Income Tax Appellate Tribunal - Delhi
Assistant Commissioner Of Income-Tax vs Sohan Lal Chajjan Mal on 8 September, 1998
Equivalent citations: [1999]70ITD364(DELHI)
ORDER
U.B.S. Bedi, J.M.
1. This is revenue's appeal and the cross objection filed by the assessee against the order of the CIT(A), Faridabad dated 20-7-1992 relating to Assessment year 1989-90 and the revenue has raised the following grounds in its appeal in ITA No. 7023 (Del.) 92 as under :-
"On the facts and in the circumstances of the case, the ld. CIT(A) has erred in law and facts in :-
(1) restricting the profit of the assessee under the head suppressed profit from Rs. 1,91,260 to Rs. 5,240;
(2) deleting the addition of Rs. 4,69,360 on account of unexplained investment."
2. Assessee's cross objection in C.O. No. 75(Del.) 95 reads as under :-
"1. That the ld. CIT(A) erred in dismissing ground No. 1 of the appellant that the asstt. order was illegal and against the provisions of law and holding that the order of the Assessing Officer is not invalid or without jurisdiction. He has further erred in holding that the time limit prescribed under proviso to section 143(2) of the I.T. Act, 1961 would have to be considered from 3-1-1992 ignoring the return filed on 30-3-1990.
2. That the ld. CIT(A) erred in agreeing with the ld. Assessing Officer that the transactions recorded in document No. 10 seized on 17-1-1989 pertained to the assessee firm and not to Sh. Chander Prakash and thus advising an addition of Rs. 5,240 in the income of the assessee firm in this regard.
3. That the ld. CIT(A) erred in not adjudicating upon the issue of disclosure of Rs. 50,000 made under section 132(4) read with Expln. 5 to section 271(1)(c) of the I.T. Act, 1961 and rejecting and dismissing ground No. 7 taken by the assessee against not taking cognizance of disclosure of Rs. 50,000 made by the assessee during the course of search and seizure proceedings. The ld. CIT(A) erred in holding that the acceptance of disclosure is an administrative matter and therefore not taking into consideration in the appellate proceedings."
3. We shall first take up assessee's cross objection. The first ground of cross objection relates to challenge regarding dismissing ground No. 1 of assessee's appeal by holding that the order of Assessing Officer is neither invalid nor without jurisdiction and it was further held that time limit prescribed under proviso to section 143(2) of the I.T. Act, 1961 would have to be considered from 3-1-1992 ignoring the return filed on 30-3-90 and facts relating to this ground are like this that return of income was filed by the assessee on 30-3-1990 which was found to be defective by the Assessing Officer as it was not accompanied with profit and loss account and balance sheet of the assessee firm. So the Assessing Officer wrote to the assessee on 20-12-1991 to furnish profit and loss account and balance sheet. The same were filed on 3-1-1992. Notice under section 143(2) was thereafter issued on 6-1-1992, earlier notices issued on 30-3-1990 and 29-8-1990 were admittedly not served on the assessee firm and the ld. CIT(A) had held the said notices to be invalid and this finding of the ld. CIT(A) has not been challenged by the department in its appeal as contended.
4. The finding of ld. CIT(A) on the aforesaid facts is that the time limit prescribed in first proviso to section 143(2) would be applicable w.e.f. 3-1-1992 when 'the defects in the return of income filed were removed.' According to him, only on 3-1-1992, "it could be regarded that complete return of income was filed". As such, the notice issued on 6-1-1992, according to him, is within the limitation prescribed by the proviso to section 143(2).
5. Assessee's submission before the ld. CIT(A) was that "the return" was filed in the present case on 30-3-1990, that the financial year in which the return was furnished ended on 30-3-1990, that the period of 6 months from the end of the month in which the return was furnished expired on 30-9-1990 and that according to the proviso to section 143(2), notice under section 143(2) could have been served on the assessee upto 30-9-1990 only and not later than that. Therefore, notice dated 3-1-1992 is not valid notice.
