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TMI Blog1983 (2) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... rved it on 19-11-1977 long before the return alleged to be the voluntary return, furnished by the assessee. If section 148 notice, therefore, is a valid and proper one, the department may get time till 31-3-1982. About the validity and propriety of section 148 notice the case of the assessee as stated in ground Nos. 5 and 6 is follows : "5. The Appellate Assistant Commissioner failed to appreciate that notice under section 148 could be issued only after 31-3-1979 and, therefore, the notice issued on 17-11-1977 was bad in law, null and void and consequently the entire reassessment proceedings were without jurisdiction. 6. The Appellate Assistant Commissioner further failed to appreciate that it was premature on the part of the Income-tax Officer to issue notice under section 148 on the ground of failure to file the return since the appellant had time to file the return under section 139(4) till 31-3-1979." 3. This is a case where the department has not issued section 139(2) notice. As regards section 139(1) the assessee has made the applications for extension on the following dates : On 30-6-1976 praying time up to 31-12-1976 On 30-12-1976 praying time up to 28-2-1977 On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed within time, the ITO cannot ignore it and has to make a regular assessment on that return and cannot thereafter resort to a notice under section 147(a) on the ground that there is omission or failure to file a return and that the income has escaped assessment. 6. The argument of the assessee is that income will begin to escape assessment only after all possibilities of bringing it to assessment are over. On this question raised by the assessee, there is no text or authority either way. The essence of the submission and the main tenor of the argument is that on 17-11-1977, the assessee can upto 31-3-1979 furnish a return and the ITO can effectively bring it to assessment, so that there is on that day and till 31-3-1979 no question of any escapement of income from assessment. It is not as if the argument of the assessee is that section 147 or section 148 begins to operate only with effect from the date of the expiry of the limitation on 31-3-1979. In cases where the assessments are completed before 31-3-1979, income will escape from the date of such assessments and in such cases notices can be issued even before 31-3-1979. It is only in the case of omission or failure to furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded. Though no time-limit for issue of section 22(2) notice is seen provided in 1922 Act, it appears that it is established law that the time for issue expires by the end of the assessment year. So the officer cannot make an ex parte best judgment assessment. The ITO then under the 1922 Act, has four more years before him from 31-3-1977 for limitation to expire on 31-3-1981. If the argument that section 34(1)(a) on the ground of omission or failure to file a return can be intimated only after 31-3-1981, as is now argued by the assessee, is accepted, then for these four years the ITO has no method to bring the income to assessment. He is only to keep quiet. Section 22(3) provides that the assessee may file a return at any time before the assessment is made. Though no assessment is possible in this case, the assessee can take advantage of this provision and file a false return on the last day of the limitation or few days prior to it, in which event the ITO will be driven to complete the assessment in haste within a few hours or days or, if defaulted, loose the right to initiate section 34(1)(a) proceedings because it is settled law that after a return is filed in the last moment, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 itself. He can take his own time up to one year. So under the scheme of 1961 Act, it cannot be said that income has, prior to 31-3-1979, escaped assessment unless it be a case where the best judgment assessment had been completed even prior to 31-3-1979, because upto 31-3-1977 there are definite fool-proof method of making effective assessments. For instance, upto 31-3-1977 the ITO can issue section 139(2) notice and proceed to make best judgment assessments. After 31-3-1977, the officer can wait till 31-3-1979 for voluntary return under section 139(4) and if the same is furnished, make an effective assessment within one year or 31-3-1979, whichever is later. So when possibilities of making effective assessments are there, which were not there in 1922 Act, it is not possible to say till all such possibilities are exhausted that income had escaped assessment. So this is only a case of income which has not been till then assessed and not a case of income escaping assessment. The observations of the Courts in the two cited cases are of no assistance to consider the case under the 1961 Act. 9. The expression 'fail' appearing in section 147(a) refers to sections 139(1) and 139(2) de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal. That the question of sufficiency or insufficiency will not be gone into and only the total absence will be taken into consideration is a proposition laid down for the purposes