COMMISSIONER OF INCOME-TAX VS REGIONAL SOYABEAN PRODUCTS COOPERATIVE UNION LIMITED
2001 P T D 548
[239 I T R 217]
[Madhya Pradesh High Court (India)]
Before A.K. Mathur, C.J. and B.A. Khan, J
COMMISSIONER OF INCOME‑TAX
versus
REGIONAL SOYABEAN PRODUCTS COOPERATIVE UNION LIMITED
Income‑tax Reference No. 11 of 1996, decided on 26/02/1999.
Income‑tax‑‑‑
‑‑‑‑Assessment‑‑‑Procedure for assessment‑‑‑Notice issued under. S. 143(2)‑‑ Assessing Officer cannot issue intimation under S.143(1)(a) thereafter‑‑ Indian Income Tax Act, 1961, S.143‑‑‑[Apogee International Ltd. v. Union v. India (1996) 220 ITR 248 (Delhi) dissented from].
A reading of sections 143(1)(a) and 143(2) would show that if any notice under subsection (2) of section 143 of the Income Tax Act, 1961, has been issued for the scrutiny of the assessment and the matter is in progress in subsection (2) then to change the course and resort to section 143(1)(a) of the Act would be against the principles of natural justice. It is a cardinal principle of interpretation of the statute that normally the Court should endeavour to interpret the provisions of the statutes in a manner which will advance the cause of justice. Therefore, reading sections 143(1) and 143(2) together, it is evident that notwithstanding the fact that the Assessing Officer has issued a notice under section 143(1)(a) still he can exercise the power under subsection (2) of section 143. Therefore, the expression, which has been used, is "without prejudice to the provisions of subsection (2)" of the Act meaning thereby that the Assessing Officer has a power under sub section (2), despite the fact that he has exercised his power earlier under subsection (1)(a) of section 143 of the Act. But the converse of it is not true. If the Assessing Officer has already issued a notice under subsection (2) of section 143 of the Act then in that case, he cannot send an intimation on the basis of the return filed and issue a notice of demand, that would amount to changing the course which the Assessing Officer had already set for himself.
Gujarat Poly‑AVX Electronics Ltd. v. Deputy CIT (1996) 222 ITR 140 (Guj.); Kamal Textiles v. ITO (1991) 189 ITR 339; (1991) MPL 441 (MP) and Modern Fibotex India Ltd. v. Deputy CIT (1995) 212 ITR 496 (Cal.) fol.
Apogee International Ltd. v. Union v. India (1996) 220 ITR 248 (Delhi) dissented from.
S.K. Pawnekar for the Commissioner.
H.C. Sarda with S.K. Jain for the Assessee.
JUDGMENT
A.K. MATHUR, C.J.‑‑‑This is a reference under section 256(1) of the Income Tax Act, 1961, at the instance of the applicant/Revenue and the following question of law has been referred by the Tribunal for answer of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was justified in law in holding that having issued the notice under section 143(2) of the Act, the Assessing Officer's action in making prima facie adjustment and in issuing intimation under section 143(1)(a) were without jurisdiction?"
The brief facts which are necessary for disposal of this reference, are that the assessee is a cooperative society. For the assessment year 1991‑92, the assessee filed a return declaring loss of Rs.4,70,99,141. The Assessing Officer processed the return under section 143(1) of the Act and made the following adjustment:
| | Rs. |
| (i) Depreciation on building since it was not shown in the balance‑sheet | 71,31,250 |
| (ii) Depreciation on plant and machinery since it was not shown in the balance‑sheet | 1,91,13,145 |
| (iii) Entertainment expenditure | 2,105 |
| | 2 62.46 500 |
As a result of the above adjustment, the loss was reduced to Rs.2,08,52,641. Accordingly, the Assessing Officer issued intimation under section 143(1)(a) of the Income‑tax Act, on December 18, 1992, levying additional tax under section 143(1A) of the Act at Rs.20,56,830. Against the said intimation, the assessee moved an application under section 154 of the, Act on January 6, 1993, which was rejected by the Assessing Officer. The assessee then went in appeal before the Commissioner of Income‑tax (Appeals), who rejected the appeal. Thereafter, the assessee filed an appeal before the Tribunal and also raised an additional ground regarding validity of intimation under section 143(1)(a), dated December 18, 1992, while a notice under section 143(2) for making scrutiny assessment was already issued on May 29, 1992, i.e., prior to the issue of intimation.
