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Pradeep Kumar Har Saran Lal vs Assessing Officer

High Court Of Judicature at Allahabad|21 March, 1997

JUDGMENT / ORDER

JUDGMENT Om Prakash, J.
1. This petition is filed by the petitioner, a partnership firm, engaged in the business of alcoholic liquor for quashing the impugned notice dated August 14, 1995, issued under Section 148 of the Income-tax Act, 1961 (referred to as "the Act"), and for restraining the Assessing Officer, Ward-I, Farrukhabad, from taking up further proceedings pursuant to the impugned notice.
2. For the financial year ending on March 31, 1989, relevant to the assessment year 1989-90, the petitioner obtained an excise licence in auction for purchasing and selling country liquor through nine shops as specified in the licence dated May 26, 1988. It is averred that the petitioner paid Rs. 31,55,000 towards licence fee and Rs. 16,01,098 as issue price before purchasing the liquor from time to time during the financial year 1988-89. The total cost price of the liquor purchased during the said year is said to be Rs. 1,95,538.35.
3. The petitioner filed a return for the assessment year 1989-90 on October 27, 1989, showing the taxable income at Rs. 63,900. With the return, the balance-sheet, trading and profit and loss account duly audited were enclosed. The Assessing Officer assessed the taxable income at Rs. 7,87,789 instead, meaning thereby, making an addition of Rs, 7,23,889 after making adjustments under Section 143(1)(a) of the Act. As per the adjustments, explanatory sheet, appended to the intimation, the Assessing Officer recomputed the taxable income at the rate of 40 per cent, of the purchase price, applying the provisions of Section 44AC discarding the profits as worked out by the petitioner taking recourse to Sections 28 to 43C of the Act.
4. The petitioner then made an application dated February 2, 1990, under Section 154 of the Act for rectification before the Assessing Officer (annexure-4 to the writ petition) raising a serious grievance against the adjustments being made under Section 143(1)(a) and that too without an opportunity of being heard. The application was rejected by the Assessing Officer on February 16, 1990, reiterating that Section 44AC was applicable to the case of the petitioner.
5. The petitioner then carried the dispute in appeal before the Commissioner of Income-tax (Appeals). Referring to the case law relevant on the issues raised before the appellate authority, the appeal was allowed observing as under :
" In the instant case, it is seen that that adjustment made by the Assessing Officer for determining the appellant's income by applying the provisions of Section 44AC is not covered by the proviso to Section 143(1)(a). There was no arithmetical error involved and there was no prima facie inadmissible claim for deduction, allowance or relief made by the assessee. As such I have no hesitation in holding that the Assessing Officer was not justified in applying the provisions of Section 44AC while sending intimation in terms of Section 143(1)(a). It is also pertinent to note that the provisions of Section 44AC have been considered by the Andhra Pradesh and Orissa High Courts in A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31 and Sri Venkateswara Timber Depot v. Union of India [1991] 189 ITR 741, respectively. The decisions given therein make the applicability of Section 44AC debatable and as such they could not have been invoked under Section 143(1)(a). The appeal is, therefore, allowed."
6. The appellate authority thus ordered the deletion of the addition of Rs. 7,23,889.
7. The Assessing Officer then issued the impugned notice under Section 148 of the Act. He recorded reasons for that on August 15, 1995 (annexure 12 to the writ petition), as follows :
" Assessee deals in country liquor. On total sales of more than Rs. 54,00,000 he has shown income of Rs. 63,900 only. Return was processed under Section 143(1)(a) of the Income-tax Act, 1961, on October 29, 1989, After considering Section 44AC and after adjustment processed income was Rs. 7,87,789. In appeal, the Commissioner of Income-tax (Appeals), Agra, has deleted the adjustment made under Section 143(1)(a) stating that such adjustment could not be made under Section 143(1)(a) of the Income-tax Act.
As per records of the assessee the following is the purchase price for applying the provision of Section 44AC of the Income-tax Act, 1961.
Rs.
Purchase 1,95,538 Nirgam Mulya 14,01,098 Bottling 1,57,270 Vardana 15,570 Total 19,69,456 Applying net rate of profit at 40 per cent, under Section 44AC the net taxable income comes to Rs. 7,87,789, as against Rs. 63,000 disclosed by the assessee. Therefore, an income of Rs. 7,23,889 has escaped assessment. I, therefore, have reasons to believe that correct income chargeable to tax has escaped assessment and the assessee had been under assessed. Therefore, after taking approval of DCR-1, Agra, notice under Section 148 is being issued."
