W.P.No.6213/2009:
Petition under
Article 226 of the Constitution of India, praying for the issue of a Writ of Certiorari, calling for the records on the files of the Commissioner of Income Tax, the first respondent in C.No.CIT-IV/Chennai/Recovery Proceedings/2008-09 dated 2.4.2009, quashing the proceedings of the first respondent in C.No.CIT-IV/Chennai/Recovery Proceedings/2008-09 dated 2.4.2009 as arbitrary and the findings arrived in violation of rules of natural justice and as without jurisdiction in so far as pronouncing and adjudicating on the revised returns presented under Section 139(5) of the Income Tax Act, 1961 before the second respondent.
W.P.No.6214 of 2009:
Petition under
Article 226 of the Constitution of India, praying for the issue of a Writ of Mandamus, directing the respondents to forbear from treating the petitioner-Company as Assessee in default under
Section 140A(3) of the Income Tax Act, 1961, or proceeding with recoveries instituted under
Section 226(3) of the Income Tax Act, 1961 till adjudication is done under Section 143 on the original return presented under Section 139(1) of the Act as well as the revised return presented on 6.3.2009 under Section 139(5) of the Act, while directing the withdrawal of all coercive proceedings under
Section 226(3) of the Act, till such adjudication.
For the assessment year 2008-09, the petitioner, a Public Limited Company, whose shares are quoted in the Stock Exchange, filed a return of its income on 30.9.2008, declaring a total income of Rs.79,07,54,470/- and disclosing a tax liability of Rs.29,54,97,940/-. Out of the disclosed liability, the petitioner-Company paid a sum of Rs.4,11,76,102/-, leaving an arrears of Rs.25,43,21,838/-.
2. However, after about 5 months of filing the original return, the petitioner filed a revised return of income, on 6.3.2009 under Section 139 (5) of The Income Tax Act, 1961, claiming a sum of Rs.76,94,22,500/- as "prior period losses". As per the revised return, the total income of the petitioner for the assessment year was only Rs.2,13,31,972/- and the book profit under Section 115 JB was Rs.17,25,48,875/-. Consequently, the tax payable, according to the petitioner, was Rs.1,95,49,789/-. Since the petitioner had already made payment of Rs.4,11,76,102/-, as per the original return dated 30.9.2008, the petitioner sought a net refund of the difference viz., Rs.2,16,26,310/-.
3. But before the petitioner filed a revised return, the Assessing Officer viz., the Deputy Commissioner of Income Tax, Media Circle-I, attached all the bank accounts of the petitioner and also issued garnishee notices to petitioner's debtors, treating the petitioner as an "assessee in default" in terms of
Section 140A(3) of the Act.
4. Aggrieved by the said action, on the part of the second respondent, the petitioner filed a representation before the first respondent on 9.3.2009, seeking his intervention as the next higher authority and requesting him to lift the orders of attachment and withdraw the garnishee notices. Simultaneously, the petitioner also came up with a writ petition in W.P.No.4045 of 2009, seeking a Writ of Mandamus, to direct the first respondent to dispose of his representation. The petitioner also prayed for an interim relief, for lifting the orders of attachment.
5. After notice to the Standing Counsel for the Department, the said writ petition W.P.No.4045 of 2009, was disposed of by me, to the following effect:-
"11. Unfortunately, the petitioner has not challenged, in this writ petition, the orders of attachment issued by the Department under
Section 226(3) of the Act. Therefore, I am not testing their correctness in this writ petition, though, prima facie, it is not known whether the Department can order attachment without an order of assessment, without a notice of demand and without complying with the pre-conditions for ordering attachment.
12. Considering the rival submissions made, the writ petition is disposed of, directing the second respondent to consider the representation of the petitioner dated 9.3.2009 and pass appropriate orders within a period of three weeks from the date of receipt of a copy of this order. Since the second respondent has already taken up the representation for hearing on 24.3.2009, the second respondent shall make a fair assessment of the receivables and depending upon his Best of Judgment, restrict the orders of attachment to the actual amount of tax as reflected as per the original return (if permissible in law) without prejudice to the rights of the petitioner on the revised return filed by him. While doing so, the respondents should also taken into consideration the fact that no order of assessment has so far been passed leading to a Certificate under Section 222 of the Act and whether
Section 226(3) can be invoked at all without finalising the assessment and without issuing a demand. The respondents should bear in mind that they cannot put the cart before the horse."
