Bookmark
PDF
Share
CaseIQ

Satyanarayan Bhalotia v. Commissioner Of Income-Tax.

Calcutta High Court

Dec 15, 1992

Judgment

Subsequent
References

CaseIQ

Important Paras

Please sign up to view Important Paras.

Smart Summary (Beta)

Judgment Summary — Reference under section 256(1) of the Income-tax Act, 1961

Factual and Procedural Background

This reference arises under section 256(1) of the Income-tax Act, 1961, where the Income-tax Appellate Tribunal referred two questions to the court in relation to assessment year 1977–78.

The material facts as found by the Tribunal are:

The assessee is an individual.
While making assessment under section 143(3)/147(a), the Income-tax Officer allowed the benefit of carry forward of a speculation loss of Rs. 1,53,199 attributable to assessment year 1974–75.
On scrutiny, the Commissioner of Income-tax observed that for AY 1974–75 the assessee had filed a return in compliance with a notice under section 148 and had not filed a return under section 139(1).
The Commissioner concluded that a loss not determined pursuant to a return filed under section 139 could not be carried forward under section 80, held the assessment to be erroneous and prejudicial to the Revenue, initiated proceedings under section 263, issued a show-cause notice, and ultimately revised the assessment to withdraw the carry forward benefit and enhanced the assessee's income by Rs. 1,53,199.
The assessee contested the Commissioner’s action, contending that the books were seized preventing timely filing under section 139(1), that no notice under section 139(2) was served, and that the return filed under section 148 should be treated as a return under section 139(2) (or otherwise be effective for carry forward purposes).
The assessee appealed to the Tribunal which upheld the Commissioner’s order under section 263 and dismissed the assessee's appeal.
The Tribunal then referred two questions to the court relating to (1) correctness of upholding the Commissioner’s order under section 263 and (2) whether the setting off of the specified portion of speculation loss was erroneous and prejudicial to the Revenue.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, and on a correct interpretation of sections 80, 139, 148, 147 and other applicable provisions of the Income-tax Act, 1961, the Income-tax Appellate Tribunal was justified in law in upholding the order passed by the Commissioner of Income-tax under section 263 of the Act in respect of the assessment year 1977–78?
Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the assessment order passed by the Income-tax Officer setting off the speculation loss of Rs. 1,53,199 (out of total speculation loss of Rs. 7,25,607 determined for AY 1974–75) against the speculation profits for AY 1977–78 was erroneous and prejudicial to the interests of the Revenue within the meaning of section 263 of the Act?

Arguments of the Parties

Assessee's Arguments

There is no material difference between a return filed under section 139(2) and one filed under section 148; section 148(1) provides that requirements in a section 148 notice may include those in a section 139(2) notice and the statutory provisions should apply as if the notice were under section 139(2).
The return filed in compliance with the section 148 notice should be treated as a return under section 139(2) (and hence effective for determining losses that are eligible for carry forward), or at least should be treated as a return under section 139(4) where the assessee had not had chance to file within the original period because books had been seized.
Reliance placed on authority (National Taj Traders) to the effect that machinery provisions should not be strictly construed and on Gurupad Khandappa Magdum to support the proposition that consequences of a section 139(2) notice should follow once a section 148 notice is issued.
The assessee asserted a factual impediment (books seized) preventing filing under section 139(1) and that no notice under section 139(2) was served.

