ORDER
Manzoor Ahmed Bakhshi, Judicial Member
1. Appellant is a firm engaged In the business of purchase and sale of weighing scales. For assessment year 1981-82, for which the previous year ended on 31-3-1981, assessee was required to furnish a return of income under Section 139(1) by 31st July, 1981. Since no return had been filed within the prescribed time, Assessing Officer issued a notice under Section 139(2) calling for the return of income. Assessee did not file the return of income till 28-3-1984 when Assessing Officer completed the assessment under Section 144 to the best of his judgment estimating the income of the assessee at Rs. 1 lakh. On 30th April, 1984 assessee filed an application under Section 146 requesting the Assessing Officer for cancellation of the assessment made under Section 144. While the application under Section 146 was pending before the Assessing Officer, assessee filed a return of income on 30th March, 1985 declaring income of Rs. 1,07,530. On 15th November, 1985 Assessing Officer passed an order under Section 146 cancelling the assessment made under Section 144. The Assessing Officer had issued notices under Sections 143(2) and 142(1) from time to time. A notice under Section 131 had also been issued on 8th February, 1988. As per the Assessing Officer some of the notices remained uncomplied with and assessee’s case is that there was no non-compliance of the notices issued. On 29th March, 1988, Assessing Officer completed the assessment under Section 144. The reasons for completion of assessment under Section 144 indicated in the assessment order are two-fold. One is that assessee did not comply with the terms of notices issued from time to time as indicated in the assessment order. Another reason is that assessee had not filed any valid return either under Section 139(1) or in response to a notice under Section 139(2). The return filed by the assessee on 30th March, 1985 was stated to be invalid for two reasons. One was that the return was not accompanied by trading account, profit and loss account, balance-sheet etc. as required under law. Second reason for treating the return as invalid indicated in the assessment order is that as on 30th March, 1985 – assessment under Section 144 had already been completed and order under Section 146 had been passed. Assessee appealed to the CIT(A) raising various grounds of appeal. A specific ground had been raised against the assessment having been completed under Section 144 and the finding of the Assessing Officer that the return of income filed by the assessee on 30-3-1985 was not a valid return. The assessee furnished written submissions before the CIT(A) which had been forwarded to the Assessing Officer by the first appellate authority for the purpose of sending a report. Assessing Officer furnished a report to the CIT(A) on 14th March, 1989. On consideration of the assessee’s contentions and the report of the Assessing Officer, the first appellate authority upheld the assessment made under Section 144 for non-compliance of the notices as also on the ground that no valid return had been furnished by the assessee. In respect of the addition of Rs. 4,60,710 the first appellate authority has remitted the matter to the file of the Assessing Officer and in respect of other small additions, decision has been rendered on merits. We were informed by the learned counsel for the assessee that the addition of Rs. 4,60,710 has now been deleted.
2. Before us assessee has raised four grounds. Ground No. 3 relating to disallowance of Rs. 5000 on account of travelling expenses is dismissed as not pressed.
3. Ground No. 1 is “that then CIT(A) erred on the facts and law and in confirming the validity of assessment under Section 144 instead of under Section 143(3) of the Income-tax Act, 1961 by not treating the return as valid having been filed by the assessee”. We pointed out to the learned counsel for the assessee that the issue as to whether the assessment has been made under Section 144 or should it be treated as under Section 143(3) is academic in this case insofar as the tax liability of the assessee is not going to be effected in any case. Dr. Narayanan vehemently pleaded that the issue relating to the validity of the return of income filed by the assessee on 30th March, 1985 may be decided on merits as according to him, the issue has serious consequences in respect of penalty and other proceedings under the Income-tax Act. On being persuaded by the learned counsel for the assessee, we heard the rival contentions in respect of the issue of validity of the return of income filed by the assessee on 30-3-1985.
4. Dr. Narayanan, the learned counsel for the assessee stoutly contested the two reasons advanced by the Revenue for treating the return filed by the assessee as invalid. According to the learned counsel, a return filed without trading, profit and loss account, balance sheet etc., could be a defective return but not an invalid return as held by the Assessing Officer. In this connection, our attention was drawn to Section 139(9) incorporated w.e.f. 1-9-1980 by the Finance (No. 2) Act of 1980. This section, according to the learned counsel, makes it obligatory upon the Assessing Officer to intimate the defects to the assessee and in the event of the defect not being rectified within a period of 30 days, the return could be treated as invalid. In this case, according to Dr. Narayanan, no such notices as referred to under Section 139(9) was ever issued and as such Assessing Officer was not justified in treating the return of income as invalid on the ground that the statements such as trading account, profit and loss account, balance-sheet etc. had not been filed along with the said return.
