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Judgment
Girish Chandra Gupta, J.—The notices issued u/s 154 of the Income Tax Act, 1961, seeking to rectify summary assessments made u/s 143(1)(a) of the aforesaid Act for the assessment years 1990-91, 1992-93,1993-94 and 1994-95 are under challenge in this writ petition. The facts of the case briefly stated are as follows :
The petitioner, CESC Ltd., filed Income Tax returns u/s 139 of the Income Tax Act, 1961, claiming deduction on account of appropriation to contingency reserve. On this basis returns were filed for the assessment years 1990-91, 1992-93, 1993-94, 1994-95 and 1995-96. The Assessing Officer duly accepted the returns and issued intimation u/s 143(1)(a) up to'' the assessment year 1994-95 issuing refund orders from time to time from out of the tax deducted at source because in each of the aforesaid years the assessee had suffered losses. Besides that there was carry forward loss. In respect of each of the aforesaid assessment years notices u/s 143(2) of the Income Tax Act were issued and regular assessment u/s 143(3) of the Income Tax Act disallowing the appropriation to contingency reserve was made for the assessment years 1990-91 and 1992-93 against which appeals preferred by the petitioner are pending. In respect of the assessment year 1993-94 notice u/s 143(2) of the Income Tax Act (hereinafter referred to as "the Act") was issued on December 20, 1994, and in respect of the assessment year 1994-95 the notice u/s 143(2) of the Act was issued on November 27, 1995. The regular assessment in respect of the aforesaid two years is however pending. In respect of the aforesaid four several assessment years notices u/s 154 of the Act were issued during the period between March 19, 1996 and March 22, 1996. Each of the aforesaid notices is issued on the same ground and is backed by a covering letter containing identical matter. It would be enough to read one of those notices and the concerned covering letter.
The notice appearing at page 146 of the petition being part of annexure O reads as follows:
"The assessment order u/s 143(1)(a) for the assessment year 1994-95 made on March 2, 1995, requires to be amended as there is a mistake apparent from the record within the meaning of Section 154 of the Income Tax Act, 1961. The rectification of the mistake, as per particulars given below, will have the effect of enhancing the assessment/reducing the refund/increasing your liability.
If you wish to be heard, you are requested to appear in person or through an authorised representative in my office on March 26, 1996, at 11 a.m. Alternatively, you may send a written reply so as to reach me on or before the date mentioned above.
Particulars of mistake proposed to be rectified.
As per letter dated March 18, 1996."
The letter dated March 18, 1996, reads as follows :
"Return was filed by you on November 30, 1994, disclosing loss of Rs. 3,63,26,49,520 which was subsequently processed u/s 143(1)(a) on March 2,1995. A perusal of the computation of income, inter alia, revealed that the assessee-company has claimed deduction amounting to Rs.2,18,21,014 on account of appropriation to contingency reserve account. Such deduction has been claimed on the basis of the submission that deduction is allowable on the basis of certain appeal/reference before the appellate authorities and the High Courts.
The apex court in the case of Associated Power Co. Ltd. Vs. Commissioner of Income Tax, , has held that such deduction is not allowable business expenditure.
Since the judgment passed by the apex court has laid to rest any controversy on this issue, therefore, there is no question of doubt or debate involved any more.
In view of the cited decision as above, I therefore propose to rectify the intimation u/s 143(1)(a) dated March 2, 1995, u/s 154(1)(b).
In this connection you are requested to show cause to the undersigned by March 26, 1996, as to why the proposed action should not be taken."
Dr. Pal, learned senior advocate appearing in support of the petition, contended that notices u/s 154 of the said Act have been issued on the ground of a mistake apparent from the record and the alleged mistake apparent from the record is based on a judgment of the Supreme Court in the case of Associated Power Co. Ltd. Vs. Commissioner of Income Tax, , wherein the apex court held that appropriation to contingency reserve account is not an allowable business expenditure. The said judgment was delivered on November 28, 1995, whereas the intimations u/s 143(1)(a) were issued long prior thereto. He submitted that the question is "whether it is open to the Department to seek to rectify a regular assessment or a summary assessment on the ground of mistake apparent from the record based on a subsequent decision of the court ?"
He submitted that in an unreported judgment delivered by me in Matter No. 265 of 1995 Geo Miller and Co. Ltd. Vs. Deputy Commissioner of Income Tax and Others, the aforesaid question has been answered in the negative. He therefore submitted that the aforesaid notices u/s 154 of the said Act should be quashed.
