SUDHIR SARIN v. COMMISSIONER OF INCOME TAX — 1998 DIGILAW 867 (DEL)

R. C. Lahoti, J. ( 1 ) THE petitioner is an individual deriving income from salary, house property business and profession capital gains and other sources. On 31. 10. 95, the petitioner filed his return of income of Rs. 38,06,338. 00 for the assessment year 1995-96. On the basis of the returned income the tax payable worked out to Rs. 10,93,330. 00 and interest under Section 234 and 243 worked out to Rs. l,99,346. 00. Thus total tax and interest payable by the assessee worked out to Rs. 12,90,676. 00 after giving credit to the tax deducted at source. ( 2 ) ADMITTEDLY the petitioner had not paid the tax calculated by himself and therefore no proof of payment of this tax was filed alongwith the return. After scrutinising the return the Deputy Commissioner of Income-tax v/ho is the Assessing Authority issued a notice undersection 139 (9) of the Act pointing out that the return was not accompanied by proof of tax, if any, claimed to have been deducted at source and tax on self-assessment "claimed to have been paid". It was also stated that if the defects were not rectified within 15days of thedate of receipt of the notice, the return filed will be treated as invalid and non-est. The time granted for compliance was extended from time to time. The petitioner also went on seeking time submitting that certificates of tax deducted at source were not received from some of the companies which he was trying to secure. On 6. 3. 96, the assessee was given a last opportunity of removing the defects latest by 12. 3. 96. On 13. 3. 96, the Assessing Officer passed an order (Annexure P-5), the operative part whereof reads as under: "according to the provision of Section 139 (9) (c) the return is to be accompanied by proof of payment made u/sec. 140a. Inspite of time allowed by the notice u /sec. 139 (9) and extension of time allowed on his own request, the assessee has failed to produce the proof of payment. Hence, the return of income filed by the assessee vide RMo. 0179 on 31. 10. 1995 is treated as INVALID and NON- EST. " ( 3 ) ON 26. 3. 96, the petitioner preferred a revision to the Commissioner of Income-tax against the order dated 13. 3. 96. Hence, the return of income filed by the assessee vide RMo. 0179 on 31. 10. 1995 is treated as INVALID and NON- EST. " ( 3 ) ON 26. 3. 96, the petitioner preferred a revision to the Commissioner of Income-tax against the order dated 13. 3. 96. It was stated inter alia in the memo of revision that the petitioner could not pay the tax under Section 140-A for want of liquid funds and financial stringency. It was prayed that the order dated 13. 3. 96 be set aside and the Assessing Officer bedirected to allow time upto 30. 4. 96 to satisfy the demand under Section 140-A of the Act. It was also prayed that the Assessing Officer bedirected to make an adjustment of the dues to the assessee for earlieryears by deciding the pending applications under Section 154 of the Act. ( 4 ) ON 29. 1. 97, the petitioner moved yet another application to the CIT for being considered in the pending revision petition wherein he invited the attention of the CIT to the tax having been paid as under : Date Amount 23. 3. 1996 Rs. 5,00,000. 00 8. 8. 1996 Rs. 1,50,000. 00 6. 12. 1996 Rs. 6,40,676. 00 Rs. 12,90,676. 00 ( 5 ) THE attention of the CIT was also invited to the following facts: "during the year 1995-96 the assessee had paid Rs. 5,09,589. 00 pertaining to the assessment years 1988-89 and 1994-95 as per details given in the revision petition. Further sum of Rs. 5,00,000. 00 was paid on 23. 3. 1996 for the assessment year 1995-96. Thus he had paid in that year Rs. 10,09,589. 00. It shows that the assessee was not negligent in payment of tax. There was no illegal intention to delay the payment. It could not be paid for want of liquid funds. 3. As submitted in para 4 (c) of the petition, applications u /sec. 154 for earlier years are pending and the assessee is under the impression that refund will be due to him if the said applications are accepted. These pertain to the matter of giving effect to the orders of the CIT (Appeals) passed in 1987 and of the Tribunal passed in 1991. 154 for earlier years are pending and the assessee is under the impression that refund will be due to him if the said applications are accepted. These pertain to the matter of giving effect to the orders of the CIT (Appeals) passed in 1987 and of the Tribunal passed in 1991. " ( 6 ) IT is not disputed that the tax was actually paid by the assessee on the dates and in the amounts as stated in para 4 above. ( 7 ) THE learned CIT by order dated 3. 2. 97 rejected the revision preferred by the petitioner and confirmed the Assessing Officer s order under Section 139 (9) forming an opinion that the return having not been accompanied by proof of payment of tax under Section 140-A and the defect having not been removed inspite of opportunities having been allowed for the purpose the return was rightly declared invalid and non-est. ( 8 ) ON 13. 3. 96, a notice under Section 142 (1) of the Act was also issued to the petitioner requiring him to file return of income. The petitioner in compliance with such notice filed a return on 15. 4. 