Madras High Court
Commissioner Of Income-Tax vs South India Shipping Corporation Ltd. on 18 September, 1996
Equivalent citations: [1997]225ITR451(MAD)
JUDGMENT
K.A. Thanikkachalam J.
1. At the instance of the Department, the Tribunal referred the following question for the opinion of this court under section 256(1) of the Income-tax Act, 1961 :
"Whether, on the facts and in the circumstances of the case and having regard to the provisions of sections 139(5), 144B and 153(1) of the Income-tax Act, 1961, the Tribunal was right in law in setting aside the assessment and directing the Income-tax Officer to consider as valid the revised return filed by the assessee on August 27, 1977, after the Income-tax Officer had sent the draft order to the Inspecting Assistant Commissioner under section 144B ?"
2. In the assessment year 1974-75, the assessee filed its first return of income on August 26, 1974, admitting an income of Rs. 3,60,51,313 before adjustment of carry forward losses, development rebate and relief under section 80J of the Act. After adjustments of the above reliefs, the assessee's income as per the return was "nil". The Income-tax Officer forwarded to the assessee his draft assessment order under section 144B, dated March 23, 1977, proposing to assess the assessee's income prior to adjustment of carry forward losses and relief under section 80J at Rs. 4,28,12,165, and after adjustment of the above relief at Rs. 31,42,270. The assessee received the above draft order on March 29, 1977, and filed its objections. Before the completion of the assessment on September 26, 1977, the assessee filed a revised return claiming development rebate on the valuation, added to the cost of assets. The Income-tax Officer declined to consider the above revised return on the ground that he had become functus officio. The Income-tax Officer proceeded to make the assessment with reference to the assessee's first return.
3. Before the Appellate Assistant Commissioner, the assessee contended that the revised return filed before the completion of the assessment on September 26, 1977, should have been considered by the Income-tax Officer. The Appellate Assistant Commissioner, however, rejected this plea, since according to the Appellate Assistant Commissioner if the revised return is taken into account, that would affect the period of limitation in completing the assessment. Aggrieved, the assessee filed a second appeal before the Tribunal. The Tribunal, on considering the facts arising in this case, in the light of the provisions contained in sections 139(5), 143(3), 144B and 153, held that when the revised return was filed before completing the assessment in accordance with the instructions given by the Inspecting Assistant Commissioner, the Income-tax Officer ought to have brought to the notice of the Inspecting Assistant Commissioner the revised return filed by the assessee. Since this was not done, the Appellate Tribunal set aside the assessment made by the Income-tax Officer on the basis of the original return filed by the assessee.
4. Before us, learned senior standing counsel appearing for the Department, submitted that in view of the provisions contained in section 153(1)(a)(iii) and Explanation 1 (iv), the assessee is not entitled to file a revised return under section 139(5) after the draft assessment order was sent by the Income-tax Officer to the Inspecting Assistant Commissioner for his instructions. According to learned senior standing counsel, if the revised return is taken into consideration, that would affect the period of limitation in completing the assessment in the case of the assessee. Therefore, according to learned senior standing counsel, the Income-tax Officer was justified in not taking into consideration the revised return filed by the assessee. In order to support the contentions put forward by learned senior standing counsel, reliance was placed upon two decisions of the Gujarat High Court reported in Panchmahal Steel Ltd. v. U.A. Joshi, ITO and Shri Vallabh Glass Works Ltd. v. ITO [1995] 212 ITR 433. Therefore, according to learned senior standing counsel, the Tribunal was not correct in setting aside the assessment order passed by the Income-tax Officer and directing him to complete the assessment after taking into consideration the revised return filed by the assessee.
5. On the other hand, learned counsel appearing for the assessee while supporting the order passed by the Tribunal, submitted that the Tribunal after taking into consideration the relevant provisions of the Act with regard to the limitation in the matter of completing the assessment under section 144B, held that the Income-tax Officer was not correct in ignoring the revised return filed under section 139(5) of the Act. Learned counsel appearing for the assessee further pointed out that the Tribunal has given cogent reasoning for holding that the revised return filed under section 139(5) should be taken into consideration in the present case before completing the assessment by the Income-tax Officer, since that would not affect the period of limitation, as per the facts arising in this case.
6. We have heard both learned senior standing counsel appearing for the Department as well as learned counsel appearing for the assessee.
7. In the present case, the facts on record go to show that the assessee filed its revised return on August 27, 1977, before the issue of the Inspecting Assistant Commissioner's directions under section 144B on September 23, 1977, and the Income-tax Officer's completion of the assessment was on September 26, 1977, under section 143(3). The original return for the assessment year 1974-75 was filed on August 26, 1974. The draft order, dated March 23, 1977, was sent to the assessee under section 144B. The draft order was received by the assessee on March 29, 1977. The assessee filed its objections on April 4, 1977. On April 6, 1977, the Income-tax Officer referred the draft order to the Inspecting Assistant Commissioner for direction.