8. The reply of the petitioner to the notice issued under Section 148 is dated March 27, 1996, annexure-13, to the writ petition.
9. The Assessing Officer sent a rejoinder dated April 25, 1996, annexure 14, to the writ petition, to the reply of the petitioner stating that the total purchase price aggregated to Rs. 19,69,456 (details of which are set out in the reasons recorded on August 15, 1995), total profits on which came to Rs. 7,23,889 (7,87,789-63,900) ; that the order of the Commissioner of Income-tax (Appeals) did not prevent the Department in any manner from taking remedial action and bringing the escaped income to tax ; that the addition of Rs. 7,23,889 was deleted by the Commissioner of Income-tax (Appeals) on a technical ground, no finding being recorded on the merits by him ; and that as income to the extent of Rs. 7,23,889 had escaped assessment on account of the failure of the petitioner to disclose fully and truly all material facts in the return, the impugned notice under Section 148 was rightly given.
10. Sri Vikram Gulati, counsel for the petitioner, submits that profits worked out by the Assessing Officer applying the provisions of Section 44AC of the Act were subjected to an assessment as per the adjustment explanatory sheet, appended to the intimation sent to the petitioner by the Assessing Officer under Section 143(1)(a) of the Act and, therefore, that could not be said to have escaped assessment. The submission is that when profits computed by the Assessing Officer under Section 44AC were already assessed by making adjustment under the proviso to Section 145(1)(a) and the intimation was accordingly issued, the Assessing Officer could not have exercised jurisdiction for making reassessment, notwithstanding the addition made by way of adjustment having been set aside in appeal by the Commissioner of Income-tax (Appeals). Sri Gulati says that simply because the adjustment made by the Assessing Officer was found unsustainable in appeal, that will not clothe the Assessing Officer with the jurisdiction to take recourse to the reassessment proceedings under Section 147, read with Section 148 of the Act. So the submission of counsel for the petitioner is that what is already assessed cannot be said to have escaped. The submission at a flash point appears to be very attractive but on a profound study of the scheme of the Act, we see no force in that.
11. The questions are whether any assessment was made under Section 145(1)(a) and whether the intimation sent to the petitioner by the Assessing Officer could be impressed with the character of "assessment".
12. Under Section 143(1)(a) as it originally stood, the Income-tax Officer was required to make a summary assessment unlike the present section, which requires merely an intimation to be sent. If the Income-tax Officer wanted to make such an assessment on the basis of the return, he had to take the return as he found it. He had no power to make any adjustment. After April 1, 1971, however, Section 143(1)(a) was amended as a result of which if the Income-tax Officer wanted to make assessment on the basis of the return as filed, he was entitled to make certain adjustments to the income or loss declared in the return. Under this provision, he can rectify any arithmetical error in the return or accounts and documents accompanying it. He can, allow any deduction, allowance or relief which on the basis of information available in the return, accounts and documents was prima facie admissible but was not claimed and similarly he can disallow any deduction, allowance or relief claimed in the return which on the basis of information available in such return, accounts or documents was prima facie inadmissible.
13. Section 143(1) was again amended with effect from April 1, 1980. As a result of that amendment only arithmetical errors could be corrected. The previous provision relating to the right of the assessee to object to such assessment was also retained.
14. As compared to the position that obtained under and up to the amendment of 1980, the new provisions which have come into effect from April 1, 1989, under the Direct Taxes Laws (Amendment) Act, 1987, have brought about substantial change. As a result of new Section 143(1)(a) now in force with effect from April 1, 1989, the scheme of making summary assessment has been done away with and only an intimation has to be sent by the Assessing Officer. Since there is no assessment, the right of an assessee to object to a summary assessment has also been deleted.
