The Commissioner of Income Tax, Bangalore and Another Vs. Indramma and Others - Court Judgment

(Prayer: This ITA is filed under Section 260-A of I.T. Act, 1961, arising out of order dated 11.07.2005 passed in ITA No.1238/Bang/2002 for the Assessment years 1995-96 praying to formulate the substantial questions of law stated therein and allow the appeal and set-aside the order passed by the ITAT in ITA No.1238/Bang/2002 dated 11.07.2005 confirming the order of the Appellate Commissioner and confirm the order passed by the Deputy Commissioner, Central Circle -2(1), Bangalore.)RAVI MALI MATH, J1. In all these appeals the assessees are beneficiaries of the trust. Returns are being filed by the Trustee as well as the beneficiaries. During the course of search it was found that the assessees were not declaring their beneficial interest received from the Trust, along with the other income for the year in which the return of income was filed. Accordingly, the assessing authority added the beneficial interest received by the assessees and recomputed the tax liability while initiating penalty proceedings. Aggrieved by the same, the assessees preferred appeals before the Commissioner of Income Tax, who annulled the orders of the assessing authority and allowed the appeals, Aggrieved by the same, the revenue preferred appeals before the Tribunal. The Tribunal dismissed the appeals. Hence, the present appeals by the Revenue.2. The Tribunal while dismissing the appeals of the Revenue followed its own Judgment in the case of a connected assessee namely, that of Smt. Indramma (ITA 2785/2005) and Smt. Revathi Raju. The questions of law and the facts in all the appeals are identical. Hence the facts in the case of Smt. Indiramma (ITA 2785/2005) are discussed.3. The assessee had filed a return of income under Section 139(1) on 31-3-1994 for the assessment year 1992-93 declaring a taxable income of Rs.3,11,279/-. The return of income was processed under Section 143 (1)(a) of the Act. A search took place in the group belonging to the assessee. During the course of post search Investigation it was found that the assessee had not been declaring her beneficial interest received from M/s. A.S.K. Brothers Family Trust in which the assessee was a beneficiary and which has not been offered for income in the hands of the assessee. The assessee filed a reply disputing the claim. The same did not find favour with the assessing authority who thereon recomputed the returns including the amount received from the Trust. Aggrieved by the same, the assessee preferred an appeal to the Commissioner of Income Tax. The Commissioner came to the conclusion that having accepted the returns filed by the trustee under Section 161 as well as the returns filed by the beneficiary under Section 139, it is not open to the assessing officer to re-exercise his option under Section 166 of the Act. He further came to the conclusion that in view of the scrutiny assessment under Section 143(3) having been concluded in the case of Smt. Revathi Raju, the facts of all other assessees being one and the same, the assessing officer is not entitled to take a second opinion. Therefore, he came to the conclusion that the assessing officer has committed an error in reopening the assessment. Accordingly, the assessment was set aside. Aggrieved by the same, the revenue preferred an appeal to the Tribunal. The Tribunal by the impugned order dismissed the appeals. Hence, the present appeals by the revenue.

4. The appeals have been admitted. In the majority of the appeals, identical questions of law have been framed. Even though the subject matter and the questions of law are the same, they have been worded differently in the other appeals. Both counsels submit that the questions of law already framed need to be reframed so as to make them comprehensive covering the substantial questions of law. Under these circumstances, the questions of law as formulated at the stage of admission are reformulated as follows:-

"1) Whether the Tribunal was correct in holding that the Assessing Officer invoking the jurisdiction under Section 166 of the Act cannot pass an order of assessment in the hands of the Assessee's beneficiary as was done by the Assessing Officer and reversed by the Appellate Commissioner?

2) Whether the Tribunal was correct in holding that an order of assessment has been passed in the hands of the assessee, when only a return had been submitted and an intimation had been passed under Section 143(1) of the Act which would not amount to regular assessment ?"

Counsels have accordingly addressed arguments on these two questions of law.

