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Raojibhai Chhotabhai Patel Vs. First Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Nagpur
Decided On
Judge
Reported in(1985)14ITD304(Nag.)
AppellantRaojibhai Chhotabhai Patel
RespondentFirst Income-tax Officer
Excerpt:
.....requesting for extension of time for filing the return of income. he was of the opinion that the loss returned for the assessment year 1979-80 did not conform to the statutory requirements of sub-section (3) of section 139 of the act especially after the addition of the words therein by the taxation laws (amendment) act, 1970, with effect from 1-4-1971, namely, 'or within such further time which, on an application made in the prescribed manner, the income-tax officer may, in his discretion, allow'. in view of the specific addition of the abovementioned words to the section, he was of the opinion that the decision of the supreme court in cit v.kulu valley transport co. (p.) ltd. [1970] 77 itr 518 did not apply and since the return declaring a loss was not filed within the time allowed.....
Judgment:
1. This appeal by the assessee is against the order of the Commissioner under Section 263 of the Income-tax Act, 1961 ('the Act') withdrawing the loss of Rs. 47,160 relating to the assessment year 1979-80 set off by the ITO in the assessment for the year 1980-81 under consideration and thereby enhancing the total income to the same extent.

2. The question at issue in this appeal is whether the ITO was not justified in setting off the loss of Rs. 47,160 relating to the assessment year 1979-80 in the assessment for the year 1980-81 and the Commissioner was, therefore, justified in revising the assessment under Section 263 and thereby withdrawing the set off allowed by the ITO. The facts relating to this issue are in a brief compass and they are as under.

3. The assessment for the year 1980-81 was completed under Section 143(1) of the Act on 23-3-1982 and while computing the income, the ITO had set off the loss of Rs. 47,160 relating to the assessment year 1979-86 against the income for the assessment year 1980-81. While scrutinising the assessment records, the Commissioner noticed that the return for the assessment year 1979-80 declaring a loss was filed on 19-7-1980 as against the due date of 30-6-1979 and there was also no application from the assessee requesting for extension of time for filing the return of income. He was of the opinion that the loss returned for the assessment year 1979-80 did not conform to the statutory requirements of Sub-section (3) of Section 139 of the Act especially after the addition of the words therein by the Taxation Laws (Amendment) Act, 1970, with effect from 1-4-1971, namely, 'or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow'. In view of the specific addition of the abovementioned words to the section, he was of the opinion that the decision of the Supreme Court in CIT v.Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518 did not apply and since the return declaring a loss was not filed within the time allowed under Sub-section (1) of Section 139 and there was also no application from the assessee requesting for extension of time for filing the return, the loss computed for that year was not a loss determined in pursuance of a return filed under Section 139 and, therefore, by virtue of Section 80 of the Act, the same was not to be carried forward and set off. Accordingly, he initiated proceedings under Section 263 and called for the assessee's objections for the proposed revision of the assessment and withdrawal of the loss erroneously set off by the ITO.4. The assessee's submissions to the show-cause notice, briefly summarised are as under : Even though the return of loss for 1979-80 was not filed within the time allowed under Sub-section (1) of Section 139 and there was also no application for extension of time made in this behalf, the return filed, being under Section 139(4), the requirements of Sub-section (3) should be considered to have been satisfied in view of the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra). A number of other decisions were also cited before him. It was also contended that any loss determined in pursuance of a return filed under Section 139 was automatically eligible for set off in the subsequent year under the provisions of Section 80 and the ITO had no other option except to carry forward the same and allow the set off in the assessment for 1980-81. It was further submitted that the Board's Instruction No. 210 [F. No. 288/9/78-IT(A-II)] dated 28-8-1970 to the effect that the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) under the Indian Income-tax Act, 1922 ('the 1922 Act') was equally applicable to the provisions of the 1961 Act, still holds good and since in this case the assessment was completed on 23-3-1982, this instruction was still in force as the latter instruction in this regard, namely, Instruction No. 1528 [F. No. 223/248/78-IT(A-II)] dated 20-9-1983, was issued subsequent to the completion of the assessment. In fine, it was submitted that the action of the ITO, in allowing set off of loss of the assessment year 1979-80 against the income of the assessment year 1980-81 was in order and the assessment did not call for revision under Section 5. The Commissioner did not accept the above contentions. He held that the right of carry forward and set off of loss of an earlier year was available to the assessee only if the return declaring the loss for the earlier year was filed according to the provisions of Sub-section (3) of Section 139, namely, within the time allowed under Sub-section (1) or within such further time allowed by the ITO in his discretion on an application made in the prescribed form by the assessee in this behalf.

