The Commissioner of Income Tax, CochIn Vs. Abad Fisheries - Court Judgment

C.N. Ramachandran Nair, J.

1. These are appeals filed by the Revenue challenging the orders of the Income Tax Appellate Tribunal declaring the re-assessments completed on the respondent-assessee under Section 147 of the Income Tax Act (hereinafter called “the Act”) for the assessment years 1999-2000, 2000-2001, 2002-2003 and 2003-2004 as invalid. We have heard Senior Counsel Sri. P.K.R. Menon appearing for the Revenue and Senior counsel Sri. G. Sarangan along with Adv. Sri. P. Balakrishnan appearing for the respondent-assessee.

2. The facts leading to the controversy are the following. The assessee filed income tax return for all the above assessment years in time and the returns were processed and intimations were also sent by the Assessing Officer under Section 143(1) of the Act. However, when the Assessing Officer noticed escapement of income, he issued notice under Section 148 proposing to make income escaping assessment under Section 147 of the Act. Even though the assessee objected the proposal mainly by stating that in the absence of a regular assessment under Section 143(3) of the Act re-assessment under Section 147 cannot be made, overruling the objections assessments were completed under Section 147 of the Act, against which respondent-assessee filed appeals. In the appeals filed before the C.I.T. (Appeals), assessee raised the very same technical contention that without making regular assessment under Section 143(3), re-assessment cannot be made under Section 147 of the Act. The CIT(Appeals) who heard the appeals for the first two years, following the judgment of the Honourable Supreme Court in Commissioner of Income tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd. reported in 291 ITR 500 upheld the re-assessments and dismissed the assessee’s appeals. However, another C.I.T. (Appeals) who heard the appeals for the next two years declared the reassessments invalid and allowed assessee’s appeals. On second appeals filed by the assessee and the Department, the Income Tax Appellate Tribunal following two decisions of the Madras High Court, one in CIT v. TCP Ltd. reported in 323 IT 346 and another in CIT v. Qatalys Software Technologies Ltd. reported in 308 ITR 249 and the decision of the Delhi High Court in KLM Royal Dutch Airlines v. Asst. Director of Income Tax reported in 292 ITR 49 upheld the contention of the assessee that within the time provided for regular assessment under Section 143(3) after issuing notice under Section 143(2), no re-assessment is permissible under Section 147 of the Act. It is against these orders Revenue has filed these appeals before us.

3. When Senior counsel appearing for the Revenue brought to our notice that the assumption made by the Tribunal that re-assessments initiated for the assessment years 1999-2000, 2000-2001 and 2002-2003 were within the time provided for issuing notice under Section 143(2) of the Act for completion of regular assessment under Section 143(3) was factually wrong and the time was in fact over for regular assessment, Senior counsel for the assessee fairly conceded that the Tribunal committed a factual error in this regard because time for issuing notice under Section 143(2) was over for all the three years and so much so, the assumption of the tribunal that regular assessments under Section 143(3) could have been completed for those years based on which Section 147 orders were cancelled is wrong. It is clearly stated in the decision of the Supreme Court in Rajesh Jhaveri Stock Broker’s case (291 ITR 500) relied on by the Revenue that absence of a regular assessment under Section 143(3) of the Act does not bar re-assessment under Section 147 of the Act. Applying the actual factual position i.e. issuance of notice for re-assessment under Section 147 after expiry of the period provided for issuing notice under Section 143(2) for making regular assessment under Section 143(3), the two decisions of the Madras High Court and that of the Delhi High Court relied on by the Tribunal have no application. On the other hand, the decision of the Supreme Court squarely applies to the factual position and, therefore, the Tribunal’s orders for these three years cannot be sustained. We accordingly allow the first three appeals, ITA Nos.243, 258 and 263 of 2010 by setting aside the orders of the Tribunal and that of the C.I.T.(Appeals) for 2002-2003 and by restoring the appeals back to the Tribunal for considering whether the reasons recorded pursuant to which reassessments were made under Section 147 justify the same. Assessee is free to argue appeals on merit before the Tribunal on re-posting of the appeals by the tribunal pursuant to this judgment.

4. This leaves us with the question whether the Tribunal was justified in canceling the re-assessment completed under Section 147 for the assessment year 2003-2004 which was admittedly within the period provided for issuing notice under Section 143(2) and for completing the regular assessment under Section 143(3) of the Act. Senior counsel appearing for the Revenue contended that once escapement of income is noticed by the department after issuing intimation under Section 143(1), the Assessing Officer is free to initiate proceedings under Section 147 by issuing notice under Section 148 or in other words, according to him, even within the time provided for regular assessment under Section 143(3) which is to be made after issuing notice under Section 143(2), the Assessing Officer can make income escaping assessment under Section 147. Senior counsel for the Revenue relied on the following passage from the decision of the Supreme Court above referred:

“So long as ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under Section 143(3) will not render the assessing Officer powerless to initiate reassessment proceedings even when intimation under Section 143(1) had been issued” (at page 512 of 291 ITR 500).

