Calcutta High Court
Machino Techno Sales Ltd. vs Deputy Commissioner Of Income Tax. on 30 November, 1994
Equivalent citations: (1995)52TTJ(CAL)643
ORDER
R. ACHARYA, A. M. :
The assessee has instituted this appeal against the order of the CIT(A) for the asst. yr. 1987-88.
2. Ground Nos. 1, 2 and 3 relate to objection that the CIT(A) erred in confirming the assessment when the same was barred by limitation, when the notice under S. 148 issued was bad in law and when the return filed is to be treated as a return under S. 139(4) of the IT Act, 1961 (in short the Act).
3. Briefly stated the facts of this case are that the assessee failed to file return of income within the time allowed under S. 139(1) of the Act. The return in this case was due to be filed under S. 139(1) on 31st July, 1987. No application for extension of time in Form No. 6 was filed by 31st July, 1987. The application for extension of time in Form No. 6 is filed only on 3rd Aug., 1987 requesting for extension of time upto 31st Oct., 1987. The reason given in Form No. 6 is that "audit is in progress and finalisation of account was not compete". The second application for extension of time in Form No. 6 was filed on 10th Nov., 1987 requesting the extension of time upto 28th Feb., 1988. No specific ground was given in Form No. 6 as to why the extension of time for filing the return was sought for.
4. As no return was filed till 25th Oct., 1988 a notice under S. 148 was issued on the same day and was served on the assessee on 26th Oct., 1988, requesting the assessee to file the return of income as income chargeable to tax has escaped assessment due to failure on the part of the assessee to file the return. Ultimately, the return of income was filed on 30th March, 1989, along with two audit reports - first dt. 24th July, 1987 and the second dt. 16th Sept., 1987 and the total income was declared at Rs. 49,65,690. The assessment was completed on 22nd Aug., 1990 by the Assessing Officer under S. 143(3) r/w S. 147(a) and the total income was determined at Rs. 56,86,760.
5. Being aggrieved by the assessment order the matter was carried in appeal to the CIT(A). Before the CIT(A) it was submitted that the Assessing Officer was not competent to issue notice under S. 148 unless the limitation for filing the return under S. 139(4) expires and, therefore, the return filed on 30th March, 1989, even after service of notice under S. 148 is a return under S. 139(4) of the Act. The assessee further contended that the notice issued under S. 148/147 would be non est in law in view of such return under S. 139(4). The CIT(A) rejected these arguments as not tenable in view of provisions of S. 148. According to the CIT(A) the assessees arguments run contrary to the principle laid down by the Supreme Court in the decision reported in the following cases :
(i) State of Assam & Anr. vs. Deva Prasad Barua & Anr. (1970) 75 ITR 18 (SC);
(ii) CIT vs. S. Raman Chettiar (1965) 55 ITR 630 (SC);
(iii) CIT vs. Ranchhoddas Karsondas (1959) 36 ITR 569 (SC); and
(iv) Balchand vs. ITO (1969) 72 ITR 197 (SC).
He also placed reliance on Calcutta High Court decision in the case of Assam Consolidated Tea Estates Ltd. vs. ITO (1971) 81 ITR 699 (Cal) wherein what has been laid down is that notice under S. 148 cannot be issued if a valid return has been filed within the period prescribed under S. 139(4). He, therefore, held that as there was no valid return before the notice was issued, the notice under S. 148 issued by the Assessing Officer is valid. He, therefore, rejected the grounds of the assessee and confirmed the assessment. Being aggrieved by the order of the CIT(A) the assessee has preferred this appeal to the Tribunal.
6. The learned counsel for the assessee, Sri S. M. Surana appeared for the assessee and filed a paper book containing 33 pages with Annexure A which is a list of cases on which reliance is placed by him. The learned counsel for the assessee invited our attention to the list of dates placed at page 1 of the paper book and argued that in this case notice under S. 148 was issued as the return was not filed by the assessee under Ss. 139(4) and (2) and, therefore, the notice under S. 148 is illegal. According to him, no notice under S. 148 could be issued before 31st March, 1990 which is the due date for filling of the return under S. 139(4) as S. 139 includes all sub-sections. In order to support his contention the learned counsel relied on the Calcutta High Court decision in the case of Calcutta Chromotype Pvt. Ltd. vs. ITO (1971) 80 ITR 627 (Cal) wherein it was held that if in S. 10 of Super Profits-tax Act only S. 6 is mentioned and not S. 6(1), S. 6(2), etc., the same will include all the sub-sections and penalty cannot be imposed since return was filed under S. 6(3) and S. 6 also includes S. 6(3).
