Andhra Pradesh H.C : This writ petition is directed against the judgment and order of the CIT, Andhra Pradesh I, Hyderabad, on a revision petition filed by the petitioner under s. 264 of the IT Act.

Counsel Appeared

Y. Ratnakar, for the Petitioner : M. Suryanarayana Murthy, for the Respondents

B.P. JEEVAN REDDY, J.:

This writ petition is directed against the judgment and order of the CIT, Andhra Pradesh I, Hyderabad, on a revision petition filed by the petitioner under s. 264 of the IT Act. The facts leading upto the present stage, as found recorded in the orders of the authorities under the Act, are as follows :

The petitioner, “HMT Bearings Ltd.”, is a corporation owned and controlled by the Central Government.Formerly, it was known as “Indo-Nippon Precision Bearings Ltd.”. It was initially a State Government undertaking, but in February, 1980 it was taken over by the HMT and the name changed to “HMT Bearings Ltd.”. The assessment year concerned herein is 1978-79, the previous year being the financial year ending on 31st March, 1978. The income-tax return for the said assessment year had to be filed on or before 31st July, 1978; it was not so filed. On 10th Aug., 1978 a notice under s. 139(2) was issued by the ITO, C-Ward, Company Circle, Hyderabad (2nd respondent), calling upon the petitioner to file return. On receiving the said notice, the petitioner filed Form No. VI on 26th Sept., 1978 seeking extension of time till 31st Dec., 1978. This request was refused by the ITO; yet no return was filed. A notice under s. 142(1) was served on the assessee posting the case to 2nd Jan., 1981. On that date, Mr. Iqbal Kishan, accounts officer of the petitioner, appeared before the ITO. But, even on that date no return was filed. On that date he was specifically asked to file the return by 17th Jan., 1981. Again it was not filed. Since the assessment was likely to get barred by limitation by 31st March, 1981, an order of the assessment was made on 12th March, 1981 under s. 144 of the Act. No return was filed even by the date the assessment was made. In his assessment order the ITO mentioned that the assessee had merely filed a “computation of income admitting a loss of Rs. 74,79,749”. He, however, observed that “in the absence of return of income, the profit and loss account, and details therefor, loss is not allowed. The total income is determined at Rs. Nil…”. On receiving this order, the petitioner filed an application on 18th April, 1981 under s. 146 of the Act to reopen the assessment and to accept the return which was submitted alongwith the said application. By his order dt. 9th July, 1981 the ITO allowed the said petition, observing, “in view of the assessee’s petition and submission of the Manager, Accounts, I feel that the assessee had reasonable cause for failure to file the return of income and so I reopen the assessment under s. 146….”. Accordingly, the ITO received the return and made a fresh assessment order on 16th June, 1984. The order dt. 16th June, 1984 recites that the petitioner did not file the return even by the date of the previous assessment order (12th March, 1981) in spite of service of notices under ss. 139(2) and 142(1), and that, on this occasion, since the addition proposed was more than Rs. 1,00,000 the procedure under s. 144B was followed and after receiving instructions of the IAC, the assessment was being completed. The order then recites that the return now filed alongwith the application under s. 146 is accepted and the same is treated as a return filed under s. 139(4). Indeed, it appears that after reopening the assessment, another notice under s. 142(1) was issued, in pursuance of which the petitioner filed the very same return which it had submitted alongwith its application under s. 146. The order then determines the loss at Rs. 42,92,674, and the depreciation at Rs. 22,40,981, the total of which comes to Rs. 65,33,655. Finally, the order says : “The assessee filed the return under s. 139(4). As the return is not filed under s. 139(3) of the IT Act, the loss determined is not allowed to be carried forward as per the Supreme Court decision in the case of CIT vs. Manmohan Das (1966) 59 ITR 699 (SC) 702.”

The purport of this order is that the loss of Rs. 42,92,674 was not allowed to be carried forward to the next year. But, so far as the unabsorbed depreciation of Rs. 22,40,981 is concerned, it was allowed to be carried forward.

