1. This appeal by the assessee is directed against the order dt. 27th Sept., 1999 passed by the CIT(A)-V (Central), Hyderabad, and it pertains to asst. yr. 1997-98.
2. Though the assessee has raised several grounds in the grounds of appeal, it would suffice to refer to the technical ground i.e. with regard to the legality of the prima facie adjustments made under Section 143(1)(a) of the Act, when the proceedings under Section 143(2) were set in motion.
3. The case of the learned Counsel for the assessee is that in the light of the apex Court decision in the case of CIT v. Gujarat Electricity Board (2003) 181 CTR (SC) 28 : (2003) 260 ITR 84 (SC) intimation under Section 143(1)(a), shall be without prejudice to the proviso to Sub-section (2) thereof, and hence in a case where regular assessment proceedings were commenced simultaneous proceedings under Section 143(1)(a) are not warranted. In the instant case, intimation was processed on 24th Nov., 1998, and on the same date, the notice was issued under Section 143(2) of the Act.
4. The case of the learned Departmental Representative, on the other hand is that the proceedings under Section 143(2) were commenced after processing the return under Section 143(1)(a) and hence impugned proceedings are valid. In this regard, the learned Departmental Representative relied on the decision of the Tribunal 'A' Bench, Hyderabad, in the case of Nav Bharat Ferro Alloys Ltd. (ITA No.502/Hyd/1999, dt. 26th Feb., 2004), wherein the Bench observed that though the date of intimation and the1 date of notice under Section 143(2) were 13th Nov., 1998, the intimation has been processed first, and then only notice under Section 143(2) was issued, and hence proceedings under Section 143(1)(a) are valid. The learned Departmental Representative has filed two paper books, the first one containing 7 pages and the other containing 17 pages. Adverting our attention to the order-sheet entries the learned Departmental Representative submitted that the prima facie adjustments were made and necessary calculations were made in the order-sheet and only after processing the return under Section 143(1)(a), notice was issued under Section 143(2) of the Act and hence, the decision of the Tribunal is squarely applicable.
5. We have carefully considered the rival submissions and perused the records. The apex Court in the case of Gujarat Electricity Board (supra) considered the legislative intent behind the enactment of Section 143(1)(a) as well as Section 143(2) and observed as under: The legislature therefore intended that where the summary proceeding under Sub-section (1) has been adopted, there should be scope available for the Revenue either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available: regular assessment proceedings having commenced under Section 143(2), there is no need for the summary proceedings under Section 143(1)(a).
It is well settled that the decision of the apex Court is binding on all the Courts subordinate to it as per Article 141 of the Constitution of India. The apex Court categorically held that once a regular assessment proceeding has 'commenced' there is no need for a summary proceeding.
6. Bearing the clear observations of the apex Court in mind, the factual matrix of the instant case have to be looked into. As could be seen from p. 2 of the order-sheet entry, the calculation of tax after making prima facie adjustment was made and at p. 3 immediately after typing out the manual calculations made at p. 2, the AO mentioned as under: The signature bears the date of 24th Nov., 1998. Below the said words, it was mentioned as under- Intimation under Section 143(1)(a). Adjustment explanatory sheet and challan for Rs. 70,93,351 put up please.
As could be seen from the above, the AO has taken a decision to commence proceedings under Section 143(2) and directed the office to put up the notice, whereas after taking such a decision i.e. after commencement of the proceeding under Section 143(2) of the Act, the intimation under Section 143(1)(a) duly filled in was put up before the AO for his signature. The order passed by the AO would be effective only when it is signed by the AO. In the instant case before appending the signature on the intimation under Section 143(1)(a), the AO has taken a decision to commence the regular assessment proceedings, and thus, as per the decision of the apex Court, the AO is not authorized to continue with the summary proceedings. Such being the case, the intimation under Section 143(1)(a) deserves to be cancelled. The learned Departmental Representative placed reliance upon the decision of the Tribunal in the case of Nav Bharat Ferro Alloys (supra), which is distinguishable on facts inasmuch as, in that case there is a categorical finding of the Bench that the return was processed under Section 143(1)(a) prior to issuance of the notice under Section 143(2) whereas in the instant case the facts, as found out from the order-sheet entries, clearly give an indication that the intimation under Section 143(1)(a) was signed by the AO only after commencement of proceedings under Section 143(2) of the Act.
