2014 (1) TMI 492 - HC - Income Tax

Commissioner's failure to exercise revisional power under Section 264 leads to court quashing order

Kewal Krishan Jain Versus Commissioner of Income Tax, Jalandhar and another

The court held that the Commissioner should have exercised his revisional power under Section 264 to decide the petition on its merits. Consequently, the ... Power of CIT u/s 264 - Revision in favor of assessee - Held that:- Following Parekh Brothers v. Commissioner of Income Tax, Kerala-II Ernakulam and others, [1983 (8) TMI 17 - KERALA High Court] - Mere fact that the assessee had not raised a plea before the Assessing Officer, does not prohibit the assessee from claiming relief under Section 264 of the Act - The Commissioner of Income-tax committed an error of law in holding that it is not open to him for the first time to entertain a relief of the kind pleaded by the assessee and in denying jurisdiction - Even though a mistake was committed by the assessee and it was detected by him after the order of assessment, and the order of assessment is not erroneous, none the less it is open to the assessee to file a revision before the Commissioner under Section 264 of the Act and claim appropriate relief - The power to be exercised under Section 264 is a revisionary one - The jurisdiction is discretionary - Whether in a particular case, on the basis of facts disclosed, the Commissioner will exercise his jurisdiction and interfere in the matter, is a matter of discretion. It is certainly a judicial discretion vested in the Commissioner, to be exercised in accordance with law. Power under Section 264 of the Act, is wide enough, to include rectification of a “bonafide” error committed by an assessee, while claiming exemptions, under the Act - The Commissioner should have in the exercise of his revisional power under Section 264 of the Act, decided the petition, filed by the petitioner, on merits - Decided in favour of petitioner. Issues Involved:1. Scope and ambit of Section 264 of the Income Tax Act, 1961.2. Whether failure to claim an available exemption before the Assessing Officer prohibits an assessee from filing a petition under Section 264.3. Whether the Commissioner can exercise power under Section 264 to rectify a bonafide error committed by the assessee.Issue-wise Detailed Analysis:Scope and Ambit of Section 264 of the Income Tax Act, 1961:Section 264 of the Income Tax Act, 1961, empowers the Commissioner to revise orders that are prejudicial to the interest of the assessee. The provision allows the Commissioner to call for the record of any proceeding under the Act and make such inquiry or pass such order thereon, not being an order prejudicial to the assessee, as he thinks fit. This section provides the Commissioner with the authority to correct errors in assessment orders, provided the application for revision is made within one year from the date the order was communicated to the assessee or the date on which the assessee otherwise came to know of it. The Commissioner may also admit an application made after the expiry of that period if satisfied that the assessee was prevented by sufficient cause from making the application within that period.Failure to Claim an Available Exemption Before the Assessing Officer:The court deliberated on whether the failure to claim an exemption before the Assessing Officer prohibits an assessee from seeking relief under Section 264. It was argued that Section 264 is designed to ensure that proceedings and orders passed by Assessing Officers are in accordance with the provisions of the Act. The court highlighted that the expressions 'such enquiry' and 'such order' in Section 264 are broad enough to include situations where a bonafide error by the assessee leads to an incorrect assessment. The court held that the prohibition against raising a plea not raised before the Assessing Officer applies to appeals and not to proceedings under Section 264. Thus, a bonafide error committed by an assessee in claiming an admissible exemption during assessment proceedings does not prohibit the assessee from approaching the Commissioner for relief under Section 264.Rectification of Bonafide Error by the Commissioner:The court examined whether the Commissioner can exercise power under Section 264 to rectify a bonafide error committed by the assessee. It was noted that the petitioner sold agricultural land and purchased new agricultural land within the same financial year, entitling him to exemption from capital gain tax under Section 54B. However, due to personal circumstances, the petitioner failed to claim this exemption in both the original and revised returns. The petition under Section 264 was dismissed by the Commissioner on the grounds that the exemption was not claimed before the Assessing Officer. The court, however, found that the Commissioner's power under Section 264 includes the authority to rectify bonafide errors. The court referred to several judgments supporting this interpretation, including those from the High Courts of Jammu and Kashmir, Kerala, Allahabad, and Gujarat, which held that the Commissioner has the jurisdiction to entertain a revision petition under Section 264 even if the assessee did not claim the relief during the original assessment proceedings.Conclusion:The court concluded that the Commissioner of Income Tax, Jalandhar, erred in dismissing the petition under Section 264 on the grounds that the exemption was not claimed before the Assessing Officer. The court held that the Commissioner should have exercised his revisional power under Section 264 to decide the petition on its merits. Consequently, the writ petition was allowed, the impugned order was quashed, and the matter was remitted to the Commissioner of Income Tax, Jalandhar, to pass a fresh order in accordance with law. No order as to costs was made.