JUDGMENT
Suhas Chandra Sen, J.
1. The Tribunal has referred the following question of law to this court under Section 256(1) of the Income-tax Act, 1961 :
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the Income-tax Officer was entitled to drop the proceedings initiated by him under Section 147 on ascertaining that there was no escapement of income, and that the Income-tax Officer was not obliged to determine the loss on the basis of the said returns on the ground that the returns in question had been filed within the time available to the assessee for filing the return in terms of subSection (4) of Section 139 ?”
2. The assessment years involved in this reference are the assessment years 1973-74 and 1974-75, for which the relevant accounting period were the years ending on October 31, 1972, and October 31, 1973, respectively.
3. The facts of the case as narrated by the Tribunal in the statement of case are as under :
“The assessee is a limited company. Returns of income for the assessment years 1973-74 and 1974-75 were not filed by it suo motu within the time prescribed under Section 139(1) or for that matter in the financial years concerned, namely, financial years 1973-74 and 1974-75. The Income-tax Officer, therefore, initiated proceedings against the assessee-company under Section 148 by issuing notices under the said section in
respect of the aforesaid two years on May 12, 1975. The notices in question came to be served on the assessee-company on June 21, 1975. The assessee-company filed its returns of income in compliance with the aforesaid notices declaring losses of Rs. 64,699 and Rs. 30,644 in respect of the two years referred to above. The Income-tax Officer called for the account books of the assessee-company in respect of the two years and, after examination thereof, he was convinced that the net result of the assessee’s business in respect of the aforesaid two years was loss as declared by the assessee-company. He, therefore, refused to proceed further and accordingly he dropped the proceedings under Section 147/148 in respect of the two years. The operative part of the order of the Income-tax Officer reads in respect of both the assessment years as follows : “After examination of accounts, I find that the net result of the business was loss. As, under Section 147, loss cannot be determined, the proceedings with the issue of notice under Section 148 are hereby dropped.”
4. The Commissioner of Income-tax (Appeals) affirmed the order of the Income-tax Officer on this point. There was a further appeal to the Tribunal by the assessee in which the Tribunal held, inter alia, as follows :
“The Tribunal, after examining the rival submissions, observed that resort to provisions of Section 147 could be had only if the Income-tax Officer came to the conclusion on the basis of the returns filed under Section 147 that there was no escapement of income, the Income-tax Officer could drop the proceedings initiated under Section 147. The action of the Income-tax Officer according to the Tribunal was, therefore, correct.”
5. It must be noted that, under Section 152(2), the Income-tax Officer has been specifically empowered to drop a proceeding initiated under Section 147 only where the assessment is reopened in circumstances falling under Clause (b) of Section 147. There is no specific power given to the Income-tax Officer to drop the proceedings after initiating a proceeding under the circumstances mentioned in Section 147(a). In the instant case, no return was filed by the assessee for the relevant two assessment years. The reopening of the assessment, therefore, was on the ground of non-filing of the return which would be under Section 147(a).
6. The Income-tax Officer has recorded in the assessment order that since the assessee had not filed the return even within the extended time, the assessee’s income chargeable to tax had wholly escaped assessment and, accordingly, the proceedings under Section 147 of the Income-tax Act were started and a notice under Section 148 was issued on May 12, 1975.
7.
Therefore, there cannot be any controversy that the reopening of the case was made under Section 147(a) for non-filing of the return.
8. The next question is whether the assessee was entitled to claim computation or assessment of loss on the basis of the returns filed by it pursuant to a notice under Section 148. The assessment years involved in this case are the assessment years 1973-74 and 1974-75. The returns of income could be filed by the assessee in respect of these two assessment years showing loss by March 31, 1976, and March 31, 1977, respectively. But, on May 12, 1975, the income-tax Officer issued notices under Section 148 for both the assessment years. In other words, on the date on which the Income-tax Officer issued the notices under Section 148 calling upon the assessee to file the returns in the prescribed form, the assessee still had time to file the returns voluntarily showing the loss for these two assessment years 1973-74 and 1974-75. On November 18, 1977, the Income-tax Officer came to the conclusion that :
“After examination of accounts, I find that the net result of the business was loss. As, under Section 147, loss cannot be determined, the proceedings started with the issue of notice under Section 148 are hereby dropped.”
