1995-VIL-201-ITAT-CHD

Equivalent Citation: ITD 053, 553,

Income Tax Appellate Tribunal CHANDIGARH

Date: 24.02.1995

STEEL STRIPS LIMITED.

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : N. K. AGRAWAL., R. K. BALI.

JUDGMENT

Per Agrawal, Judicial Member --- In this appeal relating to assessment year 1986-87, the assessee has raised four grounds, wherein the basic issue relates to the validity of the order passed by the Commissioner of Income-tax under section 263 of the Income-tax Act, 1961. In ground No. 1, the order passed u/s 263 is said to be bad in law. In the other three grounds, the said order has been challenged on the plea that the assessment order passed by the Assessing Officer u/s 143(1) was neither erroneous nor prejudicial to the interests of the revenue and the application of section 263 was not warranted.

2. Though the assessee has raised definite grounds challenging the order passed u/s 263 by the CIT, but the ld. counsel has raised a new legal issue before us to the effect that the ld. CIT had no jurisdiction in law to set aside an order, which was an invalid one.

3. The facts of the case are that the return was filed on 29-7-1986. The accounting period ended on 31-12-1985. The assessee had shown income for the year under appeal at Rs. 1,29,18,243 but, after adjustment of unabsorbed investment allowance, the net income was shown at 'nil'. This return was processed by the A.O. u/s 143(1) on 13-1-1989. The CIT proceeded u/s 263 with the plea that the A.O. had failed to make disallowance in respect of certain travelling expenses and certain expenses incurred on the purchase of presentation articles. The CIT also noticed that the A.O. had already issued a notice u/s 143(2) and the assessee's representative had also appeared before the A. O. in compliance of that notice. The CIT was of the view that the A. O. could not have framed the assessment u/s 143(1) inasmuch as the proceedings had been initiated u/s 143(2).

4. The ld. counsel has confined his argument to the legal issue raised and has opted not to argue the case in respect of the grounds taken in the memo of appeal. The ld. counsel has submitted that since the assessee had shown 'nil' income in the return filed on 29-7-1986, the return was non est in view of section 139(10). Section 139(10) reads as under :

" 139(10). Notwithstanding anything contained in any other provision of this Act, a return of income which shows the total income below the maximum amount which is not chargeable to tax shall be deemed never to have been furnished :

Provided that nothing hereinbefore contained shall apply to,---

(a) a return furnished in response to a notice under sub-section (2) of sec. 148 ;

(b) a return of a firm or a partner of a firm ;

(c) a return of loss which has been furnished in accordance with the provisions of sub-section (3) ;

(d) a return of a person who has claimed exemption of income from property held for charitable or religious purposes ;

(e) a return furnished under sub-section (4B) in respect of a political party ; and

(f) a return furnished in support of a claim for refund u/s 237."

The ld. counsel has vehemently argued that the exceptions contained in clauses (a) to (f) of the proviso to sub-section (10) did not cover the assessee because the assessee was a company and since total income had been shown in the return below the maximum amount which was not chargeable to tax, the return had to be treated as not having been furnished at all. It is contended that the return showing 'nil'income could not be treated to have been furnished at all in the light of clear and unambiguous provisions contained in sub-section (10) of section 139. The ld. counsel has submitted that he could raise a new legal plea in the light of the decision of the Supreme Court in the case of CIT v. Mahalakshmi Textile Mills Ltd. [1967] 66 ITR 710. It is contended that if the return of income was non est, any action whatsoever taken on that return would be invalid, illegal and without jurisdiction. Reliance has also been placed on the decision of the Punjab and Haryana High Court in the case of Vijay Kumar Jain v. CIT [1975] 99 ITR 349. It was held therein that if the notice issued was invalid for any reason, the entire proceedings taken by the ITO would be void for want of jurisdiction. In that situation, the Tribunal was not justified in refusing to consider the validity of the notice under section 148, even though the ground challenging the same had not been pressed before the AAC. Reliance is also placed on the decision of the Gujarat High Court in the case of P. V. Doshi v. CIT [1978] 113 ITR 22 for the proposition that where certain conditions were found to be mandatory, there could never be a waiver of a mandatory provision for the simple reason that in such cases jurisdiction could not be conferred on the authority by mere consent. The ld. counsel has argued that the CIT exercising powers u/s 263 appears to have conferred jurisdiction on the A.O. to make fresh asst. whereas the A.O. had no powers at all to take any action on the return filed by the assessee. The CIT, by setting aside the asst. framed u/s 143(1), conferred jurisdiction on the A.O. to proceed in respect of asst. on the basis of the return filed by the assessee. The CIT could have only annulled the assessment but could not have done anything else.

