Delay In Approaching Revision Authority Under Income Tax Act Can't Be Condoned: Kerala High Court

The Kerala High Court has held that the delay in approaching the revision authority under the Income Tax Act cannot be condoned.

The bench of Justice A.K. Jayasankaran Nambiar and Justice Syam Kumar V.M. has observed that it was the same aspect of delay or limitation that prevented the Department from re-assessing the income of the appellant for the assessment years 2004–2005 and 2005–2006, respectively.

The bench found that during the years the appellant had declared the profit on the sale of shares as capital gains and had obtained the benefit of a lower rate of tax on the said income, and the department was unable to reassess the said income as business income solely on account of the limitation provisions under the statute. As far as the appellant assessee is concerned, he too did not choose to file the revision petitions immediately after learning of the assessment order for the assessment years 2006–2007 and 2008–2009, when the department had changed its stand and insisted on the assessment of the profits from the sale of shares as business income.

The appellant/assessee has challenged the orders of the Commissioner of Income Tax that rejected the revision petitions moved by the appellant for revising the assessments for the years 2007–2008 and 2009–2010 under the Income Tax Act.

The appellant is a Securities and Exchange Board of India (SEBI)-registered portfolio manager engaged in the business of rendering portfolio management services to its clients. It is also an assessee under the Income Tax Act, which has been filing returns and has been subjected to assessment for various assessment years.

During the assessment years 2004–2005 and 2005–2006, the appellant returned a net profit on the sale of shares and declared the profit as capital gains for the purposes of payment of income tax. The returns were accepted by the Department, and, in the absence of any scrutiny assessments, the assessments under Section 143(1) of the Income Tax Act attained finality. For the assessment year 2006–2007, the appellant also returned the net profit from the sale of shares as capital gains.

However, although the department originally accepted the return, it was subsequently reopened, along with the assessment for the years 2008–2009, and the assessments were completed by treating the profits as business income for the purposes of the Income Tax Act.

In the meantime, for the assessment years 2007–2008 and 2009–2010, the appellant suffered a loss on transactions involving the sale of shares. The assessee had declared a capital loss in the returns. The returns were accepted by the department under Section 143(1). In view of the inconsistent stand taken by the department, the assessment for the years 2006–2007 and 2008–2009, which assessed the profits of the appellant as profits of business for the purposes of income tax, was challenged by the appellant up to the High Court but did not meet with any success since the Court confirmed the orders of the Income Tax Authorities. A further appeal preferred by the appellant before the Supreme Court is pending consideration.

On receiving the First Appellate Authority's order for the assessment years 2006–2007 and 2008–2009, which confirmed the assessment against the appellant by treating the profit from the sale of shares as business income, the appellant filed revision petitions in relation to the assessment years, when it had actually suffered a loss, for treating the losses as business losses that could be carried forward by the appellant in future years.

The appellant contended that, inasmuch as the Department had treated the profits from the sale of shares as business income for the assessment years 2006–2007 and 2008–2009, it was only logical and in the interest of uniformity in taxation that the Department treated the losses on the sale of shares as business losses for the purposes of the Income Tax Act.

The revision petitions, however, were dismissed by the revision authority by orders primarily on the ground of delay. The revision authority also found that the intimation under Section 143(1) could not be treated as an order that was amenable to revision under Section 264 of the Income Tax Act. In the Writ Petition, the appellant had impugned orders of the revision authority on the contention that the Department could not be permitted to vacillate between two heads of income for the purposes of taxing income of the same nature for different assessment years. The contention, in other words, was that in order to ensure uniformity in taxation and fairness to an assessee, it was incumbent upon the Income Tax Department to treat income of the same nature similarly for taxation during the various assessment years in question.

The Single Judge found that the revision authority could not be faulted for rejecting the revision applications on the ground of delay, more so when there was no explanation by the appellant for the delay in preferring the revision application against the intimation orders that were served on the appellant much earlier. The Writ Petition was, therefore, dismissed by the Single Judge.

The assessee contended that it would be grossly unfair to an assessee if the Department was permitted to vacillate between two heads of income for the purposes of taxation in different assessment years, depending entirely on whether the assessee in question had returned a profit or a loss. The delay that was occasioned in impugning the intimation for the assessment years 2007-2008 and 2009-2010 was solely on account of the fact that they were pursuing the appeal proceedings against the orders of the assessing authority for the assessment years 2006-2007 and 2008-2009, where similar income was treated as business income for the purposes of taxation.

The department contended that if uniformity in the matter of taxation is insisted upon, then there would be no justification whatsoever for denying the revenue an opportunity to revise the assessments for the years 2004–2005 and 2005–2006, during which years the appellant assessee had declared the profit on the sale of shares as capital gains, and the same was accepted by the department. The assessments for those years could not be reopened only because of the limitations prescribed under the statute. Since the Department is prevented from re-opening those assessments only on account of a statutorily prescribed period of limitation, the appellant assessee cannot be conferred with an undue advantage by permitting it to revisit the assessments for the assessment years 2007–2008 and 2009–2010.

The court, while upholding the decision of the Single Bench, held that to condone the delay and permit the appellant to re-visit the concluded assessment for the assessment years 2006–07 and 2008–09 would tantamount to conferring an unfair advantage to the appellant while denying an advantage to the revenue.

Counsel For Appellant: P.K.Ravisankar

Counsel For Respondent: Jose Joseph

Citation: 2024 LiveLaw (Ker) 366

Case Title: Equity Intelligence India Pvt. Ltd Versus PCIT

Case No.: WA NO. 1611 OF 2023

Click Here To Read The Order