Income Tax Appellate Tribunal - Jaipur
Assistant Commissioner Of Income Tax vs Pratap Rajasthan Special Steels Ltd. on 8 September, 2005
Equivalent citations: (2006)99TTJ(JP)67
ORDER
B.P. Jain, A.M.
1. This is an appeal filed by the Department against the order of learned CIT(A), dt. 22nd Oct., 2002 for the asst. yr. 1989-90.
2. The Department has raised the issue in its ground No. (I) which reads as under :
On the facts and in the circumstances of the case and in view of the provisions of Sub-sections (3) and (6A) of Section 139 of the IT Act, coupled with the fact that the audit of the company was finalized much after the close of the assessment year, the learned CIT(A)-II, Jaipur, erred in holding that 'since no notice under Section 139(9) has been issued by the AO to the appellant, the acceptance of the return filed on 29th Dec, 1989 cannot be denied. Therefore, the original return filed by the appellant was well within the time and the appellant is entitled for carry forward of assessed loss'. Even if the AO issued the notice under Section 139(9) immediately after the filing of the so-called provisional return, the assessee was not in a position to remove the defect within the time provided under Section 139(9). Apparently, the assessee has also not taken any positive step by bringing the deficiency in the return to the notice by moving an application seeking time to file the audited accounts so as to avail the benefit provided under the Act.
3. The original assessment in this case was completed under Section 144 on 7th Oct., 1991 which was set aside by the learned CIT(A) on 24th Jan., 1994 on the ground that no opportunity of being heard was given to the assessee. The brief facts of this ground are that the assessee furnished a provisional return of income on 29th Dec, 1989 at a loss of Rs. 3,34,87,490. The assessee did not submit audited accounts along with the return of income but the assessee submitted the tax audit report in Form 3CD marked as "provisional". This was done to make a compliance under Section 80 and under Section 44AB of the Act. Under Section 80, there is no such concept as provisional return. A return if is not in accordance in the prescribed manner then it is not (to) be treated as return and the assessee cannot (take) benefit of carry forward (of) loss by furnishing a provisional return. It is also on record that the assessee also furnished a revised return on 15th Jan., 1991 which was based on audited accounts where a claim of loss of Rs. 4,13,88,439 inclusive of claim of depreciation of Rs. 1,02,55,424 and a tax audit report was also enclosed dt. 7th Sept., 1990 based on audited accounts of the assessee. As this return is late, the claim of the loss does not become eligible to be carried forward.
4. The learned CIT(A) observed that the return of the assessee was in the prescribed form and verified in the prescribed manner and it was defective to the extent that original balance sheet was not enclosed with the return and in this situation, the AO was required to (issue) notice of defect as required under Section 139(9) of the Act. Since no notice under Section 139(9) has been issued by the AO to the assessee, the acceptance of the return filed on 29th Dec, 1989 cannot be denied. Therefore, the original return filed by the assessee was well within time and the assessee is entitled for carry forward of the loss.
5. We heard the rival submissions and perused the materials available on record. The assessee has filed the return of income in the prescribed form and verified in the prescribed manner along with non-audited accounts and provisional tax audit report at a loss of Rs. 3,34,87,490 on 29th Dec, 1989 i.e., before due date of filing of the return. The assessee further revised the return on 15th Jan., 1991 by claiming a loss of Rs. 4,13,88,439 along with audited accounts and tax audit report along with reasons for revising the return. The word "provisional" mentioned by the assessee on the return does not make the return defective. Moreover, under Section 292B of the Act which was inserted w.e.f. 1st Oct., 1975, reads as under :
No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.
