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DeepnaraIn Nagu and Co. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Indore
Decided On
Judge
Reported in(1982)1ITD288Indore
AppellantDeepnaraIn Nagu and Co.
Respondentincome-tax Officer
Excerpt:
.....return. the balance sheet accompanying the revised return was superscribed "books maintained on cash basis . before the ito, the assessee claimed that a revised return was filed due to change of accounting system from mercantile to cash. the ito noted it was clear that the change of the system was subsequent to the filing of the first return. he noted that the accounts were closed and adjusted and the statutory return of income was filed on the basis of the books of account which were kept correctly and completely on mercantile basis.he noted that there was no omission or wrong statement occurring in the e return, which would necessitate the filing of the revised return. he noted that there was no wrong statement in the original return either.the ito observed that the accounts.....
Judgment:
1. In this appeal, the assessee has challenged the findings and conclusions given by the AAC on the appeal preferred by it against the order of the ITO. Briefly speaking, the facts of the case are as under : 2. The assessee filed his return, showing an income of Rs. 57,990, on 18-9-1978, in the status of an individual. Computation of the income was furnished. The return was also accompanied by closed and adjusted copies of accounts, i.e., trading accounts, etc. Copy of the balance sheet was also enclosed. The ITO further noted in the assessment order that on 6-10-1979 a return, noted as "revised" under Section 139(5), was filed, showing the status as a firm while declaring an income of Rs. 19,048. He further noted that no reasons were given for the revised return. The balance sheet accompanying the revised return was superscribed "books maintained on cash basis . Before the ITO, the assessee claimed that a revised return was filed due to change of accounting system from mercantile to cash. The ITO noted it was clear that the change of the system was subsequent to the filing of the first return. He noted that the accounts were closed and adjusted and the statutory return of income was filed on the basis of the books of account which were kept correctly and completely on mercantile basis.

He noted that there was no omission or wrong statement occurring in the e return, which would necessitate the filing of the revised return. He noted that there was no wrong statement in the original return either.

The ITO observed that the accounts originally prepared were admittedly maintained on mercantile basis and the second set of books of account has been prepared much later on cash basis. The ITO, briefly speaking, declined to accept the revised return of the assessee.

3. Before the AAC, the assessee contended that on account of commercial expediency and business conditions prevailing in the market and because the assessee could not pay tax on sales, which could not be realised in cash, the assessee-firm has to opt out for offering the income on cash basis as per the revised return. The AAC noted that the firm started business on 21-10-1977 and admittedly maintained the accounts on mercantile basis for the period of 5 months and 10 days as the accounting period ended on 31-3-1978. He noted that the books were kept on mercantile method of accounting which consisted of cash book, ledger, purchase register, etc. He noted that the assessee cannot be allowed to change the books of account on mercantile basis to cash/ basis after a lapse of one and half years. He was also of the view that an assessee cannot escape the liability to tax by omitting to make an entry or making a wrong entry in the account books. He examined the details of purchases and sales and noted that realisations of bills were made within reasonable time, i.e., 3 to 6 months. Thus, he found that the contention of the assessee that the change of mercantile to cash basis was on account of commercial expediency, was not proper and it was an after-thought.

4. As far as the propriety of the revised return is concerned, the AAC discussed the findings of the ITO. He noted that the accounts were properly closed and adjusted, and that there was no omission or wrong statement occurring therein vis-a-vis the mercantile method of accounting regularly followed by the assessee up to the last date of the accounting period. He discussed the provisions of Section 139(5) and ultimately sustained the order of the ITO.5. Under these premises, the assessee has brought the present appeal before us contending that the authorities below erred in determining that the accounts of the assessee were kept on mercantile basis and not on cash basis, without any material on record. It is the appeal of the assessee that the authorities below acted without judicially appreciating the facts of the case. It is also contended that the AAC erred in not considering the return filed under Section 139(5) and thereby upholding the order of the ITO that the revised return was not a valid return. It is the submission of the assessee's learned counsel that this is the first year of assessment and the assessee has a right to adopt any method of accounting and the department has nothing to do with that. It is submitted that in the instant case, no assessment was done earlier and, as such, the assessee has filed the return within the provisions of the law. By filing of the revised return it is submitted that the same has substituted the original return filed under Section 139(1). At the time of hearing, it was submitted by the learned counsel for the assessee that although there was no omission in the original return, but definitely there was a wrong statement in the accounts and the status, etc., and, as such, the assessee has an exclusive right to file a revised return as provided under Section 139(5). Reliance is placed on the decisiosn-Dhampur Sugar Mills Ltd. v. CIT [1973] 90 ITR 236 (All.), Mst. Zulekha Begam (Khatoon) [1981] 129 ITR 560 (Cal.) and O.P. Malthotra v. CIT [1981] 129 ITR 379 (Delhi).

It is submitted that the authorities below erred on facts and in law in rejecting the claim of the assessee in respect of the revised return under the circumstances. It is urged, therefore, that the orders of the authorities below may be cancelled and the appeal by the assessee may be allowed.

