COMMISSIONER OF INCOME TAX Vs. SELVARAJAN V P

JUDGEMENT

(1.) THE assessee, an individual, was formerly carrying on business in jewellery. On 23rd Nov., 1969, when the assessee and his son were alighting from a taxi, they were intercepted by the Officers of the Customs Department and they were found to be in possession of 100 bars of gold, each bar weighing 10 tolas. In the statements made by the assessee and his son at that time, they stated that the gold had been carried from Bangalore as per the directions of one Mahavir. In respect of the seizure of gold from the assessee and his son, proceedings were initiated by the Customs and Gold Control authorities and the Asstt. Collector of Customs levied penalty for possession of gold bars with foreign markings in violation of the provisions of the Customs Act and the Gold (Control) Act and the seized gold was also confiscated. In the criminal proceedings initiated against the assessee and his son under the Customs Act, the Foreign Exchange Regulation Act and the Gold (Control) Act, they were found guilty and fined and on a revision, the sentence was enhanced to rigorous imprisonment for six months for the commission of offences under the Customs Act and the Gold (Control) Act and the sentences were also directed to run concurrently The assessee had not been assessed to income -tax previously. Coming to know of the seizure of gold bars, etc., from the assessee, on 19th Dec., 1969, the ITO issued notice to the assessee under S. 139(2) r/w S. 175 of the IT Act, 1961 (hereinafter referred to as "the Act"), requiring the assessee to file a return of his income within seven days of the date of receipt of that notice. The notice so issued was served on the assessee on 24th Dec., 1969. The notice mentioned the assessment year as 1970 -71 at the top and, in the body, it was stated that the assessee was required to furnish the income of the previous year relevant to the assessment year mentioned therein. On 24th Dec., 1969, the assessee filed an application praying for extension of time for filing the return till 26th Jan., 1970 and, on 19th Jan., 1970, the assessee filed a return disclosing "Nil" income for the period from 1st April, 1969, to 19th Jan., 1970. After the filing of the return, though several hearings appear to have taken place, no assessment was made. The ITO seems to have felt on 30th March, 1973, that the notice dt. 19th Dec., 1969, issued to the assessee under S. 139(2) r/w S. 175 of the Act was not valid and the return filed by the assessee in response to that notice was also invalid and, accordingly, he filed the return without making an assessment, but at the same time, he issued a notice to the assessee under S. 147(a) of the Act requiring the assessee to file a return of his income for the asst. year 1970 -71 relating to the full previous year 1st April, 1969, to 31st March, 1970. In response to this notice, the assessee filed on 1st May, 1973, a return disclosing "Nil" income and stating the period of the previous year as the period from 10th Jan., 1970, up to 31st March, 1970. In the course of the assessment proceedings, the assessee maintained that the income for the period 1st April, 1969, to 20th Jan., 1970, could not be considered as relating to the asst. year 1970 -71, as action had been taken earlier by the ITO for assessing the income relatable to that period by the issue of a notice under S. 139(2) r/w S. 175 of the Act on 19th Dec., 1969 and a return had been filed in response thereto. A further objection was also raised that, as the assessee had acted only as the carrier of gold and was not the owner thereof, the value of the gold could not be assessed in his hands under S. 69A of the Act. The ITO took the view that, as the notice issued on 19th Dec., 1969, mentioned the assessment year as 1970 -71, it was not valid and hence the return filed by the assessee in response thereto on 19th Dec., 1969, was equally invalid and that the previous year for the asst. year 1970 -71 should be taken as the period from 1st April, 1969, to 31st March, 1970, and as the assessee had not explained his possession of the gold bars, he should be considered as the owner thereof. The ITO thus completed the assessment on the return and subjected to assessment a sum of Rs. 2,25,920, inclusive of the value of the gold bars seized and also the value of gold ornaments and cash found in the premises of the assessee. Aggrieved by this, the assessee preferred an appeal before the AAC and the order of assessment was affirmed and the appeal was dismissed. On further appeal to the Tribunal by the assessee contending that s. 69A of the Act could not be invoked and that the loss suffered by the assessee by reason of the confiscation of the gold should be allowed as a deduction and further that the notice issued to the assessee on 19th Dec., 1969, under S. 139(2) r/w S. 175 of the Act was valid and the return filed in response to that was also valid and not having processed the return so filed, it was not open to the ITO to consider the income for the period from 1st April, 1969, to 19th Jan., 1970, in the assessment made for the asst. year 1970 -71, the Tribunal found that S. 69A of the Act was rightly invoked for including the value of the gold bars, as the assessee had not explained his possession of such gold bars, and that the confiscation of the gold and the resulting loss could not be allowed as the confiscation of the gold was not made during the relevant previous year. Adverting to the validity of the notice issued on 19th Dec., 1969, under S. 139(2) r/w S. 175 of the Act, the Tribunal found that though such a notice could have been issued to the assessee only for the asst. year 1969 - 70, yet the mistake found in the notice in mentioning the assessment year as 1970 -71 did not in any manner mislead the assessee, who had filed the return in response to such a notice on 19th Jan., 1970, showing the income as "Nil" for the period from 1st April, 1969, to 19th Jan., 1970, and that would not, therefore, invalidate the notice issued in any manner. Referring to the filing of a return pursuant to that notice, the Tribunal held that the return submitted by the assessee was a valid return and the ITO not having disposed of the return filed by the assessee on 19th Jan., 1970, there was no justification for resorting to S. 147(a) of the Act for the purpose of assessing the same income and the issue of a notice under S. 147 (a) of the Act was, therefore, invalid and the assumption and exercise of jurisdiction was also improper. That is how the following question of law under S. 256(1) of the Act, at the instance of the Revenue, has been referred to this Court, for its opinion :