of writ jurisdiction of High Courts. If an appellate authority is deprived of that power to examine the sufficiency or insufficiency, it ceases to be an appellate authority and the proceedings lose all its characteristics of appeal. The assessee had asked for time till 30-11-1977. So on 30-11-1977, the assessee may file a return and the ITO can make a perfect and satisfactory assessment. The refusal of time by the ITO on 17-11-1977 is only relevant to the fact that the assessee may have to suffer penalty for late filing. Why should it be thought that the assessee will not file return within the time asked for ? So in that aspect also this is a case where a reasonable man on the materials before him would not have come to the conclusion that income has escaped assessment. It would amount to arbitrariness and recklessness if such a presumption that assessee will not file a return and income has escaped assessment is drawn on the basis of circumstances present in the case. 11. It has also got to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts being made or the period of two years time by which time the limitation of assessment expires. If it is the intention of the Parliament to deprive the rights of assessees who have been served with notice under section 148 of this concessional right, it could have been specifically provided in section 139(4). The omission to expressly provide it is indicative of the fact that the scheme of 1961 Act is to initiate such action under section 147(a) on the ground that income has escaped assessment because of omission or failure only after 31-3-1979, the date on which the period of limitation expires. 13. So for these reasons it has to be held that section 148 notice issued on the basis of income escaping assessment on account of omission or failure to furnish the return is not proper and regular and it is invalid. It, therefore, follows that assessment is time barred. On this question it is, therefore, held in favour of the assessee that the assessment is time barred. 14. (2) Petrol Bunk---Addition of Rs. 23,169---or any part of it proper - The assessee estimated the net income at 75 per cent of the turnover. That worked out to Rs. 8,390 which was the returned income. The ITO on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce, if there is agreement on merits. It is, however, the assessee's case that the assessment itself is time barred. Apparently, the assessee disputes liability even on the undisputed income. It is because of this, that the question of submission has assumed importance. I find it difficult to persuade myself that the assessment is time barred. My reasons for a different conclusion on this issue are based on inferences on facts and view of law stated in the immediately succeeding paragraphs. 2. The assessee who has income from property and business in passenger and lorry transport had been having taxable income in the past. The assessee asked for time for filing return for the assessment year 1976-77 on 30-6-1976 till 31-12-1976. The ITO allowed time till 30-11-1976 and intimated the fact by a card despatched on 5-11-1976. The ITO took no further action after 30-11-1976 to follow up his rejection of time. The assessee, on whose behalf it is stated that the communication of rejection was not received, also did not file the return either within time allowed by the ITO or even the time initially asked for by him. He asked on 31-12-1976 for further time up to 28-2-1977, on 28-2-1977 ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion or failure on the part of the assessee to furnish a return under section 139." 3. I am of the view that in this case where no accounts were maintained and time was repeatedly asked for from time to time and when past records indicated that the assessee had taxable income with no circumstances to suggest that the position was different for this year, the ITO could not be stated to have had no grounds for presuming that there was escapement of income so as to justify jurisdiction under section 147(a). There was an omission or failure to file a return. A mere promise to file a return does not make the omission or failure any the less real. In fact, the circumstances, detailed in the preceding paragraph would show that it is not reasonable to expect the ITO to wait any longer on such indefinite promises when records indicate that the request was bound to be repeated without any positive or particular fact to support such a request. No doubt, the assessee has a right under section 139(4) to file a return at any time before the assessment is made. But that does not mean that such a concession would debar the ITO from initiating action under section 148 if the conditions for such in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 148 is not the same as of section 139 but that, in my view, would not make any difference to the conclusion that a notice under section 148 does not become bad merely because it is possible that the assessee may exercise his right under section 139(4). The Madras High Court in K. C. Vedadri v. CIT [1973] 87 ITR 76 held that penalty under section 271(1)(a) for a delayed return may be exigible notwithstanding the fact that the statute permits filing of return under section 139(4) within