R.kasi Vishwanathan & Bros. v Assist CIt [2014] 42 Taxmann.com 176 Section 139(5) -It 475-11 28.3.2016

7/26/2019 R.kasi Vishwanathan & Bros. v Assist CIt [2014] 42 Taxmann.com 176 Section 139(5) -It 475-11 28.3.2016

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IN THE INCOME TAX APPELLATE TRIBUNAL

COCHIN BENCH, COCHIN

BEFORE S/SHRI N.R.S.GANESAN, JM and B.R.BASKARAN, AM

I.T.A. No. 475 Coch/2011Assessment Year : 2006-07

M/s. R. Kasi Vishwanathan &Bros.,C/o K.Ramakrishnan/Shri G.Natarajan, CAs,71, Sanyasi Gramam Street,Thirunelveli Junction-627 001.[PAN: AACFR 8902Q]

Vs. The Assistant Commissioner ofIncome-tax, Palakkad Range,Palakkad.

(Assessee -Appellant) (Revenue-Respondent)

Assessee by Shri B. Ramanna Kumar, Adv.

Revenue by Smt. S. Vijayaprabha, Jr. DR

Date of hearing 22/07/2013

Date of pronouncement 11/10/2013

O R D E R

Per B.R.BASKARAN, Accountant Member:

The appeal filed by the assessee is directed against the order dated 15-03-2011

passed by the Ld. CIT(A)-V, Kochi and it relates to the assessment year 2006-07.

2. The assessee is assailing the decision of the Ld. CIT(A) in respect of the

following issues:

(a) Non consideration of revised return of income filed by the assessee.

(b) Confirmation of disallowance made u/s. 40(a)(ia) of the Act in respect of theadvertisement expenses.

(c) Non consideration of claim for deduction of loss on clearance sale.


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3. Though the assessee has raised two more grounds relating to jurisdiction of the

Assessing officer and levy of interest u/s 234B of the Act, the Ld. Counsel did not argue

on those grounds. Hence, they are not considered for adjudication.

4. The facts relating to the case are stated in brief. The assessee is engaged in the

retail business in textiles. It filed its return of income for the year under consideration

on 31-10-2006 declaring a total income of Rs. 6,37,550/-. The Department carried out

search and seizure operations u/s. 133A of the Act in the business premises of the

assessee on 24-12-2006. Consequent to the survey operations, the assessee filed a

revised return of income on 31-03-2007 declaring a total income of Rs. 11,06,350/-. In

the revised return, the assessee disallowed advertisement charges of Rs.1,09,67,754/-

u/s 40(a)(ia) of the Act for non-deduction of tax at source and also made a fresh claim

for deduction of loss on clearance sale to the tune of Rs.1,04,98,946/-. The net effect

of the above said two adjustments has resulted in increase in the income declared in

the revised return of income.

5. During the course of proceedings, the Assessing Officer did not consider the

revised return of income. According to the AO, the assessee came to know of his

failure to deduct tax at source on the advertisement charges and resultant disallowance

required to be made u/s 40(a)(ia) of the Act due to survey operations carried by the

department. Hence, the assessee has filed the revised return by making the statutory

disallowance u/s 40(a)(ia) of the Act and further, in order to reduce the tax liability

arising out of the said disallowance, the assessee has claimed deduction of loss on

clearance sale. Hence, the AO held that the filing of revised return itself is an

afterthought. Hence, the AO did not consider the revised return. However, he

disallowed the advertisement expenses u/s 40(a)(ia) by treating the revised return as

explanation given by the assessee for the disallowance to be made u/s 40(a)(ia) of the

Act.

6. In the appellate proceedings, the Ld. CIT(A) also held that the assessee has filed

the revised return only to reduce the tax liability and hence it is clearly an afterthought.


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Accordingly, the Ld CIT(A) held that the AO was justified in ignoring the revised return.

In this regard the Ld. CIT(A) placed reliance on the following decisions:

(a) CIT vs. Radhey Shaym (1980) (123 ITR 125) (All.)

(b) CIT vs. Grey Cast Foundry Works (2006) (99 ITD 515)(Ahd.)