5. It was further contended that the second reason given by the Assessing Officer for treating the return as invalid was also unfounded as Assessing Officer had all along treated the return as a valid return during the course of assessment proceedings and that the Officer was precluded by the principles of estoppel to treat the return as invalid at the time of framing the assessment. In this connection, reliance was placed on the decision of the Supreme Court in the cases of Motilal Padampat Sugar Mills Co. Ltd. v. State of U.P. [1979] 118 ITR 326 and Union of India v. Godfrey Philips India Ltd. [1986] 158 ITR 574 : 24 Taxman 268 (Cal.). Dr. Narayanan contended that the CBDT had issued instructions in June 1985 for acceptance of voluntary returns and assessee was entitled to ask the Assessing Officer to treat the pending return as a return filed in response to the voluntary disclosure scheme. Dr. Narayanan contended that assessee had in fact informed the Assessing Officer that the return be treated in response to the Circular No. 451 and Assessing Officer by his conduct had treated the return as a valid return. In support of the proposition that it is permissible for the assessee to request the Assessing Officer for treating the return of income filed beyond time allowed under Section 139(4) as a return in response to notice under Section 148, Dr. Narayanan cited the following decisions :
(i) Iqbal Singh Atwal v. CIT [1984] 147 ITR 599 : [1983] 13 Taxman 267 (Cal.); and
(ii) Tiwari Kanhaiya Lal v. CIT [1985] 154 ITR I09 : [1984] 19 Taxman 497. (Raj.).
When asked as to whether there was any written communication about such a request having been made to the Assessing Officer, learned counsel conceded that there was no written communication. It was further contended that though there was no written communication yet the conduct of the Assessing Officer in issuing notices under Section 143(2) would establish that such a request had been made. It was accordingly pleaded that the return of income filed by the assessee may be declared as valid return and assessment framed under Section 144 for the default of not having filed a valid return, may be treated as an assessment under Section 143(3).
6. For non-compliance of notice, our attention was drawn to the written submissions furnished before the CIT(A) and specific claim that no such non-compliance was made by the assessee.
7. The learned Departmental Representative, on the other hand, contended that the return of income having been filed after the completion of assessment could not be treated as a valid return and Assessing Officer having issued a notice under Section 139(2) which remained uncomplied with, the latter was justified in completing the assessment under Section 144. He also relied upon the finding of the CIT(A) in respect of various notices issued from time to time having remained uncomplied with.
8. We have given our careful consideration to the rival contentions. The return of income filed by the assessee on 30th March, 1985 has been treated as invalid for two reasons as described elsewhere in this order. One of the reasons for treating the return as invalid is that the assessee did not file trading account, profit and loss account and balance sheet rendering it as invalid. In our view, the finding of the Assessing Officer and the appellate authority in this regard is not well founded. A return not accompanied by the trading account, profit and loss account and balance-sheet is a defective return and Section 139(9) incorporated w.e.f. 1-9-1980 by the Finance (No. 2) Act of 1980 makes it obligatory for the Assessing Officer to inform the assessee about the defects in the return and allow a time of 15 days or further time as provided therein, for rectifying the defects. Should the assessee fail to rectify the defects within the time so allowed, the defective return would be rendered as invalid return. In this case, assessee was never informed of any defects in the return of income nor was any opportunity given for rectifying the defects. Under these circumstances, a return filed by the assessee would be a defective return but not an invalid return.
9. We now proceed to consider as to whether a return filed after the completion of assessment made on 28th March, 1984 could be said to be, an invalid return. The relevant section providing for filing of the returns under the Income-tax Act, 1961 is Section 139. We hereunder reproduce some of the relevant sub-sections of Section 139, providing for the eventualities under which return of income can be filed :
139. Return of Income,-(1) Every person, if his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax shall furnish a return of his income or the income of such other person during the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed :-
(a) in the case of every person whose total income, or the total income of any other person in respect of which he is assessable under this Act, includes any income from business or profession, before the expiry of four months from the end of the previous year or where there is more than one previous year, from the end of the previous year which expired last before the commencement of the assessment year, or before the 30th day of June of the assessment year, whichever is later;
(b) in the case of every other person, before the 30th day of June of the assessment year :
Provided that, on an application made in the prescribed mariner, the Income-tax Officer may, in his discretion, extend the date for furnishing the return, and, notwithstanding that the date is so extended, interest shall be chargeable in accordance with the provisions of Sub-section (8).
