Income-tax---

----Reference---Question of law---Refund---Regular assessment---Return accepted under S.143(1)(a) and refund granted to assessee---Subsequently regular assessment made under S.143(3) resulting in further amount of refund---Commissioner holding that income assessed under S.143(3) could not be less than returned income and no further refund could be given except what was due on basis of return---Assessing Authority entitled to determine quantum of refund in regular assessment---No question of law arose for reference---Indian Income Tax Act, 1961, Ss. 143 & 256(2).

The assessee-company filed its return for the assessment year 1989-90 on December 29. 1989, showing a net income of Rs.2,32,41,730. The return was processed under section 143(1)(a) of the Income Tax Act, 1961, accepting the returned income and an intimation to that' effect was issued to the assessee-company on June 11, 1990. which resulted in a refund of an amount of Rs.1,08,00.894. Out of the said amount, a certain sum was adjusted towards tax arrears and the balance of Rs.84,88,828 was refunded to the assessee-company. Subsequently, the case of the assessee-company was taken up for scrutiny under section 143(3) of the Act on March 27, 1992. "The Assessing Officer determined the taxable income at Rs,1,76,62,580 which resulted in a further refund of Rs.4,1,82,929. The Commissioner took the view that the income assessed by the Assessing Officer in respect of the assessee-company under section 143(3) of the Act could not be less than the returned income shown by the assessee-company nor a further refund can be given except what was due on the basis of the return which was already allowed while making the provisional assessment under section 143(1)(a) of the Income-tax Act. The Commissioner was of the further view that the order of assessment made by the Assessing Officer on March 27, 1992, was also contrary to the instructions of the CBDT in Reference No.549, dated October 31, 1989 (1990) 182 ITR (St.) 19. Therefore, the Commissioner of Income-tax initiated revisional proceedings under section 263 of the Act for setting aside the assessment made under section 143(3). The assessee contended that the assessment order, dated March 27, 1992, was in accordance with law and the Assessing Officer had rightly allowed the deduction being the differential value of opening and closing stocks by following consistently the method of valuation and the interests of the Revenue had not suffered. The assessee also contended that in terms of section 237 of the Income-tax Act, the assessee was entitled to the refund arising on the assessment or otherwise of the amount which had been paid in excess of the tax payable by it under the Act. The Commissioner of Income tax, however, rejected the objections raised by the assessee-company and by his order passed under section 263 of the Act, dated March 17, 1993, directed the Assessing Officer to modify the assessment order in such a way that the income determined would not be less than the returned income and no refund shall arise thereby. On appeal to the Tribunal, the assessee contended that the view taken by the Commissioner of Income-tax that with effect from April 1, 1989, an assessment made under section 143(3) could not result in a refund was erroneous. The Tribunal allowed the appeal filed by the assessee and set aside the order passed by the Commissioner of Income-tax under section 263 of the Act. The Revenue filed an application under section.256(1) which was dismissed by the Tribunal. On'an application filed under section 256(2):

Held, (i) that under clause (b) of subsection (3) of section 143 of the Income Tax Act, 1961, before its amendment with effect from April 1, 1989, the Assessing Officer had power to determine the tax liability and also to refund the excess amount to the assessee. However, after amendment, with effect from April 1, 1989, the language employed by the Legislature under section 143(3) of the Act does not. implicitly say that the Assessing Officer is entitled to grant refund also. However, this does not mean that the Legislature has withdrawn the powers of the Assessing Authority to grant refund to the assessee in appropriate cases. The provisions under sub section (3) of section 143 of the Act cannot be read in isolation. Had it been the intention of the Legislature to prevent the assessing authority from granting refund to the assessee, then the insertion of subsection (4) to section 143 of the Act would lose its significance.

(ii) That on a reading of clause (b) of subsection (4) of section 143 of the Act, it is clear that on an assessment made under section 143(1)(a) of the Act, and such assessment results in a refund,. if such refund exceeds the amount refundable on regular assessment made under section 143(3) of the Act, the whole or the excess amount so refunded shall be deemed to be the tax payable by the assessee. In other words, in the regular assessment, the tax liability is determined on the basis of giving credit to all the deductions the assessee is entitled to notwithstanding the fact that the assessment is made under section 143(1)(a) of the Act. Under clause (b) of the subsection (4) of section 143, it cannot be said that the Legislature did not visualise a situation permitting -the assessing authority togrant refund also under regular assessment in favour of an assessee.

