TMI Blog2007 (5) TMI 197X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rs. 2,70,85,105. The said return was processed under section 143(1) of the Income-tax Act, 1961 (in short "the Act") accepting the loss returned by the respondent. Notice under section 148 of the Act was issued on the ground that claim of bad debts as expenditure was not acceptable. On May 12, 2004, a return of income declaring the loss at the same figure, as declared in the original return, was filed by the respondent under protest. A copy of the reasons recorded was furnished by the appellant on the respondent's request some time in November, 2004. The respondent raised various objections, both on jurisdiction and the merits of the subject matter recorded in the reasons. On February 4, 2005, the appellant 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 of the Act dated May 12, 2004, was challenged by the respondent. The High Court allowed the writ petition following the decision of the High Court in Adani Exports v. Deputy CIT (Assessments) [1999] 240 ITR 224 (Guj). In support of the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and (ii) if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee: Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be an intimation under this sub-section where either no sum if payable by the assessee or no refund is due to him: Provided further that no intimation under this sub-section shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable." Before amendment: Section 143(1) as it stood at the point of time when the intimation was given under the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1 .-Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.- For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substantial and material changes. A new scheme was introduced and in 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. They were as follows: (a) any arithmetical errors in the return, accounts and documents accompanying it were to be rectified; (b) any loss carried forward, deduction, allowance or relief which on the basis of the information available in such return, accounts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... substituted for" assessment" that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No.2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No.2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 143(1)(a), the question of change of opinion, as contended, does not arise. Additionally, section 148 as presently stands is differently couched in the language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act, 1987, the provision read as follows: "148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer 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. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." Section 147 prior to its substitution by the Direct Tax Laws (Amendment) Act, 1987, stood as follows: "147. Income escaping assessment.-If(a) the Assessing 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... initiation of action under section 147(a) (as the provision stood at the relevant time) fulfilment 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. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing Officer is within the realm of subjective satisfaction (see ITO v. Selected Dalurband Coal Co. P. Ltd. [1996] 217 ITR 597 (SC) ; Raymond Woollen Mills Ltd. v. ITO [1999] 236 ITR 34 (SC). The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
