Pasayat, C.J. This appeal under section 260A of the Income Tax Act, 1961 Income Tax Act has been filed by the revenue. According to it, following questions arise out of order passed by the Tribunal, Cochin Bench, which need adjudication:
"1. Whether, on the facts and in the circumstances of the case and iii view of the failure on the part of the assessee to furnish along with the return of income, a certified copy of the partnership deed dated 6-6-1996 evidencing the change in the constitution of the firm and is mandatory under section 184(4), the Tribunal is right in interfering with the order of the assessing authority passed under section 143(1)(i) determining the status of an AOP under section 185 of the Income Tax Act, 1961 ?
2. Whether, on the facts and in the circumstances of the case-
(i) the Tribunal is right in law in holding that the assessing officer has exceeded the jurisdiction under section 143(1)(a) while changing the status of the assessee to AOP which could be done under section 185 only at the time of assessment ?
(ii) Is not an order under section 143(1)(a) an assessment ?
3. Whether, on the facts and in the circumstances of the case and in the light of section 139(1), read with section 185, cannot change the status from that of firm in the return to that of an AOP be had in an order under section 143(1)(a) ?"
As requested by parties, questions were reframed and consolidated to read as follows :
"Whether, on the facts and in the circumstances of the case, the assessing officer can change the status of an assessee to 'association of persons' ('AOP') which can be done under section 185 of the Income Tax Act, 1961 at the time of assessment, while passing an order under section 143(1)(a) of the Act ?"
2. Factual position is undisputed and is essentially as follows : The assessee is a partnership firm carrying on business in hardwares and paints. For the assessment year 1995-96, it filed return of income on 30-10-1995 in the status of a firm. The assessing officer processed the return under section 143(1)(a) of the Act and issued an intimation on 8-11-1996 indicating that as against declared total income of Rs. 1,71,910, total income determined was Rs. 4,84,770. In the intimation, the assessing officer made adjustments by way of disallowance of Rs. 2,87,280 claimed as payment of interest to partners and Rs. 25,583 claimed as salary to partners. In the computation, status of the assessee was adopted as ,association of persons' for the reason that though there was change in the constitution of firm, the partnership deed was not enclosed with return of income as required in terms of section 184(4) of the Act. Oil receipt of intimation, the assessee filed an application for rectification claiming that correct status was firm and that certified copy of partnership deed had been enclosed with return of income. The assessing officer found that, in fact, there was no certified copy of the partnership deed furnished along with return and not even with application for rectification, a copy was filed. He issued a letter on 4-12-1996 refusing to rectify the intimation under section 143(1)(a) of the Act. The assessee filed an appeal before the Commissioner (Appeals), Thiruvananthapuram, challenging the findings of the assessing officer. The Commissioner (Appeals) held that filing of certified copy of partnership deed was mandatory for the purpose of assessment in the status of firm under section 184(4) and in view of non-compliance, assessment has been rightly made under section 185 of the Act. He further observed that there was no mistake in the intimation which can be rectified under section 154. The assessee carried the matter in appeal before the Tribunal. The assessee's stand was that status of the assessee was not one of the items in respect of which adjustments could be effected while processing return of income. Though conceding that under section 185 assessment in the status of AOP could be done, where a firm did not comply with provisions of section 184, it was submitted that such change in status could only be made while making assessment and since no assessment was made either under section 143(3) or under section 144, it could not be done while processing return of income under section 143(1)(a). The revenue's stand, on the contrary, was that since there has been non-compliance with the requirements of section 184(4), adjustment done was in order. The Tribunal observed that the course adopted by the assessing officer as upheld by the Commissioner (Appeals) was not proper. Its conclusion was that adjustment envisaged under section 143(1)(a) did not encompass change of status.
