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Rites Limited Vs. Commissioner Of Income Tax, Delhi-V
July, 27th 2017
$~
*        IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           W.P.(C) 5331/2014
                                        Reserved on: 24th May, 2017
                                        Date of decision: 3rd July, 2017
         RITES LIMITED                                   ..... Petitioner
                            Through: Mr. R.P. Garg with Mr. K.N. Ahuja,
                            Advocates.

                            Versus

         COMMISSIONER OF INCOME TAX, DELHI-V ..... Respondent
                     Through: Mr. Dileep Shivpuri, Senior standing
                     counsel with Mr. Sanjay Kumar, Junior standing
                     counsel.

CORAM:
JUSTICE S.MURALIDHAR
JUSTICE CHANDER SHEKHAR
                                  JUDGMENT
%                                  03.07.2017
Dr. S. Muralidhar, J.
1. The Petitioner, Rites Limited, has filed the present petition under Article
226 of the Constitution challenging the order dated 24th March 2014 passed
by the Respondent, Commissioner of Income Tax (`CIT'), rejecting its
application under Section 264 of the Income Tax Act, 1961 (`Act').

2. The facts in brief are that the Petitioner, Rites Limited, is a Government
of India Undertaking engaged in the business of providing technical
consultancy services in India and abroad. It is stated that pursuant to the
recommendation of the 5th Pay Commission in respect of revised salary with



    W.P. (C) 5331 of 2014                                          Page 1 of 11
effect from 1st January 1996, the Petitioner made a provision of wages
arrears in the books of Financial Year (`FY') relevant to the Assessment
Year (`AY') 1997-98 in the sum of Rs. 2,50,00,000.

3. However, since the relevant notification giving effect to the Pay
Commission recommendations was issued only on 4th March 1998, the
Assessing Officer (`AO') disallowed in AY 1997-98 the claim in respect of
the revised salary. This disallowance was upheld by the CIT(A) in AY 1997-
98 confirming the action of the AO on the ground that the notification dated
4th March 1998 was relevant to AY 1998-99. Significantly, the CIT(A)
observed that the claim could be considered in AY 1998-99. However, by
the time the order of the CIT(A) was issued, the assessment for AY 1998-99
was complete, and in the return filed for the said AY, no claim for provision
for arrears of wages was made.

4. To complete this narration it must be noticed that on 26th November 1998
the Petitioner filed its return of income for the AY 1998-99 declaring a total
income of Rs. 23,50,62,778.

5. On 14th March 2001, the assessment order for the AY 1998-99 was made
by the AO under Section 143(3) of the Act at the total income of Rs.
23,95,62,720. On 21st March 2001, the Petitioner made an application under
Section 154 of the Act before the AO for allowing the deduction in respect
of the revised pay. This request was rejected more than eight years thereafter
on 21st October 2009 on the ground that the claim was not based on entries
in the books of accounts of the AY in question and since the claim was
debatable.



 W.P. (C) 5331 of 2014                                             Page 2 of 11
6. By order dated 10th December 2010, the CIT(A) dismissed the consequent
appeal filed by the Petitioner holding that that the claim could not be
allowed by way of rectification in a proceeding under Section 154 of the
Act. The CIT(A) referred to the decision of the Supreme Court in Goetze
India Limited v. Commissioner of Income Tax (2006) 284 ITR 323 and
held that a claim not made in the original return could not be made
subsequently during assessment proceedings by way of letter.

7. The Income Tax Appellate Tribunal (`ITAT') also dismissed the further
appeal filed by the Petitioner against the aforementioned order. In its order
dated 21st October 2011, the ITAT held the claim to be time barred. Further,
a claim not made before the AO could not give rise to a mistake apparent on
the record.

8. The further appeal filed by the Petitioner before this Court being ITA No.
370 of 2012 was disposed of by the Division Bench on 4th September 2012
as under:
      "It is evident from the above discussion that the Assessee pursued the
      wrong remedy and also omitted to make a claim, by sheer
      inadvertence, or make any mention of the notification which was a
      material and relevant fact, in the return filed on 227th August 1998.
      These wrong remedies have taken almost a decade and led the
      Assessee to approach this Court. The Court is satisfied that the
      question of law sought to be urged i.e. jurisdiction of the income tax
      authorities under Section 154 does not arise in the circumstances of
      the case. However, the above observations are not conclusive of the
      matter. This Court is aware of the fact that the Assessee was bound to
      follow and implement the directions as a consequence of the
      notification dated 4th March 1998. Its misfortune was that this
      material was not revealed to the authorities at the appropriate stage.



