ORDER
George Cheriyan, Accountant Member
1. These are two appeals by the assessee. They relate to the assessment years 1974-75 and 1975-76. For the assessment year 1974-75, the assessee, a firm, which had applied for registration filed application in Form No. 11 on 2-6-1973 which was accompanied by the instrument of partnership, etc The return of income was, however, filed only on 2-6-1979 showing an income of Rs. 11,030. The return carried a notation : ‘Under Section 139(1)’. Under the provisions of Section 139(4) of the Income-tax Act, 1961 (‘the Act’), a return of income for this year had to be filed on or before 31-3-1977. But there is the entry in the order-sheet dated 17-1-1979, as under:
Voluntary return of income filed on 2-1-1979. The assessee-firm filed the return out of time. Hence notice under Section 148 put up to regularise the same.
The assessee sent a letter which was received on 28-1-1979 which requested that the return filed earlier should be treated as a return in response to notice under Section 148 of the Act. The ITO thereafter issued notice under Section 143(2) of the Act and from the records it is seen that he went into the source of introduction of capital of each of the partners and eventually completed the assessment on a total income of Rs. 18,200. He gave credit for tax deducted at source of Rs. 2,922. This deduction of tax at source was made by various persons who paid amounts on account of contract work as enjoined by the provisions of Section 194C of the Act. Eventually, the balance refundable was computed at Rs. 2,469 and refund voucher was also issued. The assessment order was dated 24-4-1979. Registration was also granted to the firm.
2. For the assessment year 1975-76, again, the return of income was filed on 2-1-1979. This return also carried the notation : ‘Under Section 139(1)’. The income shown was R,s. 14,600. For this year, Form No. 12 had been filed as early as 9-6-1975. For this assessment year, a valid return under Section 139(4) had to be filed on or before 31-3-1978. For this year, the order-sheet contains the following noting dated 17-1-1979 :
Voluntary return of income filed on 2-1-1979. Notice under Section 148 put up.
The ITO, in due course, completed the assessment on a total income of Rs. 22,600. He gave credit for tax deducted at source of Rs. 3,416 and computed the balance refundable at Rs. 2,723 which amount was also refunded. The assessment order is dated 24-4-1979. For this year also registration was granted.
3. In due course, the Commissioner initiated proceedings under Section 263 of the Act and he passed a combined order for both the assessment years on 18-4-1981. The Commissioner stated that in both the returns refund of tax had been claimed and the time-limit prescribed for claiming refund under Section 239 had expired before the returns were filed. These dates are the same as referred to by us with reference to the provisions of Section 139(4). According to the Commissioner, the ITO should have ignored the returns and not taken action under Section 148 of the Act, for regularising the same. The Commissioner thereafter observed as under :
For invoking the provisions of Section 147, the fundamental condition should be satisfied in that the ‘income chargeable to tax’ has escaped assessment for a particular assessment year. Explanation 1 to Section 147 refers to cases where income chargeable to tax has escaped assessment. Since tax was already deducted under the provisions of the Income-tax Act, on the incomes returned by the assessee for the said two assessment years, there was legally and actually no escapement of any income chargeable to tax within the meaning and spirit of Section 147. Hence the action of the Income-tax Officer in issuing a notice under Section 148 was clearly erroneous and prejudicial to the interests of revenue.
The assessee, in reply to the show-cause notice, contended that the orders passed by the ITO were not prejudicial to the interests of the revenue, because, if a proper assessment was made and excess tax refunded, it could never be construed as an act which was prejudicial to the revenue. In short, the assessee contended that the assessments made were in accordance with law. According to the Commissioner, the ITO had not kept in mind the relevant provisions of law when issuing notices under Section 148. He stated that the provisions of Section 147 of the Act were intended only for the benefit of the revenue and not for the benefit of the assessee and if, during the course of proceedings, the ITO had found that there was no loss of revenue, he should have dropped the proceedings under Section 147 and he should not have proceeded to complete the assessment and thereby grant a refund to the assessee. In support of this view, the Commissioner referred to the decisions of the Bombay High Court in the cases of S. Inder Sing Gill v. CIT [1963] 47 ITR 284 and Kevaldas Ranchhodas v. CIT [1968] 68 ITR 842. The Commissioner then went on to elucidate how in his view, the assessments made were erroneous, by emphasising that the assessee could not claim refunds after the stipulated date when, a return could have been voluntarily filed. Finally the Commissioner stated that even if on the ground of equity there was excess deduction of tax and hence a refund was due to the assessee, the only proper course would have been to apply to the Board for condonation of the delay in filing the returns and since this was not done, the assessee could not expect to get the refunds. He, therefore, cancelled the assessments and directed the ITO to recover the refunds already issued to the assessee. There was no action taken under Section 263 in relation to the orders granting registration. Therefore, such orders still stand.
