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Prakash Yarn Trading Co. Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1985)11ITD442(Hyd.)
AppellantPrakash Yarn Trading Co.
Respondentincome-tax Officer
Excerpt:
.....by the aforesaid sections. the return was one filed under section 139(4). therefore, the revised return filed on 1-8-1980 is non est in law, because a revised return under section 139(5) can be filed only to rectify mistakes, etc., in a return filed under section 139(1) or section 139(2). if that is so, according to him, the assessment completed on 21-4-1982 is barred by time since, for the assessment year 1978-79, two years' period ended on 31-3-1981.4. the learned counsel appearing for the assessee, in support of his argument, relied upon the decision of the allahabad high court in the case of dr. s.b. bhargava v. cit [1982] 136 itr 559, wherein the allahabad high court was of the view that: different time limits for completion of assessments have been provided in respect of cases.....
Judgment:
1. This appeal is directed against the order of the Commissioner (Appeals) dated 7-10-1982 passed in Appeal No. 18/111. D/CIT. II of 1982-83. The assessment year involved in this appeal is 1978-79.

2. According to the facts arising in this case, the firm filed the original return for the assessment year 1978-79 on 31-3-1979, admitting a net income of Rs. 4,16,289 from its business in purchase and sale of yarn, fibre, etc. Subsequently, on 1-11-1980, the firm filed a revised return showing an income of Rs. 2,46,450. The difference between the income disclosed in the original return and the one returned in the revised return is on account of the claim made under the head bad debts. The ITO forwarded the draft order of assessment to the assessee on 29-10-1981, which was served on the assessee on the same date. On 8-12-1981, the ITO forwarded the draft assessment order under Section 144B of the Income-tax Act, 1961 ('the Act'), along with the objections of the assessee-firm to the IAC for further action. The IAC gave instructions by his order under Section 144B on 21-4-1982. The same day, the ITO completed the assessment. According to the Commissioner (Appeals), the ITO completed the assessment within 180 days from 29-10-1981 and, therefore, it is within the time limit.

3. Before us, the learned Counsel appearing for the assessee submitted that the order of the assessment dated 21-4-1982 is without jurisdiction inasmuch as it is barred by time and, hence, according to the assessee, the assessment is ab initio void. The crux of the submission made by the learned Counsel was that the original return, which was filed on 31-3-1979, was filed neither under Section 139(1) nor under Section 139(2) of the Act, being beyond the time limits prescribed by the aforesaid sections. The return was one filed under Section 139(4). Therefore, the revised return filed on 1-8-1980 is non est in law, because a revised return under Section 139(5) can be filed only to rectify mistakes, etc., in a return filed under Section 139(1) or Section 139(2). If that is so, according to him, the assessment completed on 21-4-1982 is barred by time since, for the assessment year 1978-79, two years' period ended on 31-3-1981.

4. The learned counsel appearing for the assessee, in support of his argument, relied upon the decision of the Allahabad High Court in the case of Dr. S.B. Bhargava v. CIT [1982] 136 ITR 559, wherein the Allahabad High Court was of the view that: Different time limits for completion of assessments have been provided in respect of cases where a return has been filed under Sub-section (4) or a revised return has been filed under Sub-section (5). Sub-section (5) does not provide for any separate category of return. It only gives a right to an assessee to revise a return already tiled under Sub-section (1) or Sub-section (2). When a revised return is filed the original return stands supplanted or withdrawn. If the original return is under Sub-section (1), and a revised return is filed, then the revised return would be a return under Sub-section (1) and so will be the position if the original return was under Sub-section (2). Therefore, a return under Sub-section (4) stands in a category different from that provided in Sub-section (1) or Sub-section (2) and such a return cannot be revised under Sub-section (5). The revised return, being an invalid return, cannot extend the period of limitation for completing the assessment.

