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Commissioner Of Income-Tax v. Banshidhar Jalan And Sons.

Calcutta High Court

Sep 25, 1992

Judgment

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

Factual and Procedural Background

(Narrative limited strictly to facts set out in the provided opinion.)

This is a reference under section 256(1) of the Income-tax Act, 1961, raising two questions of law for the assessment years 1968–69 and 1973–74. The relevant facts (as stated in the opinion) for assessment year 1968–69 are:

The assessee filed a return of income on 2 February 1972 in response to a notice under section 148 dated 8 November 1971.
A draft assessment order under section 144B was served on the assessee on 23 March 1976, and the assessee was granted extension to send objections by 7 April 1976.
No objections were filed; instead a revised return was filed on 7 April 1976.
The Assessing Officer (AO) declined to take cognizance of the revised return, holding that the ordinary four-year limitation expired on 31 March 1976 (four years from end of financial year in which the s.148 notice was issued).
The AO finalised the assessment on 22 April 1976 based on the draft order prepared with reference to the original return.
On appeal, the Commissioner of Income-tax (Appeals) cancelled the assessment, holding that the earlier return had been superseded by the revised return and the AO had no jurisdiction to complete the assessment on the earlier return; this decision relied on a Tribunal decision (I.T.A. No. 2666/(Cal) of 1974–75 dated 3 December 1976) and the Delhi High Court decision in Narinder Singh Dhingra v. CIT [1973] 90 ITR 110.
The Department appealed to the Tribunal, which upheld the CIT(A)'s order. The Tribunal held that a notice under s.148 brings s.139(2) into operation "so far as may be", and therefore an assessee could file a revised return under s.139(5) in pursuance of a s.148 notice; the Tribunal also held that a revised return filed after expiry of the ordinary four-year limitation but before completion of assessment (here at draft stage) was valid and superseded the earlier return, making any assessment completed on the earlier return beyond jurisdiction.

The present reference asks whether the Tribunal was correct in (1) holding that the revised return filed on 7 April 1976 was a valid return; and (2) if so, whether the Tribunal was justified in not setting aside the assessment and directing a fresh assessment when the time-limit had not expired on the date of completion (22 April 1976).

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the revised return filed by the assessee on 7 April 1976 was a valid return?
If the answer to question No. 1 is affirmative, whether the Tribunal was justified in not setting aside the assessment and directing the Income-tax Officer to make a fresh assessment according to law, given that on 22 April 1976 (date of completion) the time-limit for completing the assessment on the basis of the revised return had not expired?

Arguments of the Parties

Assessee's Arguments

The assessee contended before the Commissioner of Income-tax (Appeals) that it had a right to file a revised return at the draft-order stage because section 139(5) entitles an assessee to revise his return any time before the completion of the assessment.
Implicit in the Tribunal's and CIT(A)'s treatment: a revised return filed at the draft stage (but after the ordinary four-year limit) should be treated as valid and to supersede the earlier return when filed before completion of the assessment.

Revenue's (Department's) Arguments

The Revenue contended that the facts of the present case were distinguishable from the case(s) relied upon (e.g., Hoby Centre Pvt. Ltd. (supra)) — a contention not accepted by the Tribunal.
The Revenue argued that an assessee who has filed a return under section 148 cannot file a revised return under section 139(5); the Tribunal negatived this contention.
The Department also argued that the revised return was virtually similar to the earlier return, with only a marginal variation of Rs. 400, and therefore the revised return could be deemed to have been acted upon and the validity of the assessment could not be questioned.
Before the High Court the Department relied on Supreme Court authority (Guduthur Bros.) that it would be improper for the Tribunal to cancel the assessment where the assessing authority had committed an error or misdirected the proceedings, and on Kapurchand Shrimal which held the appellate court's duty is to set right such defects rather than cancel the assessment.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Narinder Singh Dhingra v. The Commissioner of Income Tax, Delhi [1973] 90 ITR 110	Relied upon by the Commissioner of Income-tax (Appeals) to cancel the assessment on the ground that an earlier return being superseded deprived the AO of jurisdiction to complete assessment on the earlier return.	The CIT(A) relied on this decision in cancelling the assessment; the Tribunal upheld the CIT(A)'s reliance on it. The High Court recorded this usage as part of the earlier fora's reasoning but did not adopt the same conclusion.
I.T.A. No. 2666/(Cal) of 1974–75 dated 3 December 1976 (Tribunal decision)	Used by the CIT(A) to support the proposition that a revised return filed at draft stage supersedes the earlier return and precludes assessment on the earlier return.	The CIT(A) relied on this Tribunal decision in cancelling the assessment; the Tribunal followed that approach. The High Court reviewed the matter and reached a different conclusion on jurisdiction and validity.
Guduthur Bros. v. Income Tax Officer, Special Circle, Bangalore [1960] 40 ITR 298	Authority cited for the proposition that where the assessing authority commits an error or misdirects the proceeding, appellate forum should not lightly cancel the assessment.	The Department relied on this decision to argue that the Tribunal should not have cancelled the assessment; the High Court accepted the principle that such errors may amount to irregularity correctable on appeal rather than jurisdictional nullity.
Kapurchand Shrimal v. CIT [1981] 131 ITR 451	Holds that where the assessing authority commits an error or misdirects, it is the duty of the appeal court to set right such defect in the proceeding.	The High Court cited this decision as vindicating the Department's contention that appellate tribunals should correct defects rather than declare assessments invalid where jurisdictional facts are present.
Hoby Centre Pvt. Ltd. (supra)	Mentioned by Revenue as a case the facts of which were said to be distinguishable from the present case (context in which the Revenue urged distinction).	The Tribunal did not accept the Revenue's contention that facts were distinguishable; the High Court records this dispute between the parties and earlier fora.

