TMI Blog1982 (5) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 255(3) of the Act, the President of the Tribunal has constituted this Special Bench to consider and decide the issue, whether the provisions of section 144B would apply to a reassessment made in pursuance of the provisions of section 147. 2. As the legal issue, as stated earlier, is of considerable importance, certain other assessees have also participated in the arguments before this Bench, through their authorised representatives, as interveners, to assist the Bench in coming to a decision. On the request of the learned representative or the assessee, Shri R. Ganeshan, Shri N.K.P. Salve, the learned representative of the intervener Shakti Trading Co. Ltd.,Bombay, was allowed to advance his arguments on this issue, first. 3. Shri Salve argued that section 144B, in terms, applied only where an assessment is to be made under the provisions of section 143(3) of the Act. That section did not make any mention of an assessment under section 147. He pointed out that assessments under section 143(3) and under section 147 are conceptually and procedurally different from each other. An assessment under section 143(3), according to Shri Salve, concerned itself only with disputed ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or reassessment or recomputation under section 147, the ITO shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139 and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section, Shri Salve observed that a notice so issued did not become a notice under section 139(2) and the assessment completed by the application of the provisions of the Act, so far as they may be applicable, did not become an assessment under section 143(3) or 144. He referred to various provisions in the Income-tax Act such as section 152(2), section 246(1)(e), etc., of the Act, where an "order of assessment, reassessment or recomputation under section 147" is referred to and submitted that this would show that the Legislature had clearly intended that assessments or reassessments made in accordance with the provisions of section 147 should be regarded as distinct and separate from assessments made under section 143(3) or 144. He also pointed out that the Indian Income-tax Act, 1922 ("the 1922 Act") did not provide for a separate appeal against a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, which lays down that no order of revision could be passed by the Commissioner to revise an order of reassessment made under the provisions of section 34. The corresponding provision in section 263(2) lays down that no order of revision shall be passed by the Commissioner to revise an order of reassessment made under section 147. According to him, this difference in the wording is quite significant and could not be lost sight of. In order to further bring out the difference between the assessments under section 143(3) or section 144 and assessments or reassessments under section 147, he referred to the decision of the Punjab and Haryana High Court in Smt. Kamla Vati v. CIT [1978] 111 ITR 248, according to which only assessments made under section 143(3) or section 144 could be described as a regular assessment and an assessment made under section 147 could not be so regarded. We may, at once, point out that a contrary decision has been given by the Calcutta High Court in Kashiram Tea Industries Ltd. v. ITO [1981] 132 ITR 783. Reference was also made to the decision of the Calcutta High Court in Surajmal Ganeshram v. CIT [1979] 120 ITR 715, which only points out that for purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Laws (Amendment) Bill, 1973; the provisions relating to section 144B contained in clause 45 of the Bill and the subsequent modification of the section by the Select Committee, entailing a basic change in the scheme of the section. It was pointed out that the section was introduced as a beneficial measure, to reduce the area of dispute between the department and the assessee, at a pre-assessment stage. The section sought to give the assessee an opportunity of knowing the additions or disallowances proposed to be made by the ITO through a draft assessment order and the assessee had the opportunity of putting forward his objections against the proposed additions or disallowances within 7 days of the receipt of the draft assessment order or within the extended period of 15 days, if allowed by the ITO. Thereafter, these objections were to be considered by a senior officer, namely, the IAC, who could issue such directions as he thinks fit, for the guidance of the ITO, on the matters covered by the objections, to enable him to complete the assessment. The section also provided that no directions, which are prejudicial to the assessee shall be issued by the IAC under section 144B, befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be acted upon and the loss need not be determined under that section even in a first assessment, whereas in an assessment under section 143(3), the ITO is bound to determine the loss. 2. Inproceedings under section 147, the assessee could not reopen items decided in the first assessment at the instance of the assessee. 