6. On the other hand, the learned departmental representative supports the order of the authorities below, submitting that admittedly right from the beginning the assessee has adopted a particular method of accounting, i.e., mercantile, and that it is the finding of the ITO as well as of the AAC that the books of account were originally maintained on mercantile basis. It is submitted that there was no omission or wrong statement in the original return and the alleged revised return was filed after the books of account have been re-written on cash basis which cannot be permitted in law. It is submitted that once an assessee has adopted a particular method of accounting, he is not allowed to change the same subsequently. In this connection, reference is made to the decision of the Hon'ble High Court in the case of New Victoria Mills Co. Ltd. v. CIT [1966] 61 ITR 395 (All.). It is submitted, therefore, that the order of the AAC may be sustained.

7. At the time of hearing the learned counsel for the assessee has vehemently submitted that the authorities below have failed to appreciate the facts of the case before corning to their conclusion and in fact the comments in the book on Income-tax Law by Chaturvedi & Pithisaria, at page 1633, were referred to before the AAC in which the discussion was made on the bona fide change of method being permissible. We have perused the orders of the authorities below for our consideration along with the facts of the case as placed before us.

We have taken into our consideration the rival contentions of both the sides. Admittedly, the assessee filed the return originally after completing all the formalities which are statutorily expected of an assessee. From the order of assessment it is seen that there were signed copies of the trading accounts, etc. The assessee subsequently after one and half years filed the revised return claiming that due to commercial expediency and as the assessee was unable to meet tax liability if the returned income on mercantile basis is considered, found that filing of the revised return was necessitated. Admittedly there is no omission in the return filed originally. Before us not a single item of omission is pointed out. This finding of the lower authorities stands uncontroverted, but, the assessee's learned counsel pointed out that there were wrong statements as the actual and correct income has not been shown in the return. It is explained before us that the assessee originally has shown sales on accrual basis, but it was realised afterwards, that since tax would have to be paid on such pending sale receipts, the assessee was compelled to re-write the books of account on cash basis, and ultimately have to file a revised return.

In our opinion, Section 139(5) does not provide for such contingency.

An assessee can file a revised return only when, on his own, he found that there were certain omissions, errors or wrong statements which have been bona fide committed.

In the instant case, as mentioned earlier, no mistake, error, omission or wrong statement has been pointed out to have occurred in the original return so as to compel the assessee to file a revised return.

Revised return in the present case, in fact, was filed as the books of account have been re-written on cash basis as the assessee could not admittedly pay the tax if the income were to be computed on mercantile basis. In our opinion, the case laws relied on by the assessee would not help to advance the case of the assessee any further. The decisions referred to deal with the right of an assessee to file the revised return, if the original return was filed under Section 139(4). The question before us is completely different and the facts of the case are distinguishable. The AAC has given a finding, after perusal of the details of the accounts that the method of accounting adopted by the assessee originally was on mercantile basis and the changeover to cash basis was only an after-thought. It is also his finding that there was no omission or wrong statement occurring in the original return or in the mercantile method of accounting regularly followed by the assessee up to the last date of the accounting period which ended or 31-3-1978.

These findings of the AAC could not be controverted by the assessee.

Filing of return is not a mechanical job as held by the Hon'ble Calcutta High Court in the case of CIT v. Hoosen Kasam Dada (India) Ltd. [1973] 91 ITR 453. The assessee in the present case has not mechanically filed the original return which was filed after recording the transactions in the account books and after observing the necessary formalities and statutory obligations. The Hon'ble Allahabad High Court in the case of New Victoria Mills Ltd. (supra), among other things, held that though it is open to the assessee to change his method of accounting, the change should be bona fide and not casual departure from the regular method which has hitherto been accepted for a number of years and merely because in the subsequent assessment year, there was a loss and the bonus actually paid could not be effectively set-off but had to be carried forward, would not justify for its changing the method of accounting. In a penalty matter which came up before the Hon'ble Gauhati High Court in the case of F.C. Agrawal [1976] 102 ITR 408, the High Court on the facts of the case has observed that revised return under Section 139(5) can be filed by an assessee before the assessment is made, after the assessee had discovered some omission or some wrong statement in the original return and that discovery of omission or wrong statement was made by the assessee. It is required for the assessee to show that omission or wrong statement in the original return was due to inadvertence or bona fide mistakes on the part of the assessee. The mere submission of the revised return would not absolve the assessee from the penalty proceedings. In the instant case before us, as discussed earlier, no omission, error or wrong statement has been shown to have occurred in the original return. Thus, there was no bona fide mistake, error or inadvertence on the part of the assessee as claimed to have been committed by the assessee in the original return. Under such circumstances, the revised return filed in the instant case, is not a return filed by the assessee as provided by law on the point. We do not find any substance in the appeal by the assessee.

Having regard to the facts of the case and the submissions made before us and in view of the decisions of the different High Courts, we are of the opinion that the order of the AAC has been based on adequate grounds which are required to be sustained, which we hereby do and no interference is called for.


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