6. In pursuance of the above order, the first respondent issued notices of hearing to the petitioner and heard the Managing Director of the petitioner-Company as well as the Chartered Accountants representing them. The first respondent also called for a report from the Assessing Officer, viz., the second respondent. Thereafter, the first respondent has proceeded to pass a very detailed order, nay a thesis, dated 2.4.2009, ultimately rejecting the representation of the petitioner for lifting the orders of attachment and almost simultaneously rocking the very foundation of the revised return and reducing the revised return to a comatose condition, so that the final rites could be performed by the second respondent in course of time.
7. Aggrieved by the said order of the first respondent dated 2.4.2009, the petitioner has come up with W.P.No.6213 of 2009, seeking a Writ of Certiorari, to call for the records and to quash the same. The petitioner has also come up with another writ petition in W.P.No.6214 of 2009, seeking a Writ of Mandamus, to forbear the respondents from treating the petitioner as an "assessee in default" under
Section 140A(3) of the Act and proceeding with the recoveries under
Section 226(3) till an adjudication is done under Section 143 on the original return and the revised return.
8. When both the writ petitions came up for admission on 13.4.2009, Mr.K.Subramaniam, Standing Counsel for the Department, took notice and sought time to file counter. On 18.4.2009, the respondents filed the counter affidavit along with a typed set of papers. Thus, the pleadings were complete and hence by consent of parties, the writ petitions were taken up for disposal.
9. I have heard Mr.C.Natarajan, learned Senior Counsel for the petitioner and Mr.K.Subramaniam, learned Standing Counsel for the Department.
10. The fact that the petitioner filed an original return of income on 30.9.2008, disclosing a tax liability of Rs.29,54,97,940/- and the fact that the petitioner filed a revised return on 6.3.2009, disclosing a reduced tax liability of Rs.1,95,49,789/-, are not in dispute. In the interregnum, between the date of filing of the original return (30.9.2008) and the date of filing of the revised return (6.3.2009), the petitioner appears to have made payments to the tune of Rs.1,16,00,000/- in December 2008 and January 2009. The Managing Director of the petitioner, is stated to have requested by a letter dated 10.12.2008, the facility of making payment of the entire amount of tax by instalments, spread over a period of 4 months from December 2008 to March 2009. Though this commitment was for discharging the entire tax liability of Rs.27 crores, the petitioner is stated to have paid only a sum of Rs.1.16 crores in December 2008 and January 2009. Therefore the second respondent treated the petitioner as an assessee in default and attached the bank accounts and issued garnishee notices. According to the respondents, the attachment of the bank accounts yielded only a sum of Rs.7,84,134/-.
11. In compliance with the previous order of this Court, the petitioner has submitted details of receivables to the tune of Rs.29.52 crores, with the list of 23 debtors of the petitioner-Company and documents. The respondents claim that when notices were issued to those 23 debtors, 13 have not responded yet, one debtor confirmed a balance, 3 debtors requested time to verify the accounts, 5 debtors denied liability and one debtor found to be not traceable. Therefore the first respondent has claimed in the impugned order that it was not possible to confine the attachment to the actual tax liability and that in the face of uncertainties, all the orders of attachment have to necessarily continue.
12. In the above background of facts, on which broadly there is no dispute, what falls for consideration in these writ petitions, is the question as to whether the revised return effaces and substitutes the original return and whether the petitioner could be termed as an assessee in default, on the basis of the original return.
13. Section 139(1)(a) of the Act, mandates every person being a Company, to furnish a return of income, during the previous year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, on or before the due date. Explanation-2 to sub section (1) of Section 139, defines the "due date" to mean the 30th day of September of the assessment year.
14. Sub section (5) of Section 139, entitles an assessee to file a revised return and it reads as follows:-
"If any person, having furnished a return under sub section (1), or in pursuance of a notice issued under sub section (1) of
Section 142, 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 the relevant assessment year or before the completion of the assessment, whichever is earlier."
15. Admittedly, the assessment is not yet completed and the period of one year from the end of the relevant assessment year had also not expired, on 6.3.2009, the date on which, the petitioner filed a revised return. In other words, the revised return was filed by the petitioner well within the time prescribed by sub section (5).
