1. This appeal filed by the assessee is directed against the order dt, 29th Nov., 2002, of CIT(A)-XIV, Mumbai. The first four grounds of appeal pertain to only one issue i.e., confirmation by the CIT(A) of the AO's order passed under Section 154 of the IT Act rectifying the intimation issued under Section 143(1) of the IT Act.
2. The relevant facts are that the return of income filed for the asst.
yr. 1999-2000 was accepted by the AO under Section 143(1) of the IT Act on 17th July, 2000 on the basis of the returned total income of Rs. 1,17,470. Subsequently, the AO found that the assessee claimed rebate under Section 88 of the IT Act from the income-tax payable in respect of interest of Rs. 35,336 credited to the PPF a/c of the assessee. The AO issued notice under Section 154 on 23rd April, 2001, proposing to withdraw this rebate on the ground that the same was not allowable under Section 88. After considering the submissions made by the assessee, the AO passed the impugned order under Section 154 of the IT Act withdrawing the rebate. The AO's order was confirmed by the learned CIT(A).
3. The learned counsel appearing on behalf of assessee contended that Section 143(1) was substituted by the Finance Act, 1999 w.e.f. 1st June, 1999. It is pointed out that under the new provisions, the AO's power to make any prima facie adjustment to the returned income has been withdrawn for the purposes of Section 143(1) of the IT Act. It is argued that under the new provisions, the AO is totally excluded from making any variation in the figure of returned total income. In the case of the assessee, rebate under Section 88 of the IT Act was claimed under Section 88 of the IT Act and the AO had no power to withdraw this rebate while processing the return of income under Section 143(1). It is submitted that the power which the AO does not have while issuing intimation under Section 143(1) cannot be assumed under Section 154 of the IT Act. It is, therefore, argued that the AO had no legal power to pass the order under Section 154 of the IT Act. Alternatively, the learned counsel submitted that it is debatable issue as to whether the rebate under Section 88 is allowable or not in respect of interest credited to the PPF a/c of the assessee. It is stated that such credit of interest can be said to be contribution made by the assessee to the PPF a/c and therefore, there can be one view that deduction under Section 88 is admissible. Therefore, it is pointed out, that the action taken by the AO is beyond the scope of Section 154 of the IT Act.
4. The learned Departmental Representative submitted that under the statutory provisions of Section 88, no rebate is admissible in respect of interest credited to the PPF a/c. The assessee claimed such rebate and the returned was processed and intimation issued under Section 143(1). It is submitted that in view of the clear provisions of law, there was a mistake apparent from record in the intimation in as much as wrong rebate was allowed, the AO had jurisdiction to assume his powers under Section 154 of the IT Act so as to rectify the mistake.
5. We have given a careful consideration to the rival submissions. The issue involves an interesting legal issue pertaining to interpretation of the provisions of Sections 143(1) and 154 of the IT Act, as amended by the Finance Act, 1999 w.e.f. 1st June, 1999. Prior to this amendment and that under the old provisions, while processing the return of income under Section 143(1), of the IT Act, the AO was vested with certain powers to make prima facie adjustment/variations in the returned income. Under the new provisions, this power stands withdrawn w.e.f. 1st June, 1999, which means that wherever return of income is processed under Section 143(1) on or after 1st June, 1999, the AO has no legal power to make any disallowances or any variations in the claims and deductions claimed by the assessee in the return of income.
