M.P. State Agro Industries Development Corporation Ltd. Vs. Commissioner of Income Tax and ors. - Court Judgment

Arun mishra, J. :

1.In this writ petition petitioner assails the order p. 10, dt. 23rd Dec., 1997, communicated on 16th Aug., 2001, passed under Section 264 of the IT Act, 1961, for the accounting year 1993-94 dismissing the revision filed by the petitioner against the order p. 7 passed under Section 139(9) of the IT Act, 1961 (hereinafter referred to as 'the Act, 1961').

2. The facts shorn of unnecessary details indicate that petitioner is a Government company registered under the Indian Companies Act, 1956, (hereinafter referred to as 'the Act, 1956') and formed by the State Government for the purpose of development of agricultural activities for providing various agricultural inputs at reasonable rates to the farmers by manufacture and also by way of trading in various items connected with agriculture and village development.

3. Petitioner submitted its return of income for the accounting year 1993-94 in the asst. yr. 1994-95 on 30th Nov., 1994, declaring loss of Rs. 5,03,250 on estimated basis as statutory audit of the company was pending for want of appointment of auditors by the Comptroller and Auditor General of India. The Dy. CIT issued a notice on 15th June, 1995, under Section 139(9) of the Act, 1961, intimating the petitioner the defect in the return filed on 30th Nov., 1994, and called upon the petitioner to rectify the defect by submitting the statutory audit report under Section 44AB of the Act, 1961, by 7th July, 1995. Petitioner on 6th June, 1995, prayed that it was not possible for the petitioner to submit the audit report as desired by the Dy. CIT for want of appointment of auditors by the Comptroller and Auditor General of India. It was requested that some more time be allowed in view of the provisions contained in Section 139(9) of the Act, 1961, for submitting the audit report. The Dy. CIT did not accede to the prayer and refused to grant further time and sent an intimation p. 7 on 12th July, 1995, and treated the return as invalid.

4. Petitioner submitted a revision under Section 264 of the Act, 1961, before the CIT which was heard on 20th Nov., 1996. Revision has been dismissed as per order p. 10. Hence, present writ petition has been filed.

5. Petitioner submits that it is necessary to have the statutory auditor for the purpose of audit appointed as per art. 17 of the memorandum of association by application of Sections 224 to 234 r/w Section 619 of the Act, 1956. Thus, the selection for appointment of auditors has to be made by the Comptroller and Auditor General of India. The Comptroller and Auditor General of India appointed the auditor for the block asst. yrs. 1992-93 to 1994-95 on 31st Jan., 1995 as per letter p. 3. The auditors completed the audit assigned to them and prepared the statutory audit report on 2nd March, 1996. The report as required by Section 44AB of the Act, 1961, was finalized on 9th May, 1996, as per p. 4. It was beyond the control of the company to furnish necessary audit report. The delay was made by the Comptroller and Auditor General of India in making appointment of auditor and due to the auditor's inability to complete the assigned audit for three years within such a short span of time. Therefore, the Dy. CIT ought to have extended the time for removing the defect in the return of income. Petitioner had pointed out the inability to submit report as required as per reply p. 6, for the reasons beyond its control against the intimation p. 7 refusing to extend time and treating return as invalid, revision preferred has been wrongly dismissed. Prior to hearing of the revision, audit report, dt. 2nd March, 1996 was filed. Petitioner submitted the said audit report before the Dy. CIT along with letter dt. 14th Nov., 1996. As per the audited accounts finally, the loss of the petitioner worked out to Rs. 29,66,800 as against the returned loss of Rs. 5,03,250. The Dy. CIT was requested that loss may be computed as per the audit report and revised position of the loss may be substituted as per prayer made in letter p. 9, The revision petition was heard by the CIT on 22nd Nov., 1996, it was pointed out that audit report under Section 44AB has been filed before the AO.