Therefore, the defect in the return filed by the assessee shall not be deemed to be invalid merely by reason of the provisional accounts and audit report attached with the return of income when such return of income is in substance and in conformity with and according to the intent and purpose of this Act. Section 139(9) provides that AO when considers that return of income furnished by the assessee is defective, he may intimate the defects to the assessee and give an opportunity to rectify the defect within a period of 15 days from the date of such intimation or within such further period. No such defect was intimated by the AO to the assessee. Reliance is placed in the case of CIT v. Garia Industries (P) Ltd. (1983) 140 ITR 636 (Cal), where return of loss filed in time without auditor's report and statement of accounts was treated as a valid return. Therefore, the return filed by the assessee on 29th Dec, 1989 is a valid return filed under Section 139(3) read with Section 139(1). Once a return is filed under Section 139(3), return is deemed to have been filed under Section 139(1) and the assessee gets a benefit of filing the revised return under Section 139(5) of the Act. This view finds support from the case of Sujani Textiles (P) Ltd. v. Asstt. CIT (2004) 84 TTJ (Mad) 696 : (2004) 88 ITD 317 (Mad). Therefore, the return filed by the assessee on 15th Jan., 1991 has been filed under Section 139(5) of the Act, i.e., before the completion of the assessment. Therefore, in the circumstances, when the difference in the loss in original return filed on 29th Dec, 1989 and revised return filed on 15th Jan., 1999 has been explained by way of footnote in the statement of total income filed along with the return of income and no defect in the same has been found out then the return filed on 29th Dec, 1989 at a loss of Rs. 3,34,87,490 is a valid return and return filed on 15th Jan., 1991 is a valid revised return under Section 139(5) of the Act. Moreover, the computation of loss is a part of process of assessment and is an assessee's right to carry forward loss as provided in the Act. This is also provided in Section 143, which permits computation of total income or loss of the assessee. This view finds support in the case of Garia Industries (P) Ltd. (supra). Regarding carry forward of loss, the equation between Sub-sections (1), (3), (5) of Section 139 are independent of Section 80. The procedural process provided under Section 80 does not in any way affect Section 80 or vice versa. Therefore, the loss determined by the AO in pursuance of loss return filed under Section 139(3) shall be carried forward in succeeding years. Hence, the original return filed by the assessee on 29th Dec, 1989 was well within the time and the assessee is entitled for carry forward of assessed loss. Therefore, this ground of the Revenue is dismissed.
6. The Department has raised the next issue in its ground No. (II) which reads as under:
On the facts and in the circumstances of the case and in view of the fact that the assessee has not furnished supporting evidence to revise his claim so as to exclude the income already offered in both the original as well as revised return, the learned CIT(A) has erred in deleting income of Rs. 13,91,500 which the AO declined to deduct from the returned income.
7. The brief facts of this ground are that the assessee has shown income of Rs. 13,91,500 as compensation under the head "Other income". In the revised computation filed on 4th Jan., 1995, this income has been deleted stating that the company claimed compensation for General Electric Company Ltd. towards supply of defective equipment of the furnace which was commenced in the year 1986. Since the furnace was creating trouble, the matter was taken upto the suppliers who had offered to supply extra equipment free of charge. Thereafter, the estimated cost of extra equipment was worked (out) to Rs. 13,91,500 and was treated as compensation. It is further stated that the supplier did not pay the compensation but opted to replace the defective equipment which they did. Hence, the company had to give up the claim of compensation subsequently and had to delete the aforesaid income of compensation. The AO did not accept the contention of the assessee and was of the view that it is an afterthought story and the assessee has not filed any letter of correspondence with the company. Therefore, the claim of the assessee was not accepted by the AO and deletion of Rs. 13,91,500 in the return filed on 15th Jan., 1991 was not allowed by the AO and accordingly treated the same as income of the assessee.
8. The learned CIT(A) deleted the said addition made by the AO with the reason that the AO has not been able to establish that the amount has arisen as income to the assessee and the submissions made by the assessee before the AO have not been proved untrue.
9. We heard the rival submissions and perused the materials available on record. As argued by the learned Authorised Representative that five ton medcore furnace was purchased from M/s GEC Ltd. which was not working satisfactorily and the assessee was in constant touch with M/s GEC Ltd. for replacement or repair of the same. When M/s GEC Ltd. did not repair the furnace, the assessee passed an entry for Rs. 13,91,500 by debiting M/s GEC Ltd. and crediting the compensation account. A joint meeting was convened between the assessee and M/s GEC Ltd. and various other correspondences were made which are appearing at paper book 8-11 and it was decided between the assessee and M/s GEC Ltd. that M/s GEC Ltd. shall replace the said defective parts of the furnace which they did and accordingly reversed the entry by debiting the compensation account and crediting M/s GEC Ltd. by the same amount of Rs. 13,91,500.