Sri Surana also relied on another Calcutta High Court decision in the case of Presidency Medical Centre (P) Ltd. vs. CIT (1977) 108 ITR 838 (Cal), wherein it was held that S. 80 speaks only of S. 139, hence, loss is to be carried forward. He further argued that failure to file the return under S. 139 means S. 139 as a whole including S. 139(1), 139(2), 139(3), 139(4), etc., and, therefore, notice under S. 148 could be issued only when the assessee had failed to submit the return under S. 139(4). According to the learned counsel, the notice under S. 148 prior to due date of filing of return under S. 139(4), i.e., 31st March, 1990 was bad in law. Sri Surana Further contended that any return for the asst. yr. 1987-88 filed before 31st March, 1990 even if filed after issue of notice under S. 148, has to be treated as a return under S. 139(4). The learned counsel relied on the following decisions as per Annexure A to his paper book to support his contentions :
1. Benarsi Silk Palace vs. CIT (1964) 52 ITR 227 (All)2. K.S. Ratna Swami vs. Addl. ITO (1963) 48 ITR 568 (Mad) A return if it is to operate to exclude the operation of S. 34 of this Act should be one that is filed before the assessment is completed, i.e., such a return should be filed before the expiry of four years referred to.
3. Auto & Metal Engineers vs. Union of India (1978) 111 ITR 161 (P&H) When the assessee failed to submit the return within the outside limit notice under S. 148 can be issued.
4. Co-operative Marketing Society Ltd. vs. CIT (1983) 143 ITR 99 (MP) Return filed after issued of 148 notice but within time allowed under S. 139 (4) to be treated as a return under S. 139(4).
7. Then while placing reliance on Bombay High Court decision in the case of New Kaisre-I-Hind Spg. & Wvg. Co. Ltd. vs. CIT (1977) 107 ITR 760 (Bom) the learned counsel for the assessee submitted that since the reopening of assessment is an extraordinary jurisdiction the section must be strictly construed.
8. Sri Surana further contended that the assessment was barred by limitation because the return was filed on 30th March, 1989 within the time allowed under S. 139(4) and the same should have been completed by 31st March, 1990. He also pointed out that the assessment was barred by limitation as the notice under S. 148 issued prior to 31st March, 1990 cannot take away the right of the assessee to file the return under S. 139(4) of the Act. On the basis of these arguments and the contentions the learned counsel urged that the issue framed by the Assessing Officer and confirmed by the CIT(A) should be declared as illegal and should accordingly be quashed.
9. The learned Departmental Representative, Sri D. P. Kar, on the other hand, contended that notice issued under S. 148 is a legal notice as it was issued when the assessee failed to file the return voluntarily. It was also pointed out that the return filed by the assessee on 30th March, 1989 is in response to notice under S. 148 issued by the Department and, therefore, the return cannot be treated as return under S. 139(4). The learned Departmental Representative further argued that the assessment made by the Assessing Officer is within time prescribed and decisions cited but the learned counsel for the assessee are not applicable to the instant case. He also relied on para 2 of page 2 of the order of the CIT(A) particularly on the decisions cited by the CIT(A). In order to support the stand taken by the CIT(A) the learned Departmental Representative also placed reliance on Calcutta High Court decision in the case of Balish Singh & Co. vs. CIT (1987) 165 ITR 575 (Cal).
10. We have carefully considered the rival contentions, relevant facts and material placed on the record. We have also gone through all the decisions on which reliance has been placed by contending parties. On analysing the facts and the legal position of this case, we find that following main issues are involved in these grounds :
(i) Whether the notice issued under S. 148 on 25th Oct., 1988 is a valid notice ?
(ii) Whether the return filed on 30th March, 1989 is a return to be treated as a return furnished under S. 148 or under S. 139(4)?
