HIMALAYA FERTILIZERS LTD. v. INCOME TAX OFFICER
[Citation -1986-LL-0522-3]

Citation 1986-LL-0522-3
Appellant Name HIMALAYA FERTILIZERS LTD.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 22/05/1986
Assessment Year 1979-80
Judgment View Judgment
Keyword Tags income chargeable to tax • unabsorbed depreciation • depreciation allowance • initial depreciation • fresh assessment • business loss • loss return
Bot Summary: Whether the ITO had rightly assumed jurisdiction under s. 147 before issuing notice under s. 148 of the Act and whether the assessee was entitled to deduction of the current year's depreciation allowance which was not deducted by the ITO and also for determination of losses for the current year and set off of past years losses, depreciation and deduction under s. 80J and allowing the same to be carried forward for adjustment in the subsequent assessment years. Since the assessee did not file the loss return within the time allowed under s. 139(3) r/w s. 139(1) i.e., by 31st July, 1979 but was filed later in response to notice under s. 148, the ITO dropped the proceedings vide order dt. 1976-77 for which assessment was made under s. 143(3) r/w s. 144B on 17th Sept., 1979, business loss to be carried forward was of Rs. 4,89,000 and depreciation of Rs. 3,77,000 and initial depreciation of Rs. 4,68,000. 1977-78 for which assessment was made on 22nd Aug., 1980 under s. 143(3) r/w s. 144B, business loss assessed to be carried forward was Rs. 8,72,000 and depreciation of Rs. 4,12,000. Counsel for the assessee further argued that once it is held that notice issued under s. 148 was bad in law, the position was as if no notice was issued and the return filed by the assessee was to be treated as a return under s. 139(4) and the same had to be acted upon, loss was to be determined unabsorbed depreciation and initial depreciation was also to be determined unabsorbed losses and depreciation of earlier years were to be carried forward. Departmental representative on the other hand, contended that jurisdiction had rightly been assumed by the ITO under s. 147/148 as the assessee was an existing assessee on the CIR. He further contended that the assessee was not entitled to determination of losses etc. Issue notice under s. 148 r/w s. 147(A).


RAM RATTAN, A.M. This appeal by assessee is directed against order of CIT (A) relating to asst. yr. 1979-80. There are several grounds of appeal but issues involved are two. (i) whether ITO had rightly assumed jurisdiction under s. 147 (a) before issuing notice under s. 148 of Act and (ii) whether assessee was entitled to deduction of current year's depreciation allowance which was not deducted by ITO and also for determination of losses for current year and set off of past years losses, depreciation and deduction under s. 80J and allowing same to be carried forward for adjustment in subsequent assessment years. In order to appreciate above issues, it would be necessary to state in brief facts of case. assessment year involved is 1979-80. accounting period of assessee ended on 31st March, 1979. Return of income under s. 139 (1) of Act was due to be filed on or before 31st July, 1979. It was not filed nor any notice under s. 132(2) was issued. ITO, however issued notice under s. 148 of Act on 19th April, 1980 which was served upon assessee on 22nd April, 1980 calling for return of its total income for t h e asst. yr. 1979-80 as income had escaped assessment. assessee, however, filed return of loss on 20th May, 1980 showing loss of Rs. 45,44,040. revised return was filed on 22nd Feb., 1982 showing loss of Rs. 54,76,480. Since assessee did not file loss return within time allowed under s. 139(3) r/w s. 139(1) i.e., by 31st July, 1979 but was filed later in response to notice under s. 148, ITO dropped proceedings vide order dt. 24th March, 1982. In other words, ITO neither computed loss for year in question nor gave benefit of brought forward losses from earlier years nor gave any direction for unabsorbed losses and depreciation to be carried forward to subsequent assessment years for set off against income of those years. appeal to CIT (A) was dismissed. issue involved have to be considered against above backdrop of facts. According to ld. counsel for assessee, initiation of proceedings under s. 147 (a) was bad in law inasmuch as ITO had no material before him to come to prima facie belief that income of assessee had escaped assessment. According to him, for asst. yrs. 1974-75 and 1975-76, no business was done and income assessed was nil. For asst. yr. 1976-77 for which assessment was made under s. 143(3) r/w s. 144B on 17th Sept., 1979, business loss to be carried forward was of Rs. 4,89,000 and depreciation of Rs. 3,77,000 and initial depreciation of Rs. 4,68,000. For asst. yr. 1977-78 for which assessment was made on 22nd Aug., 1980 under s. 143(3) r/w s. 144B, business loss assessed to be carried forward was Rs. 8,72,000 and depreciation of Rs. 4,12,000. For asst. yr. 1978-79, assessee had filed return on 7th Nov., 1978 showing business loss of Rs. 8,08,000 unabsorbed depreciation of R s . 