1. The appeal preferred by the assessee relates to the assessment year 1976-77. The two questions that arise are dealt with as follows: 2. (1) Assessment made on 14-2-1980--Whether time barred. On this question the ITO and the AAC have held against the assessee. As the assessment relates to the assessment year 1976-77, the time-limit for original assessment ordinarily expires on 31-3-1979. The assessee has furnished a return on 14-2-1978 which he says is one under Section 139(4) of the Income-tax Act, 1961 ('the Act'), and on which return he admittedly marked 'section 139 return'. So the one year's time allowed to complete the assessment expired on 14-2-1979. So it is not of any importance as 31-3-1979 is the later of the two. So this assessment should have been completed by 31-3-1979. But the department has issued a notice under Section 148 read with Section 147(a) of the Act, on 17-11-1977 and had served it on 19-11-1977 long before the return alleged to be the voluntary return, furnished by the assessee. If Section 148 notice, therefore, is a valid and proper one, the department may get time till 31-3-1982. About the validity and propriety of Section 148 notice the case of the assessee as stated in ground Nos. 5 and 6 is follows.: 5. The Appellate Assistant Commissioner failed to appreciate that notice under Section 148 could be issued only after 31-3-1979 and, therefore, the notice issued on 17-11-1977 was bad in law, null and void and consequently the entire reassessment proceedings were without jurisdiction.
6. The Appellate Assistant Commissioner further failed to appreciate that it was premature on the part of the Income-tax Officer to issue notice under Section 148 on the ground of failure to file the return since the appellant had time to file the return under Section 139(4) till 31-3-1979.
3. This is a case where the department has not issued Section 139(2) notice. As regards Section 139(1) the assessee has made the applications for extension on the following dates: On these facts, the officer on the first application had granted time till 30-11-1976. On the next four applications praying time till 30-9-1977, the officer has not passed any orders. On the 5th application dated 30-9-1977 asking, on the ground that since the valuer's certificate has not yet been received and since the particulars of income and expenditure are being gathered, time till 30-11-1977, the officer on 30-91977 itself passed the following orders: Notice under Section 139(2) not issued in this case. Return also not filed. As income has escaped assessment issue notice under Section 148 ITO/30-9-77.
4. Then the office of the ITO on 17-11-1977 issued a Section 148 notice and served it on 19-11-1977. Then on the application dated 30-11-1977 the ITO has passed orders refusing time. The departmental records shows that a refusal card was despatched to the assessee on 23-12-1977. The assessee says that he has not got it. There is also no evidence of service. On the last application no orders are seen passed. In the light on the submissions of both sides, the following specific point arises for consideration: (1) Whether on 17-11-1977 the ITO had any materials before him to think that income has escaped assessment: In other words, the idea of escape ment arises for the first time only after 31-3-1979: To put it differently whether the ITO is bound to wait till 31-3-1979 to issue a notice under Section 148 on the ground that income has escaped assessment by reason of omission or failure on the part of the assessee to furnish a return under Section 139.
5. Before the case is discussed and conclusions arrived at by the Tribunal it is better to bear in mind and give due regard to the following propositions: (a) The expression 'has escaped assessment' is not equal to 'has not been assessed': Sir Rajendranath Mukerjee v. CIT [1934] 2 ITR 71 (PC) and also Iyengar on Income-tax Sixth Edition, Volume II, page 1551.
(b) A person who has not furnished a return under Section 139(1) or Section 139(2) canstill file a return under Section 139(4) and if it is a return under Section 139(4) filed within time, the ITO cannot ignore it and has to make a regular assessment on that return and cannot thereafter resort to a notice under Section 147(a) on the ground that there is omission or failure to file a return and that the income has escaped assessment.
6. The argument of the assessee is that income will begin to escape assessment only after all possibilities of bringing it to assessment are over. On this question raised by the assessee, there is no text or authority either way. The essence of the submission and the main tenor of the argument is that on 17-11-1977, the assessee can upto 31-3-1979 furnish a return and the ITO can effectively bring it to assessment, so that there is on that day and till 31-3-1979 no question of any escapement of income from assessment. It is not as if the argument of the assessee is that Section 147 or Section 148 begins to operate only with effect from the date of the expiry of the limitation on 31-3-1979.
In cases where the assessments are completed before 31-3-1979, income will escape from the date of such assessments and in such cases notices can be issued even before 31-3-1979. It is only in the case of omission or failure to furnish a return that notice can be issued only after 31-3-1979. So it cannot be said that if the submission of the assessee is accepted, the period of eight years provided from the end of the assessment year to issue of notice becomes meaningless. In many cases notices can be sent even from the very day from the end of the assessment year. It all depends on the facts and circumstances of each case. So the question that we have to decide in this case is principally one of fact confined to the facts and circumstances of this particular case.
7. The departmental representative cited CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569 (SC) and Harakchand Makanji & Co. v. CIT [1948] 16 ITR 119 (Bom.) and argued that in those decisions it has been indicated that the ITO can under the 1922 Act, in a case where the assessee fails to furnish a voluntary return within the time allowed to him and after the expiry of the assessment year, issue a valid notice under Section 34 of that Act without waiting for the expiry of the period allowed for the completion of assessment. While this proposition expounded by the departmental representative can be questioned or challenged on the ground that it is only an obiter or a passing remark or a reason given for a certain conclusion and that even under the 1922 Act, the position is that the ITO can invoke Section 34(1)(a) only after the expiry of the time allowed for assessment, it would appear it is not necessary to go to that extent.
The then practice of the department of initiating Section 34 proceedings after the end of the assessment year and even before the expiry of the period of time allowed for completing assessment as pointed out in those two decisions appear to be correct and acceptable as far as 1922 Act, is concerned. Under the scheme of the 1922 Act, if an assessee omits or fails to furnish a voluntary return of income within the time allowed to him under the public notice, the ITO can after the expiry of the assessment year immediately take it for granted that income had escaped assessment. For instance, if this particular case were to be decided under the 1922 Act, this Tribunal might have also come to the conclusion that the ITO was perfectly justified when on 17-11-1977 the officer thought that income had escaped assessment.