97 which was processed under Section 143 (1 ) (a) of the Act. The assessment was finalisd. The exact date on which order of assessment was made is not available on record. ( 9 ) THE learned Counsel for the petitioner has submitted that the amount of tax having been deposited before an order of assessment was framed, the Assessing Officer should have applied his mind to the facts and circumstances of the case and then taken a decision whether the delay in depositing the amount of tax could be condoned without regard to the fact that the tax was not deposited alongwith the return, ltwas further submitted that non-furnishing proof of payment of tax under Section 140-A alongwith return could not have been treated as a defect within the meaning of Section 139 (9) of the Act inasmuch as it was the petitioner s own case that the tax was not deposited. So far as non-proof of TDS is concerned, the learned Counsel submitted that this was not a ground for treating the return as invalid either by the Assessing Officer or by the CIT in revision; moreover such defect cannot invalidate the return for non-furnishing proof of TDS may result in denying the claim for deduction of payment of tax claimed to have been deducted at source rendering the assessee liable to pay the tax inspite of the same having been deducted at source. ( 10 ) THE learned Senior Standing Counsel for the Revenue has defended the order passed by the Assessing Officer. He has submitted that the petition is misconceived for two reasons: firstly, the tax was deposited by the petitioner after the passing of the order dated 13. 3. 96 invalidating the return and therefore the payment of tax after the passing of the order under Section 139 (9) was of no consequence; secondly, the prayer for condoning the delay in payment of tax and furnishing the proof thereof should have been made by the petitioner-assessee to the Assessing Officer which was never done. Instead he chose to file a revision before the CIT and therein made the prayer for condonation of delay which was completely ill-advised and hence was rightly denied by the learned Commissioner. Instead he chose to file a revision before the CIT and therein made the prayer for condonation of delay which was completely ill-advised and hence was rightly denied by the learned Commissioner. ( 11 ) THE case hinges on the interpretion of Sub-section (9) of Section 139 of the Act, the relevant part whereof reads as under: " (9) Where the (Assessing) Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him an opportunity to rectify the defect within a period of fifteen days from the date of such intimation or within such further period which, on an application made in this behalf, the Assessing Officer may, in his discretion, allow; and if the defect is not rectified within the said period of fifteen days or, as the case may be, the further period so allowed, then, notwithstanding anything contained in any other provision of this Act, the return shall be treated as an invalid return and the provisions of this Act shall apply as if the assessee had failed to furnish the return: Provided that where the assessee rectifies the defect after the expiry of the said period of fifteen days or the further period allowed, but before the assessment is made, the (Assessing) Officer may condone the delay and treat the return as a valid return. Explanation-For the purpose of this sub-section, a return of income shall be regarded as defective unless all the following conditions are fulfilled, namely: xxx xxx xxx (e) The return is accompanied by proof of- (i) the tax, if any, claimed to have been deducted at source and the advance tax and tax on self-assessment, if any, claimed to have been paid; ( 12 ) FAILURE to follow any of the conditions (a) to (f) listed in the explanation appended to Sub-section (9) of Section 139 does not invalidate the return to begin with; the return is rendered defective merely. The defect can be rectified. The defect has to be intimated to the assessee and an opportunity to rectify the defect has to be afforded. The time to be afforded for rectification is 15 days which is capable of being extended by the Assessing Officer in his discretion subject to an application being made in this behalf. The defect can be rectified. The defect has to be intimated to the assessee and an opportunity to rectify the defect has to be afforded. The time to be afforded for rectification is 15 days which is capable of being extended by the Assessing Officer in his discretion subject to an application being made in this behalf. If the defect is not rectified within the period allowed, the return shall be liable to be invalidated. It will be deemed that no return was filed. This is a fiction created by law. ( 13 ) THE above said provisions contained in Sub-section (9) are over-ridden by a proviso appended to it. Inspite of the return having been invalidated the Assessing Officer is conferred with the jurisdiction still to condone the delay and treat the validated return as valid but only at any time before the assessment is made . Once an assessment has been made the jurisdiction to extend the time and validate an invalidation return is lost. In the light of the proviso the time limit of 15 days and the period by which it is extended become directory and ceases to be mandatory. ( 14 ) WHILE interpreting the machinery provisions of the Income-tax Act the golden thread principle which runs through out the texture has to be kept in view. AN income which is liable to be taxed should not escape. An income not taxable, erroneously or unwittingly caught in the net of taxability, should be allowed to escape. The Tax Collector should not hesitate in extending a helping hand to anyone who genuinely intends to pay the tax. ( 15 ) WHAT is the understanding of the Department itself as to Section 139 (9), is spelled out from the departmental Circular No. 281 dated 22. 