Attitude ‘who cares for instructions or advice of the highest authority’ is very common when it comes about relief to be allowed to taxpayer. A discussion with reference to related issues and some judgments

[CA DEV KUMAR KOTHARI]

Some of relevant links and references:    

1. The CBDT Circular No.14 of 1955 dated 11.04.1955 – this must be followed by all tax authorities, unfortunately many CIT(A) also do not care and follow Circulars and deny relief to assessee.
2. Goetze (India) Limited Versus Commissioner of Income-Tax - 2006 (3) TMI 75 - SUPREME Court – as discussed ,  this judgment need a review and it should not be applied in case of e-ITR

3. Madhabi Nag Versus A.C.I.T., Circle-1, Bankura Asansol 2016 (1) TMI 684 - ITAT KOLKATA.- a claim for exemption not made in ITR but by way of rectification petition can also be considered.

Analysis of paragraph no. 3 of Circular dated 11.04.1955 - (highlights added):

           “Officers of the Department must not take advantage of ignorance of an assessee as to his right. 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 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 relief rests with assessee on whom it is imposed by law, officers should-

(a) draw their attention to any refunds or relief 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.”

Therefore, The CBDT being highest authority, vide S. 116 and 119, has long ago adopted taxpayer friendly approach, in the matter of allowing relief and benefits which are available to any assessee as per proceedings, documentsand details available in relevant records which include assessment records, appeal records, records relevant to any other petition or proceedings.

Ground reality:

There are very few tax authorities who work in desirable manner as per above circular or even otherwise as per duty of a public servant.

Many of tax authorities have attitude of considering themselves as a super power and tax payer or his representative as a very petty people.

Therefore unfortunately ground reality is entirely different. Many of tax authorities are not at all interested to allow even relief which has been claimed and is allowable for which all documents are also available in records before concerned authority. If a fraction of percentage is against assessee, in any manner and more than 99% situation is in favour of assessee, many tax authorities would prefer to deny the relief.

This is the reason that there is lot of litigation because tax authorities force tax payers to indulge into litigation to get relief.

From the circular : No. 14(XL-35), dated 11-4-1955.	Ground reality and observations of
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 assessees in matters affecting their interests and convenience. It appears that these instructions are not being uniformly followed.	AO: Attempt is generally made not to follow instructions and deny relief. In appeals generally followed, but many officers try to deny relief may be because they could not change mind set used to as AO.
2. Complaints are still being received that while Income-tax Officers 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 assessees under the Act. Dilatoriness or indifference in dealing with refund claims (either under section 48 or due to appellate, revisional, etc., orders) must be completely avoided so that the public may feel that the Government are actually prompt and careful in the matter of collecting taxes and granting refunds and giving reliefs.	Except the cases of system generated orders and refunds the experience is not good. Even in some system generated enquiry or  reports  delaying practices have been started by introducing CAPCHA code which does not work and again and again a new code appear and related page does not open. In physical cases the situation is still the same. High pitched assessment in scrutiny is order of the day.
(3) Officers of the Department must not take advantage of ignorance of an assessee as to his rights. 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 assessee 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.	The officers still take full advantage of ignorance of assesses. Taxpayer still feel lucky if the AO allows relief claimed by him without doubting and  harassing. Officers do not even want to follow judgments of the Supreme Court in hope that there will be a retrospective amendment. The judgment of the Supreme Court in case of Goetz India Ltd. is used frequently to deny relief not claimed in return, even if clearly allowable.
4. Public Relation Officers have been appointed at important centres, but by the very nature of their duties, their field of activity is bound to be limited.	It is very difficult to contact PRO and to get proper guidance.
The following examples (which are by no means exhaustive) indicate the attitude which officers should adopt :
(1) Section 17(1) of the 1922 Act [section 113 of the 1961 Act] - While dealing with the assessment of a non-resident assessee the 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.	Rarely
(2) 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 assessee’s notice the possibility of obtaining a certificate authorising 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.	Rarely
(3) 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.	Rarely
(4) 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 a proper application.	Rarely
(5) Section 33A of the 1922 Act [section 264 of the 1961 Act] - Cases in which the Income-tax Officer or the Assistant Commissioner thinks that an assessment should be revised, must be brought to the notice of the Commissioner of Income-tax.	We have seen many cases of  initiatives by AO for initiation of revision  proceedings u/s 263 but not a single one u/s 264,as per experience of many known assesses and practioners .
(6) 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.	Rarely a rectification in favor of assessee is made (Some times not even for set off of losses). Assessee has to file repeated petitions to keep it within time, though law provide that AO shall dispose-off rectification petition within six month.
(7) 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 sub-section should be reported to the Board.
5. While officers should, when requested, freely advice assessees 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.	It is very difficult and time consuming to get such opportunities. So these become theoretical.
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 emphasise that we should not take advantage of an assessee’s ignorance to collect more tax out of him than is legitimately due from him.	In most of cases, excessive tax paid is accepted. Even if later assessee claim refund, the refund may be denied on ground that it is admitted tax paid how you can claim refund without filing a revised return of income. There are lot of limitations if originally a relief is not claimed.

