CLAIMS IN RETURN OR OTHERWSE – A NEW APPROACH AND AMENDMETN IS REQUIRED IN VIEW OF E-FILING OF RETURN
Links and references:
Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.
Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court)
CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court)
National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court).
Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court) Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court).
CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court).
Claim in return of income:
Generally a claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims. If a claim is not made, it cannot be accepted by the AO while making assessment in summary manner by accepting the return.
Contentions issues:
Tax laws are very complex and on many issues there can be difference of opinion. A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return.
Paper return vis a vis e-filing;
When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation.
Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:
The Supreme Court In case of Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court), held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.
In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income. The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return. The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.
Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return. Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.
Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of `play safe' prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.
Though return is significant, however, it is not final about tax base:
Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee. Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed. The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.
Claims having some doubts.
Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item. However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer.
Claim in the original return is best way:
The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.
Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed.
Suggested way to claim in case of doubtful claims:
The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed. However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return. Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -
A. The Return is without prejudice:
On the cover of the return or other documents and on the acknowledgment "WITHOUT PREJUDICE", should be written.
Illustration of further claims:
Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue.
B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:
a) Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court). Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.
b) Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court. In earlier year the CIT (A) / Tribunal has allowed such interest. However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…
c) Deductions of provident fund, ESI has not been made as payment was made after 15th April but before the due date for filing of the return. In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.
d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain. However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account. Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade. Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income.
Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.
C. A general clause for consideration of the AO
Below the computation following general clauses in form of prayer may be given
We have made the computation of income as per our understanding and as advised by our tax consultant. We have made some claims for your kind consideration as noted above. However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance. We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.
In case of e-return:
When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.
It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.
However, till such option is not available the assessee can do the following:
File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.
Revised return may be filed
A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1). A belated return cannot be revised. Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.
The CIT (A) has power co-terminus with assessing officer-
a new twist is likely to take place:
Earlier, generally the AO, Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.
After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.
Earlier rulings on powers of CIT (A) and ITAT:
Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that " However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."
The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.
In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.
Judgment of Delhi High Court on power of ITAT:
In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.
Delhi High Court upheld the tribunal's decision.
An analysis of Delhi High Court's ruling:
In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax 2006 -TMI - 5171 – (SUPREME Court) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.
High Court referred to judgment of the Supreme Court in National Thermal Power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), where the Supreme Court observed that:- 'The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.'
Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court), wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.
In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax 1990 -TMI - 5320 – (SUPREME Court) about powers of CIT(A). Therein the Supreme Court observed that:-'An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'
Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.
The purpose of different proceedings is to have assessment as per law:
We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc. The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim.
Amendment is desirable to permit additional claims:
Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe. In such circumstances, most of the assessee would prefer to adopt `play safe' approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.
Conclusions:
In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim. Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer. There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims.
Dated: - February 18, 2011
Links and references:
Commissioner of Income Tax Versus M/s. Jai Parabolic Springs Ltd. 2008 -TMI - 3591 - HIGH COURT OF DELHI.
Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court)
CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court)
National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court).
Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court) Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court).
CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court).
Claim in return of income:
Generally a claim of any expenditure, deduction or exemption should be preferred in computation itself and claimed in the return in form of returned income which should be as reduced by such claims. If a claim is not made, it cannot be accepted by the AO while making assessment in summary manner by accepting the return.
Contentions issues:
Tax laws are very complex and on many issues there can be difference of opinion. A claim which is not allowed by the AO can be subject matter of penalty proceedings. Therefore, assessee may adopt policy of play safe and may not claim a doubtful or contentions claim in the return.
Paper return vis a vis e-filing;
When a paper return is filed, the assessee usually attaches a computation of income and supporting documents. In the computation assessee can make further claims for consideration of the AO. However, in course of e-filing of return such claims cannot be made. Even if assessee files a copy of computation and supporting documents, the AO may not consider the same. Therefore, it is difficult to make further claims for consideration of the AO. In such a situation, the only way available to the assessee is to make a claim in the returned income and keep explanation ready so that if the AO enquire about the claim assessee is ready to offer a reasonable explanation.
Judgment of the Supreme Court- claim in return or revised return is must- need reconsideration:
The Supreme Court In case of Goetz India Ltd. v. CIT, 2006 -TMI - 5171 – (SUPREME Court), held that a claim in the return or revised return is a must. A claim cannot be made by way of letter.