3. Issues already settled in the original assessment could not be reopened at the instance of the assessee. He then referred to the arrangement of the sections and pointed out that section 144B appeared after sections 143 and 144, but before section 147. From the circumstances, he sought to argue that section 144B was not intended to apply to an assessment under section 147. His contention was that if section 144B was to apply to assessments under section 147, those provisions would have been placed in the Act after section 152. Another objection, which was raised by Shri Ganeshan was that though section 144B was introduced with effect from 1-1-1976, the Board's notification fixing the amount of variation (Rs. 1 lakh), which would confer jurisdiction upon the ITO, was issued on 23-12-1975, i.e., before the section itself was introduced. This, according to Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Chapter applies to reassessments also. Besides, when section 147 specifically lays down that the "provisions of this Act shall, so far as may be, apply", the provisions of section 144B are also clearly intended to apply to an assessment under section 147. Referring to the arguments advanced from the other side, based on the definition of "regular assessment" contained in section 2(40), Shri Gupte pointed out that it is totally irrelevant to consider that definition in the context of an assessment under section147 inrelation to section 144B. That definition is relevant only in the context of Chapter XVIIC relating to the charging of interest. Referring to Shri Ganeshan's argument that section 144B will not apply to assessments or reassessments under section147, inview of its placement before section 147, Shri Gupte pointed out that if that logic is applied, even section 142(1) or 143(2) will not apply to assessments under section 147. Such a state of affairs is clearly unintended, when section 148 clearly lays down that all the provisions of the Act, insofar as may be, will apply. Shri Gupte went on to point out that section 147 is not a charging section but is only a machine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3) and section 147 dovetail into each other. With regard to the provisions of section 263, which do not permit the Commissioner to exercise his revisionary powers in respect of reassessments under section 147, Shri Gupte submitted that this is because, before taking action under section 147, the ITO has generally to take the approval of either the Commissioner or the Central Board of Direct Taxes. Referring to Shri Salve's reliance on the decision of the Calcutta High Court in Surajmal Ganeshram v. CIT in which the High Court has pointed out that for purposes of an appeal, an assessment or reassessment under section 147 is treated in a separate category, distinct from assessments made under other sections, Shri Gupte pointed out that such a distinction existed only in respect of the right of appeal. In the circumstances, he wound up his argument with the statement that the assessment under section 147 being also an assessment under section 143(3), the provisions of section 144B would be rightly applicable, where the disputed addition exceeded the limit notified by the Central Board of Direct Taxes. 12. Arguing for the department, the learned counsel, Shri T.R. Ramachandran, ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... datory and compulsory in nature. The only deeming provision in section 148, according to him, was that a notice issued under that section was to be treated as a notice issued under section 139(2). The other provisions, such as sections 142, 143, etc., are not deemed to apply but, in fact and in law, apply and are mandatorily applicable to such assessments. The words in section 147, "he may... assess or reassess such income or recompute the loss..." only refer to a conferment of power on the ITO to make an assessment, such assessment necessarily to be made under section 143(3) or 144. 13. Referring to the argument from the side of the assessees that the distinct and separate nature of an assessment under section 147 finds recognition in section 246, where separate provision is made for an appeal against an order under section 143(3) and an appeal against an order under section 147, Shri Ramachandran submitted that there was no such separate provision when the Income-tax Bill, 1961, was originally presented before the Parliament. The Law Commission did not consider it necessary to make any such provision in the Bill. When the Bill went to the Select Committee, they expressed the op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such an assessment also will be a "regular assessment" within the meaning of section 2(40), has not found favour with the Delhi High Court which has held that "regular assessment" refers only to the first or the initial regular assessment and not to subsequent modifications thereof---National Agricultural Co-operative Marketing Federation of India Ltd. v. Union of India [1981] 130 ITR 928. He also refuted Shri Gupte's suggestion that Explanation 1 to section 153 applied to the section as a whole, including sub-section (2). The five clauses of the Explanation applied to five different situations and, according to him, clause (iv) did not apply to sub-section (2) of section 153. 