(1A) Notwithstanding anything contained in st-.a-Section (1), no person need furnish under that sub-section a return of his income or the income of any other person in respect of whose total income he is assessable under this Act, if his income or, as the case may be, the income of such other person during the previous year consisted only of income chargeable under the head ‘Salaries’ or of income chargeable under that head and also income of the nature referred to in any one or more of clauses [i) to (ix) of Sub-section (1) of Section 80L and the following conditions are fulfilled, namely:-
(a) where is or such other person was employed during the previous year by a company, he or such other person was at no time during the previous year a director of the company or a beneficial owner of shares in the company (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) carrying not less than twenty per cent of the voting powers;
(b) his salary or the salary of such other person, exclusive of the value of all benefits or amenities not provided for by way of monetary payment, does not exceed eighteen thousand rupees;
(c) the amount of income of the nature referred to in Clauses (i) to (ix) of Sub-section (1) of Section 80L, if any, does not, in the aggregate, exceed the maximum amount allowable as deduction in his case under that section; and
(d) the tax deductible at source under Section 192 from the income chargeable under the head ‘salaries’ has been deducted from that income.
Explanation: For the purposes of this sub-section ‘Salary’ shall have the meaning assigned to it in Sub-clause (i) of Section 17.
(2) In the case of any person who, in the Income-tax Officer’s opinion, is assessable under this Act, whether on his own total income or on the total income of any other person during the previous year, the Income-tax Officer may, before the end of the relevant assessment year, issue a notice to him and serve the same upon him requiring him to furnish, within thirty days from the date of service of the notice, a return of his income or the income of such other person during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed.
(3) If any person who has not been served with a notice under Sub-section (2), has sustained a loss in any previous year under the head ‘Profits and gains of business or profession’ or under the head ‘Capital gains’ and claims that the loss or any part thereof should be carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73, or Sub-section (1) of Section 74 or Sub-section (3) of Section 74A, he may furnish, within the time allowed under Sub-section (1) or within such further time which, on an application made in the prescribed manner, the Income-tax Officer may, in his discretion, allow, a return of loss in the prescribed form and verified in the prescribed manner and containing such other particulars as may be prescribed and all the provisions of this Act shall apply as if it were a return under Sub-section (1).
(4) (a) Any person who has not furnished a return within the time allowed to him under Sub-section (1) or Sub-section (2) may, before the assessment is made, furnish the return for any previous year at any time before the end of the period specified in Clause (b) and the provisions of Sub-section (8) shall apply in every such case.
(b) The period referred to in Clause (a) shall be-
(i) where the return relates to a previous year relevant to any assessment year commencing on or before the 1st day of April, 1967, four years from the end of such assessment year;
(ii) where the return relates to a previous year relevant to the assessment year commencing on the 1st day of April, 1968, three years from the end of the assessment year;
(iii) where the return relates to a previous year relevant to any other assessment year, two years from the end of such assessment year. (4A) Every person In receipt of Income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in Sub-clause (iia) of clause (24) of Section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of Sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under Sub-section (1).
(4B)….
(5) If any person having furnished a return under Sub-section (1) or Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.
(6)….
(7)….
(8)….
10. It is observed from Section 139(1) that every assessee whose income exceeds the maximum income not liable to tax is under an obligation to file the return of income within the time allowed under that Sub-section.
11. In this matter it is nobody’s case that a return was filed under Sub-section (1) of Section 139.
12. A notice under Section 139(2) had been issued in this case calling for the return of income. Assessee had not filed any return in response to such a notice within the specified time or till the assessment under Section 144 was made. Therefore, ordinarily the return filed by the assessee on 30th March, 1985 could not be a return in response to notice under Section 139(2).
13. Section 139(3) is relevant only in the case of loss return and accordingly irrelevant in this case.
14. Under Section 139(4), assessee is entitled to file return of income at any time before the making of assessment or before the expiry of 2 years from the end of the assessment year, whichever is earlier. Assessment year in this case being assessment year 1981-82 assessee could have filed the return by the end of (whichever was earlier) March 1984 or till the date of assessment which in this case is 28th March, 1984.
