Brief of the Case
Delhi High Court held In the case of Vinod Kumar Khatri vs. DCIT that revised return relate back to return originally filed, minus the omissions and wrong statements. Even if the revised return replaces the original return, the assessment proceedings leading up to the revised return do not get obliterated. It is never have been intended by the legislature that filing of the revised would wipe out the proceedings that have taken place till then. This would include the documents gathered or filed, and statements made, during the course of the assessment proceedings and the hearings conducted till then. Hence there was no need for the AO to issue another notice to the Assesses under Section 143(2) prior to finalising the assessment. The assessment proceedings, for all practical purposes, stood concluded by the time of filing of the revised return.
Facts of the Case
A search was conducted in the premises of the Assesses on 17th February 1992. Thereafter, on 31st August 1992 the Assesses for the first time filed his original return of income for the AY 1992-93 declaring a total income of Rs. 22,400. The said return was considered to be defective and incomplete. Since the Assesses did not respond to intimation sent to him under Section 139 (9), this return was lodged. Subsequently, in response to a notice issued under Section 142 (1), the Assesses filed his return of income on 19th January 1993 declaring again a total income of Rs. 22,400. This was accompanied by a computation of taxable income and statement of affairs as on 31st March 1992 and an income and expenditure account for the year ended on 31st March 1992.
In the assessment order, the AO noted that from the bank accounts of the Assessee’s two proprietary concerns, viz., M/s. Trinity International Corporation (TIC) and M/s. Daffodil International Corporation (DIC) in the course of the raid, an amounts of Rs. 8,94,10,873.72 was seized. The AO also set out the origin of the money into the bank accounts. The AO also noted that during the course of search on 26th February 1992 the Assesses admitted the fact of the money received in his bank accounts and further that the money belonged to him and that it represented his unaccounted income. The AO noted that the surrendered amount of Rs. 12.89 crores was corrected to Rs. 12.914 crores in the subsequent statement recorded on 26th February 1992. The assessment order also set out the statement with regard to deposit of Rs. 40,00,500 in the account of DIC by the Assesses.
The AO noted that from the statement of declaration recorded on 26th and 27th February 1992 under Section 132 (4), the Assesses had surrendered the deposits in the bank accounts totalling to Rs. 13.314 crores thereby claiming immunity from penalty and prosecution proceedings. By a letter dated 27th February 1992 addressed to the Commissioner of Income Tax, New Delhi [‘CIT, New Delhi’], the Assesses requested that the seized amount should be adjusted towards his existing liability on account of advance tax on the amount declared by him under Section 132 (4). In the said letter he had worked out his advance tax liabilities to the extent of Rs. 7,45,43,028. He had also enclosed the advance tax challan to the said amount. Subsequently, during the proceedings under Section 132 (5), the Assesses retracted from his earlier admission of unaccounted income declared under Section 132 (4) made by him on 26th and 27th February 1992. The Assesses now claimed that the said amount of Rs. 12.91 crores, which have been received from Russia through official banking channels represented 100 % advance money for supplying, by way of export, a certain number of nickel and cadmium batteries to a party in the USSR for which TIC had entered into a contract. The AO further noted that the Assesses could not substantiate the above claim and had in fact surrendered the said sum of Rs. 12.91 crores by filing the revised return of income on 30th March 1994 declaring a total income of Rs. 12,91,97,398.
As regards a sum of Rs. 40 lakhs received into the bank account of DIC by way of clearing on 23rd January 1992, the Assesses claimed that this represented an equal amount which was withdrawn in cash from the bank account of TIC and was given as a short-term advance to one Mr. Radha Krishnan of M/s. P.B.R. Engineering. Mr. Radha Krishnan had returned it to him on 23rd January 1992 by way of a draft/pay order which was deposited by the Assessee into the account of DIC. However, the Assesses was unable to produce any confirmation of these facts from Mr. Radha Krishnan. Consequently, the AO added a sum of Rs. 40 lakhs to the Assessee’s total income.
The AO also noted that the Assesses was unable to produce any confirmation regarding advance a sum of Rs. 3,41,26,000. This was despite being asked to provide the details by a questionnaire dated 29th February 1992. Consequently, the AO estimated a reasonable rate of return of 12% on the said advances which worked out to Rs. 40,95,120 which was, therefore, added to the total income of the Assesses. The calculation of the total income of the Assesses was computed by the AO and was rounded off to Rs. 13,73,70,620.
Contention of the Assesses
The ld counsel of the assesses submitted that if the revised rectified return was filed beyond the time allowed by the AO, it should be treated as ‘non-est.’ He placed reliance on the decisions in Suram Chand Rahlan vs. CIT (1997)226 ITR 927 (Del), Hind Samachar Ltd. vs. Union of India (2011) 330 ITR 266 (P&H), CIT v. Pawan Gupta (2009) 318 ITR 322 (Del) and DIT v. Society for Worldwide Inter Bank Financial, Telecommunications (2010)323 ITR 249 (Del).In support of the proposition that the retracted statement of the Assessee could not form the basis of an assessment, without any corroborative material, reliance was placed on the decision in CIT vs. S. Khader Khan Son (2013) 352 ITR 480 (SC).
Was notice under Section 143 (2) required in case of revised return?
The ld counsel of the assesses submitted that it was incumbent on the AO to issue a fresh notice under Section 143 (2) before finalising the assessment made pursuant to the revised return filed by the Assesses and that the failure to do so invalidated the assessment made.