15. We have considered the detailed and elaborate arguments advanced from both sides. The main reasons advanced on behalf of the assessee in support of its contention that the application of the provisions of section 144B to an assessment or reassessment under section 147 is illegal are the following: 1. Section 144B contemplates the preparation of a draft assessment order and inviting the objections of the assessee to the additions proposed therein, only in an assessment to be made under section 143(3). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment year and it becomes necessary either to assess or reassess such income. Assessment of such income would arise where no return had at all been filed earlier and no assessment had been made on the assessee. Reassessment will become necessary where an earlier assessment had been made. but income chargeable to tax has escaped such assessment. It will be obvious that sections 139 to 143, being in relation to a normal assessment, and section 147 operate in two different fields. 17. However, it will not be correct to say that section 147 is a self-contained section, which not only confers on the ITO the jurisdiction to assess or reassess escaped income but also contains the procedure for making such assessment. The section itself states, in specific terms, that when the conditions enumerated in that section exist, the ITO may, subject to the provisions of sections 148 to 153 assess or, reassess such income, etc. Thus, while section 147 gives the jurisdiction and the power to the ITO to reopen an assessment, sections 148 to 152 lay down the procedure and the machinery for making such an assessment or reassessment and section 153(2) lays down the time limit within which such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sments made under those sections Thus, though the assessments or reassessments may have been initiated under section 147, they are invariably completed under section 143 or 144. 19. It is now well settled that in construing the scope of a legal fiction, it is not only proper but also necessary to assume all those facts on which alone the fiction can operate. In this connection, reference may be made to the decision of the Supreme Court in CIT v. S. Teja Singh [1959] 35 ITR 408 and in particular to the following oft-quoted observations of Lord Asquith in East India Dwellings Co. Ltd. v. Finsbury Borough Council [1952] AC 109 quoted therein: "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.... The statute says that you must imagine a certain state of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." Thus, where section 148 introduce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 147 or section 150. The argument advanced from the side of the assessee is that if an assessment under section 147 is also to be regarded as an assessment under section 143(3) or section 144, the Legislature would not have enacted separate provisions for appeals against such orders. Since this argument does create some doubt regarding the scope and content of those provisions, we have considered it permissible to look at the report of the Select Committee which recommended the enactment of clause (e). In doing so, we are guided by the precedent contained in Pt. Lakshmi Kant Jha v. CWT [1968] 69 ITR 545 (Pat.). (observations at pages 550/551). Their Lordships of the Patna High Court have pointed out therein that the strict rule of British Law that the history of legislation and the reports of the Select Committee preceding the passing of a Bill should not be looked into for the purpose of construing statutes has not been followed in some of the recent decisions of their Lordships of the Supreme Court. On the other hand, they have followed the American view referred to by Crawford's Statutory Construction at page 382, where a distinction was made between legislative debates on the on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion for assessment, was the apparent difference in phraseology between section 34 of the 1922 Act and section 147 of the 1961 Act. The argument was that section 34 of the 1922 Act, after setting out the conditions under which the assessments may be reopened, provided that the ITO, "may in cases falling under clause (a) at any time and in cases failing under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and may proceed to assess or reassess such income, profits or gains or recompute the loss or depreciation allowance ; and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section." In section 147, on the other hand, the corresponding provision, it was pointed out, was as follows: "If (a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income, subject to the provisions of sections 148 to 153. If these sections are read as a whole, and in proper context, it will be seen that there is no real difference in content, as between section 34 of the 1922 Act and section 147 of the 1961 Act and the alleged difference in phraseology is merely illusory. 