The date of assessment 28th March, 1984 being earlier than 31st March, 1984, it is clear that assessee could have filed the return under Section 139(4) by 28th March, 1984. Assessee has filed the return on 30th March, 1985 i.e., after the expiry of more than one year of making the assessment. Thus the return filed by the assessee does not fit in within this sub-section in ordinary circumstances.
15. Section 139(5) enables the assessee to file a revised return only when a return is filed under Section 139(1). This section is inapplicable in this case.
16. The only other eventuality under which assessee can file a return is when a notice under Section 148 is issued calling for the return of income. In this case, notice under Section 148 has not been issued. When we consider the provisions of Section 139 and Section 148, it is observed that the return filed by the assessee on 30th March, 1985 does not ordinarily fit in under any of these provisions of the Act.
17. We will now proceed to consider as to what is the status of return filed after the expiry of the time allowed under Section 139(4). Whether a return could be filed by the assessee beyond the period of limitation prescribed under law and whether such a return could be a valid return. In the case of CITv. RanchhoddasKarsondas [1959] 36 ITR569 (SC) at page 573, their Lordships of the Supreme Court held that a return of income could be filed even after the expiry of the time limit under the 1922 Act. In the case of Jaikishan Gopikishan & Sons v. CIT [1972] 84 ITR 645 (MP), the Madhya Pradesh High Court held that the return filed beyond the time under Section 22 (2A) could not be ignored in view of provisions of Section 22(3) of the Act simply because it was beyond time. In the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. [1970] 77 ITR 518, their Lordships of the Supreme Court held that a return submitted at any time before the assessment is made is a valid return in view of provisions of Section 22(3). One may get an impression from the abovementioned decisions that a return can be filed even after the expiry of the period specified under.Section 139(4). However, a close scrutiny of these decisions reveals that under the 1922 Act, Section 22(3) permitted filing of the return of income at any time before the assessment was made. Even though no return had been filed under Section 22(1) or in response to a notice issued under Section 22(2) calling for return, a return could be filed under Section 22(3) before the assessment was made and the same could not be ignored. However, under the 1961 Act there is a time limit within which a return of income can be filed. A return filed beyond the period of limitation prescribed under Section 139(4) could not be said to be a valid return. In the case of Balchand v. ITO [1969] 72 ITR 197, their Lordships of the Supreme Court held that if any assessee files a return of income after the assessment is made such a return does not operate as a bar to the Income-tax Officer issuing a notice for re-assessment. Though this decision is in regard to the provisions of 1922 Act, the principle, however, is squarely applicable under the provisions of the 1961 Act. Since in this case, assessee had filed the return of income after the completion of assessment under Section 144 and beyond the period of time allowed under Section 139(4) ordinarily the return could be treated as an invalid return.
18. However, the contention raised on behalf of the assessee that once assessment made under Section 144 is cancelled by the Assessing Officer in exercise of its powers under Section 146, the chances of filing of the return of income by the assessee are revived, needs serious consideration. The learned counsel for trie assessee Dr. Narayanan invited our attention to the provisions of Section 146 and pointed out that once the Assessing Officer is satisfied about the existence of sufficient cause preventing the assessee from filing of the return under Section 139(2), he is empowered to cancel the assessment. Once assessment is cancelled under Section 146 fresh assessment is provided to be made under Section 143. The assessment under Section 143 is possible only when a return is filed by the assessee, contended the learned counsel. It has thus got to be presumed that assessee is entitled to file a return of income in the fresh proceedings in consequence of setting aside of an order made under Section 144.
