India: Claim Omitted In Return Can Be Made Before CIT Under Section 264 Of The Income Tax Act

The Delhi High Court in the case of Vijay Gupta v. CIT: WP(C) No.1572 of 2013, decided on March 23, 2016 held that for the purposes of revision under section 264, the term 'order' would cover even an intimation issued under section 143(1) of the Income Tax Act, 1961 ('the Act') and that claim not made in the return of income could be made in the revision proceedings before the Commissioner of Income Tax ('CIT') under that section.

Facts of the case

For the assessment year 2008-09, the assessee filed return of income declaring, inter-alia, 'short term capital gains' in respect of shares sold on recognized stock exchange which were taxable @10%. Such shares were received by the assessee as gift from his mother. The assessee had, while calculating capital gains on such sale of shares, recognized period of holding from the date on which the shares were gifted and did not include the period of holding such shares by his mother.

The assessing officer issued intimation under section 143(1) of the Act wherein tax @30% was charged on the above short term capital gains instead of 10%.

The assessee, thereafter, filed rectification application under section 154 of the Act before the assessing officer wherein apart from challenging the rate of tax of 30% applied by the assessing officer, the assesse claimed that the period of holding should be computed after considering the period for which such shares were held by his mother. Taking into consideration the time period for which the shares were held by the previous owner, the capital gains on sale of above shares were in the nature of 'long term capital gains' and exempt from tax under section 10(38) of the Act. Accordingly, the assessee requested assessing officer to refund the taxes paid by him on sale of aforesaid shares by erroneously treating the gains resulting on sales as short term capital gains.

The assessing officer rectified the intimation by computing tax on the capital gains @10%. The assessing officer, however, rejected the contention of the assessee regarding refund of taxes paid on the ground that there was no mistake apparent from record in the intimation issued under section 143(1) of the Act insofar as the nature of capital gains – short term or long term – was concerned, considering that the assessee himself had in the return of income treated the profit arising on sale of shares as 'short-term capital gains'.

Thereafter, the assessee filed revision application under section 264 before the CIT against the intimation under section 143(1) and also the rectification order passed under section 154 of the Act, seeking refund of tax by holding that profit on sale of shares constituted 'long term capital gain'.

The CIT, however, rejected the revision application holding, inter-alia, that intimation under section 143(1) could not be regarded as an 'order' amenable to revision under section 264 of the Act.

The assessee, thereafter, filed writ before the Delhi High Courtagainst the aforesaid order of the CIT.

Decision of the High Court

The High Court, referring to Article-265 of Constitution of India, held that tax authorities cannot collect or retain tax which is not authorized by law and accordingly the taxes paid by the assessee inadvertently should have been refunded. The High Court also referred to Circular No.14(XL-35) of 1955, dated April 11, 1955, issued by the Revenue, which casts a duty upon the assessing officer to advise the assessee and guide him and not to take advantage of any error or mistake committed by the assessee inadvertently or due to ignorance and observed that the aforesaid mistake should have been rectified under section 154 of the Act.

The Court held that the CIT was not right in rejecting the assessee's revision application inasmuch as the intimation under section 143(1) of the Act falls within the term 'order' and that the expression 'any order' implies that the powers of the CIT under section 264 of the Act are not limited to correct errors committed by subordinate authorities but could also be exercised when errors are committed by the assessee. The High Court further observed that the CIT should not have rejected the assessee's application for revision on a technical ground and should have entertained the same in the spirit of aforesaid Circular of 1955.

The High Court set-aside the order of the CIT and remitted the matter to the file of the CIT to decide the issue on merits.

Our Comments

The aforesaid judgment is important as it provides a window to the assessee to make a claim before the CIT in section 264 proceedings, which the assessee might have omitted due to inadvertence or ignorance of law at the time of filing return and the intimation issued under section 143(1) has become final in absence of scrutiny assessment under section 143(3), as the Court held the powers of the CIT under section 264 of the Act to be wide enough to even rectify the errors committed by the assessee.

© 2016, Vaish Associates Advocates,
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The content of this article is intended to provide a general guide to the subject matter. Specialist professional advice should be sought about your specific circumstances. The views expressed in this article are solely of the authors of this article.

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