JUDGMENT
J.P. Devadhar, J.
1. The short question raised in this petition is, whether the authorities under the Income-tax Act, 1961, were justified in treating the revised return for the assessment year 1991-92 and the original return for the year 1992-93 as invalid under section 139(9) of the Income-tax Act.
2. Although, the writ petition pertains to the assessment years 1991-92 and 1992-93, Mr. Pardiwala, learned counsel appearing on behalf of the petitioner, fairly stated that after treating the revised return for the assessment year 1991-92 as invalid, the Assessing Officer has passed the assessment order under section 143(3) of the Income-tax Act (the “I. T. Act”, for short), and the appeal filed against the said assessment order is pending. He submitted that the petitioner is willing to pursue the appellate remedy for the assessment year 1991-92, however, it may be clarified that the petitioner is entitled to raise all contentions before the appellate authority. In the present case, the Tribunal has held that even though the return is held to be invalid, the assessee is not debarred from furnishing any evidence in support of any claim though not made in the original return. The said finding of the Tribunal has not been disputed by either side. Therefore, for the assessment year 1991-92, the assessee is permitted to pursue the appellate remedy and it is clarified that as held by the Tribunal, the assessee would be entitled to furnish any evidence in support of any claim though not made by it in the original return. Thus, the controversy in the present petition is restricted only to the action taken under section 139(9) of the Income-tax Act for the assessment year 1992-93.
3. The facts, relevant for the assessment year 1992-93, are as follows :
The accounts of the petitioner for the year ended on March 31,1992 (assessment year 1992-93), were duly audited under the Companies Act, 1956, and a report of the statutory auditor was obtained on June 2,1992. The said accounts were adopted by the shareholders at an annual general meeting held on July 21, 1992. A company by name Esab (India) Ltd., was interested in acquiring the shareholding of the petitioner-company. For that purpose, a firm of chartered accountants, viz.1″, M/s. S.R. Batliboi and Company, was appointed to carry out a special audit and investigate into the financial affairs of the petitioner, On December 24, 1992, the said M/s. S,R. Batliboi and Company, chartered accountants, submitted a report stating therein that the petitioner’s profits for the year in question were overstated in the accounts.
4. The petitioner obtained an audit report under section 44AB of the Income-tax Act from its statutory auditors on December 30, 1992. In the said report, the auditors specifically noted that they have considered the findings in the report of M/s. S. R. Batliboi and Co. while framing the report under section 44AB of the Income-tax Act.
5. On December 30, 1992, the petitioner filed the return of income for the assessment year 1992-93 declaring loss of Rs. 66,28,030. Along with the return, the petitioner filed the audited profit and.loss account and the balance-sheet which was adopted at the annual general meeting held on July 21, 1992. The petitioner had also annexed the report under section 44AB as obtained on December 30, 1992. A computation of income wherein effect was given to the findings in the report of M/s. S.R. Batliboi and Co. was also filed.
6. On February 11, 1993, the Deputy Commissioner of Income-tax, Special Range-I, Pune (hereinafter referred to as “the Assessing Officer”), issued a notice under section 139(9) of the Income-tax Act proposing to treat the return for the assessment year 1992-93 as invalid if the defects in the return mentioned therein were not removed within 15 days from the receipt of the said letter. According to the Assessing Officer, the return was defective in terms of clause (e) of the Explanation to section 139(9) of the Income-tax Act. In other words, according to the Assessing Officer, the profit and loss account and the audited balance-sheet submitted along with the returns could not be treated as valid in view of the material differences as a result of the special audit.
7. On March 31,1993, the petitioner through their chartered accountants filed a reply to the said notice stating therein (a) that the profit and loss account and the balance-sheet adopted at the annual general meetings were valid, (b) that as per the views expressed by the Department of Company Affairs the petitioner could not reopen and revise its accounts after the same were adopted at an annual general meeting except for complying with the technical requirements of taxation laws, and (c) that the discrepancy pointed out by M/s. S.R. Batliboi and Co. has been taken note of and suitable rectification entries have been made in the accounts for the year ending March 31, 1993, which action was in accordance with the accepted accounting practice. Accordingly, it was submitted that the return filed by the petitioner be treated as valid.
