Loss cannot be denied by considering the revised return as the original return, and the CIT is not liable for costs if no mala fide action has been established

Fact and issue of the case

This appeal is filed by assessee and is arising out of the order of the National Faceless Appeal Centre, Delhi dated 14.02.2023 [here in after (NFAC)] for assessment year 2019-20 which in turn arise from the order dated 01.05.2020 passed under section 143(1) of the Income Tax Act, by the ADIT, CPC. The assessee has marched this appeal on the following grounds:-

That the order passed by the assessing officer is illegal against the law and judicial decorum.

The assessing officer should have accepted the revised return submitted by the assessee which was in accordance with the law and CIT(A) should have accepted the ground and should not rejected without reading the ground.

That the order passed by the CIT(A) is not reasoned order and disallowance made by the assessing officer is confirm arbitrary and against the law and against the natural justice therefore liable for quash.That cost (appeal fees + travelling expenses + advocate fees) may kindly be granted in respect of dragging the assessee in appeal due to negligence and carelessness of the CIT(A) in view of judgment of Rajasthan High Court delivered in case of Chiranji Lal by treating the assessee and department at par.

That addition of Rs. 3,51,811/- is illegal and against the law is only account of negligence.

Without prejudice when the income is exempt in that case no tax should be charged.”

The fact as culled out and recorded in the orders of the lower authorities is that the assessee has filed its original return of income belatedly u/s 139(4) of the Act for the assessment year 2019-20 on 15.01.2020. The due date for filing return of income for the said assessment year u/s 139(1) of the Act was extended to 31.10.2019. The return of income filed by the appellant u/s 139(4) of the Act was processed by the CPC, Bengaluru u/s 143(1) of the Act disallowing current year losses of Rs. 3,51,811/- (Bonus of Rs. 3,20,000 and Interest of Rs. 31,811/-)

Aggrieved from the order of the Assessing Officer, assessee preferred an appeal before the ld. CIT(A)/NFAC. A propose to the grounds so raised the relevant finding of the ld. CIT(A)/NFAC is reiterated here in below:

Decision-:

There are five grounds of appeal but they are condensed to a single issue which is assessee’s grievance against CPC disallowing a sum of Rs. 3,51,811/- on account of current year’s losses. After looking into the entire factual matrix of the case, I find that assessee’s plea is untenable because losses can only be allowed when the return of income is filed within the stipulated time prescribed by the Act. It is noted from the order u/s 143(1) of the Act that the returns were filed on 15.01.2020 whereas the due date u/s 139(1) of the Act was 30.03.2019. Hence there is no infirmity in the order passed by the AO (CPC). The appeal is therefore dismissed.”

The ld. AR appearing on behalf of the assessee has placed their written submission which is extracted in below;

“With reference to the above, it is submitted that the order passed by the assessing officer and sustained by the CIT (A) in a manner that is illegal against the law and against the judicial decorum from all corners. I want to submit that CIT (A) is also having a duty to correct the errors in the proceeding. I have categorically pointed out the factual/legal mistake committed by the CPC authority. All the act leads to the concussion that the CIT A did not take the pain to read the submission at all. There are the following judicial pronouncements of the Supreme Court and High Court in respect of correcting the error. The apex Court while dealing with the scope and powers of the appellate authority in the case of Kapurchand Shrimal vs. CIT (1981) 24 CTR (SC) 345: (1981) 131 TTR 451 (SC) has held as Follows:

“It is well known that an appellate authority has the jurisdiction as well as THE DUTY TO CORRECT ALL ERRORS IN THE PROCEEDINGS UNDER APPEAL AND TO ISSUE, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute.”

As per section 250(6) of the Act, it is the duty of the Commissioner (Appeals) to state a point in dispute, record the reasons and pass a speaking order. The Hon’ble Supreme Court in the case of Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan (2010) 9 SCC 49% and Canara Bank v. V. K. Awasthy (2005) SC 2090 has held that nonspeaking orders by Tribunal, as well as Commissioner (Appeals), is violating the principle of natural justice and liable to be set aside. Accordingly, under the faceless appeal scheme, the Authorities are bound to pass the speaking order. The CIT (A) fails to pass the speaking order and passed the order in ten lines AND THE TAXPAYER HAS BEEN DELIBERATELY PUSHED INTO THE PIT OF LITIGATION. YOU ARE REQUESTED TO DECLARE THE SAME AS ILLEGAL. In view of the above submission, you will observe that the addition made by the assessing officer is illegal and against the law without following the order of the tribunal.

