. Whatever the legitimate tax it must be assessed and must be collected. The purpose of this circular is merely to emphasise that we should not take advantage of an assessee’s ignorance to collect more tax out of him than is legitimately due from him.
In light of the above mentioned circular the assessee envisages that the intention of the department is not to take advantage of the ignorance of the assessee and extract undue taxes by exploitation or harassment but guide the taxpayer and give relief where the assessee is entitle to the same. The assessee also relies on the following judgements given the mentioned circular
Commissioner of Income-tax-II, Lucknow v. Lucknow Public Educational Society [2009] 183 Taxman 62 (Allahabad)/[2009] 318 ITR 223 (Allahabad)
Section 11 of the Income-tax Act, 1961 – Charitable or religious trust – Exemption of income from property held under – Assessment year 2001-02 – Assessee was a society registered under section 12A – It filed return of income claiming exemption under section 10(23C) – Later on, it came to know that it was not entitled to exemption under section 10(23C) and, therefore, it filed a revised return claiming exemption under section 11 and enclosed audit report therewith – Assessing Officer, however, did not take cognizance of audit report treating revised return as non est on ground that original return was filed after due date and completed assessment on basis of original return wherein exemption under section 11 was not claimed and claim was made for exemption under section 10(23) which was not available to assessee – Whether Assessing Officer was wrong in treating revised return as ‘non est’ as he himself had passed an order under section 143(3) on basis of original return where assessee was legally entitled to exemption under section 11, if not under section 10(23C) – Held, yes – Whether department should not take advantage of ignorance of assessee and, hence, it was duty of Assessing Officer to ask information from assessee before denying exemption under section 11 to which assessee was legally entitled – Held, yes – Whether, therefore, Tribunal was justified in granting exemption under section 11 to assessee – Held, yes
Grih Kalyan Kendra Board Vs ITO 1(2), Delhi
The Hon’ble Bench here held that – Consequently, the ground No. 1 deserves to be allowed. The matter requires to be restored to the files of the ld AO to consider the rectification application of the assessee and consider the claim of exemption of assessee u/s 11 of the Act as per the information available on record or to be further verified from record. Accordingly, the appeal of the assessee is allowed.
Here the Bench is of the view that the rectification of mistake can be done at any stage and should be considered by the Ld A.O. So rectification application is more appropriate a remedy when assessment is complete and assessee claims on the basis of the assessment record available with the Ld. AO, that there is a mistake apparent in the order arising from the assessment record and same be rectified.
Thus, the exemption to the assessee may not be denied on the basis of claiming it in wrong section which is a mistake and rectifiable u/s 154 of the Income tax Act. In the end I would like to quote a landmark judgement by the Hon’ble Supreme Court in the case of Shree Hari Chemicals Export Limited Vs Union of India reported in AIR 2006 SUPREME COURT 693, 2005 wherein the Hon’ble Court mentioned that “It is now a well-settled Principal of Law that wrong mentioning of a section would not be a ground to refuse relief to an assessee if he is otherwise entitled to”
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Dheeraj Kathpal | Advocate |B.Com, MBA, LL.B
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