MAKUM TEA CO. (INDIA) LTD. VS DEPUTY COMMISSIONER OF INCOME-TAX, 2000 PTD-GAUHATI-HIGH-COURT-INDIA 1887 (1998)

(a) Income-tax---

----Assessment---Powers of Assessing Officer---Power to make adjustments- Power under S.143(1)(a).can be exercised only when loss carried forward, deduction, allowance or relief have been claimed which are prima facie inadmissible---Addition' of amounts as interest on deposits and interest on 'loans is not permissible ---Indian Income Tax Act, 1961, S.143.

It would appear from the provisions of clause (iii) of the proviso to section 143(1)(a) of the Income Tax Act, 1961, that the powers vested therein will come into operation only when any loss carried forward, deduction, allowance or relief has been claimed in the return, which on the basis of the information available in such return, accounts or-documents annexed to the return, are prima facie inadmissible.

The petitioner-company submitted its return for the assessment year 1992-93. It also furnished a detailed computation of taxable income for the year ended on. March 31, 1992. In the purported exercise of powers under section 143(1)(a), the Assessing Officer added certain income. The petitioner-company filed a petition for rectification of the mistake apparent on the face of record under the provisions of section 154. The Assessing Officer rectified certain other mistakes except the interest on deposit arid interest on loan. Accordingly; after making necessary computation, a sum of Rs.35,22,340 was determined as payable on account of income-tax inclusive of additional tax and interest doe for the assessment year 1992-93. The addition of various incomes to the total income in purported exercise of powers under section 143(1)(a) was challenged by the petitioner in a writ petition:

Held. (i) that the alternative remedy available under section 154 and section 264 of the Act could not be considered as efficacious remedies in the present circumstances. The remedy under Article 226 was, therefore, not barred.

(ii) That the Assessing Officer had made adjustments without giving any opportunity of hearing to the petitioner-company and the amounts added back to the total income and disallowances made could not be said to be within the purview of the provisions of section 143(1)(a). The order passed under section 143(1)(a) and the order passed' under section 154 were liable to be quashed.

(b) Income-tax---

Writ---Alternative remedy which is not effective---Writ will issue-- Constitution of India, Art.226.

Attorney-General of Trinidad and Tobago v. Gordon Grant & Co.. (1935) AC 532 (PC); Indian Rayon and Industries Ltd. v. Kanekar (J.R.), Asst. CIT (1993) 200 ITR 747 (Bon.); Khatau Junkar Ltd. v. Pathania (K.S.) (1992) 1,96 ITR 55 (Bon.); Neville v. London "Express" Newspaper Ltd. (1919) AC 368 (HL); Santosh Kumar v. Central Warehousing Corporation AIR 1986 SC 1164; (1986) 2 SCC 343; Secretary of State v. Mask & Co. AIR 1940 PC 105; Titaghur Paper Mills Co. Ltd. v. State of Orissa (1.983) 142 ITR 663 (SC); (1983) 53 STC 315 and Wolverhampton New Water Works Co. v. Hawkesford (1859) 6 CB (NS) 336 ref.

Dr. A.K. Saraf and K.K. Gupta for Petitioner.

G.K. Joshi and B.J. Talukdar for Respondents.

JUDGMENT

The petitioner, Makum Tea Company (India) Limited, is a limited company and is an assessee under the Income Tax Act, 1961. In this writ petition, the petitioner-company has challenged the order, dated -March 19, 1993 (annexure-II), issued under section 143(1)(a) of the Income Tax Act, 1961, demanding income-tax and additional tax for the assessment year 1992-93 and the order, dated June 10, 1993, in purported exercise of powers under section 154 of the Act refusing to rectify the mistakes so far as interest on deposit and interest on loan, etc., are concerned and adding the same in the total income of the petitioner.

'The petitioner-company submitted its return of income for the assessment year 1992=93 relevant to the previous year 1991-92 on December 30, 1992, showing a total income of Rs.75,61,610. The total tax including surcharge payable by the petitioner-company amounted to Rs.39,13,134. In addition a suns of Rs.1,96,656 was also payable on account of interest under sections 234-B and 234-C of the Act. Accordingly, the petitioner company has paid a total sum of Rs.41,09,790. The petitioner company also furnished a detailed computation of taxable income for the year ended on March 31, 1992, alongwith the return of income indicating the depreciation allowable, additions made to the fixed assets during the year 1992, amounts disallowable under section 43-B, profit on sale of investment, shares and lease, etc. In the purported exercise of powers under section 143(l)(a), the first respondent added certain income mentioned in para.5 of the writ petition and determined the total income at Rs.1,34,47,568 and levied the total tax payable at Rs.60,51,403. The first respondent also determined surcharge payable at Rs.9,07,710 and an additional tax under section 143(1-A) of the Act amounting to Rs.9,09,196. After adjustment of the amount already paid by the petitioner-company, a net amount of Rs.47,82,173 was determined as payable. The petitioner-company filed a petition for rectification of the mistake apparent on the face of record under the provisions of section 154 of the Income Tax Act, 1961. In the said petition (annexure-III), it was pointed out that the addition made by respondent No. 1 as pointed out in para.5 of the written statement resulted in double taxation. It was indicated in the said petition that at page 11 of the balance-sheet, the amount of Rs.4,18,20,484 shown as profit before taxation: includes other income of Rs.1,68,33,032 and the break up of which is available in schedule 14 (page 18) of the balance-sheet shows that the other income amounting to Rs.1,68,33,032 also includes the income which has been added back. It was further pointed oust that the mistake is apparent on the face of the record and this is required to be rectified, and till such rectification is made, the tax demand of Rs.47,82,173 may be stayed.