a larger outer limit of time. The Gujarat High Court in Addl. CIT v. Santosh Industries [1974] 93 ITR 563, the Calcutta High Court in Narandas Paramanand Das v. ITO [1975] 98 ITR 453 and the Andhra Pradesh High Court in Poorna Biscuit Factory v. CIT [1975] 99 ITR 41 had independently come to the same conclusion that the 'right' under section 139(4) did not in any way whittle down the assessee's obligation to file the return and get penalised for the delay. A Full Bench of the Orissa High Court in CIT v. Gangaram Chapolia [1976] 103 ITR 613 while agreeing with the Madras High Court view in K. C. Vedadri and the Gujarat High Court view in Santosh Industries, repeated that section 139(4) conferred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. If the ITO had validly assumed jurisdiction, it does not cease to be so for purposes of time-limit. Section 153(2) of the Act, allows four years from the end of assessment year in which the notice under section 148 was served. The assessment is made on 14-2-1980 while the notice was served on 19-11-1977. Hence, it is in time. Section 153(1)(c) on which the assessee relies allows one year more in case of a return or revised return filed under section 139(4) or (5) over and above the normal time-limit under section 153(1)(a). Actually return under section 139(4) and proceedings under section 147(a) are not mutually exclusive. A return filed beyond time allowed under section 148 notice could still be a return under section 139(4) read with section 1408. Even otherwise neither section 153(1)(a) nor (c) in my opinion will apply to the assessee's case as section 153(2)(a) is a special provision which will over (sic) Vide provisions of section 153(1) even if such provisions were also applicable. 5. I am, therefore, of the view that the assessment is in time and it has to be upheld subject to reliefs already allowed by the first appellate authority and further relief of Rs. 23,169 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention is that the return filed on 14-2-1980 is a return filed under section 139(4) and, therefore, the assessment made on 14-2-1980 is barred by limitation. But the department's contention is that the return was filed, though marked as 'section 139 return', only after the issue of the notice under section 148 and in response to that notice and that fact was proved by the further fact that notice under section 148 was served on the assessee and the assessee had thereafter asked for time twice and if the return is to be taken as a return filed under section 148, the time to complete the assessment is available to the department up to 31-3-1982 and, therefore, the assessment made was well within time, and was not time barred. So the question is whether the return is to be taken as one filed under section 139(4) or whether it was in pursuance of a notice issued under section 148. The ITO rejected the contention of the assessee and held that the return filed was only in response to the notice issued under section 148 and not under section 139(1). He completed the assessment by computing the income at Rs. 99,180 with which I am not concerned in the present reference. 4. On appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or under section 139(4) is over it would be speculative or conjucture to hold that income has escaped assessment so as to confer upon the ITO jurisdiction to invoke the provisions of section 148. 6. The learned Accountant Member, on the other hand, held that the notice under section 148 had been validly issued, that the return filed subsequent to the issue of notice under section 148 should be treated as one in response to the same, even if it was chosen to be styled as voluntarily made and purportedly under section 139(4). He held that the fact whether the assessee had knowledge of the refusal of time for filing the return of income is not relevant but what is relevant was the service of notice under section 148 and the submission of the return thereafter. He was also of the opinion that once the ITO had knowledge that the assessee had taxable income on the basis of his past assessment records, and if the assessee had not filed the return of income even after repeated refusals of the time applied for, that would enable the ITO to form an opinion that the assessee had taxable income and that income had escaped assessment which was sufficient to confer jurisdiction upon the ITO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssued under section 148 and consequently the assessment made on 14-2-1980 was time barred. 8. The learned departmental representative by taking me through the Finance Minister's speech and clause 53 of the Memorandum of Finance Bill, 1968 submitted that accepting the arguments advanced on behalf of the assessee would render the ITO powerless to make an assessment if the assessee had not filed his return of income and that was never the intention of the scheme of the Act. 9. Under section 139(4) a return could be furnished before the assessment is made, which means completion of the assessment. No assessment could be completed unless a return had been filed under section 139(1) or by issue of a notice under section 148. Therefore, the use of the expression 'before the assessment is made' in section 139(4) necessarily contemplates the issue of notice under section 148 and it is no argument to say that section 139(4) puts the power of the ITO under section 148 in cold storage till the time allowed under that section had been exhausted. 