5. Yet another decision, relied upon by the learned Counsel for the assessee, was that in Metal India Products v. CIT [l978] 113 ITR 830 (All.) (FB). This judgment was then followed in Dr. S.B. Bhargava's case (supra). In Metal India Products case (supra), the Full Bench of the Allahabad High Court was of the view that where the assessee filed his return within the time prescribed by Section 139(1) and where no notice was issued by the ITO to the assessee under Section 139(2), even if the assessee filed its return under Section 139(4), within four years from the end of the assessment year and before the assessment order was passed, the assessee is liable to pay penalty under Section 271(1)(a) of the Act, for not having filed the return within the time prescribed in Section 139(1) or the time given under Section 139(2).

For the purposes of penalty, the filing of the return within the time prescribed by Sub-section (4) cannot be treated as a return filed within the time prescribed by Sub-section (1).

6. Reliance was also placed on the decision in O.P. Malhotra v. CIT [1981] 129 ITR 379 (Delhi). This judgment was also followed by the Allahabad High Court in Dr. S.B. Bhargava's case (supra). In O.P.Malhotra's case (supra), the Delhi High Court was of the view that subsection (5) of section 139 applies only in a case where a person, having furnished a return under Sub-section (1) or Sub-section (2), discovered any omission or wrong statement therein. The sub-section does not refer to Sub-section (4) and, therefore, does not entitle an assessee to rectify or revise a return filed under Section 139(4).

Accordingly, the Delhi High Court held that the return filed on 30-3-1965, being one under Section 139(4), a revised return could not be filed under Section 139(5) and the return filed on 28-3-1966 was invalid in law.

7. On the other hand, the learned departmental representative pointed out that the assessee can file any number of returns under Section 139(4). Therefore, according to him, the second return filed on 1-11-1980 is not invalid in law, and if that is so, according to him, the assessment order passed on 21-4-1982 is not barred by limitation.

He relied upon a judgment of the Calcutta High Court in Kumar Jagadish Chandra Sinha v. CIT [1982] 137 ITR 722, wherein the Calcutta High Court was of the view that: The Income-tax Act contemplates the filing by the assessee of a correct and complete return. The law gives him a right to substitute and bring on record a correct and complete return if he discovers any omission or wrong statement in the return originally filed by him. The law cannot content plate the making of an assessment on the basis of a return which even the assessee claims contains wrong statements. When an assessee files a revised return, he, in fact, admits that the original return filed by him was not correct or complete and substitutes the same by a revised return which, according to him, is correct and complete. The effective return for the purposes of assessment is thus the return which is ultimately filed by an assessee on the basis of which he wants his income to be assessed. Sub-section (5) is a part of Section 139. The statute itself provides for the filing of a revised return. Section 143 does not specifically deal with the return filed either under Sub-section (1) or Sub-section (2) or Sub-section (4) of Section 139. It deals generally with the return filed under Section 139. It is true that Sub-section (5) specifically mentions Sub-section (1) or Sub-section (2) but does not mention the case of a return filed under Sub-section (4) of Section 132. However, the true purport of a return filed under Sub-section (5) is that it substitutes the original return filed and Sub-section (4) specifically gives the assessee a right to file a return at any time before the assessment.

Hence, where a voluntary return has been filed under Section 139(4), a revised return can be filed in respect of it.

While coming to the aforesaid conclusion, the Calcutta High Court dissented from the view taken by the Delhi High Court in O.P.Malhotra's case (supra).

8. Yet another decision, relied upon by the learned departmental representative, was that of Mst. Zulekha Begum (Khatoori) v. CIT [1981] 129 ITR 560, wherein the Calcutta High Court was of the view that if an assessee, after having filed a return under Section 139(4), files another revised return subsequently, it is to be assumed that he has given a go-by to the return filed previously and that so far as he is concerned, the return filed subsequently is the correct and proper return. Where the ITO allows the revised return to be filed and proceeds to assess thereunder without any objection from the assessee, it would not be open to the assessee to contend later that the return filed subsequently was invalid. Therefore, the Calcutta High Court held that the subsequent return filed by the assessee was a valid return under Section 139(4) and the assessment made thereunder was within the time prescribed under Section 153 of the Act.