9. The question is whether, in such circumstances, the assessee can claim computation of the loss for these two years and also carry forward of the losses. This controversy was gone into and decided in the case of Burdwan Wholesale Consumers’ Co-operative Society Ltd. v. CIT [19911 191 ITR 570 (I. T. Reference No. 22 of 1985), by this court on January 9, 1990, where it was held that, in such a situation, that assessee could claim that the loss must be computed and carried forward, even though the return of income showing loss and filed pursuant to the notice under Section 148. It was further held in that case that a loss return could be filed by the assessee at any time before making of the assessment under Section 143. Therefore, the assessee, within that time limit, could file a loss return under Section 139(4) but if Section 148 notice was issued even before the period for filing such loss return was over, the assessee could take advantage of the notice under Section 148, by filing a return showing loss. The instant case comes squarely within the principles of law laid down in that case.
10. Mr. Bagchi, appearing for the Revenue, has contended that there are certain aspects of the case which were overlooked in the earlier judgment. He has drawn our attention to the language of Section 147 which is as follows :
“147. Income escaping assessment.–It-
(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, or
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assesement year,
he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).”
11. Section 148 of the Income-tax Act reads as follows :
“148. Issue of notice where income has escaped assessment.–(1) Before making the assessment, reassessment or recomputation under Section 147, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.
(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.”
12. Mr. Bagchi has contended that under Section 147, the Income-tax Officer may only recompute the loss or depreciation allowance or he can assess or reassess the income that has escaped assessment. His contention is that the language of the section is quite clear, namely, that if the loss has been already assessed, then the Income-tax Officer has got the power to recompute the same under Section 148 but if there was no assessment or if there was no computation of loss, there cannot be any question of recomputation of the loss. According to him, recomputation pre-supposes earlier computation of loss. Therefore, Mr. Bagchi has contended that Section 147 cannot be utilised for computation of loss and carry forward of the same.
13. In our view, this argument cannot be sustained in view of the clear language of the section itself. The Income-tax Officer has been empowered to assess or reassess such income or compute the loss or the depreciation allowance as the case may be. In other words, the Income-tax Officer can assess the income or the loss or the depreciation allowance, whether this has been done previously or not. The Explanation to Section 147 makes it quite clear that certain cases shall be deemed to be cases where the income chargeable to tax had escaped assessment and one of such cases is where excessive loss or depreciation allowance has been computed. In such a situation, the Income-tax Officer is entitled to reopen a case under Section 147 and can recompute the excessive loss or depreciation allowance. But the basic right of the Income-tax Officer to make an assessment has not been taken away or curtailed by this provision.
14. If a notice has been given under Section 148 and if the assessee files a return pursuant to that notice, the entire proceedings of the assessment will have to be gone through from the stage of return filed by the assessee, as if the return has been filed under Section 139(2) of the Act. This is the legal fiction. The only section under which the Income-tax Officer can make an assessment is under Section 143 or Section 144. Section 143(3)(a) provides as follows :
“143. (3)(a) in a case where no assessment has been made under Sub-section (1), the Income-tax Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.”
15. Having initiated the proceeding under Section 148, the Income tax Officer will have to make an asessment through the machinery of Section 143(3)(a). If the return discloses loss, the Income-tax Officer will have to make an assessment of that loss. It is to be noted that the Legislature has not used the expression “computation of loss” in Section 143(3). The Income-tax Officer can make the assessment of total income or loss as the case may be.