7. Under the circumstances, we set aside the order of the AO, and cancel the intimation dt. 24th Nov., 1998, as being not valid in law.
1. I have gone through the order passed by the learned JM. But I am unable to agree with him that in the instant case, intimation under Section 143(1)(a) sent by the AO was not valid in law. I shall state, in the following paragraphs, the reason for my disagreement.
2. The instant appeal is for asst. yr. 1997-98. Section 143(1)(a) applicable to the asst. yr. 1997-98 is as under: 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, 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 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; 3. The facts of the case are that the AO made the following adjustment under Section 143(1)(a) of the Act:Returned total income Rs. 4,31,44,300Adjustments under Section 143(1)(a) Rs. 42,59,331Total income after adjustments under Section 143(1)(a) Rs. 4,74,03,631Net Agrl. income Rs. Nil The intimation is dt. 24th Nov., 1998 but the same has been received by the assessee on 16th Jan., 1999. On the above intimation the assessee filed appeal before the learned CIT(A)-(V)(Central), Hyderabad on 15th Feb., 1999 and following grounds of appeal were taken: 1. The learned AO has erred in law and in the facts and circumstances of the case in making the adjustments to the income returned under Section 143(1)(a) and levying additional tax under Section 143(1A).
2. On the tacts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing the APGST payable Rs. 21,63,792 under Section 143(1)(a) of the IT Act, 1961.
3. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in making adjustment of TNGST payable Rs. 3,53,686 as piima facie under Section 143(1)(a).
4. On the facts and in the circumstances of the case the learned Jt.
CIT is not justified in disallowing under Section 143(1)(a) the interest accrued but not payable to KSIIDC of Rs. 7,72,261 as per the terms and conditions of the loan agreement and subsequently paid on due date.
5. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the interest accrued but not due on deferred payment guarantee of Rs. 49,532 which is not covered by the provisions of Section 43B and paid on due dates.
6. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the provident fund for March, 1997 Rs. 2,87,320 of engineering division which was paid within the due date specified under Provident Fund Act.
7. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the deduction rightly claimed under Section 80HHC of Rs. 5,84,460 with the support of report/certificate obtained in prescribed form.
8. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in not allowing credit for the TDS of Rs. 5,219.
9. On the facts and in the circumstances of the case, the learned AO is not justified in levying additional tax under Section 143(1A) of the IT Act, 1961 after the issue of notice under Section 143(2) of the IT Act, 1961.
10. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in levying interest under Section 234C without obtaining the dates of capital gams income.
11. On the facts and in the circumstances of the case, the learned AO is not justified in applying the provisions of Section 143(1)(a) of the IT Act, 1961 against the circular issued by the CBDT, after issuance of notice under Section 143(2) of the Act, he has to make assessment in accordance with law, i.e. under Section 143(3) of the Act.
4. Learned CIT(A) vide his order dt. 27th Sept., 1999, decided the grounds of appeal in the following manner: 1. Intimation under Section 143(1)(a) was held to be correct by the learned CIT(A) and he further upheld the prima facie adjustments for disallowance under Section 43B in respect of: He also upheld the disallowance of deduction under Section 80HHC on the ground that the assessee has not furnished disclaimer certificate from the export house as also difference in depreciation.
In respect of provident fund for 3/97 paid on 21st April, 1997 (engineering division), the learned CIT(A) directed the AO to allow the claim after verification as to whether the cheque had been actually delivered on 9th April, 1997 and cleared within 15 days as claimed by the assessee. The learned CIT(A) held that intimation under Section 143(1)(a) was valid.
