Chennai-1 v. The Commissioner Of Income Tax,Central-I, Chennai

In the High Court of Judicature at Madras Dated : 10.9.2018 Coram : The Honourable Mr.Justice T.S.SIVAGNANAM and The Honourable Mrs.Justice V.BHAVANI SUBBAROYAN Tax Case Appeal No.1447 of 2008 Zeenath International Supplies, Chennai-1. ..Appellant Vs The Commissioner of Income Tax,Central-I, Chennai. ...Respondent APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 04.5.2007 made inITA.No.138/Mds/2002 on the file of the Income Tax Appellate Tribunal, Chennai Bench 'C' for theassessment year 1998-99. For Appellant : Mr.M.P.Senthilkumar forMr.N.Quadir Hosein For Respondent : Mr.T.R.Senthilkumarassisted by Ms.K.G.Usharani Judgment was delivered by T.S.SIVAGNANAM,J We have heard Mr.M.P.Senthilkumar, learned counsel appearing on behalf of Mr.N.Quadir Hosein,learned counsel on record for the appellant and Mr.T.R.Senthilkumar, learned Senior StandingCounsel for the Revenue. 2. The appeal filed by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, theAct) has been directed against the order passed by the Income Tax Appellate Tribunal dated04.5.2007. The appeal has been admitted on 17.9.2008 on the following substantial question of law :�Whether, on the facts and circumstances of the case, the finding of the Tribunal is not perverseconsidering that the claim of loss of stock of time expired soft drinks and bad debts made in therevised return are within the parameters of Section 139(5) and also in view of the provisions ofSection 143(2) of the Act ?� 3. The short issue, which falls for consideration, is as to whether the revised return filed by theassessee for the assessment year in question could have been refused to be accepted for the reasonsassigned by the Assessing Officer. 4. In the revised return, the assessee reduced the value of the closing stock by Rs.5,83,275/- andalso increased the administrative cost by Rs.3,93,055/-. The Assessing Officer found that the changein figures was not supported by the tax audit report under Section 44AB of the Act. The AssessingOfficer, while accepting that along with the original returns, the assessee filed audit report, faulted with the assessee for not filing tax audit report along with the revised returns. In support of therevised returns, the assessee filed a certificate dated 28.4.1997 stating that the stock of soft drinksworth Rs.5,83,275/- was destroyed by the Port Authorities pursuant to the order passed by theDeputy Port Health Officer dated 28.4.1997. The Assessing Officer opined that in the tax auditreport filed along with the original returns, the closing stock as on 31.3.1998 was given atRs.1,10,12,384/-, that this figure should have been arrived at after considering the time expiredstock of Rs.5,83,275/- and that the further claim of reduction was not admissible and accordingly,the claim in that regard was rejected. 5. With regard to the claim for bad debt to the tune of Rs.3.93 lakhs, the Assessing Officer held thatthe debt was not written off in the books as on 31.3.1998 and that the assessee preferred this claimin the revised returns. However, the assessee had given a legal notice to the debtor dated 24.4.1999,which indicated that the debt became bad only after the accounts were closed for the year ending31.3.1998. Thus, the Assessing Officer proceeded to hold that as the condition stipulated namelydebt to be written off during the relevant accounting year was not fulfilled, the claim for bad debtwould not be admissible. 6. The appeal filed before the Commissioner of Income Tax (Appeal) [for brevity, the CIT (A)] also met with the same fate and the appeal was dismissed vide order dated 13.11.2001. Though theassessee filed an appeal before the Tribunal, the Tribunal concurred with the findings given by theAssessing Officer as well as the CIT (A) and dismissed the appeal vide order dated 04.5.2007.Challenging the order passed by the Tribunal, the assessee is before us. 7. On facts, it has to be seen as to whether the assessee was entitled to file a revised return. 6. The appeal filed before the Commissioner of Income Tax (Appeal) [for brevity, the CIT (A)] also met with the same fate and the appeal was dismissed vide order dated 13.11.2001. Though theassessee filed an appeal before the Tribunal, the Tribunal concurred with the findings given by theAssessing Officer as well as the CIT (A) and dismissed the appeal vide order dated 04.5.2007.Challenging the order passed by the Tribunal, the assessee is before us. 7. On facts, it has to be seen as to whether the assessee was entitled to file a revised return. 8. Section 139(5) of the Act permits an assessee to file a revised return and the said provision states that if any person, having furnished the returns under Sub-Section (1) or Sub-Section (4) of Section139 of the Act, discovers any omission or wrong statement therein, he may furnish a revised returnat any time before the expiry of one year from the end of the relevant assessment year or before thecompletion of the assessment, whichever is earlier. 9. Admittedly, the assessee filed the revised return on 24.5.1999 well before the period stipulated under Section 139(5) of the Act. This has not been disputed by the Assessing Officer or the AppellateAuthority or the Tribunal. However, after taking up the said revised return for scrutiny, theAssessing Officer, while passing the order under Section 143(3) of the Act, rejected the assessee'sclaim, which, in our considered view, was at the very threshold. 10. We say so because of the fact that if, in the opinion of the Assessing Officer, the return was defective, then the procedure contemplated under Sub-Section (9) of Section 139 of the Act ought tohave been followed. This provision enables the Assessing Officer to intimate the defect to theassessee and give an opportunity to rectify the defect within a period of 15 days from the date ofsuch intimation or within such period, which, on an application made in this behalf, the AssessingOfficer, may, in his discretion, allow and if the defect is not rectified within the said period of fifteendays or as the case may be, the further period so allowed, then, notwithstanding anything containedin any other provision of this Act, the return shall be treated as an invalid return and the provisionsof this Act shall apply as if the assessee had failed to furnish the return. The Proviso states thatwhere the assessee rectifies the defect after the expiry of the said period of fifteen days or thefurther period allowed, but before the assessment is made, the Assessing Officer may condone thedelay and treat the return as a valid return. 11. Thus, in our considered view, Sub-Section (9) of Section 139 of the Act is a beneficial provisionto the assessee, which provides them an opportunity to rectify the defects. Since the intention beingthat the assessment proceedings are an outcome of dialogue and discussion, the Assessing Officer isentitled to clarify all issues by issuing notice to the assessee and calling upon them to producedocuments and explain their books of accounts, etc. Unfortunately, in the instant case, suchprocedure was not adopted when the revised return was rejected at the very threshold, which, in ourconsidered view, ought not to have been done. 12. For the above reasons, on the peculiar facts and circumstances of the case, we find that theassessee had not been given an opportunity as contemplated under Sub-Section (9) of Section 139 ofthe Act and therefore, we deem it proper to remand the matter to the Assessing Officer to redo theassessment after giving an opportunity to the assessee in terms of Section 139(5) of the Act torectify the defects, which have been pointed out by the Assessing Officer in the assessment order.13. The learned Senior Standing Counsel for the Revenue points out that it is not clear as to whetherthe bad debts, which were sought to be written off by the assessee, were, in fact, written off in thesubsequent year. 14. This issue can also be considered by the Assessing Officer while taking up the assessment afreshin terms of the above direction. 14. This issue can also be considered by the Assessing Officer while taking up the assessment afreshin terms of the above direction. 15. In the light of the above, the above tax case appeal is allowed, the substantial question of law isanswered in favour of the assessee and the matter is remanded to the Assessing Officer to redo theassessment after giving an opportunity to the assessee to rectify the defects in the revised returnsdated 24.5.1999. No costs. 10.9.2018 Internet : Yes RS T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J RS To 1.The Income Tax Appellate Tribunal, Chennai Bench 'C'. 2.The Commissioner of Income Tax, Central-I, Chennai. TCA.No.1447 of 2008