Judgment:
Arijit Pasayat, C.J.
This is an appeal under section 260A of the Income Tax Act, 1961 (hereinafter referred to as `the Act), filed by revenue questioning correctness of the conclusion recorded by the Income Tax Appellate Tribunal (hereinafter referred to as `the Tribunal) to the effect that action taken under section 154 of the Act was not legal after issuance of notice under section 143(2) of the Act.
2. Factual position in a nutshell is as follows :
For the assessment year 1989-90, due date of filing return was 31-12-1989. assessed filed return on 28-12-1989. An intimation in terms of section 143(1)(a) of the Act was given to the assessed on 31-3-1990, on the basis of return filed. Notice under section 143(2) was issued in the month of December, 1990 Subsequently, a notice for taking action under section 154 of the Act was issued on 28-2-1991. assessed submitted its reply on 21-3-1991, taking the stand that there was no scope for taking any action under section 154. On 27-3-1991, revised return was filed by the assessed. Rejecting the assesses plea that after issuance of notice under section 143(2) of the Act, as well as on facts, there was no case for resorting to section 154 an order under section 154 was passed. In the order under section 154, Income Tax Officer decided the question as to how profits under section 115J of the Act was to be undertaken and passed an order determining taxable book profit of Rs. 8,58,21,204. It was held that there was mistake which was apparent from record and rectifiable under section 154. assessed filed an appeal before Commissioner (Appeals). The said authority held that the matter was not one which involved any interpretation of law but one of inclusion or non-inclusion of certain item for calculating book profit under section 115J. As the language of section 115J is very clear, regarding the items to be included and not to be included for working out book profit, when a particular item was left out or included by mistake it could be considered as arithmetical error and matter of law which required long drawn process of deliberations. The fact that the assessed had filed a revised return, according to Commissioner (Appeals), was indicative of the fact that there was mistake with regard to adding back book profits. Action of the assessing officer in carrying out rectification was found to be in order. assessed carried the matter appeal before Tribunal. Its stand that action under section 154 was not in order, was accepted by the Tribunal. It was held that after commencement of proceedings for making assessment under section 143(3) by issuance of notice under section 143(2), the assessing authority cannot rectify any intimation under section 143(1)(a) because once notice for scrutiny of account is issued and matter is in progress under sub-section (2), then to again rely on the intimation under section 143(1)(a) of the Act would be improper. Reading section 143(1) and (2) together, it was observed that even when intimation under section 143(1)(a) has been issued, yet power under sub-section (2) of section 143 can be exercised. In fact, there was no scope for rectifying an intimation after resort to section 143(2).
3. In this appeal under section 260A of the Act, following question has been raised for adjudication :
(a) Whether the Tribunal is correct in law in holding that after commencing proceedings for making assessment under section 143(3) the assessing officer cannot rectify any intimation under section 143(1)(a) ?
(b) Whether the Tribunal has correctly interpreted the provisions of statute. namely, sections 115J, 143(1)(a), 143(1A), 143(2), 143(3) and 154 ?
(c) Whether the Tribunal is correct in holding that if the assessing officer has already issued a notice under section 143(2), then he cannot send any intimation-on the basis of return filed ?
(d) Whether the order of the assessing officer passed under section 154 after issue of notice under section 143(2) making adjustment and charging additional tax is proper in law?
(e) Whether the order passed by the Tribunal is perverse and contrary to law ?
(f) Whether the assessing officer was justified in recomputing the book profit under section 154/143(1)(a) for the purpose of section 115J in the light of the fact that notice under section 143(2) had already been issued.
(g) Whether the Tribunal is correct in law in holding that once notice under section 143(2) has been issued, recourse to section 154 is not warranted ?
(h) Whether sections 154 and 143(2) are mutually exclusive or not ?
(i) Whether the interpretation put forward by the assessing officer with reference to computation of book profits under section 155J is correct ?
(j) Whether principles of natural justice are violated if recourse to section 154 is taken and to rectify intimation under section 143(1)(a) when proceedings under section 143(2) are going on.
4. According to the learned counsel for revenue, Tribunal fell into grave error in holding that after notice under section 143(2) has been issued, there was no scope for rectifying the intimation under section 143(1) of the Act.
5. Section 143(1), as it stood before and after amendment with effect from 1-6-1999, read as follows :
After amendment
Section 143. Assessment--(1) 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, any tax paid on self-assessment 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 assessed 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 Act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessed and an intimation to this effect shall be sent to the assessed :
Provided that except as otherwise provided in this sub-section, the acknowledgement of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessed or no refund is due to him :
Provided further that no intimation under this sub-section shall be sent after the expiry of two years from the end of the assessment year in which the income. was first assessable.
