K.S. Venkataraman and Co. Pvt. Ltd. vs Commissioner of Income Tax

V.S. Sirpurkar, J.—The question referred at the instance of the assessee as per the directions of this court u/s 256(1) of the Income Tax Act, 1961, is as follows :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessment made in the case was not barred by limitation ?"

The following facts will highlight the controversy.

The assessee is a company and filed the return of income for the assessment year 1978-79, admitting a total income of Rs. 4,03,800. The return is dated July 19, 1978. However, on June 21, 1980, the assessee wrote a letter to the Income Tax Officer stating that a sum of Rs. 31,061 was wrongly included in the total income shown in the return and that it was liable to be ignored and, therefore, the Assessment Officer was requested to complete the assessment excluding the figure of Rs. 31,061. The total income shown in the return then would come to Rs. 3,72,739. The Assessment Officer computed the assessee''s income and came to the conclusion that the assessee''s income would come to Rs. 4,77,000. The difference then being more than Rs. 1,00,000. The Income Tax Officer prepared a draft assessment order u/s 144B of the Income Tax Act and sent the same to the Inspecting Assistant Commissioner after obtaining the draft objections from the assessee. After the directions were given by the Inspecting Assistant Commissioner, the assessment was completed on May 19, 1981.

This assessment was appealed against before the Commissioner of Income Tax (Appeals) on the ground that the assessment made on May 19, 1981, was barred by limitation. The plea raised was that the returned income was Rs. 4,03,800 while the total income determined by him as per the draft order amounted only to Rs. 4,77,710 and, therefore, the addition to the total income which was to the prejudice of the assessee was only Rs. 73,910 which was less than Rs. 1,00,000 and, therefore, the Income Tax Officer could not have referred the matter to the Inspecting Assistant Commissioner u/s 144B and the resultant action was without jurisdiction and, therefore, the advantage of the extended limitation due to the time taken in pursuing the matter to the Inspecting Assistant Commissioner and obtaining the directions could not be taken by the Department and the assessment made on May 19, 1981, would be beyond the last date of the completion of the assessment which should have been March 31, 1981. The Commissioner of Income Tax (Appeals) dismissed the appeal and held that the income returned was the final income offered by the assessee for assessment and for that the subsequent letter of the assessee was very relevant because it had the effect of lessening the original returned amount of Rs. 4,03,800 to Rs. 3,72,739. The Commissioner of Income Tax (Appeals) came to the conclusion that the Income Tax Officer would be entitled to the extended time limit particularly u/s 153 read with Clause (iv) of Explanation 1. On further appeal, the Tribunal also confirmed this order and that is how the reference came to be made before us.

Learned counsel for the assessee argues that the Tribunal was wrong in interpreting the words in Section 144B of the Act which are to the effect "to make any variation in the income or loss returned which is prejudicial to the assessee". He tries to argue that the subsequent letters dated June 21, 1980, and December 1, 1980, had to be ignored and a strict interpretation of the words in Section 144B should have been adhered to by the Tribunal and we should also take the same course. The contention is that the amount offered in the return alone would be liable to be taken into consideration particularly because of the words "income or loss returned". In short, the contention is that the returned income is the income which is shown in the pro forma return alone. In our view, such argument is wholly incorrect.

When we see the specific language of Section 144B of the Act, the whole idea is that when the Assessing Officer proposes to vary the returned income or loss in a substantial manner--in this case by more than Rs. 1,00,000 he has to make a reference by making a draft order inviting the objections of the assessee thereupon and refer that draft order for directions to the Inspecting Assistant Commissioner. The underlying concept in the section is that when the claim made of the income by the assessee has to be varied substantially then it is incumbent upon the Income Tax Officer to take steps u/s 144B. It is only under the light of this interpretation that the words "income or loss returned" would have to be read. Merely because, the section uses the words income or loss returned, it would not be only the amount which appears in the pro forma return but it would be in fact the income claimed by the assessee for a particular year. In this case, if the assessee had specifically written the letters to the Income Tax Officer that the income of Rs. 31,061 should be ignored and should be deducted out of the returned income of Rs. 4,03,800, the amount returned would be not Rs. 4,03,800 but the amount would be Rs. 3,72,739. The assessee cannot be allowed to change its stand altogether because it would be bound by its own letters. In our view, therefore, the plea raised by the assessee that the action u/s 144B could not have been taken is wholly incorrect. If the action could be taken u/s 144B validly, as has happened in this case, the time taken for the issuance of the directions by the Inspecting Assistant Commissioner would have to be necessarily ignored. The Tribunal has correctly returned that finding. Fortunately, there was no dispute before the Tribunal and even before us that if this period is omitted, the assessment order is within time. Since we are in agreement with the Tribunal that the action u/s 144B was rightly taken, there can be no doubt that the Income Tax Officer would be entitled to get the time in obtaining the order by the Inspecting Assistant Commissioner and that period has to be ignored for the purpose of limitation. We are, therefore, of the clear opinion that the Tribunal was absolutely right in treating the assessment order to be within time. We, therefore, answer the reference against the assessee and in favour of the Revenue. No costs.