Ita 243/10 & Conn v. Ita 243/10 & Conn

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE K.SURENDRA MOHAN FRIDAY, THE 2ND SEPTEMBER 2011 / 11TH BHADRA 1933 ITA.No. 243 of 2010() ------------------------------- ITA.219/COCH/2005 OF INCOME TAX APPELLATE TRIBUNAL, COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME TAX, COCHIN. BY ADV. SRI.JOSE JOSEPH, SC FOR INCOME TAX RESPONDENT/APPELLANT ---------------------------------------- M/S.ABAD FISHERIES, KOCHANGADI, KOCHI-2. BY SRI.G. SARANGAN, SENIOR ADVOCATE, ADV. SRI.P.BALAKRISHNAN. THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/09/2011, ALONG WITH ITA NO.254 OF 2010 AND CONNECTED CASES, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: ITA.No. 243 of 2010 APPENDIX APPELLANT'S ANNEXURES:- ANNEXURE A: COPY OF THE ASSESSMENT ORDER 143 (3) R.W.S. 147 DATED23/03/2001 FOR THE ASSESSMENT YEAR 1999-2000. ANNEXURE B: COPY OF THE ORDER DATED 29/11/2004 OF THE COMMISSIONEROF INCOME TAX (APPEALS). ANNEXURE C: COPY OF THE ORDER DATED 13/11/2009 OF THE INCOME TAXAPPELLATE TRIBUNAL, COCHIN BENCH ITA NO.219/COCH/2005. RESPONDENT'S ANNEXURES:- NIL. //TRUE COPY// P.S. TO JUDGE C.N.RAMACHANDRAN NAIR &K.SURENDRA MOHAN, JJ. ....................................................................I.T. Appeal Nos.243,254,258 & 263 of 2010 ....................................................................Dated this the 2nd day of September, 2011. C.R. JUDGMENT Ramachandran Nair, J. These are appeals filed by the Revenue challenging the orders ofthe Income Tax Appellate Tribunal declaring the re-assessmentscompleted on the respondent-assessee under Section 147 of the IncomeTax Act (hereinafter called “the Act”) for the assessment years 1999-2000, 2000-2001, 2002-2003 and 2003-2004 as invalid. We haveheard Senior counsel Sri.P.K.R.Menon appearing for the Revenue andSenior counsel Sri.G.Sarangan along with Adv. Sri.P.Balakrishnanappearing 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 intime and the returns were processed and intimations were also sent bythe Assessing Officer under Section 143(1) of the Act. However, whenthe Assessing Officer noticed escapement of income, he issued notice ITA 243/10 & conn. under Section 148 proposing to make income escaping assessmentunder Section 147 of the Act. Even though the assessee objected theproposal mainly by stating that in the absence of a regular assessmentunder Section 143(3) of the Act re-assessment under Section 147cannot be made, overruling the objections assessments were completedunder Section 147 of the Act, against which respondent-assessee filedappeals. In the appeals filed before the C.I.T.(Appeals), assesseeraised the very same technical contention that without making regularassessment under Section 143(3), re-assessment cannot be made underSection 147 of the Act. The CIT(Appeals) who heard the appeals forthe first two years, following the judgment of the Honourable SupremeCourt in COMMISSIONER OF INCOME TAX Vs. RAJESHJHAVERI STOCK BROKERS PVT. LTD. reported in 291 ITR 500upheld the re-assessments and dismissed the assessee's appeals.However, another C.I.T. (Appeals) who heard the appeals for the nexttwo years declared the reassessments invalid and allowed assessee'sappeals. On second appeals filed by the assessee and the Department, ITA 243/10 & conn. ITA 243/10 & conn. the Income Tax Appellate Tribunal following two decisions of theMadras High Court, one in CIT Vs. TCP LTD. reported in 323 ITR 346and another in CIT Vs. QATALYS SOFTWARE TECHNOLOGIESLTD. reported in 308 ITR 249 and the decision of the Delhi High Courtin KLM ROYAL DUTCH AIRLINES Vs. ASST. DIRECTOR OFINCOME TAX reported in 292 ITR 49 upheld the contention of theassessee that within the time provided for regular assessment underSection 143(3) after issuing notice under Section 143(2), no re-assessment is permissible under Section 147 of the Act. It is againstthese orders Revenue has filed these appeals before us. 3. When Senior counsel appearing for the Revenue brought to ournotice that the assumption made by the Tribunal that re-assessmentsinitiated for the assessment years 1999-2000, 2000-2001 and 2002-2003 were within the time provided for issuing notice under Section143(2) of the Act for completion of regular assessment under Section143(3) was factually wrong and the time was in fact over for regularassessment, Senior counsel for the assessee fairly conceded that the ITA 243/10 & conn. Tribunal committed a factual error in this regard because time forissuing notice under Section 143(2) was over for all the three years andso much so, the assumption of the Tribunal that regular assessmentsunder Section 143(3) could have been completed for those years basedon which Section 147 orders were cancelled is wrong. It is