CASE ANALYSIS ON:

INCOME TAX OFFICER vs. ANNU KNITTING MILLS (P.) LTD. 1987

Submitted by: Anurag Sahoo

Submitted to:- CA Chandresh Nayak

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 Explanation of the sections applicable in this case.

Section 139(1) of the Income Tax Act requires individuals or entities to file their income tax
returns by the specified due date if their total income meets certain criteria. In simpler terms,
it outlines the obligation for taxpayers to submit their income details within the stipulated
time frame as per the law.

Section 23 of the Income Tax Act in India relates to the determination of annual value of
property. It provides rules for computing the annual value of a property that is used for
residential purposes, where such property is owned by the taxpayer. The section outlines
various factors and considerations to arrive at the annual value, which is a key component for
calculating income under the head "Income from House Property." It's important to refer to
the latest version of the Income Tax Act or seek professional advice for any updates or
changes to the law.

Section 139(3) of the Income Tax Act in India pertains to the filing of belated income tax
returns. It allows individuals or entities who have not filed their income tax returns within the
original due date to do so at any time before the end of the relevant assessment year or before
the completion of the assessment, whichever is earlier. However, filing a belated return might
have certain consequences, including the possibility of incurring penalties or interest.

FACTS:

The appellant Revenue by their present appeal contest the correctness of the finding of the
learned CIT (Appeals), New Delhi, dated 31-10-1983, for the asst. year 1980-81, on the
following ground: On the facts and in the circumstances of the case, the learned
Commissioner of Income-tax (Appeals) erred in directing the Income-tax Officer to carry
forward the loss of Rs. 22,540 to be set off against the income of next asst. year even though
the said loss was determined in pursuance of a return filed well beyond the time limit
prescribed in Section 139(3) read with Section 139(1), especially in view of the observations
of S.C. in Brij Mohan v. CIT that a belated return filed under Section 139(4) cannot be
equated with a return under Section 139(1) of the Income-tax Act, 1961.

By status, the assesses is a private limited company and its method of accounting is
mercantile. The accounting period was the year ending 31-8-1979. The return of income was
filed on 5-6-1981 reflecting a Joss of Rs. 22,540 and taking into account the unabsorbed
losses brought forward from the earlier years, the total loss is said to have been shown at nil
according to the assessment order. The learned ITO accepted the loss declared of Rs. 22,540,
however, refused to carry forward the same, keeping in view the provision of law as
contained in Section 139(3) of the Income-tax Act, 1961.

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The learned ITO's action was challenged by the assessee and it was argued before the learned
CIT (A) by Shri S.C. Mehra, the learned authorised representative, that the return was valid
Under Section 139(4) and since in the assessment order the loss had duly been accepted by
the learned ITO there was no reason to reject the claim of carrying forward.
ISSUES:
Whether in the facts and circumstances of the case, the claim, to carry forward the loss of Rs.
22,540, to be set off against the income of next year, is legally allowable ?

CONTENTIONS RAISED:

The mention before the first appellate authority was also made of the decision in the case of
the Presidency Medical Centre (P.) Ltd. v. CIT. The learned CIT (A) vacated the learned
ITO's finding with the following observation: In the case of Presidency Medical Centre (P.)
Ltd. v. CIT it was held by the Calcutta High Court that if a return is filed within the time
allowed by Section 139(4) it should be deemed to be in accordance with law and the loss has
to be determined and carried forward. I agree with the appellant that the principles laid down
by the Supreme Court in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. are still
applicable since there is no material change in the present state of law. This contention is
therefore accepted and the ITO is directed to carry forward the loss determined in the
assessment in accordance with law.

The learned first appellate authority and so also the learned Authorized Representative before
us heavily relied upon the ratio in the case of Kulu Valley Transport Co. (P.) Ltd. (supra). In
the said case, the assessee filed voluntary returns in January 1956 disclosing loss for the years
1953-54 and 1954-55. In the said case there was some general notice_ Under Section 22(1) of
the old Income-tax Act, giving some further time for filing the returns. The returns "were
filed even after the said extension. In the said case the notice Under Section 22(2) of the old
Act was also not served. The Hon'ble Supreme Court in those circumstances found that 'a
return submitted at any time before assessment is made is a valid return’.