The time for filing the return under Section 22(1) of the 1922 Act is over. It has not been extended. Though no time-limit for issue of Section 22(2) notice is seen provided in 1922 Act, it appears that it is established law that the time for issue expires by the end of the assessment year. So the officer cannot make an ex parte best judgment assessment. The ITO then under the 1922 Act, has four more years before him from 31-3-1977 for limitation to expire on 31-3-1981. If the argument that Section 34(1)(a) on the ground of omission or failure to file a return can be intimated only after 31-3-1981, as is now argued by the assessee, is accepted, then for these four years the ITO has no method to bring the income to assessment. He is only to keep quiet.
Section 22(3) provides that the assessee may file a return at any time before the assessment is made. Though no assessment is possible in this case, the assessee can take advantage of this provision and file a false return on the last day of the limitation or few days prior to it, in which event the ITO will be driven to complete the assessment in haste within a few hours or days or, if defaulted, loose the right to initiate Section 34(1)(a) proceedings because it is settled law that after a return is filed in the last moment, Section 34(1)(a) cannot thereafter be invoked [See Ranchhoddas's case (supra)]. Such hasty assessments are actually not assessments at all. So to avoid such a contingency the department used to invoke Section 34(1)(a) immediately after the expiry of the assessment year on the ground that by omission or failure income had escaped assessment. Courts and parties without much of a scrutiny used to honour it and justify the same or acquiesce in such a procedure. The propriety or regularity of such a practice was not questioned at any time. That is why the departmental representative stressed the fact that it is a time honoured practice not questioned by the parties so far. So it was because of the lacuna or difficulty or absence of method to make an assessment during the period of the aforesaid four years from 31-3-1977 to 31-3-1981 (as if this case is one under the 1922 Act), that the practice was justified to cure the defect and supply the omission. If such a practice was not there, parties by resort to furnishing the return on last day can frustrate the scheme of income-tax assessments in cases where Section 22(2) notice is not issued and served on the assessee. So under the 1922 Act, it is definitely possible to say that in a case where voluntary return is not furnished and Section 22(2) notice not issued, income has with effect from the expiry of the assessment year 31-3-1977 itself escapes assessment because there is for the period 31-3-1977 to 31-3-1981 no effective method to make an effective assessment because hasty assessments on the last day or on the day prior are neither in the eye of law nor in the mind of reasonable man assessments at all. So notice dated 17-11-1977 may be justifiable or can be justified under the provisions of the 1922 Act.
8. Now the position under 1961 Act can be con idered. This glaring defect of helplessness on the part of the ITO which was there in 1922 Act, has been removed. Under the 1961 Act the last day of limitation is 31-3-1979. Under Section 139(4) which is the equivalent to Section 22(3) the assessee can furnish a return upto 31-3-1979. But he cannot by such process frustrate the scheme of the assessment. In that event the ITO ges one more year to complete the assessment. That provision of extended period of time was not there in the 1922 Act. The officer need not, unlike 1922 Act complete the ssessment in haste on 31-3-1979 itself. He can take his own time up to one year. So under the scheme of 1961 Act, it cannot be said that income has, prio to 31-3-1979, escaped assessment unless it be a case where the be t judgment assessment had been completed even prior to 31-3-1979, because upto 31-3-1977 there are definite fool-proof method of making effective assessments. For instance, upto 31-3-1977 the ITO can issue Section 139(2) notice and proceed to make best judgment assessments. After 31-3-1977, the officer can wait till 31-3-1979 for voluntary return under Section 139(4) and if the same is furnished, make an effective assessment within one year or 31-3-1979, whichever is later. So when possibilities of making effective assessments are there, which were not there in 1922 Act, it is not possible to say till all such possibilities are exhausted that income had escaped assessment. So this is only a case of income which has not been till then assessed and not a case of income escaping assessment. The observations of the Courts in the two cited cases are of no assistance to consider the case under the 1961 Act.
9. The expression 'fail' appearing in Section 147(a) refers to Sections 139(1) and 139(2) default only. That is the same expression that is used in Section 271 of the Act. So the word 'omission' obviously refer to Section 139(4). So if the department's stand is that with the failure of Section 139(1) or (2) an inference can be readily made in all cases that income has escaped assessment, there was no necessity for the use of the word 'omission' in Section 147(a). Of course, in some cases by mere failure alone it may be possible to infer that income has escaped assessment like in cases where ex pane best judgment assessments are made before 31-3-1979 in a case where the assessee has failed to furnish a return under Section 139(2) on service of notice.
But it is not possible to say so in all cases'; for instance in the case like the one in hand, where the assessee has time till 31-3-1979 to file a return and the ITO can make an effective assessment. Like that instead of specifying Section 139 in Section 147 it could have been narrowed to Section 139(1) and (2) if the stand of the department is correct. So the use of the words 'omission and failure' and the use of Section 139 without limiting it to Section 139(1) or (2) clearly shows that the cumulative effect of the rights of the assessee under Section 139(1), (2) and (4) has to be taken into consideration before the conclusion is drawn that income has escaped assessment. If that is so, the ITO has necessarily to wait till 31-3-1979. It will ordinarily look queer if one were to say that income escaped assessment when the assessee has still further time before him to file a return and get an assessment. So this is a case where the ITO had no material before him to think that income has escaped assessment. It is not a case of sufficiency or insufficiency of materials. It is a case of total absence of materials because the very question of escapement comes into existence only after 31-3-1979. Before that date if any one thinks that income has escaped assessment it is only a speculation or conjecture.
10. Even if it is taken for granted that the ITO can initiate action under Section 147 from the end of the assessment year itself, on the belief that income has escaped assessment, still this is a case where on 17-11-1977 the ITO had no sufficient materials to come to that conclusion. The question of sufficiency or insufficiency can be gone into in an appellate proceeding by the appellate authority like the Tribunal. That the question of sufficiency or insufficiency will not be gone into and only the total absence will be taken into consideration is a proposition laid down for the purposes of writ jurisdiction of High Courts. If an appellate authority is deprived of that power to examine the sufficiency or insufficiency, it ceases to be an appellate authority and the proceedings lose all its characteristics of appeal.