clearlystated in the decision of the Supreme Court in RAJESH JHAVERISTOCK BROKERS' case (291 ITR 500) relied on by the Revenue thatabsence of a regular assessment under Section 143(3) of the Act doesnot bar re-assessment under Section 147 of the Act. Applying theactual factual position i.e. issuance of notice for re-assessment underSection 147 after expiry of the period provided for issuing notice underSection 143(2) for making regular assessment under Section 143(3),the two decisions of the Madras High Court and that of the Delhi HighCourt relied on by the Tribunal have no application. On the other hand,the decision of the Supreme Court squarely applies to the factualposition and, therefore, the Tribunal's orders for these three yearscannot be sustained. We accordingly allow the first three appeals, ITA ITA 243/10 & conn. Nos.243, 258 and 263 of 2010 by setting aside the orders of theTribunal and that of the C.I.T.(Appeals) for 2002-2003 and byrestoring the appeals back to the Tribunal for considering whether thereasons recorded pursuant to which reassessments were made underSection 147 justify the same. Assessee is free to argue appeals on meritbefore the Tribunal on re-posting of the appeals by the Tribunalpursuant to this judgment. 4. This leaves us with the question whether the Tribunal wasjustified in cancelling the re-assessment completed under Section 147for the assessment year 2003-2004 which was admittedly within theperiod provided for issuing notice under Section 143(2) and forcompleting the regular assessment under Section 143(3) of the Act.Senior counsel appearing for the Revenue contended that onceescapement of income is noticed by the department after issuingintimation under Section 143(1), the Assessing Officer is free to initiateproceedings under Section 147 by issuing notice under Section 148 orin other words, according to him, even within the time provided for ITA 243/10 & conn. regular assessment under Section 143(3) which is to be made afterissuing notice under Section 143(2), the Assessing Officer can makeincome escaping assessment under Section 147. Senior counsel for the Revenue relied on the following passage from the decision of theSupreme Court above referred: ITA 243/10 & conn. regular assessment under Section 143(3) which is to be made afterissuing notice under Section 143(2), the Assessing Officer can makeincome escaping assessment under Section 147. Senior counsel for the Revenue relied on the following passage from the decision of theSupreme Court above referred: “So long as the ingredients of section 147 are fulfilled,the Assessing Officer is free to initiate proceedings undersection 147 and failure to take steps under Section 143(3)will not render the assessing Officer powerless to initiatereassessment proceedings even when intimation underSection 143(1) had been issued” (at page 512 of 291 ITR500). (Underlining supplied) Senior counsel appearing for the respondent-assessee on the other handcontended that the decision of the Supreme Court lays down only oneproposition of law i.e. for making assessment under Section 147 of theAct, there is no need for a preceding regular assessment under Section143(3). However, according to assessee's counsel, when time forregular assessment under Section 143(3) after issuing notice underSection 143(2) is not over, the only course open to the department is tomake a regular assessment and not to resort to income escaping ITA 243/10 & conn. assessment under Section 147 of the Act. The specific contentionraised by the assessee's counsel based on the above decisions of Madrasand Delhi High Court is that even income not disclosed in the return bythe assessee could be brought to tax in a regular assessment which to becompleted under Section 143(3) by issuing notice under Section 143(2). So far as the two decisions of the Madras High Court areconcerned, the finding of the High Court is consistent in as much asaccording to them, if escaped income comes to the notice of theAssessing Officer after issuing intimation under Section 143(1), thecourse open to the officer is to issue notice under Section 143(2) and tomake regular assessment under Section 143(3) bringing to tax anyescaped income in respect of which information is available to theAssessing Officer. So much so, within the time available under theAct for issuing notice under Section 143(2) and for making assessmentunder Section 143(3) the Assessing Officer should not proceed to makean income escaping assessment under Section 147, whatever be thenature of the escaped income is the finding of the Madras High Court. ITA 243/10 & conn. On going through the facts with reference to which the Delhi HighCourt rendered the decision referred above, we notice that is a casewhere even