GATRON (INDUSTRIES) LIMITED VS FEDERATION OF PAKISTAN
1997 P T D 932
[213 ITR 106]
[Bombay High Court (India)]
Before Dr. B. P. Saraf and S.M. Jhunjhnuwala JJ
CARONA SAHU CO. LTD.
Versus
COMMISSIONER OF INCOME TAX
Income Tax Reference No.328 of 1983, decided on 14/11/1984.
(a) Income-tax---
----Assessment---Draft assessment order---Law applicable to assessment-- Section 144-B applicable to assessment year 1975-76---Indian Income Tax Act, 1961, S. 144-B.
Section 144-B of the Indian Income Tax Act, 1961, has an overriding effect over all other provisions contained in the Act. It starts with the non obstante clause "notwithstanding anything contained in this Act". It mandates the Income-tax Officer to follow the procedure laid down therein in all cases where in an assessment to be made under subsection (3) of section 143, he proposes to make any variation in the income or loss returned which is prejudicial to the assessee and such amount exceeds the amount fixed by the Central Board of Direct Taxes. From the phraseology of this section it is clear that on or after the coming into force of this section, it was incumbent on the part of the Income-tax Officer to comply with the requirements of this section in all assessments to be made thereafter under subsection (3) of section 143 of the Act if the variation in the returned income exceeded the specified figure. Its applicability is not related to assessment year. It applies to assessments to be made after the coming into force of this section i.e., January 1, 1976.
(b) Income-tax---
----Export markets development allowance---Weighted deduction---Export inspection fees, trade discount on sales, interest paid to State Trading Corporation of India, freight and forwarding charges for export of goods, consular fees paid to consulate and wages to export godown workers---Not entitled to weighted deduction---Indian Income Tax Act, 1961, S. 35-B.
The expenditure incurred by the assessee by way of export inspection fees, trade discount on sales, interest paid to the State Trading Corporation of India and freight and forwarding charges for export of goods, consular fee paid to the consulate and wages to export godown workers do not qualified fees top weighted deduction under section 35-B:
Daryani (M- H.) v. CIT (1993) 202 ITR 731 (Bon.) fol.
(c) Income-tax---
Business expenditure---Incremental liability not provided for in accounts---Not deductible.
Claim for deduction of the incremental liability not provided for in the accounts was not an allowable deduction; Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585 (SC) fol-
(iii) that the surtax liability for the relevant previous year was not an allowable deduction:.
Lubrizol India Ltd. v. CIT (1991) 187 IT R 25 (Bon.) fol.
(d) Income-tax---
Business expenditure---Sums liability-Not deductible---Indian Income Tax Act, 1961, S. 37.
Provisions of section 144-B were applicable to proceedings for the assessment year 1975-76 and the assessment made by the Income-tax Officer for that year on September 26, 1978, under section 143(3) read with section 144-B was not barred by limitation in view of the provision contained in clause of Explanation 1to section 153(3).
JUDGMENT
Dr. B.P. SARAF, J.---BY this reference under section 256(1) of the Income Tax Act, 1961, the Income Tax Appellate Tribunal has referred the following questions of law to this Court for opinion at the instance of the assessee:
Assessment ear 1975-76:
"(1) Whether, on the facts and in circumstances of the case, the Tribunal erred in law in holding that the provisions of section 144-B inserted with effect from January 1, 1976 are applicable to the proceeding for the assessment year 1975-76 and that the assessment order, dated September 26, 1978, was not barred by limitation?"
Common question for both the years 1975-76 and 1976-77:
"(2) Whether, on the facts and in the circumstances of the case, the Tribunal erred in holding that the expenditure incurred by the assessee by way of export inspection fees, trade discount on sales, interest paid to the State Trading Corporation of India and freightand forwarding charges for export of goods, consular fees paid to consulate and wages to export godown workers do not qualify for weighted deduction under section 35-B of the Income Tax Act, 1961?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the claim for deduction of the incremental liability not provided for in the accounts is not an allowable deduction?"
Assessment year 1976-77:
"(4) Whether, on the facts and in the circumstances of the case, the Tribunal erred in law in holding that the surtax liability for the relevant previous year is not an allowable deduction?"
The questions have been marked consecutively for the sake of convenience.
