Kerala High Court
Kerala State Drugs And Pharmaceuticals ... vs Commissioner Of Income-Tax And Anr. on 19 July, 1994
Equivalent citations: [1994]210ITR1042(KER)
JUDGMENT T.L. Viswanatha Iyer, J.
1. The petitioner is a public sector undertaking, a Government company wholly owned by the Government of Kerala. It has been making substantial losses which accumulated to an amount of Rs. 4,64,00,746 at the end of the financial year 1985-86. It is incorporated under the Companies Act, 1956, and, therefore, its accounts have to be audited by an auditor appointed by the Central Government on the advice of the Comptroller and Auditor-General of India under Section 619(2) thereof. Its accounts have also got to be audited by an accountant under Section 44AB of the Income-tax Act, 1961 ("the I. T. Act").
2. As I indicated earlier, the petitioner has been making losses, and its loss in the financial year 1985-86 corresponding to the assessment year 1986-87 was Rs. 1,42,86,624. An assessee who claims to have the loss sustained by it carried forward to any subsequent year has to file a return under Sub-section (3) of Section 139 of the Income-tax Act within the time specified in Sub-section (1) which so far as the year 1986-87 is concerned, was July 31, 1986. The petitioner was granted extension of time up to October 31, 1986, but according to it this was not sufficient to en'able it to furnish the loss return under Section 139(3). The reason was stated thus: The Central Government appointed the statutory auditor under Section 619(2) of the Companies Act only on September 26, 1986 (vide exhibit P-2). That auditor could complete the work only by March, 1988, about which he informed the petitioner by his communication, exhibit P-3, dated February 17, 1988. The tax audit for purposes of Section 44AB of the Income-tax Act could be undertaken only thereafter, as indicated by the tax auditor in his letter, exhibit P-4, dated February, 1988. In these circumstances and anticipating delay, the petitioner applied in Form No. 6 (exhibit P-1) for extension of time for filing the return for the year 1986-87 up to March 31, 1988, but that was rejected by the assessing authority, the second respondent, on January 13, 1988, by his proceedings, exhibit P-5. He said :
"I cannot grant the extension asked for for making a return for the assessment year 1986-87 as the grounds urged are not satisfactory. The due date for filing the return was July 31, 1986, and hence the inordinate delay to get the accounts audited is due to laches on the part of the assessee and there is no sufficient reason to extend the time for filing the return of income."
3. The petitioner challenged this order in revision (exhibit P-6) before the first respondent, Commissioner of Income-tax, under Section 264 of the Income-tax Act, but without success. The first respondent's order, exhibit P-8, states that the audit of the accounts of the earlier year had been completed on June 24, 1987, and, therefore, the audit of the accounts for the year in question could have been completed within a reasonable time of three to four months thereafter and, therefore, there was no justifiable cause to extend the time for filing the return up to March 31, 1988. The petitioner challenges the proceedings, exhibits P-5 and P-8, in Original Petition No. 242 of 1991.
4. The petitioner nevertheless purported to file the return on March 30, 1988, without the audited profit and loss account and report under Section 44AB, as these were received only on April 25, 1988. The petitioner then filed a fresh return accompanied by these documents on April 26, 1988. On receipt of the first return, the Income-tax Officer intimated the petitioner by his letter, exhibit P-9, dated April 8, 1988, that under Section 139(10)(d) of the Income-tax Act which came into force on April 1, 1986, and was applicable to the assessment year 1986-87, a return of loss filed after July, 31 shall be deemed never to have been furnished and called upon the petitioner to show cause why the return of loss shall not be ignored. The second respondent eventually passed an order on February 28, 1989, treating the return as non est under Section 139(10) and this order was affirmed in revision by the Commissioner. The petitioner challenges these two orders in Original Petition No. 7001 of 1991, marking them as exhibits P-3 and P-4 therein. The Commissioner affirmed the order, exhibit P-3, on the ground that the provisions of Section 139(10) were applicable from April 1, 1986.
5. The counter-affidavits filed in these cases by the first respondent state that the petitioner being well aware that Section 139(10) took effect from April 1, 1986, should have taken steps to have the audit completed expeditiously after appointment of the auditor. The refusal of extension of time as well as the ignoring of the return as non est are thus sought to be justified on the grounds stated in the impugned orders.
6. On the facts as stated above, the point which arises for consideration is whether the respondents were justified in refusing to accede to the petitioner's prayer for extension of time to file the return. According to the petitioner, it had sufficient reasons in support of the prayer, but the respondents had wrongly refused to exercise the discretion vested under Section 139(3) to extend the time prescribed for filing the return.