6. A return has been filed by the respondents contending that AO issued a notice under Section 139(9) of the Act, 1961, on 15th July, 1995, to remove the defects in the return and to submit the tax audit report under Section 44AB by 7th July, 1995. The assessee vide its letter p. 6, dt. 6th July, 1995, sought extension of time for submitting the audit report without any justification. The AO having afforded ample opportunities to the assessee for the aforesaid purpose regretted to extend the time vide its intimation p. 7, dt. 12th July, 1995, and accordingly processed the return which was ultimately held to be invalid. The order p. 10 passed in revision is self-contained, explanatory and well-reasoned order and does not call for any interference in the writ jurisdiction by this Court. The assessee failed to comply with the provisions of Section 44AB of the Act, 1961. AO was justified in not allowing further extension of time beyond the period of fifteen days for submission of statutory audit under Section 139(9) of the Act, 1961. The petitioner cannot claim any relief on the ground that audit report under Section 44AB was received on 9th May, 1996. The claim is defective as per provisions of Section 139(9) of the Act and petitioner was given due opportunity to remove the defect by 7th July, 1995, which petitioner failed to remove within stipulated time. It is further submitted that the remedies are available to the petitioner-assessee under the Act, 1961, by way of appeals against the orders which may be ultimately passed by the CIT and AO and, therefore, there are no grounds with the petitioner assessee for approaching this Court for interfering with the assessment proceedings invoking its extraordinary powers and jurisdiction of this Court.

7. G.N. Purohit, learned counsel for the petitioner, submitted that petitioner is a company established by the State Government and audit is mandatory to be made by the statutory auditor appointed by the Comptroller and Auditor General of India. The delay was made in appointment of the auditor by the Comptroller and Auditor General of India.

8. Petitioner has placed reliance on a decision of Kerala High Court in Kerala State Drugs & Pharmaceuticals Ltd. v. CIT and Anr. : [1994]210ITR1042(Ker) , to contend that a liberal approach could be applied to public sector undertakings where there was no lack of bona fide to rectify the defect.

9. Rohit Arya, learned counsel appearing for the respondents, contended that the orders p. 7 and p. 10 are discretionary. Opportunity was given to rectify the defects in the return. There was failure to submit the audit report. Hence, the orders are proper and remedy of filing an appeal against the ultimate assessment order which may be passed is available. Hence, no interference be made in the writ jurisdiction of this Court.

10. The facts are not disputed in the instant case that petitioner is a Government Company owned by the State Government. This is also not in dispute that as per art. 17 of the memorandum of association and by virtue of provisions of Sections 224 to 234 r/w Section 619 of the Act, 1956, statutory auditor has to be appointed by the Comptroller and Auditor General of India for the block asst. yrs. 1992-93 to 1994-95. The appointment was made vide letter p. 3 on 31st Jan., 1995, by Comptroller and Auditor General of India. This fact is also clear that the audit was completed on 2nd March, 1996 and report was finalized as required by Section 44AB of the Act, 1961 on 9th May, 1996. The return was filed by the petitioner on 30th Nov., 1994. Thus, it was not possible to the petitioner to have annexed report of the statutory auditor appointed by Comptroller and Auditor General of India as the appointment itself was made on 31st Jan., 1995, as per letter p. 3. No doubt about it that the time was given to the petitioner to rectify the defects within 15 days by issuing a notice p. 5 under Section 139(9) of the Act, 1961. Petitioner prayed for extension of time by filing a reply p. 6 on 6th July, 1995, and submitted that audit is going on and the auditors were appointed in February, 1995. Hence, some more time was prayed to file the revised return along with tax audit report for asst. yr. 1994-95 and petitioner may not be treated in default in filing the return under Section 139(9) of the Act, 1961.

11. Intimation p. 7 was sent to the petitioner on 12th July, 1995, that the assessment is to be completed under Section 144 of the Act, 1961, after the return loses its validity, in the eye of law under Section 139(9) of the Act, 1961, enough time has passed after the time-limit prescribed for filing the return. No extension could be given for the period beyond 15 days for submitting report of statutory audit under Section 139(9) of the Act, 1961 as the assessee has failed to furnish tax audit report under Section 44AB during the abovesaid period of 15 days. Therefore, return filed on 30th, Nov., 1994, has been treated as invalid and provisions of the Act, 1961, shall apply as if no return has been filed.