5. Sri Indra Kumar, the learned senior counsel appearing on behalf of the appellant's counsel contends that the Tribunal committed an error in passing the impugned order. The Tribunal committed an error in holding that in terms of the Circular No.157 issued by the CBDT, a choice was to be made by the Department to tax either the trustee or the beneficiary. He contends that the power has been exercised by the assessing authority under Section 166 of the Act. It clearly provides that nothing in the foregoing Section in this Chapter can prevent the direct assessment of the assessee. The returns said to have been filed under Section 161 comes under the very same Chapter. Therefore, the power exercisable under Section 166 of the Act cannot be curtailed even though an assessment has been made under Section 161. He further contends that a mere filing of a return does not constitute an assessment and hence the assessing officer was justified in reopening the assessment. In support of his case he relies on the judgment in the case of Mrs. ARUNDHATI BALKRISHNA vs. COMMISSIONER OF INCOME TAX reported in 177 ITR 275(SC) wherein it was held, that Section 166 of the Act clarifies that the provisions relating to the liability of a representative assessee will not prevent either the direct assessment of the person on whose behalf or for whose benefit it is receivable, or the recovery from such person, of the tax payable in respect of such income. The ITO has the option either to proceed either against the trustee or the beneficiary, but in either case, the income to be assessed must be the same sum. Reliance is also placed on the judgment in the case JYOTENDRASINHJI versus S.I.TRIPATHI and OTHERS reported in (1993) 201 ITR 611(SC) wherein it was held at para 21 as follows:-

“The Revenue has thus been given an option to tax the income from a discretionary trust either in the hands of the trustees or in the hands of the beneficiaries. This Court in C.R. Nagappa versus CIT (1969) 73 ITR 626 (SC) and the majority of High Courts have understood this section in this manner".

Hence he contends that if the assessing officer for whatever reason, has reason to believe that the income has escaped assessment, it confers jurisdiction on him to reopen the assessment in a case which is not covered by the proviso under Section 147. Reliance is also placed in the case of Commissioner of Income Tax versus Smt. KAMALINI KHATAU reported in 209 ITR 101 (SC) to contend that the Revenue has an option to assess and recover tax from either the trustees or the beneficiaries of a trust in respect of such income thereof, as has been distributed and received by the beneficiaries in the course of the accounting year. Sec.164 cannot be read as being a code in itself applicable to taxation of income of a discretionary trust. Liability of a trustee of a discretionary trust, is to be assessed to tax in respect of its income, is created by Section 161. Section 164 sets out only how such tax shall be charged when the income is not distributed, and when the income is distributed, Section 166 is merely clarificatory.

6. That the failure to take steps under Section 143(3) will not render the assessing officer powerless to initiate reassessment proceedings even though an intimation under Section 143(1) had been issued. That an intimation under Section 143 (1) cannot be treated to be an order of assessment and therefore, there being no assessment the question of change of opinion does not arise. He therefore contends that a mere filing of a return cannot amount to assessment. He therefore submits that the order of the Tribunal is erroneous and liable to be set aside.

7. Sri A. Shankar, the learned counsel appearing for the assessees contends that the Tribunal has rightly considered the position in law and hence no interference is called for. He submits that the return of income was filed by the trustee on behalf of the assessee for the assessment year 1992-93 disclosing the interest of the beneficiary. Accordingly an assessment has been made. The beneficiary has also filed Returns as an individual for the said period. Along with the returns she has also appended a note that she is a beneficiary from M/s. ASK Brothers Family Trust and that the share of the beneficiary income for the assessment year 1992-93 has not been included in the above said computation since the said income is assessable in the hands of the trustee. The returns filed have been assessed. Therefore, the order of the assessing officer in adding the beneficial interest, even though the same were assessed in the returns filed by the Trustee is therefore erroneous. That the Tribunal has rightly applied the provisions of law and held that the reopening of the assessment is erroneous.

8. He placed reliance on the Circular issued by the Central Board of Direct Taxes wherein it was stated that it has come to the notice of the Board that the assessment of the same income both in the hands of the trustee and the beneficiaries are being made. Therefore the Income Tax Officer at the time of raising the initial assessment should either choose the trust or the beneficiary, whichever is more beneficial to the revenue but however, the same cannot be assessed both in the hands of the trustee and the beneficiary.

