Commissioner must adopt liberal approach when condoning delay in Section 264 revision applications for substantial justice

The Bombay HC held that the Commissioner should have condoned the delay in filing revision under Section 264 of the Income Tax Act, adopting a liberal approach to advance substantial justice. The court emphasized that Section 264 powers are wide and enable relief in cases of over-assessment. Regarding the petitioner's undisclosed income declared under IDS scheme, since tax, surcharge, penalty and interest were paid, the amount cannot be included in taxable income per Section 188. The HC directed the Commissioner to consider the Section 264 application on merits and pass orders in accordance with law.

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Issues Involved:
1. Condonation of delay in filing the application under Section 264 of the Income Tax Act, 1961.
2. Whether intimation under Section 143(1) of the Act can be considered an assessment order.

Summary:

Issue 1: Condonation of Delay in Filing Application under Section 264 of the Income Tax Act, 1961

The petitioner challenged an order dated 6th March 2019, which rejected their application under Section 264 of the Income Tax Act, 1961, on the grounds of substantial delay and that the intimation under Section 143(1) was not an assessment order. The petitioner argued that there was no delay since the appeal was only resolved by the Commissioner of Income Tax (Appeals) [CIT(A)] after several years. The petitioner relied on the principle that "substantial justice" should prevail over technical considerations, citing the Supreme Court's judgment in Collector, Land Acquisition vs. Mst. Katiji (1987) 167 ITR 471(SC).

The court noted that the power conferred on the Commissioner under Section 264 is intended to provide relief in cases of overassessment and should be exercised liberally to advance substantial justice. The judgment highlighted that the Commissioner should not adopt a pedantic approach but should consider genuine hardship and substantial justice, as supported by various precedents including Octra Health Private Limited vs. Additional Commissioner of Income Tax and Sitaldas K. Motwani v. Director General of Income-tax (International Taxation).

The court concluded that the Commissioner should have considered the delay in the context of the lengthy appeal process and should have condoned the delay to ensure substantial justice.

Issue 2: Whether Intimation under Section 143(1) is an Assessment Order

The court referred to the judgment in Smita Rohit Gupta vs. Principal Commissioner of Income Tax-1, which clarified that the processing of returns under Section 143(1) does not constitute an assessment order. The court also cited Hindustan Diamond Company Pvt. Ltd. v. CIT, emphasizing that the power under Section 264 is wide and can correct errors even if the Assessing Officer's power to make adjustments under Section 143(1) is limited.

The court noted that the Commissioner should have exercised his power under Section 264 to consider the merits of the petitioner's case, as the powers under Section 264 are broad and intended to correct errors and provide relief.

Conclusion:

The court allowed the petition, quashing the impugned order dated 6th March 2019, and directed the Commissioner to consider the petitioner's application under Section 264 on its merits. The Commissioner was instructed to pass a reasoned order by 31st May 2024, following a personal hearing with adequate notice.

The judgment in Writ Petition No. 569 of 2023 was applied to Writ Petition No. 597 of 2023, disposing of both petitions with the same directions. The court clarified that it had not made any observations on the merits of the application under Section 264 of the Act.

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