5. Aggrieved by the order of the learned CIT(A), the assessee has come up in appeal before the Tribunal on the following grounds: 1. The learned AO has erred in law and in the facts and circumstances of the case in making the adjustments to the income returned under Section 143(1)(a) and levying additional tax under Section 143(1A).
2. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing the APGST payable Rs. 21,63,792 under Section 143(1)(a) of the IT Act, 1961.
3. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in making adjustment of TNGST payable Rs. 3,53,686 as ptima facie under Section 143(1)(a).
4. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the interest accrued but not payable to KSIIDC of Rs. 7,72,261 as per the terms and conditions of the loan agreement and subsequently paid on due date.
5. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the interest accrued but not due on deferred payment guarantee of Rs. 49,532 which is not covered by the provisions of Section 43B and paid on due dates.
6. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the provident fund for March, 1997 Rs. 2,87,320 of engineering division which was paid within the due date specified under Provident Fund Act.
7. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in disallowing under Section 143(1)(a) the deduction rightly claimed under Section 80HHC of Rs. 5,84,460 with the support of report/certificate obtained in prescribed form.
8. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in not allowing credit for the TDS of Rs. 5,219.
9. On the facts and in the circumstances of the case, the learned AO is not justified in levying additional tax under Section 143(1A) of the IT Act, 1961 after the issue of notice under Section 143(2) of the IT Act, 1961.
10. On the facts and in the circumstances of the case, the learned Jt. CIT is not justified in levying interest under Section 234C without obtaining the dates of capital gains income.
11. On the facts and in the circumstances of the case, the learned AO is not justified in applying the provisions of Section 143(1)(a) of the IT Act, 1961 against the circular issued by the CBDT, after issuance of notice under Section 143(2) of the Act, he has to make assessment in accordance with law i.e. under Section 143(3) of the Act.
6. We are to dispose of the above appeal. A perusal of the grounds of appeal taken by the appellant, it could be seen that the appellant has not taken any specific ground for cancellation of intimation under Section 143(1)(a). Probably ground No. 11 can be construed to be such a ground. The Hon'ble JM in his order has only disposed of this single ground of the appellant. All the other grounds of appeal of the appellant have not been disposed of by him. I am of the opinion that the Tribunal is required to dispose of all the grounds of appeal taken by the appellant.
7. As regards the ground decided by the Hon'ble JM, the facts as mentioned by him are as under: Intimation under Section 143(1)(a) processed on 24th Nov., 1998 and on the same date, the notice was issued under Section 143(2) of the Act.
In para 6 of his order, it has been noted by him that an order-sheet page No. 3, immediately after typing the manual calculations made at order-sheet p. 2, the AO has mentioned "issue notice under Section 143(2) immediately." The signature of AO below the above noting bears the date of 24th Nov., 1998. Immediately below, the following noting is found: 1. Intimation under Section 143(1)(a) explanatory sheet and challan for Rs. 70,93,351. Put up please.
The notice under Section 143(2) put up please....Dt. 27th May, 1999 at 5 p.m.
8. After noting the above facts, it has been inferred by the Hon'ble JM that Section 143(1)(a) intimation would be effective only when it is signed by the AO. He has held that as the AO has taken a conscious decision to take the case under scrutiny even before signing of the intimation under Section 143(1)(a), the AO is barred from issuing intimation under Section 143(1)(a). According to the learned Member, after the AO takes a conscious decision to commence regular assessment proceedings even though such proceedings have not commenced as per the relevant provisions of the IT Act he is barred from taking action under Section 143(1)(a). For the above proposition, the Hon'ble JM has drawn support from the decision of the Hon'ble Supreme Court in the case of CIT v. Gujarat Electricity Board . He has quoted from the above decision as under: The legislature therefore intended that where the summary proceeding under Sub-section (1) has been adopted, there should be scope available for the Revenue either suo motto or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available: regular assessment proceedings having commenced under Section 143(2), there is no need for the summary proceedings under Section 143(1)(a).
