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X Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1984)9ITD715(Bang.)
AppellantX
Respondentincome-tax Officer
Excerpt:
.....the assessee has not filed the return within the date specified under section 139(1) and it is a loss return filed after the issue of notice under section 148. in the circumstances the denial of the benefit of carry forward of loss claimed in the return for 1978-79 is justified.business loss as per adjusted statement of account : 1,76,920deduct ;1. bad debt disallowed 5,000 business loss 1,71,920 the loss is not carried forward in terms of section 80 of the income-tax act, 1961, as the return was not filed under section 139 but only after the issue of notice under section 148. this has been approved by the inspecting assistant commissioner under section 144b.assessment year loss depreciation rs. rs. 2. before the commissioner (appeals), a contention was raised that the notice was not.....
Judgment:
1. This appeal is by the assessee and relates to the assessment year 1978-79. The return was due under Section 139(1) of the Income-tax Act, 1961 ('the Act') by 30-6-1978. As it was not filed the ITO issued a notice under Section 148 of the Act on 27-11-1979. The notice was served on 29-11-1979. The return was, however, filed by the assessee on 13-5-1980 declaring a loss of Rs. 1,76,920. The ITO computed the loss in his draft assessment order at Rs. 47,368 thereby proposing additions exceeding Rs. 1 lakh. In the draft assessment order dated 24-10-1981 the ITO had mentioned that the loss was not being carried forward under Section 80 of the Act, The assessee wrote to the ITO on 9-12-1981 in which it was submitted that as the return was filed within the time limit specified under Section 139(4), the assessee was entitled to carry forward the loss. The matter was referred to the IAC under Section 144B of the Act. He duly heard the assessee and on 18-2-1982 gave the following directions : The assessee's contention was that it has filed the return under Section 139(4). Therefore, the loss claimed/determined had to be carried forward and set off against profits of subsequent years. It is also the contention of the assessee that no notice under Section 148 was received by it or if it had been issued, it had not been served on the proper person. The assessee had filed a note dated 16-1-1982 as also 6-1-1982 to urge that the return filed on 13-5-1980 should be considered as one filed under Section 139(4) and the same return cannot be ignored or the loss claimed therein cannot be denied the benefit of carry forward. I have considered the note as well as the contentions raised by Mr. Nangoji Rao who strenuously argued that Section 80 relied upon by the Income-tax Officer does not apply inasmuch as the return has been filed under Section 139 only and the Income-tax Officer has determined the loss under Section 143(3).

I have considered the objections taken by the assessee. The fact remains that the return has been filed after the issue of a notice under Section 148. It has been served on a person who was found in the premises of the assessee and there is acknowledgement in this regard and it would also appear that such person was habituated to receive notice. To claim the benefit of carry forward of loss, if any, of a particular year the assessee had to file the return within the time allowed under Section 139(1). If the assessee fails to do so, the right to file the return under Section 139(4) may exist but it has no remedy against the denial of carry forward loss to subsequent years. In this case the fact is that the assessee has not filed the return within the date specified under Section 139(1) and it is a loss return filed after the issue of notice under Section 148. In the circumstances the denial of the benefit of carry forward of loss claimed in the return for 1978-79 is justified.Business loss as per adjusted statement of account : 1,76,920Deduct ;1. Bad debt disallowed 5,000 Business loss 1,71,920 The loss is not carried forward in terms of Section 80 of the Income-tax Act, 1961, as the return was not filed under Section 139 but only after the issue of notice under Section 148. This has been approved by the Inspecting Assistant Commissioner under Section 144B.Assessment year Loss Depreciation Rs. Rs. 2. Before the Commissioner (Appeals), a contention was raised that the notice was not served on the assessee. It was served on one Abdul Wahab who was not authorised to receive the notice. The Commissioner (Appeals) held that the same person was receiving other notices also.

