2021 (8) TMI 175 - HC - Income Tax

Revision u/s 264 - Deduction u/s 80JJAA - HELD THAT - In this case, the 2nd respondent has not given to benefit while reassessing the income of the petitioner while passing order on 29.12.2008. It is precisely for dealing with situations like this, powers have been vested with superior officers like the respondent under Section 264 of the Income Tax Act, 1961. Though, orders have to be passed subject to provisions of the Act, the intention of the legislative is not whittle down or deny benefit which are legitimately available to an assessee. Failure to file return within the period u/s 139 of the Income Tax Act, 1961 for the purpose of claiming benefit of deduction under Section 80 AAJJ of the Income Tax Act, 1961, is a more procedural formality. In my view, denial of substantive benefit cannot be justified since the assessment itself was reopened by the 2nd respondent and the assessment already made on 29.12.2006 was put to jeopardy. If an assessee is entitled to benefit, technical failure on the part of an assessee to claim the benefit in time, should not come in the grant of substantial benefit/benefits that was/were otherwise available under the Income Tax Act, 1961 but for such technical failure. The petitioner would be entitled to the benefit of Section 80JJAA of the Income Tax Act, 1961. The 1st respondent ought to have allowed the application filed by the petitioner under Section 264 of the Income Tax Act, 1961. The petitioner is entitled to partial relief at this stage. Accordingly, the impugned order is set aside by condoning the delay in filing the return. The 2nd respondent is therefore directed to pass appropriate orders on merits in accordance with law, ignoring the delay on the part of the petitioner in filing the returns under Section 139(5) of the Income Tax Act and/or failure to furnish the report of an accountant.2nd respondent shall pass a speaking order within a period of three months from the date of receipt of a copy of this order

Summary

Issues:
1. Rejection of application under Section 264 of the Income Tax Act, 1961 for the Assessment Year 2004-05.
2. Denial of benefit of deduction under Section 80JJAA of the Income Tax Act, 1961.
3. Reopening of assessment and failure to allow substantive benefits during reassessment.
4. Interpretation of procedural formalities and substantive benefits under the Income Tax Act, 1961.

Issue 1: Rejection of application under Section 264:
The petitioner challenged the impugned order dated 26.03.2008, where the 1st respondent dismissed the application filed under Section 264 of the Income Tax Act, 1961 for the Assessment Year 2004-05. The petitioner claimed the benefit of deduction under Section 80JJAA of the Act through a revised return, which was refused by the 2nd respondent. The High Court observed that the denial of substantive benefit based on technical failures was unjustified, especially considering that the assessment itself was reopened by the 2nd respondent. The court held that the petitioner should be entitled to the benefit of Section 80JJAA, and directed the 2nd respondent to pass appropriate orders on merits, ignoring the delay in filing the returns.

Issue 2: Denial of benefit under Section 80JJAA:
The 1st respondent rejected the application for deduction under Section 80JJAA, citing technical grounds such as failure to file the return within the prescribed time limit and non-furnishing of the required certificate. The court emphasized that denial of substantive benefits to an assessee due to procedural formalities was unjust. It referred to relevant case laws and highlighted that powers vested under Section 264 should be utilized to ensure fair treatment and grant of legitimate benefits to the assessee. The court set aside the impugned order and directed the 2nd respondent to pass appropriate orders, considering the substantive benefits due to the petitioner.

Issue 3: Reopening of assessment and failure to allow substantive benefits:
The assessment for the Assessment Year 2004-05 was reopened with a notice under Section 148 of the Income Tax Act, 1961, jeopardizing the original assessment completed in 2006. The court noted that during reassessment proceedings, the Assessing Officer should consider and grant reliefs due to the assessee, including benefits that were available but not previously factored in. The court highlighted that the powers under Section 264 were essential to rectify situations where substantive benefits were denied due to technical failures or procedural lapses.

Issue 4: Interpretation of procedural formalities and substantive benefits:
The court analyzed the significance of procedural formalities like filing returns within prescribed timelines and furnishing necessary documents under the Income Tax Act, 1961. It emphasized that denial of substantive benefits based solely on technical failures was unjust, especially when the assessment itself was reopened. The court stressed that the legislative intention was to grant legitimate benefits to an assessee and that technical failures should not hinder the grant of such benefits. The judgment underscored the importance of fair treatment and just application of tax laws to ensure that rightful benefits are not denied to taxpayers.

This comprehensive analysis of the judgment highlights the key issues addressed by the court, focusing on the denial of benefits, procedural formalities, and the role of Section 264 in rectifying unjust treatment of taxpayers under the Income Tax Act, 1961.