
Once the time to file a revised tax return is over, you often realise that a tax deduction or exemption was not claimed in the original tax return. In such a case, if you approach the tax officer, they will raise their hand. You cannot file an appeal with CIT(Appeal).
So, what is the solution in such a case? This post discusses the solution to such a problem and guides you on how to claim a tax deduction that you forgot to claim in your tax return & time to file a revised return is over. In my opinion, you may apply u/s 264 to request the Commissioner of Income Tax to invoke the power under section 264 of the Income Tax Act to pass an appropriate order modifying the total income.
What is the usual time for claiming a tax deduction you forgot to claim?
The usual time for claiming tax deduction is up to the due date of filing a tax return. But if you forgot and your tax return has not been processed u/s 143(1) by CPC, Banglore, you can file a revised tax return as per section 139(5) of the Income Tax Act three months before the end of the relevant assessment year.
(5) If any person, having furnished a return under sub-section (1) or sub-section (4), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before three months prior to the end] of the relevant assessment year or before the completion of the assessment, whichever is earlier.
For example, say you filed a tax return for Asst Year 2021-22 on 30.07.2021. So, if you want to revise, you have time up to 31st December 2021 or the date of processing by CPC, whichever is earlier. Therefore, the usual time to claim a deduction is up to time for filing a revised tax return u/s 139(5) of the Act.
Claiming tax deduction after time for revised tax return is over
The Income Tax Act is completely silent on such a situation.
The solution came from Courts that held that an application for revision of income in such a situation could be made if the application was filed u/s 264 before the Commissioner of Income Tax. Since no circular or instruction or anything written in the Income Tax Act tells the commissioner to entertain an application by a taxpayer facing such a problem, Commissioners often reject the application u/s 264 on the ground that no return revising the income was filed within due time.
However, various high courts have held that the non-filing of the revised return by the taxpayer could not have been the grounds for rejecting the claim of legitimate deduction or exemption. Courts have held that even if the powers of the Assessing Officer are restricted in the absence of any revised return, nothing prevented the Commissioner from examining the issue and if need be, having further enquiries made on the application by the taxpayers. Here are relevant case laws.
Section 264 for claiming tax Deductions
Various High Courts have held that the commissioner of the Income Tax Act has the power of revision under section 264, under which he/she can allow any deductions or expenses that the Assessee forgot to consider while computing total income even when the assessment order was made and the said claim was not raised or not entertained by the assessing officer.
Here are four high court decisions that clarify the whole issue and the legal position on following usual objections by CIT while disposing of the application u/s 264 of the Income Tax Act.
- The application u/s 264 is not entertainable because the assessment order is as per tax return and not erroneous.
- The CIT cannot rectify the assessee’s mistake of not claiming deduction or expense while computing total income for the return.
1. Mumbai High Court – Geekay Security Services(P.)Ltd. vs DCIT, Circle-3(1)(2)
The Hon’ble Mumbai High Court was considering a case in which the facts were that the assessee’s return was accepted without scrutiny under section 143(1) of the I.T. Act. The assessee found out that it had forgotten to claim deduction u/s 36(1)(va) for the employee’s contribution of PF deposited belated but before the due date of filing the return. Since the return was not scrutinised, the assessee could not persuade the Assessing Officer to allow the deduction. After the processing was completed, the assessee filed a revision petition before the Commissioner under section 264 and requested that the assessee be granted the benefit of the expenditure since it was duly established on facts and in law.
The Commissioner dismissed the revision petition on the grounds that neither the claim was made in the original return nor any revised return was filed.
When the assessee filed a writ petition against the said order of the Commissioner, the Hon’ble High Court held in favour of the assessee by setting aside the order of CIT and holding as under :
The Commissioner was not correct in refusing to exercise assessee’s claim on merits. Since the Commissioner has not examined the merits of the assessee’s case, the revision petition is placed back to the Commissioner for disposal on merits. It is noticed that all payments towards employee’s contribution to the PF were made before the due date of the filing of the return. If that be so, surely, the Commissioner would be guided by the decision of this Court on the relevant issue namely – CIT v. Ghatge Patil Transport Ltd. 368 ITR 749. [Para 10] wherein it was held that held that Section 43B is applicable to both employees’ and employer’s contributions
Mumbai High Court relied on the decision of Gujarat High Court in C. Parikh & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224 (Guj.), in which the Court considered the scope of the powers of the Commissioner under Section 264 of the Act.
In the said case, after the assessment was completed, the assessee discovered that a mistake had been committed in its books of account in totalling the purchases as a result of which the assessee had under-totalled the purchases and on account of this, the gross profit of the assessee had gone-up.
When the Commissioner refused to allow the assessee to correct such a mistake, the issue reached the High Court.
The Court observed that the powers u/s 264 of the I.T. Act are very wide. Subject to the limitation prescribed in the section itself, the Commissioner, in the exercise of his revisional powers, could pass such order as he thinks fit, which is not prejudicial to the assessee.
