TMI Blog1991 (10) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... 144B are procedural and apply to all assessments pending at the time when the said provision was introduced by the Taxation Laws (Amendment) Act, 1975, with effect from January 1, 1976 ? 3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that assessments in the case of J. Dalmia, (Hindu undivided family) for the assessment years 1947-48 and 1948-49 and in the case of association of persons for the assessment year 1947-48 were barred by time ? " Questions Nos. 1 and 3 have been referred at the instance of the Revenue and question No. 2 at the instance of the assessee. At the beginning of the arguments, it was submitted before us that question No. 2 was not being pressed. However, in the written submissions of the assessee, it was submitted that question No. 2 as framed failed to bring out the real controversy between the parties and needed to be reframed. It was suggested that question No. 2 be reframed as follows : "Whether the Appellate Tribunal is right in law in holding that the provisions of section 144B are purely procedural and are not substantive in nature and are, therefore, applicable to income-tax assessment pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 48 of the Act, the assessment would be barred. The contention of the Revenue is that section 144B is applicable, the assessee contending to the contrary. The Revenue is supported by a decision of the Kerala High Court in Kerala Kaumudi P. Ltd. v. CIT [1990] 181 ITR 30, and the assessee by that of the Punjab and Haryana High Court in CIT v. Usha Aggarwal [1989] 178 ITR 406. Under sub-section (1) of section 153, no order of assessment shall be made under section 143 or section 144 after expiry of a certain period as prescribed therein. Under sub-section (2) of this section, no order of assessment, reassessment or recomputation shall be made under section 147 where it is to be made under clause (a) after expiry of four years from the end of the assessment year in which the notice under section 148 was served. Then, under Explanation 1 to this section, in computing the period of limitation, the period (not exceeding 180 days) commencing from the date on which the Income-tax Officer forwards the draft order under sub-section (1) of section 144B to the assessee and ending with the date on which the Income-tax Officer receives the directions from the Inspecting Assistant Commissioner un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nding on the Income-tax Officer..." It was stated before us that the amount prescribed by the Board under sub-section (1) of this section is rupees one lakh. The relevant provisions of sections 147 and 148 may also be set out at this stage : "147. 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 return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ... 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 (hereinafter in sections 148 to 153 referred to as the relevant assessment year) ... 148. (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer are settled or dealt with at a level higher than that of the Incometax Officer." (Direct Taxes Enquiry Committee, Final Report, December, 1971). " Section 144B introduces a new concept of issue of a draft order by the Income-tax Officer to the assessee setting forth additions which he proposes to make to the returned income, followed by consideration of the assessee's objections and issue of directions to the Income-tax Officer by the Inspecting Assistant Commissioner. The impression which we have gathered from our discussions with the departmental officers and assessees is that this section has merely resulted in delays in completion of assessments and duplication of proceedings without substantially curbing high-pitched assessment or reducing the scope for litigation. We have, elsewhere in this Report, recommended that the Inspecting Assistant Commissioner should be closely associated in the process of assessment on a continuing basis in all scrutiny cases. Implementation of that recommendation would render the existing procedure for issue of draft orders and consideration of the assessee's objections by the Inspecting Assistant Commissioner unnecessary. Besides, section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jections to the Inspecting Assistant Commissioner. After considering the draft assessment order and the objections raised by the assessee and after examining the assessment record, if necessary, the Inspecting Assistant Commissioner shall issue in respect of the matters covered by the objections such directions as he thinks fit to enable the Income-tax Officer to complete the assessment. While issuing any directions which are prejudicial to the assessee, the Inspecting Assistant Commissioner will have to give an opportunity of being heard to the assessee. The directions issued by the Inspecting Assistant Commissioner shall be binding on the Income-tax Officer. The Board is empowered to fix the amount (which shall not be less than Rs. 25,000), variations in excess whereof proposed by the Income-tax Officer will attract the provisions of this section. The Board is also empowered to fix different amounts for different areas . . . " In Kerala Kaumudi (P.) Ltd. v. CIT [1990] 181 ITR 30, a question which came up for consideration before the Kerala High Court was whether the Tribunal was right in holding that section 144B of the Act was applicable while making reassessment under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lding that the service of notice under section 148 of the Act prior to the commencement of proceedings under section 263 did not make the Commissioner's order legally infirm. While examining this question, the court observed that there was no substance in the argument that a notice under section 139(2) could