10. The fact that the company has replaced the defective parts of the furnace which is evident from the revised statement filed by the assessee along with the reasons given and as per confirmation of the supplier, i.e., M/s GEC Ltd. at paper book 8-11. When a machinery/furnace is found defective then passing of notional entry by the assessee on account of capital expenditure does not amount to a notional income. Even on replacement of the defective parts by the supplier, it does not amount to a real income to the assessee since the same is on account of capital and not on account of revenue. It is an established fact that entries in the books of account do not reflect the real income of the assessee unless it accrues, arises, or received or deemed to accrue, deemed to arise, deemed to be received by the assessee in the year under consideration which is not applicable in the case of the assessee. This view finds support in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT . In this case, the assessee had failed to debit the liability in its books of account which does not debar it from claiming the sum as a deduction either under Section 10(1) or under Section 10(2)(xv) and it was held that (whether) the assessee is entitled to a particular deduction or not will depend on the provision of the law relating thereto and not on the view which he might take of his rights, nor can the existence or absence of entries in his books of account be decisive or conclusive in the matter.
11. The entry made by the assessee by crediting compensation account represents hypothetical income which did not materialize and was reversed by the assessee. Such entries cannot be brought to tax and only real income can be brought to tax. This view finds support in the case of CIT v. Bokaro Steel Ltd. . In the circumstances, the addition made by the AO of Rs. 13,91,500 has rightly been deleted by the learned CIT(A) and we find no infirmity in the order of the learned CIT(A). Thus, this ground of the Revenue is dismissed.
12. The Department has raised the next issue in its ground No. (III) which reads as under:
On the facts and in the circumstances of the case and in the absence of any positive evidence to substantiate assessee's claim, the learned CIT(A) erred in holding that 'it is also an admitted fact that the amount has not been received by the appellant during the year' and thereby deleting the addition of Rs. 38,67,117 which represented the export incentive added by the AO on the basis of assessee's own return.
13. The brief facts of this ground are that the company had exported 752.605 MTs of rolled steels and the assessee had credited a sum of Rs. 38,67,117 in the P&L a/c by mistake in total misunderstanding of Import and Export Policy then announced and later on when it came to know that it is not so, the entry was reversed. The AO was not satisfied with the letters and the Explanation of the assessee and accordingly rejected the claim of the assessee in the revised statement of total income for the said sum of Rs. 38,67,117 and accordingly treated the same as income of the assessee.
14. The learned CIT(A) deleted the said addition by observing that nothing has been established by the AO that the amount of Rs. 38,67,117 was receivable by the assessee from the Government under Incentive Policy and it is an established fact that nothing has been received by the assessee during the year and the assessee has reversed the entry since the income to the extent of Rs. 38,67,117 has not accrued or arisen to the assessee.
15. We heard the rival submissions and perused the materials available on record. The assessee has made a notional entry by misunderstanding the Import and Export Policy which was reversed by the assessee and accordingly the claim of the same was also reversed. As already discussed in ground II that the notional/hypothetical income which has not been materialized cannot be taxed as real income of the assessee as held in the case of Bokaro Steel Ltd. (supra) and also the existence or absence of entries is not decisive of income of the assessee have been held by the Hon'ble apex Court in the case of Kedarnath Jute Mfg. Co. Ltd. v. CIT (supra). Moreover, the AO has not brought any material where any income has accrued or arisen or received by the assessee. In the circumstances, the addition made by the AO is not justified and the learned CIT(A) has rightly deleted the said addition of Rs. 38,67,117. Hence, we find no reason to interfere with the order of the learned CIT(A) Thus, this ground of the Department is dismissed.
16. In the result, the appeal of the Department is dismissed.