(iii) Whether reassessment completed in this case on 22nd Aug., 1990 is barred by limitation ?
11. For the sake of convenience we will take up these issues one by one. As regards the validity of notice issued under S. 148 the first condition laid down in S. 148(1) for issuance of notice is that it should be issued before making assessment, reassessment and recomputation of income. In this case we notice that the notice under S. 148 is issued on 25th Oct., 1988 and the assessment was completed on 22nd Aug., 1990. Thus, in accordance with the provisions of S. 148(1) the notice issued under S. 148 is valid as it is issued before the assessment is made.
12. Then according to the provisions envisaged and limitation laid down in S. 149(1) of the Act no notice under S. 148 shall be issued in cases falling under cl. (a) of S. 147 for relevant assessment year if eight years have elapsed from the end of that year. In this case relevant assessment year is 1987-88 and 8 years from the end of that year will elapse in 1996. But we find that notice under S. 148 is already issued on 25th Oct., 1988 and is, therefore, well within prescribed time limit of eight years, i.e., before 31st March, 1996.
13. Here, it is not the case of the assessee that notice is invalid on the ground that no income has escaped assessment.
14. The assessees contention that notice under S. 148 issued prior to 31st March, 1990 cannot take away the right of the assessee to file the return under S. 139(4) is also not tenable as the Calcutta High Court in the case of Assam Consolidate Tea Estates Ltd. vs. ITO (supra) has laid down that notice under S. 148 cannot be issued if a valid return has already been filed within the period fixed and specified under S. 139(4) of the Act. In the instant case no return was furnished before the issuance of notice under S. 148. Moreover, there is no provision in the Act to invalidate the notice under S. 148 by furnishing of return after issue of such notice. Looking from all the angles we come to the conclusion that notice under S. 148 issued by the Assessing Officer is valid in all respects.
15. The notice issued under S. 148 is in the nature of notice under S. 139(2) and it was issued in this case as no return was filed by the assessee and the Assessing Officer had reason to believe that income has escaped assessment as per S. 147(a) of the Act. It is found in this case that notice under S. 148 is issued on 25th Oct., 1988 and the return of income is filed by the assessee on 30th March, 1989. As the return is filed after issue of notice under S. 148, it is certainly a return submitted in response to notice under S. 148. Although the return is filed before 31st March 1990 and it is a belated return, it cannot be treated as a return furnished under S. 139(4), as it is not filed voluntarily by the assessee. In our opinion, there is no clash between the provisions of Ss. 139(1) and 139(4) on the one hand and S. 139(2) on the other. For the sake of convenience sub-s. (4) of S. 139 is extracted as under :
"139(4)(a). Any person who has not furnished a return within the time allowed to him under sub-s. (1) or sub-s. (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in cl. (b), and the provisions of sub-s. (8) shall apply in every such case.
(b) The period referred to in cl. (a) shall be -
(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year;
(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968 three years from the end of the assessment year;
(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year."
16. It is evident from the provisions of sub-s. (4) itself that only the person who has not furnished the return under S. 139(1) and (2) is authorised to file the return under S. 139(4). In the instant case as the assessee has furnished the return in response to notice under S. 148 which is treated as a notice under S. 139(2), the assessee is not entitled to furnish a return under S. 139(4) of the Act. Therefore, the return furnished by the assessee is held to be a return filed under S. 139(2)/148 and not a return under S. 139(4). We hold it accordingly. Our view, is duly supported by the following Calcutta High Court decisions :
(i) Iqbal Singh Atwal vs. CIT (1984) 147 ITR 599 (Cal);
(ii) Balish Singh & Co. vs. CIT (supra).