7. Before I take up this question, I shall deal with two preliminary points raised by Sri P.K. Ravindranatha Menon, counsel for the Revenue. The first was that with the introduction of Section 139(10) in the Income-tax Act with effect from April 1, 1986, any loss return filed after July 31, 1986, has to be treated as non est and non-existent. According to him, Section 139(3) ceased to be effective with the introduction of Section 139(10) and the Income-tax Officer ceased thereafter, i.e., from April 1, 1986, to have any power to extend the time under Section 139(3). It is, however, unnecessary for me to deal with this point at any length in the light of Circular No. 469, dated September 23, 1986 (see [1986] 162 ITR (St.) 21), issued by the Central Board of Direct Taxes, which is binding on the Income-tax Officer. The circular appears at page 33 of the Statutes Section of 162 ITR 33. In paragraph 9.1 thereof, the Board has clarified that the change brought in by Section 139(10) and the withdrawal of the Income-tax Officers' power under Section 139(3) will apply only to the assessment year 1987-88 and subsequent years. In the light of this circular which, in my opinion, is in accord with the provisions of the Income-tax Act as amended, this contention is overruled.
8. I may also mention here that the Income-tax Officer himself had extended the time for filing the return on application by the petitioner up to October 31, 1986, a conduct which does not accord with the present contention that the officer has no jurisdiction at all to extend the statu-torily fixed time up to July 31, 1986.
9. The second preliminary objection, which in my opinion, is only technical, and not substantial, is that after the time was extended up to October 31, 1986, no further extension was sought till December 26, 1987, when the application was made for extension up to March 31, 1988. The intermediate gap remains untouched (so goes the argument) so that extension for the subsequent period cannot be granted. I am unable to accept the plea. If the time is extended up to March 31, 1988, as prayed for, it takes within its sweep the entire period up to that date and not merely the period from December 26, 1987. I overrule this contention.
10. I now come to the merits of the case. The question is whether the discretion has not been properly exercised. The petitioner is a public sector undertaking incorporated under the Companies Act. Its accounts have got to be audited by the auditor appointed by the Comptroller and Auditor-General of India under Section 619(2) of the Companies Act. That appointment for the relevant year was made only on September 26, 1986. The petitioner has pointed out in the additional affidavit that even the previous year's audit was completed only on June 24, 1987. The audit of the relevant year could be taken up only thereafter, as the opening balance for the year will be available only after the previous year's audit is completed and the report is made available. The delay in the submission of the return is thus explained as referable to the statutory obligations made mandatory for companies like the petitioner.
11. The additional affidavit further points out that a separate audit under Section 44AB of the Income-tax Act is not undertaken, when the accounts are subjected to statutory audit under the Companies Act. Such an audit is not also required, as it will only be a duplication. The common practice is to get the statutory audit completed first and then request the tax auditors to issue the certificate of particulars required, in the form prescribed under Section 44AB. It is, therefore, pointed out that the question of having an anterior audit of the accounts and the submission of a return based thereon is not resorted to.
12. I do not see any reason not to accept this affidavit sworn to by a member of the Indian Administrative Service who has no interest other than as the present managing director of the petitioner. At any rate, this appears to have been the practice in the petitioner-company.
13. The petitioner is a public sector undertaking of the Government of Kerala. Any loss or liability of the petitioner is eventually shared by the people of the State. The Supreme Court has (though in a different context of Section 5 of the Limitation Act) postulated a liberal approach in the matter of condonation of delay when the State is involved. (Collector Land Acquisition v. Mst. Katiji [1987] 167 ITR 471). The same approach may, to a certain extent, be applied to public sector undertakings as well, where there is no professional management, so long as there is no lack of bona fides. So far as this case is concerned, it is not suggested that the claim of the petitioner is lacking in bona fides. No doubt, things could have been done better and with greater promptitude, but having regard to the necessity for audit under two different enactments, it could not be said that the petitioner acted wholly negligently or without reasonable cause in submitting the return late. I am satisfied, on the facts of this case, that the time asked for should have been granted and the return filed by the petitioner acted upon, instead of treating it as not being furnished at all.
14. The original petitions are accordingly allowed. Exhibits P-5 and P-8 in Original Petition No. 242 of 1991 and exhibits P-3 and P-4 in Original Petition No. 7001 of 1991 are quashed. The respondents are directed to deal with the return filed by the petitioner and complete the assessment in accordance with law. No costs.