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Himachal Pradesh State Forest Vs. Income-tax Officer. - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Chandigarh
Decided On
Reported in(1984)9ITD76(Chd.)
AppellantHimachal Pradesh State Forest
Respondentincome-tax Officer.
Excerpt:
per shri s. k. chander, accountant member-this appeal, by the assessee.is directed against the order of the commissioner (appeals) dated 10-10-1979 relating to the assessment year 1976-77. in this appeal, the assessee has raised the following grounds : "1. for that the learned commissioner (appeals) was not justified in holding that the learned ito had reason to believe that income had escaped assessment as a result of the failure of the assessee to file a return for the assessment year 1976-77 and that section 147(a) was validly invoked by the learned ito.2. for that the learned commissioner (appeals) was not justified in holding that the notices under section 148 is/are with jurisdiction and valid in law.3. for that the learned commissioner (appeals) was not justified in holding that.....
Judgment:
Per Shri S. K. Chander, Accountant Member-This appeal, by the assessee.

is directed against the order of the Commissioner (Appeals) dated 10-10-1979 relating to the assessment year 1976-77. In this appeal, the assessee has raised the following grounds : "1. For that the learned Commissioner (Appeals) was not justified in holding that the learned ITO had reason to believe that income had escaped assessment as a result of the failure of the assessee to file a return for the assessment year 1976-77 and that section 147(a) was validly invoked by the learned ITO.2. For that the learned Commissioner (Appeals) was not justified in holding that the notices under section 148 is/are with jurisdiction and valid in law.

3. For that the learned Commissioner (Appeals) was not justified in holding that the return of income filed on 12-3-1979 is a return under section 148 and not a return under section 139(4) of the Income-tax Act, 1961.

4. For that the learned Commissioner (Appeals) erred in law and fact in sustaining the order of the learned ITO and not allowing the determined loss to be carried forward.

5. For that the order of the learned Commissioner (Appeals) is otherwise bad in fact and law." In column 14 of From No. 36, the assessee has claimed the following relief : "That the notice under section 148 be quashed, the return of income be treated as a return under section 139(4) (a) and the carried forward of business loss be allowed." 2. In fact, this appeal had come up for hearing before us earlier and by an order dated 28-12-1981, we determined the issues relating only to some of the grounds concerning validity of reassessment under section 147 of the Income-tax Act, 1961 (the Act). However, the assessee moved a miscellaneous petition on the basis that the Tribunal in the said order had not adjudicated upon all the grounds of appeal, as no specific finding had been given in respect of all the grounds of appeal taken by the assessee. The Tribunal, after hearing the parties on the miscellaneous petition, came to the conclusion that all the parties concerned, during the course of hearing that culminated in the order dated 28-12-1981, had not understood the same thing in the same sense concerning all the grounds of appeal. The Tribunal, therefore, came to the decision that in the interest of justice to both the sides, the order of the Tribunal dated 28-12-1981 had to be recalled. By virtue of the inherent powers vested in the Tribunal, the said order was recalled by an order dated 18-9-1982 passed in Miscellaneous Petition No. 25 (Chd.) of 1982. The appeal was, thus, restored to the file of the Tribunal for fresh disposal in accordance with law.

3. The appeal has been heard at great length at the Circuit Bench of this Tribunal at Simla on 12-9-1983. Both the sides argued at great length and we have taken due note of the submissions from both the sides as well as the authorities cited by them. Before we come to the arguments of the parties before us and before we even record issues that are before us for determination, we would like to have a look at the factual backdrop of the case. This factual backdrop is as under.

4. The assessee is a corporation known as the Himachal Pradesh State Forest Corpn. Ltd., with its registered office at Simla. For the assessment year 1975-76, the assessee filed a return of income. For this assessment year, the assessment was completed by the ITO on 18-3-1978.

