Rc/257/1996 Of The Commissioner Of Income Tax v. M/S. Satya Sai Marine (P) Ltd

THE HON’BLE SRI JUSTICE V.V.S.RAOAND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.257 OF 1996 Dated:28.12.2011 Between: The Commissioner of Income Tax,Visakhapatnam .. Appellant And Sri Satya Sai Marine (P) Limited, Visakhapatnam .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAOANDTHE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.257 OF 1996 ORDER:(Per the Hon’ble Sri Justice V.V.S.Rao) The Income Tax Appellate Tribunal, Hyderabad Bench ‘B’referred the following two questions for the opinion of the Court at the instance of the Revenue. 1.Whether an intimation u/s.143 (1)(a) which does notspeak of any tax payable or refund of tax can be rectifiedu/s.154 of the I.T. Act, 1961 or not?speak of any tax payable or refund of tax can be rectifiedu/s.154 of the I.T. Act, 1961 or not? 2.Whether calling for evidence for claims hit by provisionsof sec.43B which the assessee ought to have furnishedwith the return of income but did not is in the scheme ofsec.143(1)(a) or not?of sec.43B which the assessee ought to have furnishedwith the return of income but did not is in the scheme ofsec.143(1)(a) or not? At the outset, we may notice the brief fact of the matter. The respondent (hereafter, the assessee) filed their returns of theincome for the assessment years 1989-1990 and 1990-1991. The Income Tax Officer (ITO) processed the sameunder Section 143(1)(a) of the Income Tax Act, 1961 (the Act, forbrevity). The return of income declaring loss was acceptedwithout any order as to refund. An intimation under Section 143(1)(a) of the Act was also sent to the assessee. Subsequently, theITO in purported exercise of power under Section 154 of the Actissued notice for rectifying the intimation on the ground that someprima facie adjustments i.e., interest paid to financial institutionwas not disallowed – was not considered, which is a mistake. The assessee submitted explanation to the notice rejecting theobjections. The ITO passed two orders for two assessment yearson 28.11.1991 determining the income tax payable. Aggrievedthereby, the assessee went in appeal before the Commissioner ofIncome Tax (Appeals) (CIT(A)), Visakhapatnam. Finding that theassessing officer did not make any “adjustment” as per theprovisions of Section 143(1)(a) of the Act, the CIT(A) came to theconclusion that the non-statutory communication was not capableof being modified under Section 154 of the Act. Accordingly, theappeal was allowed. The Income Tax Appellate Tribunaldismissed the appeal filed by the Revenue as well as the crossobjections filed by the assessee holding that in the absence of anyvalid intimation, the question of rectification under Section 154(1)(b) does not arise. Aggrieved thereby, the Revenue sought thereference. This Court heard the Junior Counsel for the Income TaxDepartment and none appears for the respondent/assessee. Indeed, as seen from the statement of the case, even when theAppellate Tribunal considered the reference application, theassessee remained ex parte. Section 143(1) as amended by the Direct Tax Laws(Amendment) Act, 1987 with effect from 01.04.1989 with itsproviso reads as under. Section 143(1) as it stood between 01.04.1989and 31.05.1999-Section 143(1), as substituted(w.e.f.01.04.1989) and as subsequently amended from timeto time, prior to its substitution (w.e.f.01.06.1999) by theFinance Act, 1999, stood as under:- [(1) (a) where a return has been made under section139, or in response to a notice under sub-section (1) ofsection 142,- (i)if any tax or interest is found due on the basis ofsuch return, after adjustment of any tax deducted at Section 143(1) as amended by the Direct Tax Laws(Amendment) Act, 1987 with effect from 01.04.1989 with itsproviso reads as under. Section 143(1) as it stood between 01.04.1989and 31.05.1999-Section 143(1), as substituted(w.e.f.01.04.1989) and as subsequently amended from timeto time, prior to its substitution (w.e.f.01.06.1999) by theFinance Act, 1999, stood as under:- [(1) (a) where a return has been made under section139, or in response to a notice under sub-section (1) ofsection 142,- (i)if any tax or interest is found due on the basis ofsuch return, after adjustment of any tax deducted at source, any advance tax paid and any amount paidotherwise by way of tax or interest, then, withoutprejudice to the provisions of sub-section (2), anintimation shall be sent to the assessee specifyingthe sum so payable, and such intimation shall bedeemed to be a notice of demand issued undersection 156 and all the provisions of this Act shallapply accordingly; and (ii)if any refund is due on the basis of such return, itshall be granted to the assessee:shall be granted to the assessee: Provided that in computing the tax or interest payableby, or refundable to, the assessee, the following adjustmentsshall be made in the income or loss declared in the return,namely:- (i) any arithmetical errors in the return,accounts or documents accompanying itshall be rectified; (ii)any loss carried forward, deduction, allowance or relief, which, on the basis ofthe information available in such return,accounts or documents, is prima facieadmissible but which is not claimed in thereturn, shall be allowed.the information available in such return,accounts or documents, is prima facieadmissible but which is not claimed in thereturn, shall be allowed. (iii) Any loss carried forward, deduction,allowance or relief claimed in the return,which, on the basis of the informationavailable in such