(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) or section 142, the assessing officer shall, if he considers it necessary or expedient to ensure that the assessed has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessed 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 assessed may rely in support of the return. Provided that no notice under this sub-section shall be served on the assessed after the expiry of twelve months from the end of the month in which the return is furnished.
(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessed may produce and such other evidence as the assessing officer may require on specified points, and after taking into account all relevant material which he has fathered, the assessing officer shall, by an order in writing, making an assessment of the total income or loss of the assessed, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment.
(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,
(a) any tax or interest paid by the assessed under sub-section (1) shall be deemed to have been paid towards such regular assessment;
(b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment the whole or the excess amount so refunded shall be deemed to be tax payable by the assessed and the provisions of this Act shall apply accordingly.'
Before Amendment
Section 143(1) as it stood at the point of time when the intimation was given under the said provision, under section 139, or in response to a notice under sub-section (1) so far as relevant, read as follows :
Section 143(1)(a) Where a return has been made 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 assessed 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 Act shall apply accordingly ; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessed:
Provided that in computing the tax or interest payable by, or refundable to. the assessed, 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 or documents, if 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 assessed, 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:
(b) Where as a result of an order made under sub-section (3) of this section or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any other of settlement made under sub-section (4) of section 245D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the return and a result of which :
(i) if any tax or interest is found due, an intimation shall be sent to the assessed 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, it shall be granted to the assessed :
Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed.
(c) Where the assessed is a partner of a firm or a member of the association of persons or body of individual and as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) in the income or loss declared in the return made by the firm, association or body, as the case may be, or as a result of an order made under sub-section (3) of this section or section 144 of section 147 or section 154 or section 155 of section 185 or sub-section (1) or sub-section (2) of section 186 or section 254D passed subsequent to the filing of the return referred to in clause (a) there is any variation in his share in the income or loss of the firm, association or body as the case may be, or in the manner of inclusion of his share in the returned income, then,
(i) if any tax or interest is found due, an intimation shall be sent to the assessed 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, it shall be granted to the assessed :
Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such adjustments were made or any such order was passed.
(1A)(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the assessing officer shall,
(i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);
(ii) Where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (i).
(b) Where as a result of an order under section 154 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, the amount on which additional income-tax is payable under clause (a) has been increased or reduced as the case may be, the additional income-tax shall be increased or reduced accordingly, and,
(i) in a case where the additional income-tax is increased, the assessing officer shall serve on the assessed a notice of demand under section 156 ;
(ii) in a case where the additional income-tax is reduced, the excess amount paid, if any, shall be refunded.
Explanation : For the purposes of this sub-section, 'tax payable on such excess amount means, --
(i) in any case where the amount of adjustments made under the first proviso to clause (a) of sub-section (1) exceed the total income, the tax that would have been chargeable had the amount of the adjustments been the total income ;
(ii) in any other case, the difference between the tax on the total income and the tax that would have been chargeable had such total income been reduced by the amount of adjustments.
(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the assessing officer shall, if he considers it necessary or expedient to ensure that the assessed has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessed 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 assessed may rely in support of the return;
Provided that no notice under this sub-section shall be served on the assessed after the expiry of the financial year in which the return is furnished or the expiry of six months from the end of the month in which the return is furnished, whichever is later.
(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessed may produce any such other evidence as the assessing officer may require on specified points, and after taking into account all relevant material which he has gathered, the assessing officer shall, by an order in writing, made an assessment of the total income or loss of the assessed, and determine the sum payable by him on the basis is such assessment.
(4) Where a regular assessment under sub-section (3) of this section or section 144 is made,
(a) any tax or interest paid by the assessed under sub-section (1) shall be deemed to have been paid towards such regular assessment.
(b) If no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessed and the provisions of this Act shall apply accordingly.'
6. It is to be noted that substantial changes have been made to section 143(1) with effect from 1-6-1999. up to 31-3-1989, after a return of income was filed the assessing officer could make an assessment under section 143(1) without requiring presence of the assessed or production by him of any evidence in support of the return. Where the assessed objected to such an assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under section 143(1), but wanted to make an inquiry, a notice under section 143(2) was required to be issued to the assessed requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, officer had power to make assessment under section 143(3). With effect from 1-4-1989, the provisions underwent substantial and material changes. A new scheme was introduced and in the new substituted section 143(1) prior to subsequent substitution with effect from 1-6-1999, in clause (a), a provision was made that where a return was filed under section 139 or in response to a notice under section 142(1), and any tax or refund was found due on the basis of such return after adjustment of tax deducted at source, any advance tax or any amount paid otherwise by way of tax or interest, an intimation was to be sent without prejudice to the provisions of section 143(2) to the assessed specifying the sum so payable and such intimation was deemed to be a notice of demand issued under section 156. The first proviso to section 143(1)(a) allowed the department to make certain adjustments in the income or loss declared in the return. They were as follows :
(b) an arithmetical error in the return, accounts and documents accompanying it were to be rectified ;
(c) any loss carried forward, deductions allowance or relief which on the basis of the information available in such return, accounts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed ;
(d) any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed.
