By TIOL News Service

MUMBAI, JUNE 11, 2018: THE ISSUE IS - Whether assessee can invoke Sec. 139(5) of the Act and file a revised return if necessitated on account of reconciliation exercise carried out consequent to discontinuation of the use of accounting software package. YES IS THE VERDICT.

Facts of the case

The assessee, stock exchange, had filed return for relevant AY. The assessment was completed under the normal provisions of the Act. Subsequently, the Commissioner called for and examined the record of assessment proceedings and noted that the return of income was revised by the assessee, which had resulted in reduction of returned income by a sum of Rs.4,68,99,957/-. The assessee had explained the reasons for filing the revised return of income. The assessee explained that it had migrated to a new accounting system of ERP from January, 2011 and the earlier accounting system of Tally was discontinued. In the new ERP system of accounting, there were various sub-ledgers as a part of the accounting modules which showed certain un-reconciled differences between such sub-ledgers and the general ledger balances. The reconciliation made by the assessee showed that there were certain income/expenses which were excess booked in the PY relevant to the AY under consideration also and, therefore, the revised return was filed accounting for such differences amounting to Rs.4,68,99,957/-.

The Commissioner was of the view that the AO erred in taking into account the revised computation of income while passing the assessment order. In the show cause notice issued to the assessee, the Commissioner referred to Sec. 139(5) of the Act dealing with filing of revised return of income, which according to him was not applicable to the assessee as the revision was on account of discrepancy "due to change of method of accounting noticed after lapse of 21 months". In response to the show cause notice, assessee resisted the stand of the Commissioner and filed detailed submissions. However the explanations rendered by the assessee were not found satisfactory by the Commissioner and he set-aside the assessment order. The CIT held that there was a mistake on the part of the AO which had rendered the assessment order erroneous and prejudicial to the interests of the Revenue. Aggrieved assessee filed appeal, before Tribunal.

Tribunal held that,

++ though in the show cause notice issued by the Commissioner, it is sought to be made out that the revised return was not within the ambit of Sec. 139(5) of the Act, but in operative part of his order, he has not rendered any finding on the same. The exercise carried out by the assessee required adjustment to the returned income and, there was enough justification for the plea of the assessee that it had discovered an "omission" or "wrong" in the original return within the meaning of Sec. 139(5) of the Act. Therefore, even without referring to the merit of the adjustment made in the revised return of income, so far as the cause for assessee to invoke Sec. 139(5) of the Act and file a revised return is concerned, the fact-situation justified the same. Therefore, the basic premise of the Commissioner that the revised return was not within the scope of Sec. 139(5) of the Act is wrong;

++ entire approach of the Commissioner shows that without establishing that the assessment order is unsustainable in law, he has set-aside the same, which is evident from the fact that it is only the verification by the AO which will show as to whether or not the impugned claim was justified. In similar situation, co-ordinate Bench in the case of Gaurav Mathrawala noted the absence of a specific finding by the Commissioner as to how the claim of the assessee was wrong on the basis of facts and material on record but the assessment was set-aside and directed to be redone; as per the Tribunal, a specific finding was required from the Commissioner before the assessment order could be set-aside for redoing of assessment;

++ the revised return of income contains Note 8(b), and the AO having taken cognizance of the revised income, it can definitely be presumed that the impugned adjustment was in the knowledge of the AO. An issue was raised by the assessee that the adjustment so made was duly supported by certificate of the Auditor dated 27.09.2013. For Assessment Year 2012-13, the revised return of income based on the Auditor's certificate dated 27.09.2013 was accepted in an order passed u/s 143(3) of the Act. Reference has also been made to the revised return of income filed for Assessment Year 2013-14, wherein also an adjustment on the basis of Auditor's certificate has been made. It clearly show that the Commissioner was wrong in considering the assessment order as erroneous for merely requiring the AO to verify the situation and to amend the originally assessed income depending upon the outcome of the verification exercise. Hence the invoking of Sec. 263 of the Act by the Commissioner in the instant case is untenable and is set-aside.

(See 2018-TIOL-827-ITAT-MUM)