Consolidated Coffee Ltd. Vs. Agricultural Income-tax Officer and Another - Court Judgment

K. Shivashankar Bhat, J.

1. The petitioner-company is a coffee grower. Its accounting year ended with June 30. The writ petition pertains to the assessment year 1988-89 (previous year ending on June 30, 1987). The petitioner submitted its annual return of income; along with the return the petitioner also submitted the audited accounts as well as the report of the auditor and a few other documents. The first respondent who is the assessing authority decided to make a provisional assessment under section 20 of the Karnataka Agricultural Income-tax Act, 1957 ('the Act', for short) while considering the return filed by the petitioner. In the process, the first respondent thought it fit to issue a proposition notice pointing out that the petitioner had estimated the value of the coffee at Rs. 8 per point and the petitioner has not disclosed any definite and specific principle or basis for arriving at this rate of Rs. 8 per point.Consequently,the first respondent proposed to apply rule 9(c) of the Rules which provides for the valuation of points under certain circumstances According to the first respondent, the rate per point declared by the Coffee Bard for the years 1984-85, 1985-86 and 1986-87 were Rs. 8.60, Rs. 12 and Rs. 8.15, respectively. The average of this came to Rs. 9.58. The first respondent proposed to apply this rate to the points 'returned' by the petitioner. It is unnecessary to refer to the other aspects referred to in the proposition notice. The petitioner objected to this. The objections were overruled and an order came to be passed by the first respondent under rule 12(2) of the Rules. According to the first respondent, the formula prescribed under rule 9(c) of the Rules for estimating the average rate for proposed by the first respondent in the proposition notice was applied while making an order under section 20 of the Act. This is under challenge in this writ petition.

2. Mr. Sarangan, learned counsel for the petitioner, contended that the procedure adopted by the first respondent was beyond the scope of section 20 and that, while making a provisional assessment under the said provision, the first respondent is not permitted to traverse beyond the requirement of making a provisional assessment of tax for which purpose he had to proceed only in a summary manner.

3. The learned Government Pleader on the other hand, contended that the very power to make a provisional assessment necessarily implied a power to consider the propriety of the basis on which the return is submitted and, in the instant case, the assessing authority found that the petitioner failed to disclose a definite principle behind the rate of Rs. 8 per point and, therefore, the assessing authority was justified in involving rule 9(c).

4. I am of the view that the question raised by the parties is fully covered by the principle enunciated by the Supreme Court which has been followed by this court also while considering the scope of section 20. Section 20(1) reads thus :

'20. Power to make provisional assessment in advance of regular assessment. - (1) The Agricultural Income-tax Officer may, at any time after the receipt of a return made under section 18, proceed to make in a summary manner, a provisions; assessment of the tax payable by the assessee, on the basis of his return and the accounts and documents, if any, accompanying it, after giving due effect to (i) the allowance referred to in paragraph (2) of the proviso to clause (c) of section 5, and (ii) any loss carried forward under section 15.'