(Underlining supplied)

Senior counsel appearing for the respondent-assessee on the other hand contended that the decision of the Supreme Court lays down only one proposition of law i.e. for making assessment under Section 147 of the Act, there is no need for a preceding regular assessment under Section 143(3). However, according to assessee’s counsel, when time for regular assessment under Section 143(3) after issuing notice under Section 143(2) is not over, the only course open to the department is to make a regular assessment and not to resort to income escaping assessment under Section 147 of the Act. The specific contention raised by the assessee’s counsel based on the above decisions of Madras and Delhi High Court is that even income not disclosed in the return by the assessee could be brought to tax in a regular assessment which to be completed under Section 143(3) by issuing notice under Section 143(2). So far as two decisions of the Madras High Court are concerned, the finding of the High Court is consistent in as much as according to them, if escaped income comes to the notice of the Assessing Officer after issuing intimation under Section 143(1), the course open to the officer is to issue notice under Section 143(2) and to make regular assessment under Section 143(3) bringing to tax any escaped income in respect of which information is available to the Assessing Officer. So much so, within the time available under the Act for issuing notice under Section 143(2) and for making assessment under Section 143(3) the Assessing Officer should not proceed to make an income escaping assessment under Section 147, whatever be the nature of the escaped income is the finding of the Madras High Court. On going through the facts with reference in which the Delhi High Court rendered the decision referred above, we notice that is a case where even after issuing notice under Section 143(2), the Assessing Officer did not make a regular assessment. However, later the Assessing Officer issued notice under Section 148 and proceeded to make assessment under Section 147 which was held by the Delhi High Court to be impermissible under the Act.

5. On going through the decisions of the Supreme Court referred above, what we notice is that Supreme Court was not considering a case where re-assessment was initiated within the time available for issuance of notice under Section 143(2) and for making a regular assessment under Section 143(3) of the Act. So much so, the only legal position laid down by the Supreme Court in the above decision is that for making a re-assessment under Section 147, a regular assessment under Section 143(3) is not required. Therefore, the contention of Senior counsel for the Revenue that re-assessment is permissible under Section 147even within the time provided for issuance of notice under Section 143(2) and for making regular assessment under Section 143(3) of the Act is not settled by decision of the Supreme Court. However, when this issue is before us for the assessment year 2003-2004, we have no escape from deciding it. At the same time our view is that consistent decisions of different High Courts not contested by the department in appeal before the Supreme Court should not be disturbed by us, even if we don’t agree with the view taken by other High Courts. Going by the consistent view expressed by the Madras High Court in the two decisions and that of the Delhi High Court in the decision above referred, we have to only dismiss the appeal preferred by the Revenue for the year 2003-2004 for the reason that when notice was issued for re-assessment under Section 147 of the Act, time for issuing notice under Section 143(2) for regular assessment was not over and the Assessing Officer could have brought to tax even income he considers as escaped in a regular assessment under Section 143(3) of the Act. However, since counsel for the Revenue has challenged the correctness of the decisions of the Madras and Delhi High Courts by referring to the decision of the Supreme Court above referred, we feel we should express our views on the subject. For this purpose we extract hereunder the relevant provisions with reference to which the matter has to be considered:

“Assessment

S.143(1) Where a return has been made under Section 139, or in response to a notice under sub-section (1) of Section 142, such return shall be processed in the following manner, namely:-

(a) the total income or loss shall be computed after making the following adjustments, namely:-

(i) any arithmetical error in the return; or

(ii) an incorrect claim, if such incorrect claim is apparent from any information in the return;

(b) the tax and interest, if any, shall be computed on the basis of the total income computed under clause (a);

(c) the sum payable by, or the amount of refund due to, the assessee shall be determined after adjustment of the tax and interest, if any, computed under clause (b) by any tax deducted at source, any tax collected at source, any advance tax paid, any relief allowable under an agreement under section 90 or section 90A, or any relief allowable under section 91, any rebate allowable under Part A of Chapter VIII, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest; (d) an intimation shall be prepared or generated and sent to the assessee specifying the sum determined to be payable by, or the amount of refund due to, the assessee under clause (c); and

(e) the amount of refund due to the assessee in pursuance of the determination under clause (c) shall be granted to the assessee:

….

(2) Where a return has been furnished under Section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall,--

(i) where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifying particulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced, any evidence or particulars specified therein or on which the assessee may rely, in support of such claim:

Provided that no notice under this clause shall be served on the assessee on or after the 1^st day of June, 2003;

(ii) notwithstanding anything contained in clause (i), if he considers it necessary or expedient to ensure that the assessee has not under-stated 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, any evidence on which the assessee may rely in support of the return:

Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.

Income escaping assessment.

S.147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereinafter in this section and in sections 148 to 153 referred to as the relevant assessment year):

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year:

….”