Revenue's Arguments

Provisions of section 139(2) and section 148 are not in pari materia and cannot be treated as equivalent.
A notice under section 148 is issued in cases of escapement of income and is not the same as a general section 139(2) notice; a return filed in response to a section 148 notice cannot be equated to a return filed under section 139(3) or be treated as a return within the original period.
Reliance was placed on Narain Das Paramanand Das v. ITO to support the non-equivalence of the notices, and on Brij Mohan v. CIT to show that section 139 does not deem a belated return filed within an extended period to have been filed within the originally prescribed period.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
National Taj Traders, [1980] 121 ITR 535 (SC)	Cited by the assessee for the proposition that machinery provisions in a fiscal statute should not be strictly construed or applied.	Referenced by the assessee before the Tribunal; the Tribunal and this Court considered the contention but required strict compliance with section 80 for carry forward rights (see Tribunal's reliance on Mandyala Gokndu).
Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum, [1981] 129 ITR 440; (1978) 3 SCC 383 : AIR 1978 SC 1239	Proposition relied on by assessee that once a notice under section 148 is issued, consequences which flow from a notice under section 139(2) have to follow.	Assessee relied on this authority before the Tribunal; the Tribunal did not accept the assessee's contention that section 148 notice must automatically carry all consequences of a section 139(2) notice without regard to timing and other statutory conditions.
Narain Das Paramanand Das v. ITO, [1979] 117 ITR 174 (Cal)	Cited by the Revenue for the proposition that section 139(2) and section 148 are not in pari materia and cannot be equated.	Placed before the Tribunal to support the view that a notice under section 148 does not have the same legal effect as a notice under section 139(2) for carry forward purposes; the point was taken into account in the Tribunal's decision and considered by this Court on remand issues.
Brij Mohan v. CIT, [1979] 120 ITR 1	Cited by the Revenue for the proposition that section 139 nowhere declares that a return filed within an extended period will be deemed to have been filed within the original period.	Used to support the Revenue's submission that a belated return is not automatically to be treated as a timely return for the purposes of rights conferred under section 139; the Court considered this in assessing the legal framework for the questions referred.
Mandyala Gokndu and Co. v. CIT, [1976] 102 ITR 1	Authority for the principle that a right conferred by statute is to be claimed only in accordance with the statute; one seeking relief must strictly bring himself within the terms of the statutory provision.	The Tribunal applied this principle to hold that entitlement to carry forward losses must meet the conditions in section 80 and related provisions; the Court recorded the Tribunal's reliance on this principle in upholding the legal requirement of strict compliance with section 139 for carry forward rights.
Burdwan Wholesale Consumers' Co-Operative Society Ltd. v. Commissioner Of Income-Tax, [1991] 191 ITR 570	Held that issue of a section 148 notice even while time for filing a voluntary (belated) return under section 139(4) is still running cannot abridge the assessee's statutory privilege to file a voluntary return under section 139(4).	This Court relied on that holding to state that whether the assessee was deprived of the opportunity to file under section 139(4) is a material factual question that the Tribunal must determine on remand.
Co-operative Marketing Society Ltd. v. CIT, [1983] 143 ITR 99 (MP)	Madhya Pradesh High Court held that an assessee is entitled to carry forward and set off loss determined in pursuance of a return filed under section 148 but within the time available for filing a belated return under section 139(4).	This Court cited that authority to support the proposition that if the section 148 return was filed within the window for a voluntary belated return under section 139(4), the loss may be eligible for carry forward; the point was a basis for remand to the Tribunal to determine the timing issue.

Court's Reasoning and Analysis

The Court's analysis proceeded on the following lines, based strictly on the materials and conclusions set out in the statement of case and the Tribunal's decision:

The Court noted an omission in the Tribunal's statement of case: it did not state whether the notice under section 148 (read with section 147(a)) was issued before the time for filing a voluntary belated return under section 139(4) had expired. The Court regarded this fact as "most material and decisive."
The Court explained why that factual point matters: if the section 148 notice was served while the assessee still had a running period to file a voluntary belated return under section 139(4), then the assessee was effectively deprived of an opportunity to file that section 139(4) return. In such circumstances, it would be unfair to deny the assessee the benefits that flow from a loss determined in pursuance of a return filed under section 139.
The Court referred to authorities (notably Burdwan Wholesale Consumers' Co-Operative Society Ltd. and the Madhya Pradesh High Court decision in Co-operative Marketing Society Ltd. v. CIT) to show that where a section 148 notice is issued while the period for filing a voluntary (belated) return is still running, the issuing of the notice cannot abridge the assessee's statutory right to file under section 139(4) and claim consequential benefits (such as carry forward of loss).
Because the statement of case omitted whether the section 148 notice pre-empted the section 139(4) filing period, the Court concluded that it could not properly answer the referred questions on the existing record. The factual question about timing is determinative of entitlement to carry forward in the present case.
Consequently, the Court declined to answer the two referred questions substantively and instead remitted the matter to the Tribunal with a specific direction to find the omitted factual issue — namely whether the section 148 notice was issued before the expiry of the time available under section 139(4) to file a belated return.
The Court further clarified the legal consequence should the Tribunal find that the section 148 return was filed within the time permitted under section 139(4): in that event, a speculation loss determined pursuant to such a return is eligible for carry forward and set-off against subsequent speculation profits — and the set-off for AY 1977–78 would depend on that factual finding.

Holding and Implications

Holding: REMANDED to the Income-tax Appellate Tribunal for further factual determination.

Direct Effect on the Parties:

The Court declined to answer the two questions referred by the Tribunal because of a material factual omission in the statement of case (whether the section 148 notice pre-empted the period under section 139(4)).
The matter is remanded to the Tribunal to determine whether the notice under section 148 for assessment year 1974–75 was issued before the time allowed under section 139(4) to file a belated return expired; the Tribunal is to decide the appeal afresh in light of that factual finding and the observations made in this judgment.
The Court indicated the legal consequence it would follow if the Tribunal finds that the section 148 return was filed within the time available under section 139(4): the speculation loss determined pursuant to such a return would be eligible for carry forward and set-off against subsequent speculation profit (including the question of set-off against AY 1977–78 profits).
There will be no order as to costs.