(iii) That, therefore, the assessing authority is entitled to determine the quantum of refund also in a regular assessment made under section 143(3) of the Act with effect from April 1, 1989. No question of law arose for reference.

LML Ltd. v. Venkataraman (M.K.), Asstt. CIT (1994) 205 ITR 585 (Bon.) ref.

J. V. Prasad for Petitioner.

S. Ravi for Respondent

S.R. Ashok: amicus curiae

JUDGMENT

DR. MOTILAL B. NAIK, J:---This ITC is filed under section 256(2) of the Income Tax Act, 1961, against the decision of the Income-tax Appellate Tribunal, Hyderabad "B" Bench, in R. A. No.381/Hyd of 1994, dated January 23, 1995, by the Commissioner of Income-tax, Andhra Pradesh-I, Hyderabad, seeking a direction from this Court to the Income-tax Appellate Tribunal (for short "the Tribunal"), to state the case and refer the following questions of law formulated by it, for the opinion of this Court, viz.:

"(1) Whether, on the facts and in the circumstances of the case, the Income-tax appellate Tribunal is correct in law in vacating the order under section 263, dated March 17, 1993, passed by the Commissioner of Income-tax?

(2) Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal is correct in law in coming to the conclusion that an assessment made under section 143(3) can result in refund with effect from April 1, 1989?"

The assessee-company filed its return of income for assessment year 1989-90 on December 29, 1989, admitting a net income of Rs.2,32,41,730. The return was processed tinder section 143(1)(a) of the Income-tax Act, accepting the return income and an intimation to that effect was issued to the assessee-company to June 11, 1990, which resulted in a refund of an amount of Rs:1,08,00,894. Out of the said amount, a sum of Rs.23,12,066 was adjusted towards tax arrears of the assessee for the assessment year 1986-87 and the balance of Rs.84,88,828 was refunded to the assessee company.

Subsequently, the case of the assessee-company was taken up for scrutiny under section 143(3) of the Act on March 27, 1992. The Assessing Officer determined the taxable income at Rs.1,76,62,580 which resulted in a further refund of Rs.44,82,929. The Revenue was of the view that the income .assessed by the Assessing Officer in respect of the assessee-company under section 143(3) of the Act cannot be less than the returned income shown by the assessee-company and that the income of the assessee-company cannot be assessed at a figure lower than the returned income shown in the return nor loss can be assessed at a figure higher than the returned loss nor a further refund can be given except what was due on the basis of the return which was already allowed while making the provisional assessment' under section 143(1)(a) of the Income-tax Act. The Revenue was of the further view that the order of the assessment made by the Assessing Officer on March 27, 1992, is also contrary to the instructions of the Central Board of Direct Taxes (for short "CBDT") in Reference No.549, .dated October 31, 1989, (1990) 182 ITR (St.) 1). Under the above circumstances, the Commissioner of Income-tax (for short "the CIT"), initiated revisional proceedings under section 263 of the Income-tax Act, for setting aside the assessment order made by the assessing authority under section 143(3) of the Act, dated March 27, 1992. Accordingly, a show-cause notice was issued to the assessee-company. In response to the show-cause notice, the assessee company filed written objections to the proposed revision. Before. the Commissioner of Income-tax, the assessee-,company contended that the assessment order, dated March 27, 1992; made by the Assessing Officer is in accordance with law and he had rightly allowed the deduction being the differential value of opening and closing stocks by following consistently the method of valuation and the interest of the Revenue has not suffered. It was also contended by the assessee-company that in terms of section 237 of the Income-tax Act, the assessee-company is entitled to the refund arising on the assessment or otherwise of the amount which has been paid in excess of. the tax payable by it under the Act.

The Commissioner of Income-tax, however, rejected the objections raised by the assessee-company and by his order passed under section 263 of the Act, dated March 17, 1993, directed the Assessing officer to modify the assessment order in such a way that the income determined would not be less than the returned -income and no refund shall arise thereby.