4. The assessee is in appeal before us and it was contended by the learned counsel that the assessments as made were perfectly in order and the Commissioner should not have interfered with the same.
5. We have set out the facts earlier. We required the counsel to specifically address us as to why it should not be construed that the ITO had not recorded reasons for forming the belief that there was escapement of income and consequently why the reopening should not be held to be without jurisdiction having regard to the ratio of the judgment of the Supreme Court in Union of India v. Rai Singh Deb Singh Bist [1973] 88 ITR 200. The learned counsel submitted on facts that reasons had been recorded by the ITO. According to him, the mere reference to the voluntary returns filed showed that the ITO considered that taxable income had escaped assessment and, therefore, the issue of notice under Section 148 was in order. Another point that he made was that this being an order passed by the Commissioner, it was not open to the Tribunal to decide the appeal on any ground other than those which had weighed with the Commissioner. In this regard, he referred to the decision of the Punjab and Haryana High Court in CIT v. Jagadhri Electric Supply & Industrial Co. [1981] 7 Taxman 56. He, therefore, contended that it was not open to the Tribunal to go into the validity of assumption of jurisdiction by the ITO, in the view that reasons may not have been, or at least proper reasons may not have been, recorded.
6. The learned departmental representative submitted that it was open to the Appellate Tribunal to permit even a respondent to raise a new ground not involving further investigation into facts and, therefore, the Tribunal could decide the appeal even on grounds not referred to by the Commissioner. In support of this proposition, he relied on the decision of the Punjab and Haryana High Court in CIT v. Dehati Co-operative Marketing cum-Processing Society [1981] 130 ITR 504.
7. We have considered the rival submissions. In the case relied on by the learned departmental representative in Dehati Co-operative (supra), the Punjab and Haryana High Court had placed reliance on Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963, which reads as under :
11. Grounds which may be taken in appeal. The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal, but the Tribunal, in deciding the appeal, shajl not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule :
Provided that the Tribunal shall not rest its decision on any other ground unless the party who may be affected thereby has had a sufficient opportunity of being heard on that ground.
Normally, therefore, it would be open to the Tribunal, in deciding an appeal, even to render its decision with reference to a ground which the Tribunal itself may suo moto take up. The point still survives whether, when the appeal is against an order under Section 263 passed by the Commissioner, the powers of the Tribunal in this regard get restricted in any manner.
