1994-VIL-58-ITAT-CHN

Equivalent Citation: ITD 050, 001,

Income Tax Appellate Tribunal COCHIN

Date: 24.01.1994

KERALA STATE COIR CORPN. LTD.

Vs

DEPUTY COMMISSIONER OF INCOME-TAX.

BENCH

Member(s)  : G. SANTHANAM., SMT. P. K. AMMINI.

JUDGMENT

Per G. Santhanam, Accountant Member--This is an appeal by the assessee by name The Kerala State Coir Corporation Ltd., which is a company in which the public are substantially interested. The previous year relevant to the assessment year 1990-91 ended on 31-3-1990. The appeal is against the order of the CIT (Appeals) sustaining action under section 154 of the Income-tax Act, 1961.

2. The facts of the case in brief are: The appellant filed its return of income on 31-12-1990 admitting a total loss of Rs. 2,79,43,720 which consisted of loss for the current year amounting to Rs. 79,66,386 and the brought forward loss in a sum of Rs. 1,99,77,334. In arriving at such figure; the appellant, instead of taking the amount of depreciation allowable for the year at Rs. 10,79,912 under the Income-tax Rules, had taken the figure of Rs. 54,72,243 which represented the written down value of the assets rather than the depreciation admissible under the rules. The silly mistake in the statement accompanying the return which was reflected in the return went unnoticed and the Assessing Officer accepted the figure admitted in the return as such in what is purported to be an intimation dated 24-10-1991 under section 143(1)(a) of the Income-tax Act sent to the appellant. A copy of such intimation is found at page 13 of the paper book as follows:

ANNEXURE V

" INCOME TAX DEPARTMENT INTIMATION UNDER

SECTION 143 (1)(A) OF THE

INCOME TAX ACT, 1961

Pan Cy-5505 AO Code Acknowledgement No.

Name The Kerala State Asst. Yr. 90-91

Address Coir Corporation Status Co. D & CR No. Ltd., Alleppey Due Date of Return II(ii) 24

Return Filed on 91-92

Dear Sir/Madam

Please refer to your return of income for the above assessment year. The total income, tax and interest payable thereon/refund due to you and the interest thereon have been determined in accordance with section 143(1) of the Income-Tax Act, 1961, as under:

Rs. Taxes Rs.

Returned total income/loss 79,66,386(-) Tax on total income nil

Total income/loss after Surcharge  adjustment under section

143(1)(a) (The details of the adjustments are given in the enclosed Adjustment

Explanatory Sheet)

Net Agricultural income Additional tax u/s 143(1)(a)

Other income included for rate purposes.

Components of total income chargeable of special rates of Total tax

Section Amount (Rs.) Rate

Interest u/s 234A -----

D.M. u/s 234B ----- Pre-paid Taxes Nil. u/s 234C -----

TDS & Tax collectable at source - Total taxes interest nil payable

Advance Tax - Less Pre Paid Taxes -----

Amount Payable/

Self Assessment Tax & Refundable -----

Interest Interest payable ------to assessee ------

Total Prepaid Taxes Nil.

Total

Net Payable/

Refundable nil.

Sd/

Date : 24-10-1991 Signature, Name & Designation of

Place : Kottayam. the Assessing Officer

Still later, the Assessing Officer issued a notice dated 28-10-1991 requiring the presence of the assessee on 11-11- 1991 at his office at 10.00 a.m. and this notice has been issued under the provisions of section 143(2) of the Income-tax Act. When the case thus has been posted for hearing under the provisions of section 143(2), the Assessing Officer issued a notice dated 3-3-1993 under section 154 of the IT Act proposing to rectify the mistake found in the return which was unnoticed in the first processing under section 143(1) of the Act and the copy of the notice is as under:-

"No. Cy-5505/DC(A) KTM. Office of the

Deputy Commissioner of Income-tax (Asst.)

Spl. Range, Kottayam.

Dt. 3-5-1993.

To

The Kerala State Coir Corpn. Ltd.,

Alleppey.

Sir,

Sub: Computation under section 143(1)(a) for assessment year 1990-91

--- your own regd........

With reference to above it is to be informed that while processing return of income the following mistakes were not taken into account. They are as under :---

1. There is a claim for depreciation at Rs. 54,72,243. Actually this should be only at Rs. 10,79,912 as per depreciation statement enclosed along with the return of income.

