Commissioner of Income Tax vs India''s Hobby Centre (P.) Ltd.

Sen, J.—The Tribunal has referred the following questions of law u/s 139(1) of the income tax Act, 1961 (''the Act''):

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the return filed by the assessee on 14-3-1974 was a valid return either u/s 139(4) or u/s 139(5) of the income tax Act, 1961?

If the answer to question No. 1 is in the negative, whether the assessee was entitled to get a notice u/s 143(2) of the said Act, on the basis of the said return?

Whether, on the facts and in the circumstances of the case and in view of the assessment made by the income tax Officer on 25th March, 1974 which was not held to be invalid, the Tribunal was justified in not setting aside the said assessment order and directing the income tax Officer to make a fresh assessment according to law?

Whether, on the facts and in the circumstances of the case, the conclusion of the Tribunal that no effective opportunity of being heard was given to the assessee even in respect of the original return filed on 25th July, 1973 was unreasonable and perverse? In this case, the assessment year involved is 1971-72 for which the relevant accounting period is the year ended on 30th September, 1970?

The facts found by the Tribunal as contained in the statement of case are as under:

The assessee was required to file the return u/s 139(1) by 30-6-1971. No return, however, was filed by that date. The ITO issued a notice u/s 139(2) on 6-9-1971. The assessee also did not file any return in response to this notice. The assessee, however, filed the return on 25-7-1973. The ITO fixed the case on several dates for hearing between 30-7-1973 and 4-3-1974. The ITO noticed some credit entries in the assessee''s account books aggregating to Rs. 3,06,820. After going through the account books of the assessee and the other materials produced by the assessee, the ITO was not satisfied about the genuineness of the credits. He, therefore, treated the amount of Rs. 3,06,820 as the income of the assessee from an undisclosed source.

When the matter came up in appeal before the AAC, it was brought to his notice that the ITO had issued a notice u/s 143(2) of the Act on 4-3-1974 and 15-3-1974 and a Director of the assessee-company went to the office of the ITO on 15-3-1974, but the ITO was out of station. The ITO did not allow any further opportunity to the assessee subsequently but completed the assessment on 25-3-1974. The ITO appeared before the AAC during hearing of the appeal. He admitted the correctness of the above facts.

Another fact was also brought to the notice of the AAC that the assessee had submitted a revised return on 14-3-1974 showing an income of Rs. 5,590. In the revised return the assessee offered the medical expenses of Rs. 560 for taxation. It was submitted before the AAC on behalf of the assessee that the assessment made on 25-3-1974 was illegal and void, as the ITO had omitted to issue a notice u/s 143 (2) after receipt of the revised return and that as the ITO had not accepted the revised return, he was bound to issue a notice u/s 143(2) and as the same had not been done, the assessment was void. The AAC was, however, of the view that the assessee had not submitted any return either u/s 139(1) or u/s 139(2) and that its return filed on 25-7-1973 was u/s 139(4). According to the AAC, the assessee could not submit any revised return u/s 139(5) and that the return filed on 14-3-1974 was not a valid return and that the ITO was not bound to issue any notice u/s 143(2) on the basis of the return dated 14-3-1974. It was next submitted before him that no opportunity was given to the assessee after 15-3-1974 before the completion of the assessment on 25-3-1974 and that the assessment was also invalid on this ground. The AAC found force in this contention of the assessee. He, therefore, set aside the assessment with the direction to the ITO to make a fresh assessment after giving reasonable opportunity to explain the cash credits. Firstly, it was contended that the assessment was illegal, as the assessee had submitted the return on 14-3-1974 and the assessment had been completed on 25-3-1974 without issue of a notice u/s 143(2). Secondly, it was submitted that once it was accepted that the return filed by the assessee on 14-3-1974 was a valid one, then it was the duty of the ITO either to accept the return or to issue a notice u/s 143(2). It was pointed out that the compliance with the notice fixed for hearing on 15-3-1974 could not be made because the ITO admittedly was out of Calcutta on some official duty and that he completed the assessment on 25-3-1974 without allowing any further opportunity. It was next submitted that the ITO failed to observe the principle of natural justice and the assessment order was ab initio void on that ground. On behalf of the department it was admitted that there was no effective opportunity of hearing allowed to the assessee on the original return, inasmuch as the ITO himself was out of Calcutta. However, reliance was placed on the order of the AAC and further it was contended by the department that the return submitted on 14-3-1974 was not a valid return. It was next submitted that there was no illegality in the assessment as such, even if there was no opportunity allowed to the assessee to comply with the terms of the notice issued u/s 143(2). It was suggested that the Tribunal could set aside the assessment and put it back at the stage of the filing of the return directing the ITO to issue fresh notice u/s 143(2) and the time limit laid down u/s 153(1) of the Act would apply to the assessment made in compliance with the direction of the Tribunal in view of section 153(3)(ii). The Tribunal carefully considered the submissions of both the parties placed before it and for the reasons recorded in para 9 of its order came to the conclusion that the return filed on 14-3-1974 was a valid return. The Tribunal further held that the assessee was entitled to the service of notice u/s 143(2) on the basis of the revised return and that the assessment completed on 25-3-1974 could not be upheld. The Tribunal also held that even on the basis of the original return, the assessee had not been given an effective opportunity to comply with the notice u/s 143(2). The Tribunal after considering the decisions relied on behalf of the revenue observed that it was empowered to set aside an order of the assessment and remand the case to the ITO directing him to comply with the mandatory requirement of section 143(2) and make an assessment de novo. The Tribunal did not accept the department''s request that it should set aside the assessment and allow the ITO an opportunity to make a fresh assessment on the basis of the return submitted on 14-3-1974 after complying with the terms of section 143(2). The Tribunal, thus, cancelled the assessment and allowed the assessee''s appeal.