The assessee had asked for time till 30-11-1977. So on 30-11-1977, the assessee may file a return and the ITO can make a perfect and satisfactory assessment. The refusal of time by the ITO on 17-11-1977 is only relevant to the fact that the assessee may have to suffer penalty for late filing. Why should it be thought that the assessee will not file return within the time asked fo So in that aspect also this is a case where a reasonable man on the materials before him would not have come to the conclusion that income has escaped assessment. It would amount to arbitrariness and recklessness if such a presumption that assessee will not file a return and income has escaped assessment is drawn on the basis of circumstances present in the case.
11. It has also got to be remembered that this provision in express terms to send notice on the basis of income escaping assessment on account of omission or failure was incorporated into Section 34 of the 1922 Act, only by 1948 Amendment Act. If we consider Section 34 as it stood from 1922 to 1938 and that section after 1938 amendment to 1948 it would become clear to any one that the ITO can take action immediately after the expiry of the assessment year. Under Section 34 as it stood till 1938 Amendment Act action is to be initiated within one year of the expiry of the assessment year. The question of ITO waiting for some time till expiry of the period of limitation (because there was no time-limit to complete the assessment) and taking action, thereafter, did not at that time arise at all. Under Section 34 after 1938 Amendment Act also, the position was more or less the same. The ITO can act immediately after She expiry of the assessment year. There also there were no provision for a waiting period and further time to take action because original assessment and assessment on account of the income escaping assessment like the one on hand have all to be completed within four years. Perhaps that practice then justifiable under the then law was adopted without any scrutiny or much or any thought by the department and also without any challenge by the assessee even after 1948 even though there was a slight change in the 1948 scheme. It also continued to be followed even after 1961 in spite of a major change in the scheme under the 1961 Act. It is, therefore, to be noted that the two cited decisions by the department were for periods prior to 1948.
12. There is another aspect of the case. In this case a return had been furnished. That is within the time allowed under Section 139(4). So even if Section 147 notice is properly issued a question may arise as to whether the ITO is bound to complete the assessment within four years or as the case may be within the extended period of one year because of the return furnished within time. As it is already established that Section 148 notice is not properly issued in the absence of materials to think that income had escaped assessment, it is better that this question is left open without decision. However, one thing seems to be clear. The right under Section 139(4) is not even made subject to Section 147. It is limited only either to assessments being made or the period of two years time by which time the limitation of assessment expires. If it is the intention of the Parliament to deprive the rights of assessees who have been served with notice under Section 148 of this concessional right, it could have been specifically provided in Section 139(4). The omission to expressly provide it is indicative of the fact that the scheme of 1961 Act is to initiate such action under Section 147(a) on the ground that income has escaped assessment because of omission or failure only after 31-3-1979, the date on which the period of limitation expires.
13. So for these reasons it has to be held that Section 148 notice issued on the basis of income escaping assessment on account of omission or failure to furnish the return is not proper and regular and it is invalid. It, therefore, follows that assessment is time barred.
On this question it is, therefore, held in favour of the assessee that the assessment is time barred.
14. (2) Petrol Bunk--Addition of Rs. 23,169--or any part of it proper - The assessee estimated the net income at 75 per cent of the turnover.
That worked out to Rs. 8,390 which was the returned income. The ITO on the basis of the ease of the brother of the assessee raised it to 2.5 per cent. That worked out to Rs. 32,099. The Tribunal to which one of us, the Judicial Member, was a party had for the assessment year 1974-75 estimated it at 1.5 per cent and for the assessment year 1975-76 at 1.3 per cent. The ITO himself has for the assessment year 1977-78 accepted the returned rate of 0.75 per cent in the assessee's own case. So on these facts, the AAC fixed it at 1.5 per cent for this year. The assessee seeks further relief.
Comparative cases for petrol bunk business for the assessment year 1976-77.
I. M/s Suresh Agencies, Proprietors V.C. Balakrishnan Mudaliar and V. Thiagaraja Mudaliar, Ranipet, GIR No. 2433-S/VLR (13):Total turnover admitted Rs. 15,53,495 Met profit admitted and accepted Rs. 12,741 which works out to 0.80 per cent as against 0.75 per cent admitted by the appellant.
II. M/s C. Lakshmi Narasimhan & Sons, Ami Road, Vellore.
GIR No. 3318-C VLR 14 per cent Net profit admitted and accepted is Rs. 5,061 which works out to 0.42 per cent as against 0.75 per cent admitted by the appellant.
In the absence of any relevant data, it would have been only proper to follow the Tribunal order for the assessment years 1974-75 and 1975-76, particularly when one of us was a party to that order. But in this year more comparable cases are available. Not only comparable cases but the assessee's own case for the assessment year 1977-78 is also available.
When for the assessment year 1977-78 an estimate of 0.75 per cent is accepted by the ITO, it can be safely said, particularly in the light of the two comparable cases, that for this year also 0.75 per cent can be accepted. Therefore, the estimate is made at 0.75 per cent of the turnover. That is acceptable. That means the returned figure has to be accepted. Addition is deleted in toto. Ground allowed.
1. There are two issues involved in this appeal, one relating to jurisdiction and the other relating to the addition of Rs. 23,169 on merits. I agree with the conclusion of the learned Judicial Member in paragraph 15 of his order that this addition is not called for.
Ordinarily, there should be no occasion for difference, if there is agreement on merits. It is, however, the assessee's case that the assessment itself is time barred. Apparently, the assessee disputes liability even on the undisputed income. It is because of this, that the question of submission has assumed importance. I find it difficult to persuade myself that the assessment is time barred. My reasons for a different conclusion on this issue are based on inferences on facts and view of law stated in the immediately succeeding paragraphs.