16. The next question is whether the section must be confined to the purpose of roping in income which had escaped assessment. Or, in other words, should the section be construed for the benefit of the Revenue and not for the benefit of the assessee. The Supreme Court in the case of V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373, has held at page 380 as follows :
“It is, therefore, manifest that once assessment is reopened by issuing a notice under Sub-section (2) of Section 22 the previous underassessment is set aside and the whole assessment proceedings start afresh.”
17. The above principle has been reiterated by the Supreme Court recently in the case of ITO v. Mewalal Dwarka Prasad [1989] 176 ITR 529.
18. In the case of CIT v. Assam Oil Co. Ltd, , it was held by Sabyasachi Mukharji J. (as His Lordship then was) as follows (at pages 219 and 220) :
“It was urged that upon the assessment being reopened the entire assessment was at large. It appears to us that it is so. Once an assessment is reopened, a notice is given for a fresh return in respect of all the items. This view is corroborated by the observations of the Supreme Court, though it was made in a different context, in the case of V. Jaganmohan Rao v. CIT [1970] 75 ITR 373, where at page 380, the Supreme Court, inter alia, made the following observations :
Section 34 in terms states that once the Income-tax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under Section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub Section (2) of Section 22 the previous underassessment is set aside and the whole assessment proceedings start afresh.’ ”
19. This view was also reiterated by the Division Bench of this court in the case of CIT v. Ramsevak Paul [1977] 110 ITR 527. In the case of CIT v. Bombay Dyeing and Manufacturing Co. Ltd. [1971] 82 ITR 892, at page 895, the Supreme Court had left this question open “… The Supreme Court in a sales tax case in the case of CST v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271, at page 280, expressed the same view as also in the case of State of Maharashtra v. Central Provinces Manganese Ore Co. Ltd. . The Andhra Pradesh High Court in the case of CWT v. Subakaran Gangabhishan [1980] 121 ITR 69 [FB] applied the sales tax principle in the case of a wealth-tax case.”
20. Recently, the Madhya Pradesh High Court in the case of Co-operative Marketing Society Ltd. v. CIT [1983] 143 ITR 99 has also taken the view that the assessee could claim loss on the basis of the return filed
pursuant to a notice under Section 148, provided the return was filed within time. A Full Bench of the Bombay High Court in the case of CIT v. Indian Rare Earth Ltd. [1990] 181 ITR 22 held that once valid proceedings under Section 147 of the Income-tax Act, 1961, were started, it was the duty of the Income-tax Officer to complete the whole assessment de novo. The Bombay High Court has also taken the view that once a valid proceeding was started, the assessment was nothing but a fresh assessment. It must be noted that the Supreme Court, in the case of Jaganmohan Rao (V.) v. CIT [1970] 75 ITR 373, has said that it is not only the jurisdiction but the duty of the Income-tax Department to complete the whole assessment de novo. If that be so, the Income-tax Officer is not entitled to drop the proceedings on the ground that if the assessment proceeding has to be gone through with full force, then the result would be loss which may have to be carried over.
21. There is another aspect of the case. The assessee could have filed a loss return at any time before the assessment was made. Therefore, it could as of right file a return under Section 139(4) up to March 31, 1976, and March 31, 1977, for the assessment years 1973-74 and 1974-75, respectively. That right could not be taken away by issuing a notice under Section 148. In the instant case, when the notices under Section 148 were issued on May 12, 1975, the assessee could still file the return of loss. The issuance of the notice under Section 148 cannot destroy that right of the assessee to file a claim for loss to be computed and carried forward. Such a construction of the provision of Section 148 should be avoided.
22. On a similar provision under the Wealth-tax Act, this court also held in the case of M. P. Jalan v. CWT (Matter No. 113 of 1981–judgment dated December 22, 1989), that the assessee in a reassessment proceeding under the Wealth-tax Act was entitled to claim deduction in accordance with law. The Income-tax Officer could not ignore a return lawfully filed and had to make assessment on the basis of the return filed.
23. In that view of the matter, the question is answered in the negative and in favour of the assessee.
24. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
25. I agree.