6. Assessee has not filed any appeal but has filed cross objection in the appeal of the revenue and while reiterating the submissions as made before the first appellate authority has pleaded before us that in view of specific provisions as contained in proviso to section 143(2) of the I.T. Act, the notice under section 143(2) could be issued either before the end of the assessment year or within 6 months from the end of the month in which return is filed, whichever is latter and since return of income was filed on 30-3-1990, at the most notice under section 143(2) could be issued in this case, as per relevant provisions as applicable at the relevant time up to 30-9-1990 and not later than that and in this case though earlier two notices issued on 30-3-1990 and 29-8-1990 were stated to be issued but the same were not validly served because these two notices were stated to have been served on one Shri Harish Chander, son of Smt. Om Wati, partner who was not authorised to receive notices and moreover it was argued before the first appellate authority that this was a case of firm and valid service of notice could only be either on Smt. Om Wati or Shri Mahinder Goel and ld. CIT(A) while considering this aspect has opined that valid service of notice can be regarded only if the notices have been served on the partners or persons authorised by the partners through Power of Attorney to receive notice etc. on their behalf and it was further observed that notices issued on 30-3-1990 and 29-8-1990 under section 143(2) cannot be regarded as proper notices as they have been issued in consonance of an incomplete defective return. Thus it was observed that since defects were removed on 3-1-1992 as per assessee's letter placed on record along with the relevant documents, notice dated 6-1-1992 under section 143(2) was served on Shri Mahinder Goel, partner is only a valid and proper notice and notices issued on 30-3-1990 and 29-8-1990 under section 143(2) cannot be regarded as proper notices as they have not been properly issued. It was submitted that this finding of ld. CIT(A) as regards notices dated 30-3-1990 and 29-8-1990 under section 143(2) being not regarded as proper notices and not served on authorised persons were not challenged by the revenue in its appeal. So this finding of CIT(A) has become final and the same has been accepted by the department.
7. It was further pleaded that now question arises whether return filed on 30-3-1990 could be held to be a valid return and limitation would count from the date of filing of such return or would it not be assumed legal efficacy till it was perfected by removing the defects of filing the profit and loss account and balance sheet w.e.f. 20-12-1991. When these documents were filed by the assessee on having been pointed out to remove the defects found in the return filed on 30-3-1990, notice under section 143(2) issued on 6-1-1992 was valid and within limitation as held by CIT(A). According to the assessee it is erroneous to hold that limitation would start from 20-12-1991 when defect notice was issued or from 3-1-1992 when defects were removed as it has already commenced on 30-3-1990 when the return was filed.
8. The ld. DR relying upon the reasoning and finding as given by the ld. CIT(A) has pleaded that since return was incomplete and defective, the defective memo was issued under section 139(9) of the I.T. Act but the assessee did not remove the defects as pointed out in the defective memo within the prescribed period of 15 days but same were removed vide letter dated 3-1-1992. So the Assessing Officer condoned the delay and treated the return as valid w.e.f. 3-1-1992 when defects were removed. Therefore time limit for issuance under section 143(2) commenced from this stage only and notice after removal of defects were issued on 6-1-1992. So the same is within the time period prescribed of 6 months and asstt. made thereafter is a valid and proper asstt. The ld. CIT(A) was perfectly justified in upholding the action of Assessing Officer and in view of facts and circumstances and clear position of law as discussed by the ld. CIT(A) in the impugned order his action deserves to be confirmed.
9. To counter these arguments of the ld. DR assessee's counsel submitted that since asstt. has been made on the basis of return filed on 30-3-1990 for one action the time period cannot be reckoned from the date when defects were removed and for other action return filed is to be considered. It was also submitted that in no circumstances date of filing of return could be taken as having been filed when profit and loss account and balance sheet were filed. To support all these contentions as raised by assessee's counsel reliance was placed on CIT v. Bharat Refineries Ltd. [1986] 162 ITR 652/26 Taxman 255 (Cal.), Smt. Sova Sarkar v. ITO [1983] 139 ITR 386 (Cal.), Mohindra Mohan Sirkar v. ITO [1978] 112 ITR 47 (Cal.), CIT v. Garia Industries (P.) Ltd. [1983] 140 ITR 636/12 Taxman 84 (Cal.) and Circular No. 281, dated 22-8-1980 reported in 131 ITR (Statute) 29 at page 31 and it was pleaded that since no valid notice was issued within the time limit prescribed, asstt. order is liable to be quashed.
