Revenue cannot take advantage of mistake/ignorance of the assessee: Claim for housing loan interest and principal and Mediclaim u/s 24(b), 80C and 80D can be made vide rectification u/s154

[Vivek Jalan]

Chatterjee’s are making headlines. Mrs Chatterjee made headlines in the movie Mrs Chatterjee Vs Norway and now Mr Chatterjee may make headlines in a case which would certainly provide relief to many small assesses. Not very often do we witness assesses approaching the ITAT for Rs.1.2 Lakhs of deduction, but when they do, such cases may as well build important jurisprudence.

What do you do in case you forget to claim deduction for housing loan interest and principal and Mediclaim u/s 24(b), 80C and 80D resp., in the return and say even the time limit for filing revised return elapses. You may file a rectification u/s 154 of Income Tax Act as held by The Hon’ble ITAT Kolkata in the case of SHRI SANDIP CHATTOPADHYAY VERSUS ITO, WARD-37 (2) , KOLKATA - 2023 (11) TMI 1114 - ITAT KOLKATA

Merely because a claim for housing loan interest and principal and Mediclaim u/s 24(b), 80C and 80D resp., has not been made in the return of income, the same cannot be rejected by the AO. The revenue cannot take advantage of mistake/ignorance of the assessee. Circular No. 14 of 1955 dated 11.04.1955 issued by the CBDT states that the officers of the department must not take advantage of the ignorance of the assessee about his rights, and it is their duty to assist the taxpayer in every reasonable way particularly in the matter of claiming and securing relief. At the expense of making the article long, we are reproducing The Circular below –

“Administrative instructions for guidance of income tax officers on matters pertaining to assessment.

1. The Board have issued instructions from time to time in regard to the attitude which the Officers of the Department should adopt in dealing with assesses in matters affecting their interest and convenience. It appears that these instructions are not being uniformly followed.

2. Complaints are still being received that while 1TO's are prompt in making assessments likely to result into demands and in effecting their recovery, they are lethargic and indifferent in granting refunds and giving reliefs due to assesses under the Act. Dilatoriness or indifference in dealing with refund claims (either under s. 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are, prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs.

3. Officers of the Department must not take advantage of ignorance of an assessee as to his nights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the Department for it would inspire confidence in him that he may be sure of getting a square deal from the Department. Although, therefore, the responsibility for claiming refunds and reliefs rests with assesses on whom it is imposed by law, officers should-

(a) draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other;

(b) freely advise them when approached by them as to their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs.

4. Public Relations Officers have been appointed at important centres, but by the very nature of their duties, their field of activity is bound to be limited. The following examples (which are by no means exhaustive) indicate the attitude which officers should adopt.

 (a) Section 17(1) of the 1922 Act [section 113 of the 1961 Act] : While dealing with the assessment of a non-resident assessed officer should bring to his notice that he may exercise the option to pay tax on his Indian income with reference to his total world income if it is to his advantage.

(b) Section 18(3), (3A), (3B) and (3D) of the 1922 Act [sections 193, 197(1), 195(1), 195(2) and 194 of the 1961 Act]: The officer should in every appropriate case bring to the assesses notice the possibility of obtaining a certificate authorizing deduction of income-tax at a rate less than the maximum or deduction of super tax at a rate lower than the flat rate, as the case may be.

(c) Section 25(3) and 25(4) of the 1922 Act : The mandatory relief about exemption from tax must be granted whether claimed or not; the other relief about substitution, if not time barred must be brought to the notice of a taxpayer.

(d) Section 26A of the 1922 Act [sections 184 to 186 of the 1961 Act] : The benefit to be obtained by registration should be explained in appropriate cases. Where an application for registration presented by a firm is found defective, the officer should point out the defect to it and give it an opportunity to present proper application.

(e) Section 33A of the 1922 Act [section 264 of the 1961 Act] : Cases in which the ITO or the Asstt. Commissioner thinks that an assessment should be revised, must be brought to the notice of the CIT.

(f) Section 35 of the 1922 Act [sections 154 and 155 of the 1961 Act] : Mistakes should be rectified as soon as they are discovered without waiting for an assessee to point them out.

(g) Section 60(2) of the 1922 Act [sections 89(1) and 103 of the 1961 Act] : Cases where relief can properly be given under this subsection should be reported to the Board.

5. While officers should, when requested, freely advise assesses the way in which entries should be made in various forms, they should not themselves make any in them on their behalf. Where such advice is given, it should be clearly explained to them that they are responsible for the entries made in any form and that they cannot be allowed to plead that they were made under official instructions. This equally applies to the Public Relation Officers

6. The intention of this circular is not that tax due should not be charged or that any favour should be shown to anybody in the matter of assessment, or that where investigations are called for, they should not be made. Whatever the legitimate tax it must be assessed and must be collected. The purpose of this circular is merely to emphasize that we should not take advantage of an assesses ignorance to collect more tax out of him than is legitimately due from him.”

However, the other side would rely on the decision of the Hon’ble Supreme Court in the case of GOETZE (INDIA) LIMITED VERSUS COMMISSIONER OF INCOME-TAX - 2006 (3) TMI 75 - SUPREME COURT  wherein two issues were formulated                 

i. Whether the unclaimed deduction can be claim before the assessing authority without filing the revised return.  

ii. Whether the power of the appellate authority can allow the claim of duction which was not claimed in the return of income.

The issue was settled by considering that the appellate authority has coterminous power to accept the deduction which was not claimed in ITR. In case the assessee submits all relevant documents; the claim should be accepted.