Skip to content


Visakhapatnam Port Trust Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Hyderabad
Decided On
Judge
Reported in(1985)11ITD656(Hyd.)
AppellantVisakhapatnam Port Trust
Respondentincome-tax Officer
Excerpt:
.....the return should have been filed before 31-3-1981. but, that was not the case. therefore, the return filed was construed and considered as one filed under section 148 alone. the ito issued a notice under section 143(2) of the act to the assessee on 29-1-1982, fixing the hearing for 10-2-1982. the case was (hereafter heard. eventually, the ito wrote to the assessee on 23-4-1982 as under : notice under section 148 was issued to you for the assessment year 1978-79 on the belief that income chargeable to tax has escaped assessment. but the return filed by you shows a loss of rs. 1,08,908. the provisions of section 147 do not permit the assessee to get the benefit of recomputation of income at a lesser figure or to get the benefit of determination of loss and carry forward to the.....
Judgment:
1. This appeal by the assessee relates to the assessment year 1978-79.

The assessee is a co-operative society. The assessee did not file any return of income. The ITO issued a notice under Section 148 of the Income-tax Act, 1961 ('the Act'), dated 7-3-1981. A return was filed on 16-5-1981, showing a loss of Rs. 1,08,977. This loss was shown as incurred under the head 'Profits and gains of business or profession'.

It may be mentioned at this stage that under the provisions of Section 139(4) of the Act, the period of limitation, which permitted the assessee to voluntarily furnish a return where a return had not been filed within the time allowed under Sub-section (1) or (2) of Section 139, was two years from the end of the assessment year. Therefore, if this was to be treated as a voluntary return under Section 139(4), the return should have been filed before 31-3-1981. But, that was not the case. Therefore, the return filed was construed and considered as one filed under Section 148 alone. The ITO issued a notice under Section 143(2) of the Act to the assessee on 29-1-1982, fixing the hearing for 10-2-1982. The case was (hereafter heard. Eventually, the ITO wrote to the assessee on 23-4-1982 as under : Notice under Section 148 was issued to you for the assessment year 1978-79 on the belief that income chargeable to tax has escaped assessment. But the return filed by you shows a loss of Rs. 1,08,908. The provisions of Section 147 do not permit the assessee to get the benefit of recomputation of income at a lesser figure or to get the benefit of determination of loss and carry forward to the subsequent years. Further, no loss which has not been determined in pursuance of return filed under Section 139 shall be carried forward and set off under Sub-section (1) of Section 72. In view of this legal position, the proceedings initiated under Section 148 for the assessment year 1978-79 have been dropped. This is for your information.

The aforesaid letter was construed by the assessee as an order of assessment, declining to determine loss and the assessee filed an appeal before the Commissioner (Appeals) stating that the ITO was not justified in refusing to determine the loss. The Commissioner held that the assessee had filed the return in response to a notice under Section 148 and had shown a loss of Rs. 1,08,977. He further stated, the ITO was satisfied that the assessee had suffered a loss and, accordingly, discontinued further proceedings under Section 148 and closed the file.

The Commissioner went on to observe that the Mysore High Court had held in the case of S. Natamjan v. CIT [1964] 52 ITR 882 that the scope of an enquiry under Section 147 of the Act was very limited and the assessee was not entitled to carry forward the loss if the return of income was not filed within the time allowed under Section 139(4).

Following the decision of the Mysore High Court, the Commissioner dismissed the appeal.

2. Before us, the learned counsel for the assessee submitted that losses are nothing but negative profits and where notice under Section 148 was issued and a return was filed, the ITO was bound to process the return even if only a loss was shown. In support of his contention, he relied on the decision of the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518. It was contended that a return, whether it was a return of income, profit or gains or of loss, had to be considered as a valid return in the light of the ratio of the aforesaid judgment and had to be duly processed culminating in an assessment. The other decisions, relied on by the learned counsel, were those in CIT v. Kamla Oil Mills [1970] 78 ITR 272 (MP), Bihar State Electricity Board v. CIT [1975] 101 ITR 740 (Pat.) and Presidency Medical Centre (P.) Ltd. v. CIT [1977] 108 ITR 838 (Cal.). The learned counsel particularly challenged the statement of the ITO that the provisions of Section 147 do not permit the assessee to get the benefit of recomputation of income at a lesser figure or to get the benefit of determination of loss and carry forward of the same to subsequent years on the ground that the provisions of section 147(b) provided that the ITO may, subject to the provisions of sections 148 to 153 of the Act, assess or reassess such income or recompute the loss or depreciation, as the case may be. He also went on to urge that before making the assessment or reassessment, the ITO was to serve on the assessee, by virtue of the provisions of Section 148, a notice containing all or any of the requirements which may be included in a notice under subsection (2) of Section 139 and the provisions of the Act were as far as may be applied, as far as notice was issued under that sub-section. Therefore, he contended that the provisions of Section 139(2) applied to notices issued under Section 148. Finally, he submitted that after the case was examined, the ITO could not just drop the proceedings.