Against the assessment order dt. 16th June, 1984, in so far as it rejected the petitioner’s plea to carry forward the loss, the petitioner filed a revision under s. 264 of the Act, before the CIT. Two contentions were urged by the petitioner before the Commissioner, viz., (1) that, having accepted the return in pursuance of the order dt. 9th July, 1981 (under s. 146) and having further treated the said return as having been filed under s. 139(4), the ITO was in error in not allowing the loss to be carried forward; his view is contrary to law; and (ii) that, in this case, a return was in fact filed in September, 1979 which is established by the material placed before the Commissioner, and, hence, the refusal to allow the petitioner to carry forward the loss is not sustainable in law.

Having entertained the revision, the Commissioner issued a notice to the petitioner under s. 263 of the Act to show cause why the order of the ITO in so far as it allowed the petitioner to carry forward the unabsorbed depreciation, should not be revised. The petitioner filed its objections, after considering which the proposed action under s. 263 was dropped. The Commissioner then took up the petitioner’s revision and dismissed the same by his order dt. 22nd May, 1986, impugned herein. The Commissioner rejected the petitioner’s contention that a return was in fact filed in September, 1979. He referred to various circumstances, and, in particular, to the petitioner’s own applications and representations, militating against the said plea. So far as the question of law is concerned, the Commissioner was of the opinion that inasmuch as “the return filed by the assessee on 18th April, 1981 was no return at all, and as there was in fact not return filed by the assessee under s. 139, any loss determined by the ITO on the basis of such return cannot be carried forward and set off in the assessments for the following years”. He observed : “where the two year period, as referred to above [reference is to sub-s. (4) of s. 139] has expired but the assessment is open having been reopened under s. 146, the assessee will have no right to file the return. In the case of the assessee, the return was in fact filed on 18th April, 1981, i.e., after the expiry of two years from the end of the relevant assessment year. Therefore, the return actually filed could not be regarded as a valid return although the statements furnished alongwith the return of the income or loss disclosed in the return, could be taken into consideration by the ITO for determining the income or loss in the assessment made….”. The above findings of the Commissioner on both the above questions are challenged in this writ petition.

4. With a view to clear ground, we may first take up the contention of Mr. Y. Ratnakar that the material placed by the petitioner before the ITO did in fact establish that a return was filed in September, 1979. He submitted that the finding of the Commissioner on this aspect is vitiated, inasmuch as, he totally failed to refer to, or deal with, the material placed before him, and that he recorded his finding merely on the basis of, and after referring to, the order and proceedings of the ITO. In view of the said contention, we allowed Mr. Y. Ratnakar to invite our attention to that material which, according to him, is material on the said aspect but has not been considered by the Commissioner. Before we refer to the said material, however, it is necessary to notice certain prominent features of the petitioner’s case on this aspect. Even today, the petitioner is not in a position to mention the date on which the return was filed. Neither a copy of the return, said to have been submitted, is placed before us, nor is any other receipt or acknowledgement in proof thereof available. The records of the ITO also do not contain any such return. Now, the material relied upon before us are the following : The first document is an extract of the handing over note of Sri P. Narasimha Ramulu, said to be an accounts officer of the petitioner, dt. 7th Sept., 1979. In this note, under the heading “III.B: Income Assessment of the Company”, the following statement occurs : “The return for the years 1976-77, 1977-78 and 1978-79 are filed.”

The next document is a letter dt. 13th Sept., 1985, written by one Mr. K. Narasimhan, I.A. & A.S., Dy. Director of Audit (Defence Services), Southern Command, Madras, addressed to the Dy. Controller of Accounts of the petitioner company, stating that when he took charge of the records from Sri Narasimha Ramulu, he was given a clear endorsement that the return for 1978-79 has already been filed. He, however, stated that he does not remember whether there was an acknowledgement in the file to that effect. The third document is a report of some officer who visited the petitioner’s office and inspected the records in the last week of February, 1980. This report says that the returns of income for the years 1977-78, 1978-79 and 1979-80 have been filed, but that the assessments are yet to be completed. In our opinion, these three documents are totally insufficient to establish the petitioner’s plea. They are merely notes or correspondence of the officers of the company. In this behalf, it must be remembered that when a notice was issued to the petitioner under s. 139(2), the petitioner itself applied for extension of time. Even after the petitioner’s representative appeared before the ITO, he was given one more opportunity to file the return by 17th Jan., 1981, but it was not so filed. At no stage was it contended by the petitioner before the ITO that a return was already filed. Moreover, the petitioner filed a petition under s. 146 expressly setting out the circumstances in which it could not file the return and submitted a return alongwith the said application, i.e., on 14th June, 1981. Even on this occasion, no statement was made that the return was already filed and that the return submitted alongwith the petition under s. 146 was a copy of the return already submitted. This plea was taken for the first time before the CIT and, in our opinion, he was right in rejecting the plea.