24. As section 34 has already been held to be a machinery section, as pointed out supra, it follows that section 147 also is only a machinery section, which enables the ITO to reopen an assessment which has already been completed or to bring to charge, for the first time, income which has escaped assessment. The assessment itself has to be completed either under section 143(1) or section 143(3) or under section 144, depending upon the circumstances of the case. 25. One other reason, which is also, according to the assessee a very strong reason for not applying the provisions of section 144B to an assessment or reassessment under section 147 is that that section, in terms, applies only to an assessment to be made under section 143(3). As we have observed earlier, an assessment under section 147, if made under section 143(3) would also become the subject-matter of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on but should be construed in a way that makes the machinery workable---see CIT v. Mahaliram Ramjidas, Gursahai Saigal v. CIT [1963] 48 ITR 1 (SC) and India United Mills Ltd. v. CEPT. Section 144B was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from1-4-1976. It lays down a new procedure, to be followed in those cases where the ITO in making the assessment under section 143(3) proposes to make any variation in the income or loss returned which is prejudicial to the assessee, and the amount of such variation exceeds a certain limit. It is in the interpretation of the scope of this section that a doubt has been raised. In such a case, the approach suggested by Lord Coke in Heydon's case [1584] 3 Rep. 76 gives useful guidance. According to this approach, it is necessary to get an exact conception of the aim, scope and object of the whole Act, and to consider : (1) what was the law before the new provision was enacted ? (2) What was the mischief or defect for which the law had not provided ? (3) What remedy Parliament has appointed. (4) The reason of the remedy. 28. Keeping the above rules of construction in mind, let us now examine the provisions of section 144 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of being heard. Thus, the mischief or defect, for which the law, as it stood, had not provided was that arbitrary or unreasonable additions or disallowances could be made by the ITOs, resulting in avoidable harassment to assessees and vexatious litigation. The remedy that Parliament appointed for this defect was a pre-assessment examination of the disputed issues by a senior officer, namely, the IAC. The reason for the remedy appointed was, as stated earlier, to avoid harassment to assessees and to reduce vexatious litigation. 29. If vexatious additions or unreasonable disallowances could be made only in an assessment under section 143(3), it stands to reason that section 144B would apply only to such an assessment and not to an assessment under section147. Infact, it was suggested by some of the counsels that section 144B was not meant to apply to an assessment or reassessment under section 147 as the approval of the Commissioner or the Central Board of Direct Taxes would already have been taken for reopening the assessment, with reference to the income that has escaped assessment. We do not find merit in this contention. While taking the approval of the Central Board of Direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l not apply to assessments or reassessments made under section 147. That section appears in Chapter XIV, which prescribes the procedure for assessment and section 148 also postulates that the notice issued under that section will be treated as a notice issued under section 139(2) and the provisions of the Act shall, so far as may be, apply accordingly, it is clear that the procedure for assessment prescribed in the Chapter would also apply to such an assessment. We also do not find any merit in the contention that as the Board's notification (prescribing the limit of Rs. 1 lakh for disputed additions or disallowances, for the preparation and submission of a draft assessment order), was issued earlier than the date from which section 144B came into effect, the notification is invalid. The notification was meant to take effect only after the section was enacted and brought into the statute. It was competent for the Board to prescribe the financial limits for the application of such section, as and when it was enacted. We do not see any infirmity in the notification, on that ground. 32. For the foregoing reasons, we have to hold that the provisions of section 144B have been rightly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount received from Arjan Singh 31,000 --- Agricultural income 10,000 --- Loan received from Smt. Pritam Kaur and Smt. Jagjit Kaur 10,000 --------------- Total 71,800 (sic) --------------- (Actual total comes to Rs. 72,800). With regard to the first of the above items, it was the contention of the assessee before the authorities below that agricultural lands belonging to the assessee and to his two brothers were sold on 12-8-1966 for Rs. 64,800 and that though only an amount of Rs. 43,000 was deposited in his bank account on 16-8-1966, the entire amount of Rs. 64,800 was available with him for utilisation in the construction of the property. As there was no evidence of the availability of the amount of Rs. 21,800, they accepted the explanation only to the extent of Rs. 43,000. At the time of the hearing of the appeal before us, Shri Ganeshan made a submission that there was a factual mistake in the submission made before the authorities below in this respect. According to him, the amount of Rs. 64,800 represented the sale proceeds of the assessee's one-third share in the agricultural lands and not the total sale proceeds of the entire land. According to him, as the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X
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