2. There is an excessive claim under rule 6D at Rs. 12,920 as per 44AB report enclosed along with the return of income. These above two discrepancies are to be corrected. Therefore please file your objection if any for the proposed rectification. Your reply should reach this office on or before 9-3-1993. In case there is no compliance to this; it will be treated that you have no objection for the rectification. A notice under section 154/155 is enclosed herewith.

Yours faithfully,

Sd/--

(K. HARILAL NAICK)

Deputy Commissioner of Income-tax (Asst.)

Spl. Range, Kottayam."

However, the assessment under section 143(3) was completed on 6-3-1993 adopting the correct figure of depreciation in a sum of Rs. 10,79,912 and making certain disallowance under rule 6D of the Income-tax Rules and the unpaid interest to Kerala Finance Corporation thus determining the total loss for the year at Rs. 20,55,035. Further to this, the Assessing Officer passed an order under section 154 dated 10-3-1993 whereby he withdrew the excess depreciation allowed in the intimation sent to the appellant under section 143(1)(a) and levied additional tax on the difference at 20% resulting in a demand of additional tax of Rs. 4,75,767. This rectification was in respect of the intimation dated 24-10-1991. The assessee appealed. It was contended that the rectification order passed under section 154 can be considered only as an "intimation" and when such rectification was made on 10-3-1993, the provisions of section 143(1A) as they stood then did not envisage levy of additional tax in cases where the assessee's figure of loss was reduced but not converted into a figure of income. It was only by a retrospective amendment with effect from 1-4-1989 introduced in section 143(1A) by the Finance Act, 1993, that the additional tax is chargeable even in cases where the loss returned by the assessee though reduced did not result in an income. Therefore, at the time when the Assessing Officer sent the intimation dated 24-10-1991 or at the time when he rectified such intimation dated 10-3-1993, the retrospective amendment introduced by the Finance Act, 1993 was not then passed or received the assent of the H.E. the President of India. Therefore, the Assessing Officer had no jurisdiction to rectify the intimation as on 10-3-1993. This submission of the appellant's counsel was rejected by the learned CIT (Appeals) for the following reason:--

"Since the amendment has been introduced with retrospective effect from 1st April, 1989 it has to be taken that this was the law applicable from 1st April, 1989 onwards. The effect of the retrospective legislative amendment is that the provisions as amended shall, for all legal purposes, be deemed to have been included in the statute from the date on which the amendment came into force. All the orders relating to periods subsequent to the amendment must be in consonance with the amended provisions. In order to determine whether there is a mistake apparent on the records what is to be considered is the amended law and not the law that was in force at the time the original order was made. If an order is plainly and obviously inconsistent with the specific and clear provisions as amended retrospectively there is a mistake apparent from the record which can be rectified under section 154. In support of this view I would rely on the following decision:

M.K. Venkatachalam v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143. In view of the above decision it is clear that it has to be deemed that the correct position of law regarding chargeability of additional tax at the time when the rectification order dated 10th March, 1993 was passed is as per the amended provisions. In the circumstances I hold that no interference is called for in respect of the rectification order dated 10th March, 1993. Accordingly the same is upheld and the appeal is dismissed."

The assessee is on further appeal.