However, before this assessment was completed, the assessee was to comply with various provisions of the Act for the assessment year 1976-77. Therefore, on 15-3-1976 the assessee wrote a letter to the ITO that as per estimate of total income of the assessee, there did not appear to be any profit and as such advance tax payable by the assessee under section 212(3) of the Act may be treated as nil. This letter appears at page 1 of the assessees paper book filed on 8-6-1981. The ITO, however, did not accept the letter so written by the assessee as a valid estimate of the total income and the advance tax payable thereon for the assessment year 1976-77. He wrote a letter to the assessee on 24-3-1976 with reference to the assessees letter, mentioned supra, to day that the estimate could not be accepted in the form of letter and advised the assessee to file the estimate of total income and advance tax payable thereon, in the prescribed form. Therefore, the assessee on 14-4-1976 wrote a letter to the ITO that since there was no income, the assessee was not obliged to file either the estimate to total income pertaining to the previous year relevant to the assessment year 1976-77. In this estimate, which appear at page 4 of the paper book, income shown was loss.

5. Return of income for the assessment year 1976-77 was due from the assessee under section 139(1) of the Act on or before 31-7-1976. The assessee, however, did not file the return under this sub-section, as required under law. It is pertinent to note that the ITO did not issue any notice under section 139(2) to the assessee for the assessment year 1976-77 before 31-3-1977 or any time thereafter. On 22-2-1977, the assessee-corporation wrote to the ITO a letter asking for extension of time for filing the return under section 139 up to 30-6-1977.

6. On 11-7-1977, the ITO made the following noting on his order sheet : "A/W, Simla, H. P. State Forest Corpn. Ltd. 1976-77, 11-7-1977. As per latest assessment year for 1975-76, the assessee has income above Rs. 1 lakh. No return for the assessment year 1976-77 has been filed by the assessee. In my opinion, the assessee has taxable income for this year also. Therefore, I have reason to believe that the income to the tune of Rs. 2 lakhs has escaped. Issue notice under section 148 for the assessment year 1976-77 to the assessee." After this noting, a notice under section 148 of the Act for the assessment year 1976-77 was issued to the assessee on 11-7-1977 and was served on the assessee-corporation on 12-7-1977. It appears that the assessee made an application in the prescribed form verified in the prescribed manner on 10-8-1977 asking for extension of time up to 21-10-1977. This extension was in respect of notice calling for return under section 148 served upon the assessee on 12-7-1977. This application was received in the office of the ITO on 11-8-1977 and the ITO made a noting thereon extending the time for filing the return up to 31-8-1977. Thereafter, there was no extension of time for filing the return under any of the sub-sections of time filing the return under any of the sub-sections of section 139 allowed by the ITO.7. The ITO served another notice under section 148 on the assessee on 20-3-1978. Return from the assessee under this notice for this assessment year was due on or before 20-4-1978. Thereafter, the assessee did not ask for extension of time nor did the ITO wrote to the assessee in respect thereof.

8. The assessee filed a loss return for the assessment year 1976-77 on 12-3-1979 declaring loss in column 3, at Rs. 27,76,232 constituted of Rs. 22,27,449 as business loss and balance as depreciation. On cover page of this return at the top were inscribed the words In response to notice under section 148 dated 20-3-1978. Carry forward of such business loss and depreciation was claimed. The ITO, however made an order dated 4-7-1979 labelled as an order under section 148/143(3) and stated that loss cannot be carried forward as per section 80 of the Act as the return was filed in response to notice under section 148. The ITO, nevertheless, in the impugned assessment order, determined business loss at Rs. 22,27,440 and depreciation which was to be carried forward under section 32(2) of the Act at Rs. 5,60,557.

9. When this assessment came up in appeal before the Commissioner (Appeals), he vide his order dated 10-10-1979 held that the notice under section 148 issued by him (ITO) on 11-7-1977 was perfectly valid and the return filed by the appellant-corporation on 12-3-1979 has to be considered as return filed in response to said notice. He also held that the ITO was justified in disallowing the carry forward of loss, as he did.

Thus, whereas the assessee-corporation laboured under the impression that the return filed by it on 12-3-1979 was in response to notice under section 148, dated 20-3-1978 and the ITO did not say which of the two notices issued by him under section 148, he was availing of for raising the assessment, the Commissioner (Appeals) upheld the assessment on the strength of the notice under section 148 issued by the ITO on 11-7-1977.

