Facts of the Case

The assessee, a medical professional employed at King George’s Medical University, originally filed a return declaring income of ₹9,48,020 and claiming refund of excess TDS. Subsequently, on advice of counsel, he filed a revised return declaring NIL income by treating salary received (₹13,53,019) as scholarship exempt under section 10(16).

The case was selected for scrutiny to examine reduction of income and refund claim. Due to non-response, the Assessing Officer completed a best-judgment assessment under section 144, treating the entire amount as taxable salary income and initiating penalty proceedings.

The assessee filed an appeal before the CIT(A) with a delay of 173 days, attributing the delay to negligence of his earlier counsel who neither complied with notices nor informed him about filing requirements. The CIT(A) refused to condone the delay and dismissed the appeal in limine.

 Issues Involved

  1. Whether delay in filing appeal due to counsel’s negligence constitutes sufficient cause for condonation.
  2. Whether dismissal of appeal without adjudicating merits violates principles of natural justice.
  3. Whether statutory deductions must be allowed even if not claimed in a revised return.
  4. Whether tax can be collected in excess of legally permissible liability.

 Petitioner’s Arguments

The assessee submitted that he relied entirely on his previous counsel and was unaware of non-compliance with notices and failure to file appeal. He later engaged a new counsel who promptly filed the appeal.

He further argued that the revised return treating salary as scholarship was filed under mistaken advice and requested that the original return be considered. It was also contended that even if the exemption claim failed, statutory deductions—such as standard deduction, housing loan interest, and deductions under Chapter VI-A—should be allowed.

Respondent’s Arguments

The Revenue supported the orders of the lower authorities, contending that the assessee failed to demonstrate bona fide reasons for delay and did not comply with assessment proceedings.

Court Order / Findings (ITAT Allahabad)

The Tribunal observed that the delay resulted from misleading advice and negligence of the earlier counsel rather than deliberate inaction by the assessee. Relying on principles laid down by the Supreme Court in Collector, Land Acquisition vs. Mst. Katiji, it emphasized that courts should adopt a liberal approach where refusal to condone delay would defeat substantial justice.

On Assessment of Income and Allowance of Deductions

The Tribunal noted that the Assessing Officer assessed the entire salary without granting statutory deductions because the revised return had claimed exemption rather than deductions.

Invoking Article 265 of the Constitution, the Tribunal emphasized that tax can be levied only in accordance with law. If deductions are legally allowable, they must be granted even if not claimed earlier, subject to proof.

 Direction for Fresh Adjudication

The matter was restored to the Assessing Officer with directions to:

  • Allow standard deduction under section 16(ia)
  • Examine eligibility for deduction of housing loan interest under section 24(2)
  • Consider deductions under sections 80C and 80D
  • Reassess income after verification of supporting evidence

 Important Clarification

The Tribunal clarified that procedural lapses or erroneous claims in a revised return cannot justify taxation beyond what is legally due. Authorities must ensure that only lawful tax is collected, and substantive justice must prevail over technical defaults.

Link to download the order -  https://www.mytaxexpert.co.in/uploads/1771065265_ANURAGJAISWALLUCKNOWVS.ITO21ALLAHABAD.pdf

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