2. The assessee who has income from property and business in passenger and lorry transport had been having taxable income in the past. The assessee asked for time for filing return for the assessment year 1976-77 on 30-6-1976 till 31-12-1976. The ITO allowed time till 30-11-1976 and intimated the fact by a card despatched on 5-11-1976.
The ITO took no further action after 30-11-1976 to follow up his rejection of time. The assessee, on whose behalf it is stated that the communication of rejection was not received, also did not file the return either within time allowed by the ITO or even the time initially asked for by him. He asked on 31-12-1976 for further time up to 28-2-1977, on 28-2-1977 till 31-3-1977. on 31-3-1977 till 30-6-1977 and again on 30-6-1977 till 30-9-1977. No action appears to have been taken by the ITO on these applications which had given different reasons every time for the application. There was still another application on 30-9-1977 for time till 30-11-1977, repeating the earlier ground that particulars of income and expenditure are being gathered. It is on this application that the ITO directed issue of notice under Section 148 after recording that notice under Section 139(2) had not been issued and that the 'income has escaped assessment'. It is in pursuance of this direction notice under Section 148 came to be issued on 17-11-1977 and served on him on 19-11-1977. We are primarily concerned with the validity of this notice. Though the notice was admittedly served on the assessee on 19-11-1977 the assessee again applied for time till 30-11-1977 requesting time up to 31-1-1978. This was rejected and a post card intimating the refusal was despatched on 23-12-1977. The assessee, however, repeated the request again on 31-1-1978 asking for time up to 28-2-1978 and filed the return on 14-2-1978 marking it as Section 139 return. It is the assessee's case that it had not received communication refusing time said to have been despatched on 5-11-1976 and 23-12-1976. Receipt of notice under Section 148 is not denied, but it is contended that the assessee filed the return within the time asked for and that he was entitled under Section 139(4) to file the return at any time before the assessment. The return, according to him, is under Section 139(4) and that the assessment should have been completed on or before 31-3-1979 in normal course, while the assessment was actually made only on 14-2-1980. According to the revenue, the ITO has time to complete the assessment till 31-3-1982, since the assessment is in pursuance of notice under Section 148. I agree with the learned Judicial Member that the issue which arises for consideration is as follows: Whether on 17-11-1977 the Income-tax Officer had any materials before him to think that income has escaped assessment? In other words, the idea of escapement arises for the first time only after 31-3-1979. To put it differently whether the Income-tax Officer is bound to wait till 31-3-1979 to issue a notice under Section 148 on the ground that income has escaped assessment by reason of omission or failure on the part of the assessee to furnish a return under Section 139.
3. I am of the view that in this case where no accounts were maintained and time was repeatedly asked for from time to time and when past records indicated that the assessee had taxable income with no circumstances to suggest that the position was different for this year, the ITO could not be stated to have had no grounds for presuming that,there was escapement of income so as to justify jurisdiction under Section 147(a). There was an omission or failure to file a return, A mere promise to file a return does not make the omission or failure any the less real. In fact, the circumstances, detailed in the preceding paragraph would show that it is not reasonable to expect the ITO to wait any longer on such indefinite promises when records indicate that the request was bound to be repeated without any positive or particular fact to support such a request. No doubt, the assessee has a right under Section 139(4) to file a return at any time before the assessment is made. But that does not mean that such a concession would debar the ITO from initiating action under Section 148 if the conditions for such initiation are satisfied. The mere fact that the return had not been filed till the date of issue of notice under Section 148 if the conditions for such initiation are satisfied (sic). The mere fact that the return had not been filed till the date of issue of notice under Section 148 would, in my opinion, constitute 'omission' if not failure because the word 'omission' which as pointed out by the Bombay High Court in Pannalal Nandlal Bhandari v. CIT [1956] 30 ITR 57 is "a colourless word which merely refers to the act of not doing of something and if the assessee in fact does not make a return, it is an omission on his part, whether the law casts an obligation upon him to make a return or not". This decision was also subsequently affirmed by the Supreme Court in Pannalal Nandlal Bhandari v. CIT [1961] 41 ITR 76.
Hence, the absence of a return, by itself, would justify the jurisdiction as long as the ITO also finds that there is 'escapement'.
If he had reason to believe that the assessee had taxable income and if there is no return from the assessee, there is, in my opinion, jurisdiction to issue notice under Section 148. Both sides cited a number of authorities but there is none direct on the point, since such an issue does not appear to have been raised before. It is not, therefore, necessary to discuss all of them in any detail. I do not think that the right of the ITO (in my view, a public duty) to proceed under Section 148 read with Section 147(a) is in any way, limited or abridged by the right of the assessee to file a return under Section 139(4). The Calcutta High Court in Md. Bashir v. ITO [1962] 46 ITR 827 held that failure to file a return under Section 22(1) of the 1922 Act within time allowed thereunder justified the inference that there was 'omission' and that action under Section 34 of the 1922 Act would be valid against a person 'whose income exceeds the maximum amount from tax (sic) is obliged to submit a return' following the decision of the Supreme Court in Pannalal Nandlal's case (supra). The provisions in the Acts of 1922 and 1961 in are pari materia, in this respect. The Allahabad High Court in Tarzan Hosiery (P.) Ltd. v. ITO [1968] 69 ITR 842 and CIT v. New Punjab Transport Co. (P.) Ltd. [1972] 83 ITR 844 pointed out that notice under Section 139(2) could be issued even before the time under Section 139(1) had expired. No doubt, the language of Section 148 is not the same asof Section 139 but that, in my view, would not make any difference to the conclusion that a notice under Section 148 does not become bad merely because it is possible that the assessee may exercise his right under Section 139(4). The Madras High Court in K.G. Vedadri v. CIT [1973] 87 ITR 76 held that penalty under Section 271(1)(a) for a delayed return may be exigible notwithstanding the fact that the statute permits filing of return under Section 139(4) within a larger outer limit of time. The Gujarat High Court in Addl. CIT v. Santosh Industries [1974] 93 ITR 563, the Calcutta High Court in Narandas Paramanand Das v. ITO [1975] 98 ITR 453 and the Andhra Pradesh High Court in Poorna