The Supreme Court has held that an assessee who failed to claim a particular benefit in the original self-assessment return and did not revise the return within the statutory period cannot subsequently seek to effectively revise the return through proceedings under Section 264 of the Income Tax Act, 1961. 

The bench of Justice J.B. Pardiwala and Justice K. Vinod Chandran ruled that it amounted to an impermissible attempt to revise the return under the guise of a revision proceeding.

The dispute arose after the assessee filed a return on the basis of self-assessment. The return was processed by the Centralised Processing Centre (CPC), Income Tax Department, Bengaluru, following which an intimation under Section 143(1) and a subsequent notice under Section 156 were issued, raising a demand for outstanding tax based on the return filed by the assessee. 

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The assessee thereafter invoked Section 264 of the Income Tax Act before the Principal Commissioner of Income Tax, seeking revision of the matter. However, the revision petition was rejected.

The Principal Commissioner took the view that there was unexplained delay and that the tolerance limits arising under Section 43CA were prospective. According to the Revenue’s position, the assessee was effectively attempting to revise its return after the prescribed period had expired by resorting to Section 264. 

The assessee subsequently approached the Bombay High Court. The High Court had remanded the matter for fresh consideration.

Before the Supreme Court, the Department argued that the demand had been raised strictly in accordance with the return filed by the assessee. It contended that the claim could not subsequently be introduced because the assessee had not filed a revised return within the prescribed statutory period. 

The assessee, on the other hand, defended the High Court’s order on the ground that the impugned decision was merely a remand and that all its contentions could be considered by the appropriate authority. 

The Supreme Court was not persuaded that a remand was permissible in the circumstances.

The Court noted that the assessee had admittedly filed its return on self-assessment and had not raised the relevant tolerance-limit issue in that return. Nor had the assessment been revised within the time prescribed under the Income Tax Act. 

The Bench consequently held that there could be no subsequent revision under Section 264 when doing so would effectively amount to revising the original return after the statutory period had expired.

The Court specifically observed that allowing such a course would constitute an attempt to “revise the return under the garb of a revision.”

The ruling draws an important distinction between a genuine revision proceeding under Section 264 and an attempt to introduce a fresh claim that was never made in the original return.

The Supreme Court’s reasoning makes clear that an assessee cannot bypass the statutory time limit for filing a revised return by subsequently invoking the revisional jurisdiction under Section 264. Where a claim was available to the assessee but was not made in the original return, the statutory mechanism and limitation governing revision of the return cannot simply be circumvented through Section 264 proceedings. 

During the hearing, counsel for the assessee submitted that a reassessment had subsequently been carried out pursuant to the High Court’s remand order.

The Supreme Court held that once the High Court’s remand order itself was set aside, any reassessment undertaken pursuant to that order would also lose its legal foundation. The Court described such reassessment as a dependent order and consequently held that it would have no effect. 

The assessee was therefore required to pay tax on the basis of the returns originally filed, on which the statutory intimation and demand had been issued. 

Importantly, the Supreme Court clarified that it was not deciding whether the tolerance limit under Section 43CA was retrospective or prospective.

The Court expressly stated that it had not entered into the substantive question concerning the temporal operation of the tolerance limit. The appeal was allowed on the narrower procedural issue concerning the assessee’s attempt to raise the claim through Section 264 after failing to make it in the original return or revise the return within the prescribed period. 

The Court’s signed order again recorded that the question of whether the tolerance limit would operate retrospectively or prospectively was left open. 

The Supreme Court ultimately set aside the Bombay High Court’s judgment and allowed the appeal to that extent.

As a consequence, the reassessment undertaken pursuant to the High Court’s remand was also rendered ineffective. The tax liability consequently remains governed by the return originally filed by the assessee and the demand raised on the basis of that return. 

The Court also recorded that the delay in filing the appeal was condoned and leave was granted before deciding the matter. 

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