Counsel for the parties are agreed that questions Nos.2,3 and 4 are covered by the decisions of this Court and the Supreme Court. We, therefore, answer these questions as follows:
Following the decision of this Court in M.H. Daryani v. CIT (1993) 202 ITR 731, we answer question No.2 in the negative and in favour of the Revenue.
Following the decision of the Supreme Court in Shree Sajjan Mills Ltd. v. CIT (1985) 156 ITR 585, we answer question No.3 in the negative and in favour of the Revenue.
Following the decision of this Court in Lubrizol India Ltd. v. CIT (1991) 187 ITR 25, we answer question No.4 also in the negative and in favour of the Revenue.
The only question that needs consideration is question No. 1. The material facts pertaining to the said question are as follows:
The assessee is a limited company. The controversy in this reference pertains to the assessment year 1975-76, the corresponding previous year being financial year ending March 31, 1975. The return of income for this assessment filed by the assessee on July 15,1975. As the assessment in the instant case was made after the insertion of section 144-B, Income Tax Officer made a draft assessment order and after inviting Objections thereof from the assessee-company, referred the matter to the Inspecting Assistant Commissioner. The assessment was completed on September 26, 1978,in accordance with the procedure set out in section 144-B of the Act.
The assessee preferred an appeal before the Commissioner of income-tax Appeals and challenged the application of provisions of section 144-13 to its case on the ground that it was a substantive provision and therefore it would apply to the assessment year 1976-77 and onwards. The Commissioner of Income-tax Appeals did not agree with the above contention of the assessee and rejected the appeal. The assessee appealed to the Tribunal. The Tribunal also agreed with the Commissioner of Income-tax (Appeals) and dismissed the appeal of the assessee. The assessee applied for reference of the question of law in regard to the applicability of section 144-B to assessment for the assessment year 1975-76. The Tribunal has accordingly referred question No.1 to us for opinion.
Learned counsel for the assessee submits that the provisions of section 144-B are substantive provisions' and they cannot be applied to pending assessments. These provisions having come into force from January 1, 1976, car, be applied only to assessments for the assessment year 1976-77 and onwards. Learned counsel submits that this section effects the vested right of the assessee inasmuch as the extended period of limitation is available to the Income-tax Officer to complete the assessment by the application of section 144-B of the Act.
There is no controversy in this case about the fat that the assessment for the assessment year 1975-76 was not barred on the date January 1, 1976 when section 144-B was inserted. Even without section 144-B, the assessment could have been completed till March 31 1978. Section 144-B, which was insert0 with effect from January 1, 1976 provides that where in making an assessment under section 143(3), the Income tax Officer proposes to make any variation in the income or to returned which is prejudicial to the assessee and tile amount of such variation exceeds the amount fixed by the Board, he shall forward a draft of the proposed order of assessment draft order to the assessee who may forward his objections, if any, to such variation to the Assessing Officer who in to shall forward the draft order together with objections to the Deputy Commissioner and the Deputy Commissioner after considering the draft order and the objections and going through the records in respect of the matters covered by the objections issue such direction as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment after giving an opportunity of hearing to the assessee and the Income-tax Officer shall make his assessment accordingly. As the variation of income in the instant case was more than Rs.1 lakh and a draft assessment was forwarded to the assessee as contemplated by section 144-B, a further period of six months was available for the purpose and the period of limitation for completion of assessment got extended till September 30, 1978. The assessment was completed before that date on September 26, 1978. The assessment is, therefore, within time if section 144-B is applicable. The only question for consideration is whether section 144-B is applicable to assessments completed after the insertion of the said section if the condition specified therein exists.
We have perused the scheme of section 143(3) and section 144-B. Section 143 deals with the procedure of assessment. There is no dispute about the fact that section 143 is procedural. It is not a substantive provision. It does not deal with any charge of tax. It provides for computation of income of the assessee for the assessment year in question and determination of his tax liability. Subsection (2) of this section provides for issue of a notice to the assessee to produce or cause to be produced any evidence on which he may rely in support of his return. Subsection (3) deals with the power of the Income-tax Officer to make an assessment under that section. It reads:
"143. Assessment.-------
(3) On the day specified in the notice issued under subsection (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which he has gathered,---
(a) in a case where no assessment has been made under subsection (1), the Income-tax Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment; .... "
Section 144-B was inserted in the Act with effect from January 1, 1976. It reads:
"144-B. Reference to Inspecting Assistant Commissioner in certain cases.---(1) Notwithstanding anything contained in this Act, where,, in an assessment to be made under subsection (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under subsection (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as 'the draft order') to the assessee.