Biscuit Factory v. CIT [1975] 99 ITR 41 had independently come to the same conclusion that the 'right' under Section 139(4) did not in any way whittle down the assessee's obligation to file the return and get penalised for the delay. A Full Bench of the Orissa High Court in CIT v. Gangaram Chapolia [1976] 103 ITR 613 while agreeing with the Madras High Court view in K.C. Vedadri (supra) and the Gujarat High Court view in Santosh Industries (supra), repeated that Section 139(4) conferred a concession to the assessee and it is not meant to render Section 139(1) and (2) 'otiose' and wholly unnecessary except for purposes of charging interest.' There is no reason, at all, as to why Section 148 should be similarly rendered ineffective even for the limited period available under Section 139(4). No doubt, the language under Section 139(2) or 271(1)(a) is different from language of Section 148 and that is why these decisions are not automatically applicable. It was, however, held in these cases that the words 'omission or failure' to make a return under Section 139 can only mean that such failure or omission should have occurred within the statutory time available and not the time under Section 139(4). Any other view would set at naught the time-limit prescribed under Section 139(1). While dealing with analogous provisions under the Assam Agricultural Income-tax Act, though again in a different context, the Supreme Court in State of Assam v. D.C.Choudhuri [1970] 76 ITR 706 held that no assessment is possible merely on failure to file a return under Section 19(1) of that Act and that 'if no return has been made by the assessee and where income has not been assessed at all because for one reason or the other no assessment proceedings were initiated that would be a case of 'escaped assessment' under Section 30 of that Act. It is to be noted that the Assam Act also contained a similar provision like Section 22(3) of the 1922 Act in Section 19(3) as noticed by the Supreme Court in State of Assam v. Deva Prasad Barua [1970] 75 ITR 18. In both these cases, the decision was that notice under provision analogous to Section 148 was mandatory before assessment and existence of a right analogous to Section 139(4) was not taken as a ground for inaction though this issue as raised now had not come up for a direct decision in any of these cases cited before us.
4. I, therefore, held that notice under Section 148 is validly issued.
A return filed subsequently should be treated as one in response to the same even if it is chosen to be styled as voluntarily and made purportedly under Section 139(4). The fact as to whether the assessee had knowledge of the refusal of time required by the assessee for filing return is also not quite relevant. What is relevant is only the service of notice under Section 148 and this is not disputed. The return was filed subsequently. If the ITO had validly assumed jurisdiction, it does not cease to be so for purposes of time-limit.
Section 153(2) of the Act, allows four years from the end of assessment year in which the notice under Section 148 was served. The assessment is made on 14-2-1980 while the notice was served on 19-11-1977. Hence, it is in time. Section 153(1)(c) on which the assessee relies allows one year more in case of a return or revised return filed under Section 139(4) or (5) over and above the normal time-limit under Section 153(1)(a). Actually return under Section 139(4) and proceedings under Section 147(a) are not mutually exclusive. A return filed beyond time allowed under Section 148 notice could still be a return under Section 139(4) read with Section 148. Even otherwise neither Section 153(1)(a) nor (c) in my opinion will apply to the assessee's case as Section 153(2)(a) is a special provision which will over (sic) Vide provisions of Section 153(1) even if such provisions were also applicable.
5. I am, therefore, of the view that the assessment is in time and it has to be upheld subject to reliefs already allowed by the first appellate authority and further relief of Rs, 23,169 directed by us.
1. On a difference of opinion between my learned brothers, the President has referred to me to resolve the difference of opinion as Third Member.
1. Whether, on the facts and in the circumstances of the case, the ITO had reason to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139, income chargeable to tax has escaped assessment 2. Whether, on the facts and in the circumstances of the case, the assessment made on 14-2-1980 is time barred 3. The assessee has income from property and business in passenger and lorry transport and was on the file of the income-tax department for quite sometime. For the assessment year under appeal the assessee has to file his return of income by 30-6-1976. But the assessee asked for extension of time on 30-6-1976 till 31-12-1976. The ITO, however, granted time till 30-11-1976. The assessee again asked on 30-12-1976 for time till 28-2-1977, again on 28-2-1977 till 31-3-1977, again on 31-3-1977 till 30-6-1977 and again on 30-6-1977 till 30-9-1977. The records do not show any action having been taken by the ITO on these applications; but after the application made on 30-9-1977 asking for time till 30-11-1977, the ITO made the following note: Notice under Section 139(2) not issued in this case. A return also not filed. As income has escaped assessment, issue notice under Section 148.
This notice under Section 148 was served on the assessee on 19-11-1977.
Again the assessee applied on 30-11-1977 requesting time up to 31-1-1978. This request was rejected and a post card intimating refusal was despatched on 23-12-1977. The assessee again repeated the request on 31-1-1978 asking for time up to 28-2-1978 but in the meantime on 14-2-1978 he filed a return marking on it as 'section 139 return'. The ITO, however, completed the assessment on 14-2-1980. Now, the question is whether the assessment made is in time. If the return filed on 14-2-1978 is to be taken as a return filed by the assessee under Section 139(4), the last date before which the assessment should have been completed is 31-3-1979. Since the assessment was made on 14-2-1980 it would be out of time. Naturally, the assessee's contention is that the return filed on 14-2-1980 is a return filed under Section 139(4) and, therefore, the assessment made on 14-2-1980 is barred by limitation. But the department's contention is that the return was filed, though marked as 'section 139 return', only after the issue of the notice under Section 148 and in response to that notice and that fact was proved by the further fact that notice under Section 148 was served on the assessee and the assessee had thereafter asked for time twice and if the return is to be taken as a return filed under Section 148, the time to complete the assessment is available to the department up to 31-3-1982 and, therefore, the assessment made was well within time, and was not time barred. So the question is whether the return is to be taken as one filed under Section 139(4) or whether it was in pursuance of a notice issued under Section 148. The ITO rejected the contention of the assessee and held that the return filed was only in response to the notice issued under Section 148 and not under Section 139(1). He completed the assessment by computing the income at Rs. 99,180 with which I am not concerned in the present reference.