not be issued when assessment was already made and consequently on issuance of notice under section 148 which was deemed to be a notice under section 139(2), the assessment made under section 143 stood set aside. It held that the notice which was issued under section 148 was not a notice under section 139(2) and all that section 148 said was that a notice issued under that section shall contain all or any of the requirements which might be included in a notice under sub-section (2) of section 139. The court also observed that the assessment or reassessment contemplated under section 147 was confined to income which had escaped assessment and the section did not empower the Income-tax Officer to reopen the assessment of income which had already been assessed. The court, thus, did not accept the argument of the assessee that the notice issued by the Income-tax Officer under secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 143(3) enabled the Income-tax Officer to make the assessment. The court was of the view that the assessment under section 147 was thus a species different from the assessment under section 143(3) and both had been treated differently in the Act. It was further of the view with reference to the provisions of section 144B that these would show that they specifically mention section 143(3) and not section 147 which showed the intention of the Legislature that the applicability of section 147 was excluded. The court answered the question in favour of the assessee. In CIT v. Simson and McConechy Ltd. [1989] 177 ITR 526, the question that was raised before the Madras High Court was "whether the Income-tax Appellate Tribunal was right in holding that section 153(2) applied and not section 153(1) and consequently cancelling the reassessment made by the Income-tax Officer for the assessment year 1967-68 as time-barred ?" In this case, the assessment which was initially completed was subsequently reopened under section 147(a) and a notice under section 148 was issued. The assessee filed the return. The Income-tax Officer proposed to make an addition of over Rs. 4 lakhs and, in accorda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extended by Explanation 1(iv) to section 153 did not come to be considered. In CIT v. Ram Chandra Singh [1976] 104 ITR 77 (Patna), the question raised was whether the levy and demand of penalty under section 273(b) of the Act on the basis of the reassessment under section 34 of the old Act (Income-tax Act, 1922) after giving deduction for penalty levied under section 18A(9) of the old Act on the basis of the original assessment under section 23(3) of the old Act was legal and valid. The court, after examining the provisions of the old Act and the relevant provisions of the 1961 Act, held that an assessment or reassessment contemplated under section 34(1) of the old Act was not a regular assessment and that similar provision had been made in section 147 of the 1961 Act. The court then observed that, in section 273 also, the words "regular assessment" had been used and that it was clear from the various provisions of the 1922 Act as well as the 1961 Act that a penalty could be imposed for non-furnishing of an estimate of advance tax only in connection with the regular assessment under section 143 or 144 of the 1961 Act, and that a proceeding for assessment or reassessment under s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortly stated, is in favour of the Revenue and against the assessee. " In Gates Foam and Rubber Co. v. CIT [1973] 90 ITR 422 (Ker), the question was whether the reassessment made under section 147(a) of the Act was not a regular assessment and, therefore, the provisions of section 273(b) could not be validly applied to such a case. Section 273(b) uses the expression "regular assessment". It says if the Income-tax Officer, in the course of any proceedings in connection with the regular assessment for any assessment year, is satisfied that any assessee has without reasonable cause failed to furnish an estimate of the advance tax payable by him in accordance with the provisions of clause (a) of sub-section (1) of section 209A, he may direct payment of penalty. The court referred to the definition of "regular assessment" under section 2(40) and to the provisions of sections 147 and 148 of the Act. It observed as under (at p. 424) : "A notice issued under section 148, which may include the requirements under sub-section (2) of section 139, is really not a notice under section 139, because section 148 itself states that the provisions of the Act will apply as if the notice issued was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discontinued at the time when the proceedings were initiated. We do not find anything in the context of these provisions requiring not to give effect to the definition of "assessment". On a plain reading of section 187, therefore, the reassessment could be made on the reconstituted firm and if the firm's reassessment relates to an accounting period in which the petitioner had continued as a partner of the partnership firm, his assessment could be corrected or amended in respect of that assessment year to include the correct share income under section 155. It is immaterial whether on the day when the reassessment was made against the firm or on the day when rectification of the order under section 155 was made, the partner continued in the partnership or not." In ITO v. Mewalal Dwarka Prasad [1989] 176 ITR 529 (SC), there was challenge in a petition under article 226 of the Constitution by the assessee to notices issued under section 148 read with sections 142(1) and 143(2) of the Act relating to the assessment year 1965-66. The court approved the Bench decisions of the Punjab High Court in CIT v. Jagan Nath Maheshwary [1957] 32 ITR 418, and of the Andhra Pradesh High Court in