TMI Blog1988 (6) TMI 44X X X X Extracts X X X X X X X X Extracts X X X X ..... 1, 1978, but it was not so filed. On August 10, 1978, a notice under section 139(2) was issued by the Income-tax Officer, C-Ward, Company Circle, Hyderabad (2nd respondent) calling upon the petitioner to file a return. On receiving the said notice, the petitioner filed Form No. 6 on September 26, 1978, seeking extension of time till December 31, 1978. This request was refused by the Income-tax Officer, yet no return was filed. A notice under section 142(1) was served on the assessee, posting the case to January 2, 1981. On that date, Mr. Iqbal Kishan, accounts officer of the petitioner, appeared before the Income-tax Officer. But, even on that date, no return was filed. On that date, he was specifically asked to file the return by January 17, 1981. Again it was not filed. Since the assessment was likely to get barred by limitation by March 31, 1981, an order of assessment was made on March 12, 1981, under section 144 of the Act. No return was filed even by the date the assessment was made. In his assessment order, the Income-tax Officer mentioned that the assessee had merely filed a " computation of income admitting a loss of Rs. 74,79,749 ". He, however, observed that " in the abs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e petitioner's plea to carry forward the loss, the petitioner filed a revision under section 264 of the Act before the Commissioner of Income-tax. Two contentions were urged by the petitioner before the Commissioner, viz., (i) that, having accepted the return in pursuance of the order dated July 9, 1981, under section 146 and having further treated the said return as having been filed under section 139(4), the Income-tax Officer was in error in not allowing the loss to be carried forward, his view is contrary to law ; and (ii) that, in this case, a return was in fact filed in September, 1979, which is established by the material placed before the Commissioner and hence the refusal to allow the petitioner to carry forward the loss is not sustainable in law. Having entertained the revision, the Commissioner issued a notice to the petitioner under section 263 of the Act to show cause why the order of the Income-tax Officer, in so far as it allowed the petitioner to carry forward the unabsorbed depreciation should not be revised. The petitioner filed its objections after considering which the proposed action under section 263 was dropped. The Commissioner then took up the petitioner' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etitioner's case on this aspect. Even today, the petitioner is not in a position to mention the date on which the return was filed. Neither a copy of the return said to have been submitted is placed before us, nor is any other receipt or acknowledgement in proof thereof available. The records of the Income-tax Officer also do not contain any such return. Now, the material relied upon before us are the following: The first document is an extract of the handing-over note of Sri P. Narasimha Ramulu, said to be an accounts officer of the petitioner, dated September 7, 1979. In this note, under the heading " III.B: Income Assessment of the Company ", the following statement occurs : " The returns for the years 1976-77, 1977-78 and 1978-79 are filed. " The next document is a letter dated September 13, 1985, written by one Mr. K. Narasimhan, I. A. A.S., Deputy Director of Audit (Defence Services), Southern Command, Madras, addressed to the Deputy Controller of Accounts of the petitioner company, stating that when he took charge of the records from Sri Narasimha Ramulu, he was given a clear endorsement that the return for 1978-79 has already been filed. He, however, stated that he do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, 1981, was no return in the eye of law, and that, notwithstanding the reopening of the assessment, the only course open to the Income-tax Officer was to make a best judgment assessment under section 144. The Commissioner was equally in error in holding that where an assessment is reopened after the expiry of the two-year period, referred to in section 139(4), the assessee has no right to file the return. Once the assessment is reopened and the return is accepted, it is a return filed under section 139, and is good for all purposes, including section 80. On the other hand, it is submitted by Sri M. Suryanarayana Murthy, learned standing counsel for the Revenue, that the power to extend time for filing the return under section 139(2) cannot be exercised beyond the two-year period prescribed in section 139(4). He submitted that, after the expiry of the said period, the assessment cannot be reopened under section 146 on the ground mentioned in clause (i) of sub-section (1) thereof, and no return can be allowed to be filed, nor can it be received by the Income-tax Officer. He submitted that the very order of the Income-tax Officer dated July 9, 1981, reopening the assessment under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 139(2) and has also not filed a return or refused to file a return under sub-section (4) or (5) of section 139 : or (b) fails to comply with all the terms of a notice issued under section 142(1) or a direction issued under section 142(2A) ; or (c) having submitted a return, fails to comply with all the terms of a notice under section 143(2). Section 146 provides that where an assessment has been made under section 144, the assessee may apply, within one month of the date of service of the order, to set aside the best judgment assessment. Under this provision, an application to set aside a best judgment assessment can be made on three grounds, viz.: (i) that he was prevented by sufficient cause from making the return required under sub-section (2) of section 139, or (ii) that he did not receive the notice issued under sub-section (1) of section 142 or sub-section (2) of section 143, or (iii) that he bad not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of any notice referred to in clause(ii)..." If the Income-tax Officer is satisfied about the existence of any of the above grounds, he shall cancel th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the return required under sub-section (2) of section 139, he would naturally have to receive the return filed along with the application under section 146 or within such time as he may specify. Such a return would then be a return filed under section 139 for the purpose of section 80, as it then stood. (In this connection, it is necessary to mention that section 80 has been amended by the Taxation Laws (Amendment) Act, 1984, with effect from April 1, 1985, and the words " under section 139 " have been substituted by the words " within the time allowed under subsection (1) of section 139 or within such further time as may be allowed by the Income-tax Officer"). It would not be correct to say that even though a best judgment assessment is set aside under section 146 on the ground mentioned above, the Income-tax Officer has no power to receive the return if, meanwhile, the period of two years prescribed in sub-section (4) of section 139 has expired. We see no warrant for reading such a limitation into section 146. On the contrary, section 146 expressly says that after setting aside the best judgment assessment, the Income-tax Officer shall " proceed to make a fresh assessment in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and no other. The circumstance that a notice under sub-section (2) of section 139 can be issued only before the end of the relevant assessment year, or that the notice should specify only a period of thirty days from the date of its service for filing the return, or the further circumstance that the power to extend time conferred by the proviso is not unbridled, do not and cannot lead to the conclusion that the period mentioned in sub-section (4) of section 139 ought to be read into section 146. Sub-section (4) merely gives yet another opportunity to the assessee to file the return before the assessment is made, even though he may not have filed the return within the period prescribed in sub-section (1) or in the notice issued under sub-section (2) ; he can do so provided he files the return before the expiry of two years from the end of the relevant assessment year. In the very scheme of things, thus, the period prescribed in sub-section (4) cannot be applied or extended to section 146. We must, however, say that the power to extend time, conferred on the Income-tax Officer by the proviso to sub-section (2), must be exercised fairly and having regard to the relevant facts and circ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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