4. On appeal before the AAC it was pointed out that Section 148 was totally inapplicable because neither Section 147(a) nor 147(b) would apply to the facts of this case because for Section 147(a) to apply the assessee must have concealed material facts necessary for making the assessment, and as there was no failure on the part of the assessee to file the return of income, there was no question of concealing any material facts. For Section 147(b) to apply, there must be some fresh information in the possession of the ITO to reopen the assessment and since that was not the position here, that section also was not applicable with the consequence that Section 148 became totally inapplicable. The AAC rejected this contention and held that the return filed on 14-2-1978 was in response to the notice issued under Section 148 and, therefore, was well within time.
5. Aggrieved by the decision of the AAC a further appeal was filed before the Tribunal where the validity of the assessment had again been questioned. The learned Judicial Member has expressed an opinion agreeing with the assessee's contention while the learned Accountant Member has expressed a different opinion. The learned Judicial Member says that when under Section 139(4) the assessee has time to file his return of income up to 31-3-1979 no income could be said to have escaped assessment in the meantime unless the time allowed by the statute ran out. He gave several reasons to support his view. By tracing the history of Section 139 as it applied in the 1961 Act and comparing and contrasting it with the history of Section 22, of the 1922 Act and the predecessor Section 139, he held categorically that the ITO ought to wait till the statutorily allowed time to an assessee had run out before a conclusion of escapement of income is arrived at, which alone would give the ITO the necessary jurisdiction under Section 148. His view was that if the time provided for under Section 139(4) had not exhausted, it would only be a case of income liable to tax not being assessed but not a case of income escaping assessment. He held that, it would look queer if one were to say that income had escaped assessment when the assessee has time before him to file the return and, therefore, the ITO cannot be said to have any material before him to think that income had escaped assessment. He also observed that before the limitation provided for under Section 139(4) is over it would be speculative or conjucture to hold that income has escaped assessment so as to confer upon the ITO jurisdiction to invoke the provisions of Section 148.
6. The learned Accountant Member, on the other hand, held that the notice under Section 148 had been validly issued, that the return filed subsequent to the issue of notice under Section 148 should be treated as one in response to the same, even if it was chosen to be styled as voluntarily made and purportedly under Section 139(4). He held that the fact whether the assessee had knowledge of the refusal of time for filing the return of income is not relevant but what is relevant was the service of notice under Section 148 and the submission of the return thereafter. He was also of the opinion that once the ITO had knowledge that the assessee had taxable income on the basis of his past assessment records, and if the assessee had not filed the return of income even after repeated refusals of the time applied for, that would enable the ITO to form an opinion that the assessee had taxable income and that income had escaped assessment which was sufficient to confer jurisdiction upon the ITO to issue notice under Section 148. He, therefore, held that the existence of taxable income in the past is itself a ground for presuming that there was escapement of income. When there was no return filed that was clearly a case of omission to file a return of income because a promise to file a return does not make the omission or failure any the less real. He held that the Act did not contemplate that the ITO should wait till the time provided under Section 139(4) is exhausted before the ITO could take action under Section 148. Thus he held that the right of the ITO to proceed under Section 148 is in no way limited or abridged by the right of the assessee to file return under Section 139(4).
7. Before me, the learned Counsel for the assessee contended, by taking me through the language of Sections 147(a), 147(b) and 139(4), that it is impossible to suppose before the time allowed under Section 139(4) had expired that income liable to tax had escaped assessment so as to invoke the provisions of Section 147(a). There can be neither omission nor failure to file a return of income till the time allowed under the statute had expired. As no notice under Section 139(2) was issued and the assessee had been applying for time repeatedly to file the return of income under Section 139(2) and since there was no intimation of rejection of his request, the assessee is entitled to a presumption that the time asked for had been granted as laid down by the Bombay High Court in the case of Lachman Chaturbhuj Java v. R.G. Nitsure [1981] 132 ITR 631. If time applied for had been granted, it would only mean that the time available under Section 139(1) had been extended from time to time. When the time available under Section 139(1) had been extended from time to time, it is impossible to think that the assessee had failed to file a return of income or omitted to file a return of income. Therefore, on 30-11-1977 the ITO cannot take any action under Section 147. The notice issued under Section 148 is, therefore, without jurisdiction. That, omission to file a return of income took place only on 31-3-1979 when the limitation provided under Section 139(4) had expired. He, therefore, taking the time adopted by the learned Judicial Member, submitted that the return filed on 14-2-1978 is only a return filed under Section 139(4) or under Section 139(1) and not in pursuant to the notice issued under Section 148 and consequently the assessment made on 14-2-1980 was time barred.
8. The learned departmental representative by taking me through the Finance Minister's speech [1968] 67 ITR 13 (St.) and Clause 53 of the Memorandum of Finance Bill, 1968 [1968] 67 ITR 86 (St.,) submitted that accepting the arguments advanced on behalf of the assessee would render the ITO powerless to make an assessment if the assessee had not filed his return of income and that was never the intention of the scheme of the Act.
9. Under Section 139(4) a return could be furnishd before the assessment is made, which means completion of the assessment. No assessment could be completed unless a return had been filed under Section 139(1) or by issue of a notice under Section 148. Therefore, the use of the expression 'before the assessment is made' in Section 139(4) necessarily contemplates the issue of notice under Section 148 and it is no argument to say that Section 139(4) puts the power of the ITO under Section 148 in cold storage till the time allowed under that section had been exhausted.
10. On a careful consideration of the contentions and the relevant provisions of law, I think the better view is that expressed by the learned Accountant Member. According to me, what was weighing in the mind of the learned Judicial Member to come to his conclusion is that till the time provided for under Section 139(4) is exhausted, it is not possible to say that there is a failure or omission on the part of an assessee to file a return of income so that Section 147 is applied. He held the view that the ITO cannot have the reason to believe that there was omission or failure on the part of the assessee to make a return under Section 139 before the time allowed under Section 139(4) lapses.