9. As regards the Department's reliance on the decision of the Tribunal 'A' Bench, Hyderabad in the case of Nav Bharat Feno Alloys Ltd. in ITA No. 502/Hyd/1999, dt. 26th Feb., 2004, it has been held by him that in that case, there was a categorical finding of the Bench that the return was processed under Section 143(1)(a) prior to issuance of notice under Section 143(2) whereas in the instant case, the order-sheet entries clearly give an indication that the intimation under Section 143(1)(a) was signed by the AO only after commencement of proceedings under Section 143(2) of the Act.
10. In the instant case, the admitted fact is that both the intimation under Section 143(1)(a) and notice under Section 143(2) were signed on the same date. This is clear from para 4.1 of the learned CIT(A)'s order whereas the assessee's claim is that intimation under Section 143(1)(a) was issued subsequent to issue of notice under Section 143(2). The claim of the Department is just opposite. There is no evidence produced by either party to substantiate the claim. However, in law there is a presumption that what is clear from record is taken as correct unless the contrary is proved. As the entry of issue of intimation under Section 143(1)(a) is written prior to the issue of notice under Section 143(2) in the order-sheet, it can be concluded that the intimation was signed prior to signing of the notice under Section 143(2).
11. However, the issue here is as to when the proceedings under Section 143(2) commenced and when the proceedings under Section 143(1)(a) was completed. If we go to the concerned section we find that the word used in Section 143(1)(a), is "sent" whereas the word used in Section 143(2) is "served". The issue as to when a particular proceeding commences or concludes has not been discussed in cases relating to validity of intimation under Section 143(1)(a) by any of the Courts or in the reported cases brought to the knowledge of the Bench by either of the parties. However, it appears that the Hon'ble Supreme Court in the case of Gujarat Electricity Board mentioned supra has impliedly decided the issue. This is so, as the question referred to the Hon'ble Supreme Court was "whether it is open to the Revenue to issue intimation under Section 143(1)(a) of the IT Act, after notice for regular assessment has been issued under Section 143(2) of the IT Act, 1961." Thus, what is to be decided to apply the ratio of the Hon'ble Supreme Court decision mentioned supra, is the issue of intimation or issue of notice and not the conclusion or commencement of proceeding as per Section 143(1)(a) or Section 143(2). In the present case, as the order-sheet entry shows the entry for issue of intimation under Section 143(1)(a) prior to the entry for issuance of notice under Section 143(2), I hold that the intimation under Section 143(1)(a) was issued prior to the issue of notice under Section 143(2). I draw support for the same from the Hyderabad 'A' Bench decision mentioned supra. I, therefore, hold that the intimation under Section 143(1)(a) was a valid intimation.
This ground of assessee is, therefore, rejected.
1. On account of difference between the learned Members of Hyderabad Bench 'A', the following question has been referred to me for consideration under Section 255(4) of the IT Act, 1961: Whether, on the facts and in the circumstances of the case, the AO was justified in issuing an intimation under Section 143(1)(a) of the Act though simultaneously notice was issued under Section 143(2) of the Act.
2. The above controversy arose in the circumstances that AO issued intimation under Section 143(1)(a) on 24th Nov., 1998 when simultaneously on the same date he issued notice under Section 143(2) of the IT Act.CIT v. Gujarat Electricity Board their Lordships after considering legislative intent behind the enactment of Section 143(1)(a) and Section 143(2) have observed as under: The legislature therefore intended that where the summary proceeding under Sub-section (1) has been adopted, there should be scope available for the Revenue either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available: regular assessment proceedings having commenced under Section 143(2), there is no need for the proceedings under Section 143(1)(a).
2.2 On consideration of order sheet entries dt. 24th Nov., 1998 and the decision of the Apex Court, the learned JM held that intimation was issued subsequent to the decision of the AO to commence regular assessment proceedings. Therefore, intimation was not issued in accordance with law. The intimation was accordingly cancelled as per the proposed order.