16. In such circumstances, what is the sanctity of the revised return has now become the subject matter of controversy. According to the learned Senior Counsel for the petitioner, the revised return substitutes, effaces, supersedes and obliterates the original return. In support of this contention, the learned Senior Counsel for the petitioner relied upon certain decisions, which I shall refer to at present.
17. Following one of the earliest decisions of the Allahabad High Court in Amjad Ali Nazir Ali vs. CIT {1977 (110) ITR 419}, a subsequent Bench of the Allahabad High Court held in Niranjan Lal Ram Chandra vs. Commissioner of Income Tax {134 ITR 352}, that once a revised return is filed under Section 139(5), the original return is supplanted. On the basis of the said logic, the Allahabad High Court went to the extent of holding that there was no bar for filing a second revised return, in view of the fact that the first revised return filed under Section 139(5) actually becomes the original return under Section 139(1).
18. In Commissioner of Income Tax vs. Mangalore Chemicals and Fertilizers Ltd {191 ITR 156}, a Division Bench of the Karnataka High Court held that once the original return is withdrawn or is substituted, by filing a valid revised return, the natural consequence is that the earlier return would be effaced or obliterated for all purposes under the Act.
19. In Chief Commissioner of Income Tax vs. Machine Tool Corporation of India Ltd {201 ITR 101}, another Division Bench of the Karnataka High Court, quoted with approval, the decision of the Gujarat High Court in CIT vs. Arun Textile {192 ITR 700}, to the effect that once a revised return is filed under Section 139(5), the original return is substituted by the revised return and that therefore it is not open to the Income Tax Officer to advert to the original return or the statement filed along with it.
20. In response to the above decisions relied upon by the learned Senior Counsel for the petitioner, the learned Standing Counsel for the Department, relied upon the following decisions:-
(i) Deepnarain Nagu vs. Commissioner of Income Tax {157 ITR 37}.
(ii) Commissioner of Income Tax vs. Girishchandraharidas {196 ITR 833}.
(iii) Sunanda Ram Deka vs. Commissioner of Income Tax {210 ITR 988}.
21. In Deepnarain Nagu's case, the original return was filed along with a statement of accounts and a balance sheet, showing that the assessee was following mercantile system of accounts. Subsequently, a revised return was filed along with a statement of accounts claiming that they were maintained on cash basis. The Assessing Officer, the Appellate Assistant Commissioner and the Income Tax Appellate Tribunal, rejected the revised return and at the instance of the assessee, a reference was made to a Bench of the Madhya Pradesh High Court, which held as follows:-
"This provision clearly enacts that where a person who has filed a return under sub-section (1) or sub-section (2) discovers any omission or wrong statement made in the return filed, it is only in those circumstances that he is permitted to file a revised return. Apparently, it is not the case of the assessee that he has omitted to mention something or that he has made any wrong statement. Therefore, as held by the Tribunal, the assessee could not be permitted to rewrite the account books when in fact during the accounting year they were maintained on a particular system of accounts. In this view of the matter, it is apparent that the Tribunal was right in holding that the return filed under Section 139(5) was not a valid return."
22. In Girishchandraharidas case, the members of a Hindu undivided family, running a business, divided the assets and filed returns of income, disclosing proportionate share of rental income arising out of the leases granted of their properties. But since no rent was received during the previous year, the assessees filed revised returns showing nil income. The Income Tax Officer rejected the revised returns, but the Tribunal allowed their appeals. On a reference to the High Court, a Division Bench of the Kerala High Court held that since the assessees had maintained the accounts on mercantile basis, they were bound to file the returns on accrual basis. Therefore the rejection by the Income Tax Officer, of the revised return filed on "receipt" basis, was upheld by the Kerala High Court and the decision of the Income Tax Appellate Tribunal was set aside.
23. In Sunanda Ram Deka case, the assessee filed a return of income on 3.4.1982. A revised return was filed on 7.11.1983. The Income Tax Officer held a hearing and thereafter sent a draft assessment order under
Section 144B on 19.3.1984. Thereafter the assessee filed another revised return on 31.3.1984. The revised return dated 31.3.1984 was rejected upto the Tribunal and a reference was made to the Gauhati High Court. The High Court held as follows:-
"We are of the opinion that the filing of the revised return after discovery of the omission or wrong statement is not by itself sufficient to bring the revised return within the ambit of sub-section (5) of Section 139 of the Act. In our opinion, the further requirement is that this omission or wrong statement in the original return must be due to a bona fide inadvertence or mistake on the part of the assessee."