10. Before us, in nutshell, the arguments raised on behalf of the assessee-corporation by its learned counsel, Mr. D. K. Gupta, Advocate, were to the effect that the return filed on 12-3-1979 declaring loss, as described supra, was a return under section 139(4). It was not a return in response to any of the notices issued by the ITO under section 148. Since the ITO had not issued notice under section 139(2) at all, return filed by the assessee under section 139(4) was before him for disposal because it had been filed within the time prescribed under section 139(4) (b) (iii), under which return could be filed at any time before assessment is made, which also clearly means at any time before assessment is or can be made, as the time for filing such a return would be over only on 31-3-1979. Therefore, assessment raised by the ITO on 4-7-1979, was an assessment under section 143(3) only, as notice under section 148 and the entire proceedings relating thereto were ab initio void, since the ITO had no evidence whatsoever for forming a belief of a reasonable man that due to failure of the assessee to file the return, any income for the assessment year 1976-77 had escaped assessment. The ITO under such circumstances was bound to determine the loss and allow it to be carried forward in accordance with law. Since he failed to do so and the Commissioner (Appeals) supported his order on such facts, both the authorities below erred in denying the assessee carry forward of loss, as claimed. The learned counsel for the assessee submitted that the return filed by the assessee voluntarily under section 139(4) required completion of the first assessment for the year 1976-77, as it was not a case of reassessment. Hence, the ITO was bound to determine the total income of the assessee which included in such assessment proceedings determination of loss as well.

11. In the alternative, without any concession, the learned counsel for the assessee submitted that even if we were to consider that notice issued under section 148, served upon the assessee on 11-7-1977 or for that matter notice issued under section 148 and served upon the assessee on 20-3-1978, was legal and valid notice, the reassessment proceedings raised by the ITO on any of such notices would nevertheless be invalid because no return of income as called for by such notice had been filed by the assessee. Under such circumstances, the ITO could proceed to make a best judgment assessment under section 144 of the Act read with section 147(a), and avail of the other provisions of law relevant to the such facts and circumstances. It was, however, submitted by him that the ITO failed to do so, as he made an assessment under section 143(3) read with section 148. It was contended by him that in such circumstances, right and privilege of the assessee under section 139(4) continued unabated and the assessee was entitled and in fact had availed of this right and privilege by filing first return for the assessment year 1976-77 on 12-3-1979. Since this return was not a return under section 139(1) or 139(2) or 139(3), it was a valid and legal return under section 139(4). Since the return showing loss and filed within the period allowed under section 139(4) (b), it was valid return under section 139(4) in view of the ratio of the judgment of the Andhra Pradesh High Court in the case of C. P. Sarathy Mudaliar v. CIT (1978) 114 ITR 687. In any case, the issue stands squarely decided in favour of the assessee in view of the judgment of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. (1970) 77 ITR 518. Since under the Act, there is no power with the ITO to curtail the right and privilege of the assessee of filing the return under section 139(4) and the ITO in fact did not issue any notice under section 139(2), return under section 139(4) was the only return on which assessment could be and had been framed and, therefore, assessment is only under section 143(3) and the assessee has right and privilege including that of determination and carry forward of the business loss determined.

12. The learned counsel for the assessee further argued that where the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year, or to disclose fully and truly all material facts necessary for his assessment, income chargeable to tax has escaped assessment for that year, he may, subject to the provisions of sections 148 to 153 of the Act, assess or reassess such income or recompute the loss, etc. He, however, submitted that it is very important to note that the failure has to be under section 139 as a whole and not merely under any of its sub-sections. This, he clarified that there being loss incurred by the assessee during the year, failure of the assessee to file return under section 139(1) could not constitute reasonable cause for starting proceedings under section 148.

13. He also submitted that the ITO had no reason to believe that due to failure of the assessee to file the return, income had escaped assessment because he had been informed by the assessee, as would be clear from the letters mentioned supra, that the assessee had suffered a loss and that there was no taxable income. Therefore, reasons recorded by the ITO were imaginary, irrelevant, conjectural and were not bona fide. The socalled reassessment raised by the ITO was not only invalid because there was no return to any of the notices served under section 148 but because notice issued was without any legal authority as the ITO has no reason which could justify invocation of section 147(a).