3,74,000 and past determined losses and depreciation at Rs.21,50,000. Assessment had not been framed for this year by date notice under s. 148 was issued on 11th April, 1980 for asst. yr. 1979-80. He urged that past history of assessee revealed that there were huge losses and ITO did not possess any material in his possession on basis of which he could form prima facie belief that income of assessee had escaped assessment. He, therefore, urged that notice issued was ab initio void. ld. counsel for assessee further argued that once it is held that notice issued under s. 148 was bad in law, position was as if no notice was issued and return filed by assessee was to be treated as return under s. 139(4) and same had to be acted upon, loss was to be determined unabsorbed depreciation and initial depreciation was also to be determined unabsorbed losses and depreciation of earlier years were to be carried forward. He, therefore, urged that order of CIT (A) should be reversed and ITO should be directed to compute losses etc., as claimed by assessee. ld. departmental representative on other hand, contended that jurisdiction had rightly been assumed by ITO under s. 147 (a)/148 as assessee was existing assessee on CIR. He further contended that assessee was not entitled to determination of losses etc., as he did not file return of loss within time allowed under s. 139(3)/139(1) of Act. We have given our careful consideration to rival submissions. We have also gone through reasons recorded before initiating proceedings under s. 147 (a). reasons recorded read as under: "No return of income has been filed for asst. yr. 1979-80. assessee company has running business. income/receipts/sales run into several lacs. I have reason to belief that taxable income has escaped assessment. Issue notice under s. 148 r/w s. 147(A)." From above reasons recorded it is apparent that ITO invoked jurisdiction under s. 147 (a). It has two conditions to be fulfilled before ITO can assume jurisdiction for issuing notice under s. 148 for assessing or reassessing escaped income. These are (i) that there should be failure on part of assessee in making return or if return was filed assessee had failed to disclose fully and truly all material facts necessary for his assessment for that year and (ii) income chargeable to assessment had escaped assessment for that year. So far as first condition that assessee had not filed return of its total income is concerned, is fulfilled. second condition is that ITO should have reasonable belief that income chargeable to tax had escaped assessment. In reasons recorded by ITO, there is no mention as to what was income which had escaped assessment. He has made general statement that turnover of assessee ran into lacs of rupees and, therefore, assessee had taxable income. He has not taken into consideration fact that in past there were determined losses running into lacs of Rupees. state of affairs of business could not have changed for assessment year under appeal. In earlier years also receipts from sales of assessee ran into several lacs but still there were losses. In view of past history of case, we are of opinion that ITO had no material before him to come to conclusion that income chargeable to tax had escaped assessment. second condition for issuing notice under s. 148 is not fulfilled in this case. Both these conditions have to be cumulatively fulfilled. In view of above discussions, we hold that ITO wrongly assumed jurisdiction under s. 147 (a). Consequently notice issued under s. 148 is bad in law. effect is as if no notice under s. 148 was issued. Once it is held that no notice under s. 148 was issued, then it is to be considered as to what was position of loss return filed by assessee on 20th May, 1980 which is beyond time allowed under s. 139(3) r/w s. 139(1) of Act. This issue came up for consideration before us in number of cases and we have taken consistent view that in view of judgment of Supreme Court in case of Kulu Valley Transport Co. P. Ltd. vs. CIT (1967) 64 ITR 121 (Punj) loss return filed even after period allowed under s. 139(3) has to be treated as return when it is filed before assessment is completed or before expiry of normal period of assessment which was to expire on 31st March, 1982. In such circumstances, we hold that it was return under s.139(4) and ITO should have made assessment taking said return into consideration and determined losses etc., as claimed by assessee. We are, therefore, unable to sustain order of CIT (A). same is reversed. ITO is directed to determine claims made by assessee and pass fresh assessment order. In result, appeal is allowed. *** HIMALAYA FERTILIZERS LTD. v. INCOME TAX OFFICER
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