CASE ANALYSIS ON:

INCOME TAX OFFICER vs. ANNU KNITTING MILLS (P.) LTD. 1987

Submitted by: Anurag Sahoo

B.A, LLB(Hons) Sec-A
1983026
 Explanation of the sections applicable in this case.

Section 139(1) of the Income Tax Act requires individuals or entities to file their income tax returns by the specified due
date if their total income meets certain criteria. In simpler terms, it outlines the obligation for taxpayers to submit their
income details within the stipulated time frame as per the law.

Section 139(3) of the Income Tax Act in India pertains to the filing of belated income tax returns. It allows individuals
or entities who have not filed their income tax returns within the original due date to do so at any time before the end of
the relevant assessment year or before the completion of the assessment, whichever is earlier. However, filing a belated
return might have certain consequences, including the possibility of incurring penalties or interest.

There are certain provisions of the old act also Sec-22 tells about Return of Income.
 FACTS:
 The appellant Revenue by their present appeal contest the correctness of the finding of the learned CIT (Appeals),
New Delhi, dated 31-10-1983, for the asst. year 1980-81, on the following ground: On the facts and in the
circumstances of the case, the learned Commissioner of Income-tax (Appeals) erred in directing the Income-tax
Officer to carry forward the loss of Rs. 22,540 to be set off against the income of next asst. year even though the
said loss was determined in pursuance of a return filed well beyond the time limit prescribed in Section 139(3) read
with Section 139(1), especially in view of the observations of S.C. in Brij Mohan v. CIT that a belated return filed
under Section 139(4) cannot be equated with a return under Section 139(1) of the Income-tax Act, 1961.

 By status, the assesses is a private limited company and its method of accounting is mercantile. The accounting
period was the year ending 31-8-1979. The return of income was filed on 5-6-1981 reflecting a Joss of Rs. 22,540
and taking into account the unabsorbed losses brought forward from the earlier years, the total loss is said to have
been shown at nil according to the assessment order. The learned ITO accepted the loss declared of Rs. 22,540,
however, refused to carry forward the same, keeping in view the provision of law as contained in Section 139(3) of
the Income-tax Act, 1961.

 The learned ITO's action was challenged by the assessee and it was argued before the learned CIT (A) by Shri S.C. Mehra, the
learned authorised representative, that the return was valid Under Section 139(4) and since in the assessment order the loss had
duly been accepted by the learned ITO there was no reason to reject the claim of carrying forward.
 ISSUES:

• Whether in the facts and circumstances of the case, the claim, to carry forward the loss of Rs. 22,540, to be
set off against the income of next year, is legally allowable ?
 CONTENTIONS RAISED:
 The mention before the first appellate authority was also made of the decision in the case of the Presidency Medical
Centre (P.) Ltd. v. CIT. The learned CIT (A) vacated the learned ITO's finding with the following observation: In the
case of Presidency Medical Centre (P.) Ltd. v. CIT it was held by the Calcutta High Court that if a return is filed within
the time allowed by Section 139(4) it should be deemed to be in accordance with law and the loss has to be determined
and carried forward. I agree with the appellant that the principles laid down by the Supreme Court in the case of CIT v.
Kulu Valley Transport Co. (P.) Ltd. are still applicable since there is no material change in the present state of law. This
contention is therefore accepted and the ITO is directed to carry forward the loss determined in the assessment in
accordance with law.

 The learned first appellate authority and so also the learned Authorized Representative before us heavily relied upon
the ratio in the case of Kulu Valley Transport Co. (P.) Ltd. (supra). In the said case, the assessee filed voluntary returns
in January 1956 disclosing loss for the years 1953-54 and 1954-55. In the said case there was some general notice_
Under Section 22(1) of the old Income-tax Act, giving some further time for filing the returns. The returns "were filed
even after the said extension. In the said case the notice Under Section 22(2) of the old Act was also not served. The
Hon'ble Supreme Court in those circumstances found that 'a return submitted at any time before assessment is made is
a valid return’.