24. Thus I find that the proposition of law advanced by the learned Senior Counsel for the petitioner is supported by two decisions of the Allahabad High Court {in Amjad Ali's case and Niranjan Lal's case} and two decisions of the Karnataka High Court {in Mangalore Chemicals case and Machine Tool Corporation's case}. On the other hand, the proposition advanced by the Standing Counsel for the Department is supported by the decisions of the Madhya Pradesh High Court, Kerala High Court and Gauhati High Court.
25. But there is a fundamental distinction between the decisions cited on behalf of the petitioner and those cited on behalf of the Department. The decisions cited on behalf of the petitioner, are on first principles relating to "merger" or "substitution". They are recognised in common law and also recognised by Section 139(5) of The Income Tax Act, 1961. But the recognition afforded to this principle, is circumscribed by two limitations viz., (i) that it should be done within the time limit prescribed and (ii) that the purpose of such substitution should be to set right any omission or wrong statement contained in the original return.
26. In contrast to the decisions cited on behalf of the petitioner, the decisions cited by the learned Standing Counsel for the Department, have arisen out of the rejection of the revised returns by the Assessing Officers, in exercise of the powers conferred upon them. There is no quarrel with the proposition that an Assessing Officer has the right to accept or reject the revised return, exactly as he has the power to accept or reject the original return. In the decisions relied upon by the learned Standing Counsel for the Department, the Assessing Officers concerned rejected the revised returns and after a sojourn through the Appellate Authority and the Tribunal, the questions of law reached the High Court on references. Therefore the citations relied upon by the Standing Counsel for the Department, provide no answer to the question now raised.
27. In the case on hand, the Assessing Officer viz., the second respondent has not yet completed the assessment and rejected the revised return. If he had done so, the decisions relied upon by the Standing Counsel for the Department, would squarely apply. Even as per the order impugned in the writ petition as well as the contentions raised in the counter affidavit, the second respondent has only prima facie found the revised return "unacceptable". This prima facie finding cannot be placed on the same pedestal as an order of assessment, rejecting the revised return. It is needless to point out that what is prima facie acceptable or unacceptable, may ultimately turn out to be unacceptable or acceptable, as the case may be.
28. Section 139(5) does not appear to treat a revised return as a petition for an amendment. A petition for amendment, unless ordered as prayed for, cannot implement new pleadings substituted in the place of the original pleadings. Section 139(5) does not appear to prescribe an intermediary step or provide for an interlocutory order, accepting or rejecting the revised return and thereafter proceeding with the assessment. It is only in the order of assessment that the Assessing Officer is competent to accept or reject the revised return. The consideration of the revised return is part of a composite exercise of an assessment and I doubt very much whether the Assessing Officer can proceed stage by stage or piecemeal.
29. It is in the light of the above fundamental principles that the question whether the petitioner is an assessee in default, on the basis of its original return, though not on the basis of the revised return, has to be analysed.
30.
Section 140-A(1) of the Income Tax Act, 1961, mandates that where any tax is payable on the basis of any return required to be furnished under the relevant provisions, the assessee shall be liable to pay such tax together with interest for any delay in furnishing the return, after taking into account the amount of tax already paid under any provision. The point of time at which such tax shall be paid is also indicated in the same provision. Sub section (1) of
Section 140-A reads as follows:-
"Where any tax is payable on the basis of any return required to be furnished under Section 115-WD or Section 115-WH or Section 139 or
Section 142 or
Section 148 or Section 153-A or as the case may be
Section 158-BC, after taking into account the amount of tax, if any, already paid under any provision of this Act, the assessee shall be liable to pay such tax together with interest payable under any provision of this Act for any delay in furnishing the return or any default or delay in payment of advance tax, before furnishing the return and the return shall be accompanied by proof of payment of such tax and interest."
31. Thus sub section (1) fixes the date of furnishing of the return as the outer limit of time for making payment of tax. If payment is not made on or before the date of furnishing of the return, the assessee is considered to be in default, by a deeming fiction created under sub section (3) which reads as follows:-
"If any assessee fails to pay the whole or any part of such tax or interest or both in accordance with the provisions of sub section (1), he shall, without prejudice to any other consequences which he may incur, be deemed to be an assessee in default in respect of the tax or interest or both remaining unpaid and all the provisions of this Act shall apply accordingly."
