1. In this appeal, the Revenue has objected to the Order of the CIT(Appeals)-XI, Ahmedabad dated 11/07/2002 for Assessment Year 1990-91, by way of following grounds: (i) The Ld. Commissioner of Income tax (Apapeal), Ahmedabad erred in law and on facts in directing the A.O. to allow carry forward of losses determined.
(ii) The Ld. Commissioner of Income tax (Appeal), Ahmedabad, erred in law and not acts in not appreciating that the loss determined was not allowed to be carried forward in view of the provisions of Section 139(3) of the Act r.w.s. 80 of the I.T. Act.
(iii) The Ld. Commissioner of Income tax (Appeal), Ahmedabad, further erred in law and on facts in not appreciating that the assessee has not removed the defects evenafter opportunity was given for the same by the A.O. Therefore, the so called original return was invalid and the revised return so filed was treated as original and since it was late the carry forward of loss was rightly disallowed by the A.O. (iv) The Ld. Commissioner of Income tax (Appeal), Ahmedabad, erred in law and on facts in directing the A.O. to delete the credit of Rs. 11 lacs standing in the name of Shri Ravi Ghai.
(v) The Ld. Commissioner of Income tax (Appeal), Ahmedabad, grievously entertained new evidence without giving an opportunity to the A.O. for verifying the genuineness, creditworthiness etc. of the creditor as provided under the provisions of Rule 46A of the I.T. Rules, 1962.
(vi) On the facts and circumstances of the case, the ld. CIT(A) ought to have upheld the order of the Assessing Officer.
(vii) It is, therefore, prayed that the order of the CIT(A) may be set aside and that of the Assessing Officer be restored to the above extent.
3. The brief facts relating to the issues involved in this appeal and as have been revealed from the records are that the assessee had furnished its return of income for Asst. Year 1990-91 based on unaudited accounts and on estimate basis on 31/12/1990, wherein it had declared an estimated loss of Rs. 12 lacs. The Assessing Officer issued a notice Under Section 139(a) of the Act on 22/01/1991 requiring the assessee to rectify the defects in.the return within 15 days from the date of receipt of Assessing Officer's notice which was served upon the assessee on 01/02/1991. According to the Assessing Officer, the return being on estimate basis and not appended by audited accounts and Audit Report was defective return.
4. The Assessee furnished a written request on 15/02/1991 requesting the Assessing Officer to extend the time for rectifying the defects by two months. Copies of assessee's request is placed at page Nos. 5 & 6 of the paper-book. The assessee removed the defects by furnishing audited accounts on 15/03/1991 i.e. within a period of two months from the date of its request seeking extension of time by two months.
Thereafter, the assessee filed revised return of income on 25/03/1991.
The Revised return was processed Under Section 143(1) of the Act on 25/06/1991 computing the assessee's income as per revised return which was loss and refund was allowed.
4.1. Later on, the Assessing Officer proceeded to make assessment Under Section 143(3) of the Act and while doing so, refused the assessee's claim of loss on the ground that the return of income furnished on 31/12/1990 was defective and the assessee having not removed the defect within the period of 15 days allowed as per notice dated 22/12/1992, the same could not be taken into account. The refused return was also not taken care of. The Assessing Officer, computed the assessee's loss at Rs. 15,12,800/- after adding an income of Rs. 11,00,000/- Under Section 68 of the IT Act to the loss computed Under Section 143(1 )(a) of the Act.
4.2. The Assessing Officer while ignoring the assessee's return filed on 31/12/1990 further submitted that the assessee's request for extension of time had been rejected.