He fortified his submissions with plethora of cases noted by him in the written note, given on the direction of the Bench, which we would be referring to infra. The assessee claims, therefore, that the impugned assessment raised by the ITO was, on the facts and in the circumstances of the case, only an assessment under section 143(3). Therefore, the ITO gravely erred in not allowing the determined loss to be carried forward in accordance with law for the benefit of the assessee for set off in the future assessment years. The Commissioner (Appeals) erred in supporting such an action of the ITO. The orders of the authorities below, therefore, be suitably modified so as to allow the assessee the benefit of carry forward of loss on the basis of assessment made by the ITO under section 143(3) on 4-7-1979 because mentioning of section 148 in this assessment was of no legal consequence, as discussed above.

14. On the other hand, the revenue relying on the judgment of the Supreme Court in the case of Anglo-French Textile Co. Ltd. v. CIT (1953) 23 ITR 82 and that of the Calcutta High Court in the case of ITO v. Sudhir Kumar Bhose (1972) 84 ITR 60, contended that since the ITO had started the proceedings under section 147(a) with the issuance of notice under section 148 which he could be lawfully in view of the ratio decidendi of the Calcutta High Court judgment in the case of Amarnath Mehra v. ITO (1977) 110 ITR 376, the assessee could not claim carry forward of loss in such proceedings. It was contended that the reasons given by the ITO for reopening assessment that the assessee was assessed on a total income of Rs. 1 lakh in the immediately preceding assessment year and, therefore, he had reason to believe that the income for the current year had escaped assessment, were valid. Relying upon the judgment of the Punjab and Haryana High Court in the case of Auto & Metal Engineers v. Union of India (1978) 111 ITR 161 and the Calcutta High Court decision in the case of Sun Engg. Works (P.) Ltd. v. CIT (1978) 111 ITR 166 and that of the Andhra Pradesh High Court judgment in the case of Nagasuri Raghaveswara Rao v. CIT (1967) 66 ITR 496, it was contended by the revenue that notice under section 148 was validly issued by the ITO and the return in fact was filed by the assessee with a note on the first page that it was a return in response to notice under section 148 and as such reassessment proceedings are not only valid but the direction of the ITO that the loss cannot be carried forward, were in accordance with law and no interference in such an assessment is called for at the instance of the assessee. It was further contended by the revenue that the case of Kulu Valley Transport Co. (P.) Ltd. (supra) applies only to cases where no notice under section 148 has been issued or where a notice issued under section 148 is invalid. Since section 148 notices were issued in accordance with law and the assessment has been raised on that basis, loss could not have been allowed by the ITO in such an assessment because reassessment cannot result in determining the loss in view of the judgment of the Bombay High Court in the case of Kevaldas Ranchhodas v. CIT (1968) 68 ITR 842.

15. The learned counsel for the assessee, in rejoinder, while reiterating all the submissions contained in the written note as well as oral submisions made before us, pointed out to the manner in which the ITO had completely ignored the evidence projected before him clearly indicating that there was no income for the assessment year 1976-77 but there was loss as shown in the estimate of advance tax filed and in the letters from the assessee which the ITO had received, understood, replied and responded before any notice under section 148 was issued. Therefore, entire proceedings under section 147(a) were not bona fide.

16. Before we deal with the arguments from both the ides and determine the issues involved in this appeal, we would like to have in focus the position of law as available from the statute and the pronouncements of various courts of law. Under section 139(1), every person, if his total income or the total income of any other person in respect of which he is assessable under the Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner. Return under this sub-section is to be filed suo moto without there being any notice from the ITO. Under sub-section (2) of this section, the ITO, if he is of the opinion that in the case of any person, his income is assessable under the Act, the ITO may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notices, a return of his income, etc., in the prescribed form and verified in the prescribed manner. There is a proviso to this subsection which entitles an assessee to make an application in the prescribed manner asking for extension of time and there is a power given to the ITO who in his judicial discretion may extend the date of furnishing the return.

