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Commissioner Of Income-Tax v. S.P Viz Construction Co.

Patna High Court

Dec 12, 1985

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

This reference arose under section 256(1) of the Income-tax Act, 1961, concerning the assessment year 1971-72. The statutory due date for filing the return was 30 October 1971. An application for extension of time bore the date 30 September 1971 but was recorded as received by the Income-tax Office on 1 October 1971. The assessee filed a return on 31 May 1972 declaring taxable income of Rs. 80,000 "by estimate". Subsequently the assessee filed a revised return on 17 March 1973 showing total income of Rs. 1,03,470.

Because the returns were filed after the due date, penalty proceedings under section 271(1)(a) were initiated. The Income-tax Officer (ITO) held that the return filed on 31 May 1972 was not a valid return (it lacked the necessary particulars/statements of accounts) and levied penalty for a delay of 17 months (penalty Rs. 28,626, representing 2% of tax Rs. 84,194). On appeal the Appellate Assistant Commissioner (AAC) examined reasonableness of the delay and concluded there was no reasonable cause for late filing, dismissing the appeal without modification.

The Income-tax Appellate Tribunal (Tribunal) proceeded on the finding that the extension application had been filed on 1 October 1971. The Tribunal took a different approach on reasonable cause: it held that filing of the extension application may have left the assessee under the impression that time had been extended until 31 March 1972 (as had been prayed for), and therefore there was reasonable cause until that date; it rejected the plea for delay beyond 31 March 1972. On that basis the Tribunal reduced the penalty to cover only April and May 1972 (two months) and treated the first return filed on 31 May 1972 as a valid return for the limited purpose of calculating the penalty.

The Revenue was aggrieved by the Tribunal's order and obtained a reference of two questions to this Court. Notice was served on the assessee but no one appeared on the assessee's behalf.

Legal Issues Presented

Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the first return filed on May 31, 1972, was a valid return though it was not accompanied by the statement of accounts supporting the income shown in the return?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that an application for extension of time made on September 30, 1971, but received in the Income-tax Office on October 1, 1971, could be considered in deciding the question of reasonableness for the delay in filing of the return?

Arguments of the Parties

The opinion records limited party-specific submissions and notes that no one appeared for the assessee when the matter was heard by this Court. The following summaries are restricted to arguments explicitly recorded in the opinion.

Assessee's Submissions (as recorded)

The application for extension of time bore the date 30 September 1971; the assessee maintained (or submitted) that it had been filed before the due date and that this fact could have left the assessee under the impression that the time for filing had been extended (the Tribunal accepted this line of submission as a possible reasonable cause up to 31 March 1972).
By filing the first return on 31 May 1972 (albeit missing supporting statements), the assessee implicitly treated that return as operative — the Tribunal treated that return as not wholly ignorable for penalty calculation purposes.

Revenue's Position (as recorded)

The Revenue challenged the Tribunal's view and referred two questions to the Court: (a) whether the May 31, 1972 return was a valid return when it lacked the statements of accounts required by Form No. 2 and rule 12(1)(b)(i); and (b) whether an application received after the due date (recorded as received on October 1, 1971) could be relied upon to establish reasonable cause for delay.
The ITO treated the May 31 return as "no return" and levied penalty; the Revenue sought restoration of the ITO's order.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
CIT v. A.R.A.N. Chettiyar Firm, AIR 1928 Rangoon 108 (Full Bench, Rangoon High Court)	Holds that particulars prescribed by the statutory form are mandatory; a return that completely ignores those provisions cannot be considered a return.	The Court respectfully agreed with the Full Bench: where Form No. 2 and Part VI require statements of accounts, omission of those substantive particulars renders the filing "no return". The Rangoon authority was applied to sustain that conclusion.
Lal Mohammad Sardar Mohammad v. CIT, [1934] 2 ITR 358 (Division Bench, Lahore High Court)	Expresses a similar view that failure to comply with statutory particulars can render a return invalid.	The Court cited this authority as supporting the proposition that statutory form requirements must be satisfied; it was noted as adopting a similar approach.
T. Venkata Krishnaiah and Co. v. CIT, [1974] 93 ITR 297 (Andhra Pradesh High Court)	Holds that an application for extension of time received after the due date does not oblige the Income-tax Officer to pass any order and does not operate to extend statutory time; the mere filing of a late application cannot be treated as an effective extension.	The Court relied on and followed this decision to reject the Tribunal's reasoning that a late-filed extension application could reasonably have left the assessee under the impression that time had been extended until the date prayed for. The Andhra Pradesh decision fortified the conclusion that the late application loses sanctity.