As against -the order passed by the Commissioner of Income-tax, dated March 17, 1993, which was passed under section 263 of the Act, the assessee-company filed I.T.A. No.950 (Hyd.) of 1993 before the Income-tax Appellate Tribunal, Hyderabad "B" Bench, contending that the view taken by the Commissioner of Income-tax that with effect from April 1, 1989, an assessment made under section 143(3) of the Act cannot result in a refund, is erroneous. On a consideration of the submissions and relevant provisions, the Income-tax Appellate Tribunal allowed the appeal filed by the assessee company and set aside the order, dated March 17, 1.993, passed by the Commissioner of Income-tax under section 263 of the Act, by an order dated March 30, 1994. Aggrieved by the said order of the Tribunal, dated March 30, 1994, the Revenue filed R.A. No.381/Hyd of-1994 under section 256(1) of the Act formulating the two questions of law, as indicated above, and required the Tribunal to state the case and refer the questions of law for the opinion of this Court. However, by an order dated January 23, 1995, the Tribunal rejected the said R.A. holding that no referable question of law arises for seeking the opinion of this Court. Against the said order of the Tribunal, dated January 23, 1995, the Revenue has preferred the present LT. C. under section 256(2) of the Income-tax Act.

Sri J. V. Prasad, learned standing counsel for the Income-tax Department, appearing for the petitioner has submitted that when- once a provisional assessment is made under section 143(1)(a) of the Act, for all purposes, the assessment so made is final. But, however, in certain cases, the assessing authority is entitled to issue notice under section 143(2) of the, Act, to the. assessee and proceed to make a final assessment as provided under section 143(3) of the Act. Learned standing counsel contended that when an assessment is made under section 143(3) of the Act, the assessing authority is not empowered to assess the income at a lower figure than the returned income shown by the assessee nor loss can be assessed at a figure higher than the returned loss and no further refund could be given by the Assessing Officer over and above the refund already allowed while making the provisional assessment under section 143(1)(a) of the Act. According- to learned standing counsel, when a provisional assessment is completed under section 143(1)(a) of the Act, in exceptional circumstances, the assessing authority issues . notice to the assessee under section 143(2) of the Act and when such a notice is issued, the assessing authority has to look into those aspects only which are specified in the notice and has no power to delve into the other aspects and order refund over and above the amount already allowed, while making a provisional assessment under section 143(1)(a) of the Act. Learned standing counsel contended that with effect from April 1, 1989, the power under section 143(3) of the Act available to the Assessing Officer to grant refund while completing assessment under section 143(3) of the Act has been withdrawn and in the instant case, the assessing authority has exceeded his powers and erroneously ordered refund. He further contended that the Commissioner of Income-tax was justified in setting aside the order, dated March 27, 1992, passed by the assessing authority while directing him to modify the assessment order in such a way that the income determined shall not be less than the returned income and no refund shall arise thereby. While laying emphasis on the provisions of section 143 of the Act and taking us to the instructions issued by the Central Board of Direct Taxes, dated October 31, 1989 (see (1990) 182 ITR (St.) 1, learned standing counsel justified the -action of the Commissioner of Income-tax. He contended that the Tribunal has erroneously set aside the revisional order passed by the Commissioner of Income-tax under section 263 of the Income tax Act, dated March 17, 1993. According to learned standing counsel for the Income-tax Department, the Income-tax Appellate Tribunal fell in error while accepting the submissions of the assessee-company and the order of the Income-tax Appellate Tribunal in I.T.A. No.950/Hyd of 1993 is contrary to. the provisions of section 143(3) of the Income-tax Act and also the instructions issued by the Central Board of Direct Taxes, dated October 31, 1989 (see (1990) 182 ITR (St.) 1. According to learned standing counsel, as against the order of the Tribunal, the Revenue filed R.A. No.381/Hyd .of 1994 requiring the Tribunal to state the case and refer the two questions of law formulated by it_ for the opinion of this Court, but the Tribunal rejected the said R.A. Learned standing counsel contended that the Tribunal ought to have held that the assessment made under section 143(3) of the Act cannot result in determination of income at a figure lesser than the returned income and no refund of amount can be ordered. In support of his contentions, learned standing counsel for the Revenue has taken us to a decision of the Bombay High Court reported in L.M.L. Ltd. v. M.K. Venkataraman, Asst. CIT (1994) 205 ITR 585, and contended that the scope of. the provisions under section 143(3) of the Act has been considered in the said decision in the light of the instructions issued by the Central Board of Direct Taxes and it was held that the assessing authority has not power to order refund while making the final assessment under section 143(3) of the Act. Under these circumstances, learned standing counsel for the petitioner pleads to direct the Tribunal to state the case and refer the two questions of law formulated for the opinion of this Court.

