Exempted income can not be taxed even if no revised return filed. AO in proceedings u/s 143 can not refuse to grant relief on such technical plea – High Court
ABCAUS Case Law Citation:
ABCAUS 2183 (2018) (01) HC
Important Case Laws Cited/relied upon by the parties:
Goetze (India) Ltd v. Commissioner of Income-Tax [(2006) 284 ITR 323 (SC)]
Brief Facts of the Case:
The Petitioner Assessee compensation for a land acquired from him for the Metro Rail Project. The assessee, at the relevant time was under the impression that the capital gains resulting from the acquisition of the land wax taxable. Consequently, the petitioner, in the return of income for the relevant assessment year duly disclosed the capital gains resulting from the acquisition of the said land and paid tax on that basis. For the computation of the said capital gains, the petitioner took the indexed cost of the land reckoning its fair market value as on 01.04.1981.
Subsequently, the Assessing Officer issued notice u/s 143(2) of the Income Tax Act, 1961 (the Act) for scrutiny of the return filed by him. In the notice, the deduction claimed by the petitioner under the head ‘capital gains’ was stated to be the issue identified for the examination.
The petitioner replied to the said notice stating that the fair market value of the land as on 01.04.1981 was as disclosed by him and therefore, the deduction claimed was justified. The AO further called upon the assessee to produce documents to establish that the fair market value of the land as on 01.04.1981 was as claimed by the petitioner.
However, in the meanwhile the Hon’ble High Court, in terms of Land Acquisition Act delivered a judgment holding that compensation payable to persons for the lands acquired under the said statute was exempted from payment of income tax.
In view of the said judgment, the petitioner replied to the AO requesting him to drop the proceedings initiated under Section 143 the Act.
However, the AO completed the assessment proceedings and raised a demand on the basis that the cost indexation of the land made by the assessee was unacceptable.
Aggrieved, the assessee had approached the Hon’ble High Court in this instant writ petition.
Contention made on behalf of the Respondent Revenue:
It was contended by the Revenue that since the petitioner had disclosed the capital gains resulting from the acquisition of land in the return filed by him and paid tax on that basis, in the absence of a revised return, the assessing officer was precluded from considering the question whether the petitioner was liable to pay tax on the said capital gains.
The question of Law framed/urged:
The question that fall for the consideration of the Hon’ble High Court was whether in the absence of a revised return, the assessing officer is precluded from considering, in a proceedings under Section 143 of the Act, the claim of exemption the return filed by him is not exigible to tax and that therefore, there
Observations made by the High Court:
The Hon’ble High Court observed that it is beyond dispute that the powers of the assessing officers under the Act are quasi-judicial in nature and therefore they are duty boundto act fairly and they are also invested with the authority to do justice to the assessees.
According to the Hon’ble High Court, normally where return declared by the assessee is proposed to be revised on the ground that the deduction claimed by him in the return is inadmissible, the AO, in the absence of a revised return, would proceed on the basis of the facts disclosed by the assessee in the return. But, in a case where it is apparent on the face of the record that the assessee, on account of ignorance or by mistake, has included in his return, an income which is exempted from payment of income tax, the assessing officer is bound to take into account the said fact in a proceedings under Section 143 of the Act.
The Hon’ble High Court clarified that if a transaction is exempted from payment of income tax, the assessing officer has a duty to refrain from levying tax on the said income and the assessing officer cannot, in such cases, refuse to grant relief under Section 143 of the Act to the assessee on the technical plea that the assessee has not filed a revised return.
The Hon’ble High Court pointed out that it is paramount duty of the assessing officer to complete the assessments in accordance with law. Which is all the more so in the light of the mandate under Article 265 of the Constitution that no tax shall be levied or collected except by authority of law.
The Hon’ble High Court noted the observations made by the Hon’ble Supreme Court where it held that where an assessee has by mistake or inadvertence or on account of ignorance, included in his income any amount which is exempted from payment of income tax, or is not income within the contemplation of law, he may bring this to the notice of the assessing officer, which if satisfied, may grant him relief and refund the tax paid in excess, if any. Such matters can be brought to the notice of the authority concerned in a case when refund is due and payable, and the authority concerned, on being satisfied, shall grant appropriate relief.
The Hon’ble High Court observed that in the instant case, the assessee had not filed the revised return of income on the understanding that he was not liable to pay any income tax on the capital gains resulting from the acquisition of land. The reason was obvious as the time prescribed under the Act for submission of revised return had expired by that time.
The Hon’ble High Court opined that the impugned order was a clear case where the Income Tax Authority had penalised the assessee for ignorance of and having paid tax on an income which was not exigible to tax.
The Hon’ble High Court distinguished the case relied upon by the assessee and clarified that the question in that case was whether an assessee could make a claim for deduction other than by filing a revised return? Whereas, the question in the instant case was whether the AO is precluded from considering an objection as to his authority to make an assessment under Section 143 of the Act merely for the reason that the petitioner had included in his return an amount which is exempted from payment of tax and that he could not file a revised return to rectify the said mistake in the return.
The petition was allowed. The order was quashed to the extent it assessed capital gains on the land.