Court's Reasoning and Analysis

The Court examined both questions sequentially and based its analysis on the statutory form requirements and on the temporal effect of an application for extension filed after the statutory due date.

On whether the May 31, 1972 filing was a valid return

The Court observed that the return filed on 31 May 1972 was not produced but the ITO and the Appellate Assistant Commissioner recorded that no statements of accounts were attached and that the return was "bald" (the AAC noted "there is no basis to show how the income was estimated").
The Court identified the relevant statutory framework: Rule 12 of the Income-tax Rules, 1962 prescribes Form No. 2 for persons whose income includes profits and gains of business or profession; rule 12(1)(b)(i) requires verification in the manner indicated and Part VI of Form No. 2 mandates attachment of statements of accounts (manufacturing/trading accounts, profit & loss account, balance-sheet or trial balance) where accounts are kept on the mercantile system.
The Court reasoned that these requirements are statutory in character (Form No. 2 having been prescribed by rule 12) and that the particulars in Part VI are substantive. While the law provides mechanisms to rectify bona fide or non-substantive omissions (for example, section 139(5) permitting revised returns before assessment, and sections 185(2)–(3) providing opportunities to rectify defects in registration/declaration), omissions that "go to the root of the matter" cannot be treated as mere formal defects.
Applying this principle, the Court found that in the present case Part VI was not filled at all and the return contained nothing but an estimated income figure with a note "on estimate". Because the required statements of accounts were absent, the filing could not be taken seriously as a return and therefore amounted to "no return".
The Court expressly endorsed the Rangoon Full Bench view that statutory form requirements cannot be ignored and applied that rule to hold that the Tribunal was incorrect in treating the May 31, 1972 filing as a valid return.
The Court noted it heard the Department ex parte (no one for the assessee), acknowledged that fuller consideration might be required if the matter were properly agitated, but concluded on the facts before it that the Tribunal's view was not correct.

On whether the late application for extension (received Oct 1, 1971) could be considered relevant to reasonable cause

The Court treated as a closed factual finding — accepted by all authorities — that the extension application was received in the Department on 1 October 1971 and that there was no material to show it had been filed earlier.
The Court posed the legal question whether the ITO was obliged to pass any order on an application for extension that is filed after the due date, and whether mere filing of such a late application could reasonably have left the assessee under the impression that the time had been extended.
The Court reasoned that an application filed after expiry of the statutory time "loses all its sanctity" and analogised the situation to an application to extend a pre-emptory order after expiry of the time fixed by that order — such an application cannot postpone the rigour of the statutory time limit.
The Court noted that the ITO had not considered reasonableness because he had never seen the application; the AAC did consider reasonableness and found no reasonable cause; the Tribunal nonetheless inferred that the mere filing of the (late) application could have left the assessee under an impression of extension (which would have been a reasonable cause up to 31 March 1972). The Court rejected that inference.
The Court relied on and followed the Andhra Pradesh High Court decision in T. Venkata Krishnaiah and Co. v. CIT (1974) which rejected the proposition that filing a late application for extension operates to extend the time or binds the ITO to pass an order; the Court concluded that the Tribunal erred in treating the late application as material reason for delay.

Holding and Implications

HOLDING: Both questions referred by the Tribunal were answered in favour of the Revenue and against the assessee.

The Court held:

The return filed on 31 May 1972, lacking the statements of accounts and without Part VI particulars required by Form No. 2 and rule 12(1)(b)(i), was no return and could not be treated as a valid return for the purposes of avoiding or reducing penalty.
An application for extension of time which was received in the Income-tax Office on 1 October 1971 (i.e., after the statutory due date) could not be treated as relevant material to establish reasonable cause for delay; a late application loses its sanctity and does not operate to extend the statutory period or to create a reasonable expectation that time had been extended.
Accordingly, the Tribunal was not justified in (a) treating the first return as valid and (b) relying on the late extension application to reduce the period of delay. The order of the Income-tax Officer was restored.

Implications:

Direct effect on the parties: the ITO's order (which had treated the May 31, 1972 filing as no return and imposed penalty) was restored. Both referred questions decided for the Revenue and against the assessee. There is no order as to costs.
The Court did not purport to lay down any broader novel principle beyond applying established authorities: it applied statutory-form requirements and existing case law to the facts. The opinion emphasizes the distinction between rectifiable clerical omissions (for which statutory remedies exist) and substantive omissions that go to the root of the return — the latter render a filing no return.