2. Factual position is undisputed and is essentially as follows : The assessee is a partnership firm carrying on business in hardwares and paints. For the assessment year 1995-96, it filed return of income on 30-10-1995 in the status of a firm. The assessing officer processed the return under section 143(1)(a) of the Act and issued an intimation on 8-11-1996 indicating that as against declared total income of Rs. 1,71,910, total income determined was Rs. 4,84,770. In the intimation, the assessing officer made adjustments by way of disallowance of Rs. 2,87,280 claimed as payment of interest to partners and Rs. 25,583 claimed as salary to partners. In the computation, status of the assessee was adopted as ,association of persons' for the reason that though there was change in the constitution of firm, the partnership deed was not enclosed with return of income as required in terms of section 184(4) of the Act. Oil receipt of intimation, the assessee filed an application for rectification claiming that correct status was firm and that certified copy of partnership deed had been enclosed with return of income. The assessing officer found that, in fact, there was no certified copy of the partnership deed furnished along with return and not even with application for rectification, a copy was filed. He issued a letter on 4-12-1996 refusing to rectify the intimation under section 143(1)(a) of the Act. The assessee filed an appeal before the Commissioner (Appeals), Thiruvananthapuram, challenging the findings of the assessing officer. The Commissioner (Appeals) held that filing of certified copy of partnership deed was mandatory for the purpose of assessment in the status of firm under section 184(4) and in view of non-compliance, assessment has been rightly made under section 185 of the Act. He further observed that there was no mistake in the intimation which can be rectified under section 154. The assessee carried the matter in appeal before the Tribunal. The assessee's stand was that status of the assessee was not one of the items in respect of which adjustments could be effected while processing return of income. Though conceding that under section 185 assessment in the status of AOP could be done, where a firm did not comply with provisions of section 184, it was submitted that such change in status could only be made while making assessment and since no assessment was made either under section 143(3) or under section 144, it could not be done while processing return of income under section 143(1)(a). The revenue's stand, on the contrary, was that since there has been non-compliance with the requirements of section 184(4), adjustment done was in order. The Tribunal observed that the course adopted by the assessing officer as upheld by the Commissioner (Appeals) was not proper. Its conclusion was that adjustment envisaged under section 143(1)(a) did not encompass change of status.
3. The learned counsel for the revenue submitted that specific provisions contained in sections 184 and 185, read together, indicate the mandatory nature of requirement and since the assessee had failed to comply with the provisions of section 184, the assessing officer had no alternative but to treat status of the firm as an AOP. The order under section 143(1)(a) is an assessment order and, therefore, the Tribunal was not justified. The learned counsel for the assessee, on the other hand, supported the order of the Tribunal submitting that the true parameter of section 143(1)(a) has been kept in view.
3. The learned counsel for the revenue submitted that specific provisions contained in sections 184 and 185, read together, indicate the mandatory nature of requirement and since the assessee had failed to comply with the provisions of section 184, the assessing officer had no alternative but to treat status of the firm as an AOP. The order under section 143(1)(a) is an assessment order and, therefore, the Tribunal was not justified. The learned counsel for the assessee, on the other hand, supported the order of the Tribunal submitting that the true parameter of section 143(1)(a) has been kept in view.
4. In order to appreciate rival submissions, section 143(1)(a) which is the pivotal provision, needs to be noted along with sections 184 and 185. They read as follows :
4. In order to appreciate rival submissions, section 143(1)(a) which is the pivotal provision, needs to be noted along with sections 184 and 185. They read as follows :
"143. Assessment.-(1)(a) Where a return has been made under section 139, or in response to a notice under sub-section (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 sub-section (2) an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessee :
Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely :-
(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;
(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts of documents, is prima facie admissible but which is not claimed in the return, shall be allowed;
(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed:
Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments:
Provided also that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.
184. Application for registration.(1) An application for registration of a firm for the purposes of this Act may be made to the assessing officer on behalf of any firm if-
(i) the partnership is evidenced by an instrument; and
(ii) the individual shares of the partners are specified in that instrument.
(2) Such application may, subject to the provisions of this section, be made either during the existence of the firm or after its dissolution.
(3) The application shall be made to the assessing officer having jurisdiction to assess the firm, and shall be signed-
(a) by all the partners (not being minors) personally; or
(b) in the case of a dissolved firm, by all persons (not being minors) who were partners in the firm immediately before its dissolution and by the legal representative of any such partner who is deceased.
Explanation.-In the case of any partner who is absent from India or is a lunatic or an idiot, the application may be signed by any person duly, authorised by him in this behalf, or, as the case may be, by a person entitled under law to represent him.
(4) The application shall be made before the end of the previous year for the assessment year in respect of which registration is sought:
Provided that the assessing officer may entertain an application made after the end of the previous year, if he is satisfied that the firm was prevented by sufficient cause from making the application before the end of the previous year.