In our view, the sequence in which assessment has to be made by the Assessing Officer is very clear from Sections 143(1) to 147 of the Act. Sub-section (1) of Section 143 only authorises limited adjustments of the income returned permitting the Assessing Officer to make corrections of essentially mistakes in the return which do not call for any enquiry or notice to the assessee. In other words, the Assessing Officer can make adjustments in the return filed strictly in terms of sub-clauses (a) to (c) of Section 143(1). As a result of this process, the Assessing Officer is free to raise demand or reduce the same and follow-up intimation has to be issued to the assessee as required under sub-clause (d) of Section 143(1). If limited modification made by the officer to returns filed does not result in any additional demand or reduction or refund, the Assessing Officer is not obliged even to send an intimation to the assessee. The first proviso, however, requires that an intimation has to be sent to the assessee even in a case where loss declared in the return by the assessee is adjusted or got reduced in the processing of return by the assessing Officer without leading to any demand of tax.

6. So far as Section 143(2)(ii) is concerned, all what section authorises the Assessing Officer is to take the assistance of the assessee to establish correctness and completeness of his return and to prove the claims made thereunder. There is nothing to indicate that the Assessing Officer should have any material on concealment of income or excess relief claimed by the assessee in the return filed. All what is required is subjective satisfaction of the officer that the return as such is not acceptable without assessee establishing it’s correctness and completeness for which he can issue notice for regular assessment. There is nothing to indicate that after issuance of the notice under Section 143(2), Assessing Officer should make an assessment under Section 143(3) in deviation from the return filed. In other words, even after issuance of a notice under Section 143(2)(ii) if the assessee establishes correctness and completeness of a return, regular assessment under Section 143(3) can be completed accepting the return in the same way a return is accepted under Section 143(1) of the Act.

7. So far as Section 147 is concerned, in the first place, it is an income escaping assessment and it can be made for the first time as an assessment, no matter whether assessee has filed return or not. However, the sine qua non for initiating proceedings under Section 147 is information available with the officer that any income chargeable to tax has escaped assessment within the meaning of that term explained in the statute. It is a settled position that the Assessing Officer has to record his reasons for initiating proceedings for assessment under Section 147 and notice has to be issued under Section 148 and if assessee calls for justification for initiation of proceedings, the Assessing Officer is bound to communicate reasons for initiating the income escaping assessment for any year against the assessee. Therefore, an income escaping assessment need not be based on return filed or the materials available therein or in the statement of accounts or documents attached thereto, but can be based on materials independently collected by the Assessing Officer and available with him. In our view, Section 147 is a distinct and separate power conferred on the Assessing Officer to initiate action for assessment or re-assessment and the only condition provided in the statute is that the Assessing Officer has reason to believe that income chargeable to tax has escaped assessment. This, however, does not mean that in order to make an assessment or re-assessment, there should be already an assessment or even a return filed by the assessee. In our view, Section 147 cannot be related to an intimation under Section 143(1) or a regular assessment under Section 143(3), though in a case where assessee has filed return escaped income has to be determined with reference to income so returned or assessed. In other words, whether return is filed or intimation sent or regular assessment is completed or not, the Assessing Officer can initiate and complete an assessment under Section 147 for any year, if he has reason to believe that any income chargeable to tax has escaped assessment within the meaning of the said expression contained in the Act. As already stated, Section 147 is a self-contained provision and the limitations and conditions are only those specifically stated therein. This position is fortified by the first proviso to Section 147 which provides for extended period of limitation for reassessment under Section 147 beyond four years after completion of assessment under Section 143(3) only if assessee failed to disclose fully and truly all material facts necessary for assessment. Therefore, in our view, an assessment under Section 147 is permissible subject to the period of limitation stated therein, irrespective of whether the return was filed or intimation sent to the assessee or regular assessment under Section 143(3) after issuing notice under Section 143(2) of the Act was made or not. In other words, even within the time available for issuing notice under Section 143(2) for making regular assessment if the Assessing Officer is of the view that materials available with him or discovered by him are such as to justify income escaping assessment under Section 147, he is free to record the reasons for the belief and proceed to make income escaping assessment under Section 147 without proceeding to make a regular assessment under Section 143(3) of the Act.

8. The view expressed by us is in conflict with the view expressed by the Delhi High Court wherein they have held that once notice is issued for regular assessment under Section 143(2), the Assessing Officer has no authority to make income escaping assessment under Section 147 of the Act irrespective of whether the conditions of Section 147 are satisfied or not. However, as already stated, considering the consistent view taken by the Madras and Delhi High Courts that an income escaping assessment under Section 147 cannot be completed within the time available for issuing notice under Section 143(2) of the Act and for completion of assessment under Section 143(3) and since these decisions remain unchallenged by the department, we dismiss the departmental appeal for the year 2003-2004 i.e. ITA No.254/2010.