Brief of the Case
Supreme Court held In the case of ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. that Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.
Facts of the Case
The assessee filed its return of income for AY 2001-02 on 30th October, 2001 declaring total loss of Rs.2,70,85,105/-. The said return was processed under Section 143(1) accepting the loss returned by the respondent. Notice under Section 148 was issued on the ground that claim of bad debts as expenditure was not acceptable. On 12th May, 2004 a return of income declaring the loss at the same figure, as declared in the original return, was filed by the assessee under protest. Copy of the reasons recorded was furnished by the AO on the assessee request in November; 2004.The AO raised various objections, both on jurisdiction and merits of the subject matter recorded in the reasons. On 4th February, 2005 the AO disposed of the objections holding that the initiation of reassessment proceedings was valid and he had jurisdiction to undertake such an exercise. It is in the aforesaid backdrop of facts that the impugned notice under Section 148 dated 12th May, 2004 was challenged by the assessee.
Contention of the Assessee
The ld counsel of the assessee relied on the order of high court.
Contention of the Revenue
The ld counsel of the revenue submitted that the factual position involved in Adani Exports case (1999) 240 ITR 224 was entirely different. That was a case relating to Section 143 (3) and the present case relates to Section 143(1). He further submitted that distinction between the positions as under Section 143(1) vis-a-vis under Section 143(3) has been completely lost sight of by the High Court.
.Held by High Courts
The High Court allowed the writ petition following the decision of the High Court in Adani Exports v. Deputy Commissioner of Income Tax (Assessment) (1999) 240 ITR 224.
Held by Supreme Court
It is to be noted that substantial changes have been made to section 143(1) with effect from June 1, 1999. Up to March 31, 1989, after a return of income was filed, the Assessing Officer could make an assessment under section 143(1) without requiring the presence of the assessee or the production by him of any evidence in support of the return. Where the assessee objected to such an assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under section 143(1), but wanted to make an inquiry, a notice under section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, the officer had power to make assessment under section 143(3).
With effect from April 1, 1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted section 143(1) prior to the subsequent substitution with effect from June 1, 1999, in clause (a), a provision was made that where a return was filed under section 139 or in response to a notice under section 142(1), and any tax or refund was found due on the basis of such return after adjustment of tax deducted at source, any advance tax or any amount paid otherwise by way of tax or interest, an intimation was to be sent without prejudice to the provisions of section 143(2) to the assessee specifying the sum so payable and such intimation was deemed to be a notice of demand issued under section 156.
The first proviso to section 143(1) (a) allowed the Department to make certain adjustments in the income or loss declared in the return. These adjustment can be made on account of only apparent arithmetical errors in the return, accounts or documents accompanying the return, loss carried forward, deduction allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly, those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief.
The intimation under section 143(1) (a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(l)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us (D. K. Jain J) in Apogee International Limited v. Union of India [(1996) 220 ITR 248.
Under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any assessment is done by them? The reply is an emphatic no. The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise.
Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word reason in the phrase reason to believe would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991 (191) ITR 662], for initiation of action under section 147(a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. (Refer ITO v. Selected Dalurband Coal Co. Pvt. Ltd. [1996 (217) ITR 597 (SC)]; Raymond Woollen Mills Ltd. v. ITO [1999 (236) ITR 34 (SC)].
So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. Inevitable conclusion is that High Court has wrongly applied Adanis case which has no application to the case on the facts in view of the conceptual difference between Section 143(1) and Section 143(3).
Accordingly appeal of the revenue allowed.