 W.P. (C) 5331 of 2014                                            Page 3 of 11
      That was compounded by seeking wrong remedies i.e. through
      rectification, having regard to the law. In those circumstances then the
      Assessee may have to approach the Commissioner of Income Tax, in
      respect of the original assessment order framed in March, 2001 in the
      present case under Section 264 of the Act. The revision application
      should be considered on its merits having regard to the peculiar facts
      and circumstances of this case and the fact that the appellant pursued
      a wrong remedy for the period from 2001 till date, if the appellant
      approaches the CIT under Section 264 within a month. Liberty to file
      an application under Section 264 is granted. The appeal is disposed of
      in the above terms."

9. On the basis of the above observations, the Petitioner filed an application
before the CIT(A) under Section 264 of the Act on 27th September 2012.
The Additional CIT Range-15 in a report dated 5th February 2014 stated that
there was no dispute about the genuineness of the claim and that there was
no loss of revenue.






10. By the impugned order dated 24th March 2014, the CIT(A) rejected the
application filed by the Petitioner under Section 264 of the Act. The CIT(A)
held that the Petitioner had not claimed the deduction in respect of provision
for wage arrears by revising the return for AY 1998-99. Therefore, the issue
did not emanate from the assessment order. A reference was made by the
CIT(A) again to the decision of the Supreme Court in Goetze India (supra)
and the order dated 17th October 2012 of the Orissa High Court in Review
Petition No. 8 of 2012 arising out of Writ Petition (Civil) No. 4554 of 2011
(Orissa Rural Housing Development Corporation Ltd. v. ACIT (2014) 44
Taxman.com 341 (Orissa)).

11. This Court has heard the submissions of Mr. R.P. Garg, learned counsel




 W.P. (C) 5331 of 2014                                             Page 4 of 11
for the Petitioner and Mr. Dileep Shivpuri, learned Senior standing counsel
for the Revenue.

12. Mr. Garg submitted that the entire approach of the CIT(A) in the
impugned order was contrary to the directions issued by this Court in its
decision dated 4th September 2012 in ITA No. 370 of 2012. This was despite
the AO in its remand report dated 5th February 2014 confirming the
genuineness of the claim and pointing out that there would be no loss of
revenue if the claim were to be allowed. Section 264 of the Act as such did
not provide for any period of limitation for making such claim. Reliance was
placed inter alia on the decisions in Smt. Phool Lata Somani v.
Commissioner of Income Tax (2005) 276 ITR 216 (Cal), and Ramdev
Exports v. Commissioner of Income Tax (2002) 120 Taxman 315 (Guj). In
particular, a reference was made to the decision to decisions in C. Parikh &
Co. v. CIT (1980) 122 ITR 610 (Guj) and Assam Roofing Limited v. CIT
(2014) 43 Taxman.com 316 (Gauhati).

13. Mr. Garg submitted that there was nothing under Section 264 of the Act
which placed any restriction on the CIT's revisional power to give relief to
the Assessee in a case where the Assessee detected a genuine mistake after
the assessment was completed. Reference was also made to the decision in
Smt. Sneh Lata Jain v. CIT (2004) 192 CTR 50, Parekh Brothers v. CIT
(1984) 150 ITR 105 (Ker) and CIT v. Sam Global Securities Limited (2014)
360 ITR 682 (Del). Mr. Garg sought to distinguish the decision of the Orissa
High Court in Orissa Rural Housing Development Corporation Ltd
(supra). In support of the proposition that a beneficial provision is to be




 W.P. (C) 5331 of 2014                                           Page 5 of 11
liberally construed, Mr. Garg placed reliance on the decisions in CIT v.
Naga Hills Tea Co. Limited (1973) 89 ITR 240 (SC) and Bajaj Tempo
Limited v. CIT (1992) 196 ITR 188 (SC). It was submitted that the matter
concerning revised wages was part of the assessment record. The power
under Section 264 was not restricted to the material available on record of
the AO alone. Reliance was placed on the decision in CIT v. Shree
Manjunatheswar Packing Products & Camphor Works (1998) 231 ITR 53.

