Commissioner of Income Tax vs Haryana State Handloom and Handicrafts Corporation Ltd.

Ajay Kumar Mittal, J.—This appeal has been preferred by the Revenue u/s 260A of the income tax Act, 1961 (in short "the Act") against the order dated July 8, 2002 passed by the income tax Appellate Tribunal, Chandigarh Bench "A", Chandigarh (hereinafter referred to as "the Tribunal") in I. T.A. No. 184/Del/1996 for the assessment year 1992-93 proposing to raise the following substantial question of law: Whether on the basis of the facts and in circumstances of the case, the learned income tax Appellate Tribunal have erred in law in cancelling the order u/s 154, when the same was passed for rectifying the intimation u/s 143(1)(a) dated August 25, 1994, on the basis of the second revised return filed on November 11, 1994?

Briefly stated, the facts of the case are that the assessee is a corporation owned by the State Government and filed its return on December 28, 1992 declaring nil income. The said return was processed u/s 143(1)(a), vide intimation dated January 22, 1993. Thereafter, the assessee filed a revised return accompanied by the audited accounts and report on December 16, 1993 declaring a loss of Rs. 47,62,880. While processing the revised return, the loss of the assessee was taken at Rs. 22,90,904, vide intimation dated August 25, 1994. The Assessing Officer took regular assessment of the assessee by issuing notice dated August 26, 1994. The assessee again filed a revised return showing loss of Rs. 9,09,580 on November 11, 1994, which was treated as invalid. The assessee objected to the intimation sent to it on August 25, 1994, claiming that the disallowance of any part of loss was not warranted u/s 143(1)(a) of the Act and the same be allowed through rectification. The Assessing Officer in the intimation sent to the assessee on August 25, 1994 found that the audited balance-sheet showed that the previous year''s income at Rs. 29,28,368 claimed in the profit and loss account was not added in the said intimation. Thereafter, the Assessing Officer initiated proceedings u/s 154 of the Act by issuance of notice dated September 26, 1994 and, vide order dated December 6, 199, added the said amount of Rs. 29,28,368 and reduced the loss claimed to Rs. 18,34,512. Resultantly, additional tax of Rs. 3,03,086 was imposed. Feeling aggrieved, the assessee took the matter in appeal before the Commissioner of income tax (Appeals) who, vide order dated October 13, 1995, confirmed the action of the Assessing Officer and dismissed the appeal. Still feeling dissatisfied, the assessee filed an appeal before the Tribunal who, vide order dated July 8, 2002, allowed the appeal holding that the order of the Assessing Officer and upheld by the Commissioner of income tax (Appeals) was not valid. Hence, the present appeal by the Revenue.

We have heard the learned counsel for the parties.

Learned counsel for the appellant has placed reliance upon the judgment of the Kerala High Court in Janatha Tile Works Ltd. Vs. Commissioner of Income Tax, ) to submit that there is no bar under the provisions of the Act to take recourse to section 154 of the Act even when a notice u/s 143(2) of the Act had been issued. On the other hand, learned counsel for the assessee supported the order passed by the Tribunal.

The only point that arises for consideration in this case is where notice u/s 143(2) of the Act had been issued, could proceedings be initiated for rectifying the intimation dated August 25, 1994, by taking recourse to section 154 of the Act.

It is not in dispute that notice u/s 143(2) was issued on August 26, 1994 whereas the proceedings u/s 154 of the Act were initiated thereafter by issuance of notice dated September 26, 1994.

The identical controversy arose before the Calcutta High Court in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others, , where the notice u/s 143(2) for regular assessment had been issued and thereafter the Assessing Officer was making certain adjustments and varying the intimation. It was held that such adjustment and intimation in respect of the assessment were ultra vires the section and liable to be set aside. It was concluded that once the notice u/s 143(2) had been issued there was no scope for the authorities either to make a prima facie adjustment on the basis of return as filed or issue an intimation u/s 143(1)(a).

