2023 (9) TMI 220 - HC - Income Tax

Revision u/s 264 - power of the Commissioner u/s 264 - Exclusion of income declared under Income Declaration Scheme, 2016 ( IDS ) - declaration of Petitioner under the IDS was accepted - HELD THAT - Exercise of power under Section 264 was not subject to the power of the Assessing Officer to make adjustment under Section 143(1) of the Act. The Court held that power of the Commissioner under Section 264 is rather wide and even the errors committed could be rectified. Commissioner is bound to apply his mind to the question whether Petitioner's income was taxable and to what extent. Admittedly, amount payable under the IDS has been paid. Section 188 of the IDS provides that the amount of undisclosed income declared in accordance with 183 shall not be included in total income of the declarant for any assessment year for the Income-tax Act, if the declarant makes the payment of tax and surcharge referred to in Section 184 and the penalty referred to in Section 185, by the date specified under Sub-section 1 of Section 187. Petitioner having paid the tax and surcharge and the penalty with interest, amount of undisclosed income cannot be included in the income of the declarant/petitioner. Therefore, in our view, Commissioner should have exercised his power u/s 264 of the Act and decide the matter on merits. We hereby quash and set aside the impugned order dated 26th March, 2021 and remand the matter to Respondent No. 1 to decide the matter on merits. Before passing any order, Respondent No. 1 shall give personal hearing to Petitioner.

Summary

Issues involved:
The issues involved in this case are related to the Income Declaration Scheme, 2016 (IDS), default in payment of tax instalments, the power of the Central Government to specify class of persons for payment, condonation of delay, and the application of Section 264 of the Income-tax Act, 1961.

Issue 1: Default in payment of tax instalments under IDS
The petitioner had filed a declaration under the IDS but defaulted on the remaining two instalments. Due to this default, the declaration was deemed to have never been made under the IDS. The undisclosed income was then deemed chargeable to tax under the Income-tax Act, 1961. The petitioner filed a revised return of income after defaulting on the instalments.

Issue 2: Power of Central Government to specify class of persons for payment
A proviso was inserted in the Finance Act, 2016, allowing the Central Government to specify class of persons for payment of tax instalments after the due date. The Central Government issued a notification allowing individuals, including the petitioner, to pay the tax along with interest by a specified date. The petitioner utilized this opportunity to revive the declaration under the Scheme.

Issue 3: Condonation of delay and application of Section 264 of the Act
The petitioner moved an application under Section 264 of the Act after the time limit to file a revised return had expired. The Assessing Officer recommended condoning the delay, but refused to grant relief to the petitioner on the merits of the case. The petitioner argued for the exercise of power under Section 264 to rectify the situation, as the amount of undisclosed income had been paid under the IDS.

In the judgment, the High Court considered the provisions of Section 264 and the power available to the Commissioner to rectify errors and grant relief to the assessee. The Court referred to previous judgments highlighting the wide jurisdiction conferred under Section 264. The Court emphasized that the power under Section 264 is not limited to correcting errors committed by subordinate authorities but can also be exercised where errors are committed by assessees themselves.

The Court quashed and set aside the impugned order dated 26th March, 2021, and remanded the matter to Respondent No. 1 to decide on the merits. The Court directed that a personal hearing should be given to the petitioner before passing any order, and the order should be reasoned and address all submissions made by the petitioner. The Court instructed that the application should be disposed of within eight weeks.