(5) The application shall be accompanied by the original instrument evidencing the partnership, together with a copy thereof :
Provided that if the assessing officer is satisfied that for sufficient reason the original instrument cannot conveniently be produced, he may accept a copy of it certified in writing by all the partners (not being minors), or, where the application is made after the dissolution of the firm, by all the persons referred to in clause (b) of sub-section (3), to be a correct copy, or a certified copy of the instrument; and in such cases the application shall be accompanied by a duplicate copy of the original instrument.
185. Procedure on receipt of application.-(1) On receipt of an application for the registration of a firm, the assessing officer shall inquire into the genuineness of the firm and its constitution as specified in the instrument of partnership, and-
(a) if he is satisfied that there is or was during the previous year in existence a genuine firm with the constitution so specified, he shall pass an order in writing registering the firm for the assessment year;
(15) if he is not so satisfied, he shall pass an order in writing refusing to register the firm.
Explanation-For the purposes of this section and section 186, a firm shall riot be regarded as a genuine firm if any partner of the firm was, in relation to the whole or any part of his share in the income or property of the firm, at any lime during the previous year, a benamidari.
(a) of any other partner to whom the first mentioned partner does not stand in the relationship of a spouse or minor child, or
(b) of any person, not being a partner of the firm, and any of the other partners knew or had reason to believe that the first mentioned partner was such benamidar and such knowledge or belief had not been communicated by, such other partner to the assessing officer in the prescribed manner."
5. Section 143(1) has undergone significant changes by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. The pre-substituted provision prescribed that after a return of income has been filed, a regular assessment order was to be passed by the assessing officer even where the return was accepted without requiring presence of the assessee or production by him of evidence in support of return. But, the substituted provision has done away with the requirement and it only provides for proper recovery of tax or interest due from the assessee on the basis of return. Clause (a) of section 143(1) of substituted provision provides that after a return has been filed under section 139 or in response to notice under section 142(1) of the Act, following actions can be taken: (1) if any tax or interest is found due on the basis of return, after adjustment of prepaid tax, an intimation shall be sent to the assessee specifying amounts so payable and such intimation shall be deemed to be notice of demand; and (2) if any refund is due, it shall be granted to the assessee. The first proviso to clause (a) to sub-section (1) enables the department to make the following adjustments to the return of income for the purpose of computing tax or interest payable or refundable to the assessee: (1) rectification of arithmetical errors in the return or in the accompanying accounts or documents; and (2) allowance or disallowance of any loss carried forward, deduction, allowance or relief, which, on the basis of information available in such return or the accompanying accounts or documents, is prima facie admissible or inadmissible, as the case may be. The second proviso is of considerable importance while considering the true nature of the action permissible to be taken under section 143(1). It says that after adjustments are made under the first proviso an intimation shall be sent to the assessee notwithstanding the fact that no tax or interest is found due from him after making the adjustment. The third proviso prescribes that no intimation for any tax or interest due for the period shall be sent after expiry of two years from the end of the assessment year in which the income was first assessable. Section 143(1)(a) uses the word 'intimation'. Section 143(1)(c) deals with cases where the assessee is a partnership of firm or AOP or BOI and consequential action to be taken as a result of adjustments made under the first proviso to clause (a) to sub-section (1), Sections 184 and 185 deal with registration of firm and procedure in respect of applications. Significance of registration of a partnership firm under the Act lies in the fact that after registration, it would be liable to assessment of income-tax at a lower rate than what otherwise would be income-tax of an unregistered firm. Provisions contained in sections 184 and 185 relating to assessment of partnership firm have been amended by the Finance Act, 1992 with effect from 1-4-1993. It is provided in section 185 that a firm which does not comply with the provisions of section 184 for any assessment year shall be assessed for that assessment year in the same manner as an AOP.