8. By an intimation dated March 30, 1993, the Assessing Officer treated the return filed for the assessment year 1992-93 as invalid under section 139(9) of the Income-tax Act. According to the Assessing Officer under clause (e) of the Explanation to section 139(9), the return was to be accompanied by an audited profit and loss account and the balance-sheet and, therefore, the said accounts should form the basis of the computation of income under the Income-tax Act.
9. According to the Assessing Officer, there being material differences between the income disclosed in the audited profit and loss account and the claim in the computation, the return filed could not be treated as a valid return.
10. The appeal filed by the petitioner against the said intimation was dismissed by the Commissioner of Income-tax (Appeals) by an order dated October 8, 1993, on the ground that the appeal was not maintainable against an intimation passed under section 139(9) of the Income-tax Act. The Commissioner of Income-tax (Appeals) further held that the petitioner had not cured the defects in the income-tax returns pointed out by the Assessing Officer and, therefore, the action in treating the return filed by the petitioner as invalid was proper. Further appeal filed by the petitioner against the said order of the Commissioner of Income-tax (Appeals) was also dismissed by the Income-tax Appellate Tribunal on July 23, 1997, on the ground that (a) section 139(9) did not contemplate passing of any order and hence no appeal was maintainable against the intimation under section 139(9) of the Income-tax Act, (b) that a defect intimated by an Assessing Officer to the assessee if not removed would render the return non est by operation of law, and (c) in such a case the Assessing Officer was duty-bound to assess the correct income or loss, as the case may be, and that the petitioner was not debarred from furnishing evidence in support of any claim though not made in the original return and adduce evidence before the Assessing Officer. The reference application filed by the petitioner against the said order is pending before the Income-tax Appellate Tribunal. In the meantime the present petition has been filed challenging the aforesaid orders passed by the authorities below. The writ petition was admitted by this court on June 15, 1998, without any interim relief.
11. In the ordinary course, we would not have heard this writ petition on the merits in view of the pending reference application. However, in the present case, on the one hand both the authorities below have held that no appeal is maintainable against the intimation under section 139(9) of the Income-tax Act and, on the other hand, after treating the return as invalid, the Assessing Officer has not framed the assessment within the time stipulated under the Act. As a result whereof, the assessee is left with no remedy after the return is treated as invalid under section 139(9) of the Income-tax Act. Moreover, counsel for the petitioner opted to withdraw the reference application and pursue the remedy of writ. In these circumstances, we are of the opinion that it is just and proper and in the interest of justice and in the peculiar facts of the present case, to hear and dispose of the writ petition on the merits.
12. Mr. Pardiwala, learned counsel appearing on behalf of the petitioner, submitted that in the present case, the Assessing Officer has held that there was a defect in the return in terms of clause (e) of the Explanation to section 139(9) of the Income-tax Act and because the petitioner has failed to cure the said defect, the return filed by the petitioner was liable to be declared as invalid.
13. He submitted that clause (e) of the Explanation to section 139(9) of the Income-tax Act provides that where the accounts of an assessee have been audited, the return of income must be filed with the copies of the audited profit and loss account, the balance sheet and the auditors report. It was submitted that in the present case the accounts for the year ended March 31,1992, were audited and the same were adopted at the annual general meeting held on July 21,1992. It was submitted that these accounts were filed along with the return filed on December 30, 1992. It was submitted that once these documents were filed along with the return, it could not be said that there were defects in the return as contemplated in clause (e) of the Explanation to section 139(9) of the Income-tax Act.