In that case the assessee did not make some claims in the computation of income and the return filed before the assessing officer on 30.11.1995 (revised return) for assessment year 1995-96. However, the assessee made a further claim vide a letter filed with the AO claiming certain deductions, which were not claimed in the return of income. The assessing officer disallowed the claim for the reason that there was no provision in the Income-tax Act, 1961 to permit the assessee to make an amendment in the return without a revised return. The Tribunal as well as the High Court confirmed the order of the AO, the assessee preferred an appeal before the Supreme Court and the Supreme Court also dismissed the appeal holding that a claim not made in original return cannot be claimed by way of letter before the assessing officer and the assessing authority has no power to entertain a claim for deduction otherwise than by a revised return.
Therefore, now it is settled that if assessee wants to make a claim, he must prefer the claim in the return or in a revised return. Mere filing of letter before the assessing officer will not be sufficient and on that ground alone the assessee may lose the relief.
Author feels that the case before the Supreme Court was not properly contested and argued. The specific mentions should have been made by the assessee as to why a claim was made by way of letter instead of by revising return, how limitations prescribed in law prevented the assessee to make a claim in the return, how the policy of `play safe' prompted the assessee not to make a claim in return to avoid penal action, in case the claim was ultimately held by courts as not allowable, other reasons like complexity of issue, uncertainties before the assessee about making the claim in the return etc. could have been pointed out and it could have been pleaded that the AO is duty bound to allow relief, even if it was not claimed by the assessee.
Though return is significant, however, it is not final about tax base:
Return under any tax law is the primary document in which the assessee expresses his computation of the subject matter like income, wealth, expenditure, sales etc. The return is basis upon information and documents, which the assessing officer proceeds to assess the assessee. Therefore, the return is foundation about initiation of assessment proceedings when a return has been filed. The assessee can make his claims in the return of income, as he may considers fit, proper and bona fide at the time of filing of the return. Where there is a doubt, the assessee must have an option to request the AO to allow relief, even if not claimed by assessee due to mistake or ignorance. The assessee must be given an opportunity to make further claims.
Claims having some doubts.
Due to complexity, ambiguity and uncertainty of law, there are many claims which assessee wants to prefer with a caution. To avoid extra burden, which may arise if the claim is not allowed, the assessee may choose not to claim the deduction in main computation and pay tax without making deduction for such item. However, unless a claim is made in the return (or a revised return) it cannot be considered by the assessing officer.
Claim in the original return is best way:
The best way to claim any relief is to make a claim in the original return. A claim can be made by way of revised return, subject to compliance of applicable conditions like that the original return should have been filed within time permissible originally e.g. in case of return of income the original return should have been filed within time allowed u/s 139 (1) then only a revised return can be filed within prescribed time and before completion of assessment.
Many times one may think to file a revised return after clearance of some doubts or on gaining more confidence about such claim. However, once a return is filed, one may be busier in other work and may miss the opportunity to file revised return. Therefore, at lease claims for consideration by the A.O. can be made in the original return itself so that it can be pressed.
Suggested way to claim in case of doubtful claims:
The assessee may want to play safe to avoid burden of tax, interest and penalty liabilities, which may arise if the claim is not allowed. However, as noted above in view of judgment of the Supreme Court, it is necessary that the claim must be preferred in the return. Therefore, the following course of action may be adopted by filing a return or hard copy of e-return: -
A. The Return is without prejudice:
On the cover of the return or other documents and on the acknowledgment "WITHOUT PREJUDICE", should be written.
Illustration of further claims:
Below the computation it should be mentioned that the above computation of income is without prejudice to the following further claims for deductions, benefits and advantages, which are, as per assessee admissible, but have not been claimed in the computation due to disputes raised by the revenue.
B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing officer is requested to consider the following claims which have not been made in the computation to play safe, and because of difference of opinions. Please allow proper relief:
a) Normal depreciation on new electrical generators costing Rs. one crore has been claimed at general rate of 15% amounting to Rs.15 lakh instead of 80% allowable as per the judgment of Rajasthan High Court in the case of CIT V Agarwal Transformers P. Ltd 2002 -TMI - 12300 – (RAJASTHAN High Court). Please consider allowing 80% depreciation and allowing further relief of Rs.65 lakh.
b) Interest on loan taken from a bank has not been claimed in the above computation because the suit filed by the bank is still pending before the court. In earlier year the CIT (A) / Tribunal has allowed such interest. However, the appeal of the Revenue is pending before the Tribunal / High Court. Please allow further deduction of Rs…
c) Deductions of provident fund, ESI has not been made as payment was made after 15th April but before the due date for filing of the return. In view of several decisions of the Tribunal and decision of the CIT (A) in assesses own case, rendered on this aspect and in view of amendment in section 43B, these payments may be allowed.
