Facts of the Case

The petitioner, Rites Limited, a Government of India undertaking engaged in technical consultancy services, made a provision for wage arrears amounting to ₹2.50 crores in the financial year relevant to Assessment Year (AY) 1997–98 pursuant to the recommendations of the 5th Pay Commission. However, since the formal government notification implementing the revised salary structure was issued on 4 March 1998, the Assessing Officer disallowed the claim for AY 1997–98 on the ground that the liability crystallized in AY 1998–99.

Although the appellate authority acknowledged that the claim could be considered in AY 1998–99, the petitioner had already filed its return for AY 1998–99 without claiming the deduction. Subsequently, the petitioner attempted rectification under Section 154 of the Income Tax Act, 1961, but the same was rejected. Appeals before the CIT(A), ITAT, and the High Court in the earlier round also failed on procedural grounds.

Thereafter, liberty was granted by the High Court to approach the Commissioner under Section 264 of the Act. The revision petition under Section 264 was filed, but the Commissioner rejected it on maintainability grounds, leading to the present writ petition.

 Issues Involved

  1. Whether the Commissioner of Income Tax can entertain a fresh claim for deduction under Section 264 of the Income Tax Act, even if such claim was not made in the original return or revised return?
  2. Whether the revisional jurisdiction under Section 264 extends to granting relief where the assessee has pursued an incorrect remedy earlier?
  3. Whether the decision in Goetze (India) Ltd. restricts the powers of the Commissioner under Section 264?

 Petitioner’s Arguments

  • The petitioner contended that the Commissioner failed to comply with the earlier directions of the High Court requiring consideration of the revision petition on merits.
  • It was argued that Section 264 confers wide revisional powers on the Commissioner to grant relief, even in cases involving fresh claims or mistakes detected after completion of assessment.
  • The petitioner emphasized that the genuineness of the wage arrears claim was not disputed and there would be no loss of revenue to the department.
  • Reliance was placed on judicial precedents recognizing the liberal and beneficial interpretation of Section 264, allowing relief even on new grounds.

Respondent’s Arguments

  • The Revenue argued that Section 264 could not be invoked where the assessment order had already been subject to appellate proceedings before the Tribunal.
  • It was contended that no fresh deduction claim can be entertained unless made through a revised return, relying heavily on the Supreme Court’s decision in Goetze (India) Ltd.
  • The respondent maintained that the Commissioner cannot indirectly allow what is impermissible directly under statutory provisions.

Court Findings / Observations

The Delhi High Court held that the Commissioner erred in rejecting the revision petition on technical grounds.

The Court clarified that:

  • Section 264 confers wide revisional powers upon the Commissioner for granting relief to an assessee.
  • There is no statutory embargo under Section 264 preventing the Commissioner from entertaining a new claim not raised before the Assessing Officer.
  • The restriction laid down in Goetze (India) Ltd. applies only to the Assessing Officer and does not curtail the revisional powers of the Commissioner or appellate authorities.
  • Where the assessee has pursued an incorrect remedy bona fide, technicalities should not defeat substantive justice.

The Court emphasized that beneficial provisions should receive liberal interpretation, especially where the claim is genuine and revenue-neutral.

Court Order / Final Decision

The Delhi High Court allowed the writ petition.

The impugned order passed by the Commissioner rejecting the revision application under Section 264 was set aside.

The Court directed that the revision application be treated as allowed on merits and ordered the Assessing Officer to recompute the tax liability for AY 1998–99 after allowing deduction for wage arrears arising out of the 5th Pay Commission recommendations.

Important Clarification / Legal Principle Settled

This judgment clarifies that:

The Commissioner under Section 264 of the Income Tax Act has independent revisional jurisdiction to entertain and allow even a fresh claim for deduction not made in the original return, provided such relief is justified on merits and is not prejudicial to the assessee.

It also limits the applicability of Goetze (India) Ltd. v. CIT strictly to assessment proceedings before the Assessing Officer.

Sections Involved

  • Section 264 – Revision of Orders
  • Section 154 – Rectification of Mistakes
  • Section 143(3) – Scrutiny Assessment
  • Article 226 of the Constitution of India – Writ Jurisdiction

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2017:DHC:3201-DB/SMD03072017CW53312014.pdf

 




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