2012 (1) TMI 211 - AT - Income Tax

Appellate Court Allows Fresh Claims in Tax Appeal, Emphasizes Fair Opportunity for Taxpayers

The High Court allowed the appeal, emphasizing that appellate authorities have the power to consider fresh claims not raised in the return of income. The ... Eligibility of deduction of expenses - claim made only during the course of assessment proceedings and it was neither claimed in the return of income and nor by way of filing a revised return of income - Held that:- The claim of the assessee has been wrongly refused to be entertained at the threshold itself, by the lower authorities. Since none of the authorities below has examined the claim of the assessee on merits, we find it appropriate to restore it back to the file of the Assessing Officer who shall examine the claim of the assessee on merits, after allowing the assessee a reasonable opportunity of being heard in support of its claim. Needless to mention, it is a settled position of law that only such expenditure can be permitted deduction which is incurred or the liability thereof has been crystalised in the relevant assessment year. The Assessing Officer shall, therefore, carry out the aforesaid exercise and pass a fresh order on this aspect in accordance with law. Issues:Claim for deduction of expenses not entertained due to not being claimed in the return of income or by filing a revised return.Analysis:The appeal pertains to the claim of the assessee for deduction of expenses amounting to Rs. 2,74,49,170 for the assessment year 2000-01. The claim was not entertained by the Assessing Officer or the Commissioner of Income-tax (Appeals) as it was not made in the return of income or through a revised return. The assessee, a company engaged in manufacturing, argued that the claim should be allowed despite not being in the return. The Commissioner of Income-tax (Appeals) upheld the denial based on a Supreme Court decision. However, the assessee contended that the appellate authorities have the power to admit a fresh claim not previously made. The High Court supported this view, stating that the Supreme Court's decision only limits the Assessing Officer's power, not the appellate authorities'.The tribunal found the assessee's argument valid, emphasizing that the appellate authorities can entertain a fresh claim not in the return of income. The case was remanded to the Assessing Officer for a thorough examination of the claim on its merits, providing the assessee with a fair opportunity to present their case. The tribunal highlighted that only expenses incurred or liabilities crystallized in the relevant assessment year are eligible for deduction. Therefore, the Assessing Officer was directed to reevaluate the claim and issue a fresh order in accordance with the law. The appeal was allowed for statistical purposes, indicating a successful challenge to the initial denial of the deduction claim.This judgment clarifies the scope of authority for appellate bodies to consider fresh claims not previously raised by the assessee in the return of income. It underscores the importance of a thorough examination of claims on their merits and adherence to legal principles when allowing deductions for expenses incurred during the relevant assessment year.