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Claim in Return is a must
[Submitted by CA. Dev Kumar Kothari,
B.Com, Grad.CWA, ACS, FCA,
Kolkata]
April 11, 2007
Claim in return is a must some tips for manner to prefer further claims
and suggestion to amend law to allow further claims of assessee so as to
ultimately compute correct income, wealth or other tax base.
The Supreme Court has held that a claim made otherwise than in the
return or a revised return, simply by way of a letter for claim cannot be
entertained by the assessing authority. Some claim which may involve
litigation, preferably may not be claimed in the main computation part but
by way of additional claims for consideration of the assessing officer, so
that the assessee retain his rights of such claims to be adjudicated by
assessing authority and in case of need by appellate authorities. The
assessee can avoid worry about additional liabilities of penalty. An
amendment in law is desirable to permit additional claims by way of
letters.
Judgment of the Supreme Court:
In case of Goetz India Ltd. v. CIT, (2006) 284 ITR 323(SC), the
assessee did not make some claims in the computation of income and the
return filed before the assessing officer on 30.11.1995 (revised return)
for assessment year 1995-96. Assessee merely made a further claim vide a
letter filed with the assessing officer claiming certain deductions, which
were not claimed in the return of income. The assessing officer disallowed
the claim for the reason that there was no provision in the Income-tax
Act, 1961 to permit the assessee to make an amendment in the return
without a revised return. The Tribunal as well as the High Court confirmed
the order of the AO, the assessee preferred an appeal before the Supreme
Court and the Supreme Court also dismissed the appeal holding that a claim
not made in original return can not be claimed by way of letter before the
assessing officer and the assessing authority has no power to entertain a
claim for deduction otherwise than by a revised return.
Therefore, now it is settled that if assessee wants to make a claim, he
must prefer the claim in the return or in a revised return. Mere filing of
letter before the assessing officer will not be sufficient and on that
ground alone the assessee may loose the relief.
Significance of return:
Return is the primary document in which the assessee expresses his
computation of the subject matter like income, wealth, expenditure, sales
etc. The return is basis upon which the assessing officer proceeds to
assess the assessee. Therefore, the return is foundation about initiation
of assessment proceedings when a return has been filed. The assessee can
make his claims in the return of income, as he may considers fit, proper
and bona fide at the time of filing of the return.
Complexity of law and play safe approach:
Due to complexity, ambiguity and uncertainty of law, there are many
claims which assessee wants to prefer with a caution. To avoid extra
burden, by way of tax, interest and penalty, which may arise if the claim
is not allowed, the assessee may choose not to claim the deduction in main
computation and pay tax without making deduction for such item. However,
unless a claim is made in the return (or a revised return) it cannot be
considered by the assessing officer.
The original return is best place to put all claims:
The best way to claim any relief is to make a claim in the original
return. A claim can be made by way of revised return, subject to
compliance of applicable conditions like that the original return should
have been filed within time permissible originally e.g. in case of return
of income the original return should have been filed within time allowed
u/s 139(1) then only a revised return can be filed within prescribed time
and before completion of assessment.
Many times one may think to file a revised return after clearance of
some doubts or on gaining more confidence about such claim. However, once
a return is filed, one may be busier in other work and may miss the
opportunity to file revised return. Therefore, at lease claims for
consideration by the A.O. can be made in the original return itself so
that it can be pressed.
Suggested way to claim in case of doubtful claims:
As noted above, in view of judgment of the Supreme Court, it is
necessary that the claim must be preferred in the return or revised
return. Therefore, in case of such claims which one want to make with a
play safe attitude, the following course of action may be adopted: -
A. The Return is without prejudice:
On the cover of the return and on the acknowledgment "WITHOUT
PREJUDICE", should be written.
Below the computation it should be mentioned that the above computation
of income is without prejudice to the following further claims for
deductions, benefits and advantages, which are, as per assessee
admissible, but have not been claimed in the computation due to disputes
raised by the revenue.
B. Claims for consideration of the assessing officer
In addition to the computation as given above, the learned assessing
officer is requested to consider the following claims which have not been
made in the computation to play safe, and because of difference of
opinions. Please allow proper relief:
a) Normal depreciation on new electrical generators costing Rs. one
crore has been claimed at general rate of 15% amounting to Rs.15 lakh
instead of 80% allowable as per the judgment of Rajasthan High Court in
the case of CIT V Agarwal Transformers P. Ltd (2002) 258 ITR 251. Please
consider allowing 80% depreciation and allowing further relief of Rs.65
lakh.
b) Interest on loan taken from a bank has not been claimed in the
above computation because the suit filed by the bank is still pending
before the court. In earlier year the CIT (A) / Tribunal has allowed
such interest. However, the appeal of the Revenue is pending before the
Tribunal / High Court. Please allow further deduction of Rs.
c) Deductions of provident fund, ESI has not been made as payment was
made after 15th April but before the due date for filing of the return.
