1. In this appeal of the revenue, the dispute is whether the AAC was justified in annulling the assessment under Section 155 of the Income-tax Act, 1961 ('the Act') on the ground that the assessee having filed Form No. 6A against the assessment made under Section 143(1) of the Act tantamounts to cancellation of the original assessment and, therefore, rectification could not have been carried out.
2. The learned departmental representative submitted that an assessee is entitled to file an application in Form No. 6A under Section 143(2)(a) within one month from the date on which he is served with an order under Section 143(1). An assessment under Section 143(1) of the Act is normally to be made as returned by the assessee excepting where certain claims of exemptions or deductions are not supported. This, however, does not mean that when the assessee has a share in any partnership firm the ITO cannot rectify that share as per the assessment order passed in the case of the firm. Referring to Form No.6A filed, he submitted that the objection of the assessee is that the share income of the firm has been taken at a higher figure and that the tax liability is enlarged. Referring to Section 143(2)(a) it was submitted that it would be the duty of the assessee to produce such evidence in respect of the objections raised by him on the basis of notice issued by the ITO but the filing of Form No. 6A does not mean that the assessment that was originally passed under Section 143(1) stood cancelled. Even reading Section 143(2)(a) it only meant that such corrections or objections will be considered by the ITO and the order passed would be correct. He relied on Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC).
3. On the other hand, the argument of the learned counsel Mr. Gupta was that in Section 153 of the Act, Clause (d) had been added to Sub-section (1) which is effective from 1-10-1984 which goes to clarify that once an application of objection in Form No. 6A has been filed, then the ITO shall make an assessment within six months from the end of the month in which the application was made. According to him, the introduction of this section goes to establish that the filing of an application in Form No. 6A would mean an automatic cancellation of the assessment. He also referred to [1984] 150 ITR St. 11 for the purposes of explaining the intention of the Legislature as it existed has only been explained in the form of the additional clause introduced in Section 153. Since it required a fresh assessment to be made, the only conclusion that is possible is that the earlier assessment was no longer existed when the earlier order was no longer in existence, the question of carrying out rectification could not arise and, therefore, the AAC was right in annulling the assessment.
4. We have given our careful consideration to the arguments of both the parties. Section 143(1) and (2) is reproduced : (1) (a) Where a return has been made under Section 139, the Income-tax Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under Clause (b), with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in Sub-clause (iv) of Clause (b), also with reference to the record of the assessments, if any, of past years, and determine the sum payable by the assessee or refundable to him on the basis of such assessment.
(b) In making an assessment of the total income or loss of the assessee under Clause (a), the Income-tax Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,- (i) rectify any arithmetical errors in the return, accounts and documents, referred to in Clause (a) ; (ii) Omitted by the Finance (No. 2) Act, 1980 with effect from 1-4-1980 ; (iii) Omitted by the Finance (No. 2) Act, 1980, with effect from 1-4-1980 ; (iv) give due effect to the allowance referred to in Sub-section (2) of Section 32, the deduction referred to in (clause (ii) of Sub-section (3) of Section 32A or) Clause (if) of Sub-section (2) of Section 33 or Clause (ii) of Sub-section (2) of Section 33A or Clause (i) of Sub-section (2) of Section 35 or Sub-section (1) of ' Section 35A or Sub-section (1) of Section 35D or Sub-section (1) of Section 35E or the first proviso to Clause (ix) of Sub-section (1) of Section 36, any loss carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) of Section 74 (or Sub-section (3) of Section 74A) and the deficiency referred to in Sub-section (3) of Section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years.
(a) an assessment having been made under Sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Income-tax Officer objecting to the assessment, or (b) whether or not an assessment has been made under Sub-section (1), the Income-tax Officer considers it necessary or expedient to verify the correctness and completeness of the return by requiring the presence of the assessee or the production of evidence in this behalf, the Income-tax Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return : Provided that, in a case where an assessment has been made under Sub-section (1), the notice under this sub-section [except where such notice is in pursuance of an application by the assessee under Clause (a)] shall not be issued by the Income-tax Officer unless the previous approval of the Inspecting Assistant Commissioner has been obtained to the issue of such notice : Provided further that in a case where the assessment made under Sub-section (1) is objected to by the assessee by an application under Clause (a), the assessee shall not be deemed to be in default in respect of the whole or any part of the amount of the tax demanded in pursuance of the assessment under that sub-section, which is disputed by the assessee, in so far as such amount does not relate to any adjustment refrred to in Sub-clause (i) of Clause (b) of Sub-section (1), and further no interest shall be chargeable under Sub-section (2) of Section 220 in respect of such disputed amount.