The above circular has been referred to by Tribunals and courts and relief has also been allowed keeping in mind the spirit of better tax administration and service to taxpayers and also binding nature of circular.

Binding nature of circular lose its significance because of disobedience of tax authorities. For this reason, relief is not allowed and assessee is forced to prefer appeals or other remedies.

 Recent case of exempted income not considered by AO and CIT(A)- restored by ITAT:

The case of Madhabi Nag (supra.) shows that tax authorities, including senior appellate authorities are having tendency to deny relief to assessee even if it results into wrong and illegal assessment of income. In this case by ignorance and mistake assessee could not claim exemption u/s 10.38 in relation to exempted long-term capital gains in the Return of Income. Assessee made a rectification petition, which was rejected by the AO for want of some information and documents and may be some other reasons like no claim in ROI ( it is not clear from reported judgment).

(from reported judgment) It is not clear whether AO asked assessee to furnish such details and documents, and whether reasonable opportunity was allowed or not) or any other ground to reject claim was taken by AO. This is because usually full details are not given in orders and order sheets are generally not placed before  tribunal. ( in this case there is no such mention)

On appeal the CIT(A) also rejected claim for the reason that claim was not made in ROI or revised ROI. The CIT(A) applied judgment in case of   Goetze (India) Ltd vs CIT [2006 (3) TMI 75 - SUPREME Court. To hold that a claim not made in ROI or by way of revised ROI cannot be entertained by AO. Unfortunately CIT(A) did not apply judgments of the Supreme court and High Courts that appellate authority can entertain a claim even if made for first time in some circumstances.

Appeal before Tribunal:

In above circumstances , the assessee had to approach, Tribunal by filing an appeal. The Tribunal considered all relevant facts, orders of the AO and CIT(A). The paragraph 6 of the order which contains reasoning and order of Tribunal is reproduced below (highlights added by author):

          6. I have heard the rival submissions. The CBDT Circular No.14 of 1955 dated 11.04.1955 has taken a view that the officers of the department must not take advantage of ignorance of the assessee about his rights and it is their duty to assist the tax payer in every reasonable way particularly in the matter of claiming and securing reliefs. In my view therefore the revenue authorities ought not to have rejected the application u/s 154 of the Act on the ground that the assessee has not filed the revised return of income. The CIT(A) has placed reliance on the decision of the Hon’ble supreme Court in the case of Goetz (India) Ltd. (supra) for sustaining the order of the AO u/s 154 of the Act. The Hon’ble Supreme Court in it’s decision rendered in the case of Goetze (India) Ltd vs CIT has clarified that the appellate authorities under the Act have the power to consider the claim even if the business** of the revised return of income. In my view, therefore, the claim of the assessee that Long Term Capital Gain is exempt u/s 10(38) of the Act has to be examined by the AO. It is seen from the order of AO u/s 154 of the Act that the AO wanted details of acquisition and proof of payment of STT. I therefore set aside the order of CIT(A) and remand the question of exemption of Long Term Capital Gain u/s 10(38) of the Act to the AO for fresh consideration. The assessee is directed to file necessary evidences before the AO to substantiate his claim.

