Sabyasachi Mukherjee, J. - (1.) In this application under s. 256(2) of the I.T. Act, 1961, as directed by this court the following question of law have been referred to this court: 1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the appeal against the order of the Income Tax Officer is maintainable ? 2. Whether, in any event, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the return filed by the assessee was a valid return and in directing on that basis that the entire loss should be determined and carried forward for the purpose of set -off in connection with the assessment of the subsequent year ?
(2.) The assessee is a private limited company which was incorporated on July 21, 1960, and its accounts for the first year ended on June 30, 1961, disclosed a loss of Rs. 24,474 including claim for depreciation to the extent of Rs. 9,976. With a view to get this loss determined by the ITO as well as to get it notified under s. 157 of the I.T. Act, 1961, the company filed a return disclosing the loses within the time allowed under s. 139(3) of the Act. No action was taken on this return by the ITO till the company enquired of the ITO as to why no action had been taken. In reply to the companys letter dated February 28, 1966, incorporating the file number of the assessee that no action had been taken as the return was not accompanied by a statement of accounts and auditors report and, as such, the return was treated as invalid. The ITO stated as follows: Re: Assessment Year 1961 -62 : In reply to your letter dated February 28, 1966, I am to inform you that no action was taken as the return was invalid for the above assessment year. It was not accompanied by the statement of accounts and audited report and certificate.
(3.) The assessee went up in appeal against the order of the ITO as contained in the said communication which we have set out here in before. The AAC was of the view that the letter of the ITO could not be considered as an appealable order in terms of s. 246 of the Act and as such, he dismissed the appeal in limine without considering the merits. The assessee went up in further appeal before the Tribunal and contended that the AAC erred in holding the appeal as incompetent in view of the Supreme Court decision in the case of Mela Ram and Sons : [1956]29ITR607(SC) . Reliance was placed on the Allahabad High Court decision in the case of Maheshwari Devi Jute Mills Ltd. : [1968]68ITR437(All) . It was pointed out that an appeal was no less an appeal even if it was irregular and incompetent and that the AAC was not justified in rejecting the appeal in limine on the ground of its alleged incompetence. It was further argued before the Tribunal that the ITO was wrong in treating the return showing a loss as an invalid return. The return was in the prescribed form and had duly been verified by the competent authorities and contained all the required particulars. The requirements of s. 139(3) had been met and no notice under s. 139(2) had been served on it. Reference was made to r. 12A and not r. 12B of the I. T. Rules, 1962, by the learned counsel on behalf of the assessee and it was pointed out that the assessee had not been offered an opportunity by the ITO for proving the loss and that the ITO had proceeded to treat the return as invalid under a misapprehension as to the true state of law. At any rate, the letter of intimation as issued by the ITO against which the company had lodged an appeal should be treated to be an assessment order ignoring the loss claimed and, in that view of the matter, the AAC ought not to have dismissed, it was submitted, the assessees appeal on the preliminary ground. Reliance was placed by the assessee on certain decisions in aid of the proposition that even if the copy of the audited accounts had not been furnished along with the return showing the loss, it was, at the worst, a remedial defect which would not render the return invalid. The Revenue, on the other hand, contended that it was not obligatory on the part of the ITO to pass an order in case an assessee filed a loss return found to, be invalid, as in the present case. it was not incumbent on the ITO to process a loss return or a return showing income below taxable limit and it was argued that the observations of the Supreme Court in the case of Ranchhoddas Karsondas : [1959]36ITR569(SC) , should be appreciated in the context of that case. As the return was not accompanied with the audited accounts, the ITO was justified in treating the return as invalid and as no competent appeal had been filed in terms of s. 246, the AAC was justified in dismissing the appeal in limine on the ground of incompetence. It was open to the assessee to seek alternative remedies but as far as the appeal before the Tribunal was concerned, there was no remedy whatsoever.;