The petition filed by the petitioner-company was disposed of by an order, dated June 10, 1993 (annexure IV). By the said order, respondent No. 1 rectified certain other mistakes except the interest on deposit and interest on loan. Accordingly, after making necessary computation, a sum of Rs.35,22,340 was determined as payable on account of income-tax inclusive of additional tax and interest due for the assessment year 1992-93. The addition of various incomes with the total income in purported exercise of powers under section 143(1)(a) of the Act has been challenged by the petitioner-company on the ground that it was 'beyond the jurisdiction of respondent No. 1.

I have heard Dr. A.K. Saraf, learned counsel appearing for the petitioner-company, and Mr. G.K. Joshi, learned counsel for the Revenue.

Dr. Saraf submits that the respondents acted beyond their jurisdiction in adding the amount of interest on deposit and interest on loan as those were not income from other sources. Dr. Saraf also questioned the powers of the respondents under section 143(1)(a) of the Act to make adjustment of the income derived from interest on deposit which is already included in the income from other sources which has been included 'in the other income of Rs.1,68,33,032. The purported exercise of powers under section 143(i)(a) of the Act has been assailed as beyond the jurisdiction of respondent No. 1 inasmuch as no deduction, allowance or relief for loss carried forward was claimed by the petitioner-company in the return and this rules out the scope of prima facie adjustment of the income.

It would appear from the provisions of clause (iii) of the proviso to section 143(1)(a) of the Act that the powers vested therein will come into operation only when any loss carried forward, deduction, allowance or relief has been claimed in the return, which, on the basis of the information available, in such return, accounts or documents annexed to the return, are prima facie inadmissible. From the intimation (annexure-II) sent by respondent No. 1, it cannot be said that such, deduction, allowance or relief or loss carried forward was claimed by the petitioner-company in the return ln` view of this, it would appear that the question of making prima facie adjustment in the income of the petitioner-company does not arise.

Mr. Joshi, learned standing counsel for the respondents, submitted that there being provision of appeal against an order passed under section 154 of the Act, this. petition under Article 226 of the Constitution does not lie. He further submitted that the amounts added back are prima facie not acceptable and this is a disputed matter which cannot be adjudicated properly in exercise of writ jurisdiction. In support of his argument, he referred to two decisions reported in Titaghur Paper Mills Co. Ltd. v. State of 'Orissa (1983) 142 ITR 663 (SC) and Santosh Kumar v. Central Warehousing Corporation (1986) AIR 1986 SC 1164.

In Titaghur Paper Mills (1983) 142 ITR 663, the Supreme Cour7 held as follows (page 671):

"Under the scheme of the Act, there is a hierarchy of authorities before which the petitioners can get adequate redress against the wrongful acts complained of. The petitioners have the right to prefer an appeal before the prescribed authority under subsection (1) of section 23 of the Act. If the petitioners are dissatisfied with the decision in the appeal, they can prefer a further appeal to the Tribunal under subsection (3) of section 23 of the Act, and then ask for a case to be stated upon a question of law for the opinion of the High Court under section 24 of the Act. The Act provides for a complete machinery to challenge an order of assessment, and the impugned orders of assessment can only be challenged by the modes prescribed by the Act and not by a petition under Article 226 of the Constitution. It is now well-recognised that where a right or liability is created by a statute which gives a special remedy for enforcing it, the remedy provided by that statute only must be availed of. This rule was stated with great clarity by Wines J. in Wolverhampton ' New Water Works Co. v. Hawkesford (1859) 6 CB (NS) 336 at p.356 in the following passage:

There are three classes of cases in which a liability may be established founded upon statute. But there is a third class, viz , where a liability not existing at common law is created by a statute, which at the same time gives a special and particular remedy for enforcing it ...the remedy .provided by the statute must be followed, and it is not competent to the party to pursue the course applicable to cases of the second class. The form given by the statute must be adopted and adhered to.