19. For consideration of the contention raised on behalf of the assessee, it would be necessary for us to consider the provisions of Section 139(2), 139(4), 144 and Section 146. Under Section 139(2), assessee can file a return within 30 days from the service of the notice or till such time as is granted by the Assessing Officer in exercise of his powers under proviso to Section 139(2). Section 139(4) permits filing of the return till the assessment is made or within a period of two years from the end of the assessment year, whichever is earlier. Section 144 empowers the Assessing Officer to make an assessment when assessee fails to file a return in response to notice under Section 139(2) or when there is non-compliance of the notices issued under Section 143(2) or Section 142(1). However, Section 146 provides circumstances under which the Assessing Officer is empowered to cancel the assessment made under Section 144. We are hereunder reproducing Section 146 so as to highlight the circumstances under which the Assessing Officer can cancel the assessment made under Section 144 :
146(1) Where an assessee assessed under Section 144 before the 1st day of October, 1984 makes an application to the Assessing Officer, within one month from the date of service of a notice of demand issued in consequence of the assessment for the cancellation of the assessment on the ground-
(i) that he was prevented by sufficient cause from making the return required under Sub-section (2) of Section 139, or
(ii) that he did not receive the notice issued under Sub-section (1) of Section 142 or Sub-section (2) of Section 143, or
(iii) that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying with the terms of any notice referred to in Clause (ii),
the Assessing Officer shall, if satisfied about the existence of such ground, cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of Section 143 or Section 144.
(2) Every application made under Sub-section (1) shall be disposed of within ninety days from the date of receipt thereof by the Assessing Officer:
Provided that in computing the period of ninety days aforesaid, any delay in disposing of the application which is attributable to the assessee shall be excluded.
It is evident from the language of Section 146 that assessment made under Section 144 can be cancelled by the Assessing Officer if satisfied that assessee was prevented by sufficient cause from making the return required under Sub-section (2) of Section 139. Once Assessing Officer is satisfied about the existence of the sufficient cause and he being empowered to extend the time for filing of the return in response to notice under Section 139(2), would it be reasonable to hold that assessee is precluded from filing of the return. Even after the assessment made under Section 144 had been cancelled. In our considered view such an interpretation will result in absurdity and mischief. The intention of the Legislature, in our view, could never be to create hardship in genuine cases. We consider it our duty to interpret the provisions of law in harmonious manner so that absurdity and mischief is avoided. We deserve support for this from the decision of the Supreme Court in the case of K.P. Varghese v. ITO [1981] 131 ITR 597 (SC) : 7 Taxman 13. Keeping in view this principle of interpretation laid down by their Lordships of the Supreme Court, we are of the considered view that by reading provisions of Sections 139, 144 and 147 in conjunction with each other it is clear that assessee cannot be prevented from filing of the return once assessment under Section 144 is cancelled by the Assessing Officer on being satisfied about the existence of sufficient cause from filing of the return of income in response to notice under Section 139(2). Once assessment is cancelled, the consequences of completion of assessment under Section 144 in the matter of filing of the return are lost and the chances for filing of the return by the assessee get revived.
20. In this case though we do not have the copy of the order passed under Section 146, perusal of the second assessment order reveals that assessment under Section 144 had been made on 28th March, 1984 as assessee had failed to furnish a return under Section 139(2). Since the said order of assessment has been cancelled, it has to be presumed that Assessing Officer was satisfied that assessee was prevented by sufficient cause from making the return required under Sub-section (2) of Section 139. Under Section 139(2) Assessing Officer was empowered to extend the time for filing of the return. It could be argued on behalf of the revenue that an application by the assessee is a condition precedent for grant of extension for filing of the return under Section 139(2). However, in this case, assessee did not get an opportunity to seek extension of time as contemplated under proviso to Section 139(2). As on the date of cancellation of assessment made under Section 144 i.e., 15th November, 1985, the return filed by the assessee was already on record (Assessee had filed the return on 30th March, 1985). Though the return filed on 30th March, 1985 was not valid in the eye of law for the reason that no such return could be filed after the completion of assessment, such a bar got lifted on cancellation of assessment under Section 146 on 15th November, 1985. The return filed on 30th March, 1985 was thus to be treated to have been filed on 15th November, 1985 i.e., the date of the cancellation of the order under Section 144. We, therefore, hold that though the return filed by the assessee on 30th March, 1985 was an invalid return on the date of its filing yet it was converted into a valid return on 15th November, 1985 as a return in response to notice under Section 139(2).