3. The learned AM did not agree with the above view. He has reproduced all the grounds raised by the assessee before the CIT(A) as well as before the Tribunal in his proposed order and has held that the assessee did not take any specific ground for cancellation of intimation issued under Section 143(1)(a) of the IT Act. At the same time he has observed that ground No. 11 can be construed to be such a ground. Ground No. 11 raised before the Tribunal is as under: On the facts and in the circumstances of the case, the learned CIT(A)-1, Hyderabad is not justified in applying the provisions of Section 143(1)(a) of the IT Act, 1961 against the circular issued by the CBDT, after issuance of notice under Section 143(2) of the Act, he has to make assessment in accordance with law i.e. under Section 143(3) of the Act.
3.1 After observing that probably ground No. 11 above can be construed to challenge intimation under Section 143(1)(a), he has observed that all the other grounds of appeal taken by the appellant were also required to be disposed of although in the proposed order the learned AM considered and decided legality of intimation under Section 143(1)(a) only.
3.2 The learned AM in the proposed order has reproduced the order-sheet entries dt. 24th Nov., 1998 as under: 7. As regards the ground decided by the Hon'ble JM, the facts as mentioned by him are as under: Intimation under Section 143(1)(a) processed on 24th Nov., 1998 and on the same date, the notice was issued under Section 143(2) of the Act.
In para 6 of his order, it has been noted by him that an order sheet page No. 3, immediately after typing the manual calculations made at order sheet p. 2, the AO has mentioned 'issue notice under Section 143(2) immediately. The signature of AO below the above noting bears the date of 24th Nov., 1998. Immediately below, the following noting is found.
1. Intimation under Section 143(1)(a) explanatory sheet and challan for Rs. 70,93,351 put up please.
The notice under Section 143(2) put up please dt. 27th May, 1999 at 5 p.m." 3.3 After consideration of above facts, the learned AM observed that both the intimation under Section 143(1)(a) and notice under Section 143(2) were signed on the same date. This is clear from para 4.1 of the order of the learned CIT(A), whereas the assessee's claim is that intimation under Section 143(1)(a) was issued subsequent to issue of notice under Section 143(2) of the Act.
The Department has claimed the opposite. There was no evidence produced by either party to substantiate the conclusion. However, in law there is a presumption that what is clear from record is taken as correct unless contrary is proved. As the entry of issue of intimation under Section 143(1)(a) is written prior to issue of notice under Section 143(2) in the order sheet it could be concluded that intimation was signed prior to signing of notice under Section 143(2) of the Act.
4. While upholding the action of the Revenue, the learned AM further observed as under: However, the issue here is as to when the proceedings under Section 143(2) commenced and when the proceedings under Section 143(1)(a) was completed. If we go to the concerned section we find that the word used in Section 143(1)(a) is 'sent' whereas the word used in Section 143(2) is 'served'. The issue as to when a particular proceeding commences or concludes has not been discussed in cases relating to validity of intimation under Section 143(1)(a) by any of the Courts or in the reported cases brought to the knowledge of the Bench by either of the parties. However, it appears that the Hon'ble Supreme Court in the case of Gujarat Electricity Board mentioned supra has impliedly decided the issue. This is so, as the question referred to the Hon'ble Supreme Court was 'whether it is open to the Revenue to issue intimation under Section 143(1)(a) of the IT Act, after notice for regular assessment has been issued under Section 143(2) of the IT Act, 1961.' Thus, what is to be decided to apply the ratio of the Hon'ble Supreme Court decision mentioned supra, is the issue of intimation or issue of notice and not the conclusion or commencement of proceeding as per Section 143(1)(a) or Section 143(2). In the present case, as the order sheet entry shows the entry for issue of intimation under Section 143(1)(a) prior to the entry for issuance of notice under Section 143(2), I hold that the intimation under Section 143(1)(a) was issued prior to the issue of the notice under Section 143(2). I draw support for the same from the Hyderabad 'A' Bench decision mentioned supra. I, therefore, hold that the intimation under Section 143(1)(a) was a valid intimation.