He had also received the assessment order, the demand notice, etc., for the earlier year, i.e., the assessment year 1977-78. He had also received the ITO's letter dated 16-3-1979 fixing the hearing of the petition under Section 146 of the Act for that year as also the order under Section 146. The assessee filed an appeal on the basis of that order. In the circumstances, the Commissioner (Appeals) held that Abdul Wahab was authorised to receive notices on behalf of the assessee regularly and further in the circumstances the contention of the assessee that while all other notices served by registered post and received by Abdul Wahab were made over to the assessee, the notice under Section 148 for the assessment year 1978-79 alone was not made over, was unrealistic and difficult to believe. No evidence supporting the assessee in this behalf was filed either before the ITO or before the IAC. He, accordingly, declined to accept the contention that the notice under Section 148 was not received by the assessee and, consequently, the return filed by it was not a return under Section 139(4). As the loss was declared in a return filed in response to notice under Section 148, he upheld the order of the ITO holding that the assessee was not entitled to carry forward the loss. The assessee is in appeal.

3. In the grounds of appeal two points are sought to be made out. One is that there was no proper service of notice under Section 148 on the assessee. The second is the return was filed under Section 139(4) and not under Section 148. Additional grounds were filed to the effect that the reopening under Section 148 was not valid. At the time of hearing arguments were also advanced that notwithstanding that the return was filed after the issue of notice under Section 148, the assessee was entitled to carry forward of loss provided the return had been filed within the time limit prescribed under Section 139(4).

4. We have admitted the additional grounds as they go to the root of the matter. However, we decline to accept the assessee's request that reasons on which the assessment was reopened should have been made available to him. It is now well settled that the assessee is not entitled to a copy of the recorded reasons for reopening the assessment but the appellate authorities have a right to look into them and see whether reopening was justified. It is well settled that the reassessment can be held to be invalid if no reasons are recorded for reopening the assessment. But the adequacy of reasons cannot be gone into by the Courts. On these premises, we have to decide the validity of the reopening of the assessment.

5. The assessee's ground is that it had been suffering losses year after year. The balance sheet of the assessee was available to the ITO.On the basis of the past records and the balance sheet the ITO could not have formed a reasonable belief that income had escaped assessment.

It is seen that on 16-2-1979 the ITO completed the assessment of the assessee on a total income of Rs. 10. The assessment was no doubt ex parts. The assessee being a limited company, every rupee earned by it is taxable. After carry forward of earlier losses the ITO determined the income for 1977-78 at Rs. 10. As already stated, the assessment proceedings for 1978-79 were started on 27-11-1979. Therefore, on the day of reopening he had reasonable belief that the assessee had a positive income. The subsequent happenings, viz., the acceptance by the appellate authorities in appeal that the assessee had suffered a loss for that year also is not a valid ground to say that the ITO could not have formed a reasonable belief that the assessee had taxable income on the day he decided to serve notice under Section 148. As stated earlier, we are not concerned with the adequacy of reasons for reopening the assessment but on the existence or absence of reasons for the same. We have gone through the reasons recorded and we are satisfied that the assessment is reopened for valid reasons. On the facts, we are satisfied that the ITO could form a reasonable belief on 27-11-1979 and that the assessee's income had escaped assessment because of its failure to file a return of income.

6. We now consider the ground that there was no proper service of the notice. The facts narrated by the Commissioner (Appeals) clearly show that Abdul Wahab was receiving notices regularly on behalf of the assessee. Therefore, service on Abdul Wahab was a valid service.

Moreover, as pointed out by the learned departmental representative, the assessee had never raised this contention before the ITO and the IAC under Section 144B. We, therefore, reject the assessee's contention that there was no valid service of notice under Section 148.