The Tribunal after considering the matter and relying on the decision of the Calcutta High Court in Modern Fibotex India Ltd. v. Dy. CIT (1995) 212 ITR 496, held that having issued the notice under section 143(2) of the Income‑tax Act, the Assessing Officer's action in making prima facie adjustment and in issuing intimation under sec tion 143(1)(a) was without jurisdiction. Accordingly, the Tribunal quashed the intimation, dated December 18, 1992, issued under section 143(1)(a) of the Income‑tax Act. Thereafter, the Tribunal referred the aforesaid question for answer of this Court.
In order to appreciate the controversy involved in the matter, it will be necessary to refer to the provisions of law. Section 143(1)(a)(i) reads as under.
"(143) (1)(a) Where a return has been made under section 139, or in response to a notice under subsection (1) of section 142‑‑‑
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of subsection (2), an intimation shall be sent to deemed to the assessee specifying the sum so payable, and such intimation‑shall be deem to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and..."
Subsection (2) of section 143 of the Act, which is relevant for our purposes, reads as under:
"(2) 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 underpaid 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:
Provided that no notice under this subsection shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished."
The reading of both the aforesaid provisions would show that if any notice under subsection (2) of section 143 of the Income‑tax Act, has been issued for the scrutiny of the assessment and the matter is in progress in subsection (2) then to change the course and resort to section 143(1)(a)(i) of, the Act would be against the principles of natural justice.
Once a return has been filed under section 139 of the Act and the Assessing Officer is proceeding in the matter to scrutinise the return filed and to make an assessment under section 143(2), thereafter, he suddenly sends an intimation under section 143(1)(a)(i), it would mean that he has changed the course from usual course and taken the assessee by surprise which is not contemplated by the Legislature. Section 143(1)(a)(i) of the Act is almost like an ex parte assessment because on the basis of the return filed by the assessee and it is scruitinised by the Assessing Officer, the intimation is sent to the assessee specifying the sums so payable because that is a sort of a demand notice under section 156 of the Act. But, the expression without prejudice to the provisions of subsection (2)" appearing in the section would mean that once a notice has been issued under subsection (2), then in that case, the Assessing Officer shall not resort to section 143(1)(a)(i). The expression "without prejudice to the provisions of subsection (2)" means that it saves the action already initiated under section 143(2) of the Act. If the Legislature really intended to give full power to the Assessing Officer under section 143(1)(a)(i), then they would not have saved the action under section 143(2). In fact, this expression has carved out an exception that the Assessing Officer can send intimation to the assessee if the Assessing Officer has not exercised his power under section 143(2) of the Act.