He advanced an additional ground that in respect of the assessment years 1993-94 and 1994-95 notices have been issued u/s 143(2) calling upon the assessee to produce evidence in support of its return for a regular assessment. According to Dr. Pal once such a notice is issued, intimation issued u/s 143(1)(a) of the said Act cannot be rectified u/s 154. In support of his submission, he has relied on a Division Bench judgment of this court in the case of Commissioner of Income Tax Vs. Coventry Spring and Co. Ltd., . He therefore submitted that this is an additional reason why the notices issued u/s 154 should be quashed.
Mr. Saha, the learned advocate appearing on behalf of the Revenue, drew my attention to an Income Tax circular being No. 68, dated November 17, 1971 (see [1972] 83 ITR 6, issued by the Central Board of Direct Taxes stating that rectification can in fact be made on the ground of mistake apparent from the record on the basis of a subsequent decision of the High Court or the Supreme Court. The circular relied upon by Mr. Saha reads as follows :
"The Board are advised that a mistake arising as a result of subsequent interpretation of law by the Supreme Court would constitute ''a mistake apparent from the records'' and rectificatory action u/s 35/154 of the Income Tax Act, 1922/1961 would be in order. It has, therefore, been decided that where an assessee moves an application u/s 154 pointing out that in the light of a later decision of the Supreme Court pronouncing the correct legal position, a mistake has occurred in any of the completed assessments in his case, the application shall be acted upon, provided the same has been filed within time and is otherwise in order. Where any such applications have already been rejected and the assessee files fresh applications within the statutory time limit, the same may also be treated on par with the applications which may either be pending or received after the issue of this circular.
The Board desire that any appeals or references pending on the point at issue may please be withdrawn."
Mr. Saha also relied on the judgments, which I have already discussed in Geo Miller and Co. Ltd. Vs. Deputy Commissioner of Income Tax and Others, I, therefore, need not reiterate the same. Lastly, Mr. Saha relied on a Division Bench judgment of this court in the case reported in Indo Asahi Glass Company and Another Vs. Income Tax Officer and Others, , wherein it was held that a writ is not maintainable challenging a notice u/s 154 and that the assessee should take all his points before the Department itself. But that was a case in which the jurisdiction to issue the notices u/s 154 was not under challenge. The relevant portion of the judgment is as follows (page 539) :
"This is not a case where the jurisdiction of the Income Tax Officer to issue the show cause notice is under challenge. It is not disputed by any one that the Income Tax Officer did have the jurisdiction to issue the show cause notice. What is disputed by the appellant is their liability to pay tax, on the basis of the facts alleged in the notice."
In the case of Geo Miller and Co. Ltd. Vs. Deputy Commissioner of Income Tax and Others, regular assessment made u/s 143(3) of the said Act was sought to be rectified on the basis of a subsequent decision alleging that it was a mistake apparent from the record. This contention was negatived by me for reasons indicated therein which I need not reiterate.
Admittedly, in the case of all the four assessment years notices u/s 143(2) of the Act were issued and consequent thereto regular assessment in respect of the assessment years 1990-91 and 1992-93 have been completed. In the case of Commissioner of Income Tax Vs. Coventry Spring and Co. Ltd., a Division Bench of this court held as follows :
"The question before us is as follows :
''Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is justified in holding that intimation issued u/s 143(1)(a) cannot be rectified u/s 154 after issue of notice u/s 143(2) ?''
After the Assessing Officer issues intimation (under the old law then prevailing) u/s 143(1)(a), it is possible that both the Assessing Officer and the assessee say nothing and the matter rests there.
However, it was possible for the Assessing, Officer to issue a subsequent notice u/s 143(2) and to hear the assessee further before finalising the assessment.
However, the rectification procedure u/s 154 is not consistent with the issuance of Section 143(2) notice. In this case apparently the Assessing Officer passed the order of regular assessment on the same day as he sought to pass an order u/s 154 rectifying his initial intimation u/s 143(1)(a).
No fewer than three High Courts have frowned upon this type of double rectification and we, with respect, find ourselves in complete agreement with their Lordships'' views. The cases are as follows :
(1) Commissioner of Income Tax Vs. Arihant Industries Ltd.,
(2) Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, ; and . .
(3) Commissioner of Income Tax Vs. Punjab National Bank,
Accordingly, the question is answered in favour of the assessee and in the affirmative."