15. Per Section 143(1)(a) as it was in force in the relevant assessment year 1989-90, where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, 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 the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156, and if any refund is due on the basis of such return, it shall be granted to the assessee. From the scheme of Section 143(1)(a), it is amply clear that the Assessing Officer has to proceed on the basis of the information as contained in the return made under Section 139 or in response to notice under Sub-section (1) of Section 142 and there is no power with the Assessing Officer to make any interference with the return which is incompatible with the information, furnished in the return, meaning thereby, there is no option for the Assessing Officer but to accept the return version as such. The Assessing Officer has been given liberty under the proviso to Section 143(1)(a) to make adjustments : (i) to remove arithmetical errors in the return, accounts, or documents accompanying it ; (ii) to allow any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return and the accompanying documents is prima facie admissible, but which is not claimed in the return ; and (iii) to disallow any loss carried forward, deduction or allowance or relief claimed in the return, which, on the basis of the information available in the return, and in the accompanying documents is prima facie inadmissible. So, the Assessing Officer on the basis of the information furnished in the return and accompanying documents, can do only obvious corrections and he has no power to enter into debatable issues. If some relief can be granted on the basis of the information given in the return that may be granted and if some relief on the basis of the information furnished in the return, is not admissible, then that may be disallowed and more than that nothing can be done by the Assessing Officer. It means that the Assessing Officer has to accept the return on the face value and make minor adjustments consistent with the information given in the return without touching upon debatable and controversial issues.
16. In connection with this new provision, the Central Board of Direct Taxes issued Circular No. 549 (see [1990] 182 ITR (St.) 1), dated October 31, 1989. The circular points out, inter alia, that under the new scheme for assessment, the requirements of passing an assessment order in all cases where returns of income are filed, has been dispensed with and the issue of an acknowledgment slip to the assessee will be the end of the matter, if he had correctly paid tax and interest, if any, due on the basis of the return, but if on the basis of the return, any amount is found due from the assessee, it can be recovered and if any refund is due to the assessee, it can be granted without passing an assessment order. The assessment order will be passed only in a very limited number of cases, selected for scrutiny.
17. The case of the petitioner, admittedly, is not a case of scrutiny and, therefore, the Assessing Officer was required to issue only an acknowledgment slip--euphemistically known as intimation--to the petitioner. The intimation is to the effect that the receipt of return filed by the petitioner has been acknowledged and after making permissible adjustment, the petitioner has been accordingly informed. No assessment either summary or otherwise but merely acting upon the return filed by an assessee except making permissible adjustments wholly compatible with the information furnished under the return, is the essence of Section 143(1)(a).
18. There is much difference between an assessment and the intimation, as contemplated by Section 143(1)(a) and if it were not so, then Parliament would not have used the word intimation as a substitute for assessment. While making assessment, the Assessing Officer is free to make any addition, subject of course to giving an opportunity of being heard. By making adjustment under the proviso to Section 143(1)(a), no addition not permitted by the information given in the return, can be made by the Assessing Officer, The reason is that under Section 143(1)(a), no hearing is given to the assessee and the Assessing Officer proceeds on his own on the basis of the return, filed by an assessee. Otherwise also, no addition or enhancement can be made without giving an opportunity of being heard. The provision of opportunity being given under Section 143(1)(a) has not been made, because the Assessing Officer has to proceed accepting the return and the adjustments which he can make, are only of such a nature which fully accord with the information furnished in the return. It means that the Assessing Officer cannot do anything detrimental to an assessee under Section 143(1)(a) and if he wants to do so for cogent reasons, then he will have to make a regular assessment under Section 143(3) giving a due notice under Sub-section (2) of Section 143.
19. From the scheme of new Section 143(1)(a) and from the clarificatory circular dated October 31, 1989 (see [1990] 182 ITR (St.) 1), issued by the Central Board of Direct Taxes, it is amply clear that unlike the past practice, assessments are not required to be made in each and every case and assessment orders will be passed only in a very limited number of cases, selected for scrutiny.
20. The intimation under Section 145(1)(a)(i) is only fictionally taken as a notice of demand under Section 156 of the Act. Like all other fictions, to understand the meaning of this fiction so created here, one must look to its purpose. The apparent purpose of this fiction is to make the machinery provisions for recovery of tax applicable to the recovery of tax assessed in terms of Section 143(1)(a)(i) and nothing more. Though 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 any such prescribed form, yet by fiction so created, all incidents of a notice of demand shall become applicable even to that intimation, for any statutory fiction must be carried to its logical conclusion. From all this it follows that the intimation is nothing but merely an acknowledgment slip to the effect that the return filed has been accepted and the Assessing Officer has acted upon that and for the purposes of recovery that shall be deemed to be a notice of demand as if issued under Section 156.