12. The CIT in order p. 10 has opined that for filing audit report no definite time-limit was pointed out by petitioner as regards difficulty of the appointment of statutory auditors in the case of assessee undertakings by CAG. The return is to be filed within the prescribed time, failing which benefit of carry forward of loss is not to be allowed. As per Section 139(4) of the Act, 1961, return can be furnished at any time before the expiry of one year from the end of relevant assessment year or before the completion of assessment, whichever is earlier. Thus, as per record the audit under Section 44AB did not stand complete even on 31st March, 1995, by which date time for filing the return under Section 139(4) expired. Thus, there is no infirmity in the notice and the order p. 7 treating the return as invalid. The Tribunal has opined that matter has to be examined in the peculiar facts and circumstances of each case. No separate time-limit for furnishing audit report under Section 44AB has been prescribed in the Act, 1961, for Government/non-Government organisation in law and in the facts and circumstances of the present case the assessee had ample time to make requisite compliance in terms of Section 44AB of the Act, 1961, in accordance with law before the order p. 7 under Section 139(9) was passed by the AO. Even if the statutory audit was to take some time, it was possible for the assessee to take independent steps for audit report under Section 44AB as required under the Act, 1961, and the revision petitions have been dismissed.

13. The main question for consideration in the instant case is whether the respondents erred in law in not extending the time to file audit report as mandated under Section 44AB. Section 44AB of the Act, 1961, no doubt mandates audit of accounts of certain persons carrying on business or profession. Every person, carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds forty lakh rupees in any previous year or carrying on profession shall, if his gross receipts in profession exceed ten lakh rupees in any previous year or carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under Section 44AD or Section 44AE or Section 44AF, as the case may be, and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business, as the case may be, in any previous year, get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed. Provided further that in a case where such person is required by or under any other law to get his accounts audited, it shall be sufficient compliance with the provisions of this section if such person gets the accounts of such business or profession audited under such law before the specified date and furnishes by that date the report of the audit as required under such other law and a further report in the form prescribed under this section.

14. Section 139 of the Act, 1961, deals with return of income. Section 139(1), 139(4) and 139(9) are relevant. It reads as under :

'139. Return of income.--(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax, shall, on or before the due date, furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.

139(4) Any person who has not furnished a return within the time allowed to him under Sub-section (1), or within the time allowed under a notice issued under Sub-section (1) of Section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier :

Provided that where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.

(4A) Every person in receipt of income 'derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in Sub-clause (iia) of Clause (24) of Section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of Sections 11 and 12) exceeds the maximum amount which is not chargeable to income tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under Sub-section (1).

(4B) The chief executive officer (whether such chief executive officer is known as secretary or by any other designation) of every political party shall, if the total income in respect of which the political party is assessable (the total income for this purpose being computed under this Act without giving effect to the provisions of Section 13A) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act, shall, so far as may be, apply as if it were a return required to be furnished under Sub-section (1).

139(9) Where the AO considers that the return of income furnished by the assessee is defective, he may intimate the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the AO may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return :

Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the AO may condone the delay and treat the return as a valid return.'

15. Return of income has to be filed in accordance with the provisions made in Sub-section 4 of Section 139 which provides that any person who has not furnished a return within the time allowed to him under Sub-section (1), or within the time allowed under a notice issued under Sub-section (1) of Section 142, may furnish the return for any previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Sub-section (9) of Section 139 provides where the AO considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the AO may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return. The proviso to Sub-section (9) of Section 139 makes it clear that AO may condone the delay before the assessment is made and treat the return as invalid return and for that assessee must rectify the defect after the expiry of said period of fifteen days or the further period allowed. Explanation to Sub-section (9) of Section 139 of the Act, 1961, makes it clear that for the purpose of sub-section, a return of income shall be regarded as defective unless the conditions enumerated in the Explanation are fulfilled. Clause (bb) requires as one of the conditions that the return is accompanied by the report of the audit referred to in Section 44AB, or, where the report has been furnished prior to the furnishing of the return, by a copy of such report together with proof of furnishing the report. Thus, it is clear that return filed by the petitioner on 30th Nov., 1994, was defective within the meaning of Expln. (bb) to Section 132(9) of the Act, 1961.