Dr. Pal has drawn my attention to a decision of the apex court in the case of Commissioner of Income Tax Vs. Gujarat Electricity Board, wherein their Lordships held that after issuing a notice u/s 143(2) an intimation u/s 143(1)(a) cannot be issued. It would be apposite to notice the judgment in some detail which reads as follows :.
"These appeals are directed against two orders of the Gujarat High Court dismissing appeals u/s 260A of the Income Tax Act, 1961, on the ground that no substantial question of law arose in the appeals. The High Court relied on its own earlier judgment in Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, and also on the fact that a similar view has been taken by other High Courts.
The short question which arises in these appeals is whether it is open to the Revenue to issue intimation u/s 143(1)(a) of the Income Tax Act, after notice for regular assessment has been issued u/s 143(2) of the Income Tax Act, 1961.
As far as the Gujarat High Court was concerned, the question was not res integra as it had before it the judgment in Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, and, therefore, the High Court was right in holding that a substantial question of law did not arise for determination. Mr. T.L.V. Iyer, learned senior counsel for the appellant, submits that the question needs to be decided by this court.
Learned counsel appearing for the respondents have pointed out that in a number of judgments several High Courts have consistently taken the view that once regular assessment proceedings have commenced u/s 143(2) of the Income Tax Act, 1961, it is a limitation on the jurisdiction of the Assessing Officer to commence proceedings u/s 143(1)(a) of the Act.
Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that Section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the Assessing Officer determining the income, it is open to the assessee to ask for rectification u/s 154. Apart therefrom, the provisions of Section 143(1)(a)(i) indicate that the intimation sent u/s 143(1)(a) shall be without prejudice to the provisions of Sub-section (2). The Legislature, therefore, intended that, where the summary procedure under Sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under Sub-section (2) of Section 143. The converse is not available; a regular assessment proceeding having been commenced u/s 143(2), there is no need for a summary proceeding u/s 143(1)(a).
In the result, we see no infirmity in the judgment of the High Court. The appeals are dismissed. There shall be no order as to costs."
The Division Bench judgment of this court, quoted hereinabove, answers the controversy raised before me squarely. The decision of the apex court noticed above, in my view, takes the matter a step further inasmuch as resorting to summary procedure u/s 143(1)(a) after issuance of a notice u/s 143(2) for regular assessment has been forbidden. If the Department cannot, after issuing a notice u/s 143(2) for regular assessment, resort to the summary procedure u/s 143(1)(a) can it not be said that the rectification of an intimation issued under the aforesaid section is also not permissible because in either case it would amount to activating Section 143(1)(a) of the Act which according to the judgment of the apex court is not permissible after issuance of a notice u/s 143(2).
Regular assessment for the assessment years 1990-91 and 1992-93 u/s 143(3) has been completed disallowing appropriation to contingency reserve as a business expenditure and appeals therefrom are pending., A further question therefore arises whether "summary assessment or the provisional assessment or to be more precise, the assessment made on the basis of the return itself u/s 143(1)(a) of the Act accepting appropriation to contingency reserve as an allowable expenditure merged in the order passed u/s 143(3) of the Act wherein the aforesaid appropriation to contingency reserve was disallowed ?" What was accepted in the intimation has been reversed in the regular assessment and the assessee has preferred an appeal which is pending. I am firmly of the view that this is a case where the theory of merger is bound to apply because the intimation issued u/s 143(1)(a) is no longer operative in respect of the assessment years 1990-91 and 1992-93. The only order which is effective and operative is the one passed u/s 143(3) of the Act. The order passed u/s 143(1)(a) ceased to be operative and merged in the final order. I am supported in my view by the following judgments.
In the case of Commissioner of Income Tax, Bombay Vs. Amritlal Bhogilal and Co., their Lordships stated the law with regard to merger as follows (page 136) :
"There can be no doubt that, if an appeal is provided against an order passed by a Tribunal, the decision of the appellate authority is the operative decision in law. If the appellate authority modifies or reverses the decision of the Tribunal, it is obvious that it is the appellate decision that is effective and can be enforced. In law the position would be just the same even if the appellate decision merely confirms the decision of the Tribunal. As a result of the confirmation or affirmance of the decision of the Tribunal by the appellate authority the original decision merges in the appellate decision and it is the appellate decision alone which subsists and is operative and capable of enforcement."
