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Judgment
Motilal B. Naik, J.—This ITC is filed u/s 256(2) of the Income Tax Act, 1961 against the decision of the Income Tax Appellate Tribunal, Hyderabad ''B'' Bench in RA No.3817Hyd/94 dated 23-1-1995, by the Commissioner of Income Tax, Andhra Pradesh-I, Hyderabad, seeking a direction from this Court to the Income Tax Appellate Tribunal (For short ''the Tribunal'') to state the case and refer the following questions of law formulated by it, for the opinion of this Court, viz-,
(1) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in vacating the order u/s 263 dated 17-3-1993 passed by the CIT?
(2) Whether on the facts and in the circumstances of the case, the ITAT is correct in law in coming to the conclusion that an assessment made u/s 143(3) can result in refund with effect from 1-4-1989?
The assessee-Company filed its return of income tax for the assessment year 1989-90 on 29-12-1989 admitting a net income of Rs-2,32,41,7307-. The return was processed u/s 143(1)(a) of the Income Tax Act accepting the returned income and an intimation to that effect was issued to the assessee-Company on 11-6-1990 which resulted in a refund of an amount of Rs, 1,08,00,894/-. Out of the said amount, a sum of Rs.23,12,066/- was adjusted towards tax; arrears of the assessee for the assessment year 1986-87 and the balance of Rs.84,88,8287-was refunded to the assessee-Company.
Subsequently, the case of the assessee-Company was taken up for scrutiny u/s 143(3) of the Act on 27-3-1992. The Assessing Officer determined the taxable income at Rs.1,76,62,580/- which resulted in further refund of Rs.44,82,929/-. The Revenue was of the view that the income assessed by the assessing officer in respect of the assessee-Company u/s 143(3) of the Act cannot be lesser than the returned income shown by the assessee-Company and that the income of the assessee-Company cannot be assessed at a figure lower than the returned income shown in the return nor loss can be assessed at a figure higher than the returned loss nor a further refund can be given except what was due on the basis of the return which was already allowed while making the provisional assessment u/s 143(1)(a) of the Income Tax Act. The Revenue was of the further view that the order of assessment made by the Assessing Officer on 27-3-1992 is also contrary to the instructions of Central Board of Direct Taxes (for short ''CBDT'') in Ref. No.549, dated 31-10-1989. Under the above circumstances, the Commissioner of Income Tax (for short ''CIT'') initiated revisional proceedings u/s 263 of the Income Tax Act for setting aside the assessment order made by the Assessing Authority u/s 143(3) of the Act dated 27-3-1992. Accordingly, a show-cause notice was issued to the assessee-Company. In response to the show-cause notice, the assessee-Company filed written objections to the proposed revision. Before the CIT, the assessee-Company contended that the assessment order dated 27-3-1992 made by the Assessing Officer is in accordance with law and he had rightly allowed the deduction being the differential value of opening "and closing stocks by following consistently the method of valuation and the interest of the Revenue has not suffered. It was also contended by the asscssee-Company that in terms of Section 237 of the IT Act, the assessee-Company is entitled for the refund arising on the assessment or otherwise for the amount which has been paid in excess of the tax payable by it under the Act.
The CIT, however, rejected the objections raised by the assessee-Company and by his order passed u/s 263 of the Act, dated 17-3-1993, directed the Assessing Officer to modify the assessment order in such a way that the income determined would not be lesser than the returned income and no refund shall arise thereby.
