2009 (8) TMI 847 - AT - Income Tax

Disallowance on the carry forward of loss under the head Capital gain - defective return filled - return filed by the assessee as non est - verification was not done properly inasmuch as neither the name of the natural person verifying return nor the name of father/husband of such person signing the return was mentioned. Even at the bottom only S.B. Billimoria Co. was written but the name of the person signing the verification was not written - CIT(A) dismissed the assessee s appeal on the ground that the Power of Attorney appeared to have been issued by the Morgan Stanley Asset Management Inc. USA and signed by some person on behalf of Morgan Stanley Asset Mgt. Inc., but the said signature was not notarized by any authority of that country. thus fulfilment of the requirement of section 140 not met CIT(A) decided the controversy against the assessee from an angle different from that of the Assessing Officer - Is the ld. first appellate authority entitled to decide the issue from a different perspective ? HELD THAT - We observe that the ld. CIT(A), did not even travel beyond the assessment order. The AO held the return as invalid, which matter was assailed by the assessee before him. His action was confined to examining the validity or otherwise of return on the appreciation of material already on record, although from a different angle. Be that as it may it is a settled legal position that the powers of the CIT(A) are co-terminus with that of the AO as has been held in several judgments including Jute Corpn. of India v. CIT 1990 (9) TMI 6 - SUPREME COURT . It shows that anything which can be done by the AO can also be done by the first appellate authority. The power of enhancement is rather a step forward, which shows that what the AO could have been done but omitted to do, now can be done by the CIT(A) while disposing of the appeal. We are, therefore, unable to accept the contention raised by the ld. AR that the ld. CIT(A) exceeded his jurisdiction in examining the authenticity of the PoA and filing of its copy. However, we agree with the ld. AR that before drawing an adverse inference against the assessee on a point decided by the ld. CIT(A) for the first time, it was necessary for him to give opportunity to the assessee. Rule of consistency - In principle we are in agreement with the view canvassed by the ld. AR that the rule of consistency should be followed and the assessee should be assured that once a particular state of affairs is accepted, then that shall not be altered in the later years unless there is change in factual or legal position. In other words, if an assessee has claimed deduction in one year or claimed a particular treatment to an item of income, which has been accepted, then unless there is change in factual or legal position, ordinarily the revenue should not disturb such finding in the succeeding year. But this principle cannot be stretched beyond the context. If the Assessing Officer has done something patently wrong in a year, then the principle of consistency cannot be dragged to compel the Assessing Officer to go on repeating such patent mistakes in future also. The judgment of the Hon ble Supreme Court in Radhasoami Satsang s case 1991 (11) TMI 2 - SUPREME COURT which has been heavily relied on by the ld. AR to bolster his submission as to the applicability of principle of consistency, has made it emphatically clear in its last para that We would like to state in clear terms that the decision is confined to the facts of the case and may not be treated as an authority on aspects which have been decided for general application. In view of the foregoing discussion we are fully convinced that the argument about the principle of consistency does not merit acceptance in the facts of the present case. Invalid v. Defective return - Whether the returns filed by the assessee were valid or invalid or defective? - whether section 292B comes into play to take care of such technical defect by considering it as not invalid return of income provided such return is in substance and effect in conformity with the Act ? - In our considered opinion this defect, in the given circumstances, can be held as technical only covered within the meaning of section 292B for the reason that but for such defect the return is in substance and effect in conformity with the intent and purpose of this Act. The view point of the Assessing Officer is that the verification can be done by a natural person and not an artificial person is not correct in entirety. It is simple and plain that an artificial person cannot sign in a natural way. When any of its representatives sign the document, it is considered as duly signed by the artificial person. Like in the instant case whereas M/s. S.B. Billimoria Co., Chartered Accountants was appointed as Power of Attorney for filing the return etc., it was only some partner of M/s. S.B. Billimoria Co. who could have signed the return for and on behalf of this firm. Even though there is irregularity in the signature but still it cannot be said that such verification is not done by a natural person. The learned A.R. has placed on record a copy of the recent judgment passed in Prime Securities Ltd. v. Varinder Mehta, Asstt. CIT 2009 (4) TMI 108 - BOMBAY HIGH COURT in which the return was held to be valid after considering section 292B. In this case some observations of the Hon ble Supreme Court have been recorded to the effect that if a statute requires personal signature of a person, which includes a mark, the signature or the mark must be that of the man himself. In this judgment, the Hon ble Bombay High Court, taking assistance from section 292B, decided the issue in assessee s favour on the ground that the defect in the original return was cured while filing a fresh return which would relate back to the date of original return filed. Another irregularity in the return to see if the return has been invalidated by such mistake or it is only defective - We are unable to agree with the AR on this point. Firstly the correct status of the assessee in the year in question is still in dispute. The mere fact that the AO in passing order u/s 154 has mentioned the status of the assessee as a non-resident company and that too in relation to the assessment year 2000-01 cannot be considered as the admission of this status even in relation to the year in question. Whether return filed in wrong Form be considered as valid? - An individual will file his return in Form applicable to the company and vice versa and claim that its return be declared as valid. We are not agreeable with this contention as such a practice would result in chaos and the very purpose of prescribing different forms of returns in respect of different classes of assessees would be defeated. At the same time it is equally true that if a return is not filed in the prescribed form the said return cannot be declared as invalid and non est. But it will become defective and require modification at the instance of the Assessing Officer when such defect is pointed out. When a defective return is filed, the Assessing Officer is obliged to give chance to the assessee to rectify the defect within the specified period. It is only on the failure to remove the defect within the said specified or extended period that the defective return is converted into invalid return. Section 292B helps the assessee only to the extent of saving the return from being declared as Invalid . As in the instant case the AO has opined that only the defects enumerated in Explanation to section 139(9) are liable to be considered for treating the return as defective and not any other defect, such as wrong verification. It is further seen that the Assessing Officer held the return to be invalid on the sole ground that the return was not properly signed and verified. He did not proceed further to examine whether it was a case of an AoP or a company. The assessee also filed one return after the other in Form No. 3 in the same wrong manner by getting it signed from one of the partners of M/s. S.B. Billimoria Co. not in his own name individually but as S.B. Billimoria . So the instant case is still roaming in the domain of section 292B and has not been brought within the purview of section 139(9) by the AO, enabling to reach a positive conclusion as to whether the return is valid or invalid, which, in turn, is dependent on the assessee succeeding or failing to remove the defect. The sole reason behind the AO treating the return as invalid is that such a return will be deemed as if never filed and the right to carry forward the loss under the head Capital gains shall come to naught. Now when we are restoring the matter to the Assessing Officer, we want to make it clear that he will issue defect memo to the assessee calling upon it to remove the defects in the return and if the assessee succeeds in removing the defects, the correct return now filed shall date back to the original return as has been held in the case of Prime Securities Ltd. 2009 (4) TMI 108 - BOMBAY HIGH COURT and Nicholas Applegate South East Asia Fund Ltd. s 2009 (1) TMI 301 - ITAT BOMBAY-L provided the defect is removed within the time period allowed by the Assessing Officer. It will be treated as if it is original return for all purposes. Under these circumstances we deem it proper to set aside the impugned order and restore the matter to the file of the Assessing Officer with the direction to first verify the correct status of the assessee. If the assessee turns out to be AoP as mentioned in returns filed by it then a defect memo should be issued enabling the assessee to rectify the defect by getting it signed and verified by the member or principal officer thereof as per section 140( e ).