**(sic. in absence)

Observations of author:

In this case if the AO had followed Circular, he could have considered the claim. It is not clear whether AO asked assessee to furnish such details and documents, and whether reasonable opportunity was allowed or not). However, as per general practice it is likely that the AO did not ask the assessee to furnish such details or documents by way of an effective and adequate opportunity.

The judgment relied on by CIT(A) is not applicable on him. He could have entertained the claim in view of judgments applicable in case of appellate authorities as well as the circular. However, adopting practice to deny relief, CIT(A) also dismissed appeal.

Had AO followed circular in right perspective and had he acted as a public servant, the matter would have been different and would have avoided litigation.

Judgment in case of Goetz India deserve to be reconsidered

In the judgment the Circular was not considered. Furthermore in view of complexity of law, and very short time available for filing ROI and revised ROI, it is very difficult to claim all relief by way of ROI. Penal provisions also make it difficult for assessee to prefer claim in ROI on contentious issues.

In the E-ITR forms there is no space provided for preferring further claims for consideration of the AO. Therefore, many times claims are not made in ROI.

An illustration of difficulty in claiming relief in ROI:

On contentious issues, there is always difficulty in making claim due to difference of opinion, different judgments prevailing, absence of precedence, difficulty in decision making by  management even after obtaining help of professionals and executives. Therefore, many times a claim is not made in computation in ITR but is made in physical computation sheet. However, in E-ITR it is not possible to make such further claims for consideration of the AO. Author advises and has a practice to file hard copy of computation, with further claims and explanations after filing of ITR so that a claim can be made that assessee had made a claim for consideration of the AO.

WDV in case of tea Companies:

Author at first reading of provisions of S.43 (6) some time in 1983, Circular relating to tea companies about investment allowance, development rebate, and  many judgments of the Supreme Court on issue of WDV and ‘depreciation actually allowed’  was convinced that only 40% of notional depreciation computed at prescribed rates  is actually allowed when taxable income is computed U/R 8. Therefore only 40% of notional depreciation should   be deducted from cost of block of assets to determine WDV for depreciation in next year.  However, many very senior executives of big tea companies and many senior counsels of tea companies had bias because they have been in practice of deducting entire amount from cost to determine WDV.

Author is grateful to his clients who reposed confidence in him, when he was a new entrant in profession, and preferred claim even when there was not a single precedence in case of tea companies claiming as per suggestion of author. Whereas, very senior tax executives and very senior counsels of some of big tea companies had virtually laughed off on the suggestion made by author. Some questioned   Mr. Kothari do you think you are only intelligent person? This was only because of deep rooted wrong notion and bias in mind.

Therefore, complexity of tax laws, is such that many of experts may not be able to claim all deductions and relief, sometime it is also due to set mind set to work in a particular way which deter them to have a fresh look on the subject and prefer claim. Another reason by which many experts also avoid making claim on new contentious issue is that if the case is lost, he will be blamed.

An important example, of people finding difficult to make a claim on new contention was in relation to WDV of block of assets, in case of tea companies. Long ago  ( in 1983) author, in case of his clients, had claimed that only 40% of depreciation notionally taken against composite tea income ( U/ R 8)  is  to be deducted from cost to determine WDV by deducting from actual cost, depreciation actually allowed i.e. 40% of notional depreciation. As per author the provision was very clear and well settled and claim so on his advice some of his clients claimed depreciation on corrected WDV. This was allowed by AO in some cases.

 In case of Suman Tea & Plywood Ind. P. Ltd, a case represented by author up to Tribunal, this issue was taken before CIT(A) but he did not allow, for reasons (a) not claimed before AO and also (b) not acceptable to him. Then on appeal of assessee Tribunal allowed the same. The view was confirmed by the Calcutta  High Court in    Commissioner Of Income-Tax Versus Suman Tea And Plywood Industries Pvt. Limited 1993 (8) TMI 65 - CALCUTTA High Court.