21. Though making recovery of tax is the consequence of the intimation being sent to the petitioner, yet it cannot be said that the intimation was in the nature of assessment and that the profits worked out by the Assessing Officer applying the provisions of Section 44AC of the Act, had been actually assessed. In fact, there was no jurisdiction with the Assessing Officer to do so and if he did so that was ab initio void. In the garb of the adjustment permissible under the proviso to Section 143(1)(a), the Assessing Officer was not authorised to take recourse to Section 44AC and to bring the profits computed under that provision to tax.
22. Jurisdiction to make adjustment under the provisions of Section 145(1)(a) is co-extensive and co-terminous with the jurisdiction, vested in the Assessing Officer under Section 154 for making obvious corrections as no item of debatable nature can be corrected under Section 154 of the Act. Similarly, the Assessing Officer cannot enter into any controversial item to make permissible adjustments under the proviso to Section 143(1)(a). The petitioner from the inception contended that profits from the business in alcoholic liquor can be computed taking into consideration the provisions of sections 28 to 43C and not by applying Section 44AC and that the issue price (Nirgam Mullya) will not form part of the purchase price. The contention of the petitioner is that to determine the purchase price, the Assessing Officer can take into consideration only the price actually paid by the petitioner to the distillery for purchase of the country liquor and not any other item as mentioned by the Assessing Officer in the reasons recorded for taking recourse to Section 147.
23. The questions whether profits from liquor business are to be computed only in view of Section 44AC as contended by the Revenue and whether the profits are to be worked out taking recourse to sections 28 to 43C as read by the petitioner, came up for consideration in A. Sanyasi Rao v. Government of Andhra Pradesh [1989] 178 ITR 31 (AP). That court then held that the device of Section 44AC, read with Section 206C, does not dispense with a regular assessment altogether but after the tax collected in the manner provided by Section 206C, a regular assessment will be made where the profits and gains of liquor business, inter alia, will be ascertained in accordance with the provisions of sections 28 to 43C, This view was upheld by the Supreme Court in the case of Union of India v. A. Sanyasi Rao [1996] 219 ITR 330. The question, thus, being highly debatable, it was not open to the Assessing Officer to compute the profits of the petitioner under the proviso to Section 143(1)(a) of the Act. Therefore, such adjustment in the "adjustment explanatory sheet" appended to the intimation was ab initio void. The result of such a view we have taken is that the profits to the tune of Rs. 7,23,880 were never assessed nor could they be assessed under the scheme of the Act and the contention of the petitioner contrary to this has to be rejected.
24. Therefore, reassessment proceedings cannot be said to be bad in law on the score that profits to the extent of Rs. 7,23,880 were already assessed under the intimation issued to the petitioner.
25. The next submission of Sri Gulati is that the Assessing Officer had no jurisdiction to assess the profits under Section 44AC and if he wanted to bring such profits to tax then he would have done so only by taking recourse to the provisions of Section 143(2) of the Act. He further submits that if the Assessing Officer believed that the profits having not been worked out in view of Section 44AC had escaped assessment, then a notice under Section 143(2) could have been served upon the petitioner within one year from the end of the month in which the return was furnished under the proviso to Sub-section (2) of Section 143 and that having not been done, the Assessing Officer was precluded from initiating the reassessment proceedings. We see no substance in this plea. Under Section 147, if the Assessing Officer has reason to believe that any income chargeable to tax had escaped assessment then he is free to initiate reassessment proceedings. The only requirement of Section 147 is that the Assessing Officer must have good reason to believe that some income had escaped assessment. Once this belief is well founded, recourse to reassessment proceedings cannot be said to be illegal. We have already found that whatever exercise was done by the Assessing Officer to bring the profits computed under Section 44AC to tax was ab initio void and, therefore, by virtue of that exercise it cannot be said that the profits had been assessed to tax and if that is so, the plain conclusion is that the profits having accrued to the petitioner from the business of alcoholic liquor during the relevant financial year which according to the Assessing Officer were liable to tax, had escaped assessment. If the Assessing Officer had reason to believe that such profits had escaped assessment, then we see no good reason why reassessment proceedings could not have been initiated against the petitioner. The submission of Sri Gulati proceeds on the footing that since the Assessing Officer failed to issue notice under Section 143(2) at the time of the processing of the return filed by the petitioner, he lost the jurisdiction for making reassessment under Section 147, read with Section 148 for ever. Therefore, the question is whether the failure of the Assessing Officer in having issued the notice under Section 143(2) precluded the Assessing Officer from issuing the impugned notice under Section 148 after the proceedings under Section 143(1)(a) having been completed. In Jorawar Singh Baid v. Assistant Commissioner of Income-tax [19921 198 ITR 47 (Cal), the processing of the return filed had been completed under Section 143(1)(a), but such completion was not followed by initiation of proceedings under Section 143(2). Counsel for the assessee then contended before the Calcutta High Court that completion of the assessment under Section 143(1)(a) coupled with the expiration of the period of limitation for invoking the proviso to Section 143(2) precluded the Assessing Officer from issuing a notice under Section 148. The Calcutta High Court rejected such submission of counsel for the assessee for the following reasons (page 51) :