As against the order passed by the CIT, dated 17-3-1993, which was passed u/s 263 of the Act. the assesscc-Company filed 1TA No.950(Hyd) of 1993 before the Income Tax Appellate Tribunal, Hyderabad ''B'' Bench, contending that the view taken by the CIT that with effect from 1-4-1989, an assessment made u/s 143(3) of the Act cannot result in a refund, is erroneous. On a consideration of the submissions and relevant provisions, the ITAT alloued the appeal filed by the assessee-Company and set aside the order dated 17-3-1993 passed by the CIT u/s 263 of the Act. by an order dated 30-3-1994. Aggrieved by the said order of the Tribunal dated 30-3-1994, the Revenue filed RA No.381/Hyd/94 u/s 256(1) of the Act formulating the two questions of law, as indicated above, and required the Tribunal to state the case and refer the questions of law for the opinion of this Court. However, by an order dated 23-1-1995, the Tribunal rejected the said RA holding that no referable questions of law arises for seeking the opinion of this Court. Against the said order of the Tribunal dated 23-1-1995, the Revenue has preferred the present 1TC u/s 256(2) of the IT Act.
Sri J.V. Prasad, learned standing Counsel for the Income Tax Department, appearing for the petitioner has submitted that when once a provisional assessment is made u/s 143(1)(a) of the Act, for all purposes, the assessment so made is final. But, however, in certain cases, the assessing authority is entitled to issue notice u/s 143(2) of the Act to the assessee and proceed to make a final assessment as provided u/s 143(3) of the Act. Learned Standing Counsel contended that when an assessment is made u/s 143(3) of the Act, the assessing authority is not empowered to assess the income at a lower figure than the returned income shown by the assessee nor loss can be assessed at a figure higher than the returned loss and no further refund could be given by the assessing officer over and above the refund already allowed while making the provisional assessment u/s 143(1)(a) of the Act. According to the learned Standing Counsel, when a provisional assessment is completed u/s 143(1)(a) of the Act, in exceptional circumstances, the assessing authority issues notice to the assessee u/s 143(2) of the Act and when such a notice is issued, the assessing authority has to look into those aspects only which are specified in the notice and has no power to dwell into the other aspects and order refund over and above the amount already allowed, while making a provisional assessment u/s 143(1)(a) of the Act. Learned Standing Counsel contended that with effect from 1-4-1989, the power u/s 143(3) of the Act available to the Assessing Officer to grant refund while completing assessment u/s 143(3) of the Act has been withdrawn and in the instant case, the assessing authority has exceeded in his powers and erroneously ordered refund. He further contended that the Commissioner of Income Tax was justified in setting aside the order dated 27-3-1992 passed by the assessing authority while directing him to modify the assessment order in such a way that the income determined shall not be lesser than the returned income and no refund shall arise thereby. While laying emphasis on the provisions of Section 143 of the Act and taking us to instructions issued by the CBDT dated 31-10-1989, learned Standing Counsel justified the action of the Commissioner of Income Tax. He contended that the Tribunal has erroneously set aside the revisional order passed by the Commissioner of Income Tax u/s 263 of the Income Tax Act, dated 17-3-1993. According to the learned Standing Counsel for Income Tax Department, the Income Tax Appellate Tribunal fell in error while accepting the submissions of the assessce-Company and the order of the Income Tax Appellate Tribunal in ITA No.950/Hyd/93 is contrary to the provisions of Section 143(3) of the Income Tax Act and also the instructions issued by the Central Board of Direct Taxes, dated 31-10-1989. According to the learned Standing Counsel, as against the order of the Tribunal, the Revenue filed RA No.381/Hyd/94 requiring the Tribunal to state the case and refer the two questions of law formulated by it for the opinion of this Court, but the Tribunal rejected the said RA. Learned Standing Counsel contended that the Tribunal ought to have held that the assessment made u/s 143(3) of the Act cannot result in determination of income at a figure lesser than the returned income and no refund of amount can be ordered. In support of his contentions, learned Standing Counsel for the Revenue has taken us to a decision of the Bombay High Court reported in LML LTD. AND ANOTHER Vs. M. K. VENKATARAMAN, ASSISTANT COMMISSIONER OF Income Tax AND ANOTHER., and contended that the scope of the provisions u/s 143(3) of the Act has been considered in the said decision in the light of the instructions issued by the CBDT and it was held that the assessing authority has no power to order refund while making the final assessment u/s 143(3) of the Act. Under these circumstances, learned Standing Counsel for the petitioner pleads to direct the Tribunal to state the case and refer the two questions of law formulated for the opinion of this Court.
