TMI Blog1996 (4) TMI 68X X X X Extracts X X X X X X X X Extracts X X X X ..... assessments to be made under section 147 ? " Tax Case No. 573 of 1983 relates to the assessment year 1973-74, in respect of which the previous year ended on March 31, 1973. The assessee is a registered firm. For the assessment year under consideration, the original assessment was made on March 23, 1976, on a total income of Rs. 6,93,636. After completion of the original assessment, action under section 147 was taken, because the income from Kandasamy Spinning Mills was not included in the original assessment, extra shift allowance by way of depreciation on additions to plant and machinery was not restricted to the actual period of use and for diversion of substantial funds for non-business purposes no disallowance was made. For the notice issued under section 148 on February 17, 1978, the assessee filed a return on March 17, 1978, declaring an income of Rs. 3,09,203. As the addition proposed exceeded Rs. 1 lakh, the Income-tax Officer invoked section 144B and called for the objections of the assessee and submitted them to the Inspecting Assistant Commissioner and taking into account the directions given by the Inspecting Assistant Commissioner, he completed the assessment on June ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 144B applies only to an assessment made under section 143(3) and not to a reassessment under section 147, the time taken to follow that procedure, could not be excluded in computing the period of limitation and that, therefore, the assessment made was barred by limitation in these cases. On further appeal to the Appellate Tribunal, after hearing learned standing counsel and the advocates and chartered accountants, who joined as interveners, the Tribunal came to the conclusion that the view taken by the Commissioner of Income-tax was unassailable. After tracing the history of section 34 of the 1922 Act, giving due regard to the object of enacting section 144B of the Income-tax Act, 1961, and the need for associating a superior officer of considerable experience in making assessments in respect of additions exceeding a certain limit, the Tribunal came to the conclusion that the term "assessment" used in section 144B is confined to assessments to be made originally under section 143(3) of the Act and since the assessment to be made under section 147 is different from the one to be made under section 143(3), neither the procedure prescribed in section 144B nor the extended time ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 23 of that Act. Then it follows that there was no distinction between an "assessment" and "reassessment" in the sense that one could not be regarded as distinct and separate from the other and both the expressions give the same meaning and legal implications. On the other hand, learned counsel for the assessees submitted as under : It is wrong to think that the language used in section 34 of the old Act (1922 Act) and section 147 of the new Act (1961 Act) is similar. While section 34 of the 1922 Act uses the expression "proceed to assess or reassess such income", section 147 of the 1961 Act does not use the words "proceed to". But, section 147 of the 1961 Act says "assess or reassess such income or recompute the loss..." and by dropping the words "proceed to", section 147 can no more be said to be a procedural section, as it was interpreted under the old Act and section 147 would be a charging section. According to learned counsel for the assessees, it is not necessary for the Income-tax Officer to call in aid section 143 to make an assessment under section 147. They would then point out that section 148 opens with the words "before making the assessment, reassessment or recomp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under section 143(3) and not to reassessments and if section 144B is held not to cover the assessments made under section 147, the extended time limit of six months is not available to the Department and, consequently, the assessments made now are beyond the prescribed time limit under section 147 and consequently, are barred by limitation. According to learned counsel, "regular assessment" as defined in section 2(40) would mean the assessments made under section 143 or 144 and in no sense of the term, regular assessment can refer to an assessment made under section 147. According to him, if the assessments made under section 143 are to be regarded as assessments made under section 147, as is now contended by the Revenue, then, there is no need for enacting sub-section (2) of section 153 specifically mentioning therein the time limits to be applicable for reassessments to be made under section 147. According to him, this would show that the Legislature never meant the assessment to be made under section 143 to be equal to or the same as the assessment made under section 147. They would further submit that the extension of the time limit set out in Explanation 1 to section 153 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for consideration is, whether the meaning of the expression "in an assessment to be made under sub-section (3) of section 143" takes in a reassessment, i.e., in a case where the assessment made is a reassessment consequent to the issue of notice under section 148 having reason to believe that income has escaped assessment, where the provisions of section 144B would be applicable. If the provisions of section 144B are applicable to reassessments, the further time limit of six months would be available to the Revenue and if section 144B is not applicable to the reassessments made under section 147, then the time limit for making reassessments would remain unextended. Under section 2(8) of the Act, unless the context otherwise requires, "assessment" includes "reassessment". The Act uses the expression "regular assessment" in section 2(40) meaning thereby assessments made under section 143 or under section 144. Section 34 of the 1922 Act is described as the predecessor section of section 147 of the 1961 Act. At this stage, it is relevant to extract section 34 of the 1922 Act and sections 147 and 148 of the 1961 Act. Indian Income-tax Act, 1922 : "34. Income escaping assessment.-- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year). (Explanations 1 and 2 omitted). " " 148. Issue of notice where income has escaped assessment.--(1) Before making the assessment, reassessment or recomputation under section 147, the Income-tax 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 Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so. " Under section 34 of the 1922 Act, the Income-tax Officer should serve a notice on the assessee, which may contain all or any of the requirements, as may be included in a notice under section 22(2) and then proceed to assess such income and the provisions of that Act shall, so far as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment made by the Income-tax Officer under section 143(3) or section 144. Thus, the 1961 Act provides for an appeal both against the order of assessment under section 143(3) as well as against an order of reassessment under section 147. According to the assessee, if the assessment made under section 147 is, as contended by the Revenue, to be regarded as an assessment under section 143(3), the same procedure obtained in the 1922 Act, would have been retained and continued in the 1961 Act and there was no reason to provide for an appeal against an assessment made under section 147. Therefore, the intention of the Legislature was that an assessment made under section 143(3) and a reassessment made under section 147 are different and are not to be regarded as one and the same. Section 34 of the 1922 Act was a machinery section and not a charging section. For this finding, support was drawn from some of the decisions, to which we will advert a little later. One view was that a portion of section 34, which deals with the issue of notice and section 148, are machinery sections, while the other portion of section 34 and sections 147 to 153, of the two enactments, respectively are c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment is to be made under sub-section (3) of section 143", which would mean that the assessment, reassessment or both is to be made under section 143(3). It can be seen that reassessment could be made only under section 147 and it cannot be made under section 143(3). It was pointed out by the Tribunal that from the scheme of the Act (1961 Act) that it is permissible for the Income-tax Officer to make an assessment under section 147 de hors section 143(3), but making use of the powers and procedures prescribed in section 143(3). Section 148 requires that notice should be served on the assessee containing all or any of the requirements, which may be included in the 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. After the issue of notice under section 139(2), the Income-tax Officer would press into service the procedural sections, like sections 142 and 143 and then compute the income to be reassessed and levy tax thereon. Section 143(3) enables the Income-tax Officer to make an assessment of the total income or the loss of the assessee and determine the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 are regarded as one and the same, there is no reason to repeat that a separate provision has been made making an order under section 147 an appealable one. For this reason also, the Tribunal came to the conclusion that an assessment made under section 147 is a different assessment, from the assessment made under section 143(3). Therefore, the Tribunal was of the opinion that section 144B, when it uses the expression "in an assessment to be made under sub-section (3) of section 143", it only refers to an assessment made originally and not to an assessment made under section 147. Accordingly, the Tribunal concluded that since it is possible to make an assessment under section 147, which is definitely contemplated in the definition of "assessment" in section 2(8) of the 1961 Act, "reassessment" cannot be imported or substituted in section 144B. It was also pointed out that section 144B would go to show that it is only to assessments to be made under section 143(3), i.e., the original assessment made by way of providing a protection to the assessees' where the income is likely to vary so that high pitch assessments are not made and the assessees are not harassed. This protection an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to the High Court by the same provisions which governed a proceeding for assessment or reassessment under section 34(1) and section 34(1A) was not discriminatory as compared with section 34(1) and did not offend article 14 of the Constitution of India. (ii) In M. R. Jayaram v. CIT [1984] 147 ITR 807 (Mad), this court has held that merely because there was no mention in section 187 of reassessment proceedings on a firm under section 147, it will not disentitle the Income-tax Officer from applying section 187 even to reassessment proceedings. Section 147 is only an enabling provision giving the Income-tax Officer additional power to make an assessment of income