10. On a careful consideration of the contentions and the relevant provisions of law, I think the better view is that expressed by the learned Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... file a return which I call under sub-section (3). Sub-section (4) enables an assessee who has not furnished a return within the time allowed to him under sub-section (1) or sub-section (2) but before the assessment is made, to furnish return of any previous year before the end of two years from the end of the each assessment year. This is the return which is now in dispute and this I call the fourth return. The fifth return is a revised return, i. e., if a person who has filed a return under sub-section (1) or (2) discovers any omission or wrong statement, he may furnish a revised return at any time before the assessment is made. Thus under section 139 five returns under different circumstances could be filed. Section 147 states that if the ITO has reason to believe that by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year income chargeable to tax has escaped assessment, he may assess or reassess such income as the case may be. Now the ITO to assume jurisdiction under section 147 must have reason to believe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 in the sense that income chargeable to tax cannot be said to have escaped assessment, failure to comply with sub-sections (1) and (2) certainly invites the application of section 147. Therefore, when section 147 uses the expression 'to make a return under section 139' it means that if the assessee had failed or omitted to make a return under sub-section (1) or (2), the income chargeable to tax is said to have escaped assessment for that year and that would vest in the ITO a power to issue a notice under section 148 because he then has reason to believe that income chargeable to tax has escaped assessment. Therefore, what is to be seen is whether sub-section (4) of section 139 can be interpreted in a manner, as prolonging the statutory time to file a return of income so as to say that during that period of prolongation there was no escapement of income. As I have said earlier, sub-section (4) can be used by the assessee only when the conditions stated therein are satisfied. The first condition stated there is that a return must not have been filed within the time allowed either under sub-section (1) or (2). The second condition is that the furnishing of the return must be befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord, the ITO has reason to believe that the assessee had income chargeable to tax and by reason of not filing a return of income that income had escaped assessment. 12. Since sub-section (4) of section 139 has only conferred a right upon an assessee to file a return of income if he had failed to comply with the notices issued under sub-sections (1) and (2) of section 139, that cannot be read as putting a fetter upon the powers of the ITO to invoke section 147 only because the time allowed under sub-section (4) has not expired. This contention perhaps can find substance if only the failure to make a return under sub-section (4) of section 139 can also be regarded as a failure attracting the application of section 147. Since a right has been conferred upon an assessee, which is not equal to the liability under sub-sections (1) and (2), the non-availing of that right cannot be said to have resulted in a failure on the part of the assessee to make a return because the assessee may or may not choose to file a return. Since this is an option given to the assessee to file a return, it cannot be said that the time allowed for availing of that option has, simultaneously, resulted in takin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... served on the assessee. All that was said by the Bombay High Court was that intimation of refusal must be given which was done in this case. If the intimation had not reached the assessee, we do not think it is proper to blame the ITO. The ITO has passed orders refusing time on the application asking for time and when the refusal has been communicated by means of a post card to the address given in the records, then intimation must be deemed to have reached the assessee. If it has not reached the assessee, I don't think that there is a further obligation on the part of the ITO to secure the service of the intimation. After the notice under section 148 had been served the assessee asked for time twice and on both the occasions time does not seem to have been granted. Even if no orders on the application made on 31-1-1978 had been passed still refusal of time on 31-1-1978 should have put the assessee on guard that time asked for had been refused. It cannot thus be said that the assessee has not been put on guard of the intention of the ITO so as to enable him to make arrangements and meet the consequence of the refusal of extension of time asked for and the issue of notice under sect ..... 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