Income Tax Appellate Tribunal - Gauhati
Assistant Commissioner Of Income-Tax vs Ampee Industries (P.) Ltd. on 2 August, 1991
Equivalent citations: [1992]40ITD20(GAU)
ORDER
Egbert Singh, Accountant Member
1. The appeal by the revenue is that the Id. CIT(A) should have followed the Circular No. 493 dated 21-8-1987 which is posterior to that relied on by the Commissioner of Income-tax (Appeals) and that the Id. CIT(A) was not justified in annulling the assessment.
2. The background and the facts of this case as noted in the assessment order were that the assessee was assessed in the status of a company and the method of accounting was shown as mercantile The previous year followed was 1987-88. The assessee had not yet started manufacturing or trading activity during the year, although the purpose and object was for manufacturing of biscuits. The Assessing Officer pointed out that the return along with the copies of profits and loss account etc., were filed on 10-1-1989 for the assessment year 1988-89, showing a loss of Rs. 18,280. The Assessing Officer scrutinized the accounts and completed the assessment under Section 143(3). He did not accept the money claimed by the assessee to have been advanced by the Directors of the company and also did not accept certain securities deposits from the stockists, on the reasons recorded by him in the assessment order in respect of the various items. He completed the assessment on the total income of Rs. 9,03,720.
3. Amongst other things, the assessee took up the matter before the Id. CIT(A). It was contended that the assessment made was bad in law and was voidab inilio. According to the assessee, the return for the above year has been filed on 10-1-1989, showing a loss of Rs. 18,260 and as such it was the return which shall be deemed never to have been furnished in view of the proviso to Section 139(10) of the Act. It was submitted that the said return was not a return and non est in law and, therefore, the Assessing Officer was not competent to complete the assessment under Section 143(3) as done by him in the present case. The assessee's Id. counsel before the Id. CIT(A) placed reliance on the Board's Circular No. 469 dated 23-9-1986, relevant portion of which was reproduced by the Id. CIT(A) in the impugned order. Amongst other things, it was stated in that Circular that a return of loss which has been furnished after 31st July of the assessment year during which the loss was sustained, shall be deemed never to have been furnished. The Id. CIT(A) observed that under the circumstances of this case the return filed by the assessee was not est in law and on the basis of such return no assessment can be made under Section 143(3) and, therefore, the assessment made by the Assessing Officer in this case was legally incorrect and, therefore, the same was annulled. The appeal of the assessee was allowed. Hence this appeal by the revenue.
4. We have heard both the sides at length and we have gone through the orders of the authorities below and connected papers placed before us for our consideration. The contention on behalf of the revenue is that the Id. CIT(A) should have taken into account the other Circular No. 493 dated 21-8-1987 which was posterior to the one relied on by the Id. CIT(A) in allowing the assessee's appeal. It is vehemently urged by the Id. departmental representatives that the Id. CIT(A) has committed an error in giving the above direction without considering the various aspects of the matter as well as the facts of the case in view of other circular which was ignored by him, Amongst other things, it is submitted that in the case of CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569 (SC) on the facts of that case, the Hon'ble Supreme Court held that a return showing an income below taxable limit submitted voluntarily by the assessee under Section 22(1) of the Income-tax Act was a good return and the Assessing Officer cannot ignore the same. It is vehemently urged before us that the Id. CIT(A) has misconceived the correct position in law in giving a direction which cannot be accepted on the facts of the case. In this connection, it may be useful to refer to a Circular No. 469 issued by the Board in which amongst other things it has been stated that the said decision in the case of Ranchhoddas Karsondas (supra) has been superseded by the Amending Act by inserting Sub-section (10) of Section 139. Section 139(10) which was inserted w.e.f. 1-4-1986 provides that notwithstanding anything contained in any other provision of this Act, a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished. Of course, there are exceptions as per proviso to that sub-section. Reference also is made to another decision of the Hon'ble Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.)Ltd. [1970] 77 ITR 518 in which on the facts of that case and under the provision of the Income-tax Act, 1922, it was held that a return submitted at any time before assessment is made within time Sub-section (1) of Section 22 must be considered along with Sub-section (3) of that section. A return whether it is a return of income, profits or gains or of loss must be considered has having been made within the time prescribed if it is made within the time specified in Section 22(3). It was held that in other words if Section 22(3) is complied with, Section 22(1) must also be held to have been complied with. It was further held that if compliance has been made with the latter provision the requirements of Section 22(2A) would stand satisfied.