5. Section 143(1) has undergone significant changes by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989. The pre-substituted provision prescribed that after a return of income has been filed, a regular assessment order was to be passed by the assessing officer even where the return was accepted without requiring presence of the assessee or production by him of evidence in support of return. But, the substituted provision has done away with the requirement and it only provides for proper recovery of tax or interest due from the assessee on the basis of return. Clause (a) of section 143(1) of substituted provision provides that after a return has been filed under section 139 or in response to notice under section 142(1) of the Act, following actions can be taken: (1) if any tax or interest is found due on the basis of return, after adjustment of prepaid tax, an intimation shall be sent to the assessee specifying amounts so payable and such intimation shall be deemed to be notice of demand; and (2) if any refund is due, it shall be granted to the assessee. The first proviso to clause (a) to sub-section (1) enables the department to make the following adjustments to the return of income for the purpose of computing tax or interest payable or refundable to the assessee: (1) rectification of arithmetical errors in the return or in the accompanying accounts or documents; and (2) allowance or disallowance of any loss carried forward, deduction, allowance or relief, which, on the basis of information available in such return or the accompanying accounts or documents, is prima facie admissible or inadmissible, as the case may be. The second proviso is of considerable importance while considering the true nature of the action permissible to be taken under section 143(1). It says that after adjustments are made under the first proviso an intimation shall be sent to the assessee notwithstanding the fact that no tax or interest is found due from him after making the adjustment. The third proviso prescribes that no intimation for any tax or interest due for the period shall be sent after expiry of two years from the end of the assessment year in which the income was first assessable. Section 143(1)(a) uses the word 'intimation'. Section 143(1)(c) deals with cases where the assessee is a partnership of firm or AOP or BOI and consequential action to be taken as a result of adjustments made under the first proviso to clause (a) to sub-section (1), Sections 184 and 185 deal with registration of firm and procedure in respect of applications. Significance of registration of a partnership firm under the Act lies in the fact that after registration, it would be liable to assessment of income-tax at a lower rate than what otherwise would be income-tax of an unregistered firm. Provisions contained in sections 184 and 185 relating to assessment of partnership firm have been amended by the Finance Act, 1992 with effect from 1-4-1993. It is provided in section 185 that a firm which does not comply with the provisions of section 184 for any assessment year shall be assessed for that assessment year in the same manner as an AOP.
6. Section 185 can be applied only in making assessment of the firm. The expression 'assessment' is clearly referable to sections 143, 144 and 147 of the Act. A proceeding under section 143(1)(a) does not result in an order of assessment. For the purpose of sections 154, 246 and 264, the proceeding under section 143(1)(a) is treated as an order by the assessing authority. The intimation given under section 143(1)(a) cannot be treated to be an order of assessment. It is only to be deemed as an order for the limited purpose of sections 246 and 264 of the Act. Under section 143(1)(a)(I), the intimation is deemed to be a notice of demand under section 156 of the Act. It is not treated as an order of assessment. The two are conceptually different. Except intimation, no other order is contemplated under section 143(1)(a). Section 156 provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the assessing officer shall serve upon the assessee a notice of demand in the prescribed form. That clearly brings about the distinction between an order of assessment and a notice of demand. As indicated above, intimation under section 143(1)(a) is deemed to be the latter. Under section 246 also, a clear distinction is made between an intimation and an order of assessment.
6. Section 185 can be applied only in making assessment of the firm. The expression 'assessment' is clearly referable to sections 143, 144 and 147 of the Act. A proceeding under section 143(1)(a) does not result in an order of assessment. For the purpose of sections 154, 246 and 264, the proceeding under section 143(1)(a) is treated as an order by the assessing authority. The intimation given under section 143(1)(a) cannot be treated to be an order of assessment. It is only to be deemed as an order for the limited purpose of sections 246 and 264 of the Act. Under section 143(1)(a)(I), the intimation is deemed to be a notice of demand under section 156 of the Act. It is not treated as an order of assessment. The two are conceptually different. Except intimation, no other order is contemplated under section 143(1)(a). Section 156 provides that when any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under the Act, the assessing officer shall serve upon the assessee a notice of demand in the prescribed form. That clearly brings about the distinction between an order of assessment and a notice of demand. As indicated above, intimation under section 143(1)(a) is deemed to be the latter. Under section 246 also, a clear distinction is made between an intimation and an order of assessment.
7. The Tribunal was, therefore, justified in holding that change of status as done by the assessing officer was impermissible under section 143(1)(a).
7. The Tribunal was, therefore, justified in holding that change of status as done by the assessing officer was impermissible under section 143(1)(a).
The appeal is without merit and it is accordingly dismissed.