On further appeal, two points were urged before the Tribunal. The first question is whether the return filed by the assessee on 14-3-1974 was a valid return. Section 139(5) lays down:

(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."

There is no difficulty in accepting the contention made on behalf of the assessee that in view of the recent trend of decisions a revised return can be filed, even when a return was filed within the time prescribed by section 139(1) or section 139(2). But the return was actually filed taking advantage of the enlarged section 139(4) before the assessment was completed.

In this case, the assessee failed to file a return u/s 139(1) within 30-6-1971 as required by the Statute. The assessee also failed to furnish any return pursuant to the notice issued by the ITO u/s 139(2) on 6-9-1971. The assessee ultimately filed a return on 25-7-1973. There was hearing of case on several dates between 30-7-1973 and 4-3-1974. The ITO had noticed certain credit entries, which, according to the ITO, could not be adequately explained by the assessee. It was at that stage when on 14-2-1974 the assessee filed the second return. That even though the original return was filed u/s 139(4), the assessee filed a revised return u/s 139(5), cannot be disputed. But there is another aspect of the case. The AAC has pointed out in his order that in the instant case it is noticed that the original return was filed on 26-7-1973 for the assessment year 1971-72. This return was obviously u/s 139(4) because it was not filed within the time specified u/s 139(1) nor was it in compliance with the notice u/s 139(2) dated 6-9-1971 issued by the ITO for this year which was served on the assessee on 11-10-1971 as per acknowledgement in the file. As per IT record there was no petition in the file asking for extension of time to file this year''s return. On 14-3-1974, the assessee filed its revised return as already mentioned. At the top of this revised return it has been written by the assessee that the original return was filed on 25-7-1973. On these facts can it be held that the return filed on 14-3-1974 was really a revised return u/s 139(5) ? In view of the clear provisions of law as discussed it was a revised return in the eye of law and, hence, the assessee cannot take shelter under its objection about the illegality in the assessment for non-issue of notice u/s 143(2) after receipt of the return of 14-3-1974. The AAC held that as per provisions of law, an assessee can only file a revised return u/s 139(5). According to the provisions of the said section, if any person having furnished a return u/s 139(1) or 139(2) discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made. Therefore, the original return was filed in July 1973 because in the second return the assessee has merely offered for taxation a further amount of Rs. 500, though spent on account of medical expenses, which was duly passed by the auditor in the profit and loss account. The attempt on the part of the assessee to get time for filing the second return on 14-3-1974 is quite obvious. However, the assessee''s legal ground is rejected in view of the foregoing. It was also observed by the AAC that it, however, appears that the assessee filed its so-called revised return on 14-3-1974 to get time and to prevent the ITO from completing the assessment immediately. It appears from the record that the case was heard by the ITO on the various dates from 30-7-1973 to 4-3-1974 in course of which some cash credits amounting to Rs. 3.06 lakhs were noticed by the ITO, which could not be proved. It appears to me that there was no omission of any consequence committed by the assessee.

