Income Tax Appellate Tribunal - Mumbai
Income-Tax Officer vs Sabine Laboratories (P.) Ltd. on 29 May, 1991
Equivalent citations: [1992]40ITD300(MUM)
ORDER
R.P. Garg, Accountant Member
1. These two appeals are by the revenue against the orders of the CIT(A), for the assessment years 1984-85 and 1985-86. The dispute in these appeals is regarding the validity of the returns filed by the assessee and allowance of loss to be carried forward and set off in future years.
2. Originally the returns for these two years were filed within the time prescribed under Section 139(1) of the Income-tax Act, 1961. For the assessment year 1984-85, it was filed on 29-6-1984 and for the assessment year 1985-86 on 24-6-1985. Both these returns were filed by declaring estimated losses of Rs. 70,000 and Rs. 1,20,000 respectively. The returns were without the support of audited balance-sheet and profit & loss account. The ITO, therefore, did not consider these two returns as valid returns. According to him, they were mere pieces of paper which could not even be rectified under Section 139(9) of the Act. The returns filed by the assessee subsequently on 15-10-1985 for assessment year 1984-85 and on 3-2-1986 for assessment year 1985-86, since filed beyond the prescribed time limit provided under Section 139, the loss computed in the assessments in pursuance thereto, was refused to be carried forward.
3. The CIT(A) held that the original returns filed by the assessee for the two years under consideration were not invalid but mere defective returns and, therefore, the loss determined could not be denied to be carried forward. Reference in this connection was made to the decision of the Calcutta High Court in the case of CIT v. Garia Industries (P.) Ltd. [1983] 140 ITR 636. He accordingly directed the ITO to carry forward the loss determined and to allow the same subject to other provisions of the Act. Feeling aggrieved, the revenue is in appeal before us.
4. The learned Departmental Representative, Sri Keshav Prasad, submitted that after introduction of Section 139(9)of the Act with effect from l-9-1980,the returns, unless annexed with the audited accounts and other statements of accounts, would not be valid returns and were, therefore, rightly ignored by the ITO. No extension was sought for by the assessee. The subsequent returns filed by the assessee, it was submitted, were beyond the prescribed time limit under Section 139(1) of the Act. Section 80, therefore, applies to the facts of the case and the loss determined in pursuance to the delayed returns would not be eligible to be carried forward and set off against the income of the subsequent years. He further submitted that the estimated loss returns, without the support of the financial accounts, would not be returns in the eye of law. According to him, such returns would be invalid and not merely defective, which could be cured. He referred to the decision of the Supreme Court in the case of Industrial Trust Ltd. v. CIT [1973] 91 ITR 550. The returns filed by declaring estimated losses, he submitted, were not meant for any purpose but for avoidance of the applicability of the provisions of Section 80 of the Act, which should not be permitted. He further submitted that the loss was determined by the ITO in pursuance of the delayed returns and not in pursuance of the original returns and, therefore, it was not eligible for being carried forward and set off.
5. Sri N.A. Dalvi, the learned counsel for the assessee, on the other hand, submitted that the returns filed originally were valid returns in the eye of law. The accounts of the assessee were neither audited nor finalised due to deteriorating health, leading to heart attack and hospitalization of the accountant and the reluctance of the auditors, M/s. P.D. Desai & Co. to conduct the audit and, therefore, the assessee was left with no option but to file the returns on estimate basis. A return filed, he submitted, was a return in the eye of law and cannot be ignored except as provided under Section 139(9) of the Act. This section, according to him, requires a notice to be given by the ITO to rectify the defect and only when the assessee does not remove the defect within 15 days or such extended time as was allowed by the ITO, the defective return can be treated as invalid return. In this connection, he drew our attention to the Circular No. 281 dated 22-9-1982 referred to in volume 3 of Chathurvedi & Pithisaria, page 2681, para 27.7-3. He submitted that the revised returns filed were to replace the original returns and, therefore, as held by Their Lordships of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 and by the Bombay High Court in the case of Telster Advertising (P.) Ltd. v. CIT [1979] 116 ITR 610 they were to be treated as having been filed on the day when the original returns were filed. He also referred to the provisions of Section 292B and submitted that the returns were for the purposes of the Act and should not be deemed as invalid merely because a defect existed. In any case, he submitted that in view of the aforesaid judgment of the Bombay High Court in Telster Advertising (P.) Ltd.'s case (supra), the loss for assessment year 1984-85 was to be allowed even if the first return was to be ignored as the subsequent return would be a return filed under Sub-section (4) of Section 139, of the Act, and the loss determined in pursuance of any return filed under Section 139 was to be allowed to be carried forward.