Summary

Issues Involved:
1. Allowance of carry forward of loss under the head 'Capital gain'.
2. Validity of the return filed by the assessee.
3. Jurisdiction of CIT(A).
4. Rule of consistency.
5. Invalid vs. defective return.
6. Application of Section 292B.
7. Filing of Power of Attorney (PoA).

Detailed Analysis:

1. Allowance of Carry Forward of Loss Under the Head 'Capital Gain':
The assessee, a Foreign Institutional Investor (FII), filed its original return on 30-6-1997, showing an income of Rs. 20,52,94,830, and a revised return on 17-11-1998, showing a minor variation in income. The assessee also claimed a loss under 'Capital gain' for set off in succeeding years. The Assessing Officer (AO) found the verification of the return improper and treated it as non est, denying the claim for carry forward of the loss.

2. Validity of the Return Filed by the Assessee:
The AO noted that the verification of both the original and revised returns was not done properly, as required by Rule 12. The name of the natural person verifying the return and the name of the father/husband of such person were not mentioned. The assessee argued that the return was signed by a partner of M/s. S.B. Billimoria & Co., empowered through a Power of Attorney (PoA). The AO, however, declared the return invalid, stating that the verification was not as per statutory provisions.

3. Jurisdiction of CIT(A):
The CIT(A) upheld the AO's decision but on different grounds, stating that the PoA was not notarized and only a photocopy was filed, not fulfilling Section 140 requirements. The Tribunal noted that the CIT(A) has the power to examine the validity of the return from any angle, as his powers are co-terminus with the AO, and can confirm, reduce, enhance, or annul the assessment.

4. Rule of Consistency:
The assessee argued that returns for preceding and succeeding years were filed in the same manner and accepted by the department, invoking the principle of consistency. However, the Tribunal noted that while the principle of consistency should be followed, it cannot perpetuate an error. The rule of res judicata does not extend to income-tax matters, and each year is a separate event of assessment.

5. Invalid vs. Defective Return:
The Tribunal examined whether the returns were invalid or merely defective. The AO treated the return as invalid due to improper verification, not considering it a rectifiable defect under Section 139(9). The Tribunal highlighted that defects not covered by the Explanation to Section 139(9) could still render a return defective, not invalid. The Tribunal emphasized that Section 292B could save a return from being declared invalid due to technical defects.

6. Application of Section 292B:
Section 292B states that no return shall be invalid merely due to any mistake, defect, or omission if it is in substance and effect in conformity with the Act. The Tribunal found that the return was signed by a partner of M/s. S.B. Billimoria & Co., albeit improperly, and thus, in substance and effect, it was in conformity with the law. The Tribunal cited judicial precedents supporting the view that improper signing does not invalidate a return but makes it defective.

7. Filing of Power of Attorney (PoA):
The CIT(A) noted that the PoA was not notarized and only a photocopy was filed. The Tribunal clarified that the filing of the original PoA is required by Section 140(c), and the non-filing of the original PoA is an irregularity, not invalidating the return. The Tribunal directed the AO to provide an opportunity to the assessee to file the original PoA.

Conclusion:
The Tribunal set aside the impugned order and restored the matter to the AO to first verify the correct status of the assessee. If the status is AoP, the AO should issue a defect memo for rectification. If the status is a company, the AO should issue a defect memo for proper signing and filing of the original PoA. If defects are removed within the prescribed time, the AO should examine the claim of capital loss on merits and allow the carry forward if found correct. The appeal was allowed for statistical purposes.