Filing a Tax Return Without Regular Books of Account Does Not Render it Invalid; The Assessing Officer is Obligated to Promptly call for Rectification for Any Defects.: Supreme Court
The Supreme Court, in the case of M/S MANGALAM PUBLICATIONS, KOTTAYAM V. COMMISSIONER OF INCOME TAX, KOTTAYAM, recently addressed the legal sustainability of reopening a concluded assessment under Section 147 of the Income Tax Act. The Court emphasized that an assessee's obligation for tax assessment is limited to making a "full and true" disclosure of all "material" or primary facts, shifting the burden to the assessing officer. If a return is defective, it is the officer's responsibility to notify the assessee for rectification; otherwise, the return cannot be deemed defective.
The case involved the assessment of the appellant, a partnership firm, for the years 1990-91, 1991-92, and 1992-93. The appellant, unable to file regular books of account due to a Revenue search and seizure operation, faced reassessment for AYs 1988-89 to 1993-94 based on subsequently submitted profit and loss accounts and balance sheets. The assessing officer, however, initiated reassessment after comparing the balance sheet submitted to a bank with the appellant's subsequent balance sheet.
The Supreme Court noted that, despite the appellant's inability to file regular books of account, it provided a tentative profit and loss account for the relevant years, duly verified by the assessing officer, leading to assessment orders under Section 143(3). The Court criticized the assessing officer for relying on the discarded balance sheet submitted to the bank, stating that a return without regular balance sheet and profit and loss account may be defective but not invalid.
The Court examined Section 147, emphasizing that reassessment is barred after four years from the end of the relevant AY unless the assessee fails to respond to a notice under Section 148 or disclose all material facts necessary for assessment. It concluded that the assessing officer erred in initiating reassessment based on the bank's balance sheet, and the returns were not declared defective in any of the relevant years.
Considering various judicial precedents, including the decision in Calcutta Discount Company Limited v. Income Tax Officer (1960), the Court clarified that "full and true disclosure" involves voluntarily filing a return the assessee earnestly believes to be true, and producing books of accounts or material evidence does not constitute full disclosure.
The Court rejected the Revenue's argument that the assessee made a false declaration and highlighted that the case reflected a "change of opinion," which cannot be grounds for reopening assessment. Consequently, the Court set aside the High Court's order and restored the Tribunal's decision.