2009 (4) TMI 71 - HC - Income Tax

Whether the revised return effaces and substitutes the original return and whether the petitioner could be termed as an assessee in default, on the basis of the original return - Revenue treated the petitioner as an assessee in default and attached the bank accounts and issued garnishee notices HELD that assessment should be completed within a time frame - In the meantime, the order of attachment of the receivables and the garnishee notices may continue to remain in force, in respect of all the debtors, except the banks - petitioner is permitted to operate the bank accounts and utilise the overdraft facility subject to the condition that there will be a first charge for the Department

Issues Involved:
1. Validity and effect of the revised return filed under Section 139(5) of the Income Tax Act, 1961.
2. Legality of treating the petitioner as an "assessee in default" under Section 140A(3).
3. Justification for the attachment of bank accounts and issuance of garnishee notices under Section 226(3).
4. Rights and obligations of the petitioner and the Assessing Officer regarding the revised return and subsequent actions.

Issue-wise Detailed Analysis:

1. Validity and Effect of the Revised Return:
The petitioner filed a revised return on 6.3.2009 under Section 139(5), claiming prior period losses and reducing the tax liability significantly. The petitioner argued that the revised return substitutes and obliterates the original return. The court referenced several cases, including *Amjad Ali Nazir Ali vs. CIT* and *Commissioner of Income Tax vs. Mangalore Chemicals and Fertilizers Ltd.*, which supported the view that a revised return, if valid, replaces the original return. However, the Department cited cases like *Deepnarain Nagu vs. Commissioner of Income Tax*, where revised returns were rejected due to changes in accounting systems or lack of bona fide errors. The court noted that the revised return must be filed within the prescribed time and should correct omissions or wrong statements. Since the assessment was not yet completed, the revised return filed by the petitioner was within the time limit and thus valid under Section 139(5).

2. Legality of Treating the Petitioner as an "Assessee in Default":
The petitioner was initially treated as an assessee in default based on the original return filed on 30.9.2008, under Section 140A(3). The court highlighted that under Section 140A(1), tax must be paid before furnishing the return, and failure to do so results in the assessee being deemed in default. The court referenced *Commissioner of Income Tax vs. Shelly Products and Another*, which clarified that the liability to pay tax arises upon filing the return, not upon assessment. Thus, the petitioner was correctly treated as an assessee in default from 30.9.2008 to 6.3.2009, when the revised return was filed.

3. Justification for Attachment and Garnishee Notices:
The Department issued attachment orders and garnishee notices based on the original return's tax liability. The court pointed out that the revised return, if valid, changes the admitted tax liability. The court criticized the Department's stance of not accepting the revised return and continuing with the attachment without a proper assessment. The court emphasized that the Assessing Officer should either accept or reject the revised return through a formal assessment process. The court also noted that the petitioner was not given the normal facilities for payment extensions or installments under Sections 156, 220, 222, and 226.

4. Rights and Obligations Regarding the Revised Return and Subsequent Actions:
The court observed that the Assessing Officer had not yet completed the assessment or formally rejected the revised return, which raised concerns about the continued attachment and garnishee notices. The court directed the Assessing Authority to complete the assessment within six months and allowed the petitioner to operate bank accounts, subject to the Department's first charge on receipts, excluding overdraft amounts. The court acknowledged the petitioner's apprehensions about the impartiality of the Assessing Officer but refrained from issuing specific directions, leaving it to the officer's best judgment and conscience.

Conclusion:
The court disposed of the writ petitions with specific directions to complete the assessment within six months, continue the attachment and garnishee notices for non-bank debtors, and allow the petitioner to operate bank accounts with conditions. The court emphasized the need for a fair assessment process and the importance of balancing the interests of both parties.

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