6. We have heard the parties and considered their rival submissions. Section 80 of the Act, as it was existing in the relevant period, provided that no loss which has not been determined in pursuance of a return filed under Section 139 would be carried forward and set off under Sub-section (1) of Section 72, etc. This section was amended by the Taxation Laws (Amendment) Act, 1984 with effect from 1st April, 1985, to provide that such loss shall not be allowed to be carried forward and set off unless such loss was determined in pursuance of a return filed within the time allowed under Section 139(1) for furnishing a voluntary return of income or within such time as may be allowed by the ITO. [Emphasis supplied].
7. Section 139 of the Act provides for filing of the return of income. Sub-section (1) thereof provides for filing of a voluntary return on or before the due date. Sub-section (2) provides for filing of the return on issuance of the notice by the ITO. Sub Section (3) provides for filing of a return by a person who has sustained a loss and claims that the loss or any part thereof should be carried forward under Sub-section (1) of Section 72, etc. This return is to be furnished within the time allowed under Sub-section (1) thereof. Sub-section (4) provides for furnishing a return at any time before the assessment was made and before the end of the period specified in Clause (b), namely, two years from the end of such assessment year. This sub-section entitles the furnishing of the return in a case where the assessee had not filed the return under Sub-section (1) or Sub-section (2). Sub-sec. (5) provides for furnishing a revised return on discovery of any omission or wrong statement made by the assessee in the return filed under Sub-section (1) or Sub-section (2) thereof. All these returns are to be filed in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be necessary. Sub-section (9) provides for the circumstances in which a return can be treated as invalid. A return filed in the prescribed form and verified by the assessee in the prescribed manner would be a valid return. A return, not accompanied by profit & loss account and balance-sheet, is, of course, incomplete; but still a valid return under Section 139 as has been held by Their Lordships in Gopinath Biswambar Roy v. CIT [1950] 18 ITR 976 (Dacca) and in CIT v. Bharat Refineries Ltd. [1986] 162 ITR 652 (Cal.). Similarly, a return filed on estimated income would be a valid return as has been held by Their Lordships of the Privy Council in Malik Damsaz Khan v. CIT [1947] 15 ITR 445 and in the case of Pitta v. CIT 2 ITC 196. In these circumstances, the returns filed by the assessee on the basis of estimated loss of Rs. 70,000 for assessment year 1984-85 and Rs. 1,20,000 for assessment year 1985-86 without, those being annexed with profit & loss account and balance-sheet would not be invalid returns. It could at best be termed as either incomplete return or a defective return, but certainly not an invalid return. This view also finds support from the Explanation to Section 139(9) which reads as under:
Explanation : For the purposes of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely:--
(a) the Annexures, statements and columns in the return of income relating to computation of income chargeable under each head of income, computation of gross total income and total income have been duly filled in;
(b) the return is accompanied by a statement showing the computation of the tax payable on the basis of the return;
(c) the return is accompanied by proof of--
(i) the tax, if any, claimed to have been deducted at source and the advance-tax and tax on self-assessment, if any, claimed to have been paid;
(ii) the amount of compulsory deposit, if any claimed to have been made under the Compulsory Deposit Scheme (Income-tax Payers) Act, 1974 (38 of 1974);
(d) where regular books of account are maintained by the assessee, the return is accompanied by copies of--
(i) manufacturing account, trading account, profit and loss account or, as the case may be, income and expenditure account or any other similar account and balance-sheet;
(ii) in the case of a proprietary business or profession, the personal account of the proprietor; in the case of a firm, association of persons or body of individuals, personal accounts of the partners or members; and in the case of a partner or member of a firm, association of persons or body of individuals, also his personal account in the firm, association of persons or body of individuals;
(e) where the accounts of the assessee have been audited, the return is accompanied by copies of the audited profit and loss account and balance sheet and the auditor's report;
(f) where regular books of account are not maintained by the assessee, the return is accompanied by a statement indicating the amounts of turnover or, as the case may be, gross receipts, gross profit, expenses and net profit of the business or profession and the basis on which such amounts have been computed, and also disclosing the amounts of total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.