This ground of the assessee, is therefore, rejected.
5. In the above background, the matter has been brought before me and I have heard the arguments of both the parties. The learned Counsel for the assessee Shri U.L.N. Sudhakar vehemently contended that notice under Section 143(2) was directed to be issued on 24th Nov., 1998 much before the intimation was signed. Even the said notice was sent earlier to service of notice under Section 143(2). He drew my attention to the following entry in the order sheet which clearly showed the directions to levy additional tax under Section 143(1)(a) and directions to issue notices were signed by the AO as under:2. TNGST payable as per Annexure III 3,53,686to the Audit Report3. Interest accrued but not due to 7,72,261KSIIDC (Sch. Code 1507)4. Interest accrued but not due on term 49,532loans (OPG)(Sch. Code 1507)5. P.F. of March 1997,paid on 21st April, 2,87,3201997 (Engg. Div.)(B) Deduction under Section 80HHC is not 5,84,460Depn. Claimed 4,73,65,917Depn. As per Depn. Statement 4,73,17,637 48,280 5.1 The learned Counsel further relied on the decision of the Hon'ble Calcutta High Court in the case of Indian Aluminium Co. Ltd. v. Union of India and Ors. . A reference to the decision of the Rajasthan High Court in the case of CIT v. Udaipur Distillery Co. Ltd. was also invited to contend that intimation issued was bad in law.
6. The learned Departmental Representative, on the other hand, drew my attention to the order sheet entries considered by the learned AM in his proposed order and maintained that intimation under Section 143(1)(a) was issued prior to issue of notice under Section 143(2) of the IT Act. The learned Departmental Representative further argued that the decision of the Hon'ble Calcutta High Court in the case of Indian Aluminium Co. Ltd. (supra) had no application as the affidavit filed on behalf of the Revenue in that case, did not show that intimation was issued prior to the issue of notice under Section 143(2). The learned Departmental Representative therefore, said that intimation issued under Section 143(1)(a) was legal and could not be cancelled.
7. I have given careful thought to the rival submissions of the parties. Their Lordships of the Supreme Court in the case of CIT v.Gujarat Electricity Board (supra) have held that where scrutiny assessment under Sub-section (1) has been adopted there is scope to make regular assessment under Section 143(2) by the Revenue, either suo motu or at the instance of the assessee. Where however regular assessment proceedings have been commenced under Section 143(2), there is no need for summary proceedings under Section 143(1)(a) of the IT Act.
7.1 In a case where there is clear evidence that notice under Section 143(2) was issued prior to completion of proceedings under Section 143(1)(a), the proceedings under the above section has to be held to be illegal and cancelled. There is no dispute on this proposition.
7.2 In the present case, the proposed order of the learned AM has also recorded that there is no clear evidence that notice under Section 143(2) was issued after intimation proceedings were concluded. In my considered opinion it is not possible to hold even on minute examination of the order sheet entry dt. 24th Nov., 1998 as to whether proceedings under Section 143(1)(a) were completed before notice under Section 143(2) was issued or vice versa. Both actions appear to have been taken simultaneously by the AO on 24th Nov., 1998. It is evident that he had decided to commence regular proceedings and decided/directed to issue notice under Section 143(2) of IT Act which is dt. 24th Nov., 1998 before proceedings under Section 143(1)(a) stood completed. The question referred also talks of 'simultaneous notice'.
7.3 In order to resolve above controversy, we must take into account the following provisions of the IT Act 143(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.