(2.) LEARNED counsel for the Revenue submitted that the notice issued on 19th Dec., 1969, under s. 139(2) r/w S. 175 of the Act in respect of the assessment year mentioned therein, viz., 1970 -71, was invalid and any return filed pursuant to such a notice was not a valid return and as there was no proceeding pending for the asst. year 1970 -71, the ITO was in order in having issued a notice on 30th March, 1973, under S. 147(a) of the Act with reference to the asst. year 1970 -71 requiring the assessee to file a return on the ground that income chargeable to tax has escaped assessment. Reference was also made in this connection to several decisions. On the other hand, learned counsel for the assessee contended that, even according to the finding of the Tribunal, the notice issued on 19th Dec., 1969, under S. 139(2) r/w S. 175 of the Act was a valid notice and the assessee had, in response to such a notice, filed a return and such return, whether filed in consequence of a valid or invalid notice, is a good return and, without giving a disposal to that, the ITO cannot resort to S. 147(a) of the Act with reference to the asst. year 1970 -71 and the issue of such a notice had been resorted to only for the purpose of gaining time, as the return ought to have been looked into and orders passed thereon before 31st March, 1973, but nothing had been done till 30th March, 1973.

(3.) IT would, therefore, follow that the return filed by the assessee on 19th Jan., 1970, though an incomplete return in respect of the asst. year 1970 -71, would nevertheless be a return which deserved attention and disposal at the hands of the ITO, which, it is not disputed, had not been dealt with at all by the ITO. In other words, the assessee had already filed a return in respect of the asst. year 1970 -71, which the assessee had been called upon by a notice to file, but the return so filed, though incomplete and partial, was nevertheless a return which should have been dealt with by the ITO. We may observe that in CIT vs. Ranchhoddas Karsondas (1959) 36 ITR 569 (SC) : TC9R.314, the Supreme Court pointed out that where, in response to general notice, a return had been submitted before assessment, the ITO cannot choose to ignore the return and any notice of reassessment and consequent assessment under S. 34 of the Indian IT Act, 1922, ignoring the return, is invalid. Again, in CIT vs. S. Raman Chettiar (1965) 55 ITR 630 (SC) : TC9R.321, the Supreme Court pointed out that although the notice under S. 34 of the Indian IT Act, 1922, was an invalid notice, the return submitted pursuant to that notice was a return which the ITO could not ignore or disregard that return and issue a notice under S. 34 on the assumption that there had been an omission or failure on the part of the assessee to make a return of his income and, therefore, the assessment under S. 34 was invalid. Instead of proceeding to deal with the return filed, on 30th March, 1973, the ITO had issued a notice under S. 147(a) of the Act requiring the assessee to file a return for the asst. year 1970 -71. The ITO, who had with him the return filed by the assessee on 19th Jan., 1970, in respect of the income for the period 1st April, 1969, to 19th Jan., 1970, ought to have dealt with the return as filed before 31st March, 1973, but he had not done so till about 30th March, 1973, and there is, therefore, considerable force in the argument of learned counsel for the assessee that the issue of notice under S. 147(a) of the Act was the outcome of a desire to get over the bar of limitation. When the return filed by the assessee in respect of the income from 1st April, 1969, to 19th Jan., 1970, in response to the notice issued by the ITO under S. 139(2) r/w s. 175 of the Act had not been disposed of by the Officer and was pending, there was no justification for the ITO resorting to S. 147(a) of the Act for the purpose of assessing the same income.