In view of several decisions of the Tribunal and decision of the CIT (A)
in assesses own case, rendered on this aspect and in view of amendment
in section 43B, these payments may be allowed.
d) The estimated disallowance of interest and administrative expenses
has been made u/s 14A in respect of tax-free income earned by way of
dividend and long-term capital gain. However, it is submitted that
shares and securities were acquired in the course of share trading
business few years ago and when the nature was changed from stock to
investment they were transferred to investment account. Therefore,
capital was borrowed for purchasing shares and securities as a
stock-in-trade. Furthermore, even investment activity is an adventure in
nature of commerce and therefore though shares and securities held as
investment are capital assets of the business. Just like fixed assets
used in business, shares and securities are also capital assets of the
business of investment. Therefore, interest and administrative expenses
are necessary business outgo and may be fully allowed while computing
business income.
Claims in respect of such items which have a chance of being disallowed
by the assessing officer can properly be claimed before the assessing
officer in computation itself or below the computation and thereafter if
the assessing officer does not consider the same or considers but
disallows, the assessee can prefer a rectification petition, appeal or
revision petition as may be found suitable.
C. A general clause for consideration of the AO
Below the computation following general clauses in form of prayer may
be given:
We have made the computation of income as per our understanding and
as advised by our tax consultant. We have made some claims for your kind
consideration as noted above. However, there may be some more relief,
benefit, and advantage allowable to us, which we have not claimed due to
ignorance. We request you to kindly allow us all admissible relief,
benefit, advantage so as to compute our income and our tax liability
correctly and also to work out the amount of refund and interest
allowable to us correctly.
Revised return may be filed
A revised return can be filed within prescribed circumstances and
within prescribed limitation. For example under the Income Tax-tax Act,
1961 a revised return can be filed only if the original return has been
filed within the due date under section 139(1). A belated return cannot be
revised. Therefore, if there are certain claims, which have not been
preferred in the original return, the assessee may file revised return of
income to claim such claims by way of making a claim in the computation
itself or by making claim for consideration of the assessing officer as
additional claims.
The CIT (A) has power co-terminus with assessing officer-
a new twist is likely to take place:
Earlier, generally the Commissioner (Appeals) / ITAT used to consider
claims on merit, even if some claims were preferred before the A.O. by way
of letters during course of hearing before the A.O. However, after the
above judgment of the Supreme Court in case of Goetz, it may be difficult
to press a claim even before the CIT (A), unless there was a claim in the
return filed before the A.O. Because the CIT (A), having power co-terminus
with the A.O., can very well take a view that what the A.O. cannot
consider, cannot be considered by the CIT (A) as well. Therefore, it
becomes necessary that at least in some way claim must be found in the
return or accompanying documents to claim such further claims which the
assessee wants to press but do not want to make in computation itself to
avoid chances of disallowance and consequent liability of tax, interest
and penalty proceedings.
Earlier rulings on powers of CIT (A) and ITAT:
Earlier rulings on powers of the CIT (A) in Jute Corporation of India Ltd.
v. CIT, (1991) 187 ITR 688(SC) power of ITAT in case of National Thermal
power Co. Ltd. v. CIT (1998) 229 ITR 383 (SC), also suggests that they
have power to consider a claim on additional matters only if some material
is found in the assessment record. In recent decision in case of Goetz
(supra.) the Supreme Court has specifically mentioned that their decision
is about power of the A.O. and not of power of the ITAT. Therefore, the
Supreme Court held that " However, we make it clear that the issue in this
case is limited to the power of the assessing authority and does not
impinge on the power of the income-tax Appellate Tribunal under section
254 of the Income tax Act, 1961."
The decision about powers of the CIT (A) in case of Jute Corporation
has not been mentioned and considered by the Supreme Court in the case of
Goetz.
In case of Jute corporation, the CIT (A) was held to have power to
entertain a legal claim (for liability of sales tax based on ruling of
supreme court in case of Kedarnath Jute 82 ITR 383 (SC)) which was not
considered by the A.O. {it is not clear whether a claim was made or not
before the A.O. in the return of income.}. It was held that the CIT (A)
has all the powers, which the A.O. had on the assessment, and CIT (A) can
consider what the A.O. has omitted to consider. This means there was some
material before the A.O. to consider the claim but the A.O. omitted to or
failed to consider. When the A.O. cannot consider a claim, if not made in
the return, it seems extremely doubtful, whether CIT (A) will consider
such claim after the judgment in Goetz case.
Amendment is desirable to permit additional claims:
Tax laws are very complex, even Supreme Courts judgments may not be
final- in a review petition, larger bench may change the law, or an
amendment may be made. Provisions for interest and penalty are severe. In
such circumstances, most of the assessee would prefer to adopt 'play safe'
approach. Returns are by and large accepted. After filing of return some
relief may come to knowledge of the assessee, but by that time limit to
file a revised return might have lapsed. In such circumstances the
assessee must be given some way to prefer claims and to get back excessive
tax paid. Therefore, some simple provisions for preferring claims by way
of rectification petition should be brought in the tax laws.
Conclusions:
In view of the law laid down by the Supreme Court in Jute Corporation
read with Goetz India Ltd. as discussed above, it is likely that if a
claim is not made before the assessing officer in the return of income or
revised return of income, the CIT (A) may not entertain any additional
claim. Therefore, to avoid controversy it is necessary that there must be
claim in the original return or revised return validly filed before the
assessing officer. There is no specific manner prescribed or restriction
as to manner of making a claim in the return otherwise than making a claim
in computation it self, therefore, claims made by way of notes to the
computation or otherwise in the return will be sufficient to press the
claims before the assessing officer failing which before the appellate
authorities or revisionary authorities.
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