9. In support of his case he relies on the decision reported in the case of C.A.ABRAHAM versus INCOME-TAX OFFICER, KOTTAYAM, AND ANOTHER reported in (1961) 41 ITR 425 (SC) to contend that the expression assessment is to be understood in a proper perspective and cannot be given a restrictive interpretation as sought to be made out by the Revenue. The word assessment has been used in its widest connotations and at times it is used to mean the computation of income or the determination of the amount of tax payable or the procedure for imposing the liability of tax etc. Therefore the word assessment has to be understood in the manner in which it is used and cannot be restricted only to mean a regular assessment of the returns filed. Reliance is also placed on the decision in the case of COMMISSIONER OF INCOME TAX versus Dr. DAVID JOSEPH reported in (1995) 214 ITR 658 (Ker) and contends that once a beneficiary is assessed, the trust cannot be assessed thereafter. Reliance is also placed on the decision of the Bombay High Court in the case of COMMISSIONER OF INCOME-TAX, BOMBAY CITY-I versus TRUSTEES OF MISS GARGIBEN TRUST (NO.1) AND OTHERS REPORTED IN (1981) 130 ITR 479 (Bombay) to contend that the mode of assessment provided under Sections 161 and 166 is really alternative to each other and therefore once the ITO has brought to tax the income in the hands of either the trustee or the beneficiary, the same income cannot be brought to tax in the hands of the other person.

10. Heard counsels and examined the material on record.

11. The returns filed by the Trustee under Section 161 in respect of the assessee beneficiary was assessed. For the very assessment year the assessee beneficiary filed her return under Section 139 which was also assessed. However, the assessee has appended a note to the returns filed by her as follows;-

"NOTE ON EXCLUSION

1. The assessee is a beneficiary in M/s. A.S.K. Bros. Family Trust, No.44, Race Course Road, Bangalore – 560 001 bestowed with 54/411 share of beneficial interest. The share of beneficial income for the Assessment Year 1992-93 has been excluded from the above computation of Total Income as the said income is assessable in the hands of the Trustee in respect of each of the beneficiary in terms of Sec 161(1) of I.T. Act, 1961.

2. The assessee is a beneficiary in M/s. A.S. Chinnaswamy Raju Bros. Family Trust No. 44, Race Course Road, Bangalore-1 bestowed with 50/420 share of beneficial interest. The assessee had been credited with Rs.13,635/- as her share of beneficial income. The said income is excluded from the above Computation of Total Income as the Income of the said Trust had suffered tax at maximum marginal rate."

The assessing officer came to the conclusion that there is no change of opinion by the assessing officer. That the Department has not taken any stand prior to the reassessment. That the mere processing of a return on an intimation being sent does not amount to taking an opinion. Section 143(1) prohibits taking an opinion and requires the Department to compute the taxes collectable where two opinions are possible. He was of the opinion that the provisions of Section 161 provides only for taxing the income in the hands of the representative assessee whereas Section 166 enables the assessing officer to assess the beneficiary directly. That the choice to assess either the Trustee or the beneficiary directly can be exercised by the assessing officer. Therefore, the assessing officer has exercised his option of assessing the beneficiary under Section 166. Section 161 of the Act deals with the liability of the representative assessee. The Trustee has furnished the returns of income in respect of the beneficiary, namely, the representative assessee for the relevant period under Section 161. For the very same period the assessee has filed her individual returns wherein she has clearly mentioned in the Note which has been submitted along with the return with regard to her beneficial interest. The Revenue contends that the power under Section 166 overrides the provisions of Section 161 in as much as, notwithstanding the return of income being filed under Section 161, the assessing officer in terms of Section 166 can assess either the beneficiary or the Trustee. Under these circumstances, the assessment has been reopened.

12. (a) The Trustee has filed the return in respect of the beneficiary disclosing the beneficial income therein on which the assessment has taken place on the one hand and on the other hand the return filed by the beneficiary indicating the beneficial interest has also been assessed. It is therefore not open to the assessing officer to reopen the assessment in terms of Section 166 of the Act. The citations relied upon by the Revenue to contend that the assessing officer has the power under Section 166 to assess either the beneficiary or the Trustee does not require any elaboration. The returns have been filed for the year 1992-93 both by the Trustee as well as by the beneficiary. The assessments have taken place for both the returns. Having accepted the returns filed by making an assessment the assessing officer cannot subsequently invoke Section 166 of the Act and choose to re-assess either the Trust or the beneficiary. It is undisputed that the assessing officer has an authority under Section 166 to exercise his discretion to assess either the Trustee or the beneficiary, provided however, the same discretion has not been exercised earlier. In the present case, the assessment of the Trustee as well as the beneficiary having been concluded, the discretion is not available to the assessing officer at this point of time. The discretion as envisaged under Section 166 could have been exercised prior to any assessment by the assessing officer. Having assessed both the returns, the assessing officer is not authorized in law to re-exercise his discretion under Section 166.