d) The estimated disallowance of interest and administrative expenses has been made u/s 14A in respect of tax-free income earned by way of dividend and long-term capital gain. However, it is submitted that shares and securities were acquired in the course of share trading business few years ago and when the nature was changed from stock to investment they were transferred to investment account. Therefore, capital was borrowed for purchasing shares and securities as a stock-in-trade. Furthermore, even investment activity is an adventure in nature of commerce and therefore though shares and securities held as investment are capital assets of the business. Just like fixed assets used in business, shares and securities are also capital assets of the business of investment. Therefore, interest and administrative expenses are necessary business outgo and may be fully allowed while computing business income.
Claims in respect of such items which have a chance of being disallowed by the assessing officer can properly be claimed before the assessing officer in computation itself or below the computation and thereafter if the assessing officer does not consider the same or considers but disallows, the assessee can prefer a rectification petition, appeal or revision petition as may be found suitable.
C. A general clause for consideration of the AO
Below the computation following general clauses in form of prayer may be given
We have made the computation of income as per our understanding and as advised by our tax consultant. We have made some claims for your kind consideration as noted above. However, there may be some more relief, benefit, and advantage allowable to us, which we have not claimed due to ignorance. We request you to kindly allow us all admissible relief, benefit, advantage so as to compute our income and our tax liability correctly and also to work out the amount of refund and interest allowable to us correctly.
In case of e-return:
When a return is filed electronically, it is to be filed as per the e-from and there is not yet any scope by way of explanation sheet or further claim sheet in the e-return forms.
It is suggested that in the e-return forms, provision can be made to provide the assessee scope and option to add some sheets for explanations and further claims for consideration of the AO.
However, till such option is not available the assessee can do the following:
File a hard copy of return and supporting documents with a covering letter stating that the return is without prejudice, and that the AO is requested to consider further claims as mentioned in the covering letter or the accompanying documents. The assessee can also file explanations and supporting documents to justify his claims where there is some scope of doubt or there are different opinions prevailing.
Revised return may be filed
A revised return can be filed within prescribed circumstances and within prescribed limitation. For example under the Income Tax-tax Act, 1961 a revised return can be filed only if the original return has been filed within the due date under section 139(1). A belated return cannot be revised. Therefore, if there are certain claims, which have not been preferred in the original return, the assessee may file revised return of income to claim such claims by way of making a claim in the computation itself or by making claim for consideration of the assessing officer as additional claims.
The CIT (A) has power co-terminus with assessing officer-
a new twist is likely to take place:
Earlier, generally the AO, Commissioner (Appeals) / ITAT used to consider claims on merit, even if some claims were preferred before the A.O. by way of letters during course of hearing before the A.O. However, after the above judgment of the Supreme Court in case of Goetz, it may be difficult to press a claim even before the CIT (A), unless there was a claim in the return filed before the A.O. Because the CIT (A), having power co-terminus with the A.O., can very well take a view that what the A.O. cannot consider, cannot be considered by the CIT (A) as well. Therefore, it becomes necessary that at least in some way claim must be found in the return or accompanying documents to claim such further claims which the assessee wants to press but do not want to make in computation itself to avoid chances of disallowance and consequent liability of tax, interest and penalty proceedings.
After the judgment in case of Goetz (supra.) the AO are not even considering claim for refund if not made in the return. Cases have been informed that the AO, while considering refund or credit for tax is considering the claim made by assessee and credit shown in OLTAS. If an assessee has not made claim for TDS or tax paid in the return, credit may be denied, even if the amount of TDS or tax paid is shown credited in OLTAS or other computerized reports of the department.
Earlier rulings on powers of CIT (A) and ITAT:
Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd. v. CIT, 1990 -TMI - 5320 – (SUPREME Court) power of ITAT in case of National Thermal power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), also suggests that they have power to consider a claim on additional matters only if some material is found in the assessment record. In recent decision in case of Goetz (supra.) the Supreme Court has specifically mentioned that their decision is about power of the A.O. and not of power of the ITAT. Therefore, the Supreme Court held that " However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the income-tax Appellate Tribunal under section 254 of the Income tax Act, 1961."
The decision about powers of the CIT (A) in case of Jute Corporation has not been mentioned and considered by the Supreme Court in the case of Goetz. Therefore, there is big question mark on power of CIT(A). A view can be taken that CIT(A) has power co-terminus with the AO, therefore, if a claim cannot be accepted by the AO, CIT(A) cannot admit and consider the same.