32. Therefore, it is mandatory for an assessee to make payment of the tax or interest or both, in accordance with sub section (1), if he is not to be treated as an assessee in default under sub section (3). In other words, the tax or interest or both should be paid "before furnishing the return" and the proof of payment should actually accompany the return. If not, he is treated as an assessee in default.
33.
Section 4(1) makes income tax chargeable at the rate specified in accordance with the Finance Act and sub section (2) of
Section 4 makes it obligatory to deduct income tax either at source or paid in advance, in respect of income chargeable under sub section (1). In Commissioner of Income Tax vs. Shelly Products and Another {2003 (5) SCC 461}, it was held as follows:-
"
Section 4 of the Act creates the charge and provides inter alia for payment of tax in advance or deduction of tax at source. The Act provides for the manner in which advance tax is to be paid and penalises any assessee who makes a default or delays payment thereof. Similarly the deduction of tax at source is also provided for in the Act and failure to comply with the provisions attracts the penal provisions against the person responsible for making the payment. It is, therefore, quite apparent that the Act itself provides for payment of tax in this manner by the assessee. The Act also enjoins upon the assessee the duty to file a return of income disclosing his true income. On the basis of the income so disclosed, the assessee is required to make a self-assessment and to compute the tax payable on such income and to pay the same in the manner provided by the Act. Thus the filing of return and the payment of tax thereon computed at the prescribed rates amounts to an admission of tax liability which the assessee admits to have incurred in accordance with the provisions of the Finance Act and the Income Tax Act. Both the quantum of tax payable and its mode of recovery are authorized by law. The liability to pay income tax chargeable under
Section 4(1) of the Act thus, does not depend on the assessment being made. As soon as the Finance Act prescribes the rate or rates for any assessment year, the liability to pay the tax arises. The assessee is himself required to compute his total income and pay the income tax thereon which involves a process of self-assessment."
34. Therefore, the law as declared by the Apex Court, on an interpretation of
Section 4 of the Act, together with the other provisions, appears to be that "the liability to pay income tax chargeable under
Section 4(1) of the Act does not depend on the assessment being made". Hence in the case on hand, the moment a self-assessment is made and a return filed by the petitioner, under Section 139(1) on 30.9.2008, the provisions of
Section 140-A(1) and consequently
Section 140-A(3) came into operation, automatically. Therefore, there is no doubt about the fact that on and from 30.9.2008, upto 6.3.2009 {the date of filing of the revised return}, the petitioner was an assessee in default in terms of
Section 140-A(3). It was during this period that the second respondent issued orders of attachment and garnishee notices. This is perhaps why, the petitioner did not come up with a challenge to the orders of attachment and garnishee notices, even at the first instance. The petitioner chose to file a revised return on 6.3.2009 and then made a representation to the first respondent on 9.3.2009 for lifting the attachment and thereafter came up with the first writ petition, seeking a mere Mandamus, to direct the first respondent to pass orders on their representation. Therefore, the action of the second respondent in treating the petitioner as an assessee in default, from 30.9.2008 till 6.3.2009, cannot be said to be illegal.
35. But what the second respondent has done after the revised return was filed and what he is obliged to do about the attachment, after the revised return was filed, is what is intriguing. If a revised return filed under Section 139(5) actually becomes the original return under Section 139(1) on the basis of the "Doctrine of Substitution", the petitioner ceased to be an assessee in default in terms of
Section 140-A(3). If he is not an assessee in default, the consequences prescribed in the later part of
Section 140-A(3) that "all the provisions of this Act shall apply accordingly", may not come to life. If it will not come to life, it is very doubtful whether the second respondent can straight away invoke
Section 226.36.
Section 220 of the Act, stipulates "when tax is payable and when an assessee is deemed in default". It reads as follows:-
"220. When tax payable and when assessee deemed in default (1) Any amount, otherwise than by way of advance tax, specified as payable in a notice of demand under
Section 156 shall be paid within thirty days of the service of the notice at the place and to the person mentioned in the notice:
Provided that, where the Assessing Officer has any reason to believe that it will be detrimental to revenue if the full period of thirty days aforesaid is allowed, he may, with the previous approval of the Joint Commissioner, direct that the sum specified in the notice of demand shall be paid within such period being a period less than the period of thirty days aforesaid, as may be specified by him in the notice of demand.
