2018 (5) TMI 1160 - HC - Income Tax

Defective return 139(9) - return was filed by the assessee without accompanying completed audit report and its accounts - Held that - Tribunal noted that the assessee presented the audit report only on 9.3.2000 along with what the assessee described was a revised return which was beyond the time permitted for such purpose. The Tribunal also noted that under proviso to subsection( 9) of section 139, the Assessing Officer would have the power to condone the delay in removing the defects. At no stage before the AO, before the CIT(Appeals) or before the Tribunal also, any attempt was made by the assessee to seek such a condonation. The Tribunal thus rejected the assessee s appeal on this score. This has given rise to the first question of law. Section 44AB applicability - Held that - The assessee had not furnished the audit report previously. The assessee s return was required to be accompanied by the report of the audit as referred to in section 44AB of the Act. This was clearly not done. The Assessing Officer was within his rights to raise this defect in the return and seek its rectification. The assessee failed to rectify or even failed to make out grounds why the same was not done earlier. Discretion of the Assessing Officer under the proviso to subsection( 9) to condone delay is wide enough and could be exercised even without a formal application by the assessee for such purpose. The onus would be on the assessee to atleast lay down sufficient grounds before the Assessing Officer to enable him to exercise such discretion. The record shows that the assessee made no such attempt. The Tribunal committed no error in confirming the view of the revenue authorities. This question is answered against the assessee. Excise duty tantamount to income - Held that - When the assessee evades payment of excise duty, undoubtedly, the same would be an additional element of profit on the product as compared to the one which has suffered the excise duty. This excise duty component which should have gone to the State exchequer would be an additional margin which may be shared by the purchaser and seller. In a given case, therefore, the assessee s contention that entire addition of excise duty element was not justified, may require closer examination. However, going by the total addition and the turnover through such clandestine sales, we do not find any reason to disturb the Tribunal s ultimate conclusions. Subject to above observations, this question is also decided against the Revenue. Addition u/s 69 made in respect of initial investment in unaccounted transactions - Held that - Facts on record would show that such purchases did not arise during the year under consideration. The Tribunal therefore, rightly deleted the addition in the present year. This question is also therefore, decided against the Revenue. Investment in the peak credits invoking provisions of Sec. 69 - reduction being of addition on the ground that profit earned on sales consideration would have been routed in the business for making unaccounted purchases - Held that - Tribunal did not accept the Revenue s stand in its entirety and held that income would continue to be generated through out the year and not at the end of the year alone. In absence of any other evidence, the Tribunal split the year in two parts for generation of such income and therefore believed that atleast 50% of the purchases would have been made through assessee s income for the same year and thereby slashed the addition by half. The view of the Tribunal requires no interference. Proper cogent reasons have been given. This question is also decided against the Revenue.

Summary

Issues:
1. Validity of the original return filed for A.Y. 1997-98 under section 139(9) of the Income Tax Act, 1961.
2. Treatment of excise duty as income for AY 1997-98.

Issue 1: Validity of Original Return:
The appellant, a company engaged in manufacturing excisable goods, filed a return of income for AY 1997-98 on 28.11.1997, described as provisional, declaring a loss. The Assessing Officer issued a notice questioning the incomplete report and lack of an audit report. The appellant filed a revised computation of loss on 9.3.2000 with an audit report. The Income Tax Appellate Tribunal found the return defective under section 139(9) as the audit report was submitted beyond the permitted time. The Tribunal noted the Assessing Officer's authority to treat the return as invalid if defects are not rectified within the specified period. The appellant failed to seek condonation of the delay, leading to the rejection of the appeal. The Tribunal's decision was upheld as the appellant did not comply with the requirements under section 139(9).

Issue 2: Treatment of Excise Duty as Income:
The Assessing Officer, after declaring the return invalid, estimated excise duty on unrecorded purchases, adding it to the appellant's income. The Tribunal partially allowed relief by applying a profit rate on unrecorded purchases but upheld the addition of excise duty evasion as income. The Tribunal reasoned that without evidence proving non-recovery of excise duty from buyers, the addition was justified. The Tribunal's decision was challenged, arguing against the addition of excise duty as undisclosed income. The Court noted that in cases of clandestine sales, only the profit element is added unless proven entirely bogus. The Court upheld the Tribunal's decision, stating that the excise duty component would be additional profit shared by buyer and seller. The Court found no reason to disturb the Tribunal's conclusion on the excise duty addition, ruling against the Revenue.

Conclusion:
The Court dismissed both tax appeals, upholding the Tribunal's decisions on the validity of the original return and the treatment of excise duty as income for AY 1997-98. The Court found no merit in the Revenue's contentions and upheld the Tribunal's reasoning in both issues.