Balish Singh and Co. vs Commissioner of Income Tax

Suhas Chandra Sen, J.—The Tribunal has referred to the following question of law u/s 256(1) of the income tax Act, 1961 (''the Act):

Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessments made by the income tax Officer on 26-2-1970 and 15-2-1974 respectively for the two years under reference were not barred by limitation?

The relevant assessment years are the assessment years 1964-65 and 1970-71 and the corresponding accounting years ended on 15-11-1963 and 9-11-1969, respectively. 2. The assessee is a registered firm.

The facts as found by the Tribunal are as under:

For the years under reference, the assessee did not file its returns of income as contemplated u/s 139(1) of the Act nor did the assessee was required to file its returns of income as contemplated u/s 139(2). On 10-9-1965 and 17-8-1970, the assessee suo motu filed its first set of returns of income respectively, for the two years under reference which were not accompanied by profit and loss account and balance sheet as required under the Act and the Rules made thereunder. Thereafter, on 30-3-1969 and 22-2-1973, the assessee filed second set of returns respectively, for the two years under reference which were accompanied by the profit and loss account and balance sheet, Since the first set of returns filed on 10-9-19C5 and 17-8-1970 were not accompanied by profit and loss account and balance sheet, the ITO ignored the same and completed the assessment on 26-2-1970 and 15-2-1974 on the basis of the second set of returns filed by the assessee on 30-3-1969 and 22-2-1973, respectively, for the two years under reference.

On appeal before the AAC it was contended on behalf of the assessee that the ITO should not have ignored the first set of returns which were filed on 10-9-1965 and 17-8-1970 and if that contention of the assessee was accepted, then the assessments made by the ITO on 26-2-1970 and 15-2-1974 were time barred and deserved to be cancelled. The AAC in his orders, held that since both the returns were filed beyond the time stipulated in sub-section (1) of section 139 and since no notice under sub-section (2) of section 139 was issued on the assessee requiring it to file its returns of income for the years under reference, the ITO was justified in treating all the returns as returns filed u/s 139(4). He, however, was of the view that the ITO should not have ignored the first set of returns which were filed on 10-9-1965 and 17-8-1970 and since the assessments for the years under reference were made on 26-2-1970 and 15-2-1974, respectively, the same were clearly barred by limitation. He, accordingly, cancelled the assessment orders of the ITO dated 26-2-1970 and 15-2-1974.

The Tribunal further held:

On the plain reading of the aforesaid provisions we have no doubt in our mind that an assessee, like the one with which we are concerned in the present appeal, has to attach the profit and loss account and the balance sheet with the return of income. Since the assessee in the present case had not attached the profit and loss account and the balance sheet in the first return filed on 17th August, 1970 the income tax Officer, in our opinion, was perfectly justified in ignoring the said return as no return. In our view, the only valid return was the one which was filed on 22nd February, 1973 which was accompanied by the profit and loss account and the balance sheet. As the income tax Officer has completed the assessment on 15th February, 1974, i.e., before the expiry of one year from the date of the filing of a valid return, the Appellate Assistant Commissioner was not justified in holding that the assessment was bound by limitation. We accordingly set aside the order of the Appellate Assistant Commissioner under appeal and restore that of the income tax Officer.

There were certain miscellaneous proceedings before the Tribunal which are not relevant for the purpose of the present reference.

The assessee has come up on reference against the order of the Tribunal. On behalf of the assessee it has been argued that there was no discrepancy between the income that was shown in the first return and the income that was shown in the second return for the assessment year 1970-71. There was only a minor discrepancy in the income that was shown in the first return for the assessment year 1964-65 from the second return. It was argued that even if a return not accompanied by profit and loss account and the balance sheet, the return could not be regarded as an invalid. The income tax Officer was competent to act upon the first return. There was no scope for filing a revised return u/s 139(4) and, therefore, the second return was void.

The period of limitation should be computed from the date of filing of the first return and the assessment orders that were passed were clearly barred by limitation.

The assessee could file a revised return only (1) if he had furnished a return under sub-section (1) or sub-section (2) of section 139, and (2) discovered any omission or wrong statement in the return. Both the conditions had to be fulfilled before a revised return could be filed u/s 139(4).

The argument of the assessee is that the second set of returns in the facts of this case must be regarded as non est in law and, therefore, the assessment must be regarded as to have been made on the basis of the first set of returns and as such were clearly barred by limitation.

We are unable to uphold this contention. Section 139(1) requires ''every person whose total income is chargeable to income tax to file a return of income in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed''. The assessee, a partnership firm, was required to file its balance sheet and profit and loss account along with its return. This was required by the prescribed form. The assessee in this case first filed a return with out the balance sheet and profit and loss account. This return must be regarded as incomplete. It may be that a valid assessment order could have been passed on the basis of this return. The assessee had an option to file a complete return before any assessment order was passed on the basis of the return that was originally filed by the assessee. The assessee exercised that option and filed another return annexing the profit and loss account and the balance sheet. This was done by the assessee voluntarily. The assessee must have thought that the returns were incomplete and, therefore, came forward with the second set of returns. I fail to see why an assessee cannot file a complete and correct return of income when he discovers that his first return is incomplete or incorrect.