3. The learned departmental representative submitted that the present case was fully covered by the ratio of the decision of the Tribunal in ITO V. A.V. Apte [1983] 3 ITD 553 (Pune). He further submitted that it was open to the ITO to drop proceedings under Section 147, where he found that there was no liability to tax.

4. We have considered the rival submissions. In the present case, the proceedings were initiated under Section 147(a). The provisions of Section 147 read as under : (a) the Income-tax Officer 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 to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or (b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereinafter in sections 148 to 153 referred to as the relevant assessment year.

Explanation 1 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :-- (c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (11 of 1922) ; or (d) where excessive loss or depreciation allowance has been computed.

Explanation 2 : Production before the Income-tax Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Income-tax Officer will not necessarily amount to disclosure within the meaning of this section.

The criterion for assuming jurisdiction under Section 147(a) is that the ITO should have reason to believe that income chargeable to tax had escaped assessment. The Explanation also provides certain instances, where it would be deemed that income chargeable to tax had escaped assessment. At the stage of initiation of proceedings, formation of believe, which has a reasonable nexus with the facts as ascertained, is sufficient. The adequacy of the reasons cannot be gone into by any appellate body or Court. After initiating proceedings, notice is issued under Section 148. In compliance with notice under Section 148, the assessee has to file the return of income. Notice under Section 148 may contain all the requirements which may be included in a notice issued under Section 139(2). Once the assessee files return of income, process of assessment under Section 143 is followed by the ITO. The only express right provided for an assessee to have the proceedings dropped is that contained in Section 152(2), which reads as under : Where an assessment is reopened in circumstances falling under Clause (b) of Section 147, the assessee may, if he has not impugned any part of the original assessment order for that year either under sections 246 to 248 or under Section 264, claim that the proceedings under Section 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what he would be rightly liable for even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made : Provided that in so doing he. shall not be entitled to reopen matters concluded by an order under Section 154, 155, 260, 262 or Therefore, even in cases where proceedings are initiated under Section 148, the statute has provided for a circumstance in which an assessee may seek for the proceedings being dropped. Closure of proceedings by dropping is, therefore, something known to the statute. In the present case, the ITO has dropped the proceedings on his own. The question that arises is whether he was competent to drop the proceedings or the only course open to him was to frame an assessment determining a loss. The provisions of Section 147(a), which we have set out clearly show that action is taken for bringing within the tax net 'income chargeable to tax which has escaped assessment'. The whole exercise is for bringing to tax not income in its general sense (which may in certain cases include also negative income, i.e., a loss), but income chargeable to tax, which construes only positive income because negative income can never be chargeable to tax. A loss per se does not also fall within deemed 'income chargeable to tax' as defined in Explanation 1 to Section 147. Therefore, since the return filed under Section 148 did not disclose any income chargeable to tax and since the further examination of accounts, etc., by the ITO did not lead to the conclusion that the result would have been an income chargeable to tax, the ITO came to the realisation that the case went outside the purview of the provisions of Section 147(a). Such being the case, though initial assumption of jurisdiction for initiating proceedings was valid, the ITO was not bound to frame an assessment and he was justified in dropping the proceedings, once he found that the state of affairs, as ascertained, took the case outside the purview of the provisions of Section 147(a). The learned counsel had relied on various judicial pronouncements, which we have adverted to specifically earlier. All these relate to cases where the assessee suo moto filed the return of income and the question whether loss was to be determined or not arose. Such is not the case here and all that we have to decide in the present case is whether the action of the ITO in dropping the proceedings has necessarily to be held to be erroneous. We have come to the conclusion that the ITO acted within his powers in dropping the proceedings.

5. We are unable to agree with the learned counsel that the ratio of the decision of the Mysore High Court in S. Natarajan's case (supra) is no longer good law in view of the subsequent judgment of the Supreme Court in the case of Kulu Valley Transport Co. (P.) Ltd. (supra). The Mysore High Court's case dealt expressly with the scope of enquiry under Section 34 of the Indian Income-tax Act, 1922, which was not the issue before the Supreme Court.

6. The learned counsel had also placed before us a copy of an order of the Bench of this Tribunal in IT Appeal Nos. 523 and 524 (Hyd.) of 1982, dated 31-1-1983. We do not find any observations in the aforesaid order, which would go to support the stand of the assesses On the other hand, the Tribunal itself had observed that it was open to the ITO to have dropped proceedings, once he found that there was no taxable income. We would also state that our conclusion that the assessee is not entitled to the determination of the loss on the facts of the present case and that the dropping of proceedings by the ITO, when he realised that no income chargeable to tax had escaped assessment, was in order, are supported by the ratio of the decision of the Tribunal in A.V. Apte's case (supra).

7. For the aforesaid "reasons, we have to hold that the appeal of the assessee cannot succeed. The same is accordingly dismissed.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //