Ita/39/2003 Of Ms/Radha Picture Palace v. Dy.commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN THURSDAY, THE 10TH DECEMBER, 2009 / 19TH AGRAHAYANA, 1931 ITA.No. 39 of 2003 --------------------- (ITA.122/COCH/2001 of I.T.A.TRIBUNAL,COCHIN BENCH) .................... APPELLANT/APPELLANT IN ITA.122/C/2001: ------------------------------------------------ M/S. RADHA PICTURE PALACE, REPRESENTED BY PARTNER, P.K.MURALIKRISHNAN, S.M.STREET, CALICUT-673 001. BY ADV. SRI.P.BALAKRISHNAN SRI.K.P. SREEKUMAR RESPONDENT(S): RESPONDENT IN ITA.122/C/2001: ---------------------------------------------------------- 1. DY.COMMISSIONER OF INCOME TAX, CIRCLE -I, DIVISION-I, CALICUT. 2. THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.GEORGE K. GEORGE, SC FOR IT THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 10/12/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: 'C.R.' C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ -------------------------------------------------- I.T.A.NO. 39 OF 2003 -------------------------------------------------- Dated this the 10[th] day of December, 2009 J U D G M E N T Ramachandran Nair,J: The question raised is whether the Tribunal wasjustified in confirming the suo motu revision order issuedby the Commissioner under Section 263 of the Income Tax Act, 1961 (for short 'the I.T.Act') holding that theappellant/assessee was not entitled to deduction by way ofpayment of interest, salary, bonus, commission orremuneration to the partners of the firm in an assessmentcompleted under Section 147 of the I.T.Act for theassessment year 1995-96. 2. We have heard Advocate Sri.P.Balakrishnan,appearing for the appellant and Senior Standing CounselSri.P.K.R.Menon, appearing for the respondents. 3.Admittedly, the assessee did not file any return ofincome under subsections (1),(4) or (5) of Section 139. In :-2-: fact, belated return was filed on 31.12.1999 after whichnotice was issued under Section 148 of the I.T.Actwhereunder the assessing officer proposed to make incomeescaping assessment. Thereafter, the assessee filed revisedreturn on 19.7.2000 returning an income of Rs.4.62 lakhsbased on which assessment was made accepting the saidreturn. However, the Commissioner of Income Taxdirected revision of assessment because he found that whilecompleting the assessment in terms of return filed by theassessee, the assessing officer allowed deductions towardsthe remuneration, salary, interest etc. paid by the assessee-firm to the partners which was in violation of Section 184(5)of the I.T.Act. Even though the assessee filed appeal to theTribunal against the order of the Commissioner issuedunder Section 263 directing revision of assessment towithdraw the deduction granted in violation of Section 184(5) of the Act, the Tribunal upheld the Commissioner's orderand rejected the appeal against which this appeal is filed. :-3-: 4.The assessee's contention before I.T.A.T. was that the failures referred to in S.144(1)(a) though havehappened, disallowances under Section 184(5) are notattracted because of filing of return pursuant to noticeissued under Section 148(1). In other words, the fictionunder the latter part of Section 148(1) saves the assesseefrom disallowance was their case. However, the Tribunalturned down this contention against which this appeal isfiled. 5. In order to appreciate the contentions, we have toconsider the scope of Sections 184(5) and 148(1) of the Act.Accordingly,we extract below the said sections for easyreference. “184. Assessment as a firm (1) xx xx xx xxx xx (2) xx xx xx xxx xx (3) xx xx xx xxx xx (4) xx xx xx xxx xx (5) Notwithstanding anything contained in any 4.The assessee's contention before I.T.A.T. was that the failures referred to in S.144(1)(a) though havehappened, disallowances under Section 184(5) are notattracted because of filing of return pursuant to noticeissued under Section 148(1). In other words, the fictionunder the latter part of Section 148(1) saves the assesseefrom disallowance was their case. However, the Tribunalturned down this contention against which this appeal isfiled. 5. In order to appreciate the contentions, we have toconsider the scope of Sections 184(5) and 148(1) of the Act.Accordingly,we extract below the said sections for easyreference. “184. Assessment as a firm (1) xx xx xx xxx xx (2) xx xx xx xxx xx (3) xx xx xx xxx xx (4) xx xx xx xxx xx (5) Notwithstanding anything contained in any other provision of this Act, where, in respect ofany assessment year, there is on the part of afirm any such failure as is mentioned in section144, the firm shall be so assessed that no deduction by way of any payment of interest,salary, bonus, commission or remuneration, bywhatever name called, made by such firm to anypartner of such firm shall be allowed in computingthe income chargeable under the head “Profits andgains of business or profession” and such interest,salary, bonus, commission or remuneration shall notbe chargeable to income-tax under clause (v) ofsection 28.” “148. Issue of notice where income has escapedassessment (1) Before making the assessment, reassessment or recomputation under section 147,the Assessing Officer shall serve on the assessee anotice requiring him to furnish within such period,as may be specified in the notice, a return of hisincome or the income of any other person inrespect of which he is assessable under this Actduring the previous year corresponding to therelevant assessment year, in the prescribed formand verified in the prescribed manner and settingforth such other particulars as may be prescribed;and the provisions of this Act shall, so far as maybe, apply accordingly as if such return were areturn required to be furnished under section 139:” 6.The failures covered by Section 144(1), whichattract disallowance of deductions claimed by the firmtowards payment of interest, salary, bonus, commission orremuneration