The Ld. CIT(A) confirmed the disallowance made u/s. 40(a)(ia) of the Act on the

reasoning that the assessee himself has disallowed the same in the revised return of

income. The Ld CIT(A) also considered the ground raised on rejection of the claim for

deduction of loss on clearance sale made in the revised return of income and rejected

the same on the reasoning that the assessee did not furnish any supporting evidence.

Thus, the Ld CIT(A), after holding that the AO was justified in rejecting the revised

return, has proceeded to decide the issues urged on the basis of the revised return of

income. Further, he has placed reliance on the revised return itself to decide the issue

relating to the disallowance made u/s 40(a)(ia) of the Act. Aggrieved, the assessee has

filed this appeal before us.

7. The Ld. Counsel submitted that the revised return was filed within the time

prescribed u/s 139(5) of the Act. Hence, the tax authorities are not justified in rejecting

the revised return. He further submitted that the assessee-concern has incurred heavy

loss on the clearance sale, since it sold goods at heavy discounted rates. These facts

have been accepted by the Assessing Officer and he has discussed about it throughout

the assessment order in more than one place. Despite this factual situation, the AO has

chosen to reject the revise return of income filed by the assessee on the reasoning that

it is an afterthought. The Ld. Counsel submitted that the assessee has borrowed funds

from banks and hence, it was constrained to file balance sheet before the bank

authorities showing good results. Hence, in order to make the balance sheet satisfy the

lending norms of the bank, the assessee has to mend with the sales, stock and profit

figures. This is evidenced by the fact that during the course of survey, the value of

stock found by the survey team was only 2.69 crores as against the book stock of

Rs.7.50 crores. Accordingly, the Ld. AR submitted that the assessee has corrected the

above said mistakes by filing the revised return of income within the due date

prescribed u/s. 139(5) of the Act. Accordingly, he submitted that the tax authorities are


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not justified in holding that the revised return of income filed by the assessee is an

afterthought and rejecting the same. The Ld. Counsel for the assessee further

submitted that the assessee has incurred advertisement expense on his own and it was

not paid to others and hence, there was no requirement for deduction of tax on such

payments. Hence the provisions of section 40(a)(ia) of the Act shall also not apply to

the same. The Ld. Counsel also submitted that the tax authorities are also not justified

in rejecting the claim of loss on clearance sale, after ascertaining the real financial

position and state of affairs of business of the assessee.

8. On the contrary, the Ld. DR submitted that the assessee himself has disallowed

advertisement expenses u/s. 40(a)(ia) of the Act in the revised return of income, since

it did not deduct tax at source on the said payments. Accordingly, the Ld. DR

submitted that the assessee is not entitled to raise a new claim in respect of this

disallowance. The Ld. DR submitted that the assessee has filed the revised return of

income after the date of survey. Only during the course of survey, the assessee came

to know of the requirement of making disallowance u/s. 40(a)(ia) of the Act and hence,

he chose to claim loss on clearance sale also in the revised return, in order to off-set

tax liability arising out of the disallowance made u/s. 40(a)(ia) of the Act. Hence, filing

of revised return of income is clearly an afterthought and hence the tax authorities are

justified in rejecting the revised return of income. The Ld D.R further submitted that

the assessee could not furnish any evidence to substantiate the claim of loss on

clearance sale.

9. We have heard the rival contentions and carefully perused the record. The first

question that needs to be considered is whether the tax authorities are justified in

declining to consider the revised return of income. We notice that the AO did not

consider the same on the reasoning that the filing of revised return of income is an

afterthought. The ld CIT(A) also agreed with the said view expressed by the AO and in

this regard he placed reliance on the two decisions referred supra. We have carefully

gone through the above said two decisions and find that they have been rendered in


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the context of penalty levied u/s 271(1)(c) of the Act. Hence, in our view, these two

decisions do not support the view of the Ld CIT(A).

10. We notice that the assessee has filed original return of income on 31.10.2006,

i.e. within the due date prescribed u/s 139(1) of the Act for that year. Thereafter, the

assessee has filed revised return u/s 139(5) of the Act on 31.3.2007. There is no

dispute with regard to these factual aspects. Section 139(5) of the Act reads as under:-

If a person, having furnished a return under sub-section (1), or in pursuance ofnotice issued under sub-section (1) of section 142, discovers any omission or anywrong statement therein, he may furnish a revised return at any time before theexpiry of one year from the end of the relevant assessment year or before thecompletion of the assessment, whichever is earlier.

