2004 (12) TMI 62 - HC - Income Tax

Orders under sections 263 and 264 quashed; section 154 refund directive upheld and interest under section 244A awarded

SR. Koshti Versus Commissioner of Income-Tax.

The HC quashed and set aside the orders made by the respondent under sections 263 and 264, holding the section 264 revision unsustainable because it ... Scope of the powers of the Commissioner in revisional proceedings u/s 264 - Interest on refund - Entitlement of the petitioner to claim exemption under section 10(10C) - rectification - petitioner, an individual, challenges, by way of this petition under articles 226 and 227 of the Constitution of India, the orders made by the CIT under sections 263 and 264 - HELD THAT:- It is an admitted fact, so far as the respondent is concerned, that no assessment order, as such, has been framed under section 143(3) of the Act. The return originally filed by the petitioner has been processed under section 143(1)(ii) of the Act, i.e., a refund due on the basis of such return has been granted. The respondent, while framing the assessment under section 264 of the Act refers to and relies upon his own order made under section 263 of the Act, of even date, to emphasise that the revised return filed on September 24, 2002, was an invalid return. Thereafter, the respondent refers to the salary certificate issued by the employer in Form No. 16 on April 30, 2001, and states that the gross salary shown by the employer is Rs. 10,28,182, and on the basis of the said certificate issued by the employer, upholds the income-tax calculation sheet prepared by the Assessing Officer in pursuance of the original return of income. Thus, without dealing with the merits of the claim under section 10(10C) of the Act, the respondent merely relies on the fact that the original return was processed under section 143(1) of the Act on March 28, 2002, and the consequential refund order issued thereupon being encashed by the petitioner. In para. No. 5 of his order under section 264 of the Act, the respondent ultimately rejects the petition by holding that the revision petition was beyond the period of one year from the date of passing the order in the assessee's case under section 143(1) of the Act and hence, refuses to condone the delay. Respondent-Commissioner has nowhere stated that the petitioner is not entitled to the relief under section 10(10C). In fact, the said position is undisputed. The Assessing Officer himself had passed an order under section 154, granting such relief. In the circumstances, even the order under section 264 of the Act made on March 29, 2004, cannot be sustained. - In the result, the orders dated March 29, 2004, made under sections 263 and 264 are quashed and set aside, and the order dated March 27, 2003, made by the Assessing Officer under section 154 of the Act shall prevail. The respondent is directed to not only issue the refund due in accordance with the order under section 154 dated March 27, 2003, but also grant interest under section 244A, till the date of payment of the refund Issues Involved:1. Validity of the revised return filed by the petitioner.2. Jurisdiction of the Commissioner under section 263 of the Income-tax Act.3. Entitlement of the petitioner to claim exemption under section 10(10C) of the Income-tax Act.4. Scope of the Commissioner's powers under section 264 of the Income-tax Act.5. Obligation of tax authorities to act in accordance with the law and assist taxpayers.Detailed Analysis:1. Validity of the Revised Return Filed by the Petitioner:The petitioner filed a revised return on September 24, 2002, claiming exemption under section 10(10C) of the Income-tax Act for compensation received under a voluntary retirement scheme. The Commissioner argued that the revised return was filed beyond the period of limitation prescribed under section 139(5) of the Act. However, the court noted that the revised return was filed before the expiry of one year from the end of the relevant assessment year, i.e., before March 31, 2003. Therefore, the revised return was valid and within the statutory time limit.2. Jurisdiction of the Commissioner under Section 263 of the Income-tax Act:The Commissioner invoked section 263 to revise the order made under section 154 by the Assessing Officer, stating it was erroneous and prejudicial to the interests of the Revenue. The court held that the Assessing Officer's order was neither erroneous nor prejudicial to the interests of the Revenue, as it was based on a permissible view in law. The court cited the Supreme Court's decision in Malabar Industrial Co. Ltd. v. CIT, emphasizing that not every loss of revenue qualifies as prejudicial to the interests of the Revenue. The court concluded that the Commissioner could not have assumed jurisdiction under section 263 in this case.3. Entitlement of the Petitioner to Claim Exemption under Section 10(10C) of the Income-tax Act:The Commissioner did not address whether the petitioner was legally entitled to the exemption under section 10(10C), stating it was a separate issue. The court criticized this approach, noting that the Assessing Officer had already granted the exemption in an order under section 154. The court reiterated that the petitioner was entitled to the exemption, and the revised return was valid.4. Scope of the Commissioner's Powers under Section 264 of the Income-tax Act:The Commissioner rejected the petitioner's application under section 264, citing it was beyond the one-year limitation period and relying on the order under section 263. The court referred to the decision in C. Parikh and Co. v. CIT, clarifying that the Commissioner's powers under section 264 are broad and include the discretion to grant relief even if the over-assessment results from the assessee's mistake. The court held that the Commissioner should have exercised his powers to correct the over-assessment and grant the relief sought by the petitioner.5. Obligation of Tax Authorities to Act in Accordance with the Law and Assist Taxpayers:The court emphasized that tax authorities must act in accordance with the law and assist taxpayers in ensuring only legitimate taxes are collected. The court cited an unreported decision, stressing that state authorities should not deny lawful rights on technical grounds. The court directed the authorities to issue the refund due to the petitioner along with interest under section 244A, within three weeks.Conclusion:The court quashed the orders dated March 29, 2004, made under sections 263 and 264, and upheld the Assessing Officer's order under section 154. The court directed the respondent to issue the refund and interest due to the petitioner and awarded costs of Rs. 5,000 to be paid by the Revenue, recoverable from the respondent-Commissioner.