17. Sub-section (3) of this section makes a provision for furnishing a return by any person who has not been served with a notice under sub-section (2), if such a person has sustained a loss in any previous year under the head Profits and gains of business or profession or under the head Capital gains and claims that the loss or any part thereof should be carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74 A of the Act. This return is to be furnished within the time allowed under sub-section (1) of section 139 or within such further time, which on an application made in the prescribed manner, the ITO may, in his discretion, allow.

18. There is a specific provision under sub-section (4) (a) of section 139 that any person who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (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 clause (b) and the provisions of sub-section (8) ibid shall apply in every such case. In clause (b) of sub-section (4), the period for filing the return of different categories of returns is provided. There is a provision in sub-section (4) (b) (iii) that where the return relates to a previous year relevant to any other assessment year, the period within which return can be filed is two years from the end of such assessment year.

The phrase any other assessment year refers to the cases not covered by sub-section (4) (b) (i) and (4) (b) (ii). The case of the assessee is covered by sub-section (4) (b) (ii).

19. In the case of P. T. Anklesaria v. CIT (1959) 35 ITR 532, the Bombay High Court held that where there was a valid return filed by the assessee declaring loss and the ITO ignoring such return issued notice under section 34 of the Indian Income-tax Act, 1922 (The 1922 Act) and observed that the return has been filed under section 34 claiming a loss only and proceedings under section 34 were dropped, the assessment order of the ITO was invalid and bad in law because there was no provision whereby the ITO could refuse to assess the loss shown in the return. The Honble Supreme Court in the case of CIT v. S. Raman Chettiar (1965) 55 ITR 630 held that a return showing income below the taxable limit can be filed at any time before assessment and for this there is no limit of time. The honble Supreme Court further clarified that where in respect of any year a return had been filed before assessment, "the ITO could not ignore or disregard that return and issue a notice under section 34 on the assumption that there had been a failure or omission on the part of the assessee to make a return of his income, and consequent assessment under section 34 ignoring the return is invalid.

20. In the case of Kulu Valley Transport Co. (P.) Ltd. (supra), the Honble Supreme Court held that section 24(2) of the 1922 Act confers the benefit of losses being set off and carried forward and there is no provision in section 22 of the 1922 Act under which losses have to be determined for the purpose of section 24(2). Section 22(2A) simply says that in order to get the benefit of section 24(2), the assessee must submit his loss return within the time specified by section 22(1). That provision must be read with section 22(3) for the purpose of determining the time within which a return has to be submitted. It can be said that section 22(3) is merely a proviso to section 22(1). Thus, a return submitted at any time before assessment is made is a valid return. In considering whether a return made is within time, sub-section (1) of section 22 must be read along with sub-section (2) of that section. A return whether it is a return of income, profits or gains or of loss must be considered as having been made within the time prescribed if it is made within the time specified in section 22(3). In other words, if section 22(3) is complied with, section 22(1) must also be held to have been complied with. In this judgment, the honble Supreme Court made the celebrated observation that even if two views in the interpretation of a taxing statute are possible, view which is favourable to the assessee must be adopted.

21. In the case of C. P. Sarathy Mudaliar (supra) the Andhra Pradesh High Court considered a case where, for the accounting year ended 30-6-1960, the assessee filed a return voluntarily on 17-2-1966, returning net loss and the assessment was completed on 28-3-1966. Since the return was filed and the assessment was completed within four years from the end of the assessment year, the Court held that as such the return must be deemed to have been validly filed within the time under section 139(1). The Court further observed that under sub-section (3) of section 139, the assessee is entitled to file a return of loss where no notice had been served under sub-section (2) and the return of loss having been voluntarily filed by the assessee, all the requirements of sub-section (3) had been complied with and it should be deemed to be a return validly filed under sub-section (1) of section 139.

