Behari Lal, Accountant Member - (1.) THIS appeal of the assessee has been directed against the order of the CIT(A), C-II, Mumbai, dated 11-12-1991 for the assessment year 1988-89. The grounds of appeal taken up by the assessee are regarding the (i) disallowance of carry forward of loss and (ii) disallowance of interest of Rs. 17,96,757 and proportionate insurance premium out of Rs. 52,254 relevant to plant and machinery.
(2.) A return of income declaring loss of Rs. 56,60,000 was filed by the assessee company on 27-6-1988. The return was marked as provisional. Since audited profit and loss account and balance sheet and the auditor's report were not filed along with return, the Assessing Officer issued notice under Section 139(9) of the Act on 22-9-1988 asking the assessee to rectify the said defects within 15 days from the receipt thereof. Since the assessee had failed to rectify the defects, the return filed by the assessee was treated as invalid as per the provisions of Section 139(9) of the Act. Thereafter, the Assessing Officer issued notice under Section 139(2) dated 15-1-1988 directing the assessee to file a return as the original return filed by the assessee was treated as invalid. In response to the notice under Section 139(2), the assessee filed the return on 19-12-1988 declaring loss of Rs. 48,69,000. The assessee did not file the audited accounts along with this return also. Subsequently, the assessee filed another return of income on 30-12-1989 declaring loss of Rs. 46,85,264. The Assessing Officer referred to the provisions of Section 139(3) of the Act and has staled that the assessee was required to furnish the return of loss within the time allowed under Section 139(1) of the Act in order to claim the loss to be carried forward to the subsequent year. According to him, Section 139(3) is an enabling provision by virtue of which the assessee who has sustained loss is allowed to file the return of income declaring loss. However, the time limit is the same as mentioned in Section 139(1) of the Act. He has further observed that the original return was filed within the time allowed under Section 139(1) of the Act but the same has been declared defective and invalid under Section 139(9) of the Act. Thus according to the Assessing Officer, the assessee failed to furnish the return in time as per the provisions of section I39( 1) of the Act. Therefore, the Assessing Officer held that the assessee was not entitled to carry forward the loss to the subsequent year.
(3.) BEFORE the learned CIT(A), it was submitted that the provisions of Section 139(3) of the Act are applicable only in cases where notice under Section 139(2) has not been issued. In this case, notice under Section 139(2) was issued, therefore, the assessee came out of the provisions of Sub-section (3) of Section 139 of the Act. Therefore, the Assessing Officer was obliged to compute the income or loss on the basis of the return filed in response to notice under Section 139(2) of the Act and also to take into account the revised return filed after the filing of the return in response to notice under Section 139(2) of the Act. The assessee also argued that Section 139(9) is eligible to be read with sympathy since this is meant to remove the difficulties and avoid long drawn process of litigations to the Department and to the assessee. Under this section, the Assessing Officer has enough powers to extend the period to rectify the defects. Similarly, this section is required to be read along with the Sections 144 and 292B. A combined reading of these sections would automatically enable the Assessing Officer to be positive legal having helping hands instead of having the desire to punish the assessee. Therefore, by not reading this section along with Section 144 and Section 292B, the assessing authority deprived the assessee from due sympathetic consideration. It was thus submitted that the Assessing Officer ought to have appreciated that once the return was valid and other complications of treating the return invalid or defective or non-compliance of provisions of Section 139(9) were unwarranted and therefore, having done so was excessive and illegal and liable to be set aside. The learned CIT(A) referred to the provisions of Section 80 of the Act and observed that there is a bar to carry forward the loss if the same has not been determined in pursuance of a return filed within the time allowed under Section 139(1) of the Act or within the further time allowed by the Assessing Officer. In this case, the return was filed by the assessee in response to notice under Section 139(2) beyond the time allowed under Section 139(1) of the Act. Therefore, according to the learned CIT(A), the provisions prescribed by Section 80 shall apply to the assessee's case. The learned CIT(A) has further stated that for the loss to be carried forward, it is mandatory that the return must be filed within the time prescribed under Section 139(1) of the Act. Regarding the reference made by the assessee to Sections 139(9) and 292B, the learned CIT(A) observed that Section 139(9) requires the Assessing Officer to intimate to the assessee for removal of the defects in the return within 15 days or within further extended period which may be allowed by the Assessing Officer. If the defect is not removed within the prescribed period, the return has to be treated as invalid and all the provisions of the Act have to be applied as if the assessee failed to file the return. Regarding Section 292B, the learned CIT(A) observed that the return filed without being accompanied by profit and loss account, balance sheet and Auditor's report could be said to be a return in substance and effect in conformity with or according to the intent and purpose of the Act. The learned CIT(A) has further that the provisions of Section 139(9) lays down under what circumstances the return has to be treated as defective one. The particulars not filed by the assessee are also included therein. Under these circumstances, the Assessing Officer had no choice but to treat the original return as defective and to treat the same as invalid once the assessee failed to rectify the defects. The learned CIT(A), therefore, upheld the findings of the Assessing Officer that the loss in this case cannot be carried forward because the return of income was not filed within the time allowed under Section 139(3) of the Act.;