14. Mr. Shivpuri, on the other hand, submitted that Section 264 was not
applicable in the case where the assessment order had been the subject
matter of an appeal before the ITAT. Reliance was placed on the decision in
Hindustan Aeronautics Limited v. CIT (2000) 243 ITR 808 (SC). It was
further submitted that there is no provision in the Act which allows the
entertaining of a fresh claim for deduction not made by the Assessee in the
original return or even by filing a revised return. Reliance was again placed
on the decision in Goetze (India) Limited (supra). He submitted that the CIT
was bound to function within the frame work of the statute. He cannot
indirectly permit that which cannot be permitted directly in the revisionary
jurisdiction in the facts and circumstances of the case. Reliance was placed
on the decision in Orissa Rural Housing Development Corporation
(supra).

15. The above submissions have been considered. As regards the
preliminary objection on the maintainability of the present petition under
Article 226 of the Constitution when the remedy of challenging the decision
of the AO by way of an appeal has been exhausted, the Court is of the view




 W.P. (C) 5331 of 2014                                            Page 6 of 11
that the Petitioner went before the CIT with a petition under Section 264 of
the Act only pursuant to the leave granted by this Court in its order dated 4th
September 2012, the relevant part of which has been extracted above. It is
not, therefore, open to the Revenue to raise a preliminary objection as to
maintainability.

16. The impugned order of the CIT appears to have ignored the history of
the litigation leading to the filing of the revision petition. The Petitioner has
already exhausted the remedies that were available to it. In light of the order
of this Court disposing of the Petitioner's appeal in the first round, the CIT
ought to have considered the claim of the Petitioner on merits. The
Petitioner's revision petition under Section 264 of the Act ought not to have
been dismissed on a mere technicality.

17. In C. Parikh & Co. v. CIT (supra), the Gujarat High Court observed as
under:
         "It is clear that under Section 264, the Commissioner is empowered to
         exercise revisional powers in favour of the Assessee. In exercise of
         this power, the Commissioner may, either of his own motion or on an
         application by the Assessee, call for the record of any proceeding
         under the Act and pass such order thereon not being an order
         prejudicial to the Assessee, as the thinks fit. Sub-sections (2) and (3)
         of s. 264 provide for limitation of one year for the exercise of this
         revisional power, whether suo motu, or at the instance of the
         Assessee. Power is also conferred on the Commissioner to condone
         delay in case he is satisfied that the Assessee was prevented by
         sufficient cause from making the application within the prescribed
         period. Sub-section (4) provides that the Commissioner has no power
         to revise any order under s. 264(1) : (i) while an appeal against the
         order is pending before the AAC, and (ii) when the order has been
         subject to an appeal to the Income-tax Appellate Tribunal. Subject to




 W.P. (C) 5331 of 2014                                               Page 7 of 11
      the above limitation, the revisional powers conferred on the
      Commissioner under s. 264 are very wide. He has the discretion to
      grant or refuse relief and the power to pass such order in revision as
      he may think fit. The discretion which the Commissioner has to
      exercise is undoubtedly to be exercised judicially and not arbitrarily
      according to his fancy. Therefore, subject to the limitation prescribed
      in s. 264, the Commissioner in exercise of his revisional power under
      the said section may pass such order as he thinks fit which is not
      prejudicial to the Assessee.

      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 within the power of the Commissioner of admit
      such a ground in revision."