Court's Reasoning and Analysis

The court's reasoning proceeds in several distinct steps, as stated in the opinion:

Jurisdictional foundation: The court emphasises that the issue of the s.148 notice and the assumption of jurisdiction under s.147 was not challenged. The jurisdictional facts required to initiate reassessment remained uncontested. Hence the initial jurisdiction to assess once invoked by the notice under s.148 could not be destroyed by the AO's later refusal to take cognizance of a revised return.
Distinction between jurisdiction and irregularity: The court explains that the AO's refusal to recognise the revised return, even if erroneous, would at most be an irregularity (a misdirection), not an action that destroys jurisdiction. What would destroy jurisdiction is absence of jurisdictional facts (i.e., conditions precedent for initiating proceedings under s.147), which is not the case here.
Precedential support on remedial approach: The court notes authorities (Guduthur Bros. and Kapurchand Shrimal) to the effect that where the assessing authority commits an error or misdirects proceedings, the appellate court's duty is to correct the defect rather than cancel the assessment outright. The court accepts that principle and holds that the AO's refusal to take cognizance of the revised return could be an act that misdirected proceedings but did not undermine jurisdiction.
Limitation issue: The court considered whether the assessment was barred by limitation. It concluded the order was passed within the limitation prescribed by sub-section (2) of section 153 read with Explanation (1)(iv). The court observed that if the assessee's position were accepted, it would have the effect of extending the limitation by one year from 7 April 1976; consequently, there was no question of the assessment being time-barred.
Validity of the revised return: On the substantive question whether the revised return dated 7 April 1976 was a valid return, the court examined the material facts supplied in the record. It noted that the revision involved a marginal change of Rs. 400 when the original return was for Rs. 47,492 and the income as finally assessed was Rs. 1,86,820. The court found that the record did not explain why the revision was called for and observed that, if an extra item existed, it would likely have been reflected in the computation as the assessed income materially exceeded the returned income. Thus the court concluded the revised return could not be said to be a valid one (i.e., not sufficiently justified by the materials before the court).
Scope of the statutory fiction in s.148: The court rejected the view that because s.148 states that the provisions of s.139(2) shall "so far as may be, apply accordingly as if the notice were a notice issued under that subsection", a s.148 notice necessarily imports all consequences of s.139(2) (including the right to revise under s.139(5)) in every respect. The court explained that the fiction is a procedural device linking reassessment to the machinery of sections 143 and 144 and other ramifying provisions; it is not intended to extend s.139(2)'s consequences for purposes ulterior to that machinery, and s.148 itself is sufficient to take care of return-filing procedure in reassessment.
Remedy and Tribunal's approach to setting aside assessment: The court also addressed the second question. It observed that even if the revised return had been valid, the AO's completion of assessment without taking notice of it would still not have affected the AO's jurisdiction—at worst, it would be an irregularity. In such a situation the Tribunal should have set aside the assessment to remove the supervening irregularity rather than cancelling on jurisdictional grounds. Despite that observation, the court answered the second question in the negative because, on the record and as analysed, the revised return itself was not a valid return and the AO had not acted beyond jurisdiction nor was the assessment time-barred.

Holding and Implications

Holding:

The court answered the first question (validity of the revised return filed on 7 April 1976) in the negative and in favour of the Revenue — the revised return was not held to be a valid return on the facts before the court.
The court answered the second question (whether the Tribunal was justified in not setting aside the assessment and directing the AO to make a fresh assessment) in the negative and in favour of the Revenue.
There will be no order as to costs. The opinion records the concurrence of J.N. Hore, J.

