K. SUDHAKAR S. SHANBHAG VS INCOME-TAX OFFICER, 2001 PTD-BOMBAY-HIGH-COURT-INDIA 3835 (1999)

(a) Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Scope of reassessment‑‑‑Reassessment proceedings are for benefit of Revenue‑‑‑Income for purposes of reassessment cannot be reduced below income assessed originally‑‑‑Indian Income Tax Act, 1961, 5.147.

(b) Income‑tax‑‑‑

‑‑‑‑Reassessment‑‑‑Advance tax‑‑‑Failure to submit returns‑‑‑Reassessment proceedings stated against assessee‑‑‑Assessee filing returns showing income on which tax payable is less than amount paid as advance tax‑‑‑Advance tax had lost its character and had to be treated as income‑tax for relevant assessment year ‑‑‑Assessee could not claim that reassessment proceedings should be completed and income‑tax liability reduced‑‑‑Claim of assessee for refund of excess tax paid cannot be entertained‑‑‑Indian Income Tax Act, 1961, Ss.219 & 147‑‑‑Constitution of India, Art. 226.

The proceedings under section 147 of the Income Tax Act, 1961, are for the benefit of the Revenue and not of the assessee and the assessee cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to escaped income and reagitate concluded matters. It is further clear that allowance of such claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. The Supreme Court has categorically held that the income for the purpose of reassessment cannot be reduced below the income originally assessed.

Any sum paid by or recovered from the assessee as advance tax shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable. Once the amount of advance tax is treated as payment of tax in respect of the income of the relevant previous year, the amount loses its character of advance tax and is treated as income‑tax paid in respect of the income of the relevant previous year.

The petitioner was an individual. For the assessment year 1987‑88, he paid in three instalments, a sum of Rs.66,750 by way of advance tax. Similarly, for the assessment year 1988‑89, he paid by way of advance tax, a sum of Rs.51,709. No return, however, was submitted under section 139 of the Act for any of the above two assessment years. On March 23, 1991, the petitioner received two notices from the Income‑tax Officer, Satara, under section. 148 of the Act for these two assessment years. The petitioner submitted returns declaring income of Rs.1",02,700 and Rs.75,200 for the assessment years 1987‑88 and 1988‑89, respectively. The tax due from the petitioner on the basis of the returns submitted pursuant to the notices under section 148 of the Act was less than the advance tax paid by him by Rs.34,200 and Rs.30,212 for the assessment years 1987‑88 and 1988‑89, respectively. The Income‑tax Officer did not make any assessment order and dropped the proceedings initiated under section 147 of the Act. On the expiry of the time‑limit for completion of assessment proceedings pursuant to the above notice under section 148 of the Act, the petitioner claimed refund of the advance tax' paid or the difference between the advance tax and the amount due as per returns submitted pursuant to the notices under section 148. As the application for refund was barred by limitation under section 239 of the Act, he applied to the Central Board of Direct Taxes to condone the delay in filing the same: The said application was rejected by the Board: The petitioner, therefore, filed a writ petition seeking a direction to the Income‑tax Officer to bring the proceedings under section 147 of the Act to a logical end by completing the assessment and refunding the excess tax paid by him by way of advance tax:

Held, dismissing the petitioner, that the petitioner could not claim that the Income‑tax Officer should complete proceedings for assessment of escaped income and reduce income‑tax liability of the petitioner below the amount of the advance tax paid by him which had attained the character of tax paid by him on the income of those years. The petitioner was not entitled to any relief.

CIT v. Indian Rare Earth Ltd. (1990) 181 ITR 22 (Bom.); CIT v. Sun Engineering Works (P.) Ltd (1992) 198 ITR 297 (SC); Jaganmohan Rao (V.) v. CIT/ETP (1970) 75 ITR 373 (SC); Kamalpur (Assam) Tea Estate (Pvt.) Ltd. v. Superintendent of Taxes (1989) 175 ITR 142 (Gauhatil and Modi Industries Ltd. v. CIT (1995) 216 ITR 759 (SC) ref,

Atul K. Jasani and Pramod Vaidya for Petitioner.

Nemo for Respondent.

