1995 (4) TMI 93 - AT - Income Tax

Summary

Issues Involved:

1. Validity of income tax returns not signed by a director as per Section 140(c) of the IT Act.
2. Applicability of Section 292B to save such returns.
3. Authority of the Assessing Officer to rectify orders under Section 154 of the IT Act.

Issue-wise Detailed Analysis:

1. Validity of Income Tax Returns Not Signed by a Director as per Section 140(c) of the IT Act:

The appellant, a public limited company, filed returns for the assessment years 1987-88, 1988-89, and 1989-90 showing losses. The returns were signed by an officer of the company holding a power of attorney, not by a director as prescribed under Section 140(c) of the IT Act. The Assessing Officer issued a notice under Section 154, declaring the returns non est (invalid) due to non-compliance with Section 140(c) and subsequently canceled the assessment orders. The appellant contended that the returns were signed by authorized persons and acted upon by the Assessing Officer, arguing that the requirement of Section 140 was directory, not mandatory.

2. Applicability of Section 292B to Save Such Returns:

The appellant argued that Section 292B of the IT Act, which provides that returns in substance and effect in conformity with the intent and purpose of the Act cannot be invalidated for procedural defects, should apply. The appellant's director filed an affidavit to cure the defect in the verification of returns. The Assessing Officer and the CIT(A) rejected this contention, holding that Section 292B could not save the returns from being declared invalid due to non-compliance with Section 140(c). The CIT(A) relied on the decision of the Punjab & Haryana High Court in CIT vs. Dr. Krishnalal Goyal, which held that unverified returns are invalid.

3. Authority of the Assessing Officer to Rectify Orders under Section 154 of the IT Act:

The appellant contended that under Section 154, the Assessing Officer could only amend the order and not cancel the original order. The CIT(A) rejected this, relying on the Bombay High Court's decision in Blue Star Engg. Co. Ltd. vs. CIT, which allowed rectification under Section 154. The appellant further argued that the issue was debatable and thus not suitable for rectification under Section 154, citing the Supreme Court's ruling in T.S. Balaram ITO vs. Volkart Bros., which held that debatable issues are not subject to rectification.

Tribunal's Decision:

The Tribunal set aside the CIT(A)'s order, noting that the returns were not unverified or unfilled but signed by an officer of the company. It emphasized that the defect was cured by affidavits from the director before the order under Section 154 was passed. The Tribunal highlighted the conflicting decisions: the Cochin Bench held that Section 292B could not save an invalid return, while the Chandigarh Bench held that Section 292B could protect defective returns, and the Assessing Officer should have issued a show-cause notice under Section 139(9) to cure the defect.

The Tribunal concluded that the issue was highly debatable and not suitable for rectification under Section 154, aligning with the Supreme Court's stance in T.S. Balaram ITO vs. Volkart Bros. Consequently, the Tribunal set aside the CIT(A)'s order and upheld the assessments, allowing the appeals.

Conclusion:

The Tribunal's judgment underscores the complexity and debate surrounding the validity of returns not signed by a director and the applicability of Section 292B. It highlights the necessity for a clear and consistent legal interpretation to avoid conflicting decisions and ensure fairness in tax assessments.