14. It was further submitted that the findings of the Assessing Officer, that, where the computation of income does not tally with the profit as per the audited profit and loss account, the return is to be treated as defective, is erroneous. He submitted that in several cases the computation of income under the Income-tax Act would not be in consonance with the profit disclosed in the accounts. He submitted that it is well settled by several decisions of the Supreme Court as well as this court that the entries in the books of account are not determinative of the question as to whether the assessee is entitled to a particular deduction, or not. It was submitted that if the computation of income does not tally with the profit as per the audited profit and loss account, it was not a defect as contemplated under clause (e) of the Explanation to section 139(9) of the Act and, therefore, the Assessing Officer was not justified in declaring the return to be invalid.
15. Mr. Pardiwala further submitted that the Assessing Officer ought to have considered favourably the petitioner’s explanation that it was not possible to reopen the accounts once they were adopted at the annual general meeting of the shareholders in terms of section 210 of the Companies Act. He submitted that even assuming there was a difference in the profit shown in the audited balance-sheet and the profit and loss account and the computation of income, the same was rectified by passing the necessary entries in the accounts for the year ended March 31, 1993. The said difference in no event could be regarded as a defect in the return filed under section 139(9) of the Income-tax Act. Mr. Pardiwala further submitted that section 139(9) contemplates passing of an order and, therefore, the Tribunal was not justified in holding that once a defect intimated to an assessee is not cured within the time specified, the return would automatically become invalid. It was submitted that if the view of the Tribunal is accepted then whatever be the submissions made by an assessee as to why there is no defect in its return, the Assessing Officer would be perfectly justified in ignoring the same as being invalid. Accordingly, it was submitted that the orders passed by the authorities below suffer from patent error of law and the same are liable to be quashed and set aside.
16. Mr. Desai, learned senior advocate appearing on behalf of the respondents, on the other hand, supported the orders passed by the authorities below. He submitted that in the present case admittedly the defects pointed out by the Assessing Officer were not cured and, therefore, the Assessing Officer was justified in treating the return as invalid. He submitted that section 139(9) does not contemplate passing of an order. It merely authorises the Assessing Officer to intimate the assessee about the defects in the return. If the defects are not removed then section 139(9) itself treats the return as invalid. It was submitted that merely because the Assessing Officer has intimated the above facts to the petitioner, it could not be said that there was an order passed under section 139(9) of the Income-tax Act. Relying upon the decision of the Gujarat High Court in the case of Gopal Glass Works Pvt. Ltd. v. CIT [2001] 252 ITR 354, it was submitted that the order holding the return invalid cannot be interfered with in writ jurisdiction. It was submitted that there was no inherent right of appeal in such a case and, therefore, the orders passed by the authorities below are in accordance with law.
17. We have heard counsel on both sides and perused the records placed before us. Section 139(9) was inserted by the Finance (No. 2) Act 1980, with effect from September 1, 1980. Prior to September 1, 1980, that is, till August 31, 1980, there was no specific provision under the Income-tax Act empowering the Assessing Officer to call upon the assessee to cure or rectify the defects contained in the return filed by the assessee. Thus, under the scheme of the Income-tax Act, 1961, an assessee is obliged to file the return of income under section 139(1). On such return being filed if the Assessing Officer notices any defect in the return, the Assessing Officer can intimate the factum of the defect to an assessee who has to cure the same within the permitted time. If the defects pointed out are the defects set out in clauses (a) to (f) of the Explanation to section 139(9) and the said defects are not cured within the stipulated time, then the return filed by the assessee is liable to be treated as an invalid return and the Assessing Officer is obliged to proceed to make an assessment on the basis that no return was filed. If the defects pointed out by the Assessing Officer are other than those defects set out in clauses (a) to (e) of the Explanation to section 139(9), then the question of invalidating the return under section 139(9) does not arise at all. In other words, even if the return contains several defects, it is only when the assessee fails to cure or rectify any of the defects set out in clauses (a) to (f) of the Explanation to section 139(9) within the stipulated time, that the said return can be treated as invalid return. Therefore, what we have to consider in the present petition is, whether the return filed by the assessee contained the defects set out in clause (e) of the Explanation to section 139(9) and whether the petitioner has failed to cure or rectify the same within the stipulated time.