Learned counsel for the assessee has submitted that once notice under subsection (2) of section 143 has been issued, then the Assessing Officer cannot resort to the ex parte assessment under section 143(1)(a)(i). From an expedient point of view, a notice under section 143(2) has been issued for calling the assessee for the purpose of scrutinising the assessment, then suddenly resort to section 143(1)(a)(i) by changing the course to surprise of the assessee will also be not conducive to justice. The expression "without prejudice to the provisions of subsection (2)", clearly stipulates that notwithstanding the fact that an intimation has been issued under section 143(1)(a)(i), still the Assessing Officer reserves the power to resort to subsection (2) of section 143 of the Act. In fact, the very expression "without prejudice to the provisions of subsection (2)", shows that this is an exception to subsection (1) of section 143 of the Act that the regular assessment power can still be exercised by the Assessing Officer under section 143(2) of the Act. The expression "without prejudice to" makes a lot of difference and on account of this expression, the power of the Assessing Officer to resort to formal assessment is saved. It shows that if the Assessing Officer has sent an intimation under section 143(1)(a)(i) and he realises that the assessee needs to be heard in the matter, he will not be denuded of his power to summon him under section 143(2) of the Act. The idea behind reserving power under section 143(2) of the Act was that the Assessing Officer shall not be bound by issuing an intimation under section 143(1)(a)(i) of the Act and the Legislature has given him sufficient power to resort to normal procedure of assessment under section 143(2) of the Act. This power has been given for the benefit of the assessee so that the Assessing Officer can be apprised of the correct facts. It is a cardinal principle of interpretation of the statute that normally the Court should endeavour to interpret the provisions of the statutes in a manner which will advance the cause of justice. Therefore, from reading of sections 143(1) and 143(2) together, it appears that notwithstanding the fact that the Assessing Officer has issued a notice under section 143(1)(a), still the power under subsection (2) of section 143 is reserved for the Assessing Officer so that he can exercise the same therefore, the expression, which has been used, is "without prejudice to the provisions of subsection (2)" of the Act meaning thereby that the Assessing Officer has a power under subsection (2), despite the fact that he has exercised his power earlier in subsection (1)(a)(i) of the Act. But the converse of it is not true. If the Assessing Officer has already issued a notice under subsection (2) of section 143 of the Act, then in that case, he cannot send an intimation on the basis of the return filed and issue a notice of demand, that would amount to changing the course which the Assessing Officer had already set for himself. In this connection, a reference may also be made to subsection (3) of section 143 of the Act, which says that if notice under subsection (2) has been issued then the Assessing Officer shall proceed and decide the matter. This shows that there is a mandate that the Assessing officer should proceed and complete the assessment proceedings initiated under section 143(2) of the Act. If the Legislature wanted that the Assessing Officer can resort to section 143(1)(a)(i) of the Act, despite that he has already issued a notice under subsection (2) of section 143 then they would not have used the expression "without prejudice to the provisions of subsection (2)". It only shows that the intention of the Legislature was that the power of the Assessing Officer should not be circumscribed simply because he issued a notice under section 143(1)(a)(i) of the Act, he still has power to issue notice to the assessee under subsection (2) of section 143 of the Act and assess the liability with the assistance of the assessee.
In support of the aforesaid contention, our attention was invited to a decision of the Calcutta High Court given in the case of Modern Fibotex India Ltd. v. Deputy CIT (1995) 212 ITR 496. In that case, it was held (head-note):
"The jurisdiction under section 143(1)(a) is a summary one, whereas section 143(2) precedes an assessment under section 143(3). It is true that the word 'shall' has been used in connection with the issuance of an intimation but it is well‑established that the construction of the expression 'shall' depends upon the provisions of the Act, the setting in which the direction is given and the consequences that would follow from the infringement of the direction and other such considerations. The context in which the word 'shall' has been used in section 143(2) has to be read in the background of the proviso to the section and that is that where there is no scope for any adjustments in terms of the proviso, there would be no scope for sending any intimation."
Similarly, our attention was also invited to the decision of the Gujarat High Court given in the case of Gujarat Poly‑AVX Electronics Ltd. v. Deputy CIT (1996) 222 ITR 140 and in that case, it was held (head-note):
"Reading the language of sub‑clause (i) of clause (a) of sub section (1) of section 143 of the Income Tax Act, 1961, it is clear that the Assessing Officer is permitted to make adjustments and the same is without prejudice to the provisions of subsection (2). The right of the Assessing ‑Officer to proceed under section 143(2) is preserved despite intimation to the assessee under section 143(1) of the Act. The use of the word 'shall' in subsection (2) of section 143 of the Act mandates the Assessing Officer to issue notice to the assessee with a view to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. After expiry of 12 months from the end of the moth in which the return is furnished no notice can be served on the assessee. But intimation under section 143(1) can be sent before the expiry of two years from the end of the assessment year. Thus, the Legislature has not permitted simultaneous proceedings. The Central Board of Direct Taxes in its Circular No.549, dated October 31, 1989 (see (1990) 182 ITR (St.) 1), has advised the Assessing Officer to issue intimation under section 143(1) before issuance of notice under section 143(2) of the Act. Hence, after issuance of notice under section 143(2) of the Act, it is not open for the Assessing Officer to make adjustment or to pass order under section 143(1) of the Act but he has to make assessment in accordance with law,. i.e., under section 143(3) of the Act."