5. Now, coming to the other question urged by Sri Y. Ratnakar, which is a pure question of law, his contention runs thus : It is no doubt true that the petitioner did not file the return within the time prescribed by s. 139(1), nor did it file the return within the time specified in the notice issued under s. 139(2) and extended from time to time, thereby inviting a best judgment assessment under s. 144; but, once the petitioner’s application under s. 146 was allowed accepting the reasons assigned by it for not filing the return within the period specified in the notice under s. 139(2) and the return filed is accepted by the ITO, it must be deemed to be a return filed under s. 139 for purposes of and within the meaning of s. 80. The Commissioner was not right in holding that the return filed on 14th June, 1981, was no return in the eye of law, and that, notwithstanding the reopening of the assessment, the only course open to the ITO was to make a best judgment assessment under s. 144. The Commissioner was equally in error in holding that where an assessment is reopened after the expiry of the two year period, referred to in s. 139(4), the assessee has no right to file the return. Once the assessment is reopened and the return is accepted, it is a return filed under s. 139, and is good for all purposes, including s. 80.

On the other hand, it is submitted by Sri M. Suryanarayana Murthy, learned standing counsel for the Revenue, that the power to extend time for filing the return under s. 139(2) cannot be exercised beyond the two year period prescribed in s. 139(4). He submitted that, after the expiry of the said period, the assessment cannot be reopened under s. 146 on the ground mentioned in cl. (i) of sub-s. (1) thereof, and no return can be allowed to be filed, nor can it be received by the ITO. He submitted that the very order of the ITO dt. 9th July, 1981, reopening the assessment under s. 146 and receiving the return is itself incompetent and invalid. Alternately, he submitted that the return filed on 14th June, 1981, cannot be called a return filed under s. 139. It is a return filed under s. 146 and, therefore, the loss cannot be allowed to be carried forward under s. 80, which permits the loss to be carried forward only where a return is filed under s. 139.

6. For a proper appreciation of the question, it is necessary to refer to the relevant provisions of the Act. Sub-sec. (1) of s. 139 obliges every person, whose total income during the previous year exceeds the prescribed limit, to furnish a return of his income before a particular prescribed date which can, however, be extended by the ITO on sufficient cause being shown. Sub-sec. (2) empowers the ITO to call upon a person who, in his opinion, has assessable income, to furnish a return of his income within thirty days of the date of service of a notice. This period can, however, be extended by the ITO on sufficient cause being shown. Sub-sec. (3) provides that where a person, who has not been served with a notice under sub-s. (2), has sustained a loss in the previous year and wishes to carry forward the same for future years, he may furnish within the time allowed under sub-s. (1) or within such further time as may have been allowed by the ITO in his discretion, a return of loss in the prescribed form, whereupon it shall be deemed to be a return filed under s. 139(1). Sub-sec. (4) provides a further opportunity to the person to file a return. It says that even where a person has not filed a return within the time prescribed by sub-s. (1), or within the time prescribed in the notice issued under sub-s. (2), he may still file a return before the assessment is made provided he files the same before the expiry of two years from the end of such assessment year. Sec. 142 provides for an enquiry which the ITO is entitled to make for the purpose of making an assessment. Sec. 143 provides for making assessment on the basis of a return made under s. 139, whereas s. 144 provides for best judgment assessment. A best judgment can be made in three situations, viz. : (a) where a person fails to submit a return as required by a notice given under s. 139(2) and has also not filed a return or refused to file a return under sub-s. (4) or (5) of s. 139 : or (b) fails to comply with all the terms of a notice issued under s. 142(1) or a direction issued under s. 142(2A); or (c) having submitted a return, fails to comply with all the terms of a notice under s. 143(2). Sec. 146 provides that where an assessment has been made under s. 144, the assessee may apply, within one month of the date of service of the order, to set aside the best judgment assessment. Under this provision, an application to set aside a best judgment assessment can be made on three grounds, viz. : “(i) that he was prevented by sufficient cause from making the return required under sub-s. (2) of s. 139, or (ii) that he did not receive the notice issued under sub-s. (1) of s. 142 or sub-s. (2) of s. 143, or (iii) that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of any notice referred to in cl. (ii)….” If the ITO is satisfied about the existence of any of the above grounds, he shall cancel the assessment already made and proceed to make a fresh assessment in accordance with s. 143 or s. 144. Sub-s. (2) provides that an order under s. 146 shall be made within ninety days of the filing of the application. Reference may also be made to s. 147, which provides for assessing or reassessing the income which has escaped assessment. The grounds upon which such action can be taken are mentioned in cls. (a) and (b). Sec. 148 provides that before making an assessment, reassessment or recomputation under s. 147, the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under s. 139(2), and thereupon all the provisions relevant and applicable in that behalf apply.