18. Clause (e) of the Explanation to section 139(9) of the Income-tax Act provides that where the accounts of the assessee have been audited, the return should be accompanied by copies of the audited profit and loss account and balance-sheet and the auditor’s report. Where the audit is not completed, Instruction No. 1348, dated August 30, 1980, makes it clear that such a return should not be treated as a defective return. In the present case, the return filed by the petitioner contained all the documents set out in clause (e). Since, all the documents set out in clause (e) were already annexed to the return, it could not be said that the return suffered from the defects set out in clause (e). If the computation of income does not tally with the profit as per the audited profit and loss account, the return cannot be treated as defective Under Section 139(9). There can be several instances where the computation of income under the Act may not be in consonance with the profit disclosed in the accounts. For example, in the accounts certain expenditure of a revenue nature may be amortised over a certain period on an application of the “deferred revenue expenditure” principle of account. However, for tax purposes, as the entire liability has accrued during the year, the expenditure could be claimed in its entirety irrespective of the method adopted in the accounts. Similarly, there may be cases where the interest on monies borrowed for acquisition of plant and machinery may be capitalised towards the cost of the plant and machinery up to the period the plant and machinery is used for the purpose of the business. However, for tax purposes, the entire interest may be claimed as a deduction in the accounts. Thus, the fact that the computation of income does not tally with the profit as per the audited profit and loss account cannot be a ground to treat the return as invalid. Therefore, in the present case, the Assessing Officer was in error in treating the return filed by the petitioner as invalid because the computation of income did not tally with the profit as per the audited profit and loss account. Once it is held that there was no defect in the return as set out in clause (e) of the Explanation to section 139(9) of the Income-tax Act, then it is not necessary to go into the question as to whether an appeal was maintainable against the action in treating the return as invalid under section 139(9) of the Income-tax Act. The decision of the Gujarat High Court in the case of Gopal Glass Works Pvt. Ltd. [2001] 252 ITR 354 is distinguishable on the facts. In that case, the return of income filed by the assessee for the relevant assessment year was not accompanied by the statutory audit report mandated by section 44AB of the Act. The assessee had not rectified the defect within the stipulated time and had not sought extension of time either before the Assessing Officer or before the revisional authority and for the first time before the High Court extension of time was sought. In that context, it was held by the Gujarat High Court that the order holding the return invalid cannot be interfered with in writ jurisdiction. In the present case, the audit report was filed with the return and there is no defect contemplated in clause (e) of the Explanation to section 139(9) of the Income-tax Act. Therefore, the aforesaid decision of the Gujarat High Court does not support the contention of the Revenue.
19. In the circumstances, we set aside the intimation of the Assessing Officer dated March 30, 1993, treating the return filed by the petitioner on December 30, 1992, for the assessment year 1992-93 as an invalid return. Consequently, the orders passed by the appellate authorities do not survive. The Assessing Officer is directed to finalise the assessment for the assessment year 1992-93 in accordance with law on the basis of the return filed by the assessee on December 30, 1992, within a period of three months from the date of the intimation of this order.
20. Before parting, we would like to place on record that in the present case, after treating the return as invalid, the Assessing Officer had issued a notice on September 7,1994, under section 143(2) of the Income-tax Act requiring the petitioner to attend before him and to produce documents, accounts and any evidence on which the petitioner proposed to rely in support of its claim. However, thereafter, the Assessing Officer has not finalised the assessment for the assessment year 1992-93 probably on account of there being no positive income which could be taxed. In our opinion, this action or rather, inaction on the part of the Assessing Officer in treating the return filed by the petitioner as invalid and then not finalising the assessment because there is no taxable income, is wholly improper and contrary to the scheme of taxation law. Whether there is income or loss, the Assessing Officer is bound to finalise the assessment for the assessment year in which the return filed by the assessee is treated as an invalid return. Not to do so would be travesty of justice.
21. Accordingly, the petition is allowed rule is made absolute in the above terms. However, in the facts and-circumstances of the case, there will be no order as to costs.