(b) It is to be further noticed that the trustee has filed the returns disclosing the beneficial interest of the beneficiary and the same has been assessed to tax and tax has been paid thereon. Hence, the beneficial income has been taxed. Under these circumstances, the assessing officer has committed an error in bringing to tax the very same amount that has since suffered tax in the returns of the Trustee. It needs no elaboration that income cannot be taxed twice. The very income that has already suffered tax in terms of the return filed by the Trustee, is now sought to be taxed in the hands of the beneficiary. This is not permissible. Hence for this reason also, the order passed by the assessing authority cannot be sustained. Consequently, the view taken by the Appellate Authority and the Tribunal is just and proper and in accordance with law.

(c) In the returns filed under Section 139(1) by the beneficiary a note was appended to it. In terms of the note as extracted hereinabove at para-11, the beneficiary has clearly stated that the very same income is assessable in the hands of the trustee which forms part of the return filed by the trustee under Section 161(1) of the Act. While processing the returns under Section 139 the assessing officer is bound to consider the said note. The note filed along with the return has to be treated as part and parcel of the return filed, especially when the assessee has mentioned with regard to that particular income. The Note clearly mentions that the beneficial interest has been taxed in the return filed under Section 161 by the trustee and therefore the same is not included in the returns of the beneficiary. Under these circumstances, therefore, the issuance of a notice re-opening the assessment is erroneous. When the assessing officer was well aware of the said disclosure a notice for re-assessment would be wholly opposed to law.

(d) In view of the various anomalies being brought about with regard to the interpretation of Section 161 and 166 by the assessing officers, the CBDT has issued a Circular No.157, dated 26^th December, 1974 which reads as follows: -

"[2527] Assessment of discretionary trusts u/s. 164/166 of the Income-tax Act, 1961-Correct procedure.

'Attention is invited to Board’s Instruction No.45/78/66-ITJ(5), dated 24^th February, 1967, on the subject of assessment made under section 41(2)/166 of the Income-tax Act, 1922/1961. In spite of the clear instructions to the effect that neither section 41 of the Income-tax Act, 1922, which gave an option to the department to tax either the representative assessee or the beneficial owner of the income nor the parallel provisions of the Income-tax Act, 1961, contemplated assessment of the same income both in the hands of the trustees and the beneficiaries, instances have come to the notice of the Board of such double assessment.

2. According to the scheme of the Income-tax Act, 1961, even as it was under the Income-tax Act of 1922, the general principle is to charge all income only once. The Board desire to reiterate the earlier instructions in this regard. In order that there is no loss of revenue, the Income-tax Officer should keep this point in view at the time of raising the initial assessment either of the trust or the beneficiaries and adopt a course beneficial to the revenue. Having exercised his option once, it will not be open for the Income-tax Officer to assess the same income for that assessment year in the hands of the other person (i.e. the beneficiary or the trustee).

The Circular therefore very clearly states that even though the assessing officer has a discretion under Section 166, the same can be invoked only at the time of raising an initial assessment either by the Trust or the beneficiary and whichever may be beneficial to the Revenue. Having once exercised the option it will not be open to the ITO to assess the same income for the same period in the hands of other persons namely the beneficiary or the Trustee. As stated earlier, having accepted the assessments made by the Trust and the beneficiary, the exercise of discretion as vested under Section 166 of the Act is not available to the assessing officer once again. Moreover the said income has suffered tax by the returns filed by the trustee under Section 161. The same income is now sought to be taxed in the hands of the beneficiary in the returns filed under section 139. Under these circumstances, there has been a gross violation of the Circular issued by the Board.

In the facts and circumstances of this case, we hold that the Tribunal was justified in holding that the Assessing Officer cannot pass an order of assessment in the hands of the assessee beneficiary by invoking the jurisdiction under section 166 of the Act. For the aforesaid reasons the first substantial question of law is answered in favour of the assesee and against the revenue.

13. The second question of law is as to whether the Tribunal was correct in holding that an order of assessment has been passed when only a return has been submitted and when an intimation under Section 143(1) of the Act has been issued.

14. The learned counsel appearing for the revenue submits that a mere filing of a return does not constitute assessment. That unless the returns has been assessed it cannot be held that the assessments have taken place. On the other hand, the learned counsel appearing for the assessee contends that the submissions of the Revenue is wholly misconceived. That the assessments have taken place as disclosed from the records. The assessments of the trustee as well as the assessments of the beneficiary have both taken place.

