SEEYAN PLYWOODS VS INCOME-TAX OFFICER, 2000 PTD-KERALA-HIGH-COURT-INDIA 3485 (1998)

Income-tax---

----Return--Defect in return---Limitation for curing defect---Defect in return of not filing audit report in Form No. IOC discovered after a lapse of nearly six years and after assessment set aside---Original assessment must be deemed to be non-existent---In view of order of remand fresh assessment proceedings initiated---ITO issuing show-cause notice under section 139(9) as to why deduction under S. 80HH should not be rejected for non-filing of Form No: 10C---Limitation for curing defect in return started from issue of show-cause notice under S. 139(9)---ITO not giving 15 days' time under S.139(9) to cure defect---Assessment made before expiry of statutory period to file objections cannot be sustained---Matter remanded---Indian Income Tax Act, 1961, S.139.

The petitioner-firm started an industrial undertaking and its claim for deduction under section 80HH of the Income Tax Act, 1961, was allowed during the assessment year 1977-78. This was confirmed by the Court. But on September 14, 1984, the Income-tax Officer rejected the claim for deduction under section 80HH of the Act for the assessment year 1982-83. The appeal filed by the petitioner before the Commissioner of Income-tax (Appeals), was allowed and the matter was remitted to the Income-tax Officer to examine the claim under section 80HH afresh. On March 17, 1988, the Income-tax Officer served a letter on the petitioner's chartered accountant pointing out that the assessee had not furnished the report of audit in Form No. 10C alongwith the return of income filed for the year 1982-83,. The assessee was directed to show cause as to why its claim for deduction under section 80HH should not be rejected for non-compliance with the prescribed conditions. The assessee was asked to file its objections before March 25, 1988. But, no such objection was filed by March 25, 1988. Hence, the Income-tax Officer passed an order on March 25, 1988, disallowing the claim of the assessee under section 80HH. The assessee, however, filed the objection on March 29, 1988, by which time the assessment order had already been passed. The assessee preferred a revision but it was dismissed. On a writ petition against the order:

Held, that there was no dispute that Form No.IOC was required to be produced alongwith the returns. But, it was not produced. That defect was not pointed out to the assessee before the assessment order was passed on September 14, 1984. This defect was also not noticed by the appellate authority while remanding the case to the Income-tax Officer, by his order, dated February 10, 1988. Thus, after a lapse of nearly six years this defect was pointed out. The order of the Income-tax Officer was set aside. Thus, in implied that the assessment made by the Income-tax Officer earlier was not a valid assessment and he was directed to make a fresh assessment. The earlier assessment was deemed to be non-existent. The actual assessment by the Income-tax Officer was made only after the matter was remanded. The Income-tax Officer not having given fifteen days' time under section 139(9) of the Act to cure the defect from the date of issue of notice to that effect, the petitioner was denied his valuable right and any order passed within fifteen days from the date of issue of notice was deemed to have caused prejudice to the petitioner under the law. Since the assessment was finalised before the expiry of the statutory period to file objections, the impugned orders could not be sustained.

Matter remanded to Income-tax Officer to pass appropriate orders after accepting the audit report filed on March 29, 1988, and after giving opportunity of being heard to assessee.

CIT v. Seeyan Plywoods (1991) 190 ITR 564 (Ker.); Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) and Sarangpur Cotton Manufacturing Co. Ltd. v. CIT (1957) 31 ITR 698 (Bom.) ref.

S.A. Nagendran and Premjit Nagendran for Petitioner.

P.K.R. Menon and N.R.K. Nair for Respondents.

JUDGMENT

The petitioner is an assessee under the Income Tax Act; 1961. The petitioner deals in manufacture and sale of plywood, veneers, etc. The petitioner-firm started an Industrial undertaking in 1974 at Baliapatam in Cannanor District. The petitioner's claim for deduction under section 80HH of the Income-tax Act was allowed during the assessment year 1977-78. This was confirmed by this Court in I.T.R. No.123. of 1987 (CIT v. Seeyan Plywoods (1991) 190 ITR 564). Thus, under the law the petitioner is entitled to have the benefit of deduction under section 80HH of the Income-tax Act. But, on September 14, 1984, the Income-tax Officer (first respondent) rejected the claim for deduction under section 80HH of the Act for the assessment year 1982-83. The appeal filed by the petitioner before ?the Commissioner of Income-tax (Appeals), Calicut was allowed and the matter was remitted to the Income-tax Officer to examine the claim under section 80HH afresh. On March 17, 1988, the Income-tax Officer served a letter on the petitioner's chartered accountant pointing out that the assessee has not furnished the report of audit in Form No. 10C alongwith the return of income for the year 1982-83. The assessee was directed to show cause as to why its claim for deduction under section 80HH should not be rejected for non-compliance of the prescribed conditions. The assessee was asked to. file its objections before March 25, 1988. But, no such objection was filed by March 25, 1988. Hence, the Income-tax Officer passed an order on. March 25, 1988, disallowing the claim of the assessee under section 80HH. The assessee, however, filed the objection on March 29, 1988, by which, time the assessment order had already been passed. The assessee preferred a revision before the Commissioner of Income-tax (second respondent), under section 264 of the Income-tax Act. By order, dated September 27, 1991 (Exh. P8), the second respondent dismissed the revision petition by upholding the order of the Income-tax Officer, dated March 25, 1988. The ground on which it was rejected is that the petitioner did not file the report of audit in Form No. IOC as required under law alongwith the returns.

