Even if the powers of the AO are restricted in the matter of allowance of expenditure in the absence of a revised return, there is no impediment or limit to the exercise of revisional power by the Commissioner to correct the errors committed by the subordinate authorities or those committed by the assessee. This position is clearly highlighted by Gujarat High Court in [2018] 402 ITR 479 (Guj) where it held that the expression “any order” in section 264 has wide enough scope to do the two form of acts.
The partner of the petitioner firm wrongfully claimed certain expenses such as audit, travelling, car depreciation, car petrol, etc., against her share of profit from the partnership. The AO issued show cause for disallowance in view of section 14A scheme. To mitigate such action the partner during assessment made an alternative plea seeking such deduction for the firm by stating that
“However you are of the view that the below expenses is not allowable in the hands of the assessee and are allowable in the firm itself so you are herewith requested to please allow the following expenses against the total income of the firm”.(unquote)
Further to this the assessee emphatically stated that it is not willing to go for further litigation and to purchase mental peace seek deduction of expenses in the firm.
In this case, the error is squarely committed by the AO and a total mess was created in this case due to improper exercise of power by both AO and CIT as both partner and Firm were forced into separate avoidable litigation.