2023 (9) TMI 220 - HC - Income Tax

High Court Quashes Order Under Income Declaration Scheme, 2016; Case Remanded for Reassessment with Personal Hearing.

The HC quashed the impugned order dated 26th March 2021, concerning the petitioner's default under the Income Declaration Scheme, 2016. The Court remanded ... Power under Section 264 of the Income-tax Act - revival of declaration under Income Declaration Scheme, 2016 - effect of payment under the IDS on includibility of undisclosed income - distinctness of processing under Section 143(1) and revisional power under Section 264Power under Section 264 of the Income-tax Act - effect of payment under the IDS on includibility of undisclosed income - distinctness of processing under Section 143(1) and revisional power under Section 264 - Whether Respondent No.1 was obliged to examine on merits the assessee's contention that payment under the IDS precluded includibility of the declared undisclosed income and therefore to exercise powers under Section 264 to grant relief. - HELD THAT: - The Court held that the powers conferred by Section 264 are wide and require the Commissioner to apply his mind to whether the petitioner's income was taxable and to what extent. Judicial precedent establishes that Section 264 can correct errors committed by subordinate authorities and can be invoked where an assessee, by reason of an error, did not press a legitimate claim when filing the return. The petitioner's declaration under the Income Declaration Scheme, 2016 had been revived by notification and by acceptance (Form No.4) after the petitioner paid the balance instalments with interest; consequently, Section 188 of the IDS would prevent inclusion of the declared undisclosed income in total income once payment under the Scheme was made. The Division Bench distinguished the Rajesh Jhaveri decision as concerned with Section 147 and the question of change of opinion on reassessment, and relied on authorities holding that processing under Section 143(1) does not oust the Commissioner's revisional jurisdiction under Section 264. Given these principles and the admitted fact of payment and acceptance under the IDS, the Commissioner should have considered and decided the petition on merits under Section 264 rather than refusing relief solely because a revised return had been processed under Section 143(1). [Paras 5, 6, 7, 8, 9]The Court concluded that the Commissioner erred in refusing to exercise powers under Section 264 and that, on the admitted facts of payment and acceptance under the IDS, the question whether the undisclosed income could be included in the petitioner's total income required merits examination by the Commissioner.Revival of declaration under Income Declaration Scheme, 2016 - power under Section 264 of the Income-tax Act - Remand of the matter to the Commissioner for fresh, reasoned consideration on merits and directions for personal hearing. - HELD THAT: - The Court quashed and set aside the impugned order and remanded the matter to Respondent No.1 to decide the petitioner's application under Section 264 on merits. The Commissioner is directed to give the petitioner a personal hearing after at least five working days' notice and to pass a reasoned order dealing with all submissions. The Court specified a timetable for disposal and mandated that the application be disposed of within eight weeks. [Paras 10]The impugned order is quashed and the matter is remanded to Respondent No.1 for fresh adjudication on merits with directions for personal hearing and reasoned disposal within eight weeks.Final Conclusion: The High Court held that the Commissioner should have exercised his wide powers under Section 264 to examine on merits the petitioner's claim that payment and acceptance under the Income Declaration Scheme, 2016 precluded inclusion of the declared income; the impugned order is quashed and the matter remanded for a reasoned hearing and disposal within eight weeks. Issues involved:The issues involved in this case are related to the Income Declaration Scheme, 2016 (IDS), default in payment of tax instalments, the power of the Central Government to specify class of persons for payment, condonation of delay, and the application of Section 264 of the Income-tax Act, 1961.Issue 1: Default in payment of tax instalments under IDSThe petitioner had filed a declaration under the IDS but defaulted on the remaining two instalments. Due to this default, the declaration was deemed to have never been made under the IDS. The undisclosed income was then deemed chargeable to tax under the Income-tax Act, 1961. The petitioner filed a revised return of income after defaulting on the instalments.Issue 2: Power of Central Government to specify class of persons for paymentA proviso was inserted in the Finance Act, 2016, allowing the Central Government to specify class of persons for payment of tax instalments after the due date. The Central Government issued a notification allowing individuals, including the petitioner, to pay the tax along with interest by a specified date. The petitioner utilized this opportunity to revive the declaration under the Scheme.Issue 3: Condonation of delay and application of Section 264 of the ActThe petitioner moved an application under Section 264 of the Act after the time limit to file a revised return had expired. The Assessing Officer recommended condoning the delay, but refused to grant relief to the petitioner on the merits of the case. The petitioner argued for the exercise of power under Section 264 to rectify the situation, as the amount of undisclosed income had been paid under the IDS.In the judgment, the High Court considered the provisions of Section 264 and the power available to the Commissioner to rectify errors and grant relief to the assessee. The Court referred to previous judgments highlighting the wide jurisdiction conferred under Section 264. The Court emphasized that the power under Section 264 is not limited to correcting errors committed by subordinate authorities but can also be exercised where errors are committed by assessees themselves.The Court quashed and set aside the impugned order dated 26th March, 2021, and remanded the matter to Respondent No. 1 to decide on the merits. The Court directed that a personal hearing should be given to the petitioner before passing any order, and the order should be reasoned and address all submissions made by the petitioner. The Court instructed that the application should be disposed of within eight weeks.