Implications (direct consequences stated in the opinion):

The court made a clear distinction between jurisdictional defects and irregularities: the AO's refusal to take cognizance of a revised return (even if erroneous) is characterised as an irregularity or misdirection and does not destroy the jurisdiction conferred by a valid s.148 notice and the related s.147 proceeding.
Where the assessing authority commits an error or misdirects proceedings, appellate forums should, where appropriate, correct the defect rather than cancel the assessment, consistent with the Supreme Court authorities cited (Guduthur Bros. and Kapurchand Shrimal).
Because the assessment in this case was completed within the applicable limitation (s.153(2) read with Explanation (1)(iv)), there was no bar of limitation to the assessment; the alleged right to extend limitation by one year from 7 April 1976 (if accepted) would not render the assessment time-barred on the facts before the court.
The court concluded that the Tribunal's cancellation of the assessment was not justified on the record before it; the revised return was not held to be valid and the AO's action did not amount to a jurisdictional nullity that would require cancellation.

Note: This summary strictly reflects the statements and reasoning contained in the provided opinion and does not add any information beyond that text.

Show all summary ...

Ajit Kumar Sengupta, J.:— In this reference under section 256(1) of the Income-tax Act, 1961, the following questions of law have been referred to this court for the assessment years 1968–69 and 1973–74:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the revised return filed by the assessee on April 7, 1976, was a valid return?

2. If the answer to question No. 1 above is in the affirmative, since on April 22, 1976, i.e, the date on which the assessment was framed by the Income-tax Officer, the time-limit for completing the assessment on the basis of the revised return filed on April 7, 1976, had not expired, the Tribunal was justified in not setting aside the assessment and directing the Income-tax Officer to make a fresh assessment according to law?”

2. Shortly stated, the facts are as under:

The assessment years involved in this reference petition, are 1968–69 and 1973–74. The material facts for 1968–69 in brief are that the assessee filed its return of income on February 2, 1972, in response to a notice under section 148 issued on November 8, 1971. In the assessment proceedings, a draft assessment order under section 144B was served on the assessee on March 23, 1976. The assessee was granted extension of time to send its objection by April 7, 1976. No objections were, however, filed, instead a revised return was filed. The Assessing Officer declined to take cognizance of the return and held that the time for filing a revised return had run out on March 31, 1976, being the ordinary limitation period of four years from the end of the financial year in which the notice under section 148 was issued, i.e, March 31, 1972. He finalised the assessment on April 22, 1976, on the basis of the draft order prepared with reference to the original return which remained uncontested by the assessee. In appeal before the Commissioner of Income-tax (Appeals), the assessee contended, inter alia, that it had a right to file a revised return at the draft order stage as section 139(5) entitles the assessee to revise its return any time before the completion of the assessment. The Commissioner of Income-tax (Appeals), relying on the Tribunal's decision in I.T.A No. 2666/(Cal) of 1974–75 dated December 3, 1976, and also the decision of the Delhi High Court in Narinder Singh Dhingra… v. The Commissioner Of Income Tax Delhi…, [1973] 90 ITR 110, cancelled the assessment on the ground that the earlier return being superseded, the Income-tax Officer had no jurisdiction to complete the assessment on the basis of such return. The Department carried the matter in appeal before the Tribunal. The Tribunal upheld the order of the Commissioner of Income-tax (Appeals). The Revenue's contention that the facts in Hoby Centre Pvt. Ltd. (supra) were distinguishable did not appeal to the Tribunal. The further contention that an assessee having filed a return under section 148 cannot file a revised return under section 139(5) was also negatived by the Tribunal. The last contention of the Revenue before the Tribunal was that the revised return virtually being similar to the earlier return except for a marginal variation of Rs. 400 could be deemed to have been acted upon, and the validity of the assessment cannot be questioned. This also did not find favour with the Tribunal as the Income-tax Officer, as evident from the assessment order, consciously ignored the revised return.

3. The Tribunal has taken the view that the language of section 148 clearly brings into operation section 139(2) with all its ramifications. According to the Tribunal, section 148 and section 139(2) are on par. Therefore, when the assessee filing a return under section 139(2) has the option of revising his return under section 139(5), for the sake of parity, a return filed under section 148 also confers on the assessee the same right of revising the earlier return under section 139(5) in pursuance of a notice under section 148. The Tribunal, again, went into the question whether the revised return filed after expiry of the prescribed limitation of four years from the end of the financial year in which the notice under section 148 had been issued but before the completion of the assessment proceeding was valid. The Tribunal came to the conclusion that such a revised return was valid because the outer limit of time is either four years as stated or the date of completion of the assessment. In this case, the revised return was filed at the stage of the draft assessment order and not after completion of the assessment. Therefore, the revised return, according to the Tribunal, had superseded the earlier return and any assessment completed on the basis of such superseded earlier return would be an act beyond jurisdiction.