return, accounts ordocuments, is prima facie inadmissible,shall be disallowed.which, on the basis of the informationavailable in such return, accounts ordocuments, is prima facie inadmissible,shall be disallowed. Provided further that an intimation shall be sent to theassessee whether or not any adjustment has been made underthe first proviso and notwithstanding that no tax or interest isdue from him: Provided also that an intimation for any tax or interestdue under this clause shall not be sent after the expiry of twoyears from the end of the assessment year in which theincome was first assessable. When an assessee files return of income under Section 139of the Act, the assessing officer ordinarily has two coursesopened, (i) processing the return under Section 143(1) and (ii)undertaking assessment under Section 143(2) and (3) after complying with procedural requirements. The processing of returnunder Section 143 (1) only enables making of adjustments of anytax deductions at source, any advance tax paid and any amountpaid otherwise by way of tax or interest and sending an intimationto the assessee specifying the sum payable. In such case, theintimation shall be deemed to be notice of demand under Section156. If no adjustments are made and no intimation is sent beforethe expiry of two years from the end of the assessment year inwhich the income was first assessable, the law construes that thereturn of income has been accepted. In either case, the power ofrectification of mistake under Section 154 would not be availableprior to 01.04.1989. We may mention that Section 154 enablesrectification to a limited extent of enhancing or reducing theamount of refund granted by the assessing authority which onlymeans when adjustments are made, an intimation is sent underSection 143(1)(a), but such rectification cannot be permissiblewhen no intimation is sent or only a non-statutory communicationis sent. I n Assistant Commissioner of Income Tax v. Rajesh I n Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd[[1]], the Supreme Court had anoccasion to consider the effect of return of income beingprocessed under Section 143(1) of the Act. While dwelling uponthe scope of Section 143(1) (as it stood prior to 01.06.1999 andthereafter), the Supreme Court held that by making adjustmentsunder the first proviso to Section 143(1)(a) of the Act, no additionwhich is permissible by the information given in the return couldnot be made by the assessing officer. It was also held that underSection 143(1)(a) of the Act only recovery indicated in theintimation which is deemed to be notice of demand is permissible. The relevant observations are as follows. … The intimation under section 143(1)(a) was deemed tobe a notice of demand under section 156, for the apparentpurpose of making machinery provisions relating torecovery of tax applicable. By such application onlyrecovery indicated to be payable in the intimation becamepermissible. … Therefore, when an intimation under Section 143(1)(a) ofthe Act is silent as to the tax payable or refund of tax to be madethe rectification under Section 154 is not permissible. The second question as extracted hereinabove is withregard to deductions claimed by the assessee in the return ofincome which was processed. When the intimation is sent underSection 143(1)(a), it shall be deemed that the assessing officerhas accepted the claim for deduction under Section 143(1)(b) andtherefore the assessing officer cannot call for the evidence of suchclaims under Section 43B. With regard to deductions, it is alwaysopen to the assessing officer to issue notice under Section 143(2)and assess him under Section 143(3). But if the return isprocessed under Section 143(1) and an intimation is sent underSection 143(1)(a), the matter must rest there and calling for theinformation is not permissible. In the result, for the above reasons, we answer the firstquestion in the negative holding that the intimation under Section143(1)(a) cannot be rectified under Section 154 and we alsoanswer the question in the negative to the effect that theassessing officer cannot call for the evidence for claims underSection 43B, when the return of income is processed underSection 143(1)(a). Both the questions are answered in favour ofthe assessee and against the Revenue. The Referred Case shall stand disposed of accordingly. ________________(V.V.S. RAO, J) _____________________ (B.N.RAO NALLA, J) 28.12.2011 KH Under Section 143(1)(a) as it stood prior to April 1, 1989,the Assessing Officer had to pass an assessment order if hedecided to accept the return, but under the amended provision, therequirement of passing of an assessment order has beendispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spellout the intent of the Legistlature i.e., to minimize the Departmentalwork to scrutinize each and every return and to concentrate onselective scruity of returns. These aspects were highlighted byone of us (D.K. Jain J.) in Apogee International Limited v. Union ofIndia (1996) 220 ITR 248 (Delhi). It may be noted above thatunder the first provision to the newly substituted section 143(1),with effect from June 1, 1999, except as provided in the provisionitself, the acknowledgement of the return shall be deemed to be anintimation under section 143(1) where (a) either no sum is payableby the assessee, or (b) no refund is due to him. It is significantthat the acknowledgment is not done by any Assessing Officer,but mostly by ministerial staff. Can it be said that any “assessment” is done by them? The reply [1](2007) 291 ITR 500 (SC)