3. Sri C.K. Nair, the learned counsel for the assessee contended that in such cases one has to consider what was the law then when the Assessing Officer processed the application under section 143(1)(a). At that time there was no provision in the statute for the levy of additional tax in a case where the loss admitted in the return was either disallowed or reduced, but not resulting in the conversion of the loss into an income. Though there was a mistake in the record, in that the assessee had claimed excess loss in the return, that would not result in the levy of additional tax on the amount of the excess claim of loss in terms of the provisions of section 143(1A) as it stood then, nor at the time when the Assessing Officer rectified the "intimation" dated 24-10-1991 by an order under section 154 on 10-3-1993, the retrospective amendment envisaged by the Finance Act, 1993, had received the assent of the H.E. the President of India. So even at that point of time there was no provision in section 143(1A) of the Income-tax Act to levy additional tax on the amount of loss disallowed in the rectification order. Therefore, at the time when the Assessing Officer passed the impugned order levying additional tax on the amount of loss disallowed he was acting in excess of his jurisdiction. This lack of jurisdiction to levy additional tax at the time when the rectification was either proposed or given effect to cannot stand subsequently cured or made up in the light of the retrospective amendment to the provisions of section 143(1A). In this view of the matter, he drew support from the decision of the Calcutta High Court in the case of CIT v. General Electric Co. of India Ltd. [1978] 112 ITR 246. Sri C. Abraham, the learned senior departmental representative relied on the decisions of the Supreme Court in the case of S.A.L. Narayan Row v. Ishwarlal Bhagwandas [1965] 57 ITR 149 and M.K. Venkatachalam, ITO v. Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 and contended that in view of the retrospective amendment to section 143(1A) of the Income-tax Act, 1961, as inserted by the Finance Act, 1993, there was a mistake apparent from record in that the additional tax was not levied on the amount of loss disallowed by the Assessing Officer and, therefore, the same was rightly rectified under section 154 of the Act. Thus, he supported the order of the CIT (Appeals).

4. We have heard rival submissions and perused the records. When the Assessing Officer sent what is purported to be an "intimation" under section 143(1)(a) of the Income-tax Act or at the time when he rectified such an "intimation" under section 154 on 10-3-1993, the provisions of section 143(1A) are as follows :--

"(a) Where, in the case of any person, the total income, as a result of the adjustments made under the first proviso to clause (a) of sub-section (1), exceeds the total income declared in the return by any amount, the Assessing Officer shall,--

(i) further increase the amount of tax payable under sub-section (1) by an additional income-tax calculated at the rate of twenty per cent of the tax payable on such excess amount and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);

(ii) where any refund is due under sub-section (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (i)."

Therefore, on both occasions there was no scope for levy of additional tax on the amount of loss disallowed unless there was some tax payable to the Government or some refund was due to the assessee and in any case there was no scope for levy of additional tax on the amount of loss disallowed treating such amount as the income of the assessee. The substituted section 143(1A) providing for levy of additional tax even in case of disallowance of loss, treating the amount disallowed as the income of the assessee, was given retrospective effect from 1-4-1989 by the Finance Act, 1993, which received the assent of H.E. the President of India, only on 13-5-1993. The amended provision would, no doubt, give rise to a mistake (which will be) deemed to have occurred in the original intimation and continued right up to the time of rectification, but such a mistake was not apparent from record as the amended provision which was given assent on 13-5-1993 was not in existence at the time when the Assessing Officer rectified the order on 10-3-1993. The Calcutta High Court held that as a result of retrospective amendment. a mistake in the record may be deduced or presumed to be in existence, but its existence was not apparent from record. It is only mistakes apparent from record that can be rectified and not a mistake "deemed to be apparent" in the records. In this context we could do no better than extract the relevant passage from the judgment of the Calcutta High Court in the case of General Electric Co. of India Ltd. as occurring at pages 255 and 256:--

"The relevant and basic facts in instant case are that the Amending Act was promulgated in 1972. The order of assessment was made on the 4th November, 1960, and the order of rectification was passed on the 16th November, 1964 The law is well settled. If an Act is passed with retrospective effect the deeming provision must be given its full and logical effect. All the incidents which follow from retrospective legislation has to be given effect to. The proposition was laid down by Lord Asquith in the case of East End Dwellings Co. Ltd. v. Finsbury Borough Council [1952] Act 109, 132/[1951] 2 All ER 587, 599 (HL) in the following language:

'If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of rents. The statute says that you must imagine a certain state of affairs. It does not say that, having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs.'

This passage has been quoted with approval by the Supreme Court in the case of Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143. In the instant case the Amending Act has to be imagined as existing on the date of the order of assessment and on the date of the order of rectification, the amendment being retrospective, but would the records of any particular case change their character ?

