1996 (9) TMI 82 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the revised return filed by the assessee under section 139(5) after the draft assessment order was sent to the Inspecting Assistant Commissioner under section 144B.
2. Impact of the revised return on the period of limitation for completing the assessment under sections 144B and 153(1) of the Income-tax Act, 1961.
3. Whether the Income-tax Officer (ITO) was justified in not considering the revised return on the ground of being functus officio.

Issue-wise Detailed Analysis:

1. Validity of the Revised Return Filed by the Assessee Under Section 139(5):

The assessee filed its original return on August 26, 1974, and a revised return on August 27, 1977, before the completion of the assessment on September 26, 1977. The ITO forwarded a draft assessment order under section 144B on March 23, 1977, which the assessee received on March 29, 1977, and filed objections on April 4, 1977. The Tribunal held that the revised return filed before completing the assessment should have been considered by the ITO. The ITO should have brought the revised return to the notice of the Inspecting Assistant Commissioner. The Tribunal set aside the assessment made by the ITO based on the original return.

2. Impact of the Revised Return on the Period of Limitation for Completing the Assessment:

Learned senior standing counsel for the Department argued that considering the revised return would affect the period of limitation for completing the assessment, as per section 153(1)(a)(iii) and Explanation 1(iv). However, the Tribunal found that the revised return was filed within the permissible period, extending the limitation period by one year from the date of filing the revised return. The revised return was filed on August 27, 1977, and the one-year period would expire on August 27, 1978. Thus, the revised return was filed within the period of limitation for completing the assessment.

3. Whether the ITO Was Justified in Not Considering the Revised Return on the Ground of Being Functus Officio:

The ITO declined to consider the revised return, claiming functus officio status after sending the draft order to the Inspecting Assistant Commissioner. However, the Tribunal held that the draft order under section 144B is not a final assessment order. The final assessment is completed only after receiving directions from the Inspecting Assistant Commissioner. The Tribunal concluded that the ITO should have considered the revised return filed before completing the assessment.

Conclusion:

The Tribunal's decision to set aside the ITO's assessment and direct a reassessment considering the revised return was upheld. The revised return filed under section 139(5) before the final assessment should be considered, and it does not affect the period of limitation for completing the assessment. The Tribunal's order was affirmed, and the question referred was answered in the affirmative and against the Department. No costs were awarded.