5. It is further submitted by the Id. departmental representative that the assessee in the present case had filed a return showing a loss and the ITO started the assessment proceedings and notices under Section 143(2) etc., have been issued and were complied with. It is pointed out that the assessee at that stage before the Assessing Officer had never challenged the jurisdiction of the Assessing Officer to take up the said return for making the assessment accordingly. It is submitted, therefore, that it was no longer open to the assessee to challenge before the Id. CIT(A) regarding the jurisdiction which was never challenged before the Assessing Officer at any stage during the assessment proceedings. In this connection, reference is made to a decision of our own Hon'ble Gauhati High Court in the case of Smt. Sohani Devi Jain v. ITO [1977] 109 ITR 130 (FB). It is, therefore, submitted at length on behalf of the revenue that if the proper appreciation of the provisions of law and the facts of the case is made, it would be seen that the Id. CIT(A) went wrong in not considering the correct position vis-a-vis the Circular issued by the Board on the subject and, therefore, his order requires to be set aside for fresh disposal. It is also submitted that the Id. CIT(A) went wrong in annulling the assessment.
6. On behalf of the assessee, the learned counsel resists the submission made on behalf of the revenue. It is argued by him that the provisions of Section 139(10) is quite clear and unambiguous and the Id. CIT(A) has taken note of the Circular noted in his order and has correctly applied the provisions of law vis-a-vis and departmental instructions. It is submitted that he was fully justified in doing so. It was also submitted that the contention of the revenue that the other Circular should also be taken into account, cannot be sustained as the appellate authorities are not bound by those departmental Circulars which are meant for the department only. It is vehemently urged by him that if the provisions of Section 139(10) is properly looked into it could be seen that the intention or object of the amendment was quite clear and the Id. CIT(A) has rightly abide by such provision and there was no case for grievance for the revenue. It is reiterated by him that Section 139( 10) is independent absolutely from other provisions of the Income-tax Act in view of the fact that the said sub section starts with the words "notwithstanding anything contained...". It is submitted, therefore, that no other provisions of this Act can intrude into Section 139(10). It is also urged that the CBDT can issue Circular or departmental instructions only under Section 119 which cannot govern or supersede the provision of Section 139(10). In a paper book filed on behalf of the assessee various papers are placed including opinion expressed by certain experts, in order to strengthen the stand taken by the assessee. Amongst other things, it is submitted that in the case of State Bank of Travancore v. CIT [1986] 158 ITR 102 (SC), it was held that the Circulars which are executive in character cannot alter the provisions of the Act. Circulars which are in the nature of concessions can always be prospectively withdrawn and in the case of Shri Shubhlaxmi Mills Ltd. v. Addl. CIT [1989] 177 ITR 193 (SC) it was held that Circulars do not affect the true position of law even though the same are beneficial to the assessee. The assessee's Id. counsel also refers to a decision of the Hon'ble Calcutta High Court in the case of CIT v. Swedish East Asia Co. Ltd. [1981] 127 ITR 148 in which, on the facts of that case, it was held that ordinarily a Circular containing instructions which are inconsistent with the provisions of statute is of no effect, similar view was expressed in the case of Bela Singh Daulat Singh v. CIT [1966] 62 ITR 250 (All.) and also in the case of Addl. CIT v. M. Ranga Pai [1975] 100 ITR 413 (Kar.).
7. The assessee's learned counsel stressed the point that though the Circular of the Board would be binding on the Assessing Officer in the matter of general interpretation of statute, such Circular cannot override judicial decisions in the field covered by such decisions and such decisions of the Board would not be binding on the Courts since the same were meant for guidance of the departmental authorities. Other case laws also are added by the assessee to support a view that a taxing provisions has to be considered in their own setting given by the statute. It is also urged that even if two judicial views are possible the one which is beneficial to the assessee would have to be adopted. It is, therefore, reiterated and vehemently urged on behalf of the assessee that in the instant case there is no merit in the appeal by the revenue and the order of the Ld. CIT(A) may be sustained.