JUDGMENT

DR. B.P. SARAF, J.‑‑‑By this writ petition, the petitioner seeks a direction to the Income‑tax Officer, Satara, to complete the assessments of his income for the assessment years 1987‑88 and 1988‑89 on the basis of the returns submitted by him pursuant to. the notices under section 148 of the Income Tax Act, 1961 ("the Act"), and to refund the amount paid by him as advance tax which, according to him, is in excess of the amount due as per the returns submitted pursuant to the said notices. The contention of the petitioner is that having initiated proceedings for assessment or reassessment of the income of the petitioner for the assessment years 1987‑88 and 1988‑89 under section 147 by issue of notice under section 148 of the Act. The Income‑tax Officer is under a statutory obligation to bring those proceedings to a logical end by making the assessments and refunding the amount paid by the petitioner as advance tax which is in excess of the amount that might be due as per the assessments, if made, under section 147 of the Act.

The material facts giving rise to this petition are as follows: The petitioner is an individual. For the assessment year 1987‑88, he paid in three instalments, a sum of Rs.66,750 by way of advance tax. Similarly, for the assessment year 1988‑89, he paid, by way of advance tax, a sum of Rs.51,709. No return, however, was submitted under section 139 of the Act for any of the above two assessment years. On March 23, 1991; the petitioner received two notices from the Income‑tax Officer, Satara, under section 148 of the Act for these two assessment years. The petitioner 'submitted returns declaring an income of Rs.1,02,700 and Rs.75,200 for the assessment years 1987‑88 and 1988‑89, respectively. The tax due from the petitioner on the basis of the returns submitted pursuant to the notices under section 148 of the Act was less than the advance tax paid by him by Rs.34,200 and Rs.30,212 for the assessment years 1987‑88 and 1988‑89, respectively. The Income‑tax Officer did not make any assessment order and dropped the proceedings initiated under section 147 of the Act. On the expiry of the time‑limit for completion of assessment proceedings pursuant to the above notices under section 148 of the Act, the petitioner claimed refund of the advance tax paid or the difference between the advance tax and the amount due as per returns submitted pursuant to the notices under section 148 of the Act. The basis for this claim was that the tax payable on the income disclosed in the returns submitted pursuant to the notices under section 148 of the Act for the two assessment years was less than the advance tax paid by the petitioner and if the proceedings for assessment initiated under section 147 of the Act were completed by the Income‑tax Officer, the petitioner would have been entitled to refund of Rs.34,200 and Rs.30,212 for the assessment years 1987‑88 and 1988‑89, respectively. The petitioner applied for refund of the above amounts on the basis of deemed acceptance of the returns by the Income‑tax Officer in the proceedings under section 147 of the Act. As the application for refund was barred by limitation under section 239 of the Act, he applied to the Central Board of Direct Taxes ("the Board") to condone the delay in filing the same. The said application was rejected by the Board. The petitioner, thereafter, filed this writ petition seeking a direction to the Income‑tax Officer to bring the proceedings under section 147 of the. Act to a logical end by completing the assessments and refunding the excess tax paid by him by way of advance tax.

Mr.A.K. Jasani, learned counsel 'for the petitioner, submits that on issuance of notice under section 148 of the Act to the petitioner for the assessment years, 1987‑88 and 1988‑89, the petitioner got a right to submit returns for those assessment years and the Income‑tax Officer was under a statutory obligation to complete the proceedings for assessment or reassessment under section 147. of the Act and to refund any amount paid by the petitioner as advance tax which might be in excess of the amounts shown in the returns or the amount that might be due as per such assessments. In other words, the case of the petitioner is that the Income‑tax Officer was bound to complete the proceedings under section 147 of the Act even if it resulted in refund of the amounts already paid by the petitioner by way of advance tax for those assessment years and to refund the excess amount to the petitioner. ???????

Reliance is placed in support of this contention on the decision of the Full Bench of this Court in CIT v. Indian Rare, Earth Ltd. (1990) 181 ITR 22. Reliance is also placed on the decision of the Gauhati High Court in Kamalpur (Assam) Tea Estate (Private) Ltd. v. Superintendent of Taxes (1989) 175 ITR 142. Relying on the above decisions, learned counsel submits that refusal to refund the amount in such a case is violative of Article 265 of the Constitution of India. Learned counsel also submits that the Board, which has powers to condone the delay in making the application for refund, has not exercised that power in a quasi‑judicial manner. He, therefore, seeks a direction to the Board to condone the delay in making the application for refund and to the Income‑tax Officer to complete the assessments under section 147 of the Act and/or to refund the amounts claimed by the petitioner. ?????????