10. We have heard rival submissions, perused the record, gone through the orders of authorities below, looked into the case laws as cited and also perused the written submissions made in detail by the assessee's counsel. It is admitted fact that first two notices issued oh 30-3-1990 and 29-8-1990 were not treated to have been properly served (as these were served on a son of one of the partners who was not authorised to receive the notices) and this finding of CIT(A) recorded in the impugned order has not been challenged by the revenue in its appeal, therefore, no cognizance has to be taken against these notices. It is also admitted fact that the return filed on 30-3-1990 were not accompanied with profit and loss account and balance sheet of the assessee firm and a defective memo dated 20-12-1991 was issued by the Assessing Officer to furnish trading account, profit and loss account, capital account of the partners and balance sheet and these documents were filed on 3-1-1992 and in this regard para 1 of the asstt. order is reproduced below :-
"ORDER UNDER SECTION 143(3) :
Search and seizure operation took place at the business premises of the assessee on 17-1-1989 and certain incriminating books of account/loose papers etc. were found and seized. Subsequently, the assessee filed return of income on 30-3-1990 declaring total income of Rs. 90,000 on estimate basis. Since this return was not accompanied by trading account, profit and loss account, capital accounts of partners and balance sheet, assessee vide this office letter dated 20-12-1991 was required to furnish the same. In response to this notice, the assessee filed its trading account, profit and loss account, capital accounts of partners and balance sheet on 3-1-1992."
11. Since the return of the assessee was found to be defective as relevant papers as required were not enclosed with the said return, notice dated 20-12-1991 was issued for removal of defects by filing of trading account, profit and loss account, balance sheet and capital accounts of the partners and this action of the Assessing Officer is covered by section 139(9) of the I.T. Act which reads as under :-
"Where the Assessing 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 ... and if the defect is not rectified within the said period of fifteen days ... then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as 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 rectified a defect after the expiry of the said period of 15 days .... but before the asstt. is made, the Assessing Officer may condone the delay and treat the return as valid return. Explanation to section 139(9) lists the various conditions in which the return of income shall be regarded as defective and clause (d) of the Explanation mentions the non-filing of profit and loss account and balance sheet as one of the defects.
12. A perusal of the above sub-section indicates that -
(1) the intimation is to be given if a return is defective, (2) the giving of this intimation is "discretionary" as the use of the word 'may' suggests ("he may intimate the defect.").
(3) if defect is not removed, return has to be treated as 'invalid', as if the return had never been filed.
(4) contra-wise if the defect is removed within the given time, the return would be treated as a 'valid return' and (5) discretion has been given to the Assessing Officer to treat the return as valid even when the defect is removed beyond the stipulated period, but before the asstt. is completed.
13. The only fiction created in sub-section 9 is to treat the return actually filed as not having been filed at all if the defect is not removed. No further fiction has been created to the effect that, if the defect is removed, the return, though filed earlier, will be deemed to have been filed on the date when the defect is removed. In fact action under section 139(9) commences with the return on record is defective; and its defect is sought to be removed. Once the defect is removed, it has to be dealt with in accordance with law. If the defect is not removed, it becomes an invalid return, and the fiction created by sub-section (9) wipes it out of record from the very inception. Thus, both the removal of defects as well as its non-removal relate back in point of time to the original return. In one situation, it becomes defectless, in another it becomes invalid. Either way, the date of filing of the return does not change. There may still be a third possibility, viz., that the notice of defect under section 139(9) has not been issued. In that case, the return, as it is, has to be dealt with. It cannot be ignored or discarded. Thus, according to the assessee, a return, if not invalid, though defective has legal efficacy beginning right from the date of its having been filed, and all the legal consequences under the law, including the running of the limitation period, will commence from the date of the filing of the return itself. If as a result of defective memo issued by the Assessing Officer, a return becomes invalid, then also the invalidity relates back to the date of filing of the return, and the return becomes invalid right from the very inception. It is not as if it continues to be a return upto the date of non-compliance, and, on the expiry of the stipulated period alone, it becomes invalid. If a return is not invalid, it will have legal consequences from the date of its filing. These consequences do not get postponed to the date of the removal of defects.