In the case of Iqbal Singh duplicate return already filed by the assessee was treated on the basis of letter as a return in response to notice under S. 148 and assessment completed on that was declared to be valid. In the instant case the return furnished after issue and receipt of notice under S. 148 is, therefore, certainly to be treated as a return furnished in response to notice under S. 148 and assessment made on that return is valid in accordance with the ratio of the decision of the Calcutta High Court in the case of Iqbal Singh Atwal (supra). In the case of Balish Singh (supra) it was held "that the returns filed originally by the assessee were nothing but returns that were required to be filed under S. 139(1). These were filed beyond the time limit prescribed by S. 139(1) but before the assessments were made by virtue of enabling provisions of S. 139(4). Therefore, the second set of returns were returns under S. 139(1) which had been filed belatedly under the provisions of sub-ss. (4) and (5) of S. 139. The assessments were not barred by time". In the instant case as the return was filed in response to notice under S. 148, the return in rightly treated as furnished under S. 139(2).
17. On the other hand, the assessee has relied on several decisions to support its contention but, in our opinion, none of them is applicable to the instant case as the facts and circumstances are altogether different. In the case of Benarsi Silk Palace vs. CIT (supra), it was held that if no return is filed within the time prescribed in the general notice issued under S. 22(1), S. 34(1)(a) would be attracted if (i) no return was filed before the expiry of four years, or (ii) a return is filed before the expiry of four years and the assessment order was passed on it and later found that on account of the assessee not disclosing true and full facts income had escaped assessment. It was further held that if a return is filed within four years of the end of the proper assessment year and before an assessment is made, the ITO would have no jurisdiction to proceed under S. 34. Thus, we find that the Allahabad High Courts decision does not favour the assessee, rather it favours the case of the Department. In the case of the assessee as no return was filed under S. 139(4) the Assessing Officer had legal and valid jurisdiction to proceed under S. 147(a)/148. Then in the case of K. S. Ratna Swami vs. Addl. ITO (supra), the Madras High Court held that if with a valid return filed by the assessee before it, the Department fails to complete the assessment within the period of four years, the Department would lose the right to send a notice under S. 34(1) of the Act. This case law also does not come to the rescue of the assessee as in the instant case no return was filed before the notice under S. 148 was issued. The assessee has also placed reliance on Punjab High Courts decision in the case of Auto & Metal Engineers vs. Union of India (supra), wherein it was held as under :
"The return filed on 12th May, 1975, having been filed beyond time, the ITO was not unjustified in treating the same as non est. Therefore, the ground that the notice under S. 147 could not be issued because the return already filed by the petitioner was pending, was unsustainable.
As the provisions contained in S. 153(1)(a)(iii) were inapplicable, the plea that the assessment for 1972-73 has become time-barred was without merit. When the assessee failed to file the return even within the outside limit, the ITO could have reason to believe that the income for the said year had escaped assessment and was empowered to take action under S. 147."
Thus, it is evident that the ratio of this decision does not help the case of the assessee but supports the case of the Department. The assessees contention that notice under S. 148 can be issued only when the assessee fails to submit the return within outside limit is absolutely wrong as notice under S. 148 could be issued in this case before the assessment was made and within the limitation laid down in S. 149(1), i.e., 8 years from the end of that year. In view of these, provisions of law as construed by the learned counsel for the assessee cannot be accepted. Reliance is also placed on Madhya Pradesh High Court decision in the case of Co-operative Marketing Society Ltd. vs. CIT (supra) wherein it was held that the returns had been filed within the time allowed under sub-s. (4) of S. 139. Hence, the loss determined by the ITO for the relevant assessment years could be said to be loss determined by the pursuance of the returns filed under S. 139. Therefore, the Tribunal was not justified in declining to allow the benefit of carrying forward and set off of the losses computed by the ITO in respect of asst. yrs. 1972-73 and 1973-74. This case law also does not come to rescue of the assessee firstly because in that case return filed in response to notice under S. 148 was a returned loss and, secondly, the present issue regarding notice under S. 148 raised in question No. 3 in that case was not decided and answered by the Honble High Court. The main issue involved in that case was carry forward of loss in the case of belated return and, therefore, the High Court followed the Supreme Court decision in the case of CIT vs. Kulu Valley Transport Co. P. Ltd. (1970) 77 ITR 580 (SC) and allowed carry forward of loss disallowed by the Assessing Officer. So is the case within the Calcutta High Court decision in the case of Calcutta Chromotype Pvt. Ltd. (supra). This case law pertains to Super Profits-tax Act, 1963 and the imposition of penalty under that Act and, therefore, this decision is also not applicable to the instant case. In the case of Presidency Medical Centre Ltd. vs. CIT (supra), the Calcutta High Court decided that if a return is filed within time specified by sub-s. (4) of S. 139 it would be deemed to be in accordance with the law and loss has to be determined and carried forward as a matter of course under S. 72(1) r/w S. 80 of the Act, even though the return was not filed within time provided S. 139(1). This case law has nothing to do with the present case and it is just like the Madhya Pradesh High Court decision in the case of Co-operative Marketing Society Ltd. discussed above. In the case of New Kaisre-I-Hind Spg. & Wvg. Co. Ltd. (supra), the Bombay High Court held that since the reopening of the assessment is an extraordinary jurisdiction the section must be construed strictly. As the provisions of Ss. 147(a) and 148 are construed strictly there is no infringement and violation of the directives issued by the High Court.