after issuing notice under Section 143(2), the AssessingOfficer did not make a regular assessment. However, later theAssessing Officer issued notice under Section 148 and proceeded tomake assessment under Section 147 which was held by the Delhi HighCourt to be impermissible under the Act. 5. On going through the decisions of the Supreme Court referredabove, what we notice is that Supreme Court was not considering acase where re-assessment was initiated within the time available forissuance of notice under Section 143(2) and for making a regularassessment under Section 143(3) of the Act. So much so, the only legalposition laid down by the Supreme Court in the above decision is thatfor making a re-assessment under Section 147, a regular assessmentunder Section 143(3) is not required. Therefore, the contention ofSenior counsel for the Revenue that re-assessment is permissible underSection 147 even within the time provided for issuance of notice under ITA 243/10 & conn. 5. On going through the decisions of the Supreme Court referredabove, what we notice is that Supreme Court was not considering acase where re-assessment was initiated within the time available forissuance of notice under Section 143(2) and for making a regularassessment under Section 143(3) of the Act. So much so, the only legalposition laid down by the Supreme Court in the above decision is thatfor making a re-assessment under Section 147, a regular assessmentunder Section 143(3) is not required. Therefore, the contention ofSenior counsel for the Revenue that re-assessment is permissible underSection 147 even within the time provided for issuance of notice under ITA 243/10 & conn. 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 viewis that consistent decisions of different High Courts not contested bythe department in appeal before the Supreme Court should not bedisturbed by us, even if we don't agree with the view taken by otherHigh Courts. Going by the consistent view expressed by the MadrasHigh Court in the two decisions and that of the Delhi High Court in thedecision above referred, we have to only dismiss the appeal preferredby the Revenue for the year 2003-3004 for the reason that when noticewas issued for re-assessment under Section 147 of the Act, time forissuing notice under Section 143(2) for regular assessment was notover and the Assessing Officer could have brought to tax even incomehe considers as escaped in a regular assessment under Section 143(3) ofthe Act. However, since counsel for the Revenue has challenged thecorrectness of the decisions of the Madras and Delhi High Courts by ITA 243/10 & conn. referring to the decision of the Supreme Court above referred, we feel we should express our views on the subject. For this purpose weextract hereunder the relevant provisions with reference to which thematter has to be considered: “Assessment S.143(1) Where a return has been made under section139, or in response to a notice under sub-section (1) ofsection 142, such return shall be processed in the followingmanner, namely:- (a) the total income or loss shall be computed aftermaking 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 onthe basis of the total income computed under clause (a); © the sum payable by, or the amount of refund due to,the assessee shall be determined after adjustment of the taxand interest, if any, computed under clause (b) by any taxdeducted at source, any tax collected at source, any advancetax paid, any relief allowable under an agreement undersection 90 or section 90A, or any relief allowable undersection 91, any rebate allowable under Part A of ChapterVIII, any tax paid on self-assessment and any amount paidotherwise by way of tax or interest; (d)an intimation shall be prepared or generated and sentto the assessee specifying the sum determined to bepayable by, or the amount of refund due to, theassessee under clause ©; andto the assessee specifying the sum determined to bepayable by, or the amount of refund due to, theassessee under clause ©; and (e) the amount of refund due to the assessee inpursuance of the determination under clause © shall begranted to the assessee: ............ (2) Where a return has been furnished under Section139, or in response to a notice under sub-section (1) ofsection 142, the Assessing Officer shall,-- (d)an intimation shall be prepared or generated and sentto the assessee specifying the sum determined to bepayable by, or the amount of refund due to, theassessee under clause ©; andto the assessee specifying the sum determined to bepayable by, or the amount of refund due to, theassessee under clause ©; and (e) the amount of refund due to the assessee inpursuance of the determination under clause © shall begranted to the assessee: ............ (2) Where a return has been furnished under Section139, or in response to a notice under sub-section (1) ofsection 142, the Assessing Officer shall,-- (i) where he has reason to believe that any claim ofloss, exemption, deduction, allowance or relief made in thereturn is inadmissible, serve on the assessee a noticespecifying particulars of such claim of loss, exemption,deduction, allowance or relief and require him, on a date tobe specified therein to produce, or cause to be produced, anyevidence or particulars specified therein or on which theassessee may rely, in support of such claim: Provided that no notice under this clause shall beserved on the assessee on or after the 1[st] day of June, 2003; (ii) notwithstanding anything contained in clause (i), ifhe considers it necessary or expedient to ensure that theassessee has not under-stated the income or has notcomputed excessive loss or has not under-paid the tax in anymanner, serve on the assessee a notice requiring him, on adate to be specified therein, either to attend his office or toproduce, 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 servedon the assessee after the expiry of six months from the endof the financial year in which the return is furnished. Income escaping assessment. S.147. If the Assessing Officer has reason to believethat any income chargeable to tax has escaped assessmentfor any assessment year, he may, subject to the provisions ofsections 148 to 153, assess or reassess such income and alsoany other income chargeable to tax which has escapedassessment and which comes to his notice subsequently inthe course of the proceedings under this section, orrecompute the loss or the depreciation allowance or anyother allowance, as the case may be, for the assessment yearconcerned (hereinafter in this section and in sections 148 to153 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 therelevant assessment year, no action shall be taken under thissection after the expiry of four years from the end of therelevant assessment year, unless any income chargeable totax has escaped assessment for such assessment year byreason of the failure on the part of the assessee to make areturn under section 139 or in response to a notice issuedunder sub-section (1) of section 142 or section 148 or todisclose fully and truly all material facts necessary for hisassessment, for that assessment year: .............” ITA 243/10 & conn. Provided that where an assessment under sub-section(3) of section 143 or this section has been made for therelevant assessment year, no action shall be taken under thissection after the expiry of four years from the end of therelevant assessment year, unless any income chargeable totax has escaped assessment for such assessment year byreason of the failure on the part of the assessee to make areturn under section 139 or in response to a notice issuedunder sub-section (1) of section 142 or section 148 or todisclose fully and truly all material facts necessary for hisassessment, for that assessment year: .............” ITA 243/10 & conn. In our view, the sequence in which assessment has to be made by theAssessing Officer is very clear from Sections 143(1) to 147 of the Act.Sub-section (1) of Section 143 only authorises limited adjustments ofthe income returned permitting the Assessing Officer to makecorrections of essentially mistakes in the return which do not call forany enquiry or notice to the assessee. In other words, the AssessingOfficer can make adjustments in the return filed strictly in terms ofsub-clauses (a) to (c) of Section 143(1). As a result of this process, theAssessing Officer is free to raise demand or reduce the same andfollow-up intimation has to be issued to the assessee as required undersub-clause (d) of Section 143(1). If limited modification made by theofficer to returns filed does not result in any additional demand orreduction or refund, the Assessing Officer is not obliged even to sendan intimation to the assessee. The first proviso, however, requires thatan intimation has to be sent to the assessee even in a case where lossdeclared in the return by the assessee is adjusted or got reduced in theprocessing of return by the Assessing Officer without leading to any ITA 243/10 & conn. demand of tax. 6. So far as Section 143(2)(ii) is concerned, all what sectionauthorises the Assessing Officer is to take the assistance of the assesseeto establish correctness and completeness of his return and to prove theclaims made thereunder. There is nothing to indicate that theAssessing Officer should have any material on concealment of incomeor excess relief claimed by the assessee in the return filed. All what isrequired is subjective satisfaction of the officer that the return as suchis not acceptable