(2) If the amount specified in any notice of demand under
Section 156 is not paid within the period limited under sub-section (1), the assessee shall be liable to pay simple interest at one per cent for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1) and ending with the day on which the amount is paid.
Provided that, where as a result of an order under
Section 154, or
Section 155, or
Section 250, or
Section 254, or
Section 260, or
Section 262, or
Section 264, or an order of the Settlement Commission under sub-section (4) of
Section 245-D the amount on which interest was payable under this Section had been reduced the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded:
Provided further that in respect of any period commencing on or before the 31st day of March, 1989 ending after that date, such interest shall, in respect of so much of such period as falls after that date, be calculated at the rate of one and one-half per cent for every month or part of a month.
(2-A) Notwithstanding anything contained in sub-section (2) the Chief Commissioner or Commissioner may reduce or waive the amount of interest paid or payable by an assessee under the said sub-section if he is satisfied that -
(i) payment of such amount has caused or would cause genuine hardship to the assessee;
(ii) default in the payment of the amount on which interest has been paid or was payable under the said sub-section was due to circumstances beyond the control of the assessee; and
(iii) the assessee has cooperated in any inquiry relating to the assessment or any proceeding for the recovery of any amount due from him.
(3) Without prejudice to the provisions contained in sub-section (2), on an application made by the assessee before the expiry of the due date under sub-section (1), the Assessing Officer may extend the time for payment or allow payment by instalments, subject to such conditions as he may think fit to impose in the circumstances of the case.
(4) If the amount is not paid within the time limited under sub-section (1) or extended under sub-section (3), as the case may be, at the place and to the person mentioned in the said notice the assessee shall be deemed to be in default.
(5) If, in a case where payment by instalments is allowed under sub-section (3), the assessee commits default in paying any one of the instalments within the time fixed under that sub-section, the assessee shall be deemed to be in default as to the whole of the amount then outstanding, and the other instalment or instalments shall be deemed to have been due on the same date as the instalment actually in default.
(6) Where an assessee has presented an appeal under
Section 246 or Section 246-A the Assessing Officer may, in his discretion and subject to such conditions as he may think fit to impose in the circumstances of the case, treat the assessee as not being in default in respect of the amount in dispute in the appeal, even though the time for payment has expired, as long as such appeal remains undisposed of.
(7) Where an assessee has been assessed in respect of income arising outside India in a country the laws of which prohibit or restrict the remittance of money to India, the Assessing Officer shall not treat the assessee as in default in respect of that part of the tax which is due in respect of that amount of his income which, by reason of such prohibition or restriction, cannot be brought into India, and shall continue to treat the assessee as not in default in respect of such part of the tax until the prohibition or restriction is removed."
37. A reading of
Section 220 shows that it provides a lot of opportunities for the assessee to make payment of the tax. Sub section (1) gives an assessee 30 days time to make payment of the amount mentioned in the notice of demand issued under
Section 156. The proviso enables the Assessing Officer to provide a lesser time than 30 days. But sub section (3) enables the Assessing Officer even to enlarge the time or to allow payment by instalments. The immediate consequence of non-payment within the time prescribed under sub section (1), is the charging of simple interest, but sub section (2-A) empowers the Chief Commissioner or Commissioner to reduce or waive the interest. It is only after the failure of the assessee to make payment within the time limit prescribed under sub section (1) or the extended time limit prescribed under sub section (3) that he becomes an assessee in default under sub section (4) of
Section 220. Under sub section (5), an assessee becomes an assessee in default, upon his failure to pay the instalments allowed under sub section (3). The Assessing Officer is also vested with the power under sub section (6) to treat the assessee as not being in default, upon such conditions as he may impose, if an appeal under
Section 246 is pending.
38. Section 222 prescribes (i) attachment and sale of the assessee's movable property (ii) attachment and sale of the assessee's immovable property (iii) arrest of the assessee and his detention in prison and (iv) appointment of Receiver, as some of the modes of recovery of the amount due from an assessee in default or an assessee deemed to be in default. But these powers are exerciseable under Section 222, by a Tax Recovery Officer, after drawing up a Certificate of Recovery.
Section 225 empowers the Tax Recovery Officer also to grant time for payment of tax and even to stay the proceedings for recovery until the expiry of the time so granted.