As in this case the return was filed long after the time limit prescribed under Section 139(1) and the assessee had also not applied for extension of time for filing the return, he held that the requirements of Sub-section (3) were not complied with to enable the assessee to claim a set off of the loss in respect of the assessment year 1979-80. As to the decision of the Supreme Court in this behalf in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) he held that the 'provisions of Section 139(3) had undergone a substantial change in view of the amendment of the section with effect from 1-4-1971 and, therefore, the Supreme Court's dictum, that the return filed under Section 139(4) could be treated as a valid return, did not apply to this case in the absence of a specific application from the assessee, seeking extension of time for filing the return. He further held that the earlier Board's instruction based on the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) was prior to the amendment of Section 139(3) with effect from 1-4-1971 and, therefore, it had no application to the legal position in this regard relating to Section 139(3) as obtaining after 1-4-1971. He was also of the opinion that even the latest instruction dated 20-9-1983, referred to earlier, was only clarificatory in nature inasmuch as it only exposed the correct legal position in this regard subsequent to the amendment. He, therefore, revised the assessment and enhanced the income by Rs. 47,160 by means of withdrawing the set off allowed.

6. Shri Dewani, the learned representative on behalf of the assessee, made the following submissions before us : At the outset, he admitted that the return for 1979-80 was belated and there was also no application from the assessee for extension of time for filing the return. However, he contended that the rationale of the Supreme Court decision in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) was still applicable inasmuch as there was no substantial difference in Sub-section (3) of Section 139 after its amendment with effect from 1-4-1971 as compared with Sub-section (2A) of Section 22 of the 1922 Act with reference to which the Supreme Court had decided in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) that the loss return filed even after the period mentioned in Sub-section (2A) must be considered as having been filed within the time if it is filed within the time specified in Section 22(3). He invited our attention to Section 22(2A), with reference to which the Supreme Court gave its decision in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) that, a loss return should be furnished within the time specified in the general notice under Sub-section (1) of Section 22 or within such further time as the ITO, in any case, may allow. He also invited our attention to Sub-section (3) of Section 139 after its amendment with effect from 1-4-1971 in this regard as per which a loss return should be furnished within the time allowed under Sub-section (1) or within such further time which, on an application made in the prescribed manner, the ITO may, in his discretion, allow .