8. In our view, the observations in the judgment of the Punjab and Haryana High Court in Jagadhri Electric (supra), which is the only pronouncement of a High Court on the point, which are as under, provide a complete answer :
The jurisdiction vested in the Commissioner under Section 263(1) of the Act is of special nature or, in other words, the Commissioner has the exclusive jurisdiction under the Act to revise the order of the ITO if he considers that any order passed by him was erroneous in so far as it was prejudicial to the interests of the revenue. Before doing so, he is also required to give an opportunity of being heard to the assessee. If after hearing the assessee in pursuance of the notice issued by him under Section 263(1) of the Act, he is not satisfied, he may pass the necessary orders. Of course, the order thus passed, will contain the grounds for holding the order of the ITO to be erroneous, as contemplated under Section 263(1) of the Act. Feeling aggrieved therefrom the assessee may file an appeal against the same, as provided under Section 253(1)(c) of the Act. In the memorandum of appeal, the assessee is supposed to attack the order of the Commissioner and to challenge the grounds for decision given by him in his order. At the time of the hearing, if the assessee can satisfy the Tribunal that the grounds for decision given in the order by the Commissioner are wrong on facts or are not tenable in law, the Tribunal has no option but to accept the appeal and to set aside the order of the Commissioner. The Tribunal cannot uphold the order of the Commissioner on any other ground which, in its opinion, was available to the Commissioner as well. If the Tribunal is allowed to find out the grounds available to the Commissioner to pass an order under Section 263(1) of the Act, then it will amount to sharing of the exclusive jurisdiction vested in the Commissioner, which is not warranted under the Act. It is all the more so, because the revenue has not been given any right of appeal under the Act against an order of the Commissioner under Section 263(1) of the Act.-fin case he proceeds thereunder after hearing the assessee in pursuance of the notice given by him, then the appeal filed by the assessee under Section 253(1)(c) of the Act cannot be treated on the same footing as an appeal against the order of the AAC passed in assessment proceedings, where both the parties have been given the right of appeal. In this view of the matter, the argument raised on behalf of the revenue, that an appeal, the Tribunal may uphold the order appealed against on the grounds other than those taken by the Commissioner in his order, is not tenable. Under Section 263 of the Act, it is only the Commissioner who has been authorised to proceed in the matter and, therefore, it is his satisfaction according to which he may pass necessary orders thereunder in accordance with law. If the grounds which were available to him at the time of the passing of the order do not find mention in his order appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under Section 263(1) of the Act. In this situation, the Tribunal while hearing an appeal filed by the assessee cannot substitute the grounds which the Commissioner himself did not think proper to form the basis of his order. (pp. 62-63)
Where the Commissioner exercise his powers of revision under Section 263(1), the view of the Court is that it would not be open to the Tribunal to decide the appeal on any grounds other than those taken by the Commissioner himself. The Court has distinguished appeals from orders under Section 263 from other appeals by stating that in this case no appeal is permitted to the revenue and the appeal is only permitted to the assessee and, further, if the Tribunal is permitted to decide the appeal on fgrounds other than those taken by the Commissioner, the Tribunal would be transgressing into the exclusive jurisdiction of the Commissioner who had to form the belief that the order passed by the ITO was erroneous and prejudicial to the interests of the revenue.
9. In the present case, we have already set out the notings in the order-sheet. There have been some notings and, therefore, it cannot be said that this is a case where nothing was recorded by the ITO, before issue of notice under Section 148. It may admit of some argument whether the noting can be construed as amounting to recording of reasons, because, on the one hand, it may be stated that the reference to the voluntary return would show that the fact that there was taxable income but no assessment had been made, had weighed with the ITO, while, on the other hand, it may be said that mere assenting to an office note would not be tantamount to the ITO recording reasons and as such this mandatory requirement was not satisfied. In this state of facts, the case appears to be one which would fall within that category which was described by the Punjab and Haryana High Court as “If the grounds which were available to him at the time of the passing of the order do not find mention in his order appealed against, then it will be deemed that he rejected those grounds for the purpose of any action under Section 263(1) of the Act.” We consider that on facts it can be construed that in view of the position stated earlier, the Commissioner could be taken as having rejected the ground for the purposes of Section 263(1), viz., that there was no recording of reasons by the ITO.
10. Proceeding from the stage that there was recording of reasons by the ITO, it follows that since the returns showed taxable income and no assessment had been made till then, it was a case where income had escaped assessment. Section 147(a) reads as under:
147. If-
(a) the Income-tax Officer has reason to believe that; by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year….
The present returns having been filed beyond the time allowed under Section 139, it is a case where due to omission or failure on the part of the assessee to make a return under Section 139, income chargeable to tax had escaped assessment. We are unable to agree with the broad proposition sought to be canvassed by the learned departmental representative that it should be construed that when there was adequate deduction of tax at source, there was no escapement from assessment of income chargeable to tax. Even if there has been excess deduction of tax at source, if the income was above the taxable limit, then the provisions of Section 139 in unmistakable terms require a person to file his return of income and where such return has not been filed and consequently no assessment has been made, there would be escapement from assessment of income chargeable to tax. The provisions of Section 271(3)(a) provide exemption from levy of penalty only in the case of those persons whose income did not exceed the maximum amount not chargeable to tax by Rs. 1,500 if they’failed to furnish the return under Section 139(1). When we go to the provisions dealing with prosecutions, we find that certain immunities are granted and the proviso to Section 276CC of the Act reads as under :
Provided that a person shall not be proceeded against under this section for failure to furnish in due time the return of income under Sub-section (1) of Section 139-
(i) for any assessment year commencing prior to the 1st day of April, 1975 ; or
(ii) for any assessment year commencing on or after the 1st day of April, 1975, if-
(a) the return is furnished by him before the expiry of the assessment year ; or
(b) the tax payable by him on the total income determined on regular assessment, as reduced by the advance tax, if any, paid and any tax deducted at source, does not exceed three thousand rupees.