4. We have heard the rival contentions of the learned advocates of the parties appearing before us. We are not persuaded to subscribe to the view that the Income-tax Officer, by reason of not taking any cognizance of the revised return and having completed the assessment with reference to the earlier return, stripped himself of initial or inherent jurisdiction to reassess. It is not the case that the issue of the notice under section 148 is in any manner questioned. There was no challenge to the assumption of jurisdiction to assess under section 147. The jurisdictional facts furnishing the conditions precedent for reassessment remained uncontested. Once jurisdiction is initiated, we do not perceive any reason how the non-cognizance of the subsequent revised return on the basis of a particular view taken by the Officer in respect of the revised return can destroy the initial jurisdiction which the notice under section 148 had activated. At this juncture, without commenting upon the correctness or otherwise of the stand taken by the Income-tax Officer, we are convinced that such decision does not affect the initial or inherent jurisdiction to assess. What can destroy jurisdiction to assess is the absence of jurisdictional fact, i.e, the facts constituting the conditions precedent to initiating the proceeding under section 147. If the view taken by the Income-tax Officer with regard to the revised return is incorrect, the completion of the assessment on the basis of such erroneous view would be only a supervening irregularity and not an infirmity as may reduce the order to a nullity. It was very correctly submitted before the Tribunal by the Departmental representative that in view of the decision of the Supreme Court in Guduthur Bros. v. Income Tax Officer, Special Circle, Bangalore , [1960] 40 ITR 298, it would be improper for the Tribunal to cancel the assessment. The Departmental contention in that particular line is vindicated by the subsequent decision of the Supreme Court in Kapurchand Shrimal v. CIT, [1981] 131 ITR 451. There it has been held by the Supreme Court that, where the assessing authority commits an error or misdirects the proceeding, it is the duty of the appeal court to set right such defect in the proceeding. Thus, the Income-tax Officer's refusal to take cognizance of the revised return could be an act that merely misdirected the course of the proceeding but could not be said to be an act that undermines the jurisdiction to assess.

5. There could be another situation where the assessment order might have been declared a nullity. Such eventuality would have happened, if it were the situation that the order passed by the Income-tax Officer was barred by the limitation of time. Here the order was passed within the limitation prescribed by sub-section (2) of section 153 read with Explanation (1)(iv). What the assessee pleads, if held to be correct, would have extended the limitation by one year from April 7, 1976. Therefore, there cannot be any question of limitation of time barring the completion of the assessment.

6. Now, we are addressing ourselves to the first question as regards the validity of the revised return filed by the assessee on April 7, 1976. The revised return could not be said to be a valid one because the marginal amount of Rs. 400 where the original return itself was for a sum of Rs. 47,492 and the income as finally assessed came to Rs. 1,86,820. It does not appear from the statement of facts why the revision was called for. If there was any extra item of income included, that must have been taken by the Income-tax Officer in the computation because the income assessed exceeded the income returned by more than Rs. 1 lakh. The Revenue was quite reasonable in arguing that the variation being for a marginal amount of Rs. 400, in substance and effect, the revised return was also taken into consideration in making the assessment. The contention cannot be said to be absolutely unacceptable.

7. That besides, we are also not of the view that simply because section 148 says that the provisions of section 139(2) shall “so far as may be, apply accordingly as if the notice were a notice issued under that subsection”, a notice under section 148 shall have all the consequences of section 139(2). The fundamental purpose of section 148 is merely to provide the assessing authority with the machinery for assessment. Fundamentally, both the assessment and reassessment need same machinery. But for this particular fiction, the Assessing Officer would have been without the enabling provision to make the reassessment. Viewed from that angle, it cannot be said that a notice under section 148 has to be construed to be a notice under section 139(2) for a purpose ulterior to the purpose of the fiction. The fiction in section 148 is merely a link with sections 143 and 144 and all other ramifying provisions for implementing the reassessment. The fiction has nothing to do with the filing of the return. Section 148 itself is enough to take care of the filing of a return. This is evident from the fiction “as if it were a notice under section 139(2)”. Section 139(2) steps in not for empowering the Officer to call for a return but to follow up the issue of the notice in the same manner a notice under section 139(2) is pursued.

8. We, therefore, answer the first question in the negative and in favour of the Revenue.

9. Though the second question does not survive for answer, yet it by itself raises a very important question of substantial and of general interest. Even if the Assessing Officer completes the assessment without taking notice of a revised return, assuming that the revised return is a valid one, that does not affect the Assessing Officer's jurisdiction to assess. Because, by overlooking the revised return, he, at the worst, could be said to have committed an irregularity. An assessment made in oversight of a revised return does not render the assessment so made into a nullity. Therefore, assuming as a hypothesis that the revised return was a valid one, the Tribunal should have set aside the assessment so that the supervening irregularity is removed.

10. In that view of the matter, we answer the second question as well in the negative and in favour of the Revenue. There will be no order as to costs.

J.N Hore, J.:— I agree.