Observation of the court

We have considered the rival arguments made by both sides. In our opinion the learned Commissioner of Income-tax has passed an order which is based on the set of facts placed or understood by him. Since, the appeal of the assessee has been disposed under the faceless regim the contention that the officer should be made responsible is not possible under this faceless regime, where the personal contact is avoided and therefore, no prejudiced caused to the assessee. The judgement based on the set of facts understood by the ld. CIT(A) while discharging duty, action might have caused some hardship to the assessee due to error of judgement but that in our opinion does not warrant levy of cost on the Department. The hon’ble Supreme Court in the case of Pooran Mal v. Director of Inspection [1974] 93 ITR 505, while adjudicating relief claimed in respect of action taken under section 132 of the Income-tax Act has observed as under (at pages 518 and 519) :

“We are, therefore, to see what are the inbuilt safeguards in section 132 of the Income tax Act. In the first place, it must be noted that the power to order search and seizure is vested in the highest officers of the Department. Secondly, the exercise of this power can only follow a reasonable belief entertained by such officer that any of the three conditions mentioned in section 132(1)(a), (b) and (c) exists. In this connection it may be further pointed out that under sub-rule (2) of rule 112, the Director of Inspection or the Commissioner, as the case may be, has to record his reasons before the authorisation is issued to the officers mentioned in sub-section (1). Thirdly, the authorisation for the search cannot be in favour of any officer below the rank of an Income-tax Officer. Fourthly, the authorisation is for specific purposes enumerated in (i) to (v) in sub-section (1), all of which are strictly limited to the object of the search. Fifthly, when money, bullion, etc., is seized the Income-tax Officer is to make a summary enquiry with a view to determine how much of what is seized will be retained by him to cover the estimated tax liability and how much will have to be returned forthwith. The object of the enquiry under sub-section (5) is to reduce the inconvenience to the assessee as much as possible so that within a reasonable time what is estimated due to the Government may be retained and what should be returned to the assessee may be immediately returned to him. Even with regard to the books of account and documents seized, their return is guaranteed after a reasonable time. In the meantime the person from whose custody they are seized is permitted to make copies and take extracts. Sixthly, where money, bullion, etc., is seized, it can also be immediately returned to the person concerned after he makes appropriate provision for the payment of the estimated tax dues under sub-section (5), and, lastly, and this is most important, the provisions of the Criminal Procedure Code relating to search and seizure apply, as far as they may be, to all searches and seizures under section 132. Rule 112 provides for the actual search and seizure being made after observing normal decencies of behaviour. The person in charge of the premises searched is immediately given a copy of the list of articles seized. One copy is forwarded to the authorising officer. Provision for the safe custody of the articles after seizure is also made in rule 112. In our opinion, the safeguards are adequate to render the provisions of search and seizure as less onerous and restrictive as is possible under the circumstances. The provisions, therefore, relating to search and seizure in section 132 and rule 112 cannot be regarded as violative of articles 19(1)(f) and (g). A minor point was urged in support of the above contention that section 132 contains provisions which are likely to affect even innocent persons. For example, it was submitted, an innocent person who is merely in custody of cash, bullion or other valuables, etc., not knowing that it was concealed income is likely to be harassed by a raid for the purposes of search and seizure. That cannot be helped. Since the object of the search is to get at concealed incomes, any person, who is in custody without enquiring about its true nature, exposes himself to search. Sub-section (4) of section 132 shows the way how such an innocent person can make the impact of the search on him bearable. All that he has to do is to tell the true facts to the searching officer explaining on whose behalf he held the custody of the valuables. It will be then for the Income-tax Officer to ascertain the person concerned under sub-section (5).”

In that case, it was observed that it causes serious invasion of the privacy of a person. Still the hon’ble Court held that even though the innocent is likely to be harassed by a raid for the purpose of search and seizure that cannot be helped. In the instant case, there is no such action of search and seizure which causes serious invasion in the privacy of the person. The Commissioner was discharging her quasi-judicial duty. Further, there is nothing on record to suggest that the action of the Commissioner of Income-tax was mala fide. Therefore, we do not find any merit in the submission of learned counsel for the assessee to award cost.

The decisions relied on by learned counsel for the assessee are distinguishable as in the decision of the hon’ble Rajasthan High Court in the case of Chiranji Lal Tak (supra) is concerned, there also facts were different. In that case, the respondent Income-tax Officer issued illegal notice to the petitioner and later withdrew the same. Under these circumstances, the court directed the respondent to pay for the advocate fee and litigation expenses incurred by the petitioner in prosecuting writ proceedings. However, in the instant case, there is no prim facie illegality in issuing the intimation which is also system based and even the proceeding before the first appellate authority was on faceless regime. We, therefore, do not find any merit in the argument of learned counsel for the assessee to award cost. The ground raised by the assessee is accordingly dismissed. In the result, appeal of the assessee is partly allowed.

Order pronounced under rule 34(4) of the Appellate Tribunal Rules, 1963, by placing the details on the notice board.