2005 (4) TMI 656 - AT - Income Tax

Revised Tax Return Under Section 139(5) Validated for Loss Set-Off Despite Technical Procedural Challenges

Income Tax Officer, Ward-1, Bhatinda Versus Sadhu Ram & Co.

Income Tax Officer, Ward-1, Bhatinda Versus Sadhu Ram & Co. - TMI 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Tribunal were:Whether a revised return filed under section 139(5) of the Income-tax Act is valid and can be accepted when the original return was filed under section 139(4) and not under section 139(1);Whether the Assessing Officer was justified in ignoring the claim for set off of brought forward speculative loss against speculative profit made along with the revised return, on the ground that the revised return was invalid;Whether the Assessing Officer and the Commissioner of Income Tax (Appeals) were correct in their respective treatment of the revised return and the claim for set off;The applicability of relevant judicial precedents and circulars in determining the validity of the revised return and the entitlement to set off of brought forward losses;The scope and duty of the Assessing Officer in assisting the taxpayer in securing reliefs admissible under law, especially when a revised return or computation is filed outside the statutory framework.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of Revised Return filed under section 139(5) when original return was under section 139(4)Legal Framework and Precedents: Section 139(5) permits filing of a revised return only if the original return was filed under section 139(1) or within the time allowed under a notice issued under section 142(1). The Supreme Court decision in Kumar Jagdish Chandra Sinha v. CIT was relied upon by the revenue to assert that a revised return filed after an original return under section 139(4) is invalid. The original return in this case was filed under section 139(4), which is a belated return.Court's Reasoning: The Tribunal acknowledged that the original return was indeed filed under section 139(4) and not under section 139(1), and no notice under section 142(1) was issued. Therefore, the revised return filed under section 139(5) was not valid in the eyes of law.Application to Facts: Since the original return was belated and not filed under section 139(1), the revised return filed on 12-2-1997 could not be treated as a valid revised return under the statute.Conclusion: The Tribunal confirmed that the revised return was invalid as per the statutory provisions and relevant Supreme Court precedent.Issue 2: Whether the claim for set off of brought forward speculative loss against speculative profit could be ignored because the revised return was invalidLegal Framework and Precedents: The Income-tax Act permits set off of brought forward losses against current year income, subject to conditions. Circular No. 14(XI-3) dated 11-4-1955 issued by the CBDT directs field officers to assist taxpayers in claiming reliefs and not to take advantage of ignorance of the assessee. The Supreme Court decision in Bihar State Co-op. Bank Ltd. v. CIT was cited to emphasize the duty of tax authorities to assist taxpayers in securing reliefs properly claimable under law.Court's Interpretation and Reasoning: The Tribunal observed that the purpose of assessment is to determine the correct income of the assessee. The claim for set off of brought forward speculative loss was genuine and not disputed by the revenue. The claim was made along with the revised computation of income submitted on 12-2-1997 during the assessment proceedings, even though the revised return itself was invalid. The Tribunal reasoned that the claim could have been made during assessment proceedings without necessarily filing a revised return, and the Assessing Officer had a duty to examine and allow the claim if valid.Key Evidence and Findings: The Assessing Officer had admitted that the amount of Rs. 4,81,445 was speculative profit and that brought forward speculative loss was available. The CIT(A) also found that the Assessing Officer had correctly classified the income as speculative profit in the earlier order dated 13-3-1997.Application of Law to Facts: Since the claim was genuine and supported by earlier assessments, and the revenue did not dispute the existence of speculative profit or brought forward losses, the Assessing Officer ought not to have ignored the claim merely because the revised return was invalid. The Tribunal emphasized that the Assessing Officer must assist the taxpayer in securing reliefs admissible under law.Treatment of Competing Arguments: The revenue argued that the revised return was invalid and hence the claim could not be entertained. The assessee contended that the claim was genuine and should be allowed irrespective of the validity of the revised return. The Tribunal sided with the assessee, relying on the principle that the assessment must reflect the correct income and the tax authorities must assist taxpayers in claiming lawful reliefs.Conclusion: The Tribunal held that the claim for set off of brought forward speculative loss against speculative profit should not be ignored and must be allowed as per law, notwithstanding the invalidity of the revised return.Issue 3: Whether the Assessing Officer's action in ignoring the claim and completing assessment on higher income was justifiedLegal Framework and Precedents: The Assessing Officer's discretion is circumscribed by the duty to correctly assess income and allow reliefs lawfully claimable. The CBDT circular and judicial precedents emphasize assisting taxpayers in claiming reliefs.Court's Reasoning: The Tribunal found that the Assessing Officer erred in ignoring the claim for set off merely on the ground of invalidity of the revised return. The claim was made during assessment proceedings and was not disputed on merits. The Tribunal held that the Assessing Officer should have allowed the set off, as it was in accordance with law and earlier assessments.Application to Facts: The assessment completed on 28-12-1999 disallowed the set off and assessed income at Rs. 5,67,260. This was contrary to the earlier assessment and the admitted facts. The Tribunal found this action unjustified.Conclusion: The Tribunal confirmed the CIT(A)'s order directing the Assessing Officer to allow the set off and reject the revenue's appeal.3. SIGNIFICANT HOLDINGSThe Tribunal held:'There is no quarrel with the proposition that assessee could file revised return under sub-section (5) of section 139 only if the first return was furnished under sub-section (1) of section 139 or within the time allowed under a notice issued under sub-section (1) of section 142. Admittedly, in the present case, the original return was not filed under sub-section (1) of section 139 and the same was filed under sub-section (4) of section 139. No notice under section 142(1) was also issued to the assessee. Therefore, the revised return filed by the assessee was not a valid return in the eye of law.''The purpose of assessment is to determine the correct income of the assessee in accordance with the provisions of the Act. In case, the assessee inadvertently failed to claim set off of brought forward speculative loss against the speculative profit, such claim could be made during the course of assessment proceedings. It was not even necessary for the assessee to file a revised return.''It is none of the claim of the revenue authorities that the profit of Rs. 4,81,445 was not a speculative profit. It is also not a claim of the revenue that there was no brought forward speculative loss which could be given set off against the current year's speculative profit. Thus, on merits the assessee was indeed entitled to such set off as per provisions of the Act.''Moreover, the claim alongwith the revised return was submitted during the course of assessment proceedings on 12-2-1997 and assessment under section 143(3) was made much thereafter, i.e., on 28-12-1999. Thus, we are of the considered opinion that the ld. CIT(A) was justified in holding that the assessee was entitled to set off of brought forward loss against the speculative profit of the current year on the basis of statement submitted alongwith the revised return.''The action of CIT(A) is in conformity with the letter and spirit of the Act and Circular No. 14(XI-35), dated 11-4-1995. We confirm his order and reject the grounds of appeal of the revenue.'