Delhi HC: Assessee Can Seek Revision U/S 264 for Suo Motu Disallowance Made Due to a Bona Fide Mistake

The Delhi High Court, an application for revision u/s 264 of the Income Tax Act, 1961 can be chosen by a taxpayer who makes suo motu disallowance in its Return of Income (RoI/ ITR), under a bonafide yet mistaken belief that it was accountable to be offered for taxation.

The assessee cannot be prohibited from relief only on the ground that the application was moved without amending the RoI, a division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar cited.

It noted that, “Merely because certain income or receipt may have been mistakenly offered to tax, the same would not be conclusive if it were found and established that the same was not chargeable at all. The said principles would equally apply to the suo moto disallowance which the petitioner had made under the bona fide and yet mistaken belief that the same was liable to be offered for taxation. The said stand, in our considered opinion, could not have been negated merely because the RoI had not been amended.”

Concerning the case an amount of ₹4,75,00,000/- was paid by the applicant for reimbursement of expenses made by its Associate Enterprise.

During income tax return filing the applicant proceeded on the presumption that as the above-mentioned remittance was obligated within tax and no tax thereon has in fact been deducted, it shall be obligated to be disallowed. As per that the application suo moto disallowed it and added the remittance back in its income calculation.

It was determined that remittance would in fact not be obligated for tax at all under the India-Australia Double Taxation Avoidance Agreement.

Based on the reason that the petitioner had neither revised its RoI nor sought any certification of the remittance not being chargeable to tax as is contemplated u/s 195 of the Act, the Principal Commissioner proceeded to dismiss the application.

An inquiry being performed under section 195 consequent to a remitter taking the position that the sum paid is not chargeable to tax under the Act.

Granting relief to the applicant, the High Court observed, “expounding upon the scope of the power which the Commissioner could have exercised under Section 264…(it) was clearly not imperative for the petitioner to have amended its RoI…an assessee could be taxed only in respect of such part of its total income as was exigible under the Act.”

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It relied on Vijay Gupta v. Commissioner of Income Tax (2016), where a coordinate bench of the Court carried that there is nothing in section 264, that places any limitation on the revisional power of the Commissioner to give relief to the taxpayer in a case where the taxpayer detracts mistakes because of which he was over-assessed 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 section 264(1). When the substantive law confers a benefit on the assessee under a statute, it cannot be taken away by the adjudicatory authority on mere technicalities,” it was carried.

Considering the above note the Delhi High Court ruled that a taxpayer can invoke the authority validated under section 264 to improve a mistaken stand opted before and where it may have proposed the income tax even though the statute placed no such obligation.

As per that, the court asked the commissioner to acknowledge the revision application afresh.