39. But where no Certificate has been drawn up under Section 222, the Assessing Officer himself may recover the tax by any of the modes prescribed under
Section 226. Sub section (3) of
Section 226 empowers both the Assessing Officer as well as the Tax Recovery Officer to issue garnishee notices. Clause (v) of sub section (3) of
Section 226 makes it clear that once a notice is issued to a garnishee, any claim upon the property held by the garnishee arising after the date of the garnishee notice shall be void. Clause (vii) empowers the Assessing Officer and the Tax Recovery Officer to amend or revoke any notice.
40. Thus the Act gives lot of scope for the assessees to make payment, (i) before the date of filing of the return under
Section 140-A, (ii) within the time prescribed in the notice of demand under
Section 156, (iii) within the time prescribed under
Section 220(1), (iv) within the extended time prescribed under
Section 220(3), (v) within the time for payment by instalments allowed under
Section 220(3), (vi) within the time granted by the Tax Recovery Officer under
Section 225(1) and (vii) within the time prescribed in Rule 3 of Schedule-II.
41. Therefore the scheme of the Act as seen from the various provisions quoted above, appears to be to give a long rope to an assessee to make payment, before attachment or garnishee orders. Such rope may even be around his neck, so as to safeguard the interests of revenue, but shall not be tight enough to strangulate him. It is in the context of such leverage granted to the assessees that the action of the respondents 1 and 2 may now have to be tested.
42. The orders of attachment and garnishee notices in the present case, issued on the basis of the admitted liability as per the original return filed on 30.9.2008, may have been validly issued, before the date of filing of the revised return, on 6.3.2009, treating the petitioner as an assessee in default by virtue of
Section 140-A(3). But after the revised return was filed, the admitted tax liability was different from what it was under the original return.
43. The respondents have now taken a stand, in the impugned order and the counter affidavit, that the revised return is not worth the piece of paper on which it is written. In the revised return, the petitioner has chosen to switch over to a different system of accounting, which is not acceptable to the respondents, even at the threshold. Therefore according to the respondents, the revised return is not a valid return under Section 139(5). Moreover, it is the contention of the respondents that a revised return is permissible only to correct an omission or a wrong statement and not to change the system of accounting. Therefore in effect, the respondents 1 and 2 have taken a position, that the revised return is not valid in law.
44. Having taken such a position, the second respondent could have passed an order rejecting the revised return on the short ground that it does not satisfy the requirements of Section 139(5) and proceeding further with the assessment on the basis of the original return. But the second respondent could not even do this, on account of the fact that the functions performed by him are quasi judicial in nature and that such rejection in limine, without scrutiny, will not be permissible. It is in this background of the reluctance on the part of the second respondent to accept the revised return as well as to reject it outright that the impugned order justifying the continuance of the attachment and the garnishee notices, raises eyebrows.
45. Even the normal facilities available to an assessee (under
Sections 156,220, 222 and 226), like the grant of time to make payment, enlargement of time to make payment, stay of proceedings etc., have not been extended to the petitioner. These facilities are denied to the petitioner only on account of factors such as, the admitted tax liability as per the original return, the failure of the petitioner to make payment of the admitted liability for about 5 months, the filing of a revised return thereafter and the debtors denying their liability to make any payment. This in my considered view, is not justified.
46. If the assessment had been completed even on best of judgment basis, the Assessing Officer would have raised a demand in terms of
Section 156 and followed the provisions of
Sections 220, 222 and
226. A person who suppressed taxable income and consequently suffered a best of judgment assessment, would have been placed on a better footing than the petitioner who filed a return admitting liability to a particular extent and later attempted to file a revised return. Therefore I am of the considered view that the petitioner could be granted some reprieve, even while protecting the interests of revenue.
47. Mr.C.Natarajan, learned Senior Counsel for the petitioner submitted that all the bank accounts of the petitioner are now frozen and all persons to whom advances have been paid for the purpose of performance of certain contractual obligations, have been issued with garnishee notices. Those persons have denied any liability to pay to the petitioner, on account of the fact that the amounts paid to them were not like loans or advances repayable in cash. They have paid in consideration of the performance of certain personal obligations, which could be translated in terms of money by the petitioner, at the time of performance. The learned Senior Counsel submitted that all the operations of the petitioner have come to a standstill, in view of the freezing of the bank accounts. Even the day-to-day administration of the Company is today impossible since the banks could not release the overdraft facility made available to the petitioner, on account of the orders of attachment.