One thing further to be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of the assessing officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from 1-4-1989 to 31-3-1998, the second proviso to section 143(1)(a), required that where adjustments were made under first proviso to section 143(1)(a), an intimation had to be sent to the assessed notwithstanding that no tax on refund was due from him after making such adjustments. With effect from 1-4-1998, second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till 1-6-1999. The requirement was that an intimation was to be sent to the assessed whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessed concerned. Between 1-4-1998 to 31-5-1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of word 'intimation' as substituted for 'assessment that two different concepts emerged. While making an assessment, assessing officer is free to make any addition after grant of opportunity to the assessed. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the assessing officer. Reason is that under section 143(1)(a) no opportunity is granted to the assessed and the assessing officer proceeds on his opinion on the basis of the return filed by the assessed. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the assessing officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of Explanationn to section 143 by the Finance Act No. 2 of 1991 with effect from 1-10-1991, and subsequently with effect from 1-6-1994, by Finance Act, 1994, and ultimately omitted with effect from 1-6-1999, by Explanationn as introduced by Finance Act No. 2 of 1999 an intimation sent to the assessed under section 143(1)(a) was deemed to be an order for purposes of section 246 between 1-6-1994, to 31-3-1995, and under section 264 between 1-10-1991, and 31-5-1999. It is to be noted that the expressions 'intimation' and 'assessment order' have been used at different places. Contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the taxpayer. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to 1-4-1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amendment provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intents of legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D.K. Jain, J.) in the case of Apogee International Ltd. & Anr. v. Union of India : [1996]220ITR248(Delhi) by this court. It was be noted that under the first proviso to the newly substituted section 143(1), with effect from 1-6-1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be intimation under section 143(1) where (a) either no sum is payable by the assessed or (b) no refund is due to him. It is significant that the acknowledgement is not done by any assessing officer, but mostly by ministerial staff. Can it be said that any 'assessment' is done by them? The reply is an emphatic 'no'. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible and nothing more can be inferred from the deeming provision.
7. As the Tribunal has rightly observed, the intimation under section 143(1)(a) is without prejudice to the provisions of section 143(2). In this case notice for assessment under section 143(2) has been issued. The expression 'without prejudice to the provisions of section 143(2)' is of great significance. It means that right of the assessing officer to proceed under section 143(2) despite intimation to the assessed of the sum payable as tax or interest was preserved and not taken away. It was not curtailed and on the other hand it was saved. In Apogees case (supra) this court held that even if an intimation was given after issuance of notice under section 143(2) that did not preclude assessing officer from issuing a fresh notice under section 143(2) where he considered it necessary or expedient to ensure that the assessed had declared his income correctly. Under sub-section (4) of section 143, where a regular assessment is made under sub-section (3) thereof, or under section 144 any tax or interest paid by the assessed under sub-section (1) shall be deemed to have been paid towards such regular assessment. If no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment the whole or the excess amount so refunded is deemed to be tax payable by the assessed subject to provisions of the Act.
8. Question is whether after issue of notice under section 143(2) intimation issued under section 143(1) is of any consequence, more particularly when revised return has been filed. Notice under sub-section (2) of section 143 is relatable to the first return. The intimation under section 143(1) is given without prejudice to the provisions of sub-section (2). That makes the position clear that even when intimation under section 143(1) has been given yet proceedings for assessment under section 143(3) can be initiated by issuance of notice under section 143(2). The order under section 154 of the Act was passed after issuance of notice under section 143(2) and during pendency of the proceedings for assessment under section 143(3). The order under section 154 was passed on 9-3-1992, while the order under section 143(3) was passed on 27-3-1992. We have made distinction between an intimation under section 143(1) and an order issued under section 143(3) supra above being the position, if any change is permissible to be effected, the same can be done in the assessment under section 143 of the Act and not by exercising power under section 154 of the Act. We do not think it necessary to go into the question whether rectification that was done by the assessing officer could be termed to be mistake apparent from the record. The scope and ambit of section 154 has been examined in several cases. We may just note that Commissioner (Appeals) himself was not very sure as to whether the so-called mistake was one which could be considered as arithmetic error because he himself had further observed that it was a matter of law which required a long drawn process of deliberations. If it is latter, certainly section 154 has no application. Since Tribunal has not considered this aspect, we do not think it necessary to examine that question. This is not a fit case which deserves to be considered under section 260A of the Act. Appeal is dismissed.