INCOME TAX OFFICER, WARD - UDAIPUR , AGARTALA vs. TRIPURA STATE ELECTRICITY CORPORATION LTD., AGARTALA

The grounds of appeal taken by the Revenue reads as under:- (1) For that the ld. CIT(A) erred in annulling the assessment order only on the basis of the submission of the assessee at the appeal stage that no notice u/s 143(2) on the revised return was issued whereas the assessee failed to bring into the knowledge of the Assessing Officer during the continuation of the proceeding u/s 143(2) on the original return that the assesee filed a revised return subsequent to the receiving of notice u/s 143(2) on the original return thereby complying to the proceeding initiated u/s 143(2) of the I.T. Act, 1961. (2) For that the ld. CIT(A) erred in annulling the assessment order only on the basis of the submission of the assessee at the appeal stage that no notice u/s 143(2) was issued on the revised return without going into the merits of the additions made in the assessment order. (3) For that appellant craves leave to add, alter, amend any/ all of the grounds of appeal before or during the course of the hearing of the appeal.

Brief facts of the case are that the assessee has filed its return of income electronically on 26.09.2013 declaring a loss of Rs.182,05,36,779/- after claiming all allowable deductions. The case of the assessee was selected for scrutiny assessment through CASS and notice under section 143(2) was issued and served upon the assessee on 04.09.2014. The ld. Assessing Officer has passed a scrutiny assessment order on 18.03.2016 Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited under section 143(3). According to the assessee, it has revised its return on 23.02.2015 and cognizance of this return was not taken by the ld. Assessing Officer. Therefore, dissatisfied with the assessment order, the assessee carried the matter in appeal before the ld. 1st Appellate Authority. The assessee submitted that since it has revised its return within the time limit available under section 139(5), therefore, whatever claim it has made in the original return stands withdrawn. The assessment ought to have been passed on the basis of revised return. For buttressing its contention, it has relied upon four decisions, which have been noticed by the ld. 1st Appellate Authority and we are taking cognizance of them while taking note of the finding of the ld. CIT(Appeals). The ld. CIT(Appeals) found that revised return was filed within the time limit. The ld. CIT(Appeals) thereafter recorded a finding that ld. Assessing Officer should have issued a notice under section 143(2) on the revised return. Since he failed to take cognizance of the revised return, therefore, assessment proceeding vitiated and assessment order deserves to be quashed. The finding recorded by the ld. CIT(Appeals) reads as under:- “3.3. I have carefully considered the matter. In the assessment order, the AO did not speak anything about filing of revised return. He stated that notice u/s. 143(2) was served on 04.09.2014. This is a date anterior to filing of revised return. In the computation of income also, the AO started off with total income/loss per original return. In the assessment order, the AO had calculated excess of loss in original return over that of revised P&L A/c. The same was 3 Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited Rs.24,82,76,615/-. The excess of loss in original P&L A/c over revised P&L A/c was added to assessee s income u/s.68 of the Act. In case of Balance Sheet items, the excess'of total of asset/liability per revised Balance Sheet over that of original Balance Sheet which came to Rs.13,95,33,016/- was added to the income u/s.68 of the Act. On careful perusal of assessment order, the AO had not mentioned anything about revised return being filed by assessee. Per section 139(5) of the I.T. Act, Revised Return may be filed if assessee discovers any omission or any wrong statement in return filed u/s.139(1) or in response to notice issued u/s. 142(1) of the Act. The Revised Return has to be filed before expiry of one year from the end of relevant assessment year or before completion of assessment, whichever is earlier. In the present case, revised return could have been filed till 31.03.2016. Therefore, the revised return filed is within time. Next matter to be decided is whether there was bona fide mistake that impelled assessee to file revised return on 30.03.2016. Reason for filing Revised Return had been spelt out in the written submission. It was due to comments given by the CAG. Therefore, there was sufficient bona fide reason for filing the revised return. In the report of the AO, it is stated that there was no violation of provision of law while filing the revised return.

