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/2011
Assessment Year : 2006-07
M/s. R. Kasi Vishwanathan & Vs.
Bros.,
C/o K.Ramakrishnan/Shri G.
Natarajan, CAs,
71, Sanyasi Gramam Street,
Thirunelveli Junction-627 001.
[PAN: AACFR 8902Q]
(Assessee -Appellant)

The Assistant Commissioner of

Income-tax,
Palakkad
Range,
Palakkad.

(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

ORDER

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

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3.

I.T.A. No. 475/Coch/2011

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.
afterthought.

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

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.

I.T.A. No. 475/Coch/2011

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

I.T.A. No. 475/Coch/2011

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

I.T.A. No. 475/Coch/2011

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 of
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.
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.

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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

I.T.A. No. 475/Coch/2011

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

I.T.A. No. 475/Coch/2011

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/(N.R.S.GANESAN)
JUDICIAL MEMBER

sd/(B.R.BASKARAN)
ACCOUNTANT MEMBER

Place: Kochi
Dated: 11th October, 2013
GJ
Copy 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