(1A)(a) Where as a result of the adjustments made under the first proviso to Clause (a) of Sub-section (1),- (ii) the income declared by any person in the return is increased; or (ii) the loss declared by such person in the return is reduced or is converted into income, (A) in a case where the increase in income under Sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under Sub-section (1) by an additional income-tax calculated at the rate of twenty per cent, on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under Sub-clause (i) of Clause (a) of Sub-section (1); (B) in a case where the loss so declared is reduced under Sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as 'additional income-tax') equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under Sub-clause (i) of Clause (a) of Sub-section (1); (C) 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 (A) or Sub-clause (B), as the case may be; (2) Where a return has been made under Section 139, or in response to a notice under Sub-section (1) of Section 142, the AO shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee 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 assessee may rely in support of the return: Provided that no notice under this sub-section shall be served on the assessee 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 assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by 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 assessee 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 assessee and the provisions of this Act shall apply accordingly....
7.4 Above statutory provisions make it clear that AO is permitted to make 'adjustments' without prejudice to the provisions of Sub-section (2). After adjustments the AO can send intimation to the assessee. It is further clear that after making adjustments and after sending intimation, the AO can send notice under Sub-section (2) to the assessee. The question before us is whether the AO can simultaneously exercise powers under Section 143(1)(a) and 143(2) of the IT Act. It is to be seen that exercise of power under Section 143(1) is not made permissible after the commencement of proceeding under, Section 143(2) of the Act. The same issue came before the Calcutta High Court in the case of Indian Aluminium Co. Ltd. (supra) and their Lordships held as under: Sub-section (2) of Section 143 authorized the AO in a case referred to in Sub-section (1) if the AO considered it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, he shall serve on the assessee 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 assessee may rely in respect of the return. Therefore, whereas by virtue of Sub-section (1) of Section 143 of the Act the AO was authorized to issue an intimation to the assessee when the AO found on the basis of the return submitted that any tax or interest is due but has not been paid; Sub-section (2) of Section 143 of the Act authorized the AO to issue a notice to the assessee when the AO considered it necessary or expedient to ensure that the assessee has not understated the income or has not computed the excessive loss or has not underpaid the tax in any manner. When steps are taken under Sub-section (1) or Section 143 of the Act upon issuance of the intimation, the matter stands concluded insofar as the AO is concerned. When, however, steps are taken under Sub-section (2) of Section 143, the AO starts his work to ensure that the assessee had not paid less tax. Sub-section (3) of Section 143 authorized the AO to come to his findings by making an assessment, in order to show that he has discharged his obligation in terms of Sub-section (2) of Section 143 of the Act. Therefore, the power exercisable under Sub-section (1) of Section 143 stands on a different footing from the power exercisable under Sub-section (2) of Section 143 of the Act. It is possible that, after the power has been exercised under Sub-section (1) of Section 143, it may occur to the AO that, while issuing the intimation or while issuing the refund, certain things escaped his attention and, accordingly, he has not been able to ensure that the assessee has not underpaid tax and, accordingly, he may thereupon take steps under Sub-section (2) of Section 143 of the Act, it is however, not possible to comprehend that the self-same AO could exercise power under Sub-section (1) of Section 143 of the Act simultaneously with exercise of power under Sub-section (2) of Section 143 of the Act. In the instant case, there is no dispute that the intimation under Sub-section (1) of Section 143 of the Act was issued on the same date, when the notice under Sub-section (2) of Section 143 of the Act was issued. In the affidavit-in-opposition filed by the IT Department, it has not been stated that in point of fact, the intimation under Sub-section 143 was issued at an earlier point of time on the same date and subsequent thereto it came to the knowledge of the AO that for some reason or the other he has not been able to ensure that the assessee has not underpaid the tax. The conclusion would be, therefore, that the intimation under Sub-section (1) and notice under Sub-section (2) were issued simultaneously. When steps are taken under Sub-section (2) of Section 143, it is commonly known as regular steps to make regular assessment. The same stand culminated upon making of an assessment order of the total income. Once that order is made, Section 156 of the Act obliges the AO to issue a demand. Section 220 then requires the assessee to pay the same within 30 days from the date of receipt of the demand and in default to pay interest at the rate of one and half per cent per month. The assessee is required to pay the amount mentioned in the intimation and in default of payment within 30 days from the date of receipt of the intimation, is obliged to pay interest but at the same time the assessment has not. reached finality, for steps have been initiated under Sub-section (2) to ascertain actual tax liability. This is, however, not comprehensible without a just reason in support thereof. The affidavit-in-opposition does not give any such just reason. The AO, who has been authorized to do either of these acts, has done both of them on the same date. As aforesaid, one of kis actions concludes the matter and the other commences the assessment of the liability.