None appears for the Revenue. No affidavit as been filed by the Revenue. ???????

We have carefully perused the facts of the case and the submissions of learned counsel for the petitioner. The sole basis of the claim of the petitioner for refund of a part of the advance tax paid in this case for the assessment years 1987‑88 and 1988‑89 is initiation of proceedings under section 147 of the Act by the Income‑tax Officer and submission of returns in the proceedings under section 148 of the Act by the petitioner showing less income than what was shown in the estimate for advance tax. The case of petitioner appears to be that once notice is issued under section 148 of the Act, the Income‑tax Officer is bound to complete the assessment or reassessment even if such action results in refund of the tax already paid by the assessee and appropriated by the Revenue.

We have carefully considered the above submissions. The object, scope and ambit of section 147 of the Act is now well‑settled by the decision of the Supreme Court in CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297. Prior to that decision there were divergent views of different High Courts on the subject. The Supreme Court considered the decisions of the various High Courts which had held that once valid proceedings under section 147 of the Income‑tax Act are started, the Income‑tax Officer has the jurisdiction and duty to complete the whole assessment de novo. The Supreme Court considered the observations in its earlier decision in V. Jaganmohan Rao v. CIT/EPT (1970) 75 ITR 373 that once an assessment is validly reopened by issuance of a notice under subsection (2) of section 22 of the Indian Income‑tax Act, 1922 (corresponding to section 148 of the Act), the previous under assessment is set aside and the Income‑tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Supreme Court observed that an order made in relation to the escaped income does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It was observed that what is set aside is only the previous under assessment and not the original assessment proceedings. The Supreme Court said (page 319):

"The judgment in V. Jaganmohan Rao's case (1970) 73 ITR 373 (SC). therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in V. Jaganmothan Rao's case (1970) 75 ITR 373 (SC), as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'underassessment' but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. "

The Supreme Court further said that (Page 320)

?It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the Courts must carefully try to ascertain the `true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings.?

The legal position was summed up by the Supreme Court as follows (page 322):

?Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income The High Court clearly fell in error in permitting the assessee to reagitate, in the reassessment proceedings under section 147(a) of the Act, the;. finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not .been concluded or was 'still open'.?

It is clear from the above decision of the Supreme Court that proceedings under section 147 of the Act are for the benefit of the Revenue and not of the assessee and the petitioner cannot be permitted to convert the reassessment proceedings as his appeal or revision, in disguise, and seek relief in respect of items earlier rejected or claim relief in respect of items not claimed in the original assessment proceedings, unless relatable to the escaped income and reagitate the concluded matters. It is further clear that allowance of such a claim in respect of escaped assessment in the case of reassessment has to be limited to the extent to which they reduce the income to that originally assessed. The Supreme Court has categorically held that the income for the purpose of assessment cannot be reduced beyond the income originally assessed.

There is no dispute about the fact that section 147 of the Act is applicable only to a case where the Income‑tax Officer has reason to believe that the income has escaped assessment. In the instant case, the reassessment proceedings under section 148 of the Act were initiated by the Income‑tax Officer for the two assessment years, viz., 1987‑88 and 1988‑89, by issuing notices under section 148 of the Act, obviously, because he was satisfied that the income of petitioner had escaped assessment by reason of non‑submission of the returns by the petitioner. In other words, in his opinion, the advance tax paid, by the petitioner, which by virtue of section 219 of the Income‑tax Act is treated as a payment of tax in respect of the Income of the previous year, was less than the tax due by the petitioner. On receipt of the returns of the petitioner, the Income‑tax Officer found that the income shown by the petitioner was less than the income shown by him for the purpose of advance tax and that by submission of the returns the petitioner claimed assessment at a figure lesser than the one disclosed by him for the purpose of advance tax, which by virtue of section 219 is treated as tax paid on the income of that year. Section 219 of the Income‑tax Act reads as follows:

"Any sum, other than penalty or interest paid by or recovered from an assessee as advance tax in pursuance of this Chapter shall be treated as a payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable, and credit, therefore, shall be given to the assessee in the regular assessment:

Provided that where, before the completion of the regular assessment, a provisional assessment is made under section 141A, the credit shall be given also in such provisional assessment. "

It is cleat from the above section that any sum paid by, or recovered from the petitioner as advance tax shall be treated as payment of tax in respect of the income of the period which would be the previous year for an assessment for the assessment year next following the financial year in which it was payable. By virtue of the above section, the advance tax paid by the petitioner for the previous year relevant to the assessment years 1987‑88 and 1988‑89 has to be treated as payment of tax in respect of those assessment years. Admittedly, after payment of advance tax, neither the petitioner submitted returns for these two assessment years nor any regular assessment was made by the Income‑tax Officer. As a result, the advance tax paid by him shall be treated as payment of tax in respect of those two assessment years. As observed by the Supreme Court in Modi Industries Ltd. v. CIT (1995) 216 ITR 759, section 219 introduced a legal fiction that the amount of advance tax paid shall be treated as payment of tax in respect of the income of the relevant previous year. Section 199 of the Income‑tax Act further declares that the amount of advance tax paid by the petitioner is to be treated as payment of income‑tax which is levied by section 4 on the total income of the previous year. In other words, by legal fiction, the amount of advance tax paid by or recovered from the petitioner is treated as payment of income? tax in respect of the income of the period "which would be previous year for in assessment for the assessment year next following the financial year in ur it was payable". Once the amount of advance tax is treated as patent of tax in respect of the income of the relevant previous year, the amount loses its character of advance tax and is treated as income‑tax paid in respect of the income of the relevant previous year.

In the present case, the advance tax paid by the petitioner lost the character of advance tax and became income‑tax paid on his income of the relevant previous year. If the petitioner felt that the advance tax paid by him was more than the tax that would be correctly chargeable on his income, it was open to him to submit returns and get his assessment completed. On the failure of the petitioner to submit the returns of income for the, two assessment years, the advance tax lost its character of advance tax and attained‑ the character of tax paid by the petitioner for these two assessment years. On the basis of the returns submitted by the petitioner pursuant to the notices under section 148 of the Act for the two above assessment years, the petitioner sought to get the tax payable by him reduced below the amount paid by him by way of advance tax which, by virtue of legal fiction, had already attained the character of tax paid by him, for those two assessment years.' In other words; the petitioner wanted the Income‑tax Officer to . complete the reassessment proceedings to his advantage and refund certain amounts to him, which without such reassessment, was not possible. The Income‑tax Officer, in ‑die facts and circumstances of the case, did not take any action pursuant to the notices under section 148 of the Act and dropped the proceedings under section 147 of the Act. The petitioner is aggrieved by this action of the Income‑tax Officer. We do not find any merit in hiss grievance. The Income Tax Officer, in our opinion, rightly dropped the proceedings for assessment of escaped income under section 147 of the Act in the present case. The petitioner cannot claim that the Income‑tax Officer should complete proceedings for assessment of escaped income and reduce income‑tax liability of the petitioner below the amount of the advance tax paid by him which had attained the character of tax paid by him on the income of those years. If the Income‑tax Officer would have done so, he would have made a mistake His action would have been contrary to the law laid down by the Supreme Court in CIT v. Sun Engineering Works (P.) Ltd. (1992) 198 ITR 297. We are; of the firm opinion that the petitioner in this case is neither entitled to get a direction to the Income‑tax Officer to complete the proceedings under section 147 of the Act by making assessment which would have the effect of reducing the income beyond the figure already charged to tax, nor a direction to the Board to direct the Income‑tax Officer to accept the hypothetical claim of the petitioner for refund of the advance tax paid by him or a part thereof. The claim of the petitioner is wholly misconceived and the petitioner is not entitled to any relief. In the premises, this writ petition is devoid of any merit and hence dismissed.

Rule discharged.

M.B.A./656/FC?????????????????????????????????????????????????????????????????????????????????? Rule discharged.