9. Again, the learned departmental representative attempted to support his view by placing reliance on the judgment of the Supreme Court in CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. In that case, the Supreme Court held by the majority judgment that Section 24(2) of the Indian Income-tax Act, 1922 ('the 1922 Act'), conferred benefit to the assessee, whereby losses incurred in a particular year could be set off and carried forward to a subsequent assessment year.

There was no provision in Section 22 of the 1922 Act, under which losses had to be determined for the purpose of Section 24(2). Section 22(2A) simply laid down that in order to obtain the benefit of Section 24(2), the assessee must submit his return showing loss within the time specified by Section 22(1). That provision, according to the Supreme Court, had to be read with Section 22(3). It was held that a return showing a loss submitted at any time before the assessment was made was valid, as it could be contended that Section 22(3) was merely a proviso to Section 22(1).

10. Therefore, it was submitted that inasmuch as the assessee itself filed two returns, the ITO was made to proceed on the second return wherein bad debt deduction was claimed. It was further submitted that the approach of any judicial authority must be to vest jurisdiction in the ITO and not to divest the jurisdiction which was already vested. On the other hand, the learned Counsel appearing for the asses see, relying upon the decision of the Supreme Court in CIT v. Vegetable Products Ltd. [1973] 88 ITR 192 contended that when there are two views possible on the same point, that which is in favour of the assessee should be followed.

11. We have heard the rival submissions. The original return was filed on 31-3-1979 and, subsequently, a revised return was filed on 1-11-1980. On 29-10-1981, draft assessment order was framed and on 21-4-1982, final order of assessment was passed. Section 139 particularly enables the filing of returns under Sub-section (1) suo moto within the statutory period provided under Sub-section (2), in response to a notice specifically issued as also under Sub-section (4), voluntarily. The issue before us is whether a return filed under Sub-section (4) could be considered to be a return filed under subsection (1) or Sub-section (2) of Section 139, because only if the return filed under Sub-section (4) is so construed, the assessee would be entitled to file a revised return under Sub-section (5). The learned Counsel for the assessee had submitted that if two views are possible, as in the present case, then the view in favour of the assessee should be taken. This is not an instance where one of the two views will always be favourable to all the assessees. In the Calcutta High Court's view, if an assessee makes a return even beyond the time limit allowed under Section 139(1), or Section 139(2), and discovers a mistake therein, he should always file a revised return. This view enables an assessee to set right any mistake even in returns, which were originally filed belated. In the Delhi High Court's view, such action is not possible. Merely because in the present case, if following the Delhi High Court's view, the revised return is held to be non est, limitation would have set in, it does not follow that this is the view which has to be construed as favourable to the assessees in general.

The rule of interpretation canvassed for by the learned Counsel, therefore, does not help us in deciding the present case. We have to decide the case in the light of the judgments of the various High Courts relied on by the parties. We have already set out the reasoning of the Calcutta High Court in the case of Kumar Jagadish Chandra Sinha (supra), which we repeat as under: ...Sub-section (5) is a part of Section 139. The statute itself provides for the filing of a revised return. Section 143 does not specifically deal with the return filed either under Sub-section (1) or Sub-section (2) or subsection (4) of Section 139. It deals generally with the return filed under Section 139. It is true that Sub-section (5) specifically mentions subsection (1) or Sub-section (2) but does not mention the case of a return filed under Sub-section (4) of Section 139. However, the, true purport of a return filed under Sub-section (5) is that it substitutes the original return filed and Sub-section (4) specifically gives the assessee a right to file a return at any time before the assessment.

Hence, where a voluntary return has been filed under Section 139(4), a revised return can be filed in respect of it.

The Calcutta High Court has given reasons why even where a voluntary return has been filed under Section 139(4), a revised return could yet be filed to set right mistakes. In the present case, the assessee had filed a return showing an income of as much as Rs. 4,16,000 but, later in the return filed on 1-11-1980, the income shown was only Rs. 2,46,000. The difference of Rs. 1,70,000 was an amount claimed as bad debts. In the view of the Calcutta High Court, such action was clearly permissible. We have carefully considered the views expressed by the Delhi and the Allahabad High Courts, but we would respectfully follow the reasoning of the Calcutta High Court and hold that merely because the first return filed on 31-3-1979 showing an income of Rs. 4,16,289 for the assessment year 1978-79 was a return under Section 139(4), the assessee was not prevented from filing the revised return showing an income of Rs. 2,46,450 on 1-11-1980. That being so, the return filed on 1-11-1980 is not non est in law and the assessment as made is within the period of limitation. On this ground, the assessee, therefore, does not succeed.