The Calcutta High Court in Coates of Coates of India Ltd. Vs. Deputy Commissioner of Income Tax and Others (No. 1), , reiterated that where 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 was also held that apart from the fact that no notice u/s 154 being permissible in the circumstances of the case, the Assessing Officer himself could not have decided any debatable issue u/s 143(1)(a). The issue of notice u/s 154 by the Deputy Commissioner was seeking to correct the intimation u/s 143(1)(a) by introducing a matter which he could not have decided u/s 143(1)(a) in the first place. The Calcutta High Court was in fact following its earlier decision in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others,

In Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, , the Gujarat High Court examined the scope of sub-sections (1) and (2) of section 143 and held that after the issuance of notice u/s 143(2) of the Act, it is not open to the Assessing Officer to make adjustment or to pass an order u/s 143(1) of the Act, but he has to make assessment in accordance with law, that is, u/s 143(3) of the Act. The Gujarat High Court followed the principle laid down in the decision of the Calcutta High Court in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others,

Identical issue before the Delhi High Court in Commissioner of Income Tax Vs. Punjab National Bank, was answered by holding that rectification of an intimation cannot be made after issuance of notice u/s 143(2) and during the pendency of proceedings u/s 143(3). It was held that if any change was permissible to be effected, the same can be done in the assessment u/s 143(3) and not by exercising power u/s 154 to rectify the intimation issued u/s 143(1)(a).

Further, a Division Bench of this court i Commissioner of Income Tax Vs. Arihant Industries Ltd., had occasion to consider the said issue as has been raised in the present case. This court had followed the view of the Delhi High Court and the Gujarat High Court. The observations are as under:

Admittedly, the power u/s 154 can be invoked only to correct an error apparent on the record. The scope of proceedings u/s 143(2) is far wider. The competent authority had taken a view in the matter and issued a notice u/s 143(2) to the assessee. Such a notice is normally issued to ensure that the assessee has not understated the income or has not computed excessive loss or underpaid the tax. It is only on consideration of the matter and on being satisfied that it is necessary or expedient to do so that the Assessing Officer issues the notice u/s 143(2). Once that has been done, the Assessing Officer has to proceed under sub-section (3) and make an assessment of the total income or loss of the assessee and determine the sum, if any, payable by it. The consequences follow under sub-section (4).

It is no doubt correct that an error apparent on the record can be corrected u/s 154 of the Act. However, if parallel proceedings are permitted it would only result in waste of time. It would serve no purpose. Thus, it is not surprising that judicial opinion is consistently against the Revenue. A Division Bench of the Gujarat High Court in Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, has taken a similar view. Later on even a Division Bench of the Delhi High Court has considered the matter in Commissioner of Income Tax Vs. Punjab National Bank,

The scope and interpretation of section 143(1)(a) and section 143(1A) of the Act came up for consideration before the hon''ble Supreme Court in Commissioner of Income Tax Vs. Hindustan Electro Graphites Ltd., it was held as under (headnote):

Levy of additional tax bears all the characteristics of penalty. Additional tax was levied as the assessee did not in his return show the income by way of cash compensatory support. After the assessee had filed its return of income, which was correct as per law on the date of filing of the return, the cash compensatory support also came within the sway of section 28. When additional tax has the imprint of penalty the Revenue cannot say that levy of additional tax is automatic u/s 143(1A) of the Act. If additional tax could be levied in such circumstances it will be punishing the assessee for no fault of his. That cannot ever be the legislative intent. In the circumstances of the present case, levy of additional tax taking into account the income by way of cash compensatory support was not warranted.

The Apex Court had approved the decision in Modern Fibotex India Ltd. and Another Vs. Deputy Commissioner of Income Tax and Others,

We may now advert to the judgment of the Kerala High Court on which reliance has been placed by learned counsel for the Revenue. In Janatha Tile Works Ltd. Vs. Commissioner of Income Tax, the assessee had filed return of income on December 31, 1990 which was processed u/s 143(1)(a) on August 20, 1991 accepting the returned loss. The intimation was rectified u/s 154 of the Act on August 26, 1992 and additional tax was levied u/s 143(1A). The assessee contended that after completion of regular assessment u/s 143(3) on March 27, 1992, intimation u/s 143(1)(a) did not survive and recourse to section 154 of the Act was unwarranted. It was pleaded that levy of additional tax was, thus, unjustified. The argument of the assessee was rejected by the High Court and the judgments in Coates of India Ltd. Vs. Deputy Commissioner of Income Tax and Others (No. 1), Commissioner of Income Tax Vs. Punjab National Bank, and Gujarat Poly-Avx Electronics Ltd. Vs. Deputy Commissioner of Income Tax, were dissented from.

After thoughtfully considering the entire matter, in view of the aforesaid judgments, we are unable to subscribe to the interpretation accorded by the Kerala High Court in Janatha Tile Works Ltd. Vs. Commissioner of Income Tax,

It is, thus, concluded that proceedings u/s 154 of the Act for rectification cannot be initiated after issuance of notice u/s 143(2) by the Assessing Officer to the assessee. Accordingly, the question of law as proposed, is answered against the Revenue. The appeal is dismissed.