which was not brought to his notice in the original assessment. Hence, it was not necessary to refer specifically to section 147 wherever it is intended to cover not merely the original assessment proceedings, but also reassessment proceedings. Section 187 is wide enough in its scope to take in not only the original assessment under section 143, but also reassessment proceedings against a firm under section 147 and the same consequences which flow following the original assessment of the firm will flow following the reass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he other provisions of the Act are made applicable, but it is not possible to infer from this that where an assessment or revised assessment is made under section 147 of the Act, it is one falling under section 143 or section 144 of the Act. Accordingly, in a case where a notice under section 148 has been issued, the limitation as provided under section 153(2) would apply. (v) In CIT v. V. D. Saraf (HUF) [1994] 207 ITR 217 (Bom), it has been held by the Bombay High Court that considering the predominantly beneficial purpose behind inserting section 144B in the Income-tax Act, 1961, the legislative intent behind excluding from the operation of these provisions, the assessment made in proceedings initiated under section 147 cannot be visualised. Section 147 does not create any charge. It is essentially a machinery provision under which income can be assessed or reassessed subject to the provisions of sections 148 to 153. The phraseology of section 144B makes it absolutely clear that there is an obligation to forward a draft assessment order, where in making an assessment under section 143(3), the Income-tax Officer proposes to make variations exceeding certain limits prejudicial to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be made, for the first time also, in cases where no return was filed and no assessment had been made earlier and information had reached the assessing authority that income assessable to tax had escaped assessment. Without reference to section 143(3), reassessment cannot be made under section 147 and, by virtue of the specific language employed in section 148, there is no embargo on the assessing authority to invoke the provisions of section 144B introduced for the protection of the assessee by providing for a pre-assessment notice. On the other hand, learned counsel for the assessees, placed reliance on the following decisions : (i) In Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422, the Kerala High Court has held that reassessments made after resort to the provisions in section 147 of the Income-tax Act, 1961, are not assessments under section 143. If this be so, such assessments are not "regular assessments", because the definition of "regular assessment" in section 2(40) specifically states that "regular assessments" are those made under section 143 or section 144. So, the expression "regular assessment" in section 273 can mean only assessments under section 143 or secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 143 and the reassessment order made under section 147 are distinct and independent of each other. Section 246 of the Act, which deals with appealable orders specifically makes an order under section 143(3) and an order made under section 147 appealable. The order under section 143(3) is made appealable under clause (c) while the order under section 147 is made appealable under clause (e) of sub-section (1) of section 246. Section 152 contemplates an appeal under sections 246 to 248 or revision under section 264 against the original assessment order even when an assessment is reopened in the circumstances falling under clause (b) of section 147. Hence, mere initiation of proceedings under section 147 and section 148 would not take away the jurisdiction of the Commissioner to revise an assessment order. (iv) In CIT v. Padma Timber Depot [1988] 169 ITR 646, the Andhra Pradesh High Court held that the expression "regular assessment" has been defined in section 2(40) as an assessment made under section 143 or 144. The definition contained in section 2 prevails unless the context requires otherwise. Only orders passed by the Income-tax Officer under sections 143 and 144 could be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 144 of the Act, whereas sub-section (2) prescribes the time-limit for completion of assessments or reassessments under section 147. That being so, the orders of assessment or reassessment under section 147 would obviously be governed by the period of limitation prescribed by sub-section (2) of section 153. The contention that the limitation prescribed under section 153(1) will apply to "reassessment" also, because assessment includes reassessment, is not sustainable. (vi) In Modi Industries Ltd. v. CIT [1995] 216 ITR 759, the Supreme Court has held that it must be presumed that the legislature was aware of the wide interpretation of the word "assessment" given under the Income-tax Act. "Assessment" has been given an inclusive meaning in sub-section (8) of section 2. It includes reassessment. "Regular assessment" has been defined in section 2(40) to mean the assessment made under section 143 or 144. In the context of sections 140A, 141 and 141A, "regular assessment" could only mean the original assessment made under section 143 or 144. Having regard to the scheme of the Act and the use of the phrase " regular assessment" in various sections of the Act, in section 214 "regular ..... X X X X Extracts X X X X X X X X Extracts X X X X
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