9. 80 (quoted at pages 3245-3246 of Income Tax Law, Chaturvedi and Pithisaria, Vol. 3, Fourth Edition ). The relevant portion therefrom is extracted and reproduced hereunder: " (V) Where there is a default in rectifying the defect intimated by the Income-tax Officer, the return of income has to be treated as an invalid return, and further proceedings shall have to be taken on the footing that the assessee had failed to furnish the return. The relevant portion therefrom is extracted and reproduced hereunder: " (V) Where there is a default in rectifying the defect intimated by the Income-tax Officer, the return of income has to be treated as an invalid return, and further proceedings shall have to be taken on the footing that the assessee had failed to furnish the return. Thus, in a case where the return is furnished voluntarily under Section 139 (1), the Income-tax Officer cannot proceed to make an ex parte assessment under Section 144 without serving a notice under section 139 (2) or, as the case may be, under Section 148. Where, however, the defective return was filed in response to a notice under Section 139 (2) or Section 148, the Income-tax Officer may straightaway proceed to complete the assessment ex parte under Section 144 or issue a notice under Section 142 (1 ). (vi) The position stated in item (v) above, however, is subject to the proviso that in a case, where the assessee rectifies the defect after the expiry of the prescribed period of 15 days or the further period allowed by the Income-tax Officer, but before the assessment is made, the Income-tax Officer may condone the delay and treat the return as a valid return. Thus, in a case where the defect is not rectified within the time allowed but the assessee rectifies the same before the Income-tax Officer has completed the assessment, it will not be open to the assessee to question the validity of the assessment made by the Income-tax Officer on the ground that the defect had not been rectified within the time allowed and accordingly the return filed by him was invalid. " ( 16 ) THE learned Senior Counsel for the petitioners submitted that the phraseology employed by Sub-clause (i) of Clause (e) of the Explanation indicates that if tax on self-assessment has been paid then only the return has to be accompanied by proof of tax having been paid. If the tax is not claimed to have been paid then, the non- furnishing of proof of payment cannot be a defect in filing the return. He, therefore, submitted that the return was not defective. Such an argument cannot be accepted for it would lead to an absurdity. If the tax is not claimed to have been paid then, the non- furnishing of proof of payment cannot be a defect in filing the return. He, therefore, submitted that the return was not defective. Such an argument cannot be accepted for it would lead to an absurdity. The return filed by a person who has paid the tax but not filed the proof thereof shall be defective but the return filed by a person who has not paid the tax (though payable) and therefore not furnished the proof of payment would claim the return filed by him as valid because the applicability of the Explanation, Clause (c) (i) will not be attracted. Such an interpretation cannot be countaianced. In our opinion, a return of income filed under Sub-clause (1) of Section 109 on self-assessment basis must be preceded by payment of tax and accompantely by proof of the tax having been paid ( if due and payable as per self assessment) failing which the return would be defective. As such the return filed by the petitioner was defective within the meaning of Section 139 (9 ). ( 17 ) THERE may be cases where no tax is payable by an assessee filing a self- assessment return. In such a case he would not claim any tax to have been paid and would not therefore furnish any proof thereof. Tax on self assessment, if any, claimed to have been paid covers such cases. The words if any qualify tax on self assessment and not the later part of sentence- claimed to have been paid . Inother words. a return of incomebased on self-assessment, tobe valued u/sec. 139 (c) must satisfy three requirements, namely (i) the tax payable must becalculated; (ii) itmust be paid, and (iii) the proof of payment must accompany the return. ( 18 ) THE learned Senior Counsel for the petitioner then submitted that assuming that the return was defective inasmuch as the petitioner had not paid the tax on self- assessment and furnished proof thereof, still the tax was paid though belatedly but before the assessment was made, and so the discretion to condone the delay should have been exercised for a case for condonation was made out. The learned Senior Standing Counsel for Revenue submitted that such a prayer could not have been been acceded to for two reasons: firstly, the tax was deposited on 23. The learned Senior Standing Counsel for Revenue submitted that such a prayer could not have been been acceded to for two reasons: firstly, the tax was deposited on 23. 3. 96,8. 8. 96 and 6. 12. 96 i. e. on the dates after the Assessing Officer had already passed an order invalidating the return on 13. 3. 