According to the Hon'ble Supreme Court a return whether it was return of income, profits and
gains or of loss must be considered as having been made within the time prescribed if it was
made within the time specified Under Section 22(3) of the old Act. In other words, if Section
22(3) of that Act was complied with Section 22(1) of the old Act must also be held to have
been compHed with. It was also observed that where two views are Possible, one favorable to
the citizen should be accepted while considering the provision of a statute.

JUDGEMENT
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The Hon'ble Supreme Court in the said case determined and decided the issue under the old
Act. Therefore, the Hon'ble Supreme Court had no occasion to anticipate and opine about the
implementation of Sub-section (3) of Section 139 of the present Income-tax Act. The
observation of the Hon'ble Supreme Court appears to be that a return could be submitted at
any time before assessment was made. A valid return might not be in dispute for many
purposes. However, in the peculiar circumstances in which Sub-section (3) of Section 139 is
based, the said observation, inter alia, could not have application as this sub-section deals
with a particular situation, as a right is conferred on the assessee, if such assessee satisfies,
some conditions.

The Hon'ble Supreme Court has nowhere said in the said case that the assessee would be
entitled to the benefit even if the conditions are not satisfied and the requirement of the law
are not complied with. No doubt, where two views are possible, one in favor of the citizen
may be justified but where the provision of law is clear on the point, in our considered view,
only one view is possible. The ratio in the case supra, therefore, does not help the assessee as
the Hon'ble Supreme Court was interpreting the law with reference to the old Income-tax Act
and the present provision, we are concerned with, was not declared invalid.

The ratio was, therefore, not laid down with reference to a Sub-section which was not is
existence at the relevant time and was in fact brought on the statute book subsequently.
Moreover, the Hon'ble Supreme Court had no occasion at that time to direct as to in what
manner Sub-section (3) of Section 139 will have to be implemented. The Hon'ble Supreme
Court also have not said anywhere in the said case that the said sub-section has got to be
given a go-by. The language of the Sub-section being clear on the point we consider that the
ratio in the said case does not get attracted as the same was under the old Act and in different
situation.
Thus, with due regards to the Hon'ble Supreme Court, we are of the view that the assessee's
present case under the present Income-tax Act does not get any assistance from the ratio in
the said case which was decided under the old Act and without anticipating the provision of
Sub-section (3) of Section 139.

In the light of the foregoing paragraphs we are inclined to think that the learned CIT(A) was
not justified to dislodge a correct finding recorded by the learned ITO. Sub-section (3)
contemplates a particular situation and in that situation only the right conferred on the
assessee is to be allowed and not otherwise. It is felt in the case before us the assessee did not
make himself entitled to the relief intended under the sub-section.

On behalf of the revenue reliance was also placed on the ratio in the case of Brij Mohan
(supra) decided by their Lordships of the Supreme Court. The Hon'ble Supreme Court in the
said case held ' a return filed within the extended period is a good return in the sense that the
ITO is bound to take it into consideration but nowhere does Section 139 declare that where
return is filed within the extended period it will be deemed to have been within the period
originally prescribed by the statute. On the contrary, the Section contains a provision for
payment of interest where the return is filed beyond the prescribed date i.e. within the
extended period. The return filed during the extended period, is not recorded by the statute, as
filed within the time originally prescribed.

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The ratio in this case clearly gives the impression that a return filed after the due date cannot
be considered to have been filed by the due date. Thus, in the case before us the return filed
on 5-6-81 cannot be considered to have been filed on 30-6-80 to enable the assessee to get the
benefit of Sub-section (3) of Section 139. In the light of the above discussions we are
satisfied that the CIT(A) was not justified to interfere with a correct finding recorded by the
learned ITO. We quash his finding and restore that of the learned ITO on this point.