Administrative note recorded in the opinion: a copy of the judgment was to be sent under the seal of the Court to the Income-tax Appellate Tribunal, Patna, in accordance with sub-section (1) of section 260 of the Income-tax Act, 1961.

Show all summary ...

1. This is a reference under section 256(1) of the Income-tax Act, 1961 (hereinafter referred to as “the Act”). The questions, referred to us, for our opinion, are as follows:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the first return filed on May 31, 1972, was a valid return though it was not accompanied by the statement of accounts supporting the income shown in the return?

2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that an application for extension of time made on September 30, 1971, but received in the Income-tax Office on October 1, 1971, could be considered in deciding the question of reasonableness for the delay in filing of the return?”

2. In this reference, we are concerned with the assessment year 1971-72. The due date for filing the return was October 30, 1971. Application for extension of time to file the return was filed on October 1, 1971. Although the application bears the date September 30, 1971, the finding is that it had been filed on October 1, 1971. A return for the relevant assessment year was filed on May 31, 1972, showing an income of Rs. 80,000 by estimate. It appears that it was realised by the assessee himself that the return filed by him was defective for various reasons. A revised return was, therefore, filed on March 17, 1973, showing the total income of Rs. 1,03,470. The returns having been filed beyond the due date, a penalty proceeding in terms of section 271(1)(a) was initiated. The Income-tax Officer held that the return filed on May 31, 1972, was no return as it lacked the necessary particulars. He, therefore, levied penalty for 17 months' delay in filing the return. A sum of Rs. 28,626, being 2% of the tax of Rs. 84,194, was imposed. The firm was treated as an unregistered firm. On appeal, the Appellate Assistant Commissioner considered the plea of the assessee for not filing the return within time. In that behalf, he examined the reasonableness for the delay in filing the return. The Appellate Assistant Commissioner applied himself to the pleas advanced by the assessee. Upon full consideration, he held that no reasonable cause had been shown for late filing of the return. The finding is in the following words:

“Therefore, I have to come to the irresistible conclusion that the application for extension of time was sought for in routine manner and the cause shown for the delay or for seeking extension of time is not at all reasonable.”

3. This finding, that there was no reasonable cause for late filing, has not been upset by the Income-tax Appellate Tribunal. Suffice it to say, the Appellate Assistant Commissioner dismissed the appeal of the assessee without any modification. The assessee, being aggrieved by the order of the Appellate Assistant Commissioner, filed an appeal before the Tribunal. The Tribunal also proceeded on the footing that the application for extension of time had been filed on October 1, 1971. Nothing has been brought to our notice indicating that the application had been filed earlier. We shall, therefore, also proceed on the basis of the fact that the application for extension of time had been filed on October 1, 1971. The Tribunal, however, considered the question of reasonable cause for late filing of the return from an entirely different angle. It observed that the assessee having filed an application for extension of time on October 1, 1971, although beyond time, may have left the assessee under the impression that time had been extended till March 31, 1972, as prayed for by him. The Tribunal was, therefore, of the view that there was reasonable cause uptil March 31, 1972, for not filing the return. In regard to the delay beyond March 31, 1972, the plea of the assessee was rejected by the Tribunal as well. The Tribunal, therefore, modified the order of penalty. Since the first return had been filed on May 31, 1972, the penalty would be leviable for April and May, 1972. The Tribunal also held that the first return filed on May 31, 1972, could not be ignored and, therefore, penalty for two months only could be levied.

4. The Revenue, being aggrieved by the order of the Tribunal, moved it for reference to this court. The Tribunal has, accordingly, referred to us the two questions mentioned above.

5. No one has appeared on behalf of the assessee, although notice of the reference was issued and served upon them.

6. The first question which arises for consideration is whether the return filed on May 31, 1972, was a valid return although it was not accompanied by the statements of accounts supporting the income shown in the return? The return filed on May 31, 1972, has not been produced before us. We have, therefore, to decide this question on the basis of the facts recorded by the Income-tax. Officer and the Appellate Assistant Commissioner. The Appellate Assistant Commissioner has noted that no statement of accounts had been filed along with the return. He has observed as follows:

“The original return filed by the appellant on May 31, 1972, is bald and there is no basis to show how the income was estimated.”