15(a) The details of the returns filed by the trustee under Section 161 (1), the details of the returns filed by the beneficiary Smt. Indiramma under Section 139 (1) and the details of the notices issued are as follows:

DETAILS OF RETURNS FILED BY THE TRUSTEE U/S. 161(1)

ITA No.	Asst. Year	Date of filing	Income Declared	Tax Determined	Date of Intimation u/s 143(1)
2789/2005	1992-93	31.03.1994	33.443	2.632	28.06.1994
2787/2005	1993-94	31.03.1994	47.605	3.922	-
2786/2005	1994-95	30.06.1994	42.451	2.490	18.01.1995
5/2006	1995-96	29.6.1995	39.633	926	-
2785/2005	1996-97	31.03.1997	46.865	1.374	-

DETAILS OF RETURNS FILED BY THE BENEFICIARY U/S. 139(1)

ITA No.	Asst. Year	Date of filing	Income Declared	Tax Determined	Date of intimation u/s 143(1)
2789/2005	1992-93	31.03.1994	311.279	76.857	04,02.1995
2787/2005	1993-94	31.03.1994	171.292	53.670	04.02.1995
2786/2005	1994-95	24.02.1995	422.215	113.569	29.03.1995
5/2006	1995-96	07.03.1996	327.170	86.900	27.03.1996
2785/2005	1996-97	31.03.1998	40.030	214	21.03.1997

DETAILS OF NOTICES ISSUED TO THE BENEFICIARY

ITA No.	Asst. Year	Date of Issue of 148 Notice	Date of issue of 143(2) Notice	Date of Issue of 142(1) Notice	Date of order u/s 147
2789/2005	1992-93	21.01.2000	8.11.2000	15.10.2001	18.03.2002
2787/2005	1993-94	21.01.2000	8.11.2000	15.10.2001	18.03.2002
2786/2005	1994-95	21.01.2000	8.11.2000	15.10.2001	18.03.2002
5/2006	1995-96	21.01.2000	8.11.2000	15.10.2001	18.03.2002
2785/2005	1996-97	21.01.2000	8.11.2000	15.10.2001	18.03.2002

In the case of the sister assessee namely, Smt. Revathi Raju for the assessment year 1992-93 a scrutiny assessment under Section 143(3) of the Act was made. The assessments were concluded in favour of the assessee. All the details pertaining to the beneficiary trust were disclosed therein. Smt. Revathy Raju and these asseesees were the beneficiaries of the very same trust. The facts in all the cases are identical. The note appended along with the returns filed under Section 139(1) of the Act of Smt. Revathi Raju was in identical terms to that of the assessees herein. Identical orders have also been passed for the assessees for all the other years. The assessing officer has proceeded mechanically and has passed identical orders. Even though independent orders have been issued, the orders are one and the same without any change. Under these circumstances, when the case of Smt. Revathi Raju for an assessment under Section 143(3) has been finalised, it is not permissible for the assessing officer to sit over the issue and change his opinion. An opinion formed is based on facts. When the facts are identical, the opinion so formed in one case is naturally applicable to the remaining cases. It would be erroneous to hold that the assessing officer is entitled to take a differing opinion on the same set of facts, for identical assessees, who are beneficiaries of the same trust and who have filed identical returns. Only because the assessees are different, a differing opinion in cases that are identical is impermissible. Herein, the assessing officer has already taken an opinion and has assessed the income in terms of section 143(3). The opinion pertains to the assessability of the income in the returns of the trustee and not in the returns of the beneficiary. Having concluded that the income is assessable in the returns of the trustee, he cannot now proceed against the sister assessee on the ground that the income is assessable in the returns of the beneficiary. Having once formed an opinion, issuance of the notice for re-assessment is therefore illegal and cannot be sustained. Therefore, the opinion as framed by the assessing officer in the case of Smt. Revathi Raju, equally applies to all other assessees since all the other assessees are equally placed with the same facts and the same returns. Hence, on this ground also the assessing authority has exceeded his jurisdiction.(b) The provisions of Section 143 has been amended on a number of occasions. The returns of the assessess pertain to the assessment year 1992-1993 to 1996-1997. For the said relevant period, Section 143(1) read as follows:Assessment-143 [(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 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 and an intimation to this effect shall be sent to the assessee:

xxxxxxx

xxxxxxx.