In other words, he reads Section 139(4) as putting a limitation or fetter on the power of the ITO to initiate proceedings under Section 147 for income escaping assessment. I have, therefore, to see whether such a view is contemplated or is possible. It is not necessary for me to repeat the entire Section 139 here while it is sufficient for my present purpose to state that under Section 139 five kinds of returns can be filed: (a) A return voluntarily before 30th June of every year or such further extended time.
(c) A return showing loss under the head 'Profits and gains of business or profession' and who claims that the loss should be carried forward.
(d) Any person who has not furnished a return within the time allowed to him either under Sub-section (1) or Sub-section (2) may before the assessment is made, furnish the return before the end of the specified period.
(e) A revised return may be furnished in case any omission or any wrong statement has been discovered in a return already filed.
I have to style them as returns not in the sense of separate returns but as returns that could be filed under Section 139 in various circumstances, each having a separate consequence to follow. Under Section 139(1), the assessee has to file a return voluntarily before 30th June of every year or before such extended period as granted by the ITO. If a person has not filed a return under Sub-section (1) and, if in the opinion of the ITO that person has taxable income, the ITO may serve upon him a notice in response to which the assessee can file a return which I call under Sub-section (2). If a person has sustained loss in any previous year under the head 'Profits and gains of business or profession' and claim that loss should be carried forward, he can file a return which I call under Sub-section (3). Sub-section (4) enables an assessee who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) but before the assessment is made, to furnish return of any previous year before the end of two years from the end of the each assessment year. This is the return which is now in dispute and this I call the fourth return. The fifth return is a revised return, i.e., if a person who has filed a return under Sub-section (1) or (2) discovers any omission or wrong statement, he may furnish a revised return at any time before the assessment is made. Thus under Section 139 five returns under different circumstances could be filed. Section 147 states that if the ITO has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year income chargeable to tax has escaped assessment, he may assess or reassess such income as the case may be. Now the ITO to assume jurisdiction under Section 147 must have reason to believe that there must be an omission or failure on the part of the assessee to make a return under Section 139. If there is an omission or failure to make a return under Section 139, then that section contemplates that income chargeable to tax had escaped assessment in that year. The expression 'to make a return under Section 139' docs not limit itself to any one of the returns to be filed under that section. If there is a failure on the part of an assessee to file a return under Section 139(1), that will be a failure to make a return under Section 139 as that expression is used in Section 147. Similarly, if there is a failure to make a return under Section 139(2), then also there is a failure on the part of the assessee to make a return of income under Section 139. Sub-section (3) may not come in consideration here because that is a benefit given to the assessee and if he does not file a return of income within time, he looses the benefit of carry forward of any loss under the head 'Profits and gains of business or profession'. So a failure to file a return showing loss under the head 'Profits and gains of business or profession' voluntarily will not come within the meaning of Section 147 because it cannot be said that income chargeable to tax had escaped assessment. Similarly, Sub-section (4) also gives the assessee a right to file a return of income within a period of two years from the end of the assessment year if a person has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2). If the assessee does not make use of the benefit given under Sub-section (4), he continues to be a person who has not furnished a return either under Sub-section (1) or Sub-section (2). A failure to comply with Sub-section (4) need not necessarily attract the application of Section 147 because there cannot be a failure under Section 139(4) unless there is failure under Sub-section (1) or Sub-section (2) in which case it would be failure to comply with Sub-sections (1) and (2) and not sub-sectiors (4). Similarly, Sub-section (5) also may not attract the application of Section 147 because that is also an enabling provision conferring a right upon the assessee to set right a mistake committed by him in filing a return.
Thus it is clear that while non-adherence to follow the benefits conferred by Sub-sections (3), (4) and (5) may not attract Section 147 in the sense that income chargeable to tax cannot be said to have escaped assessment, failure to comply with Sub-sections (1) and (2) certainly invites the application of Section 147. Therefore, when Section 147 uses the expression 'to make a return under Section 139 it means that if the assessee had failed or omitted to make a return under Sub-section (1) or (2), the income chargeable to tax is said to have escaped assessment for that year and that would vest in the ITO a power to issue a notice under Section 148 because he then has reason to believe that income chargeable to tax has escaped assessment.
Therefore, what is to be seen is whether Sub-section (4) of Section 139 can be interpreted in a manner, as prolonging the statutory time to file a return of income so as to say that during that period of prolongation there was no escapement of income. As I have said earlier, Sub-section (4) can be used by the assessee only when the conditions stated therein are satisfied. The first condition stated there is that a return must not have been filed within the time allowed either under Sub-section (1) or (2). The second condition is that the furnishing of the return must be before the assessment was made. The third condition is that it shall he furnished before the end of two years from the end of the assessment year to which the return relates. Shri Srinivasan contends that the return filed by the assessee is under Sub-section (4). The time-limit for completion of the assessment provided for under Section 153(1)(c) applied and the assessment should have been made within one year and as it was not made, it was time barred. It is in this context that he submitted that the ITO would have no power to invoke Section 147 when the time available under Section 139(4) has not exhausted. He also submitted that the ITO could not have formed a belief on the date when he gave a notice under Section 148 that by the failure of the assessee to make a return, income chargeable to tax has escaped assessment particularly when the assessee had enough time under Sub-section (4) of Section 139 to file the return of income.
11. Since there is nothing either in the language of Section 139 or Section 147 that the ITO has to wait till the time available under Section 139(4) is exhausted, I am unable to read that the benefit conferred upon the assessee by Sub-section (4) of Section 139 has the effect of precluding the ITO from taking action under Section 147 if the conditions precedent for the assumption of jurisdiction under that section are satisfied. Section 147(a) states that if there is failure to make a return of income under Section 139, it means income chargeable to tax has escaped assessment for that year. I have already endeavoured to show how under Section 139 there can be a failure on the part of an assessee to make a return of income. The failure to make a return under Section 139 referred to in Section, 147 can only be non-compliance with either Sub-section (1) or Sub-section (2) of Section 139 and not with any other sub-sections because all others are enabling sections in the sense conferring a right on an assessee to take advantage of the provisions of the Act under certain stated circumstances. Thus, when there is a failure to comply with Sub-section (1) or (2), then there is failure on the part of the assessee to make a return under Section 139 and the ITO would be entitled to assess the income that had escaped assessment if he has reason to believe that the assessee had income chargeable to tax. In this case, on the basis of the past record, the ITO has reason to believe that the assessee had income chargeable to tax and by reason of not filing a return of income that income had escaped assessment.