22. On a careful Perusal of section 139 as a whole, we find out that the Legislature in its legislative wisdom has not empowered the ITO to curtail the time available to an assessee for filing a loss return under section 139(4). On the other hand, time for filing the return of total income can be curtailed by issuance of a specific notice under section 139(2). However, notice under section 139(2), as observed earlier, while analysing the provisions of section 139, can be issued only before the end of the relevant assessment year and at no time thereafter. We also find that section 147(a) gives powers to the ITO either to make assessment where there is omission or failure on the part of the assessee to make a return under section 139 for any assessment year or to make a reassessment, if by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year, income change able to tax has escaped assessment for that year. It is clear from the provisions of clause (a) of section 147 that where no assessment has been made earlier by the ITO, section 147(a) can be invoked to call for a return of income for determining the total income for that assessment year. It appears, however, this can be done only if there is a default under section 139 as a whole because clause (a) of section 147 mentions section 139 as a whole and not only specific sub-section of it. Mention of section 139 as a whole becomes important in the context that in sections 139(8), 144, etc., the Legislature has specifically mentioned sub-sections of section 139.

23. In the context of interpretation of this section 139, we have to keep in view the famous words of Rowlatt, J. in the case of Cape Brandy Syndicate v. IRC (1921) 1 KB 64 approvingly quoted by the Supreme Court in the case of CIT v. Ajax Products Ltd. (1965) 55 ITR 741 that "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 as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used". It is thus clear that where the ITO has not exercised his powers vested in him under section 139(2) within time allowed to him, the Legislature has bestowed upon the assessee something of a locus poenitentiae to file a loss return and the time within which such a return can be filed as specified in section 139(4) (b), which has been discussed supra.

24. In the case of Anglo-French Textile Co. Ltd. (supra), relied upon by the revenue, the Honble Supreme Court held that where no return was filed by an assessee at any stage of the case disclosing any income, profits or gains at all and proceedings were later taken under section 34 the assessee could not claim in the course of those proceedings that a certain loss should be determined and recorded. This case has been referred to by the Calcutta High Court in Sun Engg. Works (P.) Ltd.s case (supra) wherein it has been held that in reassessment proceedings, the ITO cannot wholly ignore losses which were suffered in the year in question. Hence, Anglo-French Textile Co. Ltd.s case (supra) has only a limited application on the facts of that case. In the case of Sudhir Kumar Bhose (supra), the Calcutta High Court held that the jurisdiction of the ITO to issue notice under section 147 arises immediately after the omission to file the return or the failure to disclose all the material facts therein and no subsequent act on the part of the assessee can take away the jurisdiction. Similarly, in the case of Amarnath Mehra (supra) the same High Court held that where the assessee did not file his return of income within 30-9-1963, under section 139(2) even though the assessee had the privilege of filing his return before completion of the assessment up to 31-3-1968, a notice issued to the assessee under section 147 before 31-3-1968, would be a valid notice. Failure to file the return within the time mentioned in section 139(2) attracts the provisions of section 147(2).

25. The Punjab and Haryana High Court in the case of Auto & Metal Engineers (supra) held that where the return had been filed beyond time given under section 139(1), the ITO was not unjustified in treating the same as non est. Therefore, the ground that the notice under section 147 could not be issued because the return already filed by the petitioner was pending, was unsustainable. This judgment appears to be, with due respect, in conflict with the law laid down by the Supreme Court in S. Raman Chettiars case (supra) where the Honble Court held that "the ITO could not ignore or disregard that return and issue a notice under section 34 on the assumption that there has been a failure or omission on the part of the assessee to furnish a return of his income". It appears that this judgment of the Supreme Court was not brought to the notice of his Lordship in writ proceedings in the Punjab and Haryana High Court as there is no reference to it in the judgment.

26. In the case of Nagasuri Raghaveswara Rao (supra), the Andhra Pradesh High Court held that the letter of the assessee giving particulars of the lease amount did not amount to a statutory return and the ITO was right in reopening the assessment. This case turns on its own facts and is not an authority for deciding the issue before us.

Further, the Bombay High Court in the case of Kevaldas Ranchhodas (supra) has held that in the reassessment proceedings initiated under section 34(1) (a) on the ground that loss had been over-estimated in original assessment, the ITO had no jurisdiction to reopen the entire assessment originally made and determine afresh the assessable profits or to correct errors and omissions made by the assessee in the return in the matter of computation of total income.