12. Insofar as merit is concerned, the learned Counsel for the assessee reiterated the same arguments as were advanced before the authorities below. In fact, the ITO has disallowed a sum of Rs. 1,69,840, being bad debts claimed in the business in purchase and sale of yarn. He observed that the amounts varying between Rs. 100 and Rs. 10,000 were being written off without any action being taken for recovery of the debts.

Before the ITO, it was submitted that the firm incurred heavy losses and the business had come to an end. According to the assessee, the amounts written off represented interest charged but not accepted by the debtors and in some cases, they represented the difference in rates. It was further submitted that the firm did not have funds even to file a suit against these parties. However, the ITO refused to accept the contention put forward by the assessee.

13. In the original return filed by the assessee, there was no claim for deduction of bad debts. The original return declared an income of Rs. 4,16,289 and the ITO had initiated penalty proceedings for nonpayment of tax under Section 140A of the Act and levied a penalty of Rs. 50,000 by his order dated 20-9-1980. Subsequent to this, the firm filed a revised return claiming bad debts of Rs. 1,13, 274 in the accounts for the period 1-10-1976 to 30-6-1977 and Rs. 56,567 in the accounts for the earlier period 1-7-1976 to 30-9-1976. The details of bad debts were furnished before the ITO. It was represented before him that most of the amounts were less than Rs. 1,000 and in all those cases, either the party was disputing the charging of interest or was not traceable. The remarks made by the ITO on some of the items are as under:Amount Name and address Remarks Rs.10,900 Ganesh Yarn Trading Co., Paid bank commission for Chirala hundi drawn on him for party not in existence.3,380 Narayana Shetty, Chinna- Disputed amount.

tavatram, Narsannapet18,385 P. Somanna, V.J. Raju, Disputed amount.

Narsannapet18,932 Sri Laxmi Saraswathi Rate difference debited not Textiles, Secunderabad agreeing to pay.10,840 C.N.V. Rangaiah, Bangalore Your rate differences paid.3,445 H.W.Co-operative Society Waived interest.

Ltd., Cheekur5,623 Vanam Laxmaiah Expired.4,543 Miriyala Purushotham, Nerada Expired.3,591 Pulipati Venkatadari, Nerada Not available in his village do not know whereabouts.9,715 The Andhra Co-operative Difference in accounts.

Spg. Mills, Guntakal5,000 Ram Dass, Secunderabad Paid advance.

Party not available.

The learned Commissioner (Appeals) pointed out that apart from the verbal observations of the assessee-firm, there is no other evidence to indicate that the debts had become bad. He has also pointed out that large amounts running to Rs. 80,000 and odd were written off without any effort being made for recovery. However, under these circumstances, he considered that amounts of less than Rs, 1,000 should be treated as bad and benefit should be given to the assessee on these amounts. The disallowance was restricted to amounts in excess of Rs. 1,000.

Accordingly, he gave relief of Rs. 22,128 and confirmed the balance.

14. However, on a scrutiny of the items, as set out by the ITO, we found that two of the parties appear to have expired. They are V.Laxmaiah, Ramanpet and Miriyala Purushotham, Nerada. In the circumstances under which the assessee was placed, we consider that these two items of debt have become irrecoverable looking to the amounts involved as taking legal action may not prove commensurate with expenses. Therefore, these two items of amounts can be considered as bad debts. Apart from what has been stated before the authorities below, the assessee has not produced any evidence before us afresh to consider the case of bad debts as argued by the learned Counsel appearing for the firm. Under such circumstances, apart from the two items of debts which we consider as having become irrecoverable, we are unable to interfere with the other items of bad debts as claimed by the assessee. Accordingly, to that extent, we allow the appeal in part.


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