without assessee establishing it's correctness andcompleteness for which he can issue notice for regular assessment.There is nothing to indicate that after issuance of the notice underSection 143(2), Assessing Officer should make an assessment underSection 143(3) in deviation from the return filed. In other words, evenafter issuance of a notice under Section 143(2)(ii) if the assesseeestablishes correctness and completeness of a return, regularassessment under Section 143(3) can be completed accepting the returnin 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 anincome escaping assessment and it can be made for the first time as anassessment, no matter whether assessee has filed return or not.However, the sine qua non for initiating proceedings under Section 147is information available with the officer that any income chargeable totax has escaped assessment within the meaning of that term explainedin the statute. It is a settled position that the Assessing Officer has torecord his reasons for initiating proceedings for assessment underSection 147 and notice has to be issued under Section 148 and ifassessee calls for justification for initiation of proceedings, theAssessing Officer is bound to communicate reasons for initiating theincome escaping assessment for any year against the assessee.Therefore, an income escaping assessment need not be based on returnfiled or the materials available therein or in the statement of accountsor documents attached thereto, but can be based on materialsindependently collected by the Assessing Officer and available withhim. In our view, Section 147 is a distinct and separate power conferred on the Assessing Officer to initiate action for assessment orre-assessment and the only condition provided in the statute is that theAssessing Officer has reason to believe that income chargeable to taxhas escaped assessment. This, however, does not mean that in order tomake an assessment or re-assessment, there should be already anassessment or even a return filed by the assessee. In our view, Section147 cannot be related to an intimation under Section 143(1) or aregular assessment under Section 143(3), though in a case whereassessee has filed return escaped income has to be determined withreference to income so returned or assessed. In other words, whetherreturn is filed or intimation sent or regular assessment is completed ornot, the Assessing Officer can initiate and complete an assessmentunder Section 147 for any year, if he has reason to believe that anyincome chargeable to tax has escaped assessment within the meaningof the said expression contained in the Act. As already stated, Section147 is a self-contained provision and the limitations and conditions areonly those specifically stated therein. This position is fortified by the first proviso to Section 147 which provides for extended period oflimitation for reassessment under Section 147 beyond four years aftercompletion of assessment under Section 143(3) only if assessee failedto disclose fully and truly all material facts necessary for assessment.Therefore, in our view, an assessment under Section 147 is permissiblesubject to the period of limitation stated therein, irrespective ofwhether the return was filed or intimation sent to the assessee orregular assessment under Section 143(3) after issuing notice underSection 143(2) of the Act was made or not. In other words, evenwithin the time available for issuing notice under Section 143(2) formaking regular assessment if the Assessing Officer is of the view thatmaterials available with him or discovered by him are such as to justifyincome escaping assessment under Section 147, he is free to record thereasons for the belief and proceed to make income escaping assessmentunder Section 147 without proceeding to make a regular assessmentunder Section 143(3) of the Act. 8. The view expressed by us is in conflict with the view 8. The view expressed by us is in conflict with the view expressed by the Delhi High court wherein they have held that oncenotice is issued for regular assessment under Section 143(2), theAssessing Officer has no authority to make income escapingassessment under Section 147 of the Act irrespective of whether theconditions of Section 147 are satisfied or not. However, as alreadystated, considering the consistent view taken by the Madras and DelhiHigh Courts that an income escaping assessment under Section 147cannot be completed within the time available for issuing notice underSection 143(2) of the Act and for completion of assessment underSection 143(3) and since these decisions remain unchallenged by thedepartment, we dismiss the departmental appeal for the year 2003-2004i.e. ITA No.254/2010. C.N.RAMACHANDRAN NAIRJudge K.SURENDRAMOHANJudge