21. We now consider the other circumstance under which assessee can be deemed to have filed the return after the cancellation of assessment under Section 139(4), return can be filed within a period of two years after the expiry of the assessment year or till the assessment is made, whichever is earlier. Now in a case where assessment is made under Section 144 before the expiry of the said two years, the assessee ordinarily would be deprived of the remaining period, if any, within the two years. However, when in proceedings under Section 146 Assessing Officer is satisfied that assessee was prevented by sufficient cause in not filing the return of income or in not complying with the terms of the notice when the assessment is set aside. A crucial question arises as to whether the time that would have been available to the assessee for filing of the return of income in the event of assessment not having been completed under Section 144, would be available to the assessee. In our considered view, where assessee has been deprived of any period out of two years ordinarily available under Section 139(4) by reason of making the assessment under Section 144 which assessment is cancelled by the Assessing Officer on being satisfied about the existence of reasonable cause, the period of two years shall have to be computed by excluding the period between the making of the assessment under Section 144 up to its cancellation under Section 146. As already observed, cancellation of order under Section 144 is possible only on existence of sufficient cause referred to in Section 146. Once existence of sufficient cause is accepted by the Assessing Officer, it would be absurd to insist that assessee should still suffer the rigours of law and be deprived of the time that ordinarily would have been available to him in the event of assessment being completed on the last day of the limitation. If provisions of Section 139(4) are interpreted strictly, it would result in absurdity. For example, in a case where Assessing Officer completes the assessment under Section 144 and later on it is found that he was not justified in making the assessment say, for example, notice under Section 139(2) or 143(2) or 142(1) not having been served upon the assessee. Assessment having been completed by the Assessing Officer under Section 144 would mean that assessee is not entitled to file any return. However, once Assessing Officer accepts the existence of sufficient cause he would cancel the assessment. Justice but demands that the time from the date of assessment made under Section 144 till its cancellation should be excluded in determining the period of two years within which a return under Section 139(4) can be filed. This interpretation will avoid any absurdity and mischief and therefore, is warranted. In this case assessment under Section 144 had been completed on 28th March, 1984. Ordinarily, assessee was entitled to file the return by 31st March, 1984. Assessment made under Section 144 was cancelled on 15-11-1985. If the time taken between the making of assessment under Section 144 (28-3-1984) till its cancellation under Section 146 (15-11-1985) is excluded, assessee would be entitled to file the return by 18th November, 1985. Assessee had filed the return on 30th March, 1985. Admittedly on the date of the filing of the return assessment under Section 144 had been completed. Therefore, as on the date of the filing it was not a valid return. However, when trie assessment was cancelled under Section 146 this return could be said to have been converted into a valid return. As can be seen from the decision in the cases of Iqbal Singh Atwal (supra) and Tiwari Kanhaiya Lal (supra), assessee is entitled to request the Assessing Officer to treat the return filed voluntarily prior to notice under Section 148 as a return in response to notice under Section 148. In this case, notice under Section 148 was not issued. However, principle is squarely applicable since assessee could have filed a valid return by 18th November, 1985 under Section 139(4), when the time from the date of assessment under Section 144 till its cancellation, is excluded, the return which was pending with the Assessing Officer can be deemed to have been filed on 15th November, 1985 after the cancellation of assessment under Section 144.
21A. Thus the return filed by the assessee on 30th March, 1985 was a valid return as on 15th November, 1985 as a return in response to notice under Section 139(2) as well as a return under Section 139(4). The Assessing Officer was, therefore, not justified in treating the return as an invalid return as not having been filed within the time allowed under the provisions of the Act.
It is also so observed from the records that Assessing Officer had treated the return as a valid return. Assessing Officer had issued notices under Section 143(2) after the cancellation of assessment made under Section 144. First notice was issued on 27th December, 1985. Notices under Section 143(2) had also been issued subsequently. At no stage of the proceedings was the assessee informed that the return filed by him could not be treated as a valid return. The Assessing Officer has also issued a questionnaire to the assessee on the basis of the return of income filed and the information furnished along with it. The assessment has also been made on the basis of the return of income. It is noteworthy that assessment in this case had been completed under Section 144 at an income of Rs. 1 lakh. Assessee did file the return declaring income of Rs. 1,07,532 which was more than the assessed income. If assessee would not have been fair to the revenue he could have quietly accepted the assessment made under Section 144. Assessee has been fair and reasonable to the revenue to disclose the higher income even though the time for filing of the return had already expired and assessment under Section 144 had been completed. The Assessing Officer on the contrary has acted against the interests of the assessee by not issuing a notice under Section 148 though the same was warranted on the facts and in the circumstances of this case. On 28th March, 1985 the income assessed by the Assessing Officer was Rs. 1 lakh. Assessee had itself disclosed income at Rs. 1,07,530 which was higher than the assessed income. This warranted reopening of assessment under Section 147 and a notice under Section 148 was required to be issued. This was not done by the Assessing Officer. On 15th November, 1985 Assessing Officer reopened the completed assessment for the purposes of making a fresh assessment. This was not to further the interests of the assessee but the interests of the revenue. Had the Assessing Officer issued a notice under Section 148 as was warranted for regularising the return, the controversy of the invalidity of the return would not have arisen at all.