3.3.1. Relevant issue to be decided is whether valid assessment order can be passed on basis of notice issued u/s 143(2) on the original return. For this, it will be in the fitness of things if reference is made to decisions of higher Appellate Authorities on the subject. There are decisions of Hon’ble High Courts wherein it is held that once a valid return return is filed, natural consequence is that the earlier return would be effaced or obliterated for all purposes under the Act. It is not open for the AO to advert to the original return or the statements filed along with the original return. Only the revised return has to be taken into account for the purposes of making the assessment. This point of view had been held in the following cases:- (i) CIT –vs.- Rana Polycot Ltd. (2012) 347 ITR 466 (P&H); (ii) CCIT –vs.- Machine Tools Corpn. Of India (1993) 201 ITR 101 (Karnataka); Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited (iii) Beco Engineering Co. Ltd. –vs. VIT (1984) 148 ITR 478 (P&H); (iv) CIT –vs.- Mangalore Chemicals & Fertilizers Ltd.(1991) 191 ITR 156 (Karnataka). In the case of Pr. CIT-1-vs.- Babubghai Ramanbhai Patel (2017) 84 taxmann.com 32 (Guj), it was held that once a revised return is filed within the prescribed time, the original return did not survived and that allowance claimed in the revised return had to be allowed. In the case of Machine Tools Corpn of India Ltd. (supra), it was held that once a revised return is filed, the original return is substituted by the revised return and that it was not open for the AO to advert to the original return. The decision in that case was affirmed by the Hon’ble Apex Court in (2000) 109 taxman 225 (SC). In the case of Mangalore Chemicals and Fertilizers Ltd. (supra), the question no. 1 put up before the Hon’ble Court was: “Whether on the facts and circumstances of the case, the Appellate Tribunal is right in law while holding that when a valid revised return was filed by the assessee, it completely effaces and obliterates the original return and, therefore, it is only the revised return that has to be taken into account for the purpose of making the assessment? The question was answered by the Hon’ble Court as under: “Regarding Question No. 1, much discussion is not necessary because once the original return is withdrawn or is substituted by filing a valid revised return, the natural consequences is that the earlier return would be effaced or obliterated or all purposes under the Act. The answer to the first question is therefore, necessarily in the affirmative and against the Revenue”. Considering the decisions of Hon'ble Courts on the matter, it is clear that once a valid revised return is filed, the AO has to take cognizance of the same. Corollary 5 Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited consequence is that the AO has to issue notice u/s 143(2) on the revised return. In the present case, the assessment order is totally silent about the revised return filed on 30.03.2016. Revised Return disclosed loss of Rs.194,75,04,007/- . This said loss had not been considered in the final computation of income. The AO also reported that the notice u/s 143(2) was issued on basis of original return. In view of this, there is vitiation in the conduct of assessment proceeding. Assessment order cannot be passed based on "a return that had been withdrawn and revised. Considering the decisions of Hon’ble Courts on the matter, the impugned assessment order cannot be held to be valid. The same is annulled. If in the opinion of the AO, there is escapement of income in the year, he is free to resort to proceeding u/s.147 of the Act. Appeal is allowed”.

The ld. Departmental Representative while impugning the order of ld. CIT(Appeals) contended that non-consideration of the revised return at the end of the ld. Assessing Officer while determining the taxable income of the assessee can be a mere irregularity, which can be rectified either by way of exercising the powers under section 154 by the ld. Assessing Officer or by the ld. 1st Appellate Authority, but it is not a fatal injury on the proceedings as a whole where assessment order is to be quashed.

On the other hand, ld. Counsel for the assessee on the strength of following decisions:- (i) CIT –vs.- Rana Polycot Ltd. (2012) 347 ITR 466 (P&H); (ii) CCIT –vs.- Machine Tools Corpn. Of India (1993) 201 ITR 101 (Karnataka); Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited

We have duly considered the rival contentions and gone through the record carefully. We are of the view that section 143(2) has a direct bearing on the controversy. Therefore, it is salutary upon us to take note the relevant part of this section, which reads as under:- “143(2): “50. Substituted by the Finance Act, 2016, w.e.f. 1.6.2016. Prior to its substitution, sub-section (2), as amended by the Direct Tax Laws (Second Amendment) Act, 1989, w.e.f. 1.4.1989, Finance (No. 2) Act, 1991, w.e.f. 1.10.1991, Finance Act, 2002, w.e.f. 1.6.2002, Finance Act, 2003, w.e.f. 1.6.2003 and Finance Act, 2008, w.e.f. 1.4.2008, read as under:- (2) Where a return has been furnished under section 139, or in response to a notice under sub- section (1) of section 142, the Assessing Officer shall,- (i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may relief, in support of such claim: Provided that no notice under this clause shall be served on the assessee on or after the 1st day of June, 2003; (ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced, any evidence on which the assessee may relief in support of the return: Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished”.