We also reproduce the Explanation by which Clause (d) of Sub-section (1) of Section 153 was brought into statute with effect from 1-10-1984 : 18.1 Under Section 153(1) of the Income-tax Act, an order of assessment cannot, ordinarily, be made after the expiry of two years from the end of the assessment year in which the income was first assessable or the expiry of one year from the date of the filing of a return or a revised return, whichever is later. This provision has resulted in a practical difficulty in cases where an order of assessment is made by the Income-tax Officer under Section 143(1) of the Act without requiring the presence of the assessee or the production by him of any evidence in support of the return filed by him. In such cases, the assessee is entitled under Section 143(2)(a) of the Act to make an application within one month to the Income-tax Officer objecting to such assessment. On receipt of an application under this provision, the Income-tax Officer is required to make a fresh assessment after considering the objections raised by the assessee.
18.2 It had come to notice that, in certain cases, where order of assessment under Section 143(1) of the Act was made towards the expiry of the period of limitation laid down in Section 153(1), the Income-tax Officer was not in a position to make afresh assessment because the period of limitation had expired by the time that the application filed by the assessee under Section 143(2)(a) raising objections against the said assessment order was taken up for consideration by the Income-tax Officer.
18.3 With a view to removing this difficulty, the Amending Act has inserted a new Clause (c) in Sub-section (1) of Section 153 of the Act to secure that, in such cases, the fresh assessment may be made by the Income-tax Officer within the period of limitation laid down under the existing provisions of Section 153(1) or before the expiry of 6 months from the end of the month in which an application under Clause (a) of Sub-section (2) of Section 143 of the Act is made by the assessee, whichever is later. The aforesaid amendment takes effect from 1st October, 1984.
5. The ITO while making of an order under Section 143(1) normally accepts the returned income as such except where certain claims preferred by the assessee are not supported by evidence. In such a situation the Act provides a right to the assessee to raise his objection on the assessment so made within six months from the date of service of the order on him in Form No. 6A. According to the assessee, the moment Form No. 6A is filed with the ITO the order passed by the ITO automatically stands cancelled. We are unable to accept this proposition as to our mind except in Section 146 of the Act where it has been specifically provided that in cases of assessments made under Section 144 of the Act the assessee having made an application stating therein the reasons for his inability to attend to the notices issued on him if found to be of valid reasons, in that event the ITO may cancel the order passed by him under Section 144 and then proceed to make a fresh assessment. There is absolutely no such similar provision existing in respect of the objections so raised by the assessee. This gets further clarified by reading Section 143(2), second proviso, which states clearly that the assessee would not be deemed to be in default in respect of either the whole of the tax demanded or part of the tax demanded. Further the objection if at all could be to only that portion of the assessment which, according to the assessee, is not proper. The reading of Section 143(3), Clause (b), also goes to indicate that the ITO on receipt of the objections so raised in Form No. 6A is to proceed ahead to make a fresh assessment to the extent of correcting the incorrect portion of the assessment. It is further clarified in the Explanation as to what would be an incorrect assessment such as the amount of total income being assessed at a larger figure than the returned income or at a lower figure. Similarly, the loss amount being determined at either a higher figure or a lower figure or that allowance in respect of the depreciation has been incorrectly given, etc. In the present assessment, the ITO had taken the share income from the firm as assessed in the hands of the firm which is no doubt at a higher figure than the returned income. This is clearly provided by Section 155 that the ITO should consider the assessment made on the firm and accordingly carry out such amendments in his order to the extent of the share income.
Coming to the Explanation by which Clause (d) has been added to Section 153(1). It also goes to indicate that the ITO is allowed to carry out such correction of the assessment made, within a period of six months from the date of receipt of the objection in Form No. 6A so that the assessees do not unnecessarily go into litigation on the ground that the correction of the assessed income should also be carried out within the time allowed for making of the assessment under Section 153.
In view of the above situation, to our mind, it would be totally wrong to say that Form No. 6A stands in the same footing as in the application requesting cancellation of an assessment made under Section 144. As already observed above, when Form No. 6A is so filed, till it is disposed of the assessee shall not be deemed to be a defaulter in respect of the tax demanded on him and the same cannot be forcibly collected and that he would not be liable for any additional interest in respect of the tax so demanded. We are, therefore, unable to come to the same conclusion as has been arrived at by the AAC that the assessment gets automatically cancelled the moment Form No. 6A has been filed. We are also bound by the Supreme Court decision in the case of Kapurchand Shrimal (supra) where their Lordships have clearly observed that it would be the duty of the appellate authorities to set aside an order which is passed, for the reason, that it is not in accordance with the law and it would be their duty to give a specific direction for making of the proper assessment. We, therefore, quash the order of the AAC and restore that of the ITO.