M/S District Cooperative Bank Ltd. vs Deputy Commissioner of Income Tax

Shri Shakeel Ahmad, learned counsel for the petitioner assessee submits that in the assessment year 2007-08 the return of the assessee was accepted with a loss of Rs. 66, 70, 410/-. The assessment was completed on 24.12.2009.

A notice was given to the petitioner u/s 148 of the Income Tax Act, 1961 for filing return on the ground that during the course of audit proceedings conducted by RAP it was observed that the assessee had debited an amount of Rs. 5, 87, 16, 000/-and Rs. 31, 63, 868/-towards the provisions for Non-Performing Asset which was not allowable under the provisions of Section 36(1)(vii-a) of the Income Tax Act, 1961.

Instead of filing return u/s 148, the petitioner-assessee,in view of the judgment in GKN and Dirveshafts (India) Ltd. vs. ITO and other 259 ITR 19, filed objections against the notice dated 23.2.2011. The objections were decided on 19.9.2011, giving rise to this writ petition.

Shri Ashok Kumar, learned counsel appearing for the revenue submits that the order is appealable u/s 246(1)(a) of the Act.

Prima facie we do not find that a decision on the objections to a notice u/s 148 is an order which may be subjected to an appeal u/s 246(1)(a).

Shri Shakeel Ahmad submits relying upon the judgment of Supreme Court in Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, Indian Oil Corporation Vs. Income Tax Officer, Calcutta and Others, as well as the judgment in Commissioner of Income Tax Vs. Lucas T.V.S. Ltd., which has followed Indian and Eastern Newspaper Society v. CIT (supra) that the internal audit report findings cannot be treated as information u/s 147 of the Act. In Indian and Eastern Newspaper Society it was held as follows:-

(11)........Other provisions stress that the primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. Our attention has been invited to certain provisions of the Internal Audit Manual more specifically defining the functions of internal audit in the Income Tax Department. While they speak of the need to check all assessments and refunds in the light of the relevant tax laws, the orders of the Commissioners of Income Tax and the instructions of the Central Board of Direct Taxes, nothing contained therein can be construed as conferring on the contents of an internal audit report the status of a declaration of law binding on the Income Tax Officer. Whether it is the internal audit party of the Income Tax Department or an audit party of the Comptroller and Auditor-General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi-judicial acts of income tax authorities. The Income Tax Act does not contemplate such power in any internal audit organisation of the Income Tax Department; it recognises it in those authorities only which are specifically authorised to exercise adjudicatory functions. Nor does section 16 of the Comptroller and Auditor-General''s (Duties, Powers and Conditions of Service) Act, 1971 envisage such a power for the attainment of the objectives incorporated therein. Neither statute supports the conclusion that an audit party can pronounce on the law, and that such pronouncement amounts to "information" within the meaning of section 147(b) of the Income Tax Act, 1961.

(12). But although an audit party does not possess the power to so pronounce on the law, it nevertheless may draw the attention of the Income Tax officer to it. Law is one thing, and its communication another. If the distinction between the source of the law and the communicator of the law is carefully maintained, the confusion which often results in applying section 147(b) may be avoided. While the law may be enacted or laid down only by a person or body with authority in that behalf, the knowledge or awareness of the law may be communicated by anyone. No authority is required for the purpose.

In the present case no part of the income has escaped assessment. It is only loss which according to the revenue was not allowable under the Act.

Since the question relates to the exercise of jurisdiction of the Income Tax authorities to issue notice u/s 148, we find it appropriate to admit the writ petition. The revenue will file counter affidavit within four weeks.

List on 09.1.2012.

Until 9th January, 2012 further proceedings in pursuance to the notice u/s 148 of the Act dated 23.3.2011 and the order dated 19.9.2011 shall remain stayed.