2017 (7) TMI 143 - HC - Income Tax

Ground of maintainability - rejection of revision - recommendation of the 5th Pay Commission in respect of revised salary - Held that - This Court is satisfied that in the present case, the CIT erred in rejecting the revision application of the Petitioner on the ground of maintainability. The CIT ought to have entertained the revision petition on merits. One possible consequential direction is to remand the revision application of the Petitioner to the file of the CIT for a fresh decision on merits. However, considering that the issue has been pending for a number of years, remanding the matter to the CIT would only delay the proceedings further. Consequently, the Court is of the view that there is sufficient material on record already, which is not disputed by the Revenue, to grant relief to the Petitioner on merits in the present petition itself. The Court directs that the revision application filed before the CIT should be treated as having been allowed on merits. Consequently, while setting aside the impugned order of the CIT dated 24th March 2014, the Court allows the revision petition filed by the Petitioner before the CIT and directs the AO now to give effect to this order by computing the tax liability of the Petitioner for the AY 1998-99 after allowing the claim for provision made for wages arrears as per the 5th Pay Commission which became effective on 1st January 1996.

Issues Involved:
1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 264 of the Income Tax Act, 1961.
2. Validity of the CIT's rejection of the petitioner's application under Section 264.
3. Applicability of the Supreme Court's decision in Goetze India Limited v. Commissioner of Income Tax.
4. Petitioner's entitlement to claim deduction for wage arrears under the 5th Pay Commission recommendations.
5. Maintainability of the writ petition under Article 226 of the Constitution.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income Tax (CIT) under Section 264 of the Income Tax Act, 1961:
The court emphasized that under Section 264, the CIT has wide revisional powers to grant relief to the assessee. The CIT can entertain new grounds not raised before lower authorities and has the discretion to pass orders not prejudicial to the assessee. The court referenced the Gujarat High Court's decision in *C. Parikh & Co. v. CIT*, which affirmed that the CIT's revisional power is broad and can be exercised to correct mistakes leading to over-assessment. Similarly, the Kerala High Court in *Parekh Brothers v. CIT* held that the CIT can entertain a revision petition for relief even if the mistake was detected post-assessment.

2. Validity of the CIT's rejection of the petitioner's application under Section 264:
The court found that the CIT(A) ignored the litigation history and the court's previous direction to consider the petitioner's claim on its merits. The petitioner had exhausted all available remedies, and the CIT should have considered the claim substantively rather than dismissing it on technical grounds. The court held that the CIT's rejection of the application was erroneous and that the revision petition should have been entertained on its merits.

3. Applicability of the Supreme Court's decision in Goetze India Limited v. Commissioner of Income Tax:
The court clarified that the Supreme Court's decision in *Goetze India Limited* was limited to the powers of the Assessing Officer (AO) and did not affect the CIT's revisional jurisdiction under Section 264. The court cited *Sam Global Securities Limited*, which explained that while the AO cannot entertain a new claim without a revised return, appellate authorities and the CIT in their revisional jurisdiction can consider new claims. This distinction was crucial in determining that the CIT had the authority to grant relief despite the petitioner's failure to claim the deduction in the original or revised return.

4. Petitioner's entitlement to claim deduction for wage arrears under the 5th Pay Commission recommendations:
The court noted that the CIT(A) in the first round for AY 1997-98 recognized that the petitioner could claim the deduction for wage arrears in AY 1998-99. The court found that there was sufficient material on record, undisputed by the Revenue, to grant relief to the petitioner. The court directed that the petitioner's revision application should be treated as allowed on merits, and the AO should compute the tax liability for AY 1998-99 after allowing the claim for wage arrears.

5. Maintainability of the writ petition under Article 226 of the Constitution:
The court dismissed the Revenue's preliminary objection regarding the maintainability of the writ petition. It held that the petitioner approached the CIT under Section 264 based on the court's previous direction, and thus, the Revenue could not object to the maintainability of the petition under Article 226. The court reiterated that the petitioner was entitled to relief through the revisional jurisdiction of the CIT as directed previously.

Conclusion:
The court set aside the impugned order of the CIT dated 24th March 2014 and allowed the revision petition filed by the petitioner under Section 264. The AO was directed to compute the tax liability for AY 1998-99 after allowing the claim for wage arrears as per the 5th Pay Commission recommendations. The writ petition was disposed of with no orders as to costs.

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