Facts of the Case

The petitioner/assessee filed a writ petition challenging the order dated 05.03.2021 passed by the Principal Commissioner of Income Tax (PCIT), whereby the application under Section 264 of the Income Tax Act, 1961 was rejected.

The assessee had received an intimation under Section 143(1) but failed to claim set-off of losses amounting to ₹36,66,650 arising from Futures and Options (F&O) transactions, which were part of non-speculative business activity.

Subsequently, the assessee filed a revision application under Section 264 seeking correction of this omission, contending that the loss should have been set off against business income. However, the PCIT rejected the application stating that the intimation was not prejudicial to the interest of the assessee.

Issues Involved

  1. Whether the PCIT can exercise revisional jurisdiction under Section 264 of the Income Tax Act to correct an omission made by the assessee.
  2. Whether failure to claim set-off of eligible losses constitutes a situation warranting revision under Section 264.
  3. Whether the condition of “prejudice to the assessee” restricts the scope of revisional powers under Section 264.

Petitioner’s Arguments

  • The petitioner argued that Section 264 grants wide revisional powers to the PCIT to revise any order (except those covered under Section 263).
  • It was contended that the omission to claim set-off of F&O losses was inadvertent and capable of correction under Section 264.
  • Reliance was placed on judicial precedents including:
    • Vijay Gupta vs Commissioner of Income Tax (Delhi High Court, 2016)
    • Aafreen Fatima Fazal Abbas Sayed vs ACIT (Bombay High Court, 2021)
  • It was emphasized that revisionary jurisdiction can be exercised even when the error originates from the assessee.

 Respondent’s Arguments

  • The Revenue contended that revisional jurisdiction under Section 264 can only be exercised when the order is prejudicial to the assessee.
  • Since the intimation under Section 143(1) was not prejudicial, the PCIT was justified in rejecting the application.

However, during proceedings, the Revenue fairly conceded that the matter required reconsideration in light of binding precedents.

Court Findings / Order

  • The Delhi High Court held that the PCIT committed a material irregularity in refusing to exercise jurisdiction under Section 264.
  • It clarified that:
    • Section 264 empowers the PCIT to correct errors even if they arise due to the assessee’s mistake.
    • The objective of the provision is to ensure that correct taxable income is assessed.
    • If a lawful deduction or set-off is available but not claimed due to inadvertence, it can be corrected through revision.
  • The Court set aside the impugned order and directed the PCIT to re-examine the application on merits.

Important Clarifications by the Court

  • Revisional powers under Section 264 are beneficial in nature and should be interpreted liberally.
  • The focus should be on determining real income in accordance with the Act.
  • Even errors committed by the assessee can be rectified if they affect lawful tax computation.

Sections Involved

  • Section 264 – Revision of orders prejudicial to the assessee
  • Section 143(1) – Intimation after processing return
  • Section 263 – Revision of orders prejudicial to revenue (distinguished)

 Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS25092023CW59062022_160250.pdf

 Disclaimer

This content is shared strictly for general information and knowledge purposes only. Readers should independently verify the information from reliable sources. It is not intended to provide legal, professional, or advisory guidance. The author and the organisation disclaim all liability arising from the use of this content. The material has been prepared with the assistance of AI tools.