27. Before we proceed further, we have also to keep in focus the doctrine of approbate and reprobate. It is only a species of estoppel and cannot operate against the provisions of statute as held by the Supreme Court in the case of CIT v. V. MR. P. Firm (1965) 56 ITR 67.

This doctrine will be applicable to find out whether when there was no provision of a statute, either party could bind itself or the other in any manner nonetheless. We have also to remember the doctrine of interpretation of statute laid down by the Supreme Court as mentioned supra (para 20) that in the interpretation of a taxing statute where there is possibility of two reasonable views, we should adopt the one that favours the taxpayer.

28. Return filed declaring loss beyond the period provided under section 139(1) being a return under section 139(4), would be available to the ITO and he will be enjoined upon by law to dispose it of, even if the assessee does not file a return in response to or in accordance with provisions of section 148. This is very clear from the judgment of the Honble Supreme Court in the case of S. Raman Chettiar (supra), wherein it has been held that although the notice under section 34 issued was invalid, the return submitted pursuant to that notice was a return within section 22(3). It is pertinent to note that the honble Supreme Court has pointed out that the ITO could not ignore or disregard that return and issue a notice under section 34 on the assumption that there had been an omission or failure on the part of the assessee to make a return of his income under section 22. In such a case, assessment under section 34 was held as invalid. In this case, the Honble court also brought out a distinction between filing of first return of income and furnishing of subsequent returns in reassessment proceedings after completion of the first assessment. The observations of the Honble Supreme Court at page 636 of the report are very pertinent and relevant in this context. The above decision in the case of S. Raman Chettiar (supra) has been explained by the Calcutta High Court in the case of CIT v. Keshardeo Bubna (1983) 13 Taxman 87. In this case, the assessee could have filed returns for the assessment years 1964-65 and 1965-66 at any time before 31-3-1969 and 31-3-1970, respectively, under section 139(4). However, returns were actually filed on 17-2-1967 and the assessments were completed on 28-3-1969. The Court held that under such circumstances, there was no legal impediment in completing the assessment and the ITO did not have to fall back upon a notice under section 148 to overcome the period of limitation or to reopen the completed assessment.

29. Now considering the facts of the case before us, we find that the ITO, when he recorded the reasons for reopening the assessment, did not act in a bona fide manner because before him there was ample evidence to show that the assessee had suffered loss during the accounting period relevant to the assessment year under appeal. Therefore, if the ITO had to have a resort to section 147(a) he had to show that he had reason to believe that for failure of the assessee to file a return under section 139(1) income chargeable to tax had escaped assessment.

This belief has to be that of a person well instructed in law acting in a bona fide manner and a mere pretence to reopen the assessment cannot be justified. In this case, the ITO has merely stated that he is of the opinion that income of the assessee for the year under consideration amounting to Rs. 2 lakhs has escaped assessment. For this observation, he did not have even an ITO of evidence. On the other hand, he had evidence tendered by the assessee showing loss for the assessment year 1976-77 and he was, thus, duly bound in law to indicate to the evidence that would convert loss of lakhs of rupees into positive taxable income of Rs. 2 lakhs which he stated he had reason to believe to have escaped assessment. Therefore, we are convinced that he had no reason to believe and in any case when he stated so, his belief could not be bona fide on the facts of the case but a mere pretence. Therefore, resort to section 147(a) was not in accordance with law. Any notice in pursuance to such a belief, entertained by the ITO, was not in accordance with law. Therefore, the assessee was not obliged to file return of income in response to any of the notices issued by the ITO under section 148, as described supra.