A bare perusal of this section would reveal that where a return has been furnished under section 139 or in response to a notice under sub-section (1) of section 142, the ld. Assessing Officer or the prescribed income- tax authority if considers it necessary or expedient to ensure that assessee has not understated income or has not computed excessive loss or has not underpaid tax in any manner serve on the assessee, a notice requiring him Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited on a date to be specified therein to produce any evidence on which the assessee may rely in support of the return. In other words, this section has two compartments, the first compartment is that this section provides that a notice should be issued within the time limit provided in the proviso to this section.

The second compartment of this section is that it provides an opportunity to an assessee as to what it wants to submit in support of the claim made in a return. The Hon’ble Courts are unanimous on the points that if no such notice is issued within the time limit, then assessment proceedings would be void ab initio. However, the situation in the present case is altogether different. A valid return was filed by the assessee under section 139(1) on 26.09.2013. Within the time limit available under section 143(2), a notice was issued to the assessee under this section inviting it to submit any evidence in support of its return of income. In other words, the assessment proceedings were set into motion. Now section 139(5) provides two situations to an assessee for revising its return of income, namely if an assessee after furnishing the return under section 139(1) or in response to notice under section 142(1) discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of relevant assessment year or before the completion of the assessment, whichever is 9 Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited earlier. The assessee has filed the revised return no doubt within one year from the end of the assessment year 2013-14 as well as before the end of the completion of the assessment proceedings.

The short controversy before us is whether non- issuance of a notice under section 143(2) on the revised return would be illegality which can render the assessment order beyond the jurisdiction of the ld. Assessing Officer in this situation or it was a mere irregularity. The judgments, which are being referred by the ld. Counsel for the assessee are concerned, they propound that when revised return is being filed, then original return would obliterate. In other words, the original return would become redundant and the determination of taxable income is to be made on the basis of revised return. In none of the cases, it has been propounded that 143(2) notice was must on the revised return, otherwise whole assessment proceeding would vitiate. Let us explain the situation in a different manner also. Section 139(5) authorizes the assessee to file the return before completion of the assessment order. In the present case, assessment order has been passed on 18.03.2016. Hearing must have been concluded 2-3 days prior to this date because ld. Assessing Officer has to draft the assessment order. On 17th March, assessee filed a revised return without the knowledge of the ld. Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited Assessing Officer because such return in A.Y. 2013-14 would be filed at the receipt counter. Can assessment order would be declared nullity for not issuing 143(2) notice on such return, because it is quite impossible at the end of the ld. Assessing Officer to take cognizance of such a fact in such a short period of time. This type of step can be taken at the end of an assessee for frustrating the whole assessment machinery. Yes, once a revised return is being filed, certainly its figure can be taken into consideration as propounded in the various decisions cited by the ld. Counsel for the assessee. Therefore, in our opinion, it was only an irregularity and not an illegality. It could have been cured by the ld. 1st Appellate Authority by calling a remand report from the ld. Assessing Officer after re-determination of the income on the basis of revised return, but to declare the assessment order as a null and void is not in accordance with law.

On due consideration of all these facts and circumstances, we set aside the impugned order of the ld. CIT(Appeals) and restore this issue to the file of the ld. Assessing Officer. The ld. Assessing Officer is directed to re-determine the taxable income of the assessee after taking the details from the revised return of income. This exercise be carried out after providing due opportunity of hearing to the assessee. Assessment Year: 2013-2014 Tripura State Electricity Corporation Limited

In the result, the appeal of the revenue is allowed for statistical purposes.