1. The assessee is a builder, promoter and a film distributor. For the assessment year under appeal, no return was filed by him till end of the assessment year. No notice under Section 139(2) of the Income-tax Act, 1961 ('the Act'), was also served on him. Subsequent to the end of the financial year on 28-7-1979, believing that the income of the assessee has escaped assessment, the ITO served a notice under Section 148 of the Act, on the assessee. A return was filed by the assessee on 8-8-1979 returning a loss of Rs. 4,94,379. The ITO went into the details of the case and issued a draft order computing a loss of Rs. 1,13,610 and since the addition involved exceeded more than a lakh of rupees, the IAC's order under Section 144B of the Act was obtained. The IAC directed the ITO to drop the proceedings started under Section 148 in the absence of any finding of escapement of income. The ITO passed an order on 8-7-1980 which read as under : The proceeding initiated by issue of the notice under Section 148 of the IT Act, 1961 on 23-7-1979, are hereby dropped as the income chargeable to tax has not escaped the assessment.
2. Pursuant to the direction of the IAC, thus the ITO passed the alleged assessment order dropping the proceedings since no income chargeable to tax had escaped assessment. He issued a demand notice also to the assessee in consonance with the assessment order.
3. The assessee appealed to the Commissioner (Appeals), inter alia, raising the following grounds : 1. That the appellant is not liable to submit return under Section 139(1) as he has suffered heavy losses during the year under consideration and hence, the action under Section 147 is not called for and is without jurisdiction.
2. That even in the earlier years, the appellant has suffered heavy losses and the losses available with him for carry forward and set off against current income were more than Rs. 4,00,000.
3. That the ITO has no specific information to believe that the appellant has earned any taxable income and hence, the action of the ITO is without jurisdiction and bad in law.
4. The appellant has submitted the return not in response to notice under Section 148 but, has submitted the return under Section 139(4).
1. That the learned ITO is not justified in initiating the proceedings under Section 147 and issuing the notice under Section 148 of IT Act, 1961. Under the facts and circumstances of the case, the action of the learned ITO is not justified and is bad in law and therefore, the proceedings initiated under Section 147 read with Section 148 may please be dropped.
2. That the learned ITO is not justified in taking away the rights given to appellant under Section 139(4).
3. That the learned ITO is not justified in dropping the action on the return submitted by the appellant under Section 139(4).
Under the facts and circumstances of the case, appellant pays, that the return submitted by him may please be treated as return submitted by him under Section 139(4) and prays that, the loss as declared in the return may please be determined and be allowed to be carried forward to set-off against future income.
4. The appellant prays to leave, add, alter or amend the grounds of appeal as and when occasion demands.
5. The appellant prays to produce such other necessary evidence as and when occasion demands.
4. The claim of the assessee both before the ITO, who did not accept it and the Commissioner (Appeals), was to give him the benefit of carry forward of the losses of the earlier years and also the loss of the year under appeal. The Commissioner (Appeals) accepted the assessee's claim that the return filed by him on 8-8-1979 was a return under Section 139(4) and directed the ITO to take cognizance of that return as such and determine the loss of the assessment year 1977-78 and also to grant carry forward of the loss as per provisions of the Act. The present departmental appeal is directed against the above direction of the Commissioner (Appeals).
5. Apart from challenging the above directions, the departmental appeal claims that the Commissioner (Appeals) should have held that the return filed by the assessee on 8-8-1979 in response to a notice under Section 148 served on him on 23-7-1979 was a return in response to the notice under Section 148, so that those assessment proceedings did not survive. It is also claimed that the ITO's action dropping the proceedings was correctly done.
6. For the department, it is pointed out that a notice under Section 148 having been served on the assessee, any return filed in response to the same should be regarded as filed pursuant to that notice. It is settled law that in an action in pursuance of a notice under Section 148, the ITO cannot grant any relief to the assessee from the original assessment, if any, made on him. Reliance is placed on the decisions in Anglo-French Textile Co. Ltd. v. CIT  23 ITR 82 (SC) and Kevaldas Ranchhodas v. CIT  ITR 842 (Bom.). Additional grounds of appeal were also filed claiming that even if the returns were treated as valid under Section 139(4), since the ITO had not passed any consequential order thereon under Section 143(3) of the Act, computing the loss, the assessee had no right of appeal to the Commissioner (Appeals). As a natural corollary, it is claimed that the Commissioner (Appeals) could not adjudicate on the question of an order passed by the ITO under Section 143(3) on the basis of the assessee's alleged return under Section 139(4). After hearing the objections of the learned counsel for the assessee, the additional grounds are admitted.
7. The learned counsel for the department has pointed out that even if the assessee could be said to have a right of filing a revised return at any time before the assessment is made, in view of the return filed under Section 148, this right should be regarded as merged with the proceedings taken under Section 148.