18. Thus, it can be safely concluded that the return filed on 30th March, 1989 is a return to be treated as a return filed under S. 139(2)/148 of the Act.
19. The third ground of the appeal is that the assessment is barred by limitation, as the return was filed on 30th March, 1989 and the assessment should have been completed by 31st March, 1990, while it was completed on 22nd Aug., 1990. This contention of the assessee is based on the argument that the return furnished on 30th March, 1989 should be treated as a return under S. 139(4). As the latter contention of the assessee is rejected and the return furnished on 30th March, 1989 is treated as a return under S. 148/139(2), the former contention is also not tenable and cannot be accepted under any provisions of law. In this view of the matter the assessment is not barred by limitation.
20. The limitations for making the assessment in such cases are laid down in sub-s. (2) of S. 153, which is reproduced as under for the sake of convenience :
153(2). No order of assessment, reassessment or recomputation shall be made under S. 147 -
(a) where the assessment, reassessment or recomputation is to be made under cl. (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under S. 148 was served;
(b) where the assessment, reassessment or recomputation is to be made under cl. (b) of that section, after -
(i) the expiry of four years from the end of the assessment year in which the income was first assessable, or
(ii) the expiry of one year from the date of service of the notice under S. 148 whichever is later."
21. In this case as the assessment is reopened under S. 147(a), provisions of S. 153(2)(a) are applicable. According to these provisions no assessment is to be made after expiry of four years from the end of assessment year in which the notice under S. 148 was served. In the instant case as the notice under S. 148 was served on 26th Oct., 1988, the limitation for assessment expires on 31st March, 1993, i.e., four years from the end of asst. yr. 1988-89. We find that the assessment in this case is completed on 22nd Aug., 1990 and, therefore, it is well within limitation prescribed in the Act. Under no circumstances and under no provisions of Act, it can be said that the assessment is barred by limitation as contended by the learned counsel for the assessee. In this view of the matter, we reject the contentions of the assessee and hold that the assessment made in this case is within prescribed limits of time and is a valid assessment.
22. Thus, after critical analysis of the facts and correct application of law and judicial pronouncement we come to the conclusion and hold that the notice issued under S. 148 is valid notice, the return furnished in compliance with the notice under S. 148 is a return to be treated as furnished under S. 139(2) and the assessment made is within limitation and, therefore, is a valid assessment. In this way grounds Nos. 1, 2 and 3 fail and the order of the CIT(A) is upheld.
23. Ground No. 4 relates to disallowance of depreciation on VCP, colour TV and stereo cassette. During the previous year relevant to this assessment year the assessee claimed depreciation of Rs. 5,621 on additions of following capital assets : (1) one colour TV; (2) one video cassette player; (3) three car cassette players and three car radios along with speakers; and (4) record player. It was explained before the Assessing Officer that the colour TV and VCP are kept in show room and the car radio and cassettes are fitted in three cars. The Assessing Officer disallowed the claim of the assessee on the ground that since the assessee is engaged in the manufacturing of steel wire and is a dealer of Maruti vehicles the nexus between these assets and the assessees business could not be established. According to him, the purchase of these luxurious items are not incidental to the business of the assessee. Since the assessee could not establish that purchase of these assets is wholly and exclusively necessary for the business and since the earlier business was running smoothly without them the Assessing Officer disallowed the depreciation claimed by the assessee on the above luxurious items.
