2018 (9) TMI 1630 - HC - Income Tax

Rejection of revised return - entitlement to file a revised return - whether claim of loss of stock of time expired soft drinks and bad debts made in the revised return are within the parameters of Section 139(5) and also in view of the provisions of Section 143(2)? - Held that - The Proviso states that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed but before the assessment is made the Assessing Officer may condone the delay and treat the return as a valid return. Sub-Section (9) of Section 139 of the Act is a beneficial provision to the assessee which provides them an opportunity to rectify the defects. Since the intention being that the assessment proceedings are an outcome of dialogue and discussion the Assessing Officer is entitled to clarify all issues by issuing notice to the assessee and calling upon them to produce documents and explain their books of accounts etc. Unfortunately in the instant case such procedure was not adopted when the revised return was rejected at the very threshold which in our considered view ought not to have been done. For the above reasons on the peculiar facts and circumstances of the case we find that the assessee had not been given an opportunity as contemplated under Sub-Section (9) of Section 139 of the Act and therefore we deem it proper to remand the matter to the Assessing Officer to redo the assessment after giving an opportunity to the assessee in terms of Section 139(5) of the Act to rectify the defects which have been pointed out by the Assessing Officer in the assessment order. As the Revenue points out that it is not clear as to whether the bad debts which were sought to be written off by the assessee were in fact written off in the subsequent year.This issue can also be considered by the Assessing Officer while taking up the assessment afresh in terms of the above direction. Decided in favour of the assessee and the matter is remanded to the Assessing Officer to redo the assessment after giving an opportunity to the assessee to rectify the defects in the revised returns dated 24.5.1999

Summary

Issues:
1. Appeal filed by Revenue against ITAT order.
2. Acceptance of revised return by the assessee.
3. Rejection of revised return by Assessing Officer.
4. Claim of loss of stock and bad debts in revised return.
5. Compliance with Section 139(5) of the Income Tax Act.

Analysis:

1. The appeal before the Madras High Court was filed by the Revenue against the order of the Income Tax Appellate Tribunal (ITAT) dated 04.5.2007. The appeal was admitted based on the substantial question of law regarding the acceptance of the revised return filed by the assessee for the assessment year in question.

2. The main issue for consideration was whether the revised return filed by the assessee could have been refused to be accepted by the Assessing Officer. In the revised return, the assessee reduced the value of closing stock and increased administrative costs. The Assessing Officer found discrepancies and rejected the claims made in the revised return.

3. The Assessing Officer rejected the changes in the revised return as not supported by the tax audit report. The officer also found fault with the assessee for not filing the tax audit report along with the revised returns. The claim for reduction in closing stock and bad debts was deemed inadmissible by the Assessing Officer.

4. The Commissioner of Income Tax (Appeal) and the ITAT upheld the decision of the Assessing Officer, leading to the appeal before the High Court. The High Court analyzed the provisions of Section 139(5) of the Income Tax Act, which allows an assessee to file a revised return within a specified timeframe.

5. The High Court observed that the assessee had filed the revised return within the stipulated period under Section 139(5) of the Act. However, the Assessing Officer did not follow the procedure outlined in Section 139(9) to intimate the defects in the return and provide an opportunity to rectify them. The Court emphasized the importance of allowing the assessee to rectify defects before rejecting the revised return.

6. Consequently, the High Court remanded the matter to the Assessing Officer to redo the assessment after giving the assessee an opportunity to rectify the defects in the revised returns. The Court highlighted the beneficial nature of Section 139(9) which provides an opportunity for rectification and dialogue between the assessee and the Assessing Officer.

7. The High Court allowed the tax case appeal, answered the substantial question of law in favor of the assessee, and directed the Assessing Officer to reconsider the assessment after providing the necessary opportunity to rectify the defects. The issue of bad debts was also directed to be considered during the reassessment process.