(2) Where a return has been furnished under Section 139, or in response to a notice under subsection (1) of Section 142, the Assessing Officer 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 under paid 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 his return.

Provided that no notice under this sub-Section shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished".

Therefore on the relevant date, in terms of sub-Section (1), when an intimation has been sent, such an intimation shall be deemed to be a notice of demand issued under Section 156 of the Act and shall apply accordingly. The intimation under Section 143(1) has been issued and therefore in terms whereof the said intimation shall be deemed to be a notice of demand issued under Section 156. Hence, when a notice of demand has been issued and the amount demanded has been paid, the question of reopening the assessments thereafter would not arise. Hence on this ground also, the proceedings are vitiated.

(c) A deemed notice of demand on an intimation being sent under sub-Section (1) is without prejudice to the provisions of sub-Section (2). Under sub-Section(2) the assessing officer after he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed the excess loss or has under paid the tax, can serve a notice on the assessee to produce any evidence which the assessee relies, in support of his return. However, the proviso imposes a limitation of 12 months from the end of the month in which the return furnished to issue a notice under sub-Section (2). The returns have been filed under Section 139 at the end of each financial year on the dates as noted in para-15(a). The notice under Section 143(2) has been issued beyond a period of 12 months from the end of the month in which the return has been furnished. The notice therefore is invalid in law and the proceedings as a consequence of the same has no force in law. Hence, on this ground also the re-opening of the assessment requires to be set aside.

(d) The appellate authority while considering the plea put forth and examining the entire material on record held at para (i) and (ii) as follows:-

“(i) In one of the cases, that is Smt. Revathy Raju for AY 1992-93 the issue has been accepted in favour of the assessee in a scrutiny assessment u/s 143(3) where there was a complete disclosure of all the details pertaining to the beneficiary interest. It is therefore not a case that the returns have been processed u/s 143(1)(a) where the Assessing Officer did not have any occasion to go into the details. It is also a fact that the Assessing Officer has proceeded mechanically and exactly identically in respect of each of the beneficiaries and hence if in one of the beneficiary's case the issue has been handled u/s 143(3) the Assessing Officer cannot now sit over the Judgement and change his opinion. I fully agree with this argument of the AR.

(Underlining is as per the original order).

(ii) There is no case of claim of any excessive loss deduction allowance or relief in the return for which invoking of Sec.147 is warranted”

The appellate authority therefore having considered the case of a sister assessee Smt. Revathy Raju, therefore came to the conclusion that the assessing officer could not change his opinion. This was also due to the reason that the assessing officer has mechanically passed the orders in respect to the remaining beneficiaries. It is for this reason that the appellate authority rightly came to the conclusion that the change of opinion is not permissible. The reasoning of the appellate authority is just and proper and in accordance with law. We do not find any error to interfere.

(e) The learned counsel appearing for the Revenue, relies on the decision in the case of ASSISTANT COMMISSIONER OF INCOME-TAX versus RAJESH JHAVERI STOCK BROKERS P. LTD., reported in (2007) 291 ITR 500(SC) to contend that a failure to take steps under Section 143(3) of the Act will not render the assessing officer powerless to initiate re-assessment proceedings even when an intimation under Section 143(1) has been issued. It was held at para-13 of the said Judgment as follows;-:

"13. One thing further to be noticed is that intimation under s.143(1)(a) is given without prejudice to the provisions of s.143(2). Though technically the intimation issued was deemed to be a demand notice issued under s.156, that did not per se preclude the right of AO to proceed under s.143(2). That right is preserved and is not taken away. Between the period from 1^st April, 1989 to 31^st March, 1998, the second proviso to s.143(1)(a), required that where adjustments were made under the first proviso to s.143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from 1^st April, 1998, the second proviso to s.143(1)(a) was substituted by the Finance Act, 1997, which was operative till 1^st June, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to s.143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between 1^st April, 1998 and 31^st May, 1999, sending of an intimation under s.143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word "intimation" as substituted for "assessment" that two different concepts emerged. While making an assessment, the AO is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to s.143(1)(a), no addition which is impermissible by the information given in the return could be made by the AO. The reason is that under s.143(1)(a) no opportunity is granted to the assessee and the AO proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under s.143(1)(a) indicates that the AO has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to s.143 by the Finance (No.2) Act of 1991 w.e.f. 1^st Oct., 1991, and subsequently w.e.f. 1^st June, 1994, by the Finance Act, 1994, and ultimately omitted w.e.f. 1^st June, 1999, by the Explanation as introduced by the Finance (No.2) Act of 1991 an intimation sent to the assessee under s.143(1)(a) was deemed to be an order for the purposes of s.246 between 1^st June, 1994, to 31^st May, 1999, and under s.264 between 1^st Oct, 1991, and 31^st May, 1999. It is to be noted that the expressions "intimation" and "assessment order" have been used at different places. The 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 s. 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 s. 143(1)(a) as it stood prior to 1^st April 1989, the AO had to pass an assessment order if he decided to accept the return, but under the amended 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 CBDT spell out the intent of the 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 Apogee International Ltd., versus Union of India (1997) 137 CTR (Del.) 93: (1996) 220 ITR 248 (Del). It may be noted above that under the first proviso to the newly substituted s.143(1), w.e.f.1^st June, 1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under s. 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgement is not done by any AO, 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 s.143(1)(a) was deemed to be a notice of demand under s.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. Therefore, there being no assessment under s.143(1)(a), the question of change of opinion, as contended, does not arise."