30. The facts of the case also show that the assessee in fact did not file a return of income or loss in response to any of the two notices issued by the ITO under section 148. The noting on the return that it was in response to notice under section 148 was of no legal consequence as principles of approbate and reprobate, as pointed out supra, do not apply to the type of proceedings before us. The attempt of the Commissioner (Appeals), therefore, to show that the assessee had filed the return in response to notice under section 148 issued for the first time, is apparently in contradiction with the facts of the case and the clear provisions of law. The assessee had not filed the return within time required by these notices, which were even otherwise in fact non est in law in view of what is stated above. Therefore, return filed by the assessee was a return under section 139(4) and since the assessee was entitled to file the return before assessment can be made within the time required under law, this had to be taken note of by the ITO and disposed of in accordance with law. When the ITO proceeded with the impression that he was making an assessment under section 148 read with section 143(3), he was in fact having no jurisdiction whatsoever insofar as section 148 is concerned, and, therefore, assessment that he raised and also labelled under section 148/143(3) was an assessment under section 143(3) only and it was an assessment in accordance with law as held by the Supreme Court in discussion above. Therefore, the ITO was bound to determine the true and correct total income of the assessee which included determination of loss as well in the first assessment proceedings that he had before him. We would like to clarify that though the ITO has shown the assessment as made under section 148/143, we have taken it that section 148 was mentioned inadvertently instead of section 147(a) which vests him with power to make the assessment or reassessment; section 148 being merely of procedure for issuance of a notice. Therefore, our reference in this judgment to section 148 wherever made has to be taken as reference to section 147 when relevant.

31. The position of law considered above may give the impression that there is a conflict of judicial opinion that when there is a failure or omission on the part of the assessee to file a return within time provided under section 139(1) this not only gives a right to the ITO to issue notice under section 148 for assessment or reassessment under section 147 but also a power to reject, as non est in law, a return filed after lapse of time provided under section 139(1) but before notice under section 148 is issued and served. To us, however, there appears to be no such conflict in view of very clear position of law available from the judgment of the Supreme Court in S. Raman Chettiars case (supra). Even if for the sake of argument this position were to be considered, there can be said to be two reasonable views possible. In such a case, again the Supreme Court says that the view that favours the subject must prevail. However, in the case before us, this issue does not arise at all as we have held that notices issued by the ITO under section 148 were non est in law due to proceedings being ab initio void for lack of reason for the belief of the ITO that due to failure or omission on the part of the assessee to make a return of his income, income chargeable to tax had escaped assessment as discussed in detail above.

32. The ITO, when he made the impugned assessment on 4-7-1979, proceeded on the assumption that it was made on the basis of the return filed under section 148 and, therefore, loss determined in the assessment so made could not be carried forward in view of the provisions of section 80. This observation of his holds no water any more in view of the position explained above that the return filed by the assessee on 12-3-1979 was not in response to any of the notices issued by the ITO under section 148 as notices were not only invalid but the ITO had not extended time for filing the return called for by such notices up to the date of filing the return by the assessee.

33. Now if section 80 is brought into focus, we find that it could have no application to the facts of this case. This section provides that not withstanding anything contained in Chapter VI of the Act, which deals with aggregation of income and set off or carry forward of loss, no loss which has not been determined in pursuance of a return filed under section 139, shall be carried forward and set off under the sections mentioned therein. The important thing to note is that if return is filed under any of the sub-sections 139, then section 80 is out.

34. We have held in the case before us that return was filed by the assessee on 12-3-1979 under section 139(4). We also find that the honble Supreme Court has held in the case of Kulu Valley Transport Co.

(P.) Ltd. (supra) that such a return is valid return and has to be disposed of by the ITO in accordance with law. We have already taken a view that there is no material difference in the relevant provisions of the 1922 Act, and the 1961 Act, insofar as the applicability of the ratio decidendi of this judgment is concerned. The Calcutta High Court in the case of Presidency Medical Centre (P.) Ltd. v. CIT (1977) 108 ITR 838 and the Bombay High Court in the case of Telster Advertising (P.) Ltd. v. CIT (1979) 116 ITR 610 also support our view. Therefore, the ITO was bound in law not only to determine the loss claimed by the assessee, but also to carry it forward for set off against future business income of the assessee, if any. He, therefore, on the facts and in the circumstances of this case, erred in not doing so and the Commissioner (Appeals) erred in supporting his action.

35. Hence, the order of the Commissioner (Appeals) is set aside and the assessment made by the ITO is treated and held on facts of this case as an assessment under section 143(3). The ITOs order is, however, modified so as to delete the observations regarding assessment being made on return in response to the notices under section 148 and applicability of section 80. The ITO is directed further to allow the carry forward of the loss determined by him at Rs. 22,27,449 along with depreciation in accordance with law.


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