2024 (8) TMI 55 - HC - Income Tax

Revised return submitted enhancing the declared income - revisions on the basis of a sum being attributable to activities of its Liaison office in India and in respect of actual sales made to the Delhi Metro Rail Corporation according to the writ petitioners, were necessitated in light of the settlement which had been arrived at with the respondents in earlier years - AO while framing an order of assessment on 31 December 2008 refused to accept the aforesaid declarations and thus chose not to proceed in accordance with the settlement which had been alluded to. According to the view expressed by the AO in the order impugned before us, the grant of relief as claimed by the petitioner would clearly result in the income chargeable to tax falling below the threshold as declared in its Return of Income. HELD THAT - Any doubt which could have possibly been harboured in this respect in any case stands laid to rest bearing in mind the recent judgment rendered by the Supreme Court in Wipro Finance Ltd. 2022 (4) TMI 694 - SUPREME COURT As would be evident from a reading of paragraph 10 of the report, an identical objection appears to have been raised on behalf of the Revenue with it being contended that since the assessee had taken a particular position with respect to an item of expenditure in the return, not only was the Tribunal disentitled in law to entertain a fresh claim, the same in any case could not have been taken into consideration for the purposes of according relief to the assessee. While ordinarily an assessee may be bound by the Return of Income as furnished, in case the Tribunal were to admit a question and proceed to accord relief, the same cannot be denied or be made subject to a Return of Income being revised. The insistence of the respondents on a revision of the return being a precondition clearly fails to take into consideration the plenary powers which stand conferred upon the Tribunal by virtue of Section 254 of the Act. In light of our conclusions on the principal question which stood posited, we observe that the challenge to the Circular of the CBDT does not really merit further consideration. All that need be observed is that once the Tribunal had called upon the AO to examine the issue afresh, the said direction could not have been disregarded by reference to a Circular issue by the CBDT. We accordingly allow the writ petitions and quash the final assessment orders dated 30 November 2021 insofar as they negate consideration of the additional grounds which had been urged by the writ petitioners. The AO shall consequently consider the same and pass fresh orders in accordance with law. We, in light of the above, also quash the consequential demand and penalty notices also dated 30 November 2021.

Summary

Issues Involved:
1. Validity of the Assessing Officer's reliance on CBDT Circular No. 549 dated 31 October 1989.
2. Applicability of the Supreme Court judgment in Commissioner of Income Tax vs. Sun Engineering Works (1992).
3. Legality of the final assessment order dated 30 November 2021.
4. Consideration of additional grounds raised by the petitioner.
5. Powers of the Tribunal and the Assessing Officer in light of revised returns and additional claims.
6. Implications of the Supreme Court's decision in Goetze (India) Ltd. Vs. Commissioner of Income Tax.
7. Impact of the Tribunal's directions on the Assessing Officer's assessment.

Detailed Analysis:

1. Validity of the Assessing Officer's reliance on CBDT Circular No. 549 dated 31 October 1989:
The Assessing Officer (AO) relied on CBDT Circular No. 549 dated 31 October 1989, which stated that "assessed income shall not be less than returned income." The AO used this circular to reject the petitioner's additional claims that would reduce the assessed income below the returned income. The court noted that this circular was based on the provisions of Section 143 as they stood in 1989, which have since been amended. The amendments to Section 143(3) now allow for the possibility of refunds upon assessment, rendering the circular outdated and inapplicable to the current statutory framework.

2. Applicability of the Supreme Court judgment in Commissioner of Income Tax vs. Sun Engineering Works (1992):
The AO also relied on the Supreme Court's judgment in Commissioner of Income Tax vs. Sun Engineering Works (1992), which held that an assessee cannot claim re-computation of income or redo an assessment to allow a claim that was not initially made. The court found that this reliance was misplaced, as the Sun Engineering judgment pertains to Section 147, which deals with reassessment, and not to the scenario where the Tribunal has directed a fresh examination of claims.

3. Legality of the final assessment order dated 30 November 2021:
The final assessment order dated 30 November 2021, which followed the draft assessment order, was challenged by the petitioner. The court noted that this order was passed despite interim stay orders and was accompanied by demand and penalty notices. The court found that the final assessment order and the accompanying notices were not in compliance with the Tribunal's directions and thus quashed them.

4. Consideration of additional grounds raised by the petitioner:
The petitioner raised several additional grounds before the Commissioner of Income Tax (Appeals) [CIT(A)], which were dismissed. These grounds included errors in taxing purchases while taxing sales, exclusion of turnover from export of goods, and the status of the Indian subsidiary as a Permanent Establishment (PE). The Tribunal had directed the AO to re-examine these grounds, but the AO dismissed them citing the CBDT Circular. The court held that the AO should have considered these additional grounds as per the Tribunal's directions.

5. Powers of the Tribunal and the Assessing Officer in light of revised returns and additional claims:
The court emphasized the plenary powers of the Tribunal under Section 254 of the Income Tax Act, which allow it to entertain new grounds and claims even if they were not part of the original return. The court cited several precedents, including National Thermal Power Co. Ltd. v. CIT and Jute Corporation of India Ltd. v. CIT, to support this position. The court clarified that the Tribunal's directions must be followed by the AO, and the AO cannot disregard these directions by citing procedural limitations such as the need for a revised return.

6. Implications of the Supreme Court's decision in Goetze (India) Ltd. Vs. Commissioner of Income Tax:
The court referred to the Supreme Court's decision in Goetze (India) Ltd., which held that an AO cannot entertain a claim for deduction without a revised return, but this limitation does not apply to the Tribunal. The court noted that the Tribunal has the authority to admit new claims and direct the AO to re-examine them, even if these claims were not part of the original return.

7. Impact of the Tribunal's directions on the Assessing Officer's assessment:
The court concluded that the AO was bound to follow the Tribunal's directions to re-examine the additional grounds raised by the petitioner. The AO's reliance on the outdated CBDT Circular and the Supreme Court's judgment in Sun Engineering was incorrect. The court quashed the final assessment order dated 30 November 2021 and the accompanying demand and penalty notices, directing the AO to pass fresh orders in accordance with the Tribunal's directions.

Conclusion:
The court allowed the writ petitions, quashing the final assessment orders dated 30 November 2021 and the consequential demand and penalty notices. The AO was directed to re-examine the additional grounds raised by the petitioner and pass fresh orders in accordance with the Tribunal's directions. The court emphasized the plenary powers of the Tribunal and clarified that the AO must comply with the Tribunal's directions, irrespective of procedural limitations.