7. We next consider the question whether the return has been filed under Section 148 or under Section 139(4). The records show that the assessee had not filed a return under Section 139(1) or in response to notice under Section 139(2). The filing of the return is subsequent to the service of notice under Section 148. Therefore, the return could be only in response to notice under Section 148 and not a voluntary return filed by the assessee before completion of the assessment under Section 139(4). Section 139(4) presumes that no notice has been issued to the assessee. The assessee's argument that every return, whether filed in response to notice under Section 148 or Section 174(4), etc., is in reality a return under Section 139 is too far fetched to be accepted. A return under Section 139 can be filed only within a period of two years from the last day of the assessment year. Once this limit is crossed, no return under Section 139 can be filed by the assessee. The ITO gets the jurisdiction to reopen the assessments only by issue of notice under Section 148. It is immaterial that the notice under Section 148 calls upon the assessee to furnish the return with all the particulars as required under Section 139(2) and does not shift the jurisdiction of the ITO to Section 139. It primarily remains under Section 148. In fact, the wordings of the section are also clear. They are : (1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.

There is another reason to hold that the return has been filed under Section 148. The assessee filed the return on 13-5-1980. The normal time limit for completion of the assessment under Section 143(3) of the Act for the assessment year 1978-79 was 31-3-1981. In case of a return filed under Section 139(4) or under Section 139(5) the ITO gets one more year from the date of filing of the return even if that date goes beyond 31st March. In the present case, the return having been filed on 13-5-1980, the assessment could at best have been made on 12-5-1981 if it was a return under Section 139(4). We find, actually the assessment is made on 20-4-1982. This could be done only under Section 148.

Therefore, the fact that there was a prior notice under Section 148 before filing of the return and there are no grounds to believe that the assessee was not aware of the service of notice under Section 148 and further the assessment has been completed beyond the time limit for ordinary assessments under Section 143(3) to which apparently the assessee has not raised any objection before the authorities below, prove that there is no merit in the assessee's contention that the return was filed under Section 139(4). An argument was also advanced that for the ITO's failure to complete the assessment under the normal time limit relatable to returns under Section 139(4), the assessee should not be penalised. We hold that this argument is untenable as the ITO has issued a notice under Section 148 before the assessee filed the return. This is not a case where the ITO ignored the return under Section 139(4) and finding that the time limit for completion of the assessment was over, tried to resurrect the assessment proceedings by issue of a notice under Section 148.

The ITO is fully protected against all acts done or intended to be done in good faith under this Act The burden of proving that there is no good faith on the part of the ITO is on the person who alleges such lack of good faith.

8. Having come to the conclusion that the assessment was made by the ITO under Section 148, we consider whether the loss is still to be carried forward. It is seen in Section 80 that no loss which was not determined in pursuance of a return filed under Section 139 shall be carried forward and set off. Although, normally, the assessee has to file a return under Section 139(3) within the prescribed time limit to entitle him to carry forward of losses, the wordings of Section 80 seem to be a bit ambiguous. It merely refers to Section 139 and not to any of the sub-sections specifically. Thus, if the intention was to limit the carry forward of losses to returns filed under Section 139(3), Section 80 should have specifically mentioned that sub-section. On the contrary, since it refers to Section 139, it would appear that even if loss returns are filed under Section 139(4), losses can be carried forward. This is the sheet anchor of the assessee's case. However, where the return is not under Section 139(4) but under Section 148, the question arises whether a loss can still be carried forward. The learned Counsel for the assessee strongly relied on a decision of the Madhya Pradesh High Court (Indore Bench) in the case of Co-operative Marketing Society Ltd. v. CIT [1983] 143 ITR 99. In that case, the assessee filed a return declaring losses in response to notices issued by the ITO under Section 148 for the assessment years 1972-73 and 1973-74. In that case, the assessee had not filed any returns nor was it assessed for the relevant assessment years before notices were issued under Section 148. The ITO computed the losses for the relevant years but declined to carry them forward for the purpose of set off in the subsequent years on the ground that the returns were not filed within the time allowed by Section 139. The AAC affirmed the order of the ITO. On further appeal, the Tribunal held that since the returns for the years were filed by the assessee after service of notice under Section 148, they could not be treated as returns filed in pursuance of the provisions of Section 139. The Tribunal also rejected the contention of the assessee that the returns were filed under Section 139(4)(a) and, hence, dismissed the appeal of the assessee. On a reference, it was held by the Madhya Pradesh High Court : ... that the returns had been filed within the time allowed under Sub-section (4) of Section 139. Hence, the loss determined by the ITO for the relevant assessment years could be said to be loss determined in pursuance of the returns filed under Section 139.