8. The facts considered by their Lordships of the Calcutta High Court are quite similar to the facts involved in the case before me and therefore, the aforesaid decision is held to be fully applicable to the facts of the case.
9. The decision of Hon'ble Gujarat High Court in the case of Gujarat Poly-AVX Electronics Ltd. v. Dy. CIT which was affirmed by their Lordships of Supreme Court in the case of CIT v.Gujarat Electricity Board (supra) also support the same view that simultaneous proceedings both under Sections 143(1) and 143(2) are not permitted. On a reference to provision of Sub-section (2) of Section 143, it is seen that before ministerial act of issuance and service of notice under the above section are carried, the AO has to form an opinion that "it is necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner". In fact the AO's power to issue notice are conditioned on the formation of opinion on above lines. This is clear from use of word, "if". Further once opinion as above is formed, the AO has to issue notice as on account of use of word "shall" in the sub-section. He has further to complete assessment as per Sub-section (3) which provides that, the AO shall by an order in writing, make an assessment of the total income or loss of the assessee and determine the sum payable by him on the basis of such assessment.
9.1 It is therefore clear that when on facts and in the circumstances of this case the AO had already considered it necessary or expedient to ensure that the assessee should be called upon to produce evidence in support of return filed by the assessee, then the assessee could only be visited with regular demand based on regular assessment under Section 143(3) of the IT Act. The assessee could not be made to pay additional tax simultaneously under Sub-section (1A) of Section 143 of the IT Act. Such treatment is not envisaged when AO has already decided to call upon the assessee to produce evidence in support of return.
These reasons given by the Hon'ble Gujarat High Court also support the claim that two proceedings: one under Section 143(1)(a) and second under Section 143(2) cannot be commenced or carried on simultaneously.
9.2 In the present case it is not clear whether AO signed intimation issued under Section 143(1)(a) of the IT Act or signed and issued notice under Section 143(2) of the IT Act. The notice under Section 143(2) of IT Act was served on the assessee earlier than intimation issued under Section 143(1)(a). At the same time it is reasonable to hold on facts that both the proceedings were simultaneously taken by the AO on 24th Nov., 1998. As per decisions of the Hon'ble Gujarat High Court and the Hon'ble Calcutta High Court such action is not permissible. Accordingly proceedings under Section 143(1)(a) have to be held to be without jurisdiction. The Revenue authorities can carry proceedings under Section 143(3) of the IT Act.
10. The learned Departmental Representative tried to distinguish the aforesaid decision in the case of Indian Aluminium Co. Ltd. (supra) by saying that in that case the Revenue did not file affidavit to show that intimation was signed earlier to commencement of the regular assessment proceedings. This is not correct. The affidavit was to be filed to show that intimation was issued and subsequent thereto it came to the knowledge of the AO that for some reasons or the other he has not been able to ensure that the assessee has not underpaid the tax. In the present case, as observed even by the learned AM, there is no clear evidence as to which of the two actions was taken and completed first by the AO. There is clear evidence that proceedings under both the sub-sections were taken simultaneously. Having regard to the fact that the proceedings under Section 143(2) stood initiated, there was no legal justification on the part of the AO to issue intimation.
Intimation made is held to be contrary to the scheme of IT Act and is liable to be cancelled. I agree with the view of the learned JM.12. The matter should now be placed before the regular Bench for disposal in accordance with law.
1. In conformity with the order passed by the Hon'ble President, Tribunal, dt. 5th Jan., 2006, the proceedings initiated under Section 143(1)(a) are hereby quashed.