Broader Implication: The opinion does not purport to lay down a new general precedent beyond directing that a material factual omission (regarding issuance timing of a section 148 notice versus the section 139(4) window) must be resolved before answering the referred questions. The Tribunal must determine that factual point and then apply the statutory provisions and the authorities cited as applicable.

Show all summary ...

Ajit K. Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred to this court the following questions relating to the assessment year 1977–78:

“1. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of sections 80, 139, 148 and other applicable provisions of the Income-tax Act, 1961, the Income-tax Appellate Tribunal was justified in law in upholding the order passed by the Commissioner of Income-tax under section 263 of the Act in respect of the assessment year 1977–78?

2. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was justified in law in holding that the assessment order passed by the Income-tax Officer setting off the speculation loss of Rs. 1,53,199 out of the total speculation loss of Rs. 7,25,607 determined in respect of the assessment year 1974–75 against the speculation profits for the assessment year 1977–78 was erroneous and prejudicial to the interests of the Revenue within the meaning of section 263 of the Act?”

2. Shortly stated, the facts as found by the Tribunal are that the assessee is an individual. The Income-tax Officer, while making the assessment under section 143(3)/147(a) of the Income-tax Act, 1961, allowed the benefit of carry forward of loss amounting to Rs. 1,53,199 which pertained to the assessment year 1974–75. On scrutiny of the assessment record, the Commissioner of Income-tax found that, for the assessment year 1974–75, the assessee had filed a return in pursuance of the notice issued by the Income-tax Officer under section 148 and no return was filed under section 139(1). The Commissioner of Income-tax was of the opinion that, since the assessee had not filed any return for the assessment year 1974–75 in terms of section 139, he was not entitled to the benefit of carry forward of loss incurred for the year. He, therefore, came to hold that the Income-tax Officer committed an error in allowing the benefit of carry forward of the aforesaid loss for the assessment year 1974–75. Accordingly, the Commissioner of Income-tax initiated proceedings under section 263 and issued a show-cause notice, in reply to which the assessee contended that, since his books of account were seized and possessed by the Income-tax Department, he could not file his return of income within the time allowed under section 139(1), that no notice under section 139(2) was served on him and that the return filed under section 148 was to be treated as a return under section 139(2) as per the clear language of section 148 itself. It was, therefore, claimed that the order of assessment was not erroneous and prejudicial to the interests of the Revenue. The Commissioner of Income-tax held that, in view of the provisions of section 80, the loss which was not determined in pursuance of a return filed under section 139 could not be carried forward and set off against the profit for the subsequent year. He, therefore, rejected the assessee's contention, revised the assessment and directed the Income-tax Officer to withdraw the benefit of carry forward loss of Rs. 1,53,199 given in the original assessment and enhanced the total income by that amount.

3. The assessee preferred a second appeal before the Tribunal. It was contended on behalf of the assessee before the Tribunal that there is no difference between a return filed under section 139(2) and that filed under section 148. A reference was made to the provisions of section 148(1) which provides that, before making the assessment or reassessment under section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under section 139(2) and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. It was urged that the last portion of section 148 clearly indicates that once a notice was issued under that section and a return filed by the assessee in compliance therewith, he cannot be deprived of the benefits available to him upon determination of loss in pursuance of that return which is as good as a return filed under section 139(2). It was next urged that, while deciding the issue, the Commissioner of Income-tax very much relied on the provisions of section 80 which are machinery provisions and claimed that a fiscal statute should not be strictly construed or applied to those parts of the statute which contain machinery provisions, in view of the decision in the case of National Taj Traders, [1980] 121 ITR 535 (SC). Reliance was also placed on the decision of the Supreme Court in the case of Gurupad Khandappa Magdum v. Hirabai Khandappa Magdum, [1981] 129 ITR 440; (1978) 3 SCC 383 : AIR 1978 SC 1239, for the proposition that once a notice under section 148 has been issued, all the consequences which flow from the notice, if issued under section 139(2), have to follow. It was contended that, by issue of a notice under section 148, the Revenue cannot take away the right of the assessee to file a return under section 139. It was, therefore, submitted that the return filed by the assessee should have been treated as a return filed under section 139(4) and the benefit of carry forward of loss should have been allowed. It was thus strongly submitted that the order of the Income-tax Officer was not erroneous and prejudicial to the interests of the Revenue. It was, however, contended on behalf of the Revenue that the provisions of section 139(2) and those of section 148 are not in pari materia. It was urged that notice under section 148 is issued only in the case of escapement of income either by reason of the omission or failure on the part of an assessee to make a return under section 139 or to disclose full particulars of his income in the stage of original assessment or as a result of lack of vigilance or due to inadvertence on the part of the Income-tax Officer but the notice under section 139(2) can be issued and served on any person who, in the Income-tax Officer's opinion, is assessable under the Act. It was claimed that a notice under section 148 cannot be treated as equivalent to a notice under section 139(2) and that a belated return cannot be regarded as a return in terms of section 139(3). Reliance was placed on the decision in the case of Narain Das Paramanand Das v. ITO, [1979] 117 ITR 174 (Cal) for that proposition. Reliance was also placed on the decision of the Supreme Court in the case of Brij Mohan v. CIT, [1979] 120 ITR 1, wherein it has been observed that nowhere does section 139 declare that where a return is filed within the extended period, it will be deemed to have been filed within the period originally prescribed by the statute. It was, therefore, submitted that the order of the Income-tax Officer was erroneous and as such the Commissioner of Income-tax was justified in invoking the provisions of section 263 of the Income-tax Act, 1961.