Sri S.K. Ashok, learned senior Counsel who assisted this Court as amicus-curiae, has also supported the submissions advanced on behalf of the petitioner.
On behalf of the respondent-assessce, Sri Ravi S., learned Counsel, on the contrary submitted that the assessment made u/s 143(1)(a) of the Act is only a provisional assessment and whereas the assessment made u/s 143(3) of the Act is a final assessment. While making a final assessment u/s 143(3) of the Act, the assessing authority is entitled to look into the claims of the assessee and after satisfying the claims made the assessee towards deductions etc., the assessing authority has to determine the tax liability. Learned Counsel contended that the provisions u/s 143(3) of the Act cannot be interpreted so narrowly as to hold that the assessing authority has no power to grant refund at all even though the assessee is entitled to such refund after giving credit to such of those sums which are already paid either by way of advance tax or by way of tax deducted at source. Learned Counsel further contended that the provisions under sub-section (3) of Section 143 of the Act cannot be read in isolation but have to be read conjointly with sub-section (4) of Section 143 of the Act and on a combined reading of both these provisions, viz., sub-sections (3) and (4) of Section 143 of the Income Tax Act, it would be clear tliat the assessing authority is entitled to determine the tax liability including refund also. Learned Counsel further contended that u/s 143(3) of the Act, when a final assessment is made by the assessing authority, nothing precludes the assessing authority to determine the income at a lower figure than the returned income shown by the assessee. u/s 143(3) of the Act, what the assessing authority does is only to compute the taxable income and neither a demand nor refund is made. The demand is made only u/s 156 of the Act. The liability to pay income tax is provided under Sections 4 and 5 of the Act which are charging provisions and the other Sections only provide the mechanism to determine the liability. Learned Counsel further contended that under Sections 199 and 219 of the Act, credit of such taxes deducted at source and advance tax paid already are to be given and it is only u/s 237 of the Act if the taxes so paid by the assessee either by way of advance tax or tax deducted at source, after giving credit, if the tax liability is lesser than the tax paid, the assessee is entitled to seek refund u/s 237 of the Act. Counsel ncxtly contended that even assuming for a moment tliat the instructions issued by the CBDT dated 31-10-1989 precludes the assessing authority from granting refund, such instructions cannot have over-riding effect on the statutory provisions of the Income Tax Act. Learned Counsel, therefore, submits that no referable questions of law are involved in interpreting the provisions u/s 143(3) of the Act and justified the orders of the Tribunal.
In order to appreciate the rival contentions, it would be appropriate to refer to the provisions contemplated u/s 143 of the Income Tax Act, 1961.
Section 143(1)(a) of the Act provides for completing assessment which is a provisional "assessment by the assessing authority even with minor modifications in the returned income.
Section 143(2) of the Act further provides as under:
"Where a return has been made u/s 139, or in response to a notice under sub-section (1) of Section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the asscssee has not understated the income or has not computed excessive loss or has not underpaid 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 there, any evidence on which the assessee may rely in support of the return"
When a provisional assessment is made u/s 143(1)(a) of the Act even with minor alterations, an intimation is sent to the asscssee about the refund or otherwise in favour of the assessee. However, if the assessing authority is of the view that the asscssee has understated the income or computed excessive loss and underpaid the taxes, the assessing authority is entitled to issue a notice to the asscssee u/s 143(2) of the Act and seek the assessee to produce all such evidence in support of his claim and then proceed to make a regular assessment u/s 143(3) of the Act by giving him an opportunity.
Section 143(3) of the Act further provides as under:
"On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall," by an order in writing, make an assessment of the total income or loss of the asscssee, and determine the sum payable by him on the basis of such assessment."