8. We have heard both the sides at length and we have gone through the various decisions referred to by us. As indicated above, Section 139(10) provides that notwithstanding anything contained in any other provisions of this Act, a return which shows the total income below the maximum amount not chargeable to tax shall have to be ignored. In other words it is seen that this sub-clause (10) deals with the return which shows positive income or positive total income. But which is below the maximum amount which is not chargeable to tax, but this sub-section did not speak or refer anything to return which shows a loss. This is so in view of the fact that Section 139(3) has been provided to take care of a case where an assessee has sustained a loss from which he claimed that such loss would have to be carried forward under Section 72(1) etc. Thus, Sub-section (10) is completely independent. As stated the sub-section itself is independent of Sub-section (3) of Section 139. Both deal with separate and different situation. Sub-section (10) deals with the return which shows a total income below taxable limit and not of a loss. In this connection, we have to refer to the definition of the words 'total income' as would be found in Section 2(45) in which it has been definited that 'total income' means the total amount of income referred to in Section 5, compute in the manner laid down in this Act. Again Section 5 deals with scope of total income which is received or deemed to be received, accrued or arisen in India or outside India in certain situation or by a non-resident. This section is a charging section which deals only with income which is positive and not any loss at all. Thus, it could be seen that where a return is filed showing a total income below the maximum amount which is not chargeable to tax would have to be deemed never to have been filed by such assessee. Of course, there are certain exceptions to which this sub-section would not apply, in which amongst other things, as has been provided as per proviso (c) i.e., a return of loss which has been furnished in accordance with the provisions of Section (3), referred to by us in the earlier paragraph. Thus provision (c) has clarified and qualified the provision of Section 139(10). From whatever angle we may look at the problem it is seen that Sub-section (10) deals exclusively with return which shows a total income which is below the taxable limit and which is not chargeable to tax and if the same is filed the same would have to be ignored. In the present case, the assessee has filed a return on 10-1-1989 showing a loss of Rs. 18,280. Thus, on that fact alone Sub-section (10) cannot be invoked at all as there was no applicability at all as held by the Id. CIT(A). True in Board's Circular reference has been made to returns in which loss has been shown etc., but as submitted by the assessee's learned counsel that the Circular issued by the Board cannot alter the provisions of the Act and in fact the Circular would not affect the true nature of law even if the same are beneficial to the assessee. On the basis of the bare and plain reading of Sub-section (10), the only return which shows a positive income though not chargeable to tax would have to be dealt with in accordance with this Sub-section (10) notwithstanding any of the provisions of this Income-tax Act.
9. Sub-section (3) of Section 139 deals exclusively with the matters of return in which the assessee has claimed a loss as sustained by him. Such loss or part therefore should be carried forward under Section 72, 73 etc., such loss return may be furnished within the time allowed under Sub-section (1). Admittedly, the present assessee has filed a loss return on 10-1-1989 relevant to the assessment year 1988-89. Thus, it could not be said that the return has been filed by the assessee under the requirements of Sub-section (1) so as to entitle the assessee to claim for carry forward of such loss. The Bench wanted to know what were the contents of the assessee's letter forwarding the said return of loss to the ITO, but that information could not be furnished by either party. In all probability, the assessee wanted the loss to be computed and carried forward. At the first glance it could be said that such claim for carrying forward of loss cannot be considered as the return has not been filed under Sub-section (1) of Section 139. But in this connection, there has been various decisions, one amongst which is the decision in the case of Presidency Medical Centre (P.) Ltd. v. CIT [1977] 108 ITR 838 (Cal.) in which a claim of such assessee was sustained and a loss was allowed to be carried forward after considering the decision of the Hon'ble Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) as stated by the Id. departmental representative in the present case. But this is not exactly what is disputed before us. It is seen that the CIT(A) in his short order has merely reproduced the Circular No. 469 dated 23-9-1986 and agreed with the assessee's learned counsel that the return in which the assessee has shown the loss should have been deemed to have here been furnished at all in Section 139(10). In fact, the Id. CIT(A) has not considered the relevant provisions of this section and other Sections as well before he came to the above conclusion in the impugned order. We agree with the assessee's learned counsel that Circular issued by the Board which are executive in character cannot alter the provision of the Act and will not affect the true position of law even though such Circulars are beneficial to the assessee. But as it is and as could be seen from the facts of the case the Circulars repeatedly referred to before us have no applicability at all to the present case as the return was admittedly a return in which a loss was shown and not of the total income which is below the amount chargeable to tax. As indicated by us 'total income' speaks of the positive income as would be dealt with by the charging of Section 5 of the Act. Section 5 has no scope to deal with the return of loss.
