COMMISSIONER OF INCOME TAX Vs. STATE AGRO DEVELOPMENT CORPORATION

JUDGEMENT

(1.) BY this reference under Section 256(1) of the Income-tax Act, 1961 ("the Act"), the Income-tax Appellate Tribunal. Amritsar Bench, Amritsar (the "Tribunal"), has referred the following question of law to this court for opinion at the instance of the Revenue :

(2.) THE material facts giving rise to this controversy, briefly stated, are as follows. THE assessee, Agro Industries Corporation, was established for promotion of agro industries and improvement of agriculture in the State of Jammu and Kashmir. For the assessment year 1975-76, the assessee did not file its return of income under the Income-tax Act within the period allowed under Section 139(1). No notice was issued under Section 139(2) of the Act to the assessee by the Income-tax Officer. However, on February 27, 1978, a notice under Section 148 of the Act was issued and served upon the assessee. In response to the said notice, the assessee filed its return of income for the said assessment year declaring a loss of Rs. 16,58,038. THE Income-tax Officer, after considering the assessee's claim for depreciation, completed the assessment on a net loss of Rs. 16,54,626. THE Income-tax Officer, however, held that the loss determined by him could not be carried forward since the return had not been filed voluntarily. THE assessee appealed to the Commissioner of Income-tax (Appeals). Before the Commissioner (Appeals), it was contended on behalf of the assessee that the return filed pursuant to the notice under Section 148 of the Act was also a return within the meaning of Section 139(4) read with Section 139(1) of the Act. THE contention of the assessee was that the action taken pursuant to a notice under Section 148 of the Act has to be in accordance with the provisions of Section 139(2) of the Act which does not place any embargo on the carry forward of the losses. In support of this contention, the assessee relied upon the decision of the Supreme Court in CIT v. Kulu Valley Transport Co. P. Ltd. [1970] 77 ITR 518. THE Commissioner (Appeals) accepted the assessee's contention and held that the assessee-Corporation was entitled to carry forward the loss determined by the Income-tax Officer as, according to him, notice under Section 148 had been issued to the assessee even before the time for filing the return under Section 139(4) of the Act had expired. In that view of the matter, he held that the assessee had filed the return within the extended time. THE appeal of the Revenue was dismissed by the Tribunal. Hence, this reference at the instance of the Revenue.

(3.) SECTION 147 of the Act empowers the Income-tax Officer to assess income which escaped assessment in the relevant assessment year. It is applicable only to a case where the Income-tax Officer has reason to believe that the income of the assessee has escaped assessment. The power under this SECTION can also be exercised in cases where excessive loss or depreciation allowance has been computed. In the instant case, reassessment proceedings were initiated by the Income-tax Officer for the assessment year 1975-76 by issue of notice under SECTION 148 of the Act because he was satisfied that the income of the petitioner-Corporation for that year had escaped assessment by reason of the non-submission of the return by the assessee. In such a case, if at any stage of the proceedings, the Income-tax Officer finds that the income chargeable to tax has not escaped assessment, he is free not to take further action pursuant to the notice under SECTION 148 of the Act and drop the proceedings. He is not bound to conclude the .proceedings and make assessment to the detriment of the Revenue. If, pursuant to a notice under SECTION 148 of the Act, the assessee submits a loss return, and the Income-tax Officer is satisfied that the income of the assessee during the relevant year was really negative as claimed by the assessee in his return, he is entitled to close the proceedings. He cannot complete the assessment to determine the loss thereby giving the assessee a right to claim set off of the loss in subsequent years to the detriment of the Revenue. Such an act will be contrary to the object, scope and ambit of SECTION 147 of the Act. Proceedings under SECTION 147 being for the benefit of the Revenue and not the assessee, the assessee cannot be permitted to take advantage of the reassessment proceedings and seek relief which, in the absence of the proceedings for assessment of escaped income, he could not have claimed. Income for the purpose of assessment under SECTION 147 of the Act cannot be a negative figure. Similarly, in the case of reassessment of income already assessed, the income cannot be reduced beyond the income originally assessed nor the loss originally determined can be re-determined at a higher figure.