5. The assessee went in appeal before the CIT(Appeals) and pleaded that the order rejecting the assessee's request for extension of time having not been communicated to the assessee, it's request for extension of time is deemed to have been allowed and, therefore, the assessee having removed the defects within the requested extended time, the original return as well as revised return was valid returns. The CIT(Appeals) accepted the assessee's plea and directed the Assessing Officer to consider the assessee's revised return which was showing loss after claiming credit for Brought Forward losses. The CIT(Appeals) also deleted the addition of Rs. 11 lacs having been made by the Assessing Officer Under Section 68 of the IT Act. The relevant part of the order of CIT(Appeals) as contained in paragraph Nos. 2.2 & 3.2 of his order are in the following terms: 2.2, I have considered the facts of the case and the submissions of the learned Counsel carefully. I have also gone through the decisions relied upon by the learned Counsel and the view taken by the A.O. in his order in dispute. I have also gone through the details filed before me by the learned Counsel. As held by the Hon'ble ITAT Bombay Bench in the case of Sabine Laboratories P. Ltd., in the instant case, the return filed by the appellant originally on the basis of estimated losses for the assessment year under appeal without being accompanied by audit report and accounts would not be invalid return. It could at best be termed as either incomplete return or defective return but certainly not invalid return. Not only that the A.O. has not brought on record any material regarding acceptance or non-acceptance of letter dated 5.2.91 having been filed by the appellant requesting extension of time for filing return of income Under Section 139(9). Having considered the matter carefully. I see no justification for rejection of appellant's claim of carried forward losses. The A.O. is directed to allow the same according to law after considering appellant's applications for rectification which are pending before the A.O. for allowing correct depreciation etc. as per appellant's letter dated 18.4.2000 filed before the A.O. on 28.4.2000 which has been brought to my noticed by the learned Counsel during the course of these proceedings.
3.2. I have considered the facts of the case and the submissions of the learned Counsel carefully. I have gone through the details filed by the learned Counsel carefully and the view taken by the A.O. in his order in dispute. Having considered the matter carefully, I see no justification for the addition made by the A.O. of Rs. 11,00,000/- on account of cash credit Under Section 68 of the IT Act of the Act particularly when the deposit account being old, the creditor is assessed to Income-tax since long and the creditworthiness of the creditor and genuineness of the transaction having been proved by the learned Counsel of the appellant company.
Therefore, the addition made by the A.O. of Rs. 11,00,000/- is, deleted.
6. It was, in view of the above facts and circumstances of the case, that the ld. DR has supported the order of the Assessing Officer, whereas the ld. counsel for the Assessee has supported the order of the CIT(Appeals), after relying on the decision of Gujarat High Court in the case of-CIT v. Dhatu Sanskar P. Ltd. , wherein the Hon'ble High Court has held as under (Head Notes): A bare reading of the proviso to Section 139(1) of the Income-tax Act, 1961, makes it clear that the Income-tax Officer is vested with the discretion to extend the date for furnishing the return on an application made in the prescribed manner. It is incumbent upon the Income-tax Officer, as empowered by Section 139(1) proviso, to take a decision on the application for extension of time for filing the return and to communicate the decision to the assessee concerned.
The discretion vested in the Income-tax Officer has to be exercised fairly and judiciously, since such a decision is bound to affect the rights of the assessee and the failure to communicate the same is bound to affect it adversely. An order, to be considered valid and effective, must be communicated to the person concerned, who is to be directly affected by that order. Non-communication of an order, which is likely to have a detrimental effect upon the person concerned, would not only be arbitrary and, therefore, violative of the principles of natural justice, but would also make the order ineffective and incomplete.
7. We have considered the rival submissions, facts and circumstances of the case and the decision of High Court relied upon by the Id.counsel for the assessee and also the noting of the Assessing Officer on assessee's application for extension of time dated 05/02/1991 furnished on 14/02/1991 and we have noticed that there is an entry on this application, which reads as under: 8. If we analysis the purpose and meaning of this entry which has not been signed by anybody, we, at the most, can interpret that so as to mean that the person whosoever had rejected the assessee's request, but the same was directed to be intimated to the assessee and, therefore, the onus was to establish that this entry was made by the concerned Assessing Officer and had been intimated to the assessee in time. On specific enquiry by the Bench, the Id.DR was unable to establish the fact of intimation and the refusal to the assessee. Under these circumstances, we have no option but to accept the assessee's submission that even if his request was rejected, the order for rejection was not intimated to the assessee and if it was the case, then in our opinion, the CIT(Appeals) was quite justified in accepting the assessee's plea that original return was a valid return and, therefore, revised return was also valid. The order of the CIT(Appeals) on this point is, therefore, confirmed.
9. So far as addition Under Section 68 of the IT Act is concerned, the Id.DR did not advance any argument and, therefore, we are of the opinion that the CIT(Appeals) was justified in deleting the addition on the ground that all the loans were old loans.
10. Before ending with the issue, we would like to record that the Id.DR had relied on two decisions; namely, decision in the case of-Chief CIT (Adm) and Anr. v. Machine Tool Corporation of India Ltd. 10.1. After considering the aforesaid decisions, we are of the opinion that the assessee's original return having been found to be valid, there was no reason for not considering the revised return to be valid one and, therefore, the decision relied upon by the Id.DR are of no help to the Revenue.