Income Tax--Current Issues

Practice Update

CA V.K. Subramani

A CASE WHERE IN A REVISION UNDER SECTION 264 INCOME CAN BE FIXED LESS THAN ADMITTED IN ITR

Section 240 says that where as a result of any order passed in appeal or other proceeding under the Act, refund of any amount becomes due to the assessee, the assessing officer shall refund the amount to the assessee without any claim being made for it. The proviso to the section deals with 2 scenarios viz (i) where the order is passed after the assessment is set aside or cancelled and an order of fresh assessment is directed to be made and a refund becomes due on the making of such fresh assessment; and (ii) where the assessment is annulled and in which case the refund shall become due only of the amount of tax paid in excess of the tax chargeable on the total income admitted in ITR.

In Dinesh Vazirani v. Pr. CIT (2022) 445 ITR 110 (Bom) : 2022 TaxPub(DT) 2768 (Bom-HC) the assessee one of the co-promotors of a company became eligible for certain sum in respect of transfer of shares. Part of the amount was kept in escrow account and was not paid to the assessee. The assessee admitted the entire amount including his share of amount kept in escrow account as sale consideration on transfer of shares. The assessment was completed accepting the ITR filed. Later, a certain sum from escrow account was withdrawn and the assessee became eligible to receive a sum less than the amount admitted as sale consideration. As the time for filing revised return had lapsed, a petition under section 264 was filed.

Revision prayed under section 264 was rejected by CIT citing proviso to section 240 that the income cannot be fixed below the returned income. The court held that real income (capital gain) can be computed only by taking the actual/ real sale consideration. In this case, the after reducing the amount taken from escrow account. It rejected the contention of the Revenue that contingent liability paid out of escrow account does not affect the computation of capital gains under section 48 of the Act. The assessee could have salvaged his case by filing revised return but the time limit for the same had already expired. The CIT presumed that he does not have the power to reduce the income below what was admitted in the ITR.

The court held that the proviso to section 240 does cover a situation of annulment of assessment and determination of any refund arising thereon. It does not cover the scenario such as the present one where the income admitted and assessed being more than actual income and the assessee seeking refund of tax paid on excess income admitted and assessed earlier. It is thus what is not prevented by the statutory provision could be acted upon and the rationale of the decision in CIT v. Shoorji Vallabhdas & Co. (1962) 46 ITR 144 (SC) : 1962 TaxPub(DT) 0307 (SC) was applied.