4. The Tribunal upheld the order of the Commissioner of Income-tax and dismissed the assessee's appeal by observing as under:

“We have heard the submissions made by both the parties before us and we are unable to concede to the submission of learned counsel for the assessee that the assessee was entitled to the benefit of carry forward of loss even if he filed a loss return under section 148. Section 80 of the Income-tax Act, 1961, laid down the essential condition to be fulfilled for obtaining the benefit of carry forward of loss. This section reads as under:

‘80. Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under section 139, shall be carried forward and set off under sub-section (1) of section 72 or sub-section (2) of section 73 or sub-section (1) of section 74 or sub-section (3) of section 74AV

5. It is, therefore, clear from the language of the section itself that, if a person desires to acquire the benefit of carry forward of loss, he must file a return of that loss under section 139. If he does not do so, he loses the benefit. A; has been observed by the Supreme Court in the case of Mandyala Gokndu and Co. v. CIT, [1976] 102 ITR 1, 3, right, being the creature of the statute, can be claimed only in accordance with the statute which confers it, and a person who seeks relief under a particular section must bring himself strictly within its terms before he claims the benefit of it. Bearing this principle in mind and considering the facts of the case, we have no hesitation in holding that the order of the Income-tax Officer was erroneous and prejudicial to the interests of the Revenue and as such the Commissioner of Income-tax was justified in invoking the provisions of section 263 of the Act in this case. We, therefore uphold his order.”

6. The statement of case as forwarded by the Tribunal omits one factual aspect which, in our view, is most material and decisive. It does not appear whether, in this case, the issue of the notice under section 148 read with section 147(a) pre-empted the assessee's opportunity of filing the return within the time allowed under section 139, i.e, whether the notice was issued before the time for filing voluntary returns belatedly under section 139(4) expired. The Tribunal has, however, gone on the basis that the assessee failed to file the return under section 139 necessitating the issue of a notice under section 148 calling upon the assessee to file the return. This aspect is not brought out in the statement of case. To our mind, this is an all-important factor for deciding the issue before us. If the assessee was not given an opportunity of filing the return under sub-section (4) of section 129, it should not be fair to say that the assessee should be deprived of the benefit of determination of the loss for the purpose of carry forward and set-off in later years. In similar circumstances, it has been held by this court in Burdwan Wholesale Consumers' Co-Operative Society Ltd. v. Commissioner Of Income-Tax., [1991] 191 ITR 570, that the chance issue of a notice under section 148 even while the time for filing a voluntary return was still running, cannot abridge the assessee's statutory privilege of filing a voluntary return under section 139(4). For, if it does it will lead to hostile discrimination, because another person, by a mere freak of not being served with such a notice, shall be entitled to the same benefit. The view that we take is consonant with the view of the Madhya Pradesh High Court which held that the assessee would be entitled to the carry forward and set off of its loss even if the loss is determined in pursuance of a return filed under section 148 but within the time available for filing a belated return voluntarily under section 139(4). See Co-operative Marketing Society Ltd. v. CIT, [1983] 143 ITR 99 (MP).

7. We, therefore, decline to answer the first question and remand the matter to the Tribunal to find out whether the notice under section 148 of the Act was issued to the assessee for the assessment year 1974–75, before the time allowed under section 139(4) to file the return belatedly expired.

8. The second question is only consequential. Speculation loss determined pursuant to a return filed under section 148, but within the time allowed under section 139(4), is eligible for carry forward and set-off and the same should be carried forward and set-off against the speculation profit available in the subsequent year. The question whether or not the set-off of the speculation loss determined in respect of the assessment year 1974–75 should be carried forward and set-off against the speculation profit available in the assessment year 1977–78 would depend on the answer to the first question. We, therefore, decline to answer the second question.

9. The matter is, therefore, remanded to the Tribunal. The Tribunal will decide the appeal afresh in the light of the observations made in the judgment. There will be no order as to costs.

Bhagabati Prasad Banerjee, J.:— I agree.