There is a clear finding that in the assessment year 1964-65 the income that was shown in the first return was at variance with the income that was disclosed in the second return. It must also be pointed out that the Tribunal has not found for a fact that the incomes shown in the two returns for the assessment year 1970-71 were identical. The Tribunal has not given any finding at all on this aspect of the case. In any event, it cannot be said that the returns were complete in all respects in spite of the omission to annex the profit and loss account and the balance sheet.

The argument that a revised return can be filed only in cases where a return was filed within the time allowed u/s 139(1) or section 139(2) is also without any merit. Section 139(1) imposes a duty and also prescribes a time limit for furnishing the return of income. Every person who has income chargeable to tax, is required to file a return within the time specified in section 139(1). Section 139(2) empowers the ITO to issue a notice to any person who, in the opinion of the ITO is assessable under the tax and requires him to furnish a return within 30 days from the date of service of the notice. The notice u/s 139(2) may be served even before the expiry of the time to file a return u/s 139(1) or after that time has expired. If a person assessable to tax does not file any return at all u/s 139(1) or even pursuant to a notice u/s 139(2), the ITO may pass an assessment order u/s 143(3) or u/s 144 of the Act within the period of limitation set out in section 153 of the Act. The assessee, however, has a right to file a return of income at any time before an order of assessment is passed.

Sections 139(4)(a) and 139(5) are as follows:

(4)(a) Any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in clause (b), and the provisions of sub-section (8) shall apply in every such case.

(5) If any person having furnished a return under sub-section (1) or subsection (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.

Section 139(4)(5) is an enabling section. It merely enables a person to file belatedly a return which he should have filed within the time allowed to him u/s 139(1) or section 139(2).

Section 139(4) does not cast any duty to file a return of income upon the assessee. The duty to file a return u/s 139(1) or pursuant to a notice u/s 139(2) can be discharged by filing a return belatedly even after expiry of the time specified therein by virtue of the provisions of section 139(4)(a). There may be different consequences of penalty and interest but the position in law is that by filing a return within the extended time u/s 139(4)(a) the assessee has discharged its duty to file a return which was cast upon it by section 139(1).

Section 139(5) enables the assessee to file a revised return at any time before the assessment is made if he discovers any omission or wrong statement in the return of income that was originally filed. In the instant case, the assessee had to file a return of his total income in the prescribed form and verified in the prescribed manner under the provisions of section 139(1). No notice u/s 139(2) had been issued to the assessee. The assessee belatedly filed a return before the assessment was made. Section 139(4) does not lay down the manner or form in which a return has to be filed. These requirements have been specifically laid down in section 139(1) and (2) under which returns have to be filed ''in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed''.

The procedure and the manner in which a return has to be filed has been laid down in section 139(1) and section 139(2). Section 139(4) does not speak of any procedure or manner or form under which a return has to be filed. The belated return that was filed by the assessee was in the prescribed form and verified in the prescribed manner as required by section 139(1).

Therefore, the returns that were filed in this case originally by the assessee were nothing but returns that were required to be filed u/s 139(1). These were filed beyond the time limit prescribed by section 139(1) but before the assessments were made by virtue of the enabling provision of section 139(4). Therefore, the second set of returns, in my judgment, are nothing but returns u/s 139(1) which was filed belatedly under the enabling provision of section 139(4).

I was referred to two judgments of this Court. In the case of Mst. Zulekha Begum (Khatoon) v. CIT [1931] 129 ITR 560 it was held by a Division Bench presided over by my learned brother Dipak Kumar Sen, J. that if the assessee, after having filed a return u/s 139(1), files another return subsequently, it is to be assumed that he has given a go-by to the return filed previously and that so far as he is concerned, the return filed subsequently is the correct and proper return. When the ITO accepts the return filed subsequently, and proceeds to assess thereunder without any objection from the assessee, it would not be open to the assessee to contend later that the return filed subsequently was invalid.

It was specifically argued in that case that a revised return u/s 139(5) could only be filed where a person had filed a return either under sub-section (1) or sub-section (2) of section 139. This argument did not find favour with the Court in that case.

In another judgment of this Court in the case o Kumar Jagadish Chandra Sinha Vs. Commissioner of Income Tax, . It was held by a Division Bench of this Court that the Act contemplates the filing by the assessee of a correct and complete return. The law gives him a right to substitute and bring on record a correct and complete return if he discovers any omission or wrong statement in the return originally filed by him. The law cannot contemplate the making of an assessment on the basis of a return which even the assessee claims contains wrong statements. When an assessee files a revised return, he, in fact, admits that the original return filed by him was not correct or complete and substitutes the same by a revised return which, according to him, is correct and complete. The effective return for the purposes of assessment is, thus, the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed.

Section 139(4) and section 139(5) give the assessee a right to file a belated return and also a revised return. It is the assessee''s right to do so. In this case the assessee thought that the first set of returns were not complete. He filed the second set of returns and invited the ITO to act upon it. The ITO passed the order of assessment on the second set of returns. The assessee cannot be heard to say that the second set of returns was non est and the limitation should be computed from the date of filing of the first set of returns. On the facts of this case and in view of the principles laid down by this Court in the two judgments referred to hereinabove, the question must be answered in the affirmative and against the assessee. There will be no order as to costs.

Dipak Kumar Sen, J.

I agree.