Sri S.R. Ashok, learned senior counsel who assisted this Court as amicus curiae, has also supported the submissions advanced on behalf of the petitioner.

On behalf of the respondent assessee, Sri Ravi S. learned counsel, on the contrary submitted that the assessment made under section 143(1)(a) of the Act is only a provisional assessment and whereas the assessment made under section 143.(3) of the Act is a final assessment. While making a final assessment under section 143(3) of the Act, the assessing authority is entitled to look into the claims of the assessee and after satisfying the claims made by the assessee towards deductions, etc., the assessing authority has to determine the tax liability. Learned counsel contended that the provisions under section 143(3) of the Act cannot be interpreted so narrowly as to hold that the assessing authority has no power to grant refund at all even though the assessee is entitled to such refund after giving credit to such of those sums which are already paid either by way of advance tax or by way of tax deducted at source. Learned counsel further contended that the provisions under subsection (3) of section 143 of the Act cannot be read in isolation but have to be read conjointly with subsection (4) of section 143 of the Act and on a combined reading of both these provisions. viz., subsections (3) and (4) section 143 of the Income-tax Act, it would be clear that the Assessing Authority is entitled to determine the tax liability including refund also. Learned counsel further contended that under section 143(3) of. the Act, when a final assessment is made by the Assessing Authority nothing pre cludes the Assessing Authority to determine the income at a lower figure than the returned income shown by the assessee. Under section 143(3) of the Act, what the assessing authority does is only to compute the taxable income and neither a demand nor refund is made. The demand is made only under section 156 of the Act. The liability to pay income-tax is provided under sections 4 and 5 of the Act which are charging provisions and the other sections only provide the mechanism to determine, the liability. Learned counsel further contended that under sections 199 and 219 of the Act, credit for such taxes deducted at source and advance tax paid already are to be given and it is only under section 237 of the Act if the taxes so paid by the assessee either by way of advance tax or tax deducted at source, after giving credit, if the tax liability is less than the tax paid, the assessee is entitled to seek refund under section- 237 of the Act. Counsel neatly contended that even assuming for a. moment that the instructions issued by the Central Board of Direct Tares, dated October 31, 1989 (see (1990) 182 ITR (St.) 1), preclude the assessing authority from granting refund, such instructions cannot have overriding effect on the statutory provisions of the Income-tax Act. Learned counsel, therefore, submits that no referable questions of law-are involved in interpreting the provisions under section 143(3) of the Act and justified the orders of the Tribunal.

In order to appreciate the rival. contentions, it would be appropriate to refer to the provisions contemplated under section 143 of the Income Tax Act, 1961.

Section 143(1)(a) of the Act provides for completing assessment which is a provisional assessment by the assessing authority even with minor modifications in the returned income.

Section 143(2) of the Act further provides as under:

"Where a return has been made under section 139, or in response to a notice under subsection. (1.) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or , has not computed excessive loss or has not under paid the tax in any manner, serve on the assessee a notice requiring him on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return."

When a provisional assessment is made under section 143(1)(a) of the Act even with minor alterations, an intimation is sent to the assessee about the refund or otherwise in favour of the assessee. However, if the assessing authority is of the view that the assessee has understated the income or computed excessive loss and underpaid the taxes, the assessing authority is entitled to issue a notice to the assessee under section 143(2) of the Act and seek the assessee to produce all such evidence in support of his claim and then proceed to make a regular assessment under section 143(3) of the Act by giving him an opportunity.

Section 143(3) of the Act further provides as under:

"On the day specified in the notice issued under subsection (2), or at soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing 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 on the basis of such assessment.