16. For the accounting year 1993-94 the assessment year is 1994-95 and last date of filing the return, in the case of company as provided in Section 139(1) is 30th day of November, of the assessment year. The return in this case was filed on the due date. The return can be filed on or before the due date in the prescribed form and verified in the prescribed manner and setting forth of such of the particulars as prescribed. The statutory auditors were appointed on 30th Jan., 1995. Audit was completed on 2nd March, 1996. The report was finalized as required by Section 44AB of the Act on 9th May, 1996. The period for assessment had not expired by the time the report was filed on 14th Nov., 1996, before the Dy. CIT. The petitioner had submitted the revised position and the audited account along with application p. 9 on 14th Nov., 1996. Petitioner in revision filed under Section 264 of the Act, 1961, pointed out that audit report under Section 44AB was furnished before the AO on 14th Nov., 1996, the delay in filing the audit report be condoned.

17. The finding recorded in order p. 10 by the CIT that under Section 139(4) of the Act the return could be filed up to 31st March, 1995, which period expired, hence defect could not be removed. Under Section 139(4) of the Act, 1961, the return can be furnished at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Thus, the CIT held that defect should have been removed by 31st March, 1995.

18. Question for consideration is whether the provisions made under Section 139(9) with respect to the removal of defect in the return filed is governed by the provisions of Section 139(4) of the Act, 1961. As per Sub-section (4) of Section 139 any person who has not furnished a return within the time allowed to him under Sub-section (1), or within the time allowed as per notice issued under Sub-section (1) of Section 142, may furnish the return for the previous year at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier. Section 139(9) provides that when return has been filed on or before the due date if AO considers that return of the income is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within the period of 15 days from the date of such intimation or within such other further period which is allowed in his discretion by AO on an application made in this behalf. The assessee has to rectify the defect within fifteen days or the further period allowed by the AO. The effect of non-compliance of the direction to remove defect is that the return shall be treated as invalid return notwithstanding anything contained in any other provisions of the Act and the provisions of the Act shall apply as if the assessee had failed to furnish the return. Proviso gives the power to the assessing authority to condone delay in case defect is rectified after the said period of 15 days or the further period allowed but before the assessment is made. The AO may condone the delay and treat the return as a valid return. Thus, defect can be removed even after the expiry of 15 days or the further period allowed notwithstanding consequence of treating the return as invalid and no return filed as provided in main Sub-section (9) of Section 139 of the Act, 1961. Thus, in my opinion, as per Section 139(9) period allowed to remove the defect can be extended to a date before the making of assessment whereas Section 139(4) provides the limitation for filing the return before the expiry of one year from the relevant assessment year or before the completion of assessment whichever is earlier. Under proviso to Sub-section (9) of Section 139 if the defect has been rectified before the assessment is made on existence of sufficient cause AO may condone the delay and treat the return as valid return. Non-filing the report of the audit referred to in Section 44AB is one of the defect which can be allowed to be rectified and AO may condone the delay in rectification of the defect even if time fixed of 15 days or the further period allowed by the AO as per main Section 139(9) has expired.

19. In the instant case AO had given intimation to the petitioner to remove the defect within 15 days as per letter p. 5 on 15th July, 1995. Petitioner prayed for further time as statutory audit was going on. The AO declined to give the time and sent the intimation of falling of the consequence of not filing the return within 15 days as per letter p. 7 and treated the return filed on 30th Nov., 1994, as invalid and the provisions of IT Act shall apply as if no return has been filed. However, before the completion of assessment statutory audit has been completed and report filed before the AO on 14th Nov., 1996. Thus, the proviso to Sub-section (9) of Section 139 clearly comes in the action and the AO has not so far decided the application p. 9 filed by the petitioner on 14th Nov., 1996. The same could be preferred and delay condoned within the proviso of Sub-section (9) of Section 139 as assessment has not been completed.

