TMI Blog1997 (3) TMI 62X X X X Extracts X X X X X X X X Extracts X X X X ..... e during the financial year 1988-89. The total cost price of the liquor purchased during the said year is said to be Rs. 1,95,538.35. The petitioner filed a return for the assessment year 1989-90 on October 27, 1989, showing the taxable income at Rs. 63,900. With the return, the balance-sheet, trading and profit and loss account duly audited were enclosed. The Assessing Officer assessed the taxable income at Rs. 7,87,789 instead, meaning thereby, making an addition of Rs. 7,23,889 after making adjustments under section 143(1)(a) of the Act. As per the adjustments, explanatory sheet, appended to the intimation, the Assessing Officer recomputed the taxable income at the rate of 40 per cent. of the purchase price, applying the provisions of section 44AC discarding the profits as worked out by the petitioner taking recourse to sections 28 to 43C of the Act. The petitioner then made an application dated February 2, 1990, under section 154 of the Act for rectification before the Assessing Officer (annexure-4 to the writ petition) raising a serious grievance against the adjustments being made under section 143(1)(a) and that too without an opportunity of being heard. The application w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ------------------- Total 19,69,456 -------------------- Applying net rate of profit at 40 per cent. under section 44AC the net taxable income comes to Rs. 7,87,789, as against Rs. 63,000 disclosed by the assessee. Therefore, an income of Rs. 7,23,889 has escaped assessment. I, therefore, have reasons to believe that correct income chargeable to tax has escaped assessment and the assessee had been under assessed. Therefore, after taking approval of DCR-1, Agra, notice under section 148 is being issued." The reply of the petitioner to the notice issued under section 148 is dated March 27, 1996, annexure-13, to the writ petition. The Assessing Officer sent a rejoinder dated April 25, 1996, annexure 14, to the writ petition, to the reply of the petitioner stating that the total purchase price aggregated to Rs. 19,69,456 (details of which are set out in the reasons recorded on August 15, 1995), total profits on which came to Rs. 7,23,889 (7,87,789-63,900) ; that the order of the Commissioner of income-tax (Appeals) did not prevent the Department in any manner from taking remedial action and bringing the escaped income to tax ; that the addition of Rs. 7,23,889 was deleted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to make assessment on the basis of the return as filed, he was entitled to make certain adjustments to the income or loss declared in the return. Under this provision, he can rectify any arithmetical error in the return or accounts and documents accompanying it. He can allow any deduction, allowance or relief which on the basis of information available in the return, accounts and documents was prima facie admissible but was not claimed and similarly he can disallow any deduction, allowance or relief claimed in the return which on the basis of information available in such return, accounts or documents was prima facie inadmissible. Section 143(1) was again amended with effect from April 1, 1980. As a result of that amendment only arithmetical errors could be corrected. The previous provision relating to the right of the assessee to object to such assessment was also retained. As compared to the position that obtained under and up to the amendment of 1980, the new provisions which have come into effect from April 1, 1989, under the Direct Taxes Laws (Amendment) Act, 1987, have brought about substantial change. As a result of new section 143(1)(a) now in force with effect from A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat may be granted and if some relief on the basis of the information furnished in the return, is not admissible, then that may be disallowed and more than that nothing can be done by the Assessing Officer. It means that the Assessing Officer has to accept the return on the face value and make minor adjustments consistent with the information given in the return without touching upon debatable and controversial issues. In connection with this new provision, the Central Board of Direct Taxes issued Circular No. 549, dated October 31, 1989 . The circular points out, inter alia, that under the new scheme for assessment, the requirements of passing an assessment order in all cases where returns of income are filed, has been dispensed with and the issue of an acknowledgment slip to the assessee will be the end of the matter, if he had correctly paid tax and interest, if any, due on the basis of the return, but if on the basis of the return, any amount is found due from the assessee, it can be recovered and if any refund is due to the assessee, it can be granted without passing an assessment order. The assessment order will be passed only in a very limited number of cases, selected for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1)(a)(i) is only fictionally taken as a notice of demand under section 156 of the Act. Like all other fictions, to understand the meaning of this fiction so created here, one must look to its purpose. The apparent purpose of this fiction is to make the machinery provisions for recovery of tax applicable to the recovery of tax assessed in terms of section 143(1)(a)(i) and nothing more. Though notice of demand under section 156 is to be served in the prescribed form, the intimation under section 143(1)(a)(i) is not in any such prescribed form, yet by fiction so created, all incidents of a notice of demand shall become applicable even to that intimation, for any statutory fiction must be carried to its logical conclusion. From all this it follows that the intimation is nothing but merely an acknowledgment slip to the effect that the return filed has been accepted and the Assessing Officer has acted upon that and for the purposes of recovery that shall be deemed to be a notice of demand as if issued under section 156. Though making recovery of tax is the consequence of the intimation being sent to the petitioner, yet it cannot be said that the intimation was in the nature of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebatable, it was not open to the Assessing Officer to compute the profits of the petitioner under the proviso to section 143(1)(a) of the Act. Therefore, such adjustment in the "adjustment explanatory sheet" appended to the intimation was ab initio void. The result of such a view we have taken is that the profits to the tune of Rs. 7,23,880 were never assessed nor could they be assessed under the scheme of the Act and the contention of the petitioner contrary to this has to be rejected. Therefore, reassessment proceedings cannot be said to be bad in law on the score that profits to the extent of Rs. 7,23,880 were already assessed under the intimation issued to the petitioner. The next submission of Sri Gulati is that the Assessing Officer had no jurisdiction to assess the profits under section 44AC and if he wanted to bring such profits to tax then he would have done so only by taking recourse to the provisions of section 143(2) of the Act. He further submits that if the Assessing Officer believed that the profits having not been worked out in view of section 44AC had escaped assessment, then a notice under section 143(2) could have been served upon the petitioner within one ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r invoking the proviso to section 143(2) precluded the Assessing Officer from issuing a notice under section 148. The Calcutta High Court rejected such submission of counsel for the assessee for the following reasons : " Simply because the return of the assessee has been accepted without scrutiny and in good faith the Assessing Officer is not precluded from initiating a proceeding satisfying the conditions therefor where the income has escaped assessment. There is nothing either in section 143 or in section 147 that can support such a view. The provisions of a tax statute should be interpreted in a manner leading to the result that everybody pays his due tax.... In our view, a return after its acceptance, whether in a summary manner or after scrutiny, may itself lead to reassessment proceedings provided the conditions for reassessment under section 147 exist.... It is not the summary acceptance of the return under section 143(1)(a) that can operate as a bar against reassessment. It is, rather, the further disclosure made by the assessee in the course of proceedings under section 143(3) whereby the assessee may take out his case from the mischief of section 147. Therefore, the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessing Officer. After the intimation having been sent, the petitioner made an application for rectification under section 154, which was rejected on February 16, 1990, and it is that order against which the appeal was filed by the petitioner before the Commissioner of Income-tax (Appeals). It is, therefore, incorrect to say that the intimation stood merged in the appeal order. Even if the submission of counsel for the petitioner that after the appeal order, the order appealed against merged, is taken to be correct, still however, not the intimation but the order dated February 16, 1990, rejecting the application made under section 154 could, at the most, be said to have merged in the order of the appellate authority. So the merger if at all it is there, is limited to the proposition that the scope of the proviso to section 143(1)(a) and of section 154 telescoping into each other, no debatable addition by way of adjustment is permissible under section 143(1)(a). It does not create estoppel against the department to make reassessment. This submission too of counsel for the petitioner is rejected. For the above reasons, the petition fails and is dismissed with the observatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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