With reference to the above two sections, he submitted that even in the earlier section the ITO had been conferred the power of extending the time limit for filing the return and under no conceivable circumstances he would do so without a request from the assessee in this behalf. In the new sub-section as well, he submitted, the power to extend the time limit has been conferred on the ITO subject to a receipt of an application in this behalf. In other words, he submitted, both the sections are substantially same and, therefore, the amendment with effect from 1-4-1971 would not make any difference in the application of the Supreme Court ruling in this behalf. He invited our attention to Telster Advertising (P.) Ltd. v. CIT [1979] 116 ITR 610 (Bom.) and Co-operative Marketing Society Ltd. v. CIT [1983] 143 ITR 99 (MP). In the latter decision, the loss returns related to the assessment years 1972-73 and 1973-74, after the amendment of 1971, and they were filed in response to notices under Section 148 of the Act. The Madhya Pradesh High Court held that the losses computed with reference to such returns, even though they were not filed within the time allowed under Section 139, should be computed, carried forward and set off. He particularly invited our attention to the decision of the Tribunal, Hyderabad Bench, in ITO v. Ratanlal Bhangadia [1984] 10 ITD 182. In that case, the assessment related to the assessment year 1979-80 and the return declaring business loss was filed on 3-12-1979 outside the time limit prescribed under Section 139(3). In that case also, the assessee had not asked for extension of time. In that case also, it was contended, following the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra), that the belated returns should be considered to have been filed within the time limit allowed under Section 139(1) and the losses be set off. Reference was also made to the Board's instruction withdrawing the earlier instruction issued on the basis of the Supreme Court decision. The Tribunal held that the provisions of the 1961 Act in this regard were in pari materia with the provisions under the 1922 Act. They also held that the mere introduction of Section 139(8) would not make any difference to the conclusion of the Supreme Court as long as the material provisions for submission of the returns continued to be the same. With reference to the Board's instruction, they also held that the instruction dated 28-8-1970 and not the instruction dated 20-9-1983 presented the correct legal position when it compared the provisions of the 1922 Act and the 1961 Act. Accordingly, they held that the assessee was entitled to have the loss determined and set off if other conditions for set off were satisfied. Shri Dewani also invited our attention to the decision of the Kerala High Court in CIT v. B.M. Edward, India Sea Foods [1979] 119 ITR 334 (FB) and submitted that, according to this decision, the earlier Board's instruction dated 28-8-1970, holding that the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) would be applicable even under the Act, would still hold good, as it was in force on the first day of the assessment year whereas the new instruction had come into force only on 20-9-1983.

7. The learned departmental representative submitted that the legal position relating to Section 139(3) had undergone a change after its amendment with effect from 1-4-1971, and since the assessee had not applied for extension of time, the return filed beyond the time limit prescribed under Section 139(3) could not be considered to be a return filed as per the requirements of Section 139(1), read with Section 139(4), as held by the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra). He, therefore, submitted, that the decision in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) had no application to the amended provisions of Section 139(3) in this behalf and, consequently, the Commissioner was justified in revising the assessment under Section 263.

8. We have carefully considered the rival submissions with reference to the facts obtaining in this case as also the authorities cited. We are of the opinion that this issue is similar to the issue which came up for consideration before the Hyderabad Bench of the Tribunal in Ratanlal Bhangadia's case (supra), in which the Hon'ble Bench, after referring to similar arguments and also considering the relative merits of both the instructions cited above, came to the conclusion that the decision in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) was still good law, notwithstanding the amendment to Sub-section (3) with effect from 1-4-1971. No doubt, in that decision the matter was remitted back to the ITO for consideration of certain other issues, namely, whether the other requirements for a set off under Section 72 or 73 or 74 of the Act, as the case may be, were fulfilled in that case. Otherwise, the arguments advanced before the Bench and the authorities cited were more or less the same as have been adduced before us. We can, therefore, take a cue from this decision of the Tribunal and decide the issue in favour of the assessee. That apart, we would, however, like to set down our own reasons for allowing the appeal of the assessee, though there may not be much difference in the pattern of the reasons in both the cases.

9. In Kulu Valley Transport Co. (P.) Ltd.'s case (supra), the subject-matter was the interpretation of Section 22(2A). Sub-section (2A) is in the following terms : If any person, who has not been served with a notice under Sub-section (2) has sustained a loss of profits or gains in any year under the head 'Profits and gains of business, profession or vocation', and such loss or any part thereof would ordinarily have been carried forward under Sub-section (2) of Section 24, he shall, if he is to be entitled to the benefit of the carry forward of loss in any subsequent assessment, furnish within the time specified in the general notice given under Sub-section (I) or within such further time as the Income-tax Officer in any case may allow, all the particulars required under the prescribed form of return of total income ... in the same manner as he would have furnished a return under Sub-section (1) had his income exceeded the maximum amount not liable to income-tax in his case, and all the provisions of this Act shall apply as if it were a return under Sub-section (1).