The Amending Act no doubt would give rise to a mistake which will be deemed to have occurred in the original order of assessment and continued up to the time of the order of rectification. But should it be also deemed that such a mistake was apparent within the meaning of section 35. The apparency of a mistake has to be considered and established objectively. In the case of Bombay Dyeing & Mfg. Co. Ltd. [1958] 34 ITR 143 (SC), the amendment had already been promulgated when the Income-tax Officer sought to rectify under section 35 of the 1922 Act. The records as it stood at the relevant time disclosed an apparent mistake. In the case of Narayan Row [1965] 57 ITR 149 (SC), the Amending Act with retrospective effect was also in existence at the time when the Income-tax Officer proceeded to rectify the order and could determine whether the records disclosed an apparent mistake in the background of the amended Act. In the instant case the Amending Act came into existence long after the order sought to be rectified and the order of rectification. Therefore, at the relevant time, the mistake, though deemed, could not be apparent from the records. We do not propose to include the expression 'deemed to be apparent' in section 35 of the Act. We hold that though it could be deemed that there was a deemed mistake in the order at the relevant time yet there was no rectifiable mistake apparent on the face of the record."

In this view of the matter, we hold that when the rectification order was passed there was no mistake apparent from record as a result of the retrospective amendment to section 143(1A) of the Income-tax Act and, therefore, the levy of additional tax is deleted.

5. For another reason, which is all the more important, the levy of additional tax is liable to be deleted. Section 143(1)(a) substituted by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 and as further amended by the Direct Tax Laws (Amendment) Act, 1989, with effect from 1-4-1989, read as follows:--

" 143. Assessment.--(1)(a) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, 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 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:

Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:

(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;

(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available In such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed;

(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie in admissible, shall be disallowed:

Provided further that where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments:

Provided also that an intimation for any tax or interest due under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable."

Thus, an "intimation" is required to be sent by the Assessing Officer:--

(i) if any tax or refund is found due on the basis of the return furnished by the assessee;

(ii) in quantifying the amount of tax due from the assessee or the refund due to the assessee the Assessing Officer has the right to make certain specified adjustments and where such adjustments are made an "intimation" should be sent to the assessee even if nothing is found payable or refundable;

(iii) The intimation cannot be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.

"From the above, it will be evident that the Act has not provided for sending an "intimation" In a case where the return has been accepted in toto without any modification or adjustment and no amount was found payable by or refundable to the assessee by way of tax or interest. Against the above principles, we proceed to analyse the facts of the case. This is a case where the assessee had returned a loss. In arriving at the loss returned, it had incorrectly taken the amount of depreciation at Rs. 54,72,243 instead at Rs. 10,79,912. This called for prima facie adjustments envisaged in the first proviso to section 143(1)(a) of the Act. These adjustments were not made by the Assessing Officer. Therefore, the Assessing Officer is not empowered to send an "intimation" to the assessee in terms of the second proviso to section 143(1)(a) which is to the effect that:--

"Where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is due from him after making such adjustments."

Thus, we hold that the "intimation" dated 24-10-1991 (extracted in para 2 above) sent by the Assessing Officer is no "intimation" at all and has no legal sanction in terms of section 143(1)(a) read with the proviso thereto. It is non est in the eye of law. It is only when a valid "intimation" was already in existence and subsequently certain mistakes "apparent from record" were found therein, such "intimation" can be rectified under section 154(1)(b), but not otherwise. Since in this case, the Assessing Officer had invoked the provisions of section 154(1)(b) to rectify the errors found in a "non-existing intimation", we hold that he has acted in excess of jurisdiction. Therefore, the rectification order falls.

