Suo Moto Disallowance Made By Assessee Under Bonafide Belief Of Tax Liability Can Be Rectified U/S 264 Of Income Tax Act Without Amending ITR: Delhi HC

The Delhi High Court has held that an application for revision under Section 264 of the Income Tax Act, 1961 can be preferred by an assessee who makes suo motu disallowance in its Return of Income (RoI/ ITR), under a bonafide yet mistaken belief that the same was liable to be offered for taxation.A division bench of Justices Yashwant Varma and Harish Vaidyanathan Shankar added that the assessee cannot be denied relief merely on the ground that the application was moved without amending the RoI.It observed, “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.”In the case at hand, an amount of ₹4,75,00,000/- was paid by the petitioner on account of reimbursement of expenses incurred by its Associate Enterprise.At the time of furnishing its ITR, Petitioner proceeded on the assumption that since the aforesaid remittance was liable to be subjected to tax and no tax thereon had in fact been deducted, it would be liable to be disallowed. Accordingly, the petitioner suo moto disallowed the same and added the remittance back in its computation of income.Subsequently, it was found that the remittance would in fact not be liable to tax at all in light of the India-Australia Double Taxation Avoidance Agreement.The Principal Commissioner proceeded to dismiss the application on the ground that the petitioner had neither revised its RoI nor sought any certification of the remittance not being chargeable to tax as is contemplated under Section 195 of the Act. Section 195 envisages an inquiry being undertaken consequent to a remitter taking the position that the sum paid is not chargeable to tax under the Act.Granting relief to the petitioner, 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.”It relied on Vijay Gupta v. Commissioner of Income Tax (2016), where a coordinate bench of the Court held that there is nothing in section 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 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 held.Taking note of the above, the Court held that an assessee could invoke the power conferred by Section 264 in order to rectify a mistaken stand taken earlier and where it may have offered income to tax even though the law placed no such liability. Accordingly, the Court directed the Commissioner to consider the revision application afresh.Appearance: Mr. Ved Jain, Mr. Nischay Kantoor, Ms. Soniya Dodeja, Mr. Divyansh Dubey and Mr. Govind Gupta, Advs for Petitioner; Mr. Debesh Panda, SSC along with Ms. Zehra Khan, JSC, Mr. Vikramaditya Singh, JSC, Mr. K. Sri Aditya, Adv and Ms. Anauntta Shankar, Adv for RespondentsCase title: M/S SMEC India (P.) Ltd. v. Principal Commissioner Of Income Tax – 8Citation: 2025 LiveLaw (Del) 136Case no.: W.P.(C) 9969/2019 Click here to read order

Suo Moto Disallowance Made By Assessee Under Bonafide Belief Of Tax Liability Can Be Rectified U/S 264 Of Income Tax Act Without Amending ITR: Delhi HC

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