In case of Jute corporation, the CIT (A) was held to have power to entertain a legal claim (for liability of sales tax based on ruling of supreme court in case of Kedarnath Jute 1971 -TMI - 6262 – (SUPREME Court)) which was not considered by the A.O. {it is not clear whether a claim was made or not before the A.O. in the return of income.}. It was held that the CIT (A) has all the powers, which the A.O. had on the assessment, and CIT (A) can consider what the A.O. has omitted to consider. This means there was some material before the A.O. to consider the claim but the A.O. omitted to or failed to consider. When the A.O. cannot consider a claim, if not made in the return, it seems extremely doubtful, whether CIT (A) will consider such claim after the judgment in Goetz case.
Judgment of Delhi High Court on power of ITAT:
In CIT Versus M/s. Jai Parabolic Springs Ltd decided on 07 April 2008 2008 -TMI - 3591 - HIGH COURT OF DELHI the matter of power of ITAT to consider a new claim came for consideration. Revenue expenditure was shown as deferred revenue expenditure in the audited balance sheet. However, it was claimed as allowable in an additional ground preferred before the Tribunal. The revenue objected to such claim as the Tribunal on the basis of additional ground raised by the assessee allowed full deduction even though it was not claimed in the original return or a revised return.
Delhi High Court upheld the tribunal's decision.
An analysis of Delhi High Court's ruling:
In paragraph 17 the High Court considered that in Goetze (India) Limited v. commissioner of Income Tax 2006 -TMI - 5171 – (SUPREME Court) wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal.
High Court referred to judgment of the Supreme Court in National Thermal Power Co. Ltd. v. CIT 1996 -TMI - 5626 – (SUPREME Court), where the Supreme Court observed that:- 'The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. We do not see any reason to restrict the power of the Tribunal under Section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessees as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.'
Therefore, according to this judgment Tribunal has power to admit additional claim arising from assessment records and first appeal order. High Court also referred to Gedore Tools Pvt. Ltd. v. Commissioner of Income Tax 1999 -TMI - 16114 – (DELHI High Court), wherein the Apex Court decision in National Thermal Power Co. Ltd. (supra) has been followed.
In paragraph 16 the High Court has considered Jute Corporation of India Ltd. v. Commissioner of Income Tax 1990 -TMI - 5320 – (SUPREME Court) about powers of CIT(A). Therein the Supreme Court observed that:-'An appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income-tax Officer. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The Appellate Assistant Commissioner must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. The Appellate Assistant Commissioner should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.'
Thus according to the Delhi High Court, the CIT(A) and ITAT can, in view of earlier rulings of the Supreme Court can, in some circumstances consider additional claims.
The purpose of different proceedings is to have assessment as per law:
We find that there are many more proceedings and options are available to revenue in comparison to the assessee to achieve correct assessment of tax. The assessee also faces more stringent restrictions and limitations as compared to revenue. The revenue has many effective remedies like rectification, revision, re assessment and recomputation etc. The limitation prescribed are also longer. Whereas the assessee has only effective way to file a revised return to prefer claim.
Amendment is desirable to permit additional claims:
Tax laws are very complex, even Supreme Courts judgments may not be final- in a review petition, larger bench may change the law, or an amendment may be made. Provisions for interest and penalty are severe. In such circumstances, most of the assessee would prefer to adopt `play safe' approach even if returns are by and large accepted. After filing of return some relief may come to knowledge of the assessee, but by that time, limit to file a revised return might have lapsed. In such circumstances the assessee must be given some way to prefer claims and to get back excessive tax paid. Therefore, some simple provisions for preferring claims by way of rectification petition should be brought in the tax laws.
Conclusions:
In view of the law laid down by the Supreme Court in Jute Corporation read with Goetz India Ltd. as discussed above, it is likely that if a claim is not made before the assessing officer in the return of income or revised return of income, the CIT (A) may not entertain any additional claim. Therefore, to avoid controversy it is necessary that there must be claim in the original return or revised return validly filed before the assessing officer. There is no specific manner prescribed or restriction as to manner of making a claim in the return otherwise than making a claim in computation itself, therefore, claims made by way of notes to the computation or otherwise in the return may be regarded as sufficient claim preferred in return to press the claims before the assessing officer failing which before the appellate authorities or revisionary authorities. In case of e-filing there should be separate sheet for such claims.
Dated: - February 18, 2011
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