8. Under section 139(5) of the Act, the assessee has got a right to file his revised return at any time before the assessment is completed. The assessment referred to in the section would mean the assessment should be made by the Income-tax Officer under section 143 of the Act. Under section 144B of the Act, the Income-tax Officer is to forward to the Inspecting Assistant Commissioner only a draft of the proposed order of assessment if the income returned by the assessee is more than rupees one lakh. This draft order cannot be considered to be a final order of assessment. Section 144B(1) envisages a draft of the proposed order. The Inspecting Assistant Commissioner may or may not approve this proposed draft order in its entirety. Further, as stated in section 144B(4), the directions are issued for the guidance of the Income-tax Officer, which are binding on him, to enable him to complete the assessment. Therefore, the draft of the proposed order cannot be considered to be a final assessment order. The Income-tax Officer is to complete the assessment only after he receives the Inspecting Assistant Commissioner's directions. In this case, the final assessment order was made by the Income-tax Officer on September 26, 1977, after the revised return has been filed.
9. Section 139(5) of the Act states that if any person having furnished a return under sub-section (1) or sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.
10. Section 143(3) states that on the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material, which he has gathered :-
(a) in a case where no assessment has been made under sub-section (1), the Income-tax Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.
11. Section 144B states with reference to the Inspecting Assistant Commissioner in certain cases that : (1) Notwithstanding anything contained in this Act, where in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee; (2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income- tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf; (3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order; (4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment. Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard; (5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income-tax Officer.
12. Section 153 states the time-limit for completion of the assessments and reassessments : (1) No order of assessment shall be made under section 143 or section 144 at any time after (a) the expiry of. . . . (iii) two years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or after the first day of April, 1969.
13. Section 153(1)(c) states that the expiry of one year from the date of the filing of a return or a revised return under sub-section (4) or sub-section (5) of section 139.
14. Explanation 1. - In computing the period of limitation for the purposes of this section. . . . (iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under sub-section (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days.
15. Admittedly, the draft assessment order was received by the assessee on March 29, 1977. The Inspecting Assistant Commissioner's direction was sent to the Income-tax Officer on September 23, 1977. In between this period, on August 27, 1977, the assessee filed the revised return. The assessment order was made on September 26, 1977, in accordance with the instructions given by the Inspecting Assistant Commissioner. Therefore, the revised return was filed before completing the assessment. As per the provisions of section 153(1)(a)(iii), the period of limitation in completing the assessment would be two years from the end of the assessment year. In the present case, two years from the end of the assessment year 1974-75 would fall on March 31, 1977. If a revised return is filed under section 139(5), that would further extend the period of limitation by one year from the date of filing the revised return. The revised return was filed on August 27, 1977, and the one year period would expire on August 27, 1978. Therefore, in any view of the matter, the revised return was filed within the period of limitation in the matter of completing the assessment according to the facts arising in the present case. This was also the view expressed by the Tribunal after extracting the relevant provisions of the Act on this aspect. A duty is cast upon the Income-tax Officer to bring it to the notice of the Inspecting Assistant Commissioner when a revised return was filed under section 139(5) within the period of limitation after he has forwarded his draft order to the Inspecting Assistant Commissioner for his instructions. This was not done in the present case. It is under these circumstances, the Tribunal set aside the assessment order made by the Income-tax Officer on September 26, 1977, and a direction was given to the Income-tax Officer to redo the assessment after taking into consideration the revised return filed by the assessee.
16. Reliance was placed upon the decision of the Gujarat High Court in Panchmahal Steel Ltd. v. U.A. Joshi, ITO . According to that decision, once a draft order is made by the Income-tax Officer under section 144B of the Act, the assessee cannot, thereafter, file a revised return. According to the Gujarat High Court, if the assessee is permitted to file a revised return, even after the Income-tax Officer makes a draft order under section 144B, that would lead to uncertainty and delay in finalising the assessment.
17. It remains to be seen that the draft order made by the Income-tax Officer is subject to the approval of the Inspecting Assistant Commissioner. As already pointed out, the Inspecting Assistant Commissioner may approve or may not approve the draft order. It is only after the instructions are received from the Inspecting Assistant Commissioner, that the Income-tax Officer should complete the assessment. Therefore, in any event, the draft order made by the Income-tax Officer cannot be considered to be a final assessment order. Further, in the abovesaid decision, the period of limitation as extended under section 153(1)(a)(iii), Explanation 1(iv) and section 153(1)(c) was not considered.
18. Reliance was also placed upon another decision of the Gujarat High Court in Shri Vallabh Glass Works Ltd. v. ITO [1995] 212 ITR 433. The Gujarat High Court held when the Act permits the filing of a revised return, it is expected to be considered by the assessing authority, if the same is filed before the order is made by it; otherwise, the very purpose of giving such a right would be frustrated. Even though the decision in Panchmahal Steel Ltd. v. Joshi (U.A.), ITO [1994] 210 ITR 723, was delivered on September 8, 1993, there was no mention or it was not brought to the notice of the High Court the earlier decision rendered on February 27, 1992, by the same High Court in Shri Vallabh Glass Works Ltd. v. ITO [1995] 212 ITR 433. Under such circumstances, we consider that there is no infirmity in the order passed by the Tribunal in the present case in setting aside the order made by the Income-tax Officer and directing him to redo the assessment after taking into consideration the revised return filed by the assessee. In that view of the matter, we answer the question referred to us in the affirmative and against the Department. No costs.