Learned counsel for the petitioner by relying on section 139(9) of the Income Tax Act, 1961, has contended that the Income-tax Officer committed error in not granting 15 days time to cure the defect and any order passed before the expiry of 15 days from the date of service of the notice is void.

Learned counsel for the respondents has contended that section 139(9) of the Act would not be applicable in the instant case. The proviso thereunder being that time should be granted only from the date of first assessment. There was no bar for the Income-tax Officer to pass the impugned order on March 25, 1988.

Subsection (9) of section 139 of the Income Tax Act, 1961, together with its proviso reads as follows:

"Where the Assessing Officer considers that the return of income furnish by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which; on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is to rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return: Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the Assessing Officer may condone the delay and treat the, return as a valid return."

Learned counsel for the respondents relies on the decision of the Bombay High Court in Sarangpur Cotton Manufacturing Co. Ltd. v. CIT (1957) 31 ITR 698 and contends that the fifteen days time as per sub?section (9) of section 139 of the Act is available from the date before the first assessment and not after the matter was remanded to the Income-tax Officer for fresh assessment on the basis of the returns filed by the assessee. It has been held by the Bombay High Court' as follows (headnote):

"The date of the assessment under section 23 upto which interest is payable to an assessee on the advance tax paid by him under section 18A, refers to the date of the assessment under section 23 in fact. The mere fact that an assessment made under section 23 was set aside on appeal by the Appellate Assistant Commissioner, and a fresh assessment was made at a subsequent date, would not entitle the assessee to interest on the advance tax up to the date of the subsequent assessment."

The above dictum has been affirmed by the Supreme Court in Modi Industries Ltd. v. CIT (1995) 216 ITR 759. In that case, the question of the date from which interest is payable to an assessee on the excess advance tax that was paid by him, arose for consideration. It is true that under the proviso to section 139(9), it is contemplated that the assessee should rectify the defect before the expiry of the period of 15 days but before the assessment is made. In this case, the question is whether the assessment was deemed to have been made on September 14, 1984 (Exh. P-2), or on March 25, 1988 (Exh. P-6). There is no dispute that Form No. 10C was required to be produced alongwith the returns. But, it was not produced. That effect was not pointed out to the assessee before the assessment order was passed on September 14, 1984. This defect was also not noticed by the appellant authority while remanding the case to the Income-tax Officer, by its order, dated February 10, 1988 (Exh. P-3). Thus, after a lapse of nearly six years this defect was pointed out. By exh. P-3, the order of the Income-tax Officer was set aside. Thus, it implies that the assessment made by the Income-tax Officer earlier was not a valid assessment and he was directed to make a fresh assessment. By exh. P-3 order, the earlier assessment is deemed to be non-existent. In my opinion, the actual assessment by the Income-tax Officer was made only after the matter was remanded. In this view of the matter, I am inclined to hold that the Income-tax Officer, having not given 15 days time under section 139(9) of the Act to cure the defect from the date of issue of notice to that effect, the petitioner-assessee was denied his valuable right and any order passed within 15 days from the date of issue of notice is deemed to have caused prejudice to the petitioner under the law. Since the assessment was finalised before the expiry of the statutory period to file objections, the impugned order (exh. P-6 and P-8) cannot be sustained. The said orders are, therefore, quashed.

The writ petition is allowed. The matter is remitted to the first respondent to hear the same afresh on merits and pass appropriate orders after accepting the audit report, which was filed alongwith the petitioner, dated March 29, 1988. The first respondent shall give an opportunity of being heard to the petitioner before passing the final assessment order. No costs.

M.B.A./108/FC?????????????????????????????????????????????????????????????????????????????????? Petition remanded.