Commissioner can allow fresh deduction claim u/s 264 under revision petition without requirement of filing of revised income tax return – Kerala High Court

Commissioner can allow fresh deduction claim u/s 264 under revision petition without requirement of filing of revised income tax return – Kerala High Court

ABCAUS Case Law Citation:
1012 (2016) (09) HC

Important Judgments Cited:
Parekh Brothers v. Commissioner of Income Tax [1984 150 ITR 105]
Goetze (India} Ltd. v. Commissioner of Income Tax [(2006) 284 ITR 323 SC]

Brief facts of the Case:
The petitioner company was a sick Government company and in process of re-habilitation under a Scheme approved by the Board for Industrial and Financial Reconstruction (BIFR). For assessment year 2007-08, petitioner claimed deduction towards provision made towards arrears of salary and wages payable as per the Long Term Settlement. However, the Assessing Officer (AO) disallowed the claim on the ground that the cause of action for payment of arrears was not accrued for the financial year 2006-07 as the pay revision was approved by the Board of Directors only on 08/06/2007 and permission was obtained from the Government on 28/06/2007.

While filing income tax return for the assessment year 2008-09, the petitioner did not claim deduction towards arrear as, already the claim had been made in the assessment year 2007-08 and the petitioner’s appeal against the disallowance was pending adjudication. However, later, petitioner on being advised, made a revision petition before the Commissioner Income Tax  under Section 264 of the Income Tax Act, 1961. The said petition was rejected on the ground that a fresh claim for deduction could be allowed only by way of filing a revised return.

Aggrieved by the rejection of revision petition, the assessee company invoked writ jurisdiction of the High Court which is the subject matter of this case.

Contentions of the Petitioner:
It was submitted that Section 264 permits revision of any order of assessment on any of the grounds. The petitioner was entitled to claim deduction during the assessment year 2007-08 which was rejected only on technical grounds. Since the appeal was pending against the disallowance, the deduction was not claimed for the assessment year 2008-2009. When that mistake was noticed the time for making a revised return had already expired. It was contended that the CIT had not exercised the jurisdiction vested in it, in accordance with law and even if no revised return was filed, still the Commissioner had power to allow the deduction.

Contents of the Revenue:
It was stated that when the revised return was not filed, there was no claim at all for such a deduction and it was not for the Commissioner to adjudicate upon the same.

Observations made by the Kerala High Court:

The High Court observed that the judgment in Goetze which was relied by the Revenue was with reference to the power of the Tribunal u/s 254 which is not comparable for the power to be exercised by the Commissioner under Section 264 of the IT Act. 

The High Court noted that section 264 gives wide powers to the Commissioner under Section 264 to conduct an enquiry to be made and to pass such orders, as he thinks fit whereas in the instant case, the Commissioner proceeded on the basis that the petitioner had not filed a revised return.

The High Court also observed a Division Bench in Parekh Brothers, had held that there was no limit to exercise the jurisdiction under Section 264 of the IT Act. That was also a case in which the claim was not made by the assessee in the return or at the time of arguments when the assessment was made. In such an instance, the Division Bench held that, even assuming that the assessment order was correct, still it is open for the assessee to seek the revisional jurisdiction in respect of an item which was not made by way of a mistake. Therefore, the jurisdiction of the Commissioner to pass orders even if a revised return is not filed, was very much available.

Held:
The commissioner was directed to hear the petitioner to consider the deduction irrespective of the fact that the petitioner has filed any revised return.