LI Network
Published on: January 24, 2024 at 15:06 IST
The Supreme Court, in a recent ruling, clarified that filing a tax return without regular books of account does not render it invalid.
The Court emphasized that the burden to call for rectification of defects in the return lies with the assessing officer and not the taxpayer.
The case revolved around the reopening of a concluded assessment under Section 147 of the Income Tax Act. The Supreme Court held that an assessee’s responsibility is limited to providing a “full and true” disclosure of all “material” or primary facts for tax assessment.
Subsequently, the onus shifts to the assessing officer to identify and intimate any defects in the return for rectification. If the officer fails to do so, the return cannot be deemed defective.
The bench, comprising Chief Justice BV Nagarathna and Justice Ujjal Bhuyan, stressed that the discretion to ascertain and communicate defects to the assessee lies with the assessing officer. Failure to exercise this discretion means that the return cannot be labeled defective.
In the specific case, the appellant, a partnership firm, had not filed regular books of account while submitting returns for the assessment years 1990-91, 1991-92, and 1992-93 due to a search and seizure operation by the Revenue. Although assessment orders were passed under Section 143(3) of the Act, the appellant later filed profit and loss accounts and balance sheets for those years.
The assessing officer, upon discovering a discrepancy, attempted to reopen the assessment for the earlier years. The Supreme Court ruled that the assessing officer wrongly relied on a balance sheet submitted by the appellant to a bank, which had been previously discarded by the Commissioner of Income Tax (Appeals).
The Court highlighted that filing a return without regular balance sheets and profit and loss accounts may be considered defective but not invalid. It further emphasized that a “full and true disclosure” entails voluntarily filing a return of income that the assessee genuinely believes to be accurate.
The judgment emphasized that the case did not warrant the reopening of assessment based on a “change of opinion,” and the assessing officer’s subsequent subjective analysis could not be a valid ground for reassessment.
In conclusion, the Supreme Court set aside the High Court’s order and restored the decision of the Income Tax Appellate Tribunal.
CASE TITLE: M/S MANGALAM PUBLICATIONS, KOTTAYAM V. COMMISSIONER OF INCOME TAX, KOTTAYAM, CIVIL APPEAL NOS. 8580-8582 OF 2011 (AND CONNECTED MATTERS)