The rule laid down in this passage was approved by the House of Lords in Neville v. London "Express" Newspaper Ltd. (1919) AC 368 (HL) and has been reaffirmed by the Privy Council in Attorney General of Trinidad arid Tobago v. Gordon Grant and Co. (1935) AC 532 (PC) and Secretary of State v. Mask and Co., AIR 1940 PC 105. It has also been held to be equally applicable to enforcement of rights, and has been followed by this Court throughout. The High Court was, therefore, justified in dismissing the writ petitions in limine. "

In addition to the aforesaid judgment,. we may refer to the decision in Santosh Kumar, AIR 1986 SC 1164; (1986) 2 SCC 343. In para.4 of the judgment, the Supreme Court while dealing with the provisions of the Land Acquisition Act, 1894, made the following observation ,(page 1166 of AIR 1986 SC): '

"In our view there cannot lit any possible doubt that the scheme of the Act is that, apart from fraud, corruption or collusion, the amount of compensation awarded by the Collector under section 11 of the Act may not be questioned in any proceeding either by the Government or by the company or local authority at whose instance the acquisition is made. Section 50(2) and section 25 lead to that inevitable conclusion. Surely what may not be done under the provisions of the Act may not be permitted to be done by invoking the jurisdiction of the High Court under Article 226. Article 226 is not meant to avoid or circumvent the processes of the law and the provisions of the statute. When section 50(2) expressly bars the company or local authority at whose instance the acquisition is made from demanding a reference under section 18 of the Act, notwithstanding that such company or local authority may allowed to adduce evidence before the Collector, and when section 25 expressly prohibits the Court from reducing the amount of compensation while dealing with the reference under section 18, it is clearly not permissible for the company or local authority to invoke the jurisdiction of the High Court under Article 226 to challenge the amount of compensation awarded by the Collector and to have it reduced."

In Titaghur Paper Mills' case (1983) 142 ITR 663, the Supreme Court laid down the ratio while dealing with the powers of the taxing officers under the Orissa Sales Tax Act, 1947, and the Central Sales Tax Act, 1956.

In Santosh Kumar's case AIR 1986 SC 1164, the Supreme Court laid down the ratio on consideration of the provisions of the Land Acquisition Act, 1894.

To counter the above views laid down by the Supreme Court in the circumstances of those two cases which are virtually different from the facts of the case at hand, Dr. Saraf has relied upon the decisions of the Bombay High Court in Khatau Junkar Ltd. v. K.S. Pathania (1992) 196 ITR 55 and in Indian Rayon and Industries Ltd. v. J.R. Kanekar, Asst. CIT (1993) 200 ITR 747 along with other decisions.

In Khatau Junkar Ltd. v. K.S. Pathania (1992) 196 ITR 55, a Division Bench of the Bombay High Court dealt with a matter similar to the one at hand and enunciated the following proposition of law (headnote):

"(i) that, in the present case, when, by a unilateral act, without giving any hearing to the assessee, the Income-tax Officer had disallowed the claims by going beyond the return and the documents annexed to it, the remedy by way of writ could not be challenged on the ground of an alternative remedy, such as a rectification under section 154 which could not correct substantive errors or a revision under section 264 being now made available to the aggrieved person, These could not be considered as efficacious remedies in the present circumstances. Hence, the remedy under Article 226 of the Constitution was not barred; "

In Indian Rayon's case (1993) 200 ITR 747, the ratio laid down by the Bombay High Court is that when the Assessing Officer travels beyond the scope of powers of section 143(1)(a), particularly clauses (i), (ii) and (iii) appended to the first proviso thereto, the exercise carried out by the Assessing Officer in the garb of adjustment under section 143(1)(a) was wholly beyond his jurisdiction and as such the adjustment is impermissible under the first proviso to section 143(l)(a). This conclusion led the Bombay High Court to hold that the alternative remedy available under section 154 and section 264 of the Act could not be considered as efficacious remedies in the present circumstances. In this context it was further held that the remedy under Article 226 of the Constitution is not barred.

In the instant case also the Assessing Officer has made adjustment as stated in pqra.5 of the writ petition without giving any opportunity of hearing to the petitioner-company and the amounts added back to the total income and disallowances made cannot be said to be within the purview of the provisions of clause (iii) of section 143(1)(a). In my opinion, the addition of the amount on account of interest on loan as interest on deposit is not justified. Instead, the Assessing Officer could have proceeded to make final assessment under the provisions of section 143(2) for the purpose of notice and section 143(3), for the purpose of assessment to set at rest the dispute at the initial stage after giving proper opportunity to the assessee-company to explain their stand. In my view, the impugned order, i.e., the intimation (Annexure-II) and the order (annexure-IV), passed under section 154 of the Income-tax Act refusing to correct the error have to- be set aside.

Accordingly, the intimation (annexure-II) under section 143(1)(a), and the order (annexure-IV) under section 154 of the Act are hereby set aside. However, it is made clear that the respondents may take recourse to any other provision of the Act to deal with the situation. .

In the result, the petition is disposed of with the observation made above. The parties are to bear their own costs.

M.B.A./4097/FCPetition disposed.