6. The provisions of section 143(1)(a) are "without prejudice" to the provisions of section 143(2). Under the provisions of section 143(2) in a case where the Assessing Officer wants to verify whether the assessee has understated the income or has not computed excessive loss or has not under-paid the tax in any manner, he may take up the case for regular assessment, popularly known as "scrutiny assessment" and for this purpose he is empowered to issue notice within the expiry of 12 months from the end of the month in which the return is furnished. The assessee's case was taken up for the regular assessment by issue of notice dated 28-10-1991, under section 143(2), which is within the time limit envisaged under the provisions of sub-section (2) of section 143. The time limit for the completion of the assessment in terms of section 153(a) is two years from the end of the assessment year in which the income was first assessable. Therefore, the regular assessment should be completed within 31-3-1993 in respect of the assessment year 1990-91. The time limit for sending an "intimation" under section 143(1)(a) is to the same extent under the third proviso to section 143(1)(a). Thus, the time limit in both cases, that is, in the case of "intimation" as well as in the case of regular assessment, is the same. In other words, the Assessing Officer has got certain options before him: (i) He can send an "intimation" to the assessee in the specified circumstances under section 143(1)(a) and recover the tax or interest due from the assessee or refund the excess payments within a period of two years from the end of the assessment year in which the income was first assessable, or (ii) he can make a regular assessment under section 143(3) within the said period of two years subject to the issue of notice under section 143(2) within 12 months from the end of the month in which the return is furnished or (iii) he can have a combination of both the options within the same two-year period to some extent. But these options are not unlimited options as they contain inherent restrictions, as for example, while the provisions of section 143(1)(a) are "without prejudice" to the provisions of section 143(2), such an expression is not found in section 143(2) in relation to section 143(1). Further, the provisions of section 143(2) are to be invoked within a period of 12 months from the end of the month in which the return is furnished and, therefore, a conscious decision had to be taken within that period whether a regular assessment should be made or not on the return furnished before the Assessing Officer. Therefore, from a comprehensive reading of section 143, we hold that once notice under section 143(2) is issued, the regular assessment proceedings get started and thereafter the Assessing Officer is not empowered to have or continue to have the preliminary proceedings under section 143(1)(a) of the Income-tax Act. To be more explicit, a validly initiated assessment proceeding under section 143(2) will prevail over and supersede the provisions of section 143(1)(a). This view of ours is strengthened from the fact that any tax paid under section 143(1) is deemed to be tax paid under the regular assessment and any excess refund given under section 143(1) is deemed as tax payable on regular assessment [see the provisions of section 143(4)]. Perhaps, realising this difficulty, the Board of Direct Taxes in its Circular No. 549, dated 31-10-1989 (182 ITR St. 19) at para 5.15 (Sampath Iyengar's Law of Income-tax, p. 4101, Eighth Edition, Vol. 4) have opined as follows :

"5.15. Whether in a case picked up for scrutiny an intimation or refund under section 143(1) (a) should be issued before completion of assessment under section 143(3).--A question has been raised as to whether in a case selected for scrutiny an intimation under section 143(1)(a) for any tax or interest found due from the assessee, or a refund under section 143(1)(a)(ii) found due to the assessee on the basis of the return of income or loss should be issued immediately and before completion of a regular assessment under section 143(3). In this connection it may be pointed out that the scheme of the new section 143 is such that action under section 143(1)(b) must be taken soon after the filing of the return to avoid delay in:--

(i) collection of demand which is already due on the basis of the return, or

(ii) issue of refund due on the basis of the return, failing which the Government would have to pay interest at 1.5 per cent per month under the provisions of new section 244A (refer to paras 11.1 to 11.9 in these Explanatory Notes). Once the case is picked up for scrutiny, the Department would normally get more than two years for completion of regular assessment under section 143(3). Therefore, collection of demand due or issue of refund due on the basis of return need not wait for such a long period. It may further be pointed out that no refund can now be granted on completion of an assessment under the provisions of section 143(3). For this reason also, action under section 143(1)(a)(ii) for issue of a refund on the basis of a return of income or loss must be completed before an assessment order under section 143(3) is passed in that case, as otherwise the provisions of section 143(1)(a)(ii) and 143(3) would get mixed up and may create confusion and uncertainty.

5.16. From the above discussion, it follows that even in cases selected for scrutiny it is desirable that action under section 143(1) (a) for issue of an intimation for any sum due from the assessee or for issue of a refund due to the assessee on the basis of the return must be completed soon after the filing of the return and in any case before completion of assessment under section 143(3). In fact, it will be preferable if action under section 143(1)(a) is completed even before the issue of a notice under section 143(2) in such cases."

In the instant case, we have already held that there was no valid "intimation" existing in terms of section 143(1)(a) of the Income-tax Act, read with the provisos thereto. Further, it is seen that the assessment proceedings under section 143(2) of the Act, which began on 26-10-1991 culminated in assessment order dated 6-3-1993. Therefore, the order under section 154 dated 10-3-1993 purporting to rectify certain mistakes in the "non-existing intimation" dated 26-10-1991 with a view to levy additional tax under section 143(1A) of the Act is without legal basis. The order of the CIT (Appeals) is set aside. The levy is cancelled.

7. In the result, the appeal is allowed.

 

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