 According to the Hon'ble Supreme Court a return whether it was return of income, profits and gains or of loss must be
considered as having been made within the time prescribed if it was made within the time specified Under Section
22(3) of the old Act. In other words, if Section 22(3) of that Act was complied with Section 22(1) of the old Act must
also be held to have been compHed with. It was also observed that where two views are Possible, one favorable to the
citizen should be accepted while considering the provision of a statute.
 JUDGEMENT:
 The Hon'ble Supreme Court in the said case determined and decided the issue under the old Act. Therefore, the
Hon'ble Supreme Court had no occasion to anticipate and opine about the implementation of Sub-section (3) of
Section 139 of the present Income-tax Act. The observation of the Hon'ble Supreme Court appears to be that a
return could be submitted at any time before assessment was made. A valid return might not be in dispute for
many purposes. However, in the peculiar circumstances in which Sub-section (3) of Section 139 is based, the said
observation, inter alia, could not have application as this sub-section deals with a particular situation, as a right is
conferred on the assessee, if such assessee satisfies, some conditions.

 The Hon'ble Supreme Court has nowhere said in the said case that the assessee would be entitled to the benefit
even if the conditions are not satisfied and the requirement of the law are not complied with. No doubt, where two
views are possible, one in favor of the citizen may be justified but where the provision of law is clear on the
point, in our considered view, only one view is possible. The ratio in the case supra, therefore, does not help the
assessee as the Hon'ble Supreme Court was interpreting the law with reference to the old Income-tax Act and the
present provision, we are concerned with, was not declared invalid.

 The ratio was, therefore, not laid down with reference to a Sub-section which was not is existence at the relevant
time and was in fact brought on the statute book subsequently. Moreover, the Hon'ble Supreme Court had no
occasion at that time to direct as to in what manner Sub-section (3) of Section 139 will have to be implemented.
The Hon'ble Supreme Court also have not said anywhere in the said case that the said sub-section has got to be
given a go-by. The language of the Sub-section being clear on the point we consider that the ratio in the said case
does not get attracted as the same was under the old Act and in different situation.
 Thus, with due regards to the Hon'ble Supreme Court, we are of the view that the assessee's present case under the
present Income-tax Act does not get any assistance from the ratio in the said case which was decided under the old Act
and without anticipating the provision of Sub-section (3) of Section 139.

 In the light of the foregoing paragraphs we are inclined to think that the learned CIT(A) was not justified to dislodge a
correct finding recorded by the learned ITO. Sub-section (3) contemplates a particular situation and in that situation
only the right conferred on the assessee is to be allowed and not otherwise. It is felt in the case before us the assessee
did not make himself entitled to the relief intended under the sub-section.

 On behalf of the revenue reliance was also placed on the ratio in the case of Brij Mohan (supra) decided by their
Lordships of the Supreme Court. The Hon'ble Supreme Court in the said case held ' a return filed within the extended
period is a good return in the sense that the ITO is bound to take it into consideration but nowhere does Section 139
declare that where return is filed within the extended period it will be deemed to have been within the period originally
prescribed by the statute. On the contrary, the Section contains a provision for payment of interest where the return is
filed beyond the prescribed date i.e. within the extended period. The return filed during the extended period, is not
recorded by the statute, as filed within the time originally prescribed.

 The ratio in this case clearly gives the impression that a return filed after the due date cannot be considered to have
been filed by the due date. Thus, in the case before us the return filed on 5-6-81 cannot be considered to have been
filed on 30-6-80 to enable the assessee to get the benefit of Sub-section (3) of Section 139. In the light of the above
discussions we are satisfied that the CIT(A) was not justified to interfere with a correct finding recorded by the learned
ITO. We quash his finding and restore that of the learned ITO on this point.
THANK YOU.