Scope for rectification of a defective return under section 139(9) of IT Act, 1961

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The return of income, if not signed by signatory as contemplated by
section 140, would be mistake, defect or omission; but, by virtue of
section 139(9) that defect can be cured.

HIGH COURT OF BOMBAY
Prime Securities Ltd.v.Varinder Mehta, ACIT
(Inv.)Writ Petition No. 112 of 1993April 27, 2009

RELEVANT EXTRACTS:

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In our opinion, once Section 140 of the Act mandates that the return has to be signed in the case of a company by the Managing Director and where Managing Director
is not available by any Director thereof, it is not possible to hold
that the signing of the return by the Company Secretary is merely an
irregularity. When the law provides for a particular thing to be done
in particular manner, it must be so done. Apart from that the language
used in Section 140 is "Shall be signed and verified".

In our opinion, therefore, the principles as laid down by the Supreme Court in Sri
Keshab Chandra Mandal (Supra) will have to be applied. Such a defect,
therefore, will not amount to a mere irregularity and the return filed
on 1.12.1991 will have to be treated as defective.8 Having so held, we
may now consider the second contention based on Section 139(9) of the
Act. Section 139(9) reads as under:"139(9).

Where the [Assessing] Officer considers that the return of income furnished by the assessee is defective, he may intimate the defect to the assessee and give him
an opportunity to rectify the defect within a period of fifteen days
from the date of such intimation or within such further period which,
on an application made in this behalf, the Assessing Officer may, in
his discretion, allow; and if the defectis not rectified within the
said period of fifteen days or, as the case may be, the further period
so allowed, then, notwithstanding anything contained in any other
provision of this Act, the return shall be treated as an invalid return
and the provisions of this Act shall apply as if the assessee had
failed to furnish the return:
Perusal of this subsection indicates that a duty is cast on the Assessing Officer when he considers the return of income to be defective to intimate the defect to the assessee and to give an opportunity to rectify the defect within a period of 15 days
from the date of such intimation or within such further period which,
on an application made in this behalf, the Assessing Officer may
allow.

In the instant case, if it is held that the notice of 9.10.1992
is the notice as contemplated by Section 139(9) then in that event,
petitioner within 15 days had removed the defect by filing the same
return but with the signature of the director. A similar issue had come
up for consideration before the learned Division Bench of the Kerala
High Court in Commissioner of Income tax v. Masoneilan(India) Ltd.
(2000) Vol.242 I.T.R. 569. In that case also, the assessee was a public
limited company. Return was signed by a person not named under Section
140 of the Act in relation to the "company". Notice was issued under
Section 154 of the Act to the assessee stating that the return was
nonest and all proceedings were being initiated on the basis that
return were void ab initio. T

he issue before the learned Division Bench of the Kerala High Court was, whether Section 292B of the Act applied to the facts of the case. The learned Division Bench held that once the defect was cured, question of rectification would not arise. In our opinion, therefore, considering the duty cast on the Assessing Officer,
the communication of 9.10.92 must be read as an intimation to the
petitioner pursuant to which the defect was remedied on 15.10.1992. We
have earlier held that not signing the return by the proper person
results in the return being defective. Can then the defect in the
return be cured by virtue of Section 139(9).

In our opinion, the answer is in the affirmative. Failure to sign by a proper person is a defect. The expression defect will have to be understood as it is naturally
understood. Even if the defect has the effect of treating the return as
non est, the legislature still has provided for curing such defects. If
the defect is cured then the return becomes a valid return. Petition on
that count will have to be allowed.10 The last submission is the
consequence flowing from the provisions of Section 292B.

It was introduced by Taxation Laws (Amendment) Act, 1975, with effect from
1.10.1975 and reads as under:“292B. No return of income, assessment,
notice, summons or other proceeding, furnished or made or issued or
taken or purported to have been furnished or made or issued or taken in
pursuance of any of the provisions of this Act shall be invalid or
shall be deemed to be invalid merely by reason of any mistake, defect
or omission in such return of income, assessment, notice, summons or
other proceeding if such return of income, assessment, notice, summons
or other proceeding is in substance and effect in conformity with or
according to the intent and purpose of this Act.”