Therefore, what it comes to is that once a notice under sub section (2) of section 143 has been issued, then suddenly, the Assessing Officer cannot revert back to section 143(1)(a) and issue intimation and that would amount to committing a breach of section 143(3) which says that once a notice under section 143(2) has been issued then he shall proceed and decide the matter. For this purpose, this power has been specifically saved to the Assessing Officer where it says that if intimation has been issued by the Assessing Officer under section 143(1)(a)(i) of the Act, still without prejudice to that, the Assessing Officer has a power under subsection (2) of section 143 of the Act to take up the proceedings in a regular assessment. But the reverse is not correct. In case, a notice under section 143(2) has been issued, it cannot revert to issue intimation under section 143(1)(a)(i) of the Act. Similarly, in this connection, our attention was invited to the decision of this Court given in the case of Kamal Textiles v. ITO (1991) 189 ITR 339; (1991) MPL 441; and in that case, it was observed (headnote of MPL):
"A reading of clause (i) of subsection (1)(a) of section 143 of the Income Tax Act, 1961, makes it clear that the giving of the intimation in terms of that provision is 'without prejudice to the provision of subsection (2). By force of this expression as inserted in subsection (1)(a)(i) of section 143, the right of the assessing authority to proceed under subsection (2) of section 143 despite intimation to the assessee of the sum payable by him as tax or interest is not taken away. That right is clearly saved and is not in any way curtailed or hampered by the giving of the intimation. The expression shall mean only that an intimation sent to the assessee specifying the sum payable by him in terms of that subsection, although technically a demand issued under section 156, shall nevertheless not preclude the operation of subsection (2). When proceedings are taken under section 143(2), it partakes of the nature of a regular assessment and the Assessing Authority should pass an order under section 143(3). The intimation under section 143(l)(a)(i) is only fictionally taken as a notice of demand under section 156. A notice of demand under section 156 is to be served in the prescribed form. The intimation under section 143(1)(a)(i) is not in such prescribed form. It cannot be said that on issuance of such intimation, the assessment proceedings can be reopened only in terms of section 147 and the authority is not entitled to proceed under subsection (2) of section 143."
Our attention was also invited to the decision of the Delhi High Court given in the case of Apogee International Ltd. v. Union of India (1996) 220 ITR 248. We have gone through that decision, but with great respect the view taken by the Delhi High Court does not appear to be well- founded in the present case for the simple reason that what is reserved. is the power of the Assessing Officer under section 143(2) that if the intimation has been issued to the assessee, still the Assessing Officer reserved the power to issue notice under section 143(2) for a regular proceeding. But the reverse is not true. Once the Assessing Officer has issued a notice under section 143(2) and the proceeding has already been initiated then he cannot revert back to issue an intimation and raise a demand under section 156 of the Act. What is saved is the power of the Assessing Officer, under subsection (2) of section 143 and not the power of the Assessing Officer under sec tion 143(1)(a)(i) of the Act to issue intimation nation and raise a demand under section 156 of the Act. Therefore, with great respect, we are of the opinion that the view taken by the Delhi High Court reversing the process does not appear to be well‑founded in the scheme of things.
In the present case, notice under section 143(2) was issued to the assessee for making scrutiny of the assessment on May 29, 1992, and intimation under section 143(1)(a)(i) of the Act was issued on December 18, 1992. Therefore, it appears that the Assessing Officer has already issued notice to the party for scrutiny assessment and he was in the process of passing the regular assessment order under subsection (3) of section 143; but he reversed the process and sent an intimation under section 143(1)(a)(i) on December 18, 1992, levying additional tax of Rs.20,56,830. This action of the Assessing Officer was not in consonance with the law and also the circular issued by the Department. In this view of the matter, the view taken by the Tribunal appears to be correct. This reference is accordingly answered in favour of the assessee and against the Revenue.
M.B.A./212/FCReference answered.