Thus, where a return is furnished even after the expiry of the assessment year under consideration, if an assessee is able to show that the tax payable by him on the total income determined on regular assessment as reduced by advance tax and tax deducted at source does not exceed Rs. 3,000, then he escapes prosecution. The latter condition granting immunity would make it appear that where an assessee has taxable income and files a return showing such taxable income, even if it be after the period provided under Section 139, as long as it is not beyond the period permissible under Section 147(a), it would be necessary that the ITO should initiate proceedings under Section 147 read with Section 148 to bring to tax the chargeable income which had escaped assessment for that year, for then alone would it be possible for the assessee to claim the immunity based on the deficiency of tax computed on the basis of ‘regular assessment’ as reduced by advance tax and tax deducted at source. Such, at least, in our view, would be the position as long as there are judicial pronouncements to the effect that even assessments made under Section 147 would have to be construed as regular assessments for certain purposes. One such decision is that of the Calcutta High Court in the case of Kashiram Tea Industries Ltd. v. ITO [1981] 132 ITR 783. For contrary view, see Smt. Kamla Vati v. CIT [1978] 111 ITR 248 (Punj. & Har.)
11. We would now advert to the decisions relied on by the Commissioner, viz., S. Inder Sing (supra) and Kevaldas (supra). Both these cases were those where reassessments were made and the Court held that in the case of reassessment, the ITO had no jurisdiction to reopen the entire assessment originally made and determine afresh assessable profits and rectify errors or omissions made by the assessee in the matter of computation of total income and it was not open to an assessee to seek to be allowed credit in respect of some item which was over-assessed. The ratio of these decisions (except perhaps where the result is a loss computed or the figure of income is below taxable limit), in our view, does not have application to cases where an original assessment is being made for the first time by invoking the provisions of Section 147. The right to the assessee to request for dropping of proceedings under Section 147 as provided in Section 152(2) is also confined to cases under Section 147(6) where a reassessment is to be made.
12. The present is not a case where the assessee was making a claim for refund of tax while making an application under the provisions of Section 239. We come tojjthis conclusion because, for making a claim under that section, the application has to be made in Form No. 30 which should accompany the return of income and in the present case there is no application made in Form No. 30 in either of the assessment years and, therefore, there was no compliance with the requirements of Rule 41. Apart from this, the superscription to each of the returns states it was filed under Section 139. Therefore, factually, the returns which were riled not being claims for refund, it is not necessary for us to dwell on this aspect which has been adverted to in the order of the Commissioner any further.
13. On the basis of the aforesaid findings, we come to the conclusion that the assessment orders passed by the ITO were not erroneous and were also not prejudicial to the revenue. In this regard, we may reiterate that the assessment year 1974-75 was the first year of assessment of the firm and that there was introduction of capital by the partners and the ITO had gone into the sources for the introduction of capital and there is material on record to show such examination. The case was also that of a contractor where normally book results are interfered with. In deciding whether the action of the ITO in attempting to make an assessment was erroneous or not or was prejudicial to the revenue or not, we consider that apart from the fact that ex facie, on the basis of returns of income, refunds may appear to become due consequent to excess tax deduction at source with reference to such returns of income, the other factors referred to by us and the necessity of investigating into them would also merit consideration. On a balancing of these factors, we find it difficult to subscribe to the view that the orders passed by the ITO were erroneous or prejudicial to the revenue. In such circumstances, we set aside the common order of the Commissioner and restore the order passed by the ITO for the two assessment years. The ITO will now refund to the asses-see any amount which may become due consequent to our decision.
14. The result is, the appeals are allowed.
