George Cheriyan, Accountant Member -
(1.) THESE are two appeals by the assessee. They relate to the assessment years 1974-75 and 1975-76. For the assessment year 1974-75, the assessee, a firm, which had applied for registration filed application in Form No. 11 on 2-6-1973 which was accompanied by the instrument of partnership, etc The return of income was, however, filed only on 2-6-1979 showing an income of Rs. 11,030. The return carried a notation : 'Under Section 139(1)'. Under the provisions of Section 139(4) of the Income-tax Act, 1961 ('the Act'), a return of income for this year had to be filed on or before 31-3-1977. But there is the entry in the order-sheet dated 17-1-1979, as under:
Voluntary return of income filed on 2-1-1979. The assessee-firm filed the return out of time. Hence notice under Section 148 put up to regularise the same.
The assessee sent a letter which was received on 28-1-1979 which requested that the return filed earlier should be treated as a return in response to notice under Section 148 of the Act. The ITO thereafter issued notice under Section 143(2) of the Act and from the records it is seen that he went into the source of introduction of capital of each of the partners and eventually completed the assessment on a total income of Rs. 18,200. He gave credit for tax deducted at source of Rs. 2,922. This deduction of tax at source was made by various persons who paid amounts on account of contract work as enjoined by the provisions of Section 194C of the Act. Eventually, the balance refundable was computed at Rs. 2,469 and refund voucher was also issued. The assessment order was dated 24-4-1979. Registration was also granted to the firm.
(2.) For the assessment year 1975-76, again, the return of income was filed on 2-1-1979. This return also carried the notation : 'Under Section 139(1)'. The income shown was R,s. 14,600. For this year, Form No. 12 had been filed as early as 9-6-1975. For this assessment year, a valid return under Section 139(4) had to be filed on or before 31-3-1978. For this year, the order-sheet contains the following noting dated 17-1-1979 :
Voluntary return of income filed on 2-1-1979. Notice under Section 148 put up.
The ITO, in due course, completed the assessment on a total income of Rs. 22,600. He gave credit for tax deducted at source of Rs. 3,416 and computed the balance refundable at Rs. 2,723 which amount was also refunded. The assessment order is dated 24-4-1979. For this year also registration was granted.
In due course, the Commissioner initiated proceedings under Section 263 of the Act and he passed a combined order for both the assessment years on 18-4-1981. The Commissioner stated that in both the returns refund of tax had been claimed and the time-limit prescribed for claiming refund under Section 239 had expired before the returns were filed. These dates are the same as referred to by us with reference to the provisions of Section 139(4). According to the Commissioner, the ITO should have ignored the returns and not taken action under Section 148 of the Act, for regularising the same. The Commissioner thereafter observed as under :
For invoking the provisions of Section 147, the fundamental condition should be satisfied in that the 'income chargeable to tax' has escaped assessment for a particular assessment year. Explanation 1 to Section 147 refers to cases where income chargeable to tax has escaped assessment. Since tax was already deducted under the provisions of the Income-tax Act, on the incomes returned by the assessee for the said two assessment years, there was legally and actually no escapement of any income chargeable to tax within the meaning and spirit of Section 147. Hence the action of the Income-tax Officer in issuing a notice under Section 148 was clearly erroneous and prejudicial to the interests of revenue.
The assessee, in reply to the show-cause notice, contended that the orders passed by the ITO were not prejudicial to the interests of the revenue, because, if a proper assessment was made and excess tax refunded, it could never be construed as an act which was prejudicial to the revenue. In short, the assessee contended that the assessments made were in accordance with law. According to the Commissioner, the ITO had not kept in mind the relevant provisions of law when issuing notices under Section 148. He stated that the provisions of Section 147 of the Act were intended only for the benefit of the revenue and not for the benefit of the assessee and if, during the course of proceedings, the ITO had found that there was no loss of revenue, he should have dropped the proceedings under Section 147 and he should not have proceeded to complete the assessment and thereby grant a refund to the assessee. In support of this view, the Commissioner referred to the decisions of the Bombay High Court in the cases of S. Inder Sing Gill v. CIT  47 ITR 284 and Kevaldas Ranchhodas v. CIT  68 ITR 842. The Commissioner then went on to elucidate how in his view, the assessments made were erroneous, by emphasising that the assessee could not claim refunds after the stipulated date when, a return could have been voluntarily filed. Finally the Commissioner stated that even if on the ground of equity there was excess deduction of tax and hence a refund was due to the assessee, the only proper course would have been to apply to the Board for condonation of the delay in filing the returns and since this was not done, the assessee could not expect to get the refunds. He, therefore, cancelled the assessments and directed the ITO to recover the refunds already issued to the assessee. There was no action taken under Section 263 in relation to the orders granting registration. Therefore, such orders still stand.
(3.) THE assessee is in appeal before us and it was contended by the learned counsel that the assessments as made were perfectly in order and the Commissioner should not have interfered with the same.;