20. The petitioner preferred a revision under Section 264 on 14th Aug., 1995, before the CIT. The CIT dismissed it as per order p. 10. In the instant case before CIT the order of refusal to extend the time as per p. 7 was questioned. As the audit of the petitioner which is State Government undertakings is required to be done as per Section 619(2) of the Act of 1956 by the statutory auditor appointed by the Comptroller and the Auditor General of India. CAG appointed the auditor after the due date for filing the return was over on 30th Nov., 1994, in my opinion, it would have been proper for the AO to have extended the time. Petitioner, being State Government undertaking and as per art. 17 of the memorandum of the association and by application of Sections 224 and 234 and Section 614(3) of Act of 1956 is bound to have the statutory audit. It is not a case where for the delay in appointment of the auditor blame could be fastened on the petitioner. The delay was on the part of the Comptroller and Auditor General of India. The appointment of auditor was made on 30th Jan., 1995 as per letter p. 3. Thereafter auditors took the time in auditing and the report could be finalized as required under Section 44AB of the Act, 1961 only in July, 1996, and thereafter it was filed before the AO, the Dy. CIT, in November, 1996. Before the completion of audit and finalization of the report as required under Section 44AB of the Act the AO passed the order p. 7 on 12th July, 1995, under Section 139(9) refusing to extend the time.

21. In more or less similar circumstances the High Court of Kerala in Kerala State Bamboo Corporation Ltd. v. CIT and Anr. : [1999]236ITR288(Ker) , held considering the facts situation for the asst. yr. 1994-95 that the return was filed on 28th Nov., 1994. The defects were pointed out in the return. The other defects were removed on 15th Feb., 1999, however, it was pointed out that audit under Section 44AB of the Act, 1961, could be finalized only after the statutory audit mandated by Section 619 of the Act of 1956 was done by the auditors to be appointed by the Central Government and Central Government had not appointed auditor for the said purpose. Kerala State Bamboo Corporation Ltd. requested for some more time for filing the tax audit report under Section 44AB of the Act, 1961. The auditors were appointed on 25th Sept., 1995. Intimation of appointment of auditor was received by the petitioner on 16th Oct., 1995. The AO passed an order on 27th Nov., 1995, granting time up to 28th Feb., 1996, for filing the return. The corporation on 24th Feb., 1996, again prayed for extension of time till 31st May, 1996. The audit report could be obtained only on 24th Sept., 1996, and was filed soon after for the asst. yr. 1994-95. The AO opined that time granted for filing the return for the year was already over and the return filed on 25th Sept., 1996, was beyond the time-limit and hence could not be acted upon. The corporation prayed for reconsideration which application was rejected. Notice of re-assessment was sent which was questioned in the writ petition. The Kerala High Court opined that the AO was bound to consider the petition filed under Section 139(9) of the Act, 1961, keeping in mind the provisions of proviso to Sub-section (9) of Section 139 of the Act, 1961. Since time-limit to complete the assessment was still available, hence the order passed including the notice for reassessment was invalid and were quashed. The AO was directed to consider the petitioner's application.

22. In Malik Damsaj Khan v. CIT (1947) 15 ITR 445 , the Privy Council considered the question of incomplete return. Filing of incomplete return under Section 22(3)/(4), 28 and Section 30 of the IT Act, 1922, before amendment in 1939. The defective return was filed which did not clarify the requirement of note 5(b) of the form. The AO made the assessment under Section 23(3). On appeal by assessee the penalty was also imposed by the AO. The Privy Council held that it was clearly incumbent on the ITO in the circumstances of the case to accept the return as a valid return and proceed to assess the assessee under Section 23(3). Though the facts are different but the fact remains that circumstances of the case have to be taken into consideration by the AO while making the assessment and deciding on validity of return, is the law laid down by the Privy Council.

23. In my opinion, the facts and circumstances of the case and even otherwise as per the statutory provision of Section 139(9) as the assessment has not been completed and the application p. 9 was filed on 14th Nov., 1996. Same is the application as per proviso to Sub-section (9) of Section 139 of the Act, 1961. The AO is bound to consider it, notwithstanding the order p. 7 of refusing to extend the time which non-extension itself is bad in law in the facts and circumstances of the case. Thus, the order p. 10 passed by the CIT is liable to be quashed. The AO is directed to consider the application p. 9 and hear the petitioner in the matter in accordance with the observations made in this order,

24. Resultantly, writ petition is allowed. The order p. 10 is quashed. The respondent AO is directed to consider the application p. 9 treating it an application for condonation of delay for rectification of defect under proviso to Sub-section (9) to Section 139 of the Act, 1961, and to pass the order after hearing the petitioner afresh. In the facts and circumstances of the case, costs on parties.