We may also refer to s. 80 (as it stood then). It provides that “no loss which has not been determined in pursuance of a return filed under s. 139, shall be carried forward and set off” under the preceding provisions.

7. The precise question which has to be answered is, whether a return filed and accepted in pursuance of an order made under s. 146, particularly on the ground mentioned in cl. (i) of sub-s. (1) thereof, can be treated as a return filed under s. 139 for the purpose of s. 80 ? If it is, the losses can be carried forward; if it is not, the losses will not be allowed to be carried forward. The Commissioner has taken the view—which is supported by learned standing counsel for the Revenue—that a return filed beyond the periods prescribed by the several provisions in s. 139, is no return at all. He has opined that, after the expiry of the period of two years prescribed in s. 139 (4), the assessee has no right to file the return, nor is the ITO empowered to receive it. According to him, in such a case, there is no other option left to the ITO except to make an assessment under s. 144. According to learned counsel for the assessee, this view is plainly contrary to the express language, spirit and intendment of s. 146. Both counsel stated that there is no reported decision of any Court on the question at issue.

8. In our opinion, where a best judgment assessment is set aside under s. 146 on the ITO being satisfied that the assessee was prevented by sufficient cause from making the return required under sub-s. (2) of s. 139, he would naturally have to receive the return filed alongwith the application under s. 146 or within such time as he may specify. Such a return would then be a return filed under s. 139 for the purpose of s. 80, as it then stood. [In this connection, it is necessary to mention that s. 80 has been amended by the Taxation Laws (Amendment) Act, 1984, w.e.f. 1st April, 1985, and the words “under s. 139” have been substituted by the words “within the time allowed under sub- s. (1) of s. 139 or within such further time as may be allowed by the ITO”]. It would not be correct to say that even though a best judgment assessment is set aside under s. 146 on the ground mentioned above, the ITO has no power to receive the return if, meanwhile, the period of two years prescribed in sub-s. (4) of s. 139 has expired. We see no warrant for reading such a limitation into s. 146. On the contrary, s. 146 expressly says that after setting aside the best judgment assessment, the ITO shall “proceed to make a fresh assessment in accordance with the provisions of s. 143 or s. 144”. And both sub-ss. (1) and (2) of s. 143 open with the words “where a return has been made under s. 139….”. By bringing in s. 143, s. 139 has also been brought in by necessary implication. This circumstance also reinforces our opinion that the return so filed and accepted after the passing of an order under s. 146 should be deemed to be a return filed in pursuance of the notice issued under sub-s. (2) of s. 139.