The Tribunal in its appellate order also summarised the findings of the AAC in the following words :

He was also of the opinion that there was no omission of any consequence in the original return filed in July 1973 which could be offered for taxation through a revised return submitted on 14-3-1974 and that this was only an attempt on the part of the assessee to drag on the proceedings and prevent the income tax Officer from completing the assessment immediately. For all these reasons he rejected the assessee''s first contention. The Tribunal has failed to appreciate the scope and nature of the controversies on this aspect of the question. The case against the assessee is that no mistake has been committed by him while filing the return. Unless the assessee discovers any omission or any wrong statement in the return, he cannot file any revised return. The wording of the relevant section is very clear and the point is well-settled.

Section 139, sub-section (5):

Revised return. -If the person who has furnished a return discovers any omission or wrong statement therein, he may furnish a revised return at any time before the assessment is made. But the benefit of this provision cannot be claimed by a person who has made a false return knowing it to be false...." (1939) 7 ITR 613; COMMISSIONER OF Income Tax, HYDERABAD Vs. ANGARA SATYAM., ; A.RM.A.L.A. Arunachalam Chettyar v. CIT 6 ITC 58, 63 (Mad.) .

In this case the difference between the amount mentioned in the original return filed and that in the revised return is a sum of Rs. 500 only. This sum of Rs. 500 was not overlooked by the assessee in the original return. In fact he had claimed a deduction. This claim was in conformity with the profit and loss account and the balance sheet of the assessee-company filed along with the return. In the accounts of the assessee, the sum had been claimed as deduction. The profit had been arrived at after making this deduction. Therefore, this is not a question of any discovery of any mistake in the return. The original return was in conformity with the accounts of the assessee. The assessee really wanted to give up a portion of the claim for deduction and this was contrary to the assessee''s own accounts. Far from there being a case of discovery of any omission, the assessee wanted to do something else. Besides that, he wanted to delete the claim of deduction, which has been made in the original return. If the assessee wants to give up a claim, the assessee can always do so. No return has to be filed for that purpose.

It has been contended on behalf of the assessee that the assessee can always file a revised return. It is for the assessee to decide when the revised return has to be filed. It has been pointed out by the Commissioner that the assessee wanted to delay the assessment proceedings unnecessarily. If the construction of section 139(5) as suggested on behalf of the assessee is accepted, then, whenever the assessee is faced with this situation that an unfavourable assessment is going to be made, he will always come forward to file a revised return, thereby delaying the assessment proceeding indefinitely. Therefore, in our view, the return filed by the assessee cannot be treated as valid return u/s 139(5). On the facts of the case the AAC had taken a correct view of law. While the assessment proceeding was pending on the basis of the return already filed, a further application could not be filed u/s 139(4).

Therefore, question No. 1 is answered by saying that the return filed on 14-3-1974 was not a valid return u/s 139(2) and/or section 139(5). Question No. 2 is answered by saying that the AAC was right in directing that a fresh opportunity of hearing is to be given to the assessee on the facts of this case. The third question is answered by saying that the Tribunal was in error in not directing the ITO to make a fresh assessment in accordance with law. Question No. 4 is answered by saying that it has already been recorded that the assessee has been heard on a number of occasions in this case. But since the assessee did not have any opportunity of being heard on the last date, the case was fixed for hearing as further opportunity should have been given to the assessee even in respect of the original return filed on 25-7-1973. There will be no order as to costs.

Banerjee, J.

I agree.