The assessment in the hands of the assessee is completed on 29.12.2008 and one year

period from the end of the assessment year under consideration expires on 31.3.2008.

Since the assessee has filed revised return of income on 31.3.2007, it is well within the

time limit prescribed u/s 139(5) of the Act.

11. It is seen that the provisions of sec. 139(5) gives a right to an assessee to file a

revised return of income if he discovers any omission or any wrong statement therein.

In the instant case, the assessee has filed the revised return on finding that the

disallowance required to be made u/s 40(a)(ia) of the Act was not made in the original

return of income and further the claim of loss on clearance sale was not made

therein.

12 We notice that it is not the case of the assessing officer that two adjustments

made by the assessee in the revised return do not fall in the category of omission or

any wrong statement as stated in sec. 139(5) of the Act. We notice that the power to

treat a return of income as invalid is given to the assessing officer u/s 139(9) of the

Act. We notice that the AO has not followed the procedures laid down in sec. 139(9) of

the Act for the purpose of rejecting the revised return of income. Thus, it is seen that

the assessing officer has not drawn support from any of the statutory provisions for the

decision taken by him to reject the revised return of income. The only reason given by


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the AO is that it is an afterthought on the part of the assessee. We have already

noticed that the provisions of sec. 139(5) of the Act gives a right to the assessee to file

a revised return, if he satisfies the condition prescribed in that section. Hence, in our

view, the AO was not entitled to reject the revised return of income, which is filed in

accordance with the provisions of sec. 139(5) of the Act, except in the manner and in

the method prescribed by the Act.

13. In the instant case, we have noticed that the assessee has filed the revised

return of income by duly complying with the conditions prescribed u/s 139(5) of the

Act. We have also noticed that the AO has not followed the procedures prescribed

under the Act for treating a return as invalid, nor did he show that the adjustments

made by the assessee in the return of income do not fall in the category of omission or

wrong statement. Hence, in our view, the AO and Ld CIT(A) was not right in law in

rejecting the revised return of income filed by the assessee. Accordingly, we set aside

the order of Ld CIT(A) on this matter and hold that the AO should have completed the

assessment on the basis of revised return of income filed by the assessee.

13. We have already noticed that the Ld CIT(A), after having held that the revised

return requires to be rejected, has also considered the issues on merits, viz., the issue

relating to disallowance made u/s 40(a)(ia) of the Act and also the issue relating to the

claim of loss on clearance sale. It is pertinent to note that the AO did not consider

the claim for deduction of loss on clearance sale in the assessment order.

14. Since the AO has not considered the revised return of income and further, since

it goes to the root of matter, we are of the view that the entire issues urged before us

needs fresh examination at the end of the AO. Accordingly, we set aside the order of

Ld CIT(A) on all issues and direct the assessing officer to do the assessment de-nova on

the basis of revised return of income filed by the assessee, after affording necessary

opportunity of being heard to the assessee. Since we have quashed the order of Ld

CIT(A) on the preliminary issue and since we have directed the AO to do the


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assessment de-nova, we do not find it necessary to adjudicate the grounds urged on

merits.

15. In the result, the appeal filed by the assessee is treated as allowed for statistical

purposes.

Pronounced accordingly on 11-10-2013.

sd/- sd/-(N.R.S.GANESAN) (B.R.BASKARAN)JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: KochiDated: 11th October, 2013GJCopy to:1. M/s. R. Kasi Vishwanathan & Bros., C/o K.Ramakrishnan/Shri G. Natarajan, CAs,71, Sanyasi Gramam Street, Thirunelveli Junction-627 001.2. The /Assistant Commissioner of Income-tax, Palakkad Range, Palakkad.3 The Commissioner of Income-tax(Appeals)-V,Kochi.4.The Commissioner of Income-tax, Trichur.5. D.R., I.T.A.T., Cochin Bench, Cochin.6. Guard File.

By Order

(ASSISTANT REGISTRAR)I.T.A.T, COCHIN

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R.kasi Vishwanathan & Bros. v Assist CIt [2014] 42 Taxmann.com 176 Section 139(5) -It 475-11 28.3.2016