It is to be seen that at the relevant point of time namely, between the years 1992-93 to 1996-97, Section 143 read differently as clarified in the above Judgment. It has been further held that, when there is no assessment under Section 143(1)(a) of the Act, the question of change of opinion as contended does not arise. However, in the instant case, as mentioned hereinabove, the assessments have taken place under Section 143(3) of the Act and in so far as Smt. Revathi Raju is concerned, the same is concluded. The facts of all the beneficiaries cases are one and the same. The returns filed is one and the same. Separate orders have been passed under Section 143(3) in some of the sister assessees cases, based on the opinion having been taken by the assessing officer. In so far as Smt. Revathi Raju is concerned, the assessment has stood concluded. Therefore, it is to be held that the initiation of proceedings against the assessees amounts to a change of opinion. In the aforesaid judgment, there were no proceedings under Section 143(3). In the present case, the proceedings under section 143(3) were concluded. Therefore in the facts and circumstances of this case, it is to be held that since the assessments have taken place, the subsequent proceedings are opposed to law. Therefore, the Judgment relied upon has to be understood with reference to the facts and circumstances of this case. In the present case, since the assessment under Section 143(3) of the Act has taken place, the subsequent notice issued under Section 148 of the Act therefore would amount to change of opinion, which is impermissible.

(f) The returns filed by the trustee and the beneficiary are on various dates as mentioned hereinabove at para 15(a). However, an intimation determining the tax/refund due has been sent under Section 143(1) of the Act. In some of the intimations, a refund has also been made. The notice under Section 148 of the Act dated 21-1-2000 was issued to the assessee, almost 8 years after the date of filing of the returns for the assessment year 1992-93. Subsequently on 8-11-2000 a notice under Section 143(2) was also served. Thereafter, a notice under Section 142(1) of the Act dated 15-10-2001 was issued. The said notices have been issued to all the assessees herein on the said dates.

To exercise powers under Section 147 of the Act the assessing officer should have reason to believe that the income chargeable to tax has escaped assessment and consequently, subject to the provisions of Section 143 of the Act, assess or re-assess such income etc. Therefore, it is necessary that the assessing officer should have reason to believe that the income has escaped assessment. As the facts would disclose, there is no escapement of income in these cases. The income in question has been included in the returns filed by the trustee under Section 161 of the Act on the one hand and a note to that effect has also been appended along with the returns filed by the assessee under Section 139 of the Act. Escapement is when the income is not disclosed or when the suppressed income is identified etc. In the instant case, the income that is sought to have escaped assessment is the very income that has been disclosed in the returns filed by the trust under Section 161 of the Act. The same has even been mentioned in the returns filed under Section 139. All material particulars have been disclosed by the assessees. There is no concealment. Nor has anything been found during the course of search. Therefore, viewed from any angle it cannot be said to be an income that has escaped assessment and therefore liable for re-assessment. Hence, the notice issued is opposed to law. Moreover the notice issued under Section 148(1) of the Act is beyond the period of limitation. Therefore on these grounds also the notice issued is beyond the period of limitation which vitiates the proceedings.

Hence we hold that in the facts and circumstances of this case the Tribunal was justified in holding that an order of assessement has been passed in the hands of the assessee. For the aforesaid reasons, the second substantial question of law is answered in favour of the assessee and against the Revenue.