14. The above view finds support from the clarification issued by the Central Board of Direct Taxes vide Circular No. 281, dated 22-9-1980 (1981) 131 ITR St. 29, wherein the following was, inter alia, stated in para 27.7 :-
"(iii) The provision makes a distinction between a defective return and an invalid return. A defective return is not ipso facto to be regarded as an invalid return. It is only when a return contains any of the specified defects and the ITO .... in his discretion intimates the defect to the assessee and the assessee fails to rectify the same within the stipulated period .... that the return shall be treated as an invalid return ....
(v) where there is a default in rectifying the defect intimated by the ITO, the return of income has to be treated as an invalid return and further proceeding shall have to be taken on the footing that the assessee has failed to furnish the return."
15. May it be noted that nowhere did the Board take the stand that a defective return is deemed to have been re-filed on the date when the defect is removed and that it becomes legally efficacious from the said date. It is a gloss put by the ld. CIT(A), it has no mandate in the language used in section 139(9). It is a well-established principle of interpretation of taxing statute that nothing is to be added to its language nor has any wording to be omitted. In the words of Rowlatt, J. in Cape Brandy Syndicate v. IRC [1921] KB 64, 71 in a taxing Act, "one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption to tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."
16. This view point is also supported by the ratio in Bharat Refineries Ltd.'s case (supra). The assessee had filed its return for the assessment year 1971-72 on 6-10-1971. The assessee's profit and loss account and balance sheet were, however, not enclosed with the return. In response to a notice under sections 143(2) and 142(1) of the Act, the assessee produced and filed its profit and loss account and balance sheet for said assessment year on 8-6-1973. The ITO by his order dt. 27-3-1974 made an assessment of the income of the assessee. He also charged interest under section 139(8) of the Act for the period from 1st October, 1971 till 6th October, 1971, for late filing of the return. The CIT held that the return filed on 6th October, 1971 was invalid. He set aside the asstt. so far as the charging of interest was concerned and directed the ITO to charge interest on the tax payable on the return from 1-10-1971 to 8-6-1973, i.e. the date on which copies of profit and loss account and balance sheet was filed by the assessee. On appeal, the Tribunal set aside the order of the Commissioner. On a reference, the Hon'ble High Court held that a return as filed did not contain any defect whatsoever on its face. The ITO treated the same as a legally valid return. The asstt. in fact, had been made on the said return by the ITO after he called for and obtained the copies of the balance sheet and profit and loss account subsequently .... The return filed by the assessee was, therefore, valid. The Commissioner was, therefore, not justified in levying interest under section 139(B) from 1-10-1971 to 8-6-1973. The law on the subject was explained by their lordships as follows :-
"There could be cases where the returns are incomplete to such an extent that they would not be regarded as returns in law, for example, where the returns are not signed by the assessee at all or where blank return was filed. But where return had been signed and verified by the assessee and the only defect in the return was that the particulars of profit and gains of the business had not been stated, the return could not be treated as invalid."
17. The difference in a valid return and invalid return, as stressed earlier, is that a valid return had its legal consequences, e.g. the running of limitation and charging of interest etc. An invalid return has no legal existence and, as such, no legal consequences would follow from it. A return filed without profit and loss account and balance sheet has been held by the Hon'ble High Court to be a valid return in the sense that it will have to be taken cognizance of for the purpose of charging interest for the duration of the delay etc. It would not be correct to deem the return as having been filed only on the date when the defects were removed and to start counting legal consequences with reference to the latter date. It was for this reason that the charging of interest by the CIT upto the date of filing of the profit and loss account and balance sheet was held to be erroneous in law. The return filed on 6-10-1971 was "the return" (i.e. a valid return, though detective). Therefore, it had legal efficacy.
18. In the setting of the above proposition, the order of the ld. CIT(A) holding that the return dated 30-3-1990 had no legal efficacy and that, therefore, notice under section 143(2) could not be issued with reference to it is without any authority of law and the said view is reversed. Notice under section 143(2) could not be issued after 30-9-1990. Therefore, the notice dated 3-1-1992 is void ab initio and cannot give rise to a valid assessment under section 143(3). The said order is, therefore, quashed.
19. Since asstt. order has been quashed on legal grounds, the appeal of the revenue as well as other grounds of cross objection of the assessee are not being adjudicated upon. As a result, appeal of the revenue gets dismissed and cross objection of the assessee gets accepted as above.