Contention of the Revenue
The ld counsel of the Revenue submitted that there is a division of opinion of the High Courts on the issue whether the filing of a revised return obliterates the original return, or whether the revised return only rectifies the deficiency in the original return, but did not obliterate it. The Gauhati High Court in Sunanda Rak Deka v. CIT (1994) 210 ITR 988 (Gau) and the Calcutta High Court in CIT v. India’s Hobby Centre (P) Ltd (1995) 78 Taxman 377 (Cal) have held that the revised return substitutes the original return. On the other hand, the decisions in Deepnarain Nagu & Co. v. CIT (1986) 157 ITR 37 (MP), CIT v. Girish Chandraharidas (1992) 196 ITR 833 (Ker) and Pyramid Saimira Theatre Limited v. CIT (2009) 316 ITR 75 (Mad) emphasise that a revised return can be filed only if an “omission or wrong statement in the original return” is discovered by the Assesses.
Held by CIT (A)
The CIT (A) passed an order dated 30th January 2004 sustaining some of the additions made by the AO.
Held by ITAT
The ITAT dismissed the appeal after holding that the revised return was filed voluntarily by the Assesses on 30th March 1994 on the basis of the surrender of the amount declared by him in the statement recorded under Section 132 (4) during the course of search. The Assesses had been unable to explain the source of this receipt and offered it as income in the form of unexplained credit. The declaration made by the Assesses was voluntary and he also expressed his willingness to pay the tax on the said undisclosed income. The Assesses was unable to substantiate that the amount received from Russia was a windfall without there being any source. The ITAT also noted the observations of the CIT (A) that once the assessment had been completed under Section 143 (3), the Assesses could not be permitted to withdraw the revised return. The ITAT rejected the plea of learned counsel for the Assesses that the revised return filed on 30th March 1994 by the Assesses was under coercion.
The ITAT negatived the principal contention of the Assesses that since the original return was not filed within the due date prescribed under Section 139 (1), the Assesses could not have validly revised the return under Section 139 (5). After having rectified the defects, the return would relate back to the date of the original filing, i.e., 31st August 1992. Therefore, the Assesses was competent to file the revised return under Section 139 (5) and it could have been taken cognizance by the AO.
As regards the retraction by the Assesses of the statement made by him under Section 132 (4), the ITAT observed that although the statement was not available in the records, its existence was never denied by the Assesses in the course of assessment proceedings. The ITAT declined to accept the contention of the Assesses that no such statement under Section 132 (4) was recorded. The ITAT disposed of ITA No. 764/Del/2004 upholding the order of the AO and CIT (A).
Held by High Court
The Assesses fails to prove coercion
There is no reason why the AO should have ‘compelled’ the Assesses to file a revised return. Such an allegation ought not to be permitted to be casually made. An Assesses who makes such allegation will have to take the risk of stating it on affidavit at the earliest point in time. If it is done belatedly at the appellate stage, the Assesses will have to satisfy the appellate forum that there were good and genuine reasons that prevented the Assesses from making such allegation earlier. The rationale behind Rule 10 of the ITAT Rules will have to be borne in mind. A report will then have to be called for from the concerned authority, in this instance the AO, and thereafter a decision taken on whether such a plea can be accepted. In the present case, the Assesses has failed to discharge the onus of showing even prima facie that he was compelled to make a statement during the search or to file a revised return in the assessment proceedings. The record of the assessment proceedings show that adjournments were granted as and when requested by the Assesses. Apart from the fact that he was represented in the assessment proceedings by a CA or an AR, he also had sufficient time and opportunity to reflect on what had been stated by him during the search proceedings. The Court accordingly rejects the plea that the Assesses did not voluntarily make the statement attributed to him in the course of search or that he was coerced during the assessment proceedings to file the revised return.
Neither the original nor the revised return was non-est
In the present case, filing of the return by the Assesses on 19th January 1993 was only by way of rectification of the defects pointed out by the AO in the notice issued under Section 139 (9). This rectified return was related back to the original date when the return was filed on 31st August 1992. It cannot, therefore, be said that the original return was itself ‘non-est’ as contended by the Assesses. Consequently, filing of the revised return by the Assesses prior to the completion of the assessment on 31st March 1994 was within the time prescribed. Notice had already been issued in the course of the assessment proceedings to the Assesses under Section 143 (2) and Section 142 (1).
Was notice under Section 143 (2) required in case of revised return?
There is merit in the contention that the revised return should relate back to the return originally filed, minus the omissions and wrong statements. Even if the revised return replaces the original return, the assessment proceedings leading up to the revised return do not get obliterated. The decisions in CIT v. Chitranjali (1986) 159 ITR 801 (Cal), F.C. Agarwal v. CIT (1976) 102 ITR 408 (Gau.) and Sivagaminatha Moopanar & Sons v. CIT (1964) 52 ITR 591 (Mad) appear to support this proposition. As rightly pointed out by ld counsel of the revene, it could never have been intended by the legislature that the filing of the revised would wipe out the proceedings that have taken place till then. This would include the documents gathered or filed, and statements made, during the course of the assessment proceedings and the hearings conducted till then. The filing of the revised return was during the continuation of the assessment proceedings that began with filing of the return. The assessment proceedings continued till the finalisation of the assessment pursuant to filing of the revised return.
The Court is, therefore, inclined to accept the plea that with a number of hearings having taken place pursuant to the filing of the original return, as a result of which the Assesses volunteered to file a revised return, and with the revised return having been filed just before the deadline for conclusion of the assessment proceedings, there was no need for the AO to issue another notice to the Assesses under Section 143 (2 prior to finalising the assessment. The assessment proceedings, for all practical purposes, stood concluded by the time of filing of the revised return.
Accordingly appeal of the assesses dismissed.