The question that arose for consideration was, whether the loss return filed after the time limit specified in the above section was eligible for consideration and thereby the loss declared could be computed and carried forward for set off. In this context the Supreme Court held as under : The Income-tax Officer could not have ignored the return and had to determine those losses. Section 24(2) confers the benefit of losses being set off and carried forward and there is no provision in Section 22 under which losses have to be determined for the purpose of Section 24(2). The question which immediately arises is, whether Section 22(2A) places any limitation on that right. This sub-section which has been reproduced before 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 well be said that Section 22(3) is merely a proviso to Section 22(1). Thus, a return submitted at any time before 'the 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 (3) 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) also must be held to have been complied with. If compliance has been made with the latter provision the requirements of Section 22(2A) would stand satisfied. (p. 529) Section 22(2A) of the 1922 Act corresponds to Section 139(3) of the 1961 Act and Section 22(3) corresponds to partly Section 139(4) and partly Section 139(5). Under Section 139(4) if a person has not furnished a return within the time allowed under Section 139(1) or 139(2), he may furnish the return before the assessment is made. In Clause (ii) of that section, different dates have been provided with respect to different assessment years as there has been a change in the time limit for completion of the assessments. Apart from this small difference, Section 139(4) corresponds to Section 22(3) substantially, except that the right to file a revised return has been incorporated in Section 139(5). Under Section 22(2A), the ITO could allow extension of time, which under normal circumstances, would only be on the basis of an application in this behalf by the assessee. In Section 139(3), with effect from 1-4-1971, the following words have been added : or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow.

The words in Section 22(2A), namely, 'or within such further time as the Income-tax Officer in any case may allow', are in pari materia with the abovementioned addition in Section 139(3) except for the fact that the words 'on an application made in the prescribed manner' have been added. As mentioned by us earlier, even under the 1922 Act, under Section 22(2A), the ITO had the power to extend the time limit for filing the loss return which could only be on the basis of a request in this behalf by the assessee. In view of this logical position, we are unable to see any basic difference between Section 22(2A) of the 1922 Act and Sub-section (3) of Section 139 of the 1961 Act. If we take this aspect into account, we have to hold that the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) will be equally applicable to Section 139(3) even after the so-called amendment, which was made much of by the learned departmental representative. Even the introduction of Section 139(8) for levy of interest does not make any difference in this behalf as observed by the Tribunal in Ratanlal Bhangadia's case (supra).

10. As far as the instructions are concerned, the instruction of the Board dated 28-8-1970 laid down the correct legal position in this behalf as observed by the Tribunal in the earlier decision. Even presuming that, this ins truction was withdrawn by the later instruction dated 20-9-1983, as observed by the Kerala High Court in B.M. Edward, India Sea Foods' case (supra) the earlier instruction was in force on the first day of the assessment year and, therefore, the same would be applicable to the assessment year 1980-81. No doubt, the learned Commissioner has observed that the later instruction was only clarificatory in nature and the legal position as per the amended Section 139(3) would have been in vague for all the assessment years after the amendment. As regards this, we have to disagree inasmuch as we are of the opinion that the amendment in Section 139(8) has not brought about any substantial change so as to nullify the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra).

In the decision of the Madhya Pradesh High Court in Co-operative Marketing Society Ltd.'s case (supra) it has been held that even in respect of returns relating to the assessment years 1972-73 and 1973-74 filed in response to notice under Section 148, the income-tax authorities were bound to compute the losses, carry them forward and allow the set off in the subsequent years even though there was no compliance in response to Section 139.

11. We are, therefore, convinced that for reasons stated above as also on the basis of the decision of the Supreme Court in Kulu Valley Transport Co. (P.) Ltd.'s case (supra) and the decision of the Tribunal in Ratanlal Bhangadia's case (supra), the ITO was justified in setting off the loss for the assessment year 1979-80 in the assessment under appeal. We, accordingly, vacate the order of the Commissioner under Section 263.


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