Therefore, the Tribunal was not justified in declining to allow the benefit of carry forward and set off of the losses computed by the ITO in respect of assessment years 1972-73 and 1973-74.

This case, no doubt, seems to squarely support the assessee's case. On behalf of the revenue, reliance was placed on the decision of the Mysore High Court in the case of S. Natarajan v. CIT [1964] 52 ITR 882.

In that case, notices under Section 34 of the Indian Income-tax Act, 1922 ('the 1922 Act') were issued for reassessment of the income of the assessee for the assessment years 1953-54, 1954-55 and 1955-56. The assessee made returns in response to the notices showing loss of Rs. 17,266, Rs. 36,012 and Rs. 43,702 for these assessment years, respectively. The ITO found that the returns were true, but held that the assessee was not entitled to carry forward of the losses under Section 24(2)(iii) of the 1922 Act. The Tribunal upheld this order. It was held by the High Court that the scope of an enquiry under Section 34 was very limited and the assessee was not entitled to carry forward the losses held to be proved by the ITO for those assessment years. The Court dealing with the contention that every notice under Section 34(1) of the 1922 Act is equivalent to a notice under Section 22(2) of the 1922 Act corresponding to Sections 147 and 139(2) of the 1961 Act held as follows : Now we may proceed to notice the contentions advanced on behalf of the assessee. It was urged on his behalf that every notice under Section 34(1) in law is also a notice under Section 22(2) ; that being so, the assessee is entitled to put forward his claim for losses as contemplated in Section 22(2A) and the Income-tax Officer is bound to grant him relief under Section 24(2)(iii). In support of this contention, emphasis was laid on the fact that Section 34(1) specifically says : 'The provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.' On the basis of this clause, it was urged that as soon as a notice under Section 34(1) is given, the assessment proceedings are reopened and the parties are placed in the same position as if a notice had been given under Section 22(2). This contention was further tried to be supported by pointing out that a proceeding under Section 34(1) may some time result in an assessment under Section 23 ; that is so because a return in response to a notice under Section 34(1) is deemed to be a return under Section The above argument clearly overlooks certain basic principles underlying Section 34. It is now well settled that in a proceeding initiated under Section 34, the taxing authorities have to confine their attention to the circumstances mentioned in Section 34(1) such as escaped income, etc. In other words, the scope of an enquiry under Section 34 is a very limited one. It does not cover the entire field covered by Section 23. That is made clear from the language of Section 34(1) itself. It says : The Income-tax Officer may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

On a plain reading of Section 34, it is clear that an enquiry under that provision is confined to such income, profits or gains which has escaped assessment, or which was under-assessed or which was assessed at too low a rate or was the subject of excessive relief under the 'Act'. A proceeding under that section cannot be used for finding out the true total income of the assessee afresh. In other words, in an enquiry under Section 34, no duty is cast upon the Income-tax Officer to start an enquiry with reference to the total income of the assessee during the assessment year. The Income-tax Officer has no such power. Nor has the Income-tax Officer any power to revise the original assessment except to the limited extent to which such power is recognised under Section 34.

It, therefore, appears that the notice under Section 148 is wholly for the purpose of roping in escaped income and not for the benefit of the assessee including carry forward of losses. Since this is the decision of the Mysore High Court on the point, we are bound by the same. We, therefore, decline to entertain the assessee's claim.


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