Though the learned Standing Counsel for the Income Tax Department, appearing on behalf of the petitioner, has contended that the provisions contemplated under sub-section (3) of Section 143 of the Act do not empower the Assessing Officer to determine the income lesser than the returned income and he is no entitled to order refund, we are not inclined to accept such contention. It is seen that the language so used under clause (b) of subsection (3) of Section 143 gives an impression that the Assessing Officer has got the power to determine the tax liability and also to refund the excess amount to the asscssee. However, after amendment, the language employed by the Legislature u/s 143(3) of the Act does not implicitly say that the Assessing Officer is entitled to grant refund also. However, this does not mean that the Legislature has withdrawn the powers of the Assessing Authority to grant refund to the asscssee in appropriate cases. In our considered view, the provisions under sub-section (3) of Section 143(3) of the Act, cannot be read in isolation. Had it been the intention of the Legislature to prevent the Assessing Authority from granting refund to the assessee, then the insertion of sub-section (4) to Section 143 of the Act would lose its significance. It is interesting to note that through the amendment in the year 1989 which has come into force from 1-4-19S9 the Legislature inserted subsection (4) to Section 143 of the Act which reads as under:
143(4): Where a regular assessment under sub-section (3) of this Section or Section 144 is made :
(a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment;
(b) if no refund is due on regular assessment or the amount refunded under subsection (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the asscssee and the provisions of this Act shall apply accordingly."
On a reading of clause (b) of subsection (4) of Section 143 of the Act, it is clear that on an assessment made u/s 143(1)(a) of the Act, and such assessment results in refund, if such refund exceeds the amount refundable on regular assessment made u/s 143(3) of the Act, the whole or the excess amount so refunded shall be deemed to be the tax payable by the assessee. In other words, in the regular assessment, the tax liability is determined on the basis of giving credit to all the deductions the assessee is entitled to notwithstanding the fact of the assessment made u/s 143(1)(a) of the Act. On a careful examination of the words so used in clause (b) of sub-section (4) of Section 143 of the Act, we cannot borrow a different meaning than the one intended by flic Legislature to say that the Legislature did not visualise a situation permitting the assessing authority to grant refund also under regular assessment in favour of an assessee.
Though the learned Standing Counsel for the Income Tax Department has contended that in the decision cited Lml Ltd. and another Vs. M.K. Venkataraman, Assistant Commissioner of Income Tax and another, the Bombay High Court has examined the scope of Section 143(3) of the Act in the light of the circular issued by the CBDT and held that no refund can be granted to the assessee while completing the assessment u/s 143(3) of the Act, we are not prepared to accept the same. On a careful reading of the said decision, we find that the provisions u/s 143(3) of the Act did not fell for consideration before the Division Bench of Bombay High Court in the said decision. Only a casual reference was made to the amendment brought to Section 143 of the IT Act from the assessment year 1989-90 onwards. The Division Bench in the said decision has no occasion to deal with a question as to whether the Assessing Authority had the power to order refund while making a regular assessment u/s 143(3) of the Act. We are, therefore, of the view that this decision cannot render any assistance to the Revenue to say that the decision of the Bombay High Court is in line with the thinking of the Revenue. Merely because there are certain departmental instructions as provided in circular Ref.Na549 dated 31-10-1989 issued by the CBDT; we arc of the view, such instructions cannot overweigh the statutory provisions of the Income Tax Act and as such we are not persuaded to hold that the circular instructions of CBDT should bind the Assessing Authority even bypassing the provisions of the IT Act.
Having regard to the above discussion and in the light of sub-section (4) of Section 143 of the Income Tax Act which was inserted by way of amendment in the year, 1989, we are inclined to hold that the Assessing Authority is entitled to determine the quantum of refund also in a regular assessment made u/s 143(3) of the Act.
In the light of the above discussion, we are inclined to say that no referable question of law arises seeking the opinion of the High Court. The Tribunal, in our considered view, has rightly rejected the request of the Revenue. We sec no merits in the contentions raised on behalf of the Revenue.
We accordingly reject this ITC. No costs.