to it's partners under Section 184(5), arefailure to file return under subsections (1),(4) or (5) of :-5-: Section 139 or failure to comply with all the terms of noticeissued under Sections 142(1), 143(2) etc. Admittedly, theassessee is involved in the failures referred to in Section144 inasmuch as the assessee has not filed a regular returnvoluntarily and there was no occasion for it to file anyreturn under sub-clauses (4) or (5) of Section 139.However, the assessee filed a belated return and a revisedreturn pursuant to notice issued under Section 148 of theI.T.Act claiming deductions of remuneration, interest etc.paid to partners and the same happened to be allowed bythe assessing officer. The Commissioner, however, orderedrevision of the assessment holding that since assessee didnot file return, it was not entitled to the deductions claimedbecause of the prohibition contained in Section 184(5) readwith Section 144(1) of the Act. The assessee's contention isthat when a return is filed based on notice issued underSection 148, by virtue of fiction available under the latterpart of Section 148, such return is to be treated as a regular ITA NO.39 OF 2003 :-6-: ITA NO.39 OF 2003 :-6-: return and all the provisions of the Act will apply. Thecontention of counsel for the appellant is that when there iscompliance of notice under Section 148 by filing return, thereturn so filed should be treated as return filed underSection 139 of the Act and so much so, the failure referredto in Section 184(5) does not arise in a case where theassessee filed a return in terms of notice issued underSection 148. Standing Counsel appearing for therespondents contended that the failures referred to inSection 144(1) are absolute and reassessment, if any,initiated, cannot save the assessee from such failures and somuch so, the fiction available under Section 148 onlyentitles the assessee for the application of the otherprovisions of the Act. The assessee cannot get over thedisability under Section 184(5) by filing return inreassessment proceedings initiated under Section 147 ofthe Act, is the contention of the Revenue. 7.After hearing both sides and after going through :-7-: the above statutory provisions, we are unable to uphold theassessee's contention that the filing of return against noticeissued under Section 148 can be treated as a return underSection 139 of the Act entitling them not to be treated asassessees, who have committed failures under Section 144(1) of the Act. The object of Section 184(5) is such that onlyassessees, who comply with the statutory provisions whichinclude filing of regular returns in time and co-operatingwith the Department by complying with the terms of noticesissued under Sections 142,143(2) are entitled to the benefitof deductions. All what Section 148 conveys is thatreassessment under Section 147 based on the return filedpursuant to notice issued under the said section should becompleted in the same way a regular assessment iscompleted based on a return filed under Section 139(1).However, it cannot be said that an assessee, who filed areturn based on notice issued under Section 148, is notinvolved in any of the failures referred to in Section 144(1) which the assessee admittedly has committed inasmuch asthe assessee has not filed a regular return under Section139. The very purpose of introducing a fiction in Section148 is that but for the fiction available therein, a returnfiled against notice issued under Section 148 cannot betreated as a regular return under Section 139. However,filing of return against notice issued under Section 148itself is not the same as filing a return under Section 139 ofthe Act. So much so, failures referred to in Section 144(1)are absolute failures which cannot be remedied by filingreturns based on notice under Section 148 of the Act. Wetherefore uphold the order of the Tribunal confirming theorder of the Commissioner issued under Section 263holding that the assessee is not entitled to the deductionsthe assessing officer allowed while completing assessmentunder Section 147 in violation of Section 184(5) of the Actfor the failure committed by the assessee as referred tounder Section 144(1) of the Act. :-9-: Accordingly, the appeal is dismissed. C.N.RAMACHANDRAN NAIR, Judge. V.K.MOHANAN, Judge. MBS/ :-10-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ.--------------------------------------------- I.T.A.NO. 39 OF 2003--------------------------------------------- J U D G M E N T(C.R.) DATED: 10.12.2009 :-11-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. --------------------------------------------------- :-12-: I.T.A.NO. 88 OF 2000 -------------------------------------------- J U D G M E N T DATED:23-11-2009 C.N.RAMACHANDRAN NAIR & :-13-: V.K.MOHANAN, JJ. ------------------------------------------------ I.T.A.NOS.187 & 199 OF 2002 ----------------------------------------------- J U D G M E N T DATED:3-11-2009 C.N.RAMACHANDRAN NAIR :-14-: &V.K.MOHANAN, JJ.------------------------------------------------ I.T.A.NOS.223,224 & 249 Judge. MBS/ :-10-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ.--------------------------------------------- I.T.A.NO. 39 OF 2003--------------------------------------------- J U D G M E N T(C.R.) DATED: 10.12.2009 :-11-: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. --------------------------------------------------- :-12-: I.T.A.NO. 88 OF 2000 -------------------------------------------- J U D G M E N T DATED:23-11-2009 C.N.RAMACHANDRAN NAIR & :-13-: V.K.MOHANAN, JJ. ------------------------------------------------ I.T.A.NOS.187 & 199 OF 2002 ----------------------------------------------- J U D G M E N T DATED:3-11-2009 C.N.RAMACHANDRAN NAIR :-14-: &V.K.MOHANAN, JJ.------------------------------------------------ I.T.A.NOS.223,224 & 249 OF 2002 ----------------------------------------------- J U D G M E N T DATED:23-11-2009