Kerala H.C : return filed against notice issued under section 148 cannot be treated as a regular return under section 139.

High Court Of Kerala

Radha Picture Palace vs. DCIT

Assessment Year : 1995-96

Section : 184, 144

C.N. Ramachandran Nair And V.K. Mohanan, JJ.

IT Appeal No. 39 Of 2003

December 10, 2009

JUDGMENT

C.N. Ramachandran Nair, J. – The question raised is whether the Tribunal was justified in confirming the suo motu revision order issued by the Commissioner under section 263 of the Income-tax Act, 1961 (for short ‘the Income-tax Act’) holding that the appellant/assessee was not entitled to deduction by way of payment of interest, salary, bonus, commission or remuneration to the partners of the firm in an assessment completed under section 147 of the Income-tax Act for the assessment year 1995-96.

2. We have heard Advocate Sri P. Balakrishnan, appearing for the appellant and Senior Standing Counsel Sri P.K.R. Menon, appearing for the respondents.

3. Admittedly, the assessee did not file any return of income under sub-section (1), (4) or (5) of section 139. In fact, belated return was filed on 31-12-1999 after which notice was issued under section 148 of the Income-tax Act whereunder the Assessing Officer proposed to make income escaping assessment. Thereafter, the assessee filed revised return on 19-7-2000 returning an income of Rs. 4.62 lakhs based on which assessment was made accepting the said return. However, the Commissioner of Income-tax directed revision of assessment because he found that while completing the assessment in terms of return filed by the assessee, the Assessing Officer allowed deductions towards the remuneration, salary, interest etc., paid by the assessee-firm to the partners which was in violation of section 184(5) of the Income-tax Act. Even though the assessee filed appeal to the Tribunal against the order of the Commissioner issued under section 263 directing revision of assessment to withdraw the deduction granted in violation of section 184(5) of the Act, the Tribunal upheld the Commissioner’s order and rejected the appeal against which this appeal is filed.

4. The assessee’s contention before ITAT was that the failures referred to in section 144(1)(a) though have happened, disallowances under section 184(5) are not attracted because of filing of return pursuant to notice issued under section 148(1). In other words, the fiction under the latter part of section 148(1) saves the assessee from disallowance was their case. However, the Tribunal turned down this contention against which this appeal is filed.

5. In order to appreciate the contentions, we have to consider the scope of sections 184(5) and 148(1) of the Act. Accordingly, we extract below the said sections for easy reference.

“184. Assessment as a firm.—(1) to (4)******

(5) Notwithstanding anything contained in any other provision of this Act, where, in respect of any assessment year, there is on the part of a firm any such failure as is mentioned in section 144, the firm shall be so assessed that no deduction by way of any payment of interest, salary, bonus, commission or remuneration, by whatever name called, made by such firm to any partner of such firm shall be allowed in computing the income chargeable under the head “Profits and gains of business or profession” and such interest, salary, bonus, commission or remuneration shall not be chargeable to income-tax under clause (v) of section 28.

148. Issue of notice where income has escaped assessment.—(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.”

6. The failures covered by section 144(1), which attract disallowance of deductions claimed by the firm towards payment of interest, salary, bonus, commission or remuneration to it’s partners under section 184(5), are failure to file return under sub-section (1), (4) or (5) of section 139 or failure to comply with all the terms of notice issued under sections 142(1), 143(2) etc. Admittedly, the assessee is involved in the failures referred to in section 144 inasmuch as the assessee has not filed a regular return voluntarily and there was no occasion for it to file any return under sub-clause (4) or (5) of section 139. However, the assessee filed a belated return and a revised return pursuant to notice issued under section 148 of the Income-tax Act claiming deductions of remuneration, interest etc., paid to partners and the same happened to be allowed by the Assessing Officer. The Commissioner, however, ordered revision of the assessment holding that since assessee did not file return, it was not entitled to the deductions claimed because of the prohibition contained in section 184(5) read with section 144(1) of the Act. The assessee’s contention is that when a return is filed based on notice issued under section 148, by virtue of fiction available under the latter part of section 148, such return is to be treated as a regular return and all the provisions of the Act will apply. The contention of counsel for the appellant is that when there is compliance of notice under section 148 by filing return, the return so filed should be treated as return filed under section 139 of the Act and so much so, the failure referred to in section 184(5) does not arise in a case where the assessee filed a return in terms of notice issued under section 148. Standing Counsel appearing for the respondents contended that the failures referred to in section 144(1) are absolute and reassessment, if any, initiated, cannot save the assessee from such failures and so much so, the fiction available under section 148 only entitles the assessee for the application of the other provisions of the Act. The assessee cannot get over the disability under section 184(5) by filing return in reassessment proceedings initiated under section 147 of the Act, is the contention of the Revenue.

7. After hearing both sides and after going through the above statutory provisions, we are unable to uphold the assessee’s contention that the filing of return against notice issued under section 148 can be treated as a return under section 139 of the Act entitling them not to be treated as assessees, who have committed failures under section 144(1) of the Act. The object of section 184(5) is such that only assessees, who comply with the statutory provisions which include filing of regular returns in time and co-operating with the Department by complying with the terms of notices issued under sections 142, 143(2) are entitled to the benefit of deductions. All what section 148 conveys is that reassessment under section 147 based on the return filed pursuant to notice issued under the said section should be completed in the same way a regular assessment is completed based on a return filed under section 139(1). However, it cannot be said that an assessee, who filed a return based on notice issued under section 148, is not involved in any of the failures referred to in section 144(1) which the assessee admittedly has committed inasmuch as the assessee has not filed a regular return under section 139. The very purpose of introducing a fiction in section 148 is that but for the fiction available therein, a return filed against notice issued under section 148 cannot be treated as a regular return under section 139. However, filing of return against notice issued under section 148 itself is not the same as filing a return under section 139 of the Act. So much so, failures referred to in section 144(1) are absolute failures which cannot be remedied by filing returns based on notice under section 148 of the Act. We therefore uphold the order of the Tribunal confirming the order of the Commissioner issued under section 263 holding that the assessee is not entitled to the deductions the Assessing Officer allowed while completing assessment under section 147 in violation of section 184(5) of the Act for the failure committed by the assessee as referred to under section 144(1) of the Act.

Accordingly, the appeal is dismissed.

[Citation : 344 ITR 274]

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