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TMI Blog1953 (9) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... 11th April, 1940,) reads as follows:- "Mr. Venkataramiah, the managing director, attends in response to a notice under Section 23(2). The audited statement of accounts had already been filed and scrutinized. The company is floated to help the producers to market their goods. The company received the produce on consignment from the producers on which they have arranged to pay through banks 75% advance. The company charges commission ranging from 6 to 10% on sales effected by them. The income is computed as follows:- Profit as per the P/L account ₹ 781-0-0 Less Depreciation allowed on furniture ₹ 1,227 at 6% ₹ 72-0-0 Total income ₹ 709-0-0 Assessed under Section 23(3) as per I.T. 30. Issue N.D. (Notice of Demand)." 4. In connection with the assessment year 1940-41 a notice under Section 34 of the Act was issued, but it was subsequently cancelled as in the opinion of the Income-tax Officer nothing had escaped assessment. 5. For the assessment year 1941-42 (year of account 12th April, 1940, to 11th April, 1941,) the Income-tax Officer wrote as follows:- "The business of the company is to sell groundnut seeds, etc., mostly to foreign ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11,078. The Income tax Officer deducted therefrom ₹ 5,015 as commission not accrued. He then made certain adjustments and computed the income at ₹ 6,315. 8. We now come to the assessment year 1943-44. The year of account was considered to be 1st January, 1942, to 31st March, 1943. In the course of the assessment order for the year 1943-44 the Income- tax Officer wrote as follows:- "The audited statements of accounts for the above period have been submitted. They have been scrutinized and further details asked for have been duly furnished. The company has not done any business during this period excepting one or two shipments. The company had included in accounts in the previous year commission which was not actually earned. It was, therefore, not considered for assessment purposes. The company has consequently reversed the same during the period under consideration. The amount thus adjusted to profit and loss account is ₹ 6,935 which will be deducted from the loss while computing the income of the company." The loss as per the profit and loss account for the year 1943-44 amounted to ₹ 20,671. The Income-tax Officer computed the loss at ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income of the company as Nil and exempt it under Section 23(3) for 1945-46." For the assessment year 1945-46 the assessee company returned a loss of ₹ 15,654. 11. We now come to the assessment year 1946-47. The year of account was held to be from 1st April, 1945, to 30th September, 1945. The Income-tax Officer making the assessment wrote as follows:- "As stated in the assessment order for 1945-46, the company has prepared accounts for fifteen months from 1st July, 1944, to 30th September, 1945, and the next accounts have been prepared for the twelve months from 1st October, 1945, to 30th September, 1946. A copy of these accounts has been submitted. 2. For assessment year 1945-46 the period from 1st April, 1944, to 31st March, 1945, was considered as the previous year. Consequently, the next period from 1st April, 1945, to 30th June, 1945, (should be 30th September, 1945), is considered as the previous year for assessment year 1946-47. Mr. Varerkar of M/s. J.K. Parulekar and Co., who attended on behalf of the company and submitted its return of income, has agreed to this period being taken as the previous year. 3. It is stated that as in the period from 1st Apr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return after deducting the accumulated losses of the earlier years should be the basis of assessment for the year under reference. It is explained to him that from the assessable profits of the year under reference allowance can only be made for the losses for the preceding six years as ascertained and determined by the department under Section 24. That being the case, the claim can only be adjusted in respect of ascertained losses from the assessment year 1942-43 onwards. It is further seen that of the 5 contracts undertaken by the company four were completed. The commission due and receivable (but realised in the subsequent period) amounted to ₹ 1,07,460. The company has however taken credit to the profit and loss account for ₹ 1,00,900 only, the balance of ₹ 63,560 is given credit in the subsequent year. Since the company is maintaining accounts on mercantile system, the balance of ₹ 6,560 also required to be considered in the year under reference. The assessment position, in view of the above facts, is ascertained as under:- Net profit as per profit and loss account. ₹ 72,642 Add: Commission due and receivable for the year under reference but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issued to the company, viz., that the company was not able to do any business during the relevant period. The assessment orders determining the result as "nil" have to be taken to mean that the Income-tax Officer has determined the result as neither loss nor income. The appellant should have filed appeals against the Income- tax Officer's orders in the respective years as provided by the Act if it wanted the losses as disclosed by its balance sheets to be accepted and carried forward. It has not done so. The Income-tax Officer has now no powers to vary the assessment orders of previous years which have already become final by re-determining the results of previous years as urged by the appellants. This may be a hard case, but it cannot be held that the Income-tax Officer has erred in law in not setting off ₹ 68,049 as losses of previous years as urged by the appellant and in setting off only ₹ 23,648 as accumulated losses of earlier years as already determined by him in previous assessments in the respective years. The cases relied upon by the appellant have no bearing for deciding the point in issue." 15. The assessee company then appealed to the Ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sought to set off loss which it had incurred in the previous years under Section 24(2) of the Income-tax Act. The taxing authorities permitted the assessee company to set off the loss in respect of certain years but disallowed the claim with regard to the years 1944-45, 1945-46 and 1946-47, and it is in respect of this refusal on the part of the taxing authorities to grant the relief sought by the assessee company that the question has been submitted to us for our decision. It appears that in the assessment year 1944-45 the assessee incurred a loss of ₹ 16,925, and they made a return to that effect, and the Income-tax Officer passed an order that he took the income of the company as "nil" and exempted it under Section 23(3). It is difficult to understand how the company was exempted under Section 23(3) because Section 23(3) is not a section dealing with exemption but with assessment itself. What the Income-tax Officer really meant was that as the assessee company had made no profit, on the contrary it made loss, the company's income could not be assessed to tax. The same was the position in 1945-46. In that year the assessee company returned a loss of ₹ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovides how and when the Income-tax Officer should compute the loss and how he should communicate that loss to the assessee. But the most surprising contention is put forward by the department that because their own officer failed to discharge his statutory duty the assessee is deprived of his right which the law has given to him under sub-section (2) of section 24. In other words the department wants to benefit from and wants to take advantage of its own default. It is an elementary principle of law that no person, we take it that the Income-tax department is included in that definition, can put forward his own default in defence to a right asserted by the other party. A person cannot say that the party claiming the right is deprived of that right because "I have committed a default and the right is lost because of that default." Now, Sir Nusserwanji has argued that the order of the Income-tax Officer has become final inasmuch as no appeal was preferred against that order. We fail to understand which is the order of the Income-tax Officer which has become final. All that the Income-tax Officer says is "Income nil", and he says that in order to come to a decisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of the assessee at "nil" and having come to the conclusion that the assessee was not liable to pay tax, in all solemnity he proceeded to issue a notice under Section 29 in respect of a nonexistent tax. We have seen the notices and the whole body of the notice is struck off except this cryptic statement that "You have been exempted from paying tax under Section 23(3)" and the precious right of appeal is left to the assessee against this decision because para. 7 of the notice which deals with "appeal" has not been struck off. Whichever way one looks at the matter, it is difficult to understand how the department could possibly have taken up the stand which it has done in this case. The Appellate Assistant Commissioner's order on which Sir Nusserwanji strongly relies says this:- "The assessment orders determining the result as 'nil' have to be taken to mean that the Income-tax Officer has determined the result as neither loss nor income." When the loss was actually submitted in the return at a certain amount, when the Income-tax Officer has not computed what the loss is, when all that the Income-tax Officer says is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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