5. The ld. D.R. has, in reply, contended that the CIT had rightly invoked section 263 of the Act inasmuch as certain disallowances were required to be made in respect of certain expenditures. So far as the legal issue is concerned, our attention has been drawn to a civil writ petition filed by the assessee before the High Court of Punjab and Haryana raising the similar legal question which has now been raised in this appeal. It is stated that the writ petition was dismissed, vide order dated 3-3-1992 because the assessee did not choose to file replication despite a specific adjournment granted for the purpose. By that order, the petitioner (assessee) was relegated to his remedy before the authorities under the Income-tax Act. The ld. D.R. has further argued that the circular of the CBDT, No. 493 [F. No. 201/64/86-IT(A)11] dated 21-8-1987, clearly specified that the returns filed in the cases of the companies have to be accepted under section 139(10). It is also contended that the First Schedule to the Income-tax Act made it clear that the maximum amount not chargeable to tax, related to the cases of individuals, unregistered firms, other AOPs or body of individuals. Since the First Schedule did not relate to the companies, there was no question of applying sub-section (10) of section 139 whereunder total income shown in the return has to be below the maximum amount not chargeable to tax. It is stated that in the case of a company, there was no such maximum amount not chargeable to tax and, therefore, the sub-section (10) of section 139 was not attracted at all. Our attention has also been drawn to the further proceedings which were taken by the Assessing Officer subsequent to the order passed under section 263. It is stated that certain disallowances have been made and, thereafter, in appeal also, those disallowances were upheld by the CIT (Appeals). The assessee also raised the legal issue that section 139(10) was applicable to the assessee's return of income, but that plea has been rejected by the ld. first appellate authority.

6. We have considered the rival contentions but we are unable to agree with the revenue's plea that the Board's circular could be taken into consideration so as to over-ride or eclipse the specific and clear provision of law. We have already seen that section 139(10) applied to a case where a return of income showed the total income below the maximum amount not chargeable to tax. The assessee's case is found to be squarely covered under the said provision. We are unable to say as to how the CBDT specified in the circular that the returns filed by the companies are to be admitted by the Assessing Officer when the specific and unambiguous provision in sub-section (10) declared otherwise. On a plain reading of the provision, it is clear that a return showing total income below the maximum amount not chargeable to tax, has to be treated as never to have been furnished. The ld. counsel has, at this stage, pointed out that the aforesaid Board's circular was not beneficial to the assessee and the revenue could not make use of the same to determine the question against the assessee. We find ourselves in agreement with the ld. counsel that the Board's circular was not to be made applicable to the assessee's case ; firstly, because it was not beneficial to the assessee ; and, secondly, for the reason that it ran counter to the specific and unambiguous provision contained in sub-section (10) of section 139. So far as the revenue's plea is concerned, that the First Schedule to the Income-tax Act did not relate to the companies, we find no relevance because in the case of the companies also, the maximum amount chargeable to tax, though not specified, is definitely to be a positive amount. The ld. counsel has pointed out that even in the case of a company, there must be a positive amount for the levy of tax and since the assessee showed 'nil' income, it could be treated to be an income below the maximum amount not chargeable to tax : So far as the plea regarding the dismissal of the assessee's writ petition is concerned, we find that the High Court has not decided the issue regarding the applicability of section 139(10) and has left the matter open. Mere dismissal of the writ petition does not give any strength to the revenue's plea. So far as subsequent proceedings are concerned, we refrain from making any comments because those proceedings are not under consideration in the present appeal. It is noted that the assessee had shown in the annexures filed with the return, net profit, as per the profit and loss account, at Rs. 1,20,78,108. Total income, after making certain adjustments in respect of depreciation, payment of excise duty, sales-tax and provident fund, was shown at Rs. 1,29,18,243. Thereafter, unabsorbed investment allowance relating to the earlier three assessment years, viz., 1981-82, 1982-83 and 1983-84, was adjusted to the extent of the total income shown in this year. It appears that the assessee has further carried forward certain claims under section 80J as well as in respect of investment allowance to the tune of Rs. 1,21,27,099, which remained still unabsorbed. This is how net taxable income was shown as'nil' in the return of income filed on 29-7-1986. Since the assessee showed 'nil' income, in our view, section 139(10) came into play and the return of income shall be deemed never to have been furnished. The legal issue raised by the ld. counsel succeeds and we hold that the return filed by the assessee was non est under section 139(10) and any action taken on that return stood vitiated and was invalid. The order passed by the CIT under section 263 of the Act is also held to be without jurisdiction and bad in law. The legal issue raised by the assessee succeeds.

7. Since the ld. counsel has opted not to argue this appeal on merits, we decide the matter on the legal question alone. The plea succeeds and the order under section 263 is held to be invalid. The same is cancelled.

8. In the result, the appeal succeeds

 

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