22. Considering the totality and the circumstances of this case, we are of the view that though the return of income filed by the assessee on 30th March, 1985 was invalid as on the date of its filing, it got converted into a valid return on cancellation of assessment made under Section 144 by an order under Section 146 on 15th November, 1985.
22A. Therefore, the view of the revenue authorities that the return of income filed by the assessee was invalid return is vacated.
23. Assessee has also explained, with reference to the written submissions filed before the CIT(A), that there was no non-compliance of the notices issued as alleged by the Assessing Officer. We keeping in view our findings accept the request on behalf of the assessee that the assessment made by the Assessing Officer be deemed to have been made under Section 143(3).
24. We now revert to other grounds of appeal. Ground No. 2 is relating to disallowance of Rs. 6600 made under Section 40A(3). Provisions of Section 40A(3) have been invoked in respect of payment made to M/s. Avon Sales Company. From the written submission of the assessee before the CIT(A), it is observed that Assessing Officer had not allowed an opportunity of being heard to the assessee before making the disallowance. Before the CIT(A), a certificate from M/s. Avon Sales Company had been furnished indicating that they were assessed to income-tax and sales tax and that they insisted for cash payments. The CBDT vide Circular No. 22 have issued instructions that where the payee had insisted for cash payment and a certificate from them is furnished giving the income-tax number and sales tax numbers etc., disallowance under Section 40A(3) should not be made. In this case substantial payments to M/s. Avon Sales Corporation had been made by cross cheques or bank drafts. Only two payments of Rs. 2600 and Rs. 4000 had been made by cash on the party having insisted for cash payment. These payments, in our view, are covered under Rule 60D(j) read with Circular No. 220 of CBDT. The disallowance of Rs. 6600 is accordingly deleted.
25. Ground No. 4 is relating to bad debts amounting to Rs. 6305. The bad debts are on account of small amounts. Rs. 500 and Rs. 712 in respect of two former employees had been written off. There are four other items in respect of supplies made to the parties. The only ground for disallowance of the claim of the assessee is that sufficient steps for recovery of the amount had not been taken. In view of the smallness of the amounts, we are satisfied that it was prudent on part of the assessee not to pursue the claim in the court of law. The other conditions being satisfied, assessee is entitled to treat the small amounts of bad debts without going through the process of instituting suits etc. for the recovery of the amounts. The addition of Rs. 6305 is also deleted.
26. We now deal with the additional ground of appeal raised before us which is as under :
That, having regard to the facts and circumstances of the case, the learned CIT(A) erred in giving no findings with regard to chargeability of interest under Section 139(8) and Section 215 of the Income-tax Act, 1961, but only allowing consequential relief to the appellant whereas the appellant objects to the levy of interest under Section 139(8) and 215 of the Act.
27. In the assessment order, the Assessing Officer has directed to charge interest. Interest under Sections 139(8) and 217 had been charged accordingly up to the date of making the fresh assessment. Assessee had raised ground No. 8 before the first appellate authority claiming that the interest charged under Sections 139(8) and 215 without affording an opportunity of being heard was an error of law. The first appellate authority in para 9 of the order observed that no specific submissions were made. Consequential relief was, however, allowed.
28. The learned counsel for the assessee contended that since specific ground had been taken before the CIT(A) regarding the opportunity of being heard not allowed, the first appellate authority was not justified to give only the consequential relief. Dr. Narayanan also pleaded that interest under Sections 139(8) and 215/217 could be charged only up to the date of original assessment and not up to the date of the fresh assessment.
29. Considering the fact that the additional ground raised was purely legal in nature, we have entertained the same and are disposing it of on merits. Since a specific ground had been raised by the assessee before the CIT(A), it was necessary for him to record a finding which has not been recorded in this case. We, therefore, set aside para 9 of the CIT(A)’s order and restore the issue relating to levy of interest under Sections 139(8) and 215/217 to his file for fresh disposal in accordance with law.
30. In the result appeal of the assessee is partly allowed.