2016 (12) TMI 53 - AT - Income Tax

Unpaid Provision of leave encashment - revised return filed by assessee - Held that - The claim made by the assessee ought to have been examined on merit and not shut-out in a superficial manner. Obviously, the claim of the assessee is based on the fact that there is an error in the reporting of the unpaid Provision for leave encashment in the audit report but the claim has been rejected without subjecting it to any kind of verification. Under these circumstances and considering that the revised return filed on 13/10/2005 was within the period prescribed under section 139(5) of the Act and that the original return was filed within the period prescribed under section 139(1) of the Act, the Assessing Officer was bound to take cognizance of the revised return filed on 13/10/2005 and consider the plea of the assessee on merits having regard to the material sought to be relied upon by the assessee before him. On the failure of the lower authorities to do so, we deem it fit and proper to set-aside the order of the CIT(A) and direct the Assessing Officer to take cognizance of the third revised return filed on 13/10/2005 and consider the plea of the assessee relating to the unpaid Provision of leave encashment on merits having regard to the material that the assessee seek to rely before him.

Issues Involved:
1. Validity of the third revised return filed under section 139(5) of the Income Tax Act, 1961.
2. Addition under section 145A of the Income Tax Act, 1961.
3. Consideration of the third revised return by the Assessing Officer.

Issue-Wise Detailed Analysis:

1. Validity of the Third Revised Return Filed Under Section 139(5) of the Income Tax Act, 1961:
The primary issue in the appeal was whether the third revised return filed by the assessee on 13/10/2005 was valid and should have been considered by the Assessing Officer. The original return was filed on 01/11/2004, and subsequent revised returns were filed on 09/08/2005, 24/08/2005, and 13/10/2005. The third revised return declared a total income of ?3,87,76,433/-, correcting an earlier error regarding the provision for leave encashment. The Assessing Officer finalized the assessment based on the second revised return, ignoring the third revised return. The CIT(A) upheld this decision, citing the absence of an auditor's note with the third revised return. However, the Tribunal held that the Assessing Officer is bound to consider a revised return filed within the period stipulated under section 139(5) of the Act. The Tribunal found the CIT(A)'s rejection of the third revised return on technical grounds to be untenable and directed the Assessing Officer to consider the third revised return and the merits of the assessee's claims.

2. Addition Under Section 145A of the Income Tax Act, 1961:
The second issue involved an addition of ?1,34,88,803/- made by the Assessing Officer under section 145A of the Act. This addition arose in an assessment finalized as a consequence of an order passed by the CIT under section 263 of the Act. The Tribunal noted that the total income adopted by the Assessing Officer in the impugned order was ?5,83,71,664/-, computed in the assessment order dated 14/12/2006, which ignored the third revised return. Since the Tribunal had already directed the Assessing Officer to consider the third revised return, this issue was remanded back to the Assessing Officer for fresh consideration in light of the revised return and the explanation provided by the assessee.

3. Consideration of the Third Revised Return by the Assessing Officer:
The Revenue's cross-appeal contested the CIT(A)'s direction to the Assessing Officer to compute the income as per the third revised return, arguing that the third revised return was invalid due to improper signature of the Director on the tax audit report. The Tribunal dismissed the Revenue's appeal, reiterating that the third revised return was filed within the permissible period under section 139(5) and should be considered by the Assessing Officer. The Tribunal emphasized that the Assessing Officer must examine the merits of the claims made in the third revised return, including the alleged error in the provision for leave encashment, and pass a fresh order after allowing the assessee a reasonable opportunity of being heard.

Conclusion:
The Tribunal allowed the assessee's appeals, directing the Assessing Officer to take cognizance of the third revised return filed on 13/10/2005 and to consider the merits of the claims made therein, including the unpaid provision for leave encashment. The Revenue's appeal was dismissed. The Tribunal remanded the matter back to the Assessing Officer for fresh consideration of the addition under section 145A of the Act, in light of the revised return and the assessee's explanations. The order was pronounced in the open court on 25/11/2016.

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