48. In support of his contention that an overdraft facility cannot be the subject matter of a garnishee notice or order of attachment, the learned Senior Counsel for the petitioner relied upon the judgment of Justice N.Rajagopala Ayyangar in K.M.Adam vs. Income Tax Officer {33 ITR 26(Madras)}. It was held in the said decision that a banker who had offered overdraft facility, is not a debtor nor is it a person from whom money may become due, in respect of such overdraft facility.
49. However Mr.K.Subramaniam, learned Standing Counsel for the Department, submitted that the monies pouring into the current account of the petitioner, could not be segregated into "overdraft amounts" and "receipts to the Company" and that even if it could be segregated, the bank may claim a first charge on the amounts realised by the Company from its debtors. But this apprehension on the part of the respondents, appears to be unfounded, in view of Clause (v) of sub section (3) of
Section 226, which declares that an order of attachment or a notice to a garnishee makes any subsequent claim on the same amount void.
50. In the light of the above discussion, I am of the considered view that it will be in the interest of both parties, if the assessment is completed within a time frame. Both sides expressed the view that since the petitioner has subsidiaries in other countries, the assessment may take a longer time than the normal. However, a period of six months, in my view, may be adequate.
51. In the meantime, the order of attachment of the receivables and the garnishee notices may continue to remain in force, in respect of all the debtors, except the banks. Admittedly the respondents have not been able to realise any substantial amount after the attachment and notices. Any possibility of further recovery appears remote even according to the respondents, if the present stalemate continues. Therefore, in my considered view, the respondents should permit the petitioner to operate the bank accounts and utilise the overdraft facility, so that the petitioner-Company continues to survive, at least to be able to pay the tax dues.
52. Lastly, the learned Senior Counsel for the petitioner expressed apprehensions, and rightly so, whether the second respondent, who is the Assessing Officer, would be able to take an unbiased and dispassionate view on the revised return, after having taken a war path. In the order passed in the previous writ petition, a direction was issued only to the first respondent to consider the representation of the petitioner dated 9.3.2009 and to pass orders in accordance with law. The first respondent has taken the opinion of the second respondent on the revised return and the validity of the orders of attachment and had passed the order impugned in the writ petition. In the present writ petition, the second respondent himself has filed a counter affidavit contending that the revised return is an after thought on the part of the petitioner, filed after the initiation of recovery proceedings. In paragraph-8 of his counter affidavit, the second respondent has contended that the revised return lacks bona fides on the part of the petitioner and that it was filed with the intention of escaping the statutory liability. In paragraph-9 of the counter affidavit, it is stated by the second respondent that the revised return is bound to be treated as invalid, since the petitioner has not established that there was an omission or wrong statement in the original return. Thus, the second respondent, who is the Assessing Authority and whose task is quasi judicial in nature, has taken a very strong position with regard to the validity of the revised return. Therefore, I cannot easily brush aside the apprehensions expressed by the learned Senior Counsel for the petitioner about how impartially, the second respondent can look into the revised return hereafter. But I do not wish to issue any directions in this regard except to leave it to the best of judgment or the best of traditions and the conscience of the second respondent.
53. In view of the above, the writ petitions are disposed of, with the following directions:-
(a) The Assessing Authority (the second respondent or any other person) shall complete the assessment within six months.
(b) The orders of attachment and the garnishee notices shall continue to be in force till the assessment is completed, in respect of all the debtors or persons who owe money to the petitioner, except the banks which have granted overdraft facilities to the petitioner.
(c) The petitioner is permitted to operate the bank accounts subject to the condition that there will be a first charge for the Department, on all receipts flowing into the bank accounts, except the advances or the overdraft amounts sanctioned by the banks.
54. The writ petitions are disposed of on the above terms. No costs. Consequently connected miscellaneous petitions are closed.
30-04-2009 Index : Yes.
Internet: Yes.
Svn To
1.The Commissioner of Income Tax-IV, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034.
2.The Deputy Commissioner of Income Tax Media Circle-1, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034.
3.The Tax Recovery Officer-X Media Range I, 121, Mahatma Gandhi Road, Nungambakkam, Chennai-600 034.
V. RAMASUBRAMANIAN, J.
Svn Common Order in W.P.Nos.6213 and 6214 of 2009 30-04-2009