Power to revise income must be used judiciously

Homi P Ranina

Many a time an assessee may omit to claim a benefit, deduction or exemption to which he is entitled when the return is filed. It is also possible that the assessment may be completed on the basis of such return and, thereafter, the tax payer may become aware of his omission to claim such benefit.

While the tax department can reopen a completed assessment within the stipulated time frame under section 149, an assessee may be left high and dry where he has omitted to claim such benefit.

The Gujarat High Court recently considered a case where the tax-payer had failed to claim a benefit, but sought to do so by filing an application for revision of income under section 264 of the Income-tax Act, 1961.

The commissioner’s revisional jurisdiction under this section is “subject to the provisions of this Act” [C Ag IT v Lucy Kochuvareed (103 ITR 799, 804-5)]. He has the discretion to grant or refuse relief [Nanhemal Janakinath v CIT (8 ITR 437)] and the power to pass such
order in revision as he may think fit.

However, this power is not an arbitrary one to be exercised according to his fancy. He must act according to the rules of reason and justice, not according to private opinion; according to law, and not humour. His discretion is to be not arbitrary, vague and fanciful, but legal and regular [Minister of National Revenue v Wrights Canadian Ropes Ltd (15 ITR Suppl 104)].

It is a power coupled with a duty to exercise it in the interest of justice to the assessee [Hirday Narain v ITO (78 ITR 26)]. It is his duty to revise an assessment which is found to be erroneous in the light of a later decision of the Supreme Court or the appropriate high court [Parshuram Pottery Works Co Ltd v Trivedi (100 ITR 651)].

He should not surrender his judgment to the directions of the board [Sirpur Paper Mill Ltd v CWT (77 ITR 6)]. The commissioner is bound to correct a mistake which the assessee had committed to his detriment and which he realised after the completion of the assessment [Parikh v CIT (122 ITR 610)].

This point has again been reiterated in the case of Ramdeo Exports v CIT (251 ITR 873). The facts in this case were that the petitioner-assessee, for the assessment years 1996-97 and 1997-98, was eligible for certain deductions under the provisions of section 80-HHC of the Income-tax Act, 1961.

For the assessment year 1996-97, the petitioner had filed its return on April 30, 1996, whereas for the assessment year 1997-98 the return was filed on October 28, 1997. The return filed for the assessment year 1996-97 was assessed under the provisions of section 143(3) of the Act by an order dated March 15, 1999, by the assessing officer, whereas for the assessment year 1997-98 the assessment order was passed under section 143(1) on September 17, 1999. In the course of the assessment, the assessing officer had accepted the income of the assessee as returned by the assessee.

After the assessment was over, the assessee filed a revision application before the commissioner on December 16, 1999, submitting that the assessee was entitled to deduction under the provisions of section 80-HHC for the aforesaid two assessment years, but as deductions were not claimed, the commissioner was requested to give effect to the request for the deductions claimed in the said revision application.

By an order dated March 23, 2001, the commissioner rejected the revision application filed by the assessee and, therefore, the assessee was constrained to approach the court with a grievance that the revision application was wrongly rejected by the commissioner.

The Gujarat High Court observed that the revisional authority was more impressed by the fact that the assessment orders were passed by the assessing officer under the provisions of sections 143(1)(a) and 143(3) of the Act.

It was found by the revisional authority that the income returned by the assessee had been accepted by the assessing officer and, therefore, according to the revisional authority, no fault could have been found with the orders of assessment. In the circumstances, without going into the merits of the deductions claimed under the provisions of section 80-HHC, the revisional authority had rejected the revisional application.

Upon perusal of the impugned order, the court was of the opinion that the revisional authority did not exercise the jurisdiction vested in it. This court had decided in the cases of C Parikh and Co v CIT (122 ITR 610) and Digvijay Cement Co Ltd v CIT (210 ITR 797) that it was open to the revisional authority to look into the deductions which might be claimed by the assessee even for the first time.

The high court concluded that the revisional authority rejected the revision application without looking into the merits of the case. The court, therefore, quashed the order passed by the commissioner and directed him to reconsider the revision application on the merits of the case. The aforesaid decisions provide a window for tax payers who have failed to claim a relief, rebate, deduction or exemption under the tax law. They have the power to make a revision application to the commissioner and claim such benefit though it was not claimed before the assessing officer.

The application has to be made within one year from the date the relevant assessment order was served on the assessee. However, the commissioner has the power to admit the application even after the expiry of that period of one year if he is satisfied that the assessee has sufficient cause for making the application after a delay of more than one year.