96; and secondly, the prayer for condoning the delay should have been made to the Assessing Officer and not to the Commissioner of Income-tax in revision. In the case at hand, the petitioner made no such prayer for condoning the delay reporting to the Assessing Officer the factum of defect having been rectified and hence the question of giving benefit of proviso to Sub-section (9) of Section 139 to the petitioner does not arise. ( 19 ) SECTION 264 confers awide jurisdiction on the Commissioner. It provides that excepting where Section 263 applies, the Commissioner may suo motu or on an application by the assesse call for the record of any preceding under this Act in which an order has been passed by an Authority subordinate to him and may make such inquiry or cause such inquiry to be made and subject to the provisions of this Act may pass such order thereon, not being an order prejudicial to the assessee as hethinks fit. The nature of the power conferred on the Commissioner is very wide. But it is not so wide as is in the case of an appeal. At the same time the over-riding restriction on the power of the Commissioner is to act subject to the provisions of the Act. ( 20 ) PARI materia provisions contained in sales tax law came up for the consideration of their Lordships in at least two cases namely The State of Kerala v. KM. Charia Abdulla b Co. , AIR 1965 SC 1585 = (1965) 16 STC 875 and The Swastik Oil Mills Ltd. v. Deputy Commissioner of Sales Tax, Bombay, (1968) 21 STC 383. The following principles are deducible therefrom : (I) A Revising Authority, even if he is not expressly authorised to pass such orders as he thinks fit, necessarily has the power to make such order as, in his opinion, the case calls for when he is satisfied that it is an approprirate case for intereference in exercise of revisional powers. The following principles are deducible therefrom : (I) A Revising Authority, even if he is not expressly authorised to pass such orders as he thinks fit, necessarily has the power to make such order as, in his opinion, the case calls for when he is satisfied that it is an approprirate case for intereference in exercise of revisional powers. Whenever a power is conferred on an authority to revise an order, the Authority is entitled to examine the correctness, legality and propriety of the order and to pass such suitable orders as the Authority may think fit. There is no reason why the authority should not be entitled to hold an inquiry or direct an inquiry to be held, and, for that purpose, admit additional material; (ii) The Revising Authority should not trench upon the powers which are expressly reserved by the Act or by the Rules to other Authorities and should not ignore the limitations inherent in the exercise of those powers. ( 21 ) THE jurisdiction to grant an extension of time and condone the delay in rectifying the defect is expressly conferred on the Assessing Officer by Section 139 (9 ). Such a prayer must obviously and of necessity has to be made to Assessing Officer. If the Assessing Officer may not exercise his power favourably to the assessee, the Commissioner may in exercise of revisional jurisdiction examine the legality or propriety of the order of the Assessing Officer. However, in the absence of such a prayer having been made to the Assessing Officer, the prayer cannot for the first time be made before the Commissioner in revision. ( 22 ) IN the case at hand, the Commissioner was concerned only with examining the legality and/or propriety of the order dated 13. 3. 96 only and the proceedings leading to the passing of the said order. There was no question of the prayer for extension of time for rectifying the defect being made and entertained by the Commissioner for the first time. If only such a prayer would have been made to the Assessing Officer, the facts of notice under Section 142 (1) of the Act having been issued to the assessee, the filing of the return of income by the assessee and its being processed under Section 143 (1 ) (a) of the Act would not have made any difference. If only such a prayer would have been made to the Assessing Officer, the facts of notice under Section 142 (1) of the Act having been issued to the assessee, the filing of the return of income by the assessee and its being processed under Section 143 (1 ) (a) of the Act would not have made any difference. Both the courses of action were available to the Assessing Officer. The Assessing Officer could have straightaway proceed to make best judgment assessment ex- parte or could have issued notice under Section 142 (1) after invalidating the return filed by the assessee. Nevertheless so long as the assessment was not made, power to condone the delay and treat the return as valid return under Section 139 was available to the Assessing Officer. ( 23 ) WE may place on record that so far as non-filing of proof as to TDS is concerned, it was conceded at the Bar that non-furnishing of such proof would merely render the assessee liable to pay tax once again inspite of its having been deducted at source and therefore we have not dealt with that aspect of the case. ( 24 ) IN as much as the petitioner has failed to seek extension of time from the Assessing Officer as contemplated by Section 139 (9), no fault can be found with the impugned orders. The petition is dismissed. The impugned orders dated 13. 3. 96 passed by the Assessing Officer and dated 31. 1. 97 passed by the Commissioner of Income-tax are maintained. No order as to the costs.