7. …………..There is nothing in s. 264 which places any restriction on the Commissioner’s revisional power to give relief to the assessee in a case where the assessee detracts mistakes on account of which he was over-assessed after the assessment was completed. We do not read any such embargo in the Commissioner’s power as read by the Commissioner in the present case. It is open to the Commissioner to entertain even a new ground not urged before the lower authorities while exercising revisional powers. Therefore, though the petitioner had not raised the grounds regarding under-totalling of purchases before the ITO, it was with in the power of the Commissioner of admit such a ground in revision. The Commissioner was also not right in holding that the over-assessment did not arise from the order the assessment. Once the petitioner was able to satisfy that there was a mistake in totalling purchases and that there was under-totalling of purchases to the tune of Rs. 20,000, it is obvious that there was over-assessment. In other words, the assessment of the total income of the assessee is not correctly made in the assessment order and it has resulted in over-assessment. The Commissioner would not be acting de hors the I.T. Act, if he gives relief to the assessee in a case where it is proved to his satisfaction that there is over-assessment, whether such over-assessment is due to a mistake detected by the assessee after completion of assessment or otherwise. In our opinion, the Commissioner has misconstrued the words “subject to the provisions of this Act” in s. 264(1) and read a restriction on his revisional power which does not exist. The Commissioner was, therefore, not right in holding that it was not open to him to give relief to the petitioner on account of the petitioner’s own mistake which it detected after the assessment was completed. Once it is found that there was a mistake in making an assessment, the Commissioner had power to correct it under s. 264(1). In our opinion, therefore, the Commissioner was wrong in not giving relief to the petitioner in respect of over-assessment as a result of under-totalling of the purchases to the extent of Rs. 20,000.[Read full decision ]
2. Kerala High Court: Parekh Bros. v. CIT [1984] 150 ITR 105/[1983] 15 Taxman 359,
The Division Bench of Kerala High Court, referring to and relying upon the judgment of Gujarat High Court in the case of C. Parikh & Co.C. Parikh & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224 (Guj.), observed that the powers of the Commissioner under Section 264 are wider than under section 263 and not confined to correcting the erroneous orders. It was held that deduction not claimed during assessment proceedings or appeals can be considered by CIT on an application under section 264 of the Act.
3. Gujarat High Court in Digvijay Cement Co. Ltd. v. C.B. Rathi, CIT [1994] 210 ITR 797/75 Taxman 355 (Guj.)
In this case, the assessee had not claimed a weighted deduction on certain expenditures before the Assessing Officer, carrying a belief that no such deduction could be claimed. In the appeal before the Appellate Commissioner, no such claim was made; therefore, the Appellate Commissioner did not examine such claim. In further appeal before the Tribunal, this question did not arise. The assessee filed a revision petition before the Commissioner under Section 264 of the Act claiming the deduction, but which revision petition was rejected by the Commissioner. The High Court held that the Commissioner should have entertained the claim and decided it on merits. The High Court referring to and relying upon the decision of this Court in the case of C. Parikh & Co. C. Parikh & Co. v. CIT [1980] 122 ITR 610/4 Taxman 224 (Guj.), held thus:-
“In the alternative, it was submitted that the assessee not having made any claim before the Income Tax Officer, there was no order of the Income Tax Officer in this behalf and, therefore, section 364 could not have been invoked by the assessee. What was submitted was that a revision application would lie only against the order of the Income Tax Officer and if there was no order of the Income Tax Officer with respect of the claim made before the Commissioner, the revision would not be maintainable. We are concerned in this case with the order of assessment and not with any other type of order. What in fact the assessee did by filing the revision application before the Commissioner was to challenge the order of assessment on the ground that it was erroneous. It may be that the error was committed not by the Income Tax Officer but by assessee and that error was detected by the assessee later on. But that certainly cannot preclude the assessee from challenging the order of assessment on the ground that the order was erroneous inasmuch as, under the law, deduction under Section 35B ought to have been granted to the assessee. The power of revision under Section 264 cannot be restricted to such erroneous orders which have become erroneous as a result of some error committed by the Income Tax Office while passing the orders. Independently of any decision or absence of any decision on the part of the Income Tax Officer, the order of assessment can be challenged but also by the Income-tax Officer. Even in such a case, the order of assessment can be challenged by filing a revision application before the Commissioner. Therefore, even this contention raised on behalf of the Revenue deserves to be rejected.”
4. Delhi High Court Vijay Gupta v. CIT [2016] 386 ITR 643/238 Taxman 505/68 taxmann.com 131,
The Division Bench of Delhi High Court observed that the powers conferred upon a Commissioner under Section 264 are very wide. The Commissioner is bound to apply his mind to whether the assessee was taxable on a particular income. Section 264 uses the expression ‘any order’. It would imply that the section does not limit the power to correct errors committed by the subordinate authorities but could even be exercised where the assessee commits errors. There is nothing in section 264 that restricts the Commissioner’s revisional power to give relief to the assessee in a case where the assessee detects mistakes after the assessment is completed, and because of this, he is over-assessed. The objection of the Commissioner was therefore rejected.
A similar view has also been expressed by the Delhi High Court in the case of Rites Ltd. v. CIT [2017] 83 taxmann.com 267 and by the Madras High Court in the case of Sri Selvamuthukumar v. CIT [2017] 394 ITR 247/246 Taxman 185/79 taxmann.com 113.
Conclusion
It is possible to rectify such a mistake by applying u/s 264 of the Income Tax Act. But, be prepared to file the cases to the High Court as, despite so many case laws in this regard, personal experience suggests that CITs may not entertain such application u/s 264 simply because they fear for their career.