12. Since Sub-section (4) of Section 139 has only conferred a right upon an assessee to file a return of income if he had failed to comply with the notices issued under Sub-sections (1) and (2) of Section 139, that cannot be read as putting a fetter upon the powers of the ITO to invoke Section 147 only because the time allowed under Sub-section (4) has not expired. This contention perhaps can find substance if only the failure to make a return under Sub-section (4) of Section 139 can also be regarded as a failure attracting the application of Section 147.
Since a right has been conferred upon an assessee, which is not equal to the liability under Sub-sections (1) and (2), the non-availing of that right cannot be said to have resulted in a failure on the part of the assessee to make a return because the assessee may or may not choose to file a return. Since this is an option given to the assessee to file a return, it cannot be said that the time allowed for availing of that option has, simultaneously, resulted in taking away or abridging the right of the ITO to invoke Section 147.
13. I am also unable to accept the view canvassed for the assessee that the ITO could not have formed a belief that income chargeable had escaped assessment on the date when he issued a notice under Section 148. The history of the case referred to earlier clearly shows that the assessee did not comply with the statutory notices issued under Section 139(1), but went on repeatedly asking for time on one ground or the other. In disgust, the ITO passed an order to serve a notice under Section 148. It is only after the ITO has served a notice under Section 148 that the assessee has come forward to file a return making it as 'section 139 return'. It is, therefore, very difficult to believe that the return filed was not a return filed in response to the notice issued under Section 148 but still a voluntary return filed under Section 139(1) though belatedly, making use of the concession provided for under Sub-section (4) of Section 139. I can even say once the machinery in Section 148 is put in motion, the right to file a return is impaired. When the assessee has taxable income and when he does not file a return of income, the ITO has reason to believe that income chargeable to tax has escaped assessment. That is enough for the ITO to give him the necessary jurisdiction to issue a notice under Section 148. When a return of income had not been filed, income liable to tax can be said to have escaped assessment. Now, the question is whether the ITO had, after granting time to file the return of income come to the conclusion that income liable to tax had escaped assessment. If that was so, certainly the ITO can be said to be wrong but I am unable to subscribe to this view either. Again the records show that the ITO did not grant time. As pointed out by the learned Accountant Member, the refusal of time has been intimated to the assessee by a post card.
So long as this fact is not denied and the records bear out this fact the duty cast upon the ITO, even as laid down by the Bombay High Court in Lachman Chaturbhuj Java's case (supra), can be said to have been satisfied. The Bombay High Court said that the ITO must intimate to the assessee of the refusal of extension of time. The Bombay High Court did not go to that extent and say that the intimation must be served on the assessee and the ITO must ensure that it is served on the assessee. All that was said by the Bombay High Court was that intimation of refusal must be given which was done in this case. If the intimation had not reached the assessee, we do not think it is proper to blame the ITO.The ITO has passed orders refusing time on the application asking for time and when the refusal has been communicated by means of a post card to the address given in the records, then intimation must be deemed to have reached the assessee. If it has not reached the assessee, I don't think that there is a further obligation on the part of the ITO to secure the service of the intimation. After the notice under Section 148 had been served the assessee asked for time twice and on both the occasions time does not seem to have been granted. Even if no orders on the application made on 31-1-1978 had been passed still refusal of time on 31-1-1978 should have put the assessee on guard that time asked for had been refused. It cannot thus be said that the assessee has not been put on guard of the intention of the ITO so as to enable him to make arrangements and meet the consequence of the refusal of extension of time asked for and the issue of notice under Section 148 as pointed out by the Bombay High Court in the case of Lachman Chaturbhuj Java (supra). There was thus enough notice to the assessee to meet the consequences arising out of the issue of notice under Section 148. I am, therefore, unable to accept the plea that the time asked for under Section 139(1) was deemed to have been granted and, therefore, the return filed by the assessee is a return in discharge of the obligation of the assessee under Section 139(1) but within the time allowed under Section 139(4). Once the return is held to be a return filed not under Section 139(1) or 139(4) but only in response to the notice issued under Section 148, the time-limit available to complete the assessment is cot one year as provided for in Section 153(1)(c) but four years as provided for in Sub-section (2) of Section 153.
14. I may also add here that the learned Judicial Member and the learned Accountant Member agreed on a common question which was posed by them in their respective orders, viz.: Whether on 17-11-1977 the Income-tax Officer had any materials before him to think that income has escaped assessment In other words, the idea of escapement arises for the first time only after 31-3-1979. To put it differently whether the Income-tax Officer is bound to wait till 31-3-1979 to issue a notice under Section 148 on the ground that income has escaped assessment by reason of omission or failure on the part of the assessee to furnish a return under Section 139 I think in my discussion I have furnished answers to all these questions. I am of the opinion that on 17-11-1977 the ITO had materials before him to think that income had escaped assessment and that the escapement of income does not arise for the first time only after 31-3-1979, viz., after the expiry of the time provided for under Sub-section (4) of Section 139, and that the ITO is not bound to wait till 31-3-1979 to issue a notice under Section 148.
15. On the facts and circumstances of the case, the ITO had reason to believe that by reason of the omission or failure on the part of the assessee to make a return under Section 139 income chargeable to tax had escaped assessment and that the assessment made on 14-2-1980 is not time barred and is valid. I, therefore, agree with the view expressed by the learned Accountant Member.
16. The matter will now go back before the regular Bench for disposal of the case in accordance with the majority view.