9911796707
TMI Blog1984 (8) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... sponse thereto'. This disclosed a total income of Rs. 14,520. The ITO noticed with reference to the books that had been kept by the assessee, i.e., 'Bota-khata' (seized at the time of survey) and loose sheets comprising pages 1 to 38 (also seized) that a complete verification of the trading done this year was not possible. He listed various defects in this regard. He concluded that the assessee had suppressed sales to the extent of Rs. 87,000. He then estimated the total sales at Rs. 6,07,390 and applied a flat rate of 12 1/2 per cent as gross profit. This assessment, made under section 147(a) of the Act, resulted in an addition of Rs. 23,885. The assessee appealed. 4. Before the AAC, it was pointed out that the ITO had estimated the total sales on the basis of the loose sheets impounded by the department ; and that these sheets had been relied upon by the ITO without further verification. For example, sales for the assessment year 1973-74 (the year in appeal) as per books were Rs. 5,20,390. As against this, the ITO recorded that the total sales for the year as per the loose sheets amounted to Rs. 6,07,390. It was explained for the assessee that the above discrepancy was on accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1974-75) was excessive and should be reduced. For the revenue, Shri A. Suryanarayana Rao strongly supported the order of the AAC. He referred to the background in which the assessments came to be made, i.e., after a survey under section 133A and discovery of adverse material. According to him, the gross profit estimate ordered by the AAC was quite reasonable and should be supported. 7. We find that the only dispute before us is with regard to the estimate of gross profit. If books of account had been kept in a verifiable manner, i.e., purchases and sales being supported by vouchers and bills and a proper stock tally being available, then it would have been for the ITO to show that the margin of profit disclosed by the books was too low. But that is not the case here. The assessee himself returned an estimated gross profit of 10 per cent. The AAC has raised it to 11.5 per cent. Prima facie, this appears to be reasonable, looking to the volume and nature of the business. No material has been placed before us to hold that the AAC's estimate is excessive, capricious or arbitrary. There is also some substance in the point made for the department that this was not a case of voluntary re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an assessment/reassessment under section 147. Shri Prasad, therefore, contends that levy of such interest under sections 139 and 217 in the assessment here made under section 147 be struck down as bad in law. Alternatively, he submits that in the light of the decision of the Karnataka High Court in CIT v. Executors of the Estate of Late H.H. Rajkuverba Dowager Maharani Saheb of Gondal [1978] 115 ITR 301, the matter be restored to the ITO for passing separate orders for levy of such interest. (Levying interest under section 217 as part of the assessment order was held to be not valid by the Karnataka High Court in this case.) Attention is also invited in this regard to a prior order of the Tribunal in the case of Bishindas Taliram v. ITO [IT Appeal No. 602 (Bang.) of 1977-78, dated 27-2-1979], which was also a case of levy of interest under sections 139 and 215 of the Act and such levy was part of an order of assessment. The Tribunal directed in that case as under : " 5. ...In a case like the present one, however, where the levy of interest forms part of the assessment order itself, we are of the opinion that a single appeal is competent and it is not necessary for the assessee t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the sales of Rs. 5,25,750 shown by the books.) In these circumstances, the AAC did not disturb the sales disclosed by the assessee but only reduced the gross profit of 12 1/2 per cent estimated by the ITO to 11 1/2 per cent. Arguments for the parties were the same before us on this issue as for the preceding year. After hearing the parties, we would maintain the order of the AAC for the reasons recorded by us in para 7 supra. The objection of the assessee is, therefore, rejected. 15. The next objection is with regard to some disallowance of salary paid to the assessee's sons. We find from the assessment order as well as the appellate order that such an issue does not arise out of them. Hence, we reject this contention. 16. The next objection relates to depreciation on building and furniture. This was not pressed and, hence, rejected. 17. The next objection relates to levy of interest under section 139(8) (Rs. 12,600) and of interest under section 217 (Rs. 15,900). These levies are part of the assessment order of the ITO passed under section 143(3)/147 on 4-11-1981. Objection relating to such levy has been raised before us for the first time and for the reasons recorded in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the four years will work out to Rs. 16,079, Rs. 21,509, Rs. 6,756 and Rs. 11,910, respectively. " The assessee is, hence, in appeal before us, contending that the gross profit estimate of 11 1/2 per cent ordered by the AAC is excessive and unreasonable. The learned counsel for the assessee emphasised the fact that the turnover had really gone up very high this year and, therefore, there should have been a lower gross profit ; hence, the gross profit estimate should have been lower. For the department, Shri Suryanarayana Rao, stressed the fact that this was a case forced out into the open by action under section 133A and the state of accounts being what they were, the gross profit estimated by the AAC could not be assailed as unreasonable. 19. After hearing the parties, we would maintain the AAC's order because here again, there is no material on record to suggest that either the gross profit rate of 10 per cent estimated by the assessee was fair looking to the volume and the nature of the business ; or that the rate of profit estimated by the AAC is so unreasonable or excessive as to call for our interference. This objection of the assessee is, therefore, rejected. 20. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was reasonable to allow in all Rs. 8,000 as genuine business expenditure on account of salary. The balance of Rs. 18,884 was, therefore, disallowed by the ITO out of the total salary debit of Rs. 26,884. The assessee appealed. 21. The AAC, in his consolidated order of 14-9-1982 covering the assessment years 1973-74 to 1976-77, discussed this issue in paras 7 and 8 of his order. He analysed the salary payments of Rs. 26,884 as salary paid to the sons, i.e., Rs. 13,200 in all and salary paid to outsiders, i.e., Rs. 13,684. So far as the salary paid to outsiders was concerned, he saw no reason why any part of such salary should be disallowed. He, therefore, directed full allowance of such allowance and the revenue is not in appeal against such direction either for this year or for the subsequent year. As regards salary paid to the sons, in AAC's view, some disallowance was certainly called for. But such disallowance had to be restricted to Rs. 7,200 for this assessment year. His reasons for this conclusion were briefly as follows : 1. From the statements of the sons, it was seen that one of them had been working in his father's shop from 1970. The other son had been working there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sustained by the AAC. The ITO estimated the sales at Rs. 9,18,320 and estimated the gross profit at 11 1/2 per cent. This was against the sales admitted at Rs. 8,15,623 and gross profit estimated by the assessee at 10 per cent. This resulted in an addition of Rs. 24,044 as extra trading profit. The AAC, by his order dated 14-9-1982 supra, directed the ITO to accept the sales returned by the assessee but confirmed the ITO's estimate of gross profit at 11 1/2 per cent. He, thus, gave a reduction of Rs. 6,756. The assessee is in further appeal. 26. Arguments for the parties on this issue were substantially the same as in the preceding years. For the reasons recorded by us supra on similar additions for the preceding years, we see no room for interference as regards this year also. The objection of the assessee in this regard is rejected. 27. The second objection relates to disallowance (in part) of salary paid to the sons of the assessee. We find that out of total salary payments of Rs. 36,262 this year, the salary paid to the sons amounted to Rs. 24,000 and that to the outsiders came to Rs. 12,262. The ITO disallowed Rs. 28,262 in all. The AAC, as noted in para 21 supra, allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r for the earlier assessment years and which have also been referred to by us in para 7 supra. Arguments for the parties on this point were the same as for the earlier years. On the facts on record, we see nothing unreasonable in the order of the AAC on this issue. The objection of the assessee in this regard is rejected. 32. The next objection relates to disallowance of part of the salary paid to the sons of the assessee. The ITO disallowed Rs. 28,959 out of the total salary payments of Rs. 36,959 this year. This debit included salary payments of Rs. 27,000 to the two sons of the assessee. The AAC held that salary payments of Rs. 9,959 to outsiders could not in any case be disallowed. As regards the balance of Rs. 27,000 (being salary paid to the sons), he sustained a disallowance of Rs. 12,600, on the basis that salary of Rs. 400 per month per son would be reasonable for this year, i.e., he allowed an increase of Rs. 50 per month per son as reasonable increment in salary this year. Thereby, he sustained a disallowance of Rs. 17,400. Arguments for the parties were the same as for the preceding year. After hearing the parties, we hold that salary of Rs. 600 per month per son for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 148. Thereupon, the ITO proceeded with the assessment for completion under section 147. He closed the assessment, accordingly, under section 147 on 4-11-1981 making certain additions to the income returned and converting the loss shown into taxable income. The assessee appealed. 38. The contention before the AAC was that the assessment made for this year was not valid, as it was completed beyond the period of limitation. It was submitted that the assessee had filed voluntarily a return for this year under section 139(4) on 13-12-1979. This return should have been acted upon and the assessment completed before 31-3-1980 in terms of section 153(1)(a)(iii) or in terms of section 153(1)(c) of the Act by or before 12-12-1980 in any case. In other words, the assessment for this year should have been completed in any case by or before 12-12-1980. It was not so done. It was completed only on 4-11-1981 and, hence, the assessment had to be quashed. The AAC, accepting this contention, held as follows : " The contention, insofar as it relates to the assessment year 1977-78, is found to be quite valid. When the return is filed and the original assessment is pending, no income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the language of the provisions of the 1922 Act and of the 1961 Act not being identical, this decision of the Supreme Court was not a bar to the claim of the revenue that the loss return filed by the assessee in the circumstances noted above was not a valid return at all. 4. Under section 139(8)(a), if a return was filed after the 'specified date', the assessee would have to pay simple interest at 12 per cent per annum. It follows, a return filed beyond the dates stipulated in section 139(3) cannot be deemed to be one filed under section 139(1). This statutory position was not present in the 1922 Act and, hence, the return filed by the assessee here cannot be accepted as a valid return, i.e., no interest can be charged on a loss return filed under section 139(3). 