Learned standing counsel for the Revenue argued, on the basis of certain observations in the decision of this Court in CIT vs. Padma Timber Depot (1987) 67 CTR (AP) 109 : (1988) 169 ITR 646 (AP) : TC9R.507, that any return filed beyond the periods prescribed in s. 139 is no return in the eye of law and that the only way in which such a return can be accepted is by issuing a notice under s. 148 r/w s. 147. It is submitted that in no other situation can the return be accepted. We are, however, of the opinion that where an assessment is reopened under s. 146, particularly on the ground mentioned in cl. (i) of sub-s. (1) thereof, it would be a contradiction in terms to say that the ITO has no power to receive or accept a return filed alongwith the petition under s. 146 or filed within such time as may be specified by the ITO in his order under s. 146. It may be that the assessment made in such a case would be an assessment under s. 146, as seems to have been assumed in CIT vs. Rameshwarlal Sanwarmal 1972 CTR (SC) 300 : (1971) 82 ITR 628 (SC); but, nonetheless, it must be said that the return so filed is a return made in pursuance of the notice issued under sub-s. (2) of s. 139. Once this is so, s. 80 is satisfied and the losses determined have to be carried forward as provided therein.

Learned standing counsel for the Revenue submitted that an order under s. 146 cannot be made beyond the two year period prescribed in sub-s. (4) of s. 139. We are unable to agree. We see no warrant to read a period of limitation into s. 146 when Parliament has not done so. The only period of limitation Parliament has prescribed is that an application under s. 146 ought to be made within one month from the date of service of a notice of demand issued in consequence of the assessment sought to be set aside—and no other. The circumstance that a notice under sub-s. (2) of s. 139 can be issued only before the end of the relevant assessment year, or that the notice should specify only a period of thirty days from the date of its service for filing the return, or the further circumstance that the power to extend time conferred by the proviso is not unbridled, do not and cannot lead to the conclusion that the period mentioned in sub-s. (4) of s. 139 ought to be read into s. 146. Sub-sec. (4) merely gives yet another opportunity to the assessee to file the return before the assessment is made, even though he may not have filed the return within the period prescribed in sub-s. (1) or in the notice issued under sub-s. (2); he can do so provided he files the return before the expiry of two years from the end of the relevant assessment year. In the very scheme of things, thus, the period prescribed in sub-s. (4) cannot be applied or extended to s. 146. We must, however, say that the power to extend time, conferred on the ITO by the proviso to sub-s. (2), must be exercised fairly and having regard to the relevant facts and circumstances of the case. It is a discretion conferred upon him, and like any other discretion, it has to be exercised fairly having regard to the circumstances of the case and also keeping in view the provisions of the Act. It may be that since the original notice itself provides for thirty days’ time, the extended period cannot be too long; but that again depends upon the facts of each case. The ITO shall keep in mind, while extending the time, that the statute itself prescribes only a period of thirty days to be given in the notice issued under sub-s. (2).

For the above reasons, we allow the writ petition and direct the ITO to allow the petitionerassessee to carry forward the loss in accordance with law. There shall be no order as to costs.

Before parting with this case, we feel constrained to make a few observations. At the relevant time the petitioner, “Indo-Nippon Precision Bearings Ltd.”, was a fairly large concern, owned by the State Government. It is rather surprising, nay, even shocking, that a return of its income/loss was not filed by the appropriate authorities within the prescribed time. It is sad to see that in spite of a notice given under sub-s. (2) and in spite of giving time repeatedly, spread over three years, for filing such a return, no return was filed. It passes our comprehension as to why this should have been so ? It is inconceivable that such a thing could have happened in a private sector organisation. Probably, because it was a public sector organisation, the persons responsible for filing the return were not bothered—for public money is nobody’s money. It is a matter of regret that very often persons in charge of such public undertakings have no sense of discipline or commitment necessary for running such enterprises. They also appear to be unaccountable to anyone. This is probably one of the main reasons why the public sector in this country is losing hundreds of crores of rupees every year, notwithstanding monopolistic conditions in several sectors. In our opinion, this is a matter which the concerned authorities must enquire into and determine the persons responsible for this state of affairs and deal with them appropriately. It is merely fortuitous that, notwithstanding the said default, the company is saved because of the language of s. 80, as it then stood. Today it may not be saved in similar circumstances.

A copy of this order may be communicated to the Secretary, Ministry of Industries, Government of India, New Delhi, and also to the Secretary, Ministry of Industries, Government of Andhra Pradesh, Hyderabad.

[Citation : 173 ITR 597]