5. As per section 20(3), there is no right of appeal against a provisional assessment. Further, the other parts of the provision provide for adjustments to be made after a regular assessment. There is also a statement that nothing done or suffered by reason of, or in consequence of any provisional assessment made under the section shall prejudice the determination on the merits in issue which may arise in the course of regular assessment under section 19. A reading of sub-section (1) makes it clear that the assessing authority shall have to proceed in summary manner to make a provisional assessment of the tax payable by the assessee. Section 20 is not a mandatory stage to be followed by the assessing authority in every case. It is purely optional assessment of the tax payable by the assessee. Section 20 is not a mandatory stage to be followed by the assessing authority in every case. It is purely optional to the assessing authority either to make a provisional assessment order or not. In an appropriate case, he may have recourse to section 20 to make a provisional assessment of the tax payable by the assessee, which itself indicates that the assessing authority shall have to compute the tax payable by the assess under section 20 and this computation shall have to be made by recourse to a procedure which is summary. Nowhere does section 20 contemplate a power in the assessing authority to reject the basis of the return and apply the standards found reasonable by the assessing authority. Since the return of the assessee has to be accepted the assessee is denied the right of appeal against the provisional order of assessment. In Jaipur Udyog Ltd. v. CIT : [1969]71ITR799(SC) , the Supreme Court was considering the scope of section 141 of the Income-tax Act, 1961, which also provides for making an order of provisional order of assessment. In Jaipur Udyog Ltd. v. CIT : [1969]71ITR799(SC) , the Supreme Court was considering the scope of section 141 of the Income-tax Act, 1961, which also provides for making an order of provisional assessment. In the said case, the assessing authority recomputed the aggregate losses of earlier years on the basis of the computation in the regular assessments for certain earlier years and he raised a demand based on this recomputation ignoring the computation made by the assessee in its return. The Supreme Court held that it was not open to the Income-tax Officer to reject or ignore the claim of the assessee made in the return, while the Officer was proceeding under section 141. In this regard, the Supreme Court observed (at page 805) :

'...... The scheme of section 141 is to call upon the assessee to pay tax provisionally at the appropriate rate on what he admits is his taxable income, subject to the benefit of the allowances under sub-section (2). The section does not permit an enquiry to be made whether the total income returned by the assessee exceeds the amount admitted by him, nor whether the allowances or deductions claimed are admissible. If there be a discrepancy between the return made and the accounts and documents accompanying the return, the Income-tax Officer may ask the assessee to explain the discrepancy, but he must make a provisional assessment on the basis of the return initially made or clarified and the accounts and documents filed. He cannot make a provisional assessment by holding that certain claims made by the assessee are in law unjustified. If it transpires that the assessee has without reasonable cause canceled particulars of his income or has furnished inaccurate particulars of his income, it may be open to the Income-tax Officer to impose penalty upon him after the regular assessment is completed.'

6. The Supreme Court thus clearly laid down that under section 141 of the Income-tax Act, an enquiry, at the stage of making a provisional assessment, into the disputed question of law and fact is not permitted.

7. In Salar Jung Sugar Mills Ltd. v. State of Mysore : [1971]81ITR509(KAR) , a Bench of this court applied the above ratio to section 20 of the Act. In the said case, certain deductions claimed by the assessee were not permitted by the Agricultural Income-tax Officer under section 20. This order was set aside by this court and the Bench pointed out (at page 510) that :

'..... The scheme of section 20(1) of the Act being similar to section 141 of the Income-tax Act, 1961, the assessing authority has power only to call upon an assessee to pay tax provisionally on what he admits as his taxable income.'

8. In fact, the application of rule 9(c) to the facts of any case cannot be resorted to as a matter of court by the assessing authority. certain jurisdictional facts shall have to be established before attracting the said rule as pointed out in Honey Comb Estate v. Agrl. ITO : [1991]191ITR472(KAR) . Either there should be a finding that the assessee has not employed a regular method of accounting or there should be a finding that it was not possible to estimate the income of the assessee from the method employed by the assessee. Certainly, this will be a matter to be considered at the stage of final assessment. The decision in Honey Comb Estate v. Agrl. ITO : [1991]191ITR472(KAR) Either there should be a finding that the assessee has not employed a regular method of accounting or there should be a finding that it was not possible to estimate the income of the assessee from the method employed by the assessee. Certainly, this will be a matter to be considered at the stage of final assessment. The decision in Honey Comb Estate's case : [1991]191ITR472(KAR) is relevant here only to point out that the said rule has its own limitations for the Revenue to apply.

9. I am of the view that the first respondent is not competent to apply a different rate for the points than the rates referred to by the petitioner in the return filed by it, while acting under section 20 of the Act.

10. Consequently, the provisional assessment order is set aside with liberty to the first respondent to recompute in the light of the observations made herein. It is unnecessary to go into any other questions in view of the above and those questions are left open.

11. Writ petition is, accordingly, allowed. Rule made absolute.