(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.
(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.
(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections-and after going through wherever necessary the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment:
Provided that no directions which are prejudicial to the assessee shall be issued under this subsection before an opportunity is given to the assessee to be heard.
(5) Every direction issued by the Inspecting Assistant Commissioner under subsection (4) shall be binding on the Income-tax Officer ...."
This section was amended by the Taxation Laws Amendment Act, 1984, with effect from October 1, 1984, and for the words "the Income tax Officer proposes to make any variation", the words and figures "the Income-tax Officer proposes to make, before the ' Ist day of October, 1984, any variation "were substituted. Finally, section 144-B was omitted by the Direct Tax Laws Amendment Act, 1987, with effect from April 1, 1989.
It is clear from the language of section 144-B that this section applies to an assessment to be made under subsection (3) of section 143, where the Income-tax Officer proposes to make any variation adverse to an assessee in the income or loss return and such variation exceeds the amount fixed by the Board, which was fixed at Rs.1 lakh. Thus, the procedure laid down in section 144-B will have to be followed by the Income-tax Officer in all assessments to be made by him on or after January 1, 1976, under section 143(3) where the variation of income exceeds the limit specified in section 144-B. In that case, in computing the period of limitation for the completion of assessment, the period not exceeding one hundred and eighty days commencing from the date on which the Income-tax Officer forwards the draft order under subsection (1) of section 144-B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner under subsection (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days is to be excluded. The assessment completed under section 143(3) read with section 144-B within such extended time cannot be said to be an assessment barred by limitation.
It may be pertinent to observe that section 144-B has an overriding effect over all other provisions contained in the Act. It starts with the non-obstante clause "Notwithstanding anything contained in this Act". It mandates the Income-tax Officer to follow the procedure laid down therein in all cases wherein an assessment to be made under subsection (3) of section 143, he proposes to make any variation in the income or loss returned which is prejudicial to the assessee and such amount exceeds the amount fixed by the Board. From the phraseology of this section it is clear that on or after the coming into force of this section, it was incumbent on the part of the Income-tax Officer to comply with the requirement of this section in all assessments to be made thereafter under subsection (3) of section 143 of the Act if the variation in the returned income exceeded the specified figure. Its applicability is not related to the assessment year. It applies to assessments to be made after the coming into force of this section i.e., January 1, 1976. If the assessment for any assessment year was barred by limitation under section 153 of the Act, it cannot be made thereafter by taking resort to this section or availing of the benefit of the extended period of limitation. It will apply only to those assessment which could have been made by the Income Tax Officer on or after January 1, 1976. This interpretation also gets support from the fact that the procedure under this section relating to reference to the Inspecting Assistant Commissioner was discontinued by the Taxation Laws Amendment Act, 1984, not with reference to any assessment year but with reference to the date of making the assessment under section 143(3) of the Act by the Income-tax Officer. It ceased to apply where the assessment was proposed to be made by the Income-tax Officer on or after October 1, 1984.
In this view of the matter, it is evident that the provisions of section 144-B are applicable to proceedings for the assessment year 1975-76 and the assessment made- by the Income-tax Officer for that year on September 26, 1978, under section 143(3) read with section 144-B of the Act is not barred by limitation in view of the provision contained in clause (iv) of Explanation 1 to section 153(3) of the Act.
We may refer in this connection to the decision of this Court in CIT v. V.D. Saraf (HUF) (1994) 207 ITR 217 where, considering the provisions of section 144-B in the light of the recommendations of the Wanchoo of section 14 observed at page 22
The phraseology of section 144-B makes it absolutely clear that there is an obligation to forward a draft assessment order, where in making an assessment under section 143(3), the Income-tax officer proposes to making variations exceeding certain limits prejudicial to the assessee in the income or loss returned by him. Section 144-B provides to the assessee a forum in the nature of a section Mini appeal against such proposed assessment. Therefore, in truth and substance, section 144-B though inserted as an independent sections is in the nature of a proviso to section 143(3) and should be read as such".
In the premises, question No-1 is answered in the negative and in favour of the Revenue. There shall be no order as to costs.
M.B.A./1147/FCQuestion answered.