10. In the case of State Bank of Travancore (supra) it was observed by the Hon'ble Supreme Court on the facts of that case that the Circulars cannot detract from the Act. As stated earlier Sub-section (10) dealt with the positive income and Circulars purported to be related to this sub-section speaks of loss return etc., which is not relevant at all for the purpose of Sub-section (10). In such a situation, we cannot maintain the order of the Id. CIT(A) in which he has annulled the assessment by applying the said Circular by the Board which we consider is not relevant here. In fact, the first appellate authority would have to look into the provisions of those Sections vis-a-vis the facts of the case for coming to a particular conclusion which has not been done in the present case. As pointed out earlier, the very fact that the assessee has filed loss return would by itself take away such return out of the purview of Sub-section (10) and such loss return would have to be dealt with exclusively by Sub-section (3A) of Section 139. Whether the loss if computed would have to be carried forward or not is completely a different matter. The order of the Id. CIT(A) impugned before us, given after consideration of the said Circular has brought about an unintended result.
11. Sub-section (10) has put in a legal fiction that a return filed showing a total income being an amount which is below chargeable to tax would have to be ignored. The legal fiction will have to carry to its logical conclusion as the legal fiction are meant only for a definite purpose and they are limited for the purpose for which they are created and should not be extended to beyond that legitimate field as held by the Hon'ble Supreme Court in the case of CIT v. Maharaj Kumar Kamal Singh [1973] 89 ITR 1 where the language is quite clear and no other view is possible. It was held in the case of CIT v. Jagannath Mahadeo Prasad [1969] 71 ITR 296 (SC) that it is futile to go into the question whether the proviso operates as a substantive provision or only by way of an exception to the main provision. In the case of CIT v. Taj Mahal Hotel [1971] 82 ITR 44 (SC), it was held that Income-tax Rules were meant only for the purpose of carrying out the provisions of the Act and they could not take away what was conferred by the Act or whittle down its effect. In the case of India United Mills Ltd. v. CEPT [1955] 27 ITR 20 (SC), on the facts of that case it was held that the machinery section should be so construed as to effectuate the charging section. In the instant case before us, Section 139 is a machinery provision which has to be construed so as to effectuate the provision of Section 5 being the charging section. If the Rules cannot take away what was conferred by the Act more so Board's Circular cannot take away or whittle down the effect of the provision.
12. In our opinion, Circulars relied on by the Id. CIT(A) cannot be given effect to any case of this type presently before us. In a case where an assessee has filed a loss return and in view of Section 139(10), such return would have to be ignored if the Board's Circular is to be carried out to its logical conclusion. But that is not the intendment of the Act and relevant provisions. If a loss returned is filed, the same would have to be processed as per the machinery provision prescribed and whether such loss if computed would be allowed to be carried forward depends on other consideration and other provisions of law as briefly stated by us elsewhere in this order.
13. Thus, having regard to the entire aspect of the matter and after appreciating the various rival submissions made by the parties and after looking into the various authorities cited by both the sides, we are of the opinion that on the facts of the present case the Assessing Officer was justified in taking up the assessment proceedings on the basis of that return of loss although he concluded the assessment on a positive income. It is seen that the Id. CIT(A) has proceeded on a wrong premise that a return of loss shown by an assessee was a return showing a total income which amount is below the chargeable amount under Income-tax Act. Thus, in these premises, the impugned order of the Id. CIT(A) cannot be sustained which we hereby set aside for fresh disposal by him in accordance with law and after giving both the sides opportunity of being heard. The Id. CIT(A) would take up the other grounds of appeal which have been left by the CIT(A) as per his order dated 11-4-1990 in Appeal No. 72-Tej/1989-90.
14. In the result, the appeal is allowed for statistical purposes.