24. Before the CIT(A) it was submitted that one Maruti car was always kept in the show room for display and, therefore, VCP, colour TV and stereo cassette player fixed to such Maruti car for display were the assets of the assessee on which depreciation should be allowed. The CIT(A) did not accept the explanation of the assessee for the reason that it has not been established that a particular car, a particular set of VCP and colour TV, etc., did not form part of the disposable stock-in-trade. As no evidence has been furnished the CIT(A) confirmed the order of the Assessing Officer. Being aggrieved by the order of the CIT(A) the assessee has preferred this appeal to the Tribunal.
25. The learned counsel for the assessee repeated the same arguments which were put forth before the CIT(A) and submitted that colour TV, VCP, etc., were kept in the show-room and are meant for business purposes. He invited our attention to page 5 of his paper book at which a letter dt. 2nd March, 1991 from Maruti Udyog Ltd. is placed. On the basis of this letter the learned counsel submitted that Maruti Udyog Ltd. has supplied video cassettes and these cassettes serve a specific purpose of educating the customers on the products of Maruti Udyog Ltd. It was also clarified by the representative of the assessee that cost of car does not include cost of cassette.
26. The learned Departmental Representative, on the other hand relied on the order of the Assessing Officer and the CIT(A) and vehemently supported the same.
27. We have carefully considered the rival contentions, relevant facts and material placed on the record. We find that the letter on which the learned counsel for the assessee has placed reliance is dt. 2nd March, 1991 while this appeal pertains to asst. yr. 1987-88. Likewise at page 4 of the paper book the letter dt. 15th June, 1993 also does not help the case of the assessee as it indicates the subsequent actions not pertaining to the previous year relevant to the present assessment year. Since the assessee has failed to furnish the evidence to contradict the finding given by the Assessing Officer and the CIT(A) and since the assessee has failed to establish that these assets have been used for the business of the assessee in the previous year relevant to this assessment year we hold that the CIT(A) was justified in disallowing the depreciation on these assets. His order is, therefore, upheld and this ground is rejected.
28. Ground No. 5 relates to the disallowance of depreciation on furniture and fixtures and other items purchased for the Delhi premises for the purpose of business. The assessee claimed depreciation of Rs. 40,500 on furniture and fixtures, refrigerators and equipments and air-conditioners. It was explained before the Assessing Officer that one branch office at Delhi was opened and these furniture were purchased for the same. It was also submitted that this branch office had two bed rooms in the nature of guest house in which the directors and senior executives stay during their visit to Delhi because the head office of Maruti Udyog is located in New Delhi and because it reduces expenditure on hotel bills. The Assessing Officer found that no register is maintained for the guest house and no employee has stayed in the guest house and the number of employees is less than 1000. Since it was explained by the assessee that these items have been used in the guest house the Assessing Officer disallowed under S. 37(4) depreciation claimed on the above assets used in the guest house. In appeal before the CIT(A) it was admitted that no recovery from the boarders was made for providing such accommodation, food, etc. As the register was not maintained under r. 6(3) of the IT Rules, 1962 according to the CIT(A), the assessee is hit by the provisions of S. 37(4). He, therefore, rejected the ground of appeal and confirmed the order of the Assessing Officer.
29. Before us the learned counsel for the assessee repeated the same explanations as put forth before the Assessing Officer and the CIT(A). The learned Departmental Representative on the other hand, vehemently argued and strongly supported the orders of the authorities below.
30. We have considered the rival contentions and material placed on the record. We find that the assessee has not furnished any evidence to show and prove that a branch office for the business purpose was opened at Delhi and was utilised for the purpose of business of the assessee. On the other hand, the Department has established that the Delhi premises was used as guest house providing free accommodation and food without charging anything from the boarders as admitted by the assessee before the CIT(A). The required register under r. 6(3) of the IT Rules is also not maintained. As the assessee has failed to controvert the findings of the authorities below we have no reason to interfere with their orders. We accordingly hold that the CIT(A) was justified in confirming the disallowance of depreciation on furniture and fixtures under S. 37(4) of the Act. His order is, therefore, upheld.
31. In the result, the appeal of the assessee is dismissed.