8. The learned counsel for the assessee has pointed out that this right to file a revised return under Section 139(4) could not be restricted by any other provisions of the Act. If the ITO finds that the assessee had not filed a return in response to a notice under Section 148 served on him, it was his duty to pursue the normal legal remedies open to him. That could not curtail the basic rights under the Act which the assessee has to file a revised return under Section 139(4). The Act does not make any distinction between the amount of income or loss indicated in such a return. The assessee had got the right to have any loss determined even on the basis of a revised return filed under Section 139(4). It is also claimed that the ITO not having computed the loss on the basis of the revised return filed by the assessee, there was a clear right of appeal to the Commissioner (Appeals) against such non-computation of loss. The fact that with regard to the proceedings under Section 148, the ITO cannot give relief to the assessee does not take away the right of the assessee to file a revised return which finds expression in the independent provisions of law. In a suitable case where this independent provision does not conflict with the notice served by the ITO, the assessee can certainly file his return of income at any time within the time provided and if the income is negative being loss, the assessee could have the benefit of carry forward of the loss. It was also claimed that the return filed on 8-8-1979 was a return under Section 139(4) and not a return in response to notice under Section 148. Mere issuance of a notice under Section 148 shall not deprive the assessee of his right to file a revised return under Section 139(4). Reference is also made to two decisions of the Tribunal in IT Appeal No. 74 (PN) of 1980 and certain other orders of the Tribunal.
9. The assessee has a right to file a revised return under Section 139(4) at any time before the assessment is completed. It is also settled law that action under Section 148 cannot be started or pursued to give some relief to the assessee. It can be done only to bring to tax escaped income. As a natural corollary, it would not be proper for any appellate authority to give a direction to the ITO acting under Section 148 to reduce the income already the assessee was assessed on or to give any other type of relief such as allowing carry forward of loss. The argument of the learned counsel for the assessee virtually amounts to this. He has a right to file a revised return. Even though he fails to file a return in pursuance of a statutory notice under Section 148, he could claim that a return otherwise filed should not be treated as a return under Section 148. That the assessee will get the benefit of carry forward of loss only if the return is regarded as one within Section 139(4) seems to be beyond dispute. The assessee's claim is that while not complying with a notice under Section 148 and thus acting illegally on one side, he could exercise his rights to claim losses by resorting to the provisions of Section 139(4). In our opinion, this argument cannot be countenanced. When a notice under Section 148 is issued, the assessee is bound to comply with it. The law provid es for penalties, etc., for non-compliance, reasonably timed compliance, etc. It cannot, therefore, be held that a return is filed in response to one particular section which is voluntary and not another which is obligatory and actually a validly filed return should be considered for one purpose but ignored for any other purpose.
10. The stand taken by the learned counsel for the assessee, to say the least is self-contradictory. This is clear from the grounds of appeal raised by him before the Commissioner (Appeals). The assessee has challenged the notice under Section 148 and also action taken under Section 147 in the grounds of appeal presented before the Commissioner (Appeals) against the order of the ITO dropping action initiated under Section 148 dated 8-7-1980. The grounds of appeal quoted at length above before the Commissioner (Appeals) clearly indicate that the assessee was proceeding on the basis that a return was filed under Section 148. Otherwise he would not have challenged the legality of Section 147 proceedings in that appeal. That the assessee knew that he was filing a return in response to notice under Section 148 is clear since otherwise he would not have challenged the validity of the action under Section 147. Ignoring, therefore, the grounds of appeal and other circumstances as a fact any case we hold that the assessee did not file his return on 8-8-1979 in response to notice under Section 148. Even though he has mentioned in an accompanying letter that this was a return under Section 139(4) and also claimed that his right under Section 139(4) cannot be taken away from him, the grounds of appeal clearly indicate that they were directed against action under Section 147 and the notice under Section 148. The assessee thus cannot take shelter behind the plea in the particular circumstances of the case that he has filed a return under Section 139(4). It is not prima facie possible to say whether the return is in response to a notice under Section 148 or by virtue of the powers and rights obtaining in Section 139(4). The mere oral or otherwise testimony of the assessee as to his intent in this regard would not be decisive of the matter. While raising this objection against the validity of Section 148, notice it is not open to the assessee at the same time to claim that the return is filed under Section 139(4). The basic contention of the assessee, therefore, on this point has to be rejected.
11. The return filed by the assessee if it is treated as a return under Section 139(4), would lead to the inevitable inference that the assessee has not complied with the notice under Section 148. An assessee who claims relief in an appeal can certainly not be heard to say that he has deliberately flouted his statutory obligations, but cleverly sought to claim his statutory rights arising under the same statute. The return filed on 8-8-1979 has therefore to be presumed clearly as being filed in response to a notice under Section 148 and if this be so, the Commissioner (Appeals) could certainly not have given a direction to the ITO to compute the losses and carry them forward as that would be beneficial to the assessee and against the clear decision of the Supreme Court in Anglo-French Textile's case (supra). On the contrary if we were to ignore the grounds of appeal before the Commissioner (Appeals) and also exonerate him from the non-compliance with a notice under Section 148 at the same time allowing him claim his rights for filling a revised return, we would be permitting the assessee to take two inconsistent stands and to take advantage of his own default. Even otherwise this will only mean that the assessee has filed a return under Section 139(4) which has not been acted upon by the ITO on the one hand and the assessee has failed to comply with a notice under Section 148 on the other hand. We do not see how on the one hand the assessee could file an appeal on the basis of a mere return filed under Section 139(4) with no order passed on the same by the ITO or on the other successfully file an appeal against an order under Section 143(3) read with Section 147 against the clear ratio of the Supreme Court decision in Anglo-French Textile's case (supra). From either point of view, we have no hesitation in coming to the conclusion that the decision of the Commissioner (Appeals) has to be cancelled.
12. The two decisions of the Tribunal to which reference was made by the learned counsel for the assessee do not help him insofar as the present dispute was not in issue before those cases and the assessees did not take inconsistent stands as in the present case.