18. Likewise, the Kerala High Court in Parekh Brothers v. CIT (supra)
observed:
      "We hold, that even though a mistake was committed by the Assessee
      and it was detected by him after the order of assessment, and the order
      of assessment is not erroneous, none the less it is open to the Assessee
      to file a revision before the Commissioner under Section 264 of the
      Act and claim appropriate relief. But it should not be forgotten that
      the power to be exercised under Section 264 is a revisionary one. The
      limitations implicit in the exercise of such power are well known. The
      jurisdiction is discretionary; Whether in a particular case, on the basis
      of facts disclosed, the Commissioner will exercise his jurisdiction and
      interfere in the matter, is a matter of discretion. It is certainly a
      judicial discretion vested in the Commissioner, to be exercised in
      accordance with law. We are not called upon to pronounce on the
      scope and amplitude of the revisional power. The only question




 W.P. (C) 5331 of 2014                                             Page 8 of 11
       mooted for our consideration in this case is whether the
       Commissioner has got revisional jurisdiction at all, where the
       Assessee having included the income for assessment, can claim the
       relief of weighted deduction under Section 35B of the Act, for the
       first time, in a petition filed under Section 264 of the Act. On that
       aspect of the question, we have no doubt in our mind that the
       Commissioner has jurisdiction to entertain a revision petition under
       Section 264 of the Act."

19. In Sneh Lata Jain v. CIT (supra), the High Court of Jammu & Kashmir
followed the above decisions and observed that in its revisionary jurisdiction
the CIT has the power to call for the record of any proceedings under this
Act and is also entitled to make any enquiry himself or cause any inquiry to
be made and to pass such order as he thinks fit.






20. In the present case, therefore, the mere fact the Petitioner did not make
any claim in the original return and also in its revised return before the
passing of the assessment order by the AO would not stand in the way of the
CIT exercising revisionary jurisdiction to grant relief. The Supreme Court in
its decision in Goetze India Limited v. Commissioner of Income Tax
(supra) held that while the AO could not permit a claim to be made after the
filing of the return without the Assessee revising it prior to the assessment
order, it did not impinge on the scope of the revisionary jurisdiction of the
CIT.

21. The decision in Orissa Rural Housing Development Corporation
(supra) is distinguishable on facts. In the instant case, the order of the
CIT(A) in the first round for AY 1997-98 itself recognized that the
Petitioner could claim the deduction for provision for the arrears of revised




 W.P. (C) 5331 of 2014                                            Page 9 of 11
wages in the subsequent AY 1998-99. The observations in Goetze India
Limited (supra) were explained by this Court in Sam Global Securities
Limited (supra) where in para 8 it held that "wherein deduction claimed by
way of a letter before the Assessing Officer, was disallowed on the ground
that there was no provision under the Act to make amendment in the return
without filing a revised return. Appeal to the Supreme Court, as the decision
was upheld by the Tribunal and the High Court, was dismissed making clear
that the decision was limited to the power of the assessing authority to
entertain claim for deduction otherwise than by a revised return, and did not
impinge on the power of the Tribunal."

22. Further, in CIT v. Mithlesh Impex (2014) 46 taxman.com 30 it was
clarified that the decision of the Supreme Court in Goetze India Limited
(supra) is confined to the powers of the AO. However, "when it comes to
the power of Appellate Commissioner or the Tribunal, the Courts have
recognized their jurisdiction to entertain a new ground or a legal
contention."

23. Consequently, the Court is satisfied that in the present case, the CIT
erred in rejecting the revision application of the Petitioner on the ground of
maintainability. The CIT ought to have entertained the revision petition on
merits.

24. One possible consequential direction is to remand the revision
application of the Petitioner to the file of the CIT for a fresh decision on
merits. However, considering that the issue has been pending for a number
of years, remanding the matter to the CIT would only delay the proceedings



W.P. (C) 5331 of 2014                                            Page 10 of 11
further. Consequently, the Court is of the view that there is sufficient
material on record already, which is not disputed by the Revenue, to grant
relief to the Petitioner on merits in the present petition itself.

25. The Court directs that the revision application filed before the CIT
should be treated as having been allowed on merits. Consequently, while
setting aside the impugned order of the CIT dated 24th March 2014, the
Court allows the revision petition filed by the Petitioner before the CIT and
directs the AO now to give effect to this order by computing the tax liability
of the Petitioner for the AY 1998-99 after allowing the claim for provision
made for wages arrears as per the 5th Pay Commission which became
effective on 1st January 1996.

26. The writ petition is disposed of in the above terms with no orders as to
costs.




                                                           S.MURALIDHAR, J



                                                     CHANDER SHEKHAR, J
JULY 03, 2017
Rm




W.P. (C) 5331 of 2014                                                Page 11 of 11

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