The first proviso to Section 143(1) stipulates that where no tax is payable or no refund is due, the acknowledgement of the return of income shall be deemed to be an intimation issued under Section 143(1) of the IT Act. Simultaneously, Section 154 was also amended to the effect that an IT authority may amend any intimation or deemed intimation under Section 143(1). The question which requires determination is as to what is the purpose of these amendments and what is the scope of the AO's powers under Section 154 of the IT Act vis-a-vis an intimation or deemed intimation issued under Section 143(1). Apparently, the AO has no power to make any disallowances or additions, even if wrongly claimed by an assessee, while processing the return of income under Section 143(1). In other words, the AO, under Section 143(1) has no option but, to accept the income returned by the assessee. The question arises as to whether such wrong claim, rebate for deduction claimed by the assessee against the provisions of law can be withdrawn under Section 154 of the IT Act, We are inclined to agree with the proposition of the learned counsel for the assessee that if the AO has no power to do something at the time of passing an order, he cannot assume such power by invoking the provisions of Section 154 of the IT Act. The learned counsel has also relied upon the order of Tribunal Hyderabad Bench in the case of Anam Machinery Fabricators Ltd. v. ITO (1994) 49 TTJ (Hyd) 375 : (1994) 49 ITD 617 (Hyd). In this case, the Tribunal was concerned with interpreting the provisions before the amendments w.e.f. 1st June, 1999. It was held that when the AO lacked powers to disallow losses while sending intimation under Section 143(1)(a), he could not assume such powers under Section 154. We agree with this view expressed by the Tribunal Hyderabad Bench.
6. At this stage, the purpose of the amendments in Sections 143(1) and 154 may be considered by reproducing below the relevant portion of the memorandum explaining provisions in Finance Bill, 1999 [(1999) 236 ITR (St) 173] : "Simplification of procedure of processing of return under Sub-section (1) of Section 143 and doing away of prima facie adjustment: Under the existing provisions of income-tax all the returns filed are processed under Sub-section (1) for payment of tax and issue of refund. Certain powers are available with the AO to rectify arithmetical mistakes and make prima facie adjustments regarding allowable and disallowable claims and deduction. These are known as prima facie adjustment. In addition to tax on income as a result of prima facie adjustment, 20 per cent of the tax is also levied as additional tax for making incorrect claims.
It is seen that the present system of prima facie adjustment has become some sort of assessment in itself where every return is examined minutely and such adjustments are also open to appellate remedy, Most of the time the AO is utilised in processing the returns in the above manner leaving very little time for other important works. The ever increasing number of returns also will make such processing of returns more time consuming. In view of the above it is proposed that the present provisions contained in Section 143(1) or 143(1A) or 143(1B) are to be modified to do away with prima facie adjustments, additional tax and issue of intimations in all cases. Filing the return by itself would complete the process of assessment limiting its scope to raise demand and issue refund on the basis of the return filed. Except for issuing intimations where any sum is payable by the assessee or refund is due to him, the acknowledgement shall be deemed to be an intimation.
It is also proposed to amend Section 154 of the IT Act to provide for rectification of intimation or deemed intimation referred to in the proposed Sub-section (1) of Section 143. Similar amendments have also been proposed in the WT Act. The proposed amendment shall take effect from 1st day of June, 1999." 7. Having regard to the above-mentioned purpose of the amendments, it would be too far fetched and illogical to assume that the AO has the power to do even more than permissible under the old provision, simply by invoking the provisions of Section 154 of the IT Act. The entire scheme of the new provisions prescribes a procedure for processing of returns of income and making assessments. If the assessee has made a prima facie wrong claim in the return of income, the remedy available with the AO is to issue a notice under Section 143(2) and frame assessment under Section 143(3) of the IT Act. In our view, such variations in total income are not permissible merely by invoking Section 154. Here, a question may arise regarding the purport of the amendment of Section 154 of the IT Act vesting the IT authorities to amend an intimation issued under Section 143(1). In our view, this power of amendment would be confined to only rectification of the tax calculations or interest calculations. For the reasons discussed above, we hold that the AO had no power to withdraw the rebate claimed by the assessee by invoking the provision of Section 154 of the IT Act.
Therefore, the impugned order under Section 154 is cancelled. Since the assessee succeeds on the main ground, the alternative ground is not dealt with.
8. The remaining grounds pertain to withdrawal of interest paid under Section 244A of the IT Act. Since the main ground has been decided in assessee's favour, this ground is only consequential and the AO shall allow correct interest as admissible under Section 244A of the IT Act.