True, it is that in the above case, their Lordships were concerned with an initial order passed by the Tribunal and the subsequent order passed by the appellate forum and in those facts the aforesaid law was laid down. But the same principle in my view would be applicable as between a summary assessment and a regular assessment. The logic for this principle is to be found in the words of the apex court in the case of Kunhayammed and Others Vs. State of Kerala and Another, , wherein their Lordships stated the law as follows (page 368):
"The logic underlying the doctrine of merger is that there cannot be more than one decree or operative order governing the same subject matter at a given point of time."
In the case of M/s. Hindustan Aeronautics Ltd., Bangalore Vs. Commissioner of Income Tax, Karnataka- I, Bangalore, the apex court opined that where the Legislature intended to make a distinction as to where there will be no merger the Legislature has made express provision therefore. There is no provision in Section 143 of the Act that notwithstanding an order having been passed u/s 143(3) of the Act an order passed u/s 143(1) shall continue to subsist.
I am further fortified in my view by reason of the fact that Section 154(1A) of the Act provides that the rectification has to remain restricted to the matter which has not been considered and decided either in appeal or revision. There is no reason why the same restriction would not apply as between a summary assessment and regular assessment particularly when the appropriation to contingency reserve was allowed u/s 143(1)(a) but disallowed u/s 143(3).
I am also supported in my view by a single Bench judgment of this court in the case of Coates of India Ltd. Vs. Deputy Commissioner of Income Tax and Others (No. 1), wherein the following observations were made (page 501):
"As far as the first issue is concerned, in my view, an order u/s 143(1)(a) may or may not be followed by a regular assessment u/s 143(3). The option is with the Assessing Officer. The jurisdiction u/s 143(1)(a) is limited to the obvious and also to that which is deducible from the return as filed and only when there is no doubt or debate : See judgment of this court dated April 27,1994 (March 7,1994 ?) in Matter No. 4101 of 1992 : Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others, In such circumstances, the order becomes final in the sense that it is effective for the purposes of raising a demand on the assessee or obliging the Department to make a refund to the assessee.
Where, however, the order u/s 143(1)(a) is followed, by a regular assessment u/s 143(3), the order u/s 143(1)(a) in so far as it is contrary to the regular assessment u/s 143(3), ceases to be executable and becomes ineffective."
It follows that the effective and operative order is the one u/s 143(3) of the Act and therefore the question of seeking to rectify the order u/s 143(1)(a) of the Act can never arise.
In so far as the submission of Mr. Saha made on the basis of the circular issued by the Central Board of Direct Taxes, that a subsequent judgment may furnish the assessing authority with the jurisdiction to rectify an order on the ground of mistake apparent from the record, I think it would be apposite to read the relevant portion of the judgment in the case of M/s. Hindustan Aeronautics Ltd., Bangalore Vs. Commissioner of Income Tax, Karnataka- I, Bangalore, . In paragraph 6, their Lordships laid down the law in this regard as follows (page 811) ;
"However, learned counsel for the appellant relied on the decisions in Navnitlal C. Javeri Vs. K.K. Sen, Appellate Assistant Commissioner of Income Tax, ''D'' Range, Bombay, ; Ellerman Lines Ltd. Vs. Commissioner of Income Tax, West Bengal, Calcutta, and K.P. Varghese Vs. Income Tax Officer, Ernakulam and Another, , to contend that the circular issued by the Board u/s 119 of the Act is binding on the Commissioner in terms of which he was bound to examine the revision of the appellant on the merits and the order of the learned single judge Hindustan Aeronautics Ltd. Vs. Commissioner of Income Tax, Karnataka-I, merely gives effect to such a course. Dr. Gauri Shankar, learned senior advocate for the Revenue, however, pointed out by referring to several decisions of this court to the effect that the circulars or instructions given by the Board are no doubt binding in law on the authorities under the Act but when the Supreme Court or the High Court has declared the law on the question arising for consideration it will not be open to a court to direct that a circular should be given effect to and not the view expressed in a decision of the Supreme Court or the High Court. We find great force in this submission made by the learned senior advocate for the Revenue and find absolutely no merit in this appeal and the same stands dismissed, but in the circumstances of the case, there shall be no order as to costs."
In so far as the submission of Mr. Saha that the petitioner should be relegated to the departmental proceedings, the straight and simple answer is that an unjustified notice is a bad notice and there is no reason why the petitioner should wait until rectification is carried out u/s 154 of the Act.
For the aforesaid reasons, the notices u/s 154 seeking to rectify the intimation u/s 143(1)(a) for the assessment years 1990-91,1992-93, 1993-94 and 1994-95 are quashed. There will be no order as to costs.