" Simply because the return of the assessee has been accepted without scrutiny and in good faith the Assessing Officer is not precluded from initiating a proceeding satisfying the conditions therefor where the income has escaped assessment. There is nothing either in Section 143 or in Section 147 that can support such a view. The provisions of a tax statute should be interpreted in a manner leading to the result that everybody pays his due tax. ... In our view, a return after its acceptance, whether in a summary manner or after scrutiny, may itself lead to reassessment proceedings provided the conditions for reassessment under Section 147 exist. , . . It is not the summary acceptance of the return under Section 143(1)(a) that can operate as a bar against reassessment. It is, rather, the further disclosure made by the assessee in the course of proceedings under Section 143(3) whereby the assessee may take out his case from the mischief of Section 147. Therefore, the scope for initiating reassessment proceedings in an assessment made under section 143(1)(a) is far wider than in an assessment under Section 143(2) read with Section 143(3). In our view, the power that can be exercised under Section 143(2) to correct the assessment made under Section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under Section 147 if the ingredients of Section 147 are satisfied. It is open to the Assessing Officer to invoke the jurisdiction under Section 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under Section 147 is vitiated because the Assessing Officer failed to invoke his power to correct the assessment already completed under Section 143(1) by issuing a notice under Section 143(2) of the Act."
26. We agree with the above reasoning of the Calcutta High Court, in so far as it has been held that so long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps under Section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings.
27. In the case at hand, the Assessing Officer proceeded on a wrong footing by making the adjustment not permissible by the proviso to Section 143(1)(a). He might have proceeded under Section 143(2) as well to bring the profits of the petitioner to tax by making a regular assessment under Section 143(3), but failure on his part in doing so before the processing of the return was completed under Section 143(1)(a) will not take away the jurisdiction of the Assessing Officer to proceed under Section 147, if the Assessing Officer is able to establish the requisite conditions of Section 147. For these reasons, the second submission is rejected.
28. Lastly, Sri Gulati submits that after the appeal order, the intimation sent by the Assessing Officer to the petitioner, had merged in the appeal order and the only remedy open to the Assessing Officer was to appeal against the order of the Commissioner of Income-tax (Appeals) and that after the merger of the intimation in the appeal order, it was not open to the Assessing Officer to take recourse to the reassessment proceedings.
It is to be borne in mind that there was no appeal against the intimation sent to the petitioner by the Assessing Officer. After the intimation having been sent, the petitioner made an application for rectification under Section 154, which was rejected on February 16, 1990, and it is that order against which the appeal was filed by the petitioner before the Commissioner of Income-tax (Appeals). It is, therefore, incorrect to say that the intimation stood merged in the appeal order. Even if the submission of counsel for the petitioner that after the appeal order, the order appealed against merged, is taken to be correct, still however, not the intimation but the order dated February 16, 1990, rejecting the application made under Section 154 could, at the most, be said to have merged in the order of the appellate authority. So the merger if at all it is there, is limited to the proposition that the scope of the proviso to Section 143(1)(a) and of Section 154 telescoping into each other, no debatable addition by way of adjustment is permissible under Section 143(1)(a). It does not create estoppel against the department to make reassessment. This submission too of counsel for the petitioner is rejected.
29. For the above reasons, the petition fails and is dismissed with the observation that the Assessing Officer is free to proceed ahead with the impugned notice, issued under Section 148 of the Act and he may pass an order purely on the merits without being influenced by any observation made by us hereinbefore considering the decision of the Supreme Court in the case of A. Sanyasi Rao [1996] 219 ITR 330.
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Title

Pradeep Kumar Har Saran Lal vs Assessing Officer

Court

High Court Of Judicature at Allahabad

JudgmentDate
21 March, 1997
Judges
  • O Prakash
  • B Sharma