A bare reading of this provision, makes it clear that a return of income shall not be treated as invalid merely by reason of any mistake, defect or omission
in such return of income, if such return of income is in substance and
effect in conformity with or according to the intent and purpose of
this Act. The return of income, therefore, if not signed by signatory
as contemplated by Section 140 would be mistake, defect or omission.
Question is whether in spite of the defect, the return was in substance
and effect in conformity with or according to the intent and purpose of
this Act. Submissions on behalf of the respondents is that by virtue of
fresh shares issued by the petitioner, petitioner ceasedto be a holding
company of Great Eastern Shipping Company Ltd. and consequently,
benefit of Section 47 of the Income tax Act was not available. The
assessment year was 1991 92.

The previous year would be 1990 91. Admittedly, when the petitioner filed the return, it was a 100% subsidiary of Great Eastern Shipping Company Ltd. and upto March, 1992. Return had been filed on 31.12.1991. The return had been substituted on
15.10.1992 by which date the petitioner had ceased to be a 100%
subsidiary of the company. It is in that context, we will have to
examine the later part of Section 292B. We may gainfully refer to the
judgment of the Supreme Court in Commissioner of Income tax v.
Hindustan Electro Graphites Ltd. (2000) Vol.243 I.T.R. 48, which
approved the judgment of the Calcutta High Court in Modern Fibotex
India Ltd. And another v. Deputy Commissioner of Income tax and others
(1995) Vol.212 I.T.R. 496.

The issue before the Calcutta High Court was the validity of intimation under Section143(1)(a) and the constitutionality of sections 143 (1) (a) and 143(1A) of the Income Tax Act. The Company in its return for the assessment year 1989 90
discloses business loss on the ground that cash compensatory support
was not taxable and that even if cash compensatory support was treated
as taxable , the company would still have suffered a loss in the year.
Subsequent to the company submitting its return, the Finance Act, 1990,
was enacted and Section 28 of the Act were amended with effect from
April 1, 1967, making cash compensatory support taxable.

The Income tax officer issued notice under Section 143(2) of the Act to the company
for the assessment year 1989 90. After notice under 143(1)(a),
additional tax was levied and a demand was raised. Company in that
event filed revised return and on September 7, 1990, filed an
application under Section 154 of the Act against the intimation under
Section 143(1)(a) of the Act. A learned Single Judge of the Calcutta
High Court was pleased to observe that the date for judging the
question of adjustment must be the actual date of the return in the
light of the law then prevailing.

The Court held to hold otherwise would manifestly shock one's sense of justice that an act, correct at the time of doing it, should become incorrect by some new enactment. In the case before the Supreme Court, assessee had filed return for the
assessment year 1989 90 in December, 1989. It received cash assistance
from Government of India in respect of exports, which it had not
included as income. Consequent to Section 28 being given retrospective
effect from 1.4.1967, the Cash compensatory assistance was made
chargeable as business income.

Question was whether the return filed by the assessee was correct. The Court held there that where the return is valid, the law applicable would be law as it stood on the date of filing of the return.11. In the instant case, when the petitioner filed
its return for the previous year 1990 91 the petitioner was a fully
owned subsidiary of Great Eastern Shipping Company Ltd. The petitioner
ceased to be fully owned subsidiary only after March, 1992. The defect
in signature was removed on 15.10.1992 but in respect of the same
assessment year 1991 92.

In our opinion, the subsequent event can not result in holding that the return as originally filed was not in substance and effect in conformity with or according to the intent or purpose of the Act on the date the return was filed. The test to be
applied is whether on the date the original return was filed was the
return in conformity with or according to the purpose of the Act. On
the date the return was filed the petitioner was admittedly a wholly
owned subsidiary of Great Eastern Shipping.

It is true that the return was invalid as originally filed because of a defect in the person signing the returns. But by virtue of Section 139(9) that defect could
be cured and was infact cured. Though the defect was cured on 15.10.92
it would relate back to 31.12.1991 the date of original filing of the
return. Once the return is valid and in conformity with the intended
purpose of the act, in our opinion, therefore, on this count also, the
petition will have to be allowed.

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