Though learned standing counsel for the Income-tax Department, appearing on behalf of the petitioner, has contended that the provisions contemplated under subsection (3) of the section 143 of the Act do not empower the Assessing Officer to determine the income at less than the returned income and he is not entitled to order refund, we are not inclined to, accept such contention. It is seen that the language so used under clause (b) of subsection (3) of section 143 gives aft impression that the Assessing Officer has got the power to determine the tax liability and also to refund the excess amount to the assessee. However, after amendment, the language employed by the Legislature under section 143(3) of the Act does not implicitly say that the Assessing Officer is entitled to grant refund. also. However, this does not mean that the Legislature has withdrawn the powers of the assessing authority to grant refund to the assessee in appropriate cases. In our considered view, the provisions under subsection (3) of section 143(3) of the Act, cannot be read in isolation. Had it been the intention of the Legislature to prevent the assessing authority from granting refund to the assessee, then the insertion of subsection (4) of section 143 of the Act would lose its significance. It is interesting to note that through the amendment in the year 1989 which has come into force from April I; 1989 the Legislature inserted subsection (4) to section 143 of the Act which reads as under:

"143(4) Where a regular assessment under subsection (3) of this, section or section 1,14 is made,--

(a) any tax or interest paid by the assessee under subsection (1) shall be deemed to have been paid towards such regular assessment:

(b) if no refund is due on regular:, assessment or the amount refunded under subsection (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly."

On a reading of clause (b) of subsection (4) of section 143 of the Act, it is cleat that on an assessment made under section 143(1)(a) of the Act, and such assessment results in refund, if such refund exceeds the amount refundable on regular assessment made under section 143(3) of the Act, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee. In other words, in the regular assessment, the tax liability is determined on, the basis of giving credit to all the deductions the assessee is entitled to notwithstanding the fact of the assessment 'made under section 143(1)(a) of the Act. On a careful, examination of the words so used in clause (b) of subsection (4) of section 143. of the Act, we cannot borrow a different meaning than the one intended by the Legislature to say that the Legislature did not visualise a situation permitting. the assessing authority to grant refund also under regular assessment in favour of an assessee.

Though learned standing counsel for the Income-tax Department has contended that in the decision in L.M.L. Ltd. v. M.K. Venkataraman,. Asst. CIT (1994) 205 ITR 585) (Bon.): the Bombay High Court has examined the scope of section 143(3) of the Act in the light of the circular issued by the Central Board of Direct Taxes and held that no refund can be granted to the assessee while completing the assessment under section 143(3) of the Act, we are not prepared to accept the same. On a careful reading of the said decision, we find that the provisions under section 143(3) of the Act did not fall for consideration before the Division Bench of the Bombay High Court in the said decision. Only a casual reference was made to the amendment brought to section 143 of the Income-tax Act from the assessment 1989-90 onwards. The Division Bench in the said decision has no occasion to deal with -a question as to whether the assessing authority had the power to order refund while making a regular assessment under section 143(3) of the Act. We are, therefore, of the view that this decision cannot render any assistance to the Revenue to say that the decision of the Bombay High Court is in line with the thinking of the Revenue. Merely because there are certain departmental instructions as provided in Circular Reference No.549 (see (1990) 182. ITR (St.) 1), dated October 31, 1989, issued by the Central Board of Direct Taxes, we are of the view, such instructions cannot overweight the statutory provisions of the Income-tax Act and as such we are not persuaded to hold that the circular instructions of the Central Board of Direct Taxes should bind the assessing authority even bypassing the provisions of the Income-tax Act.

Having regard to the above discussion and in the light of sub section (4) of section 143 of the Income-tax Act which was inserted by way of amendment in the year 1989, we are inclined to hold that the assessing authority is entitled to determine the quantum of refund also in a regular assessment made under section 143(3) of the Act.

In the light of the above discussion, we are inclined to say that no referable question of law arises for seeking the opinion of the High Court. The Tribunal, in our considered view; has rightly rejected the request of the Revenue. We see no merit in the contentions raised on behalf of the Revenue.

We, accordingly reject this I.T.C. No costs.

M.B.A./23/FC Case rejected.