5. The terms of section 139(3), read with section 80 (relating to loss returns), must be complied with strictly for a loss return to be accepted as valid. To apply the principle laid down in Kulu Valley Transport Co. (P.) Ltd.'s case and declare even returns filed beyond the time limit specified in section 139 as valid, would be to render the section itself otiose. No statutory provision should be so interpreted as to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration of the taxing Act. The facts there were : There was in operation from 1944, a circular of the Central Board of Revenue issued under the 1922 Act, under section 5(8) of that Act [corresponding to section 119(1) of the 1961 Act], which allowed the loss suffered by a spouse to be set off against the income of the other spouse. This circular was withdrawn on 6-4-1972. The assessment year concerned was 1971-72. The Tribunal held that although the circular had been so withdrawn by the time the assessment came to be made, it had been in operation at the commencement of the assessment year 1971-72 and, hence, the circular was binding upon the income-tax authorities for that assessment year. The Court held that having regard to the scope, effect and purport of the circular involved and particularly to the fact that the circular was in force and operation throughout the assessment year 1971-72 and was withdrawn only on 6-4-1972, the assessee was entitled to have the assessment made and completed in accordance with the circular. Shri Prasad further points out that there was another case also of the Kerala High Court, where a similar decision was given by the Court on the effect of sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end that the ITO will have no jurisdiction to invoke the eight-year limit in terms of section 153(1)(b) in the absence of any material on record to show that section 271(1)(c) could be invoked. Extension of the time limit in such a context would only amount to harassment. 42. After hearing the parties, we are unable to find fault with the AAC in cancelling this assessment as bad in law on the ground of limitation. Return was filed by the assessee for this year on 13-12-1979. This was not a return in response to a notice under section 139(1). Nor was it a return in response to a notice under section 139(2). It was a return showing loss of Rs. 12,730. It cannot be dismissed as not a valid return at all, on the ground that such a loss return should have been filed only under section 139(3) and the return not having been filed in terms of the conditions laid down therein, there was no valid return at all. We think, the counsel for the assessee is correct in contending that this return filed on 13-12-1979 could be looked upon as a return under section 139(4). The moment that conclusion is reached, there is no question of the ITO issuing a notice under section 148. Where a return is fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eturn was processed, the ITO could not have recorded that income had escaped assessment for the assessment year 1977-78. Hence, it is obvious that the ITO had no jurisdiction under section 147(a). That the assessee 'waived' his objection to such jurisdiction does not improve matters. Jurisdiction cannot be conferred by consent. In any case, there is no estoppel against law. The assessee could always raise objections relating to jurisdiction at any stage of the assessment/appeal proceedings. This is what the learned counsel for the assessee has urged before us and we think he is right in this contention--P.V. Doshi v. CIT [1978] 113 ITR 22 (Guj.). 44. The objection relating to extension of the limitation up to 31-3-1986 in terms of section 153(1)(b) has to be disposed of. Here also, the learned counsel for the assessee is correct in contending that the ITO has not recorded his satisfaction regarding any concealment on the part of the assessee during the assessment proceedings. Even the assessment order does not in terms show that the assessee has been guilty of 'concealment', so that it could be described as a case to which the provisions of section 271(1)(c) are attracted. No doub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed in respect of an earlier return filed under section 139(4). Shri Prasad's contention in the matter was that since this is a matter which has given rise to two interpretations, the one favouring the assessee should be adopted. That was the law of the land under article 141 of the Constitution of India. Apart from this, he also relied strongly on Instruction No. 888 of the CBDT, issued under F. No. 243/13/75-A & P (AC-II), dated 1-10-1975. Here the Board clearly expressed its view that the extended time limit of one year under section 153(1)(c) will not be available in respect of a return purported to be filed under section 139(5), where originally the return was filed under section 139(4). In other words, the Board has instructed its officers that an assessee is not entitled to file a revised return under section 139(5), where a return under section 139(4) has already been filed. In this situation, looking to the mandatory terms of section 119 as well as the case law in support of the stand taken for the assessee, we are obliged to hold that the authorities were not justified in looking upon the return filed on 12-3-1981 as a valid return. In other words, assessment ought to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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