To hold a return mentioned in this Explanation to be invalid, the assessing officer has to give a notice of defects to the assessee, as per the provisions of Section 139(9). These provisions are--
139(9) : Where the Income-tax Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Income-tax Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return:
Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Income-tax Officer may condone the delay and treat the return as a valid return.
[Emphasis supplied] On a bare reading of this sub-section, it appears that in a case where the assessing officer considers a return to be invalid, he has to issue a notice. In other words, the issuance of a notice for treating a return as invalid is a must. No notice has been given by the assessing officer to the assessee to rectify the defect, and, therefore, the returns filed by the assessee in June 1984 for the assessment year 1984-85 and in June 1985 for the assessment year 1985-86, which were defective or incomplete, could not be treated as invalid. The subsequent returns filed would take place of the original returns and the assessee would be entitled to carry forward the loss determined in pursuant thereto.
8. We may look to the problem from another angle. The proviso to Section 139(9) provides that if the defect is rectified before the assessment was made, the ITO has the discretion to condone the delay and treat the return as valid. The circumstances under which the assessee filed the returns on estimated loss would justify the condonation of the delay and treating the returns to be valid. The returns filed originally without the profit and loss account and balance-sheet, and on estimate basis, were because of the continued ill-health of the accountant of the assessee leading to delay in fmalisation of the accounts and consequently the audit, which was also held due to the reluctance of the auditors in taking up the audit work. This was a reasonable cause for exercising the discretion vested in the assessing officer under the proviso to Section 139(9).
9. The return filed by the assessee on 15-10-1985 at a loss of Rs. 77,250 for the assessment year 1984-85 and that filed on 3-2-1986 at a loss of Rs. 1,14,739 for assessment year 1985-86 were nearing the amount of loss estimated by the assessee in the original returns at Rs. 70,000 and Rs. 1,20,000 respectively. In these circumstances, even the bonafides of the assessee could not be doubted. The original returns filed by the assessee could not, therefore, be equated with mere piece of papers or treated as no return in the eye of law as stated by the assessing officer. The returns in substance and in conformity with or according to the intent and purposes of the Act were within the meaning of Section 292B of the Act.
10. For the assessment year 1984-85, we agree with the contention of the learned Departmental Representative that the return filed by the assessee in June 1984 was invalid because it was filed with the ITO, Company Circle-I, even though the jurisdiction over the case was with the ITO, Central Circle-VI, in view of the decision of the Supreme Court in the case of Industrial Trust Ltd. (supra) wherein it was held that the ITO at Ajmer had no jurisdiction over the appellant and the notice issued by him and the returns submitted by the assessee pursuant to the notice issued by him were not valid and the fresh notices issued by the ITO, Central Circle-IV, Delhi with whom the jurisdiction lay and the assessments made by him were valid. However, in view of the Bombay High Court decision in the case of Telster Advertising Co. (P.) Ltd. (supra) and that of the Supreme Court in Kulu Valley Transport Co.(P.) Ltd.' s case (supra), the loss determined in pursuance of a return filed under Section 139, though not filed within time, could not be denied to be carried forward prior to the amendment in Section 80 of the Act, with effect from 1-4-1985. Considering all the facts and circumstances of the case, we uphold the orders of the CIT(A) for both the years under consideration.
11. In the result, both the appeals by the revenue fail. They are, therefore, dismissed.