7. It thus appears that all that was mentioned in the return was that the assessee had a taxable income of Rs. 80,000 during the assessment year. The question as to whether the return is valid or invalid and not capable of being taken any notice of has been the subject-matter of several decisions. The conspectus of the decisions shows that it will depend upon the circumstances of each case. Every error or omission will not render a return an invalid return. Rule 12 of the Income-tax Rules, 1962, provides the form and the manner in which the return has to be filed. The assessee's case is covered by the provisions of rule 12(1)(b)(i) which reads as follows:

“in the case of a person not being a company to which clause (a) applies, and not being a person to whom clause (c) applies—

(i) where the total income includes any income chargeable to income-tax under the head ‘Profits and gains of business or profession’, be in Form No. 2 and be verified in the manner indicated therein.”

8. It appears that sub-clause (2) of rule 12 of the Income-tax Rules is not relevant for our purpose. It, therefore, need not be referred to. There is some sanctity attaching to the requirement of rule 12(1)(b)(i) of the Income-tax Rules. It must be verified in the manner indicated in Form No. 2. The verification assumes importance for the reason that the form postulates the filing of statements of accounts. Part No. VI of Form No. 2 prescribes the particulars of income from business or profession. Paragraph 2 enjoins that if the accounts are kept on the mercantile system of accountancy, a copy of the manufacturing accounts or trading accounts, the profit and loss accounts and balance-sheet or trial balance must be attached to this return. In terms of Part VI, the assessee was required to disclose the manner in which his return was made up. But without the statements of accounts and the particulars required in Part VI, it would be no return. No half-way compliance of the direction can be made for the purposes of assessment. Such an action, therefore, will not be fulfilment of requirement of Form No. 2 and rule 12(1)(b)(i) of the Income-tax Rules, 1962. Without the statements of accounts, it is not possible to proceed with the assessment with any sense of propriety. In that view of the matter, the filing of statement of accounts assumes importance. From the fact that the statement of accounts have not been indexed, it is difficult to hold that it is a return which can be taken serious note of. A similar question arose before a Full Bench of the Rangooon High Court in the case of CIT v. A.R.A.N Chettiyar Firm, AIR 1928 Rangoon 108. In that case, none of the details required under Note V at pages 2 and 3 of the Form was mentioned and the Income-tax Authority treated the return as no return at all. In that case, it was contended by the assessee that though defective, the return could not be treated as a nullity and that the details required in the Form were only instructions to the assessee as to how the Form should be filled up. In those circumstances, the Full Bench observed as follows (p. 108):

“I am clearly of opinion that the particulars prescribed by the form are laid down in the Act itself: Section 22(2). Statutory rule 19 embodies the form of return (exhibit A) furnished to the respondent. This rule has the same force as ‘a section in the Act and a return which completely ignores its provisions cannot, in my opinion, be considered as any return.”

9. We are in respectful agreement with the Full Bench decision of the Rangoon High Court.

10. A similar view was taken by a Division Bench of the Lahore High Court in the case of Lal Mohammad Sardar Mohammad v. CIT, [1934] 2 ITR 358.

11. Form No. 2 has been prescribed by rule 12 of the Income-tax Rules. It must, therefore, be treated as a statutory form. The requirement in the form, therefore, must be held to be a statutory requirement. A situation may arise where there may be clerical omissions. Those omissions may be rectified later on. The law has taken note of situations where there may be genuine omissions. In that situation, the assessee should not be penalised. In section 139(5), it has been prescribed that if an assessee discovers any omission, or any wrong statement in the return, he may furnish a revised return at any time before assessment is made. Similarly, in section 185(2), it has been prescribed that where the Income-tax Officer considers that the application for registration is not in order, he will intimate the defect to the firm and give it an opportunity to rectify the defect. In section 185(3), the Income-tax Officer is enjoined to intimate the defect to the firm, if he considers the declaration in terms of section 184(7) not in order and to give an opportunity to rectify the defect in the declaration. It will thus be seen that wherever the defects or omissions are bona fide or are such which do not go to the root of the matter, specific provisions have been made to permit rectification of mistakes. The omissions of other kind which go to the root of the matter, stand on a different footing. In the situation postulated by section 139(5) or section 185, the return of the filing of the forms does not become a nullity. But where the omission of the filing of the return is of the substance of the matter and not of form, the return cannot be taken as any return at all. In the instant case, Part VI of the return had not been filled up at all. In fact, nothing had been filled up in the return, except the income from profession with a note “on estimate Such a return must be held to be no return at all. In my view, therefore, the return filed on May 31, 1972, was no return. The delay in filing the return till that date could not have been condoned in the view that I have taken. We are constrained to hold that the Tribunal was not correct in holding that the first return filed on May 31, 1972, was a valid return since it was not accompanied by the statements of accounts in respect of the income shown in the return. Before concluding this chapter, it must be observed that we heard the Department ex parte. No one appeared on behalf of the assessee. That may have handicapped us and the matter may require fuller consideration when properly agitated. On the facts and circumstances of the present case, we are of the view that the Tribunal was not correct in the view that it took.

12. The next question which falls for consideration before us is whether the Tribunal was justified in holding that the application for extension of time filed on October 1, 1971, could be considered in deciding the question of reasonableness for the delay in filing the return. The Tribunal has not found that the application for extension of time had been filed on September 30, 1971. In fact, all the authorities proceeded on the footing that the application had been filed on October 1, 1971. That must be treated as a closed chapter being a finding of fact. The question is whether there was any obligation upon the Income-tax Officer to pass any order upon an application for extension of time filed after the due date for filing of the return. The application bore the date September 30, 1971, but there is no controversy that it was received in the Department on October 1, 1971. The application does not show that it was filed before the Income-tax Officer. In fact, the Income-tax Officer has noted in his order that from the records it did not appear whether any such application was filed by the assessee.

13. Be that as it may, assuming that the application was filed on October 1, 1971, it was only the case of the assessee that it had been filed on September 30, 1971, and we have to consider whether the assessee could have been labouring under the impression that the time had been extended. The submission of the assessee found favour with the Tribunal. We have considerable difficulty in accepting the view of the Tribunal. It is true that a return may be filed at any time before the notice is issued or before the four years period has expired. It is also true that an application for extension of time may be filed at any time, but any application filed after the due date for filing the return loses all its sanctity. If any analogy is needed, it is like filing of an application for extension of time to carry out a pre-emptory order after the expiry of time. Any application for extension of time after the pre-emptory time cannot postpone the rigour of the pre-emptory order. Similarly, once the time fixed by the statute has expired, no one has the right to assert that his prayer has been granted. The reasonableness of the delay in filing the return was not considered by the Income-tax Officer because he never saw the application. The matter was, however, considered by the Appellate Assistant Commissioner who, on the basis of the submission urged on the behalf of the assessee, found that there was no reasonable cause for the delay in filing the return. The Tribunal has not upset the findings of fact arrived at by the Appellate Assistant Commissioner. In that situation, it was wrong on the part of the Tribunal to have observed that merely by filing of an application for extension of time, the assessee could have been under the impression that the time had been extended. We are fortified in the view that we have taken by a decision of the Andhra Pradesh High Court in the case of T. Venkata Krishnaiah and Co. v. CIT, [1974] 93 ITR 297. In that case, the Income-tax Officer had issued notice to the assessee to file his return by September 16, 1963.

14. No application for extension of time was filed till that date. An application for extension of time was received in the office of the Income-tax Officer on September 18, 1963. In that situation, the submission urged on behalf of the assessee was that having prayed for extension of time, the time for filing the return must be deemed to have been extended. Their Lordships clearly rejected this submission and held that the Income-tax Officer was not bound under the provisions of the Income-tax Act or Rules made thereunder to pass any order thereon. We are in res-pectful agreement with the view of the Andhra Pradesh High Court. It was open to the Tribunal to have looked into the cause shown by the assessee and found that, as a matter of fact, the ground advanced for delay in filing the return was reasonable or not, but it did not do so. Merely, on the application for extension of time, the Tribunal could not have assumed that the assessee would be labouring under the impression that the time had been extended and that circumstance would be reasonable cause for not filing the return within the stipulated period.

15. In that view of the matter, we are of the view that in the facts and circumstances of the case, the Tribunal was not justified in holding that the application for extension of time, received in the office of the Income-tax Officer on October 1, 1971, could be considered as relevant material in deciding the question of reasonableness for delay in filing of the return. As a sequel to our decision on the two points referred to us, the order of the Income-tax Officer is restored. For the reasons stated above, both the questions are answered in favour of the Revenue and against the assessee. However, there shall be no order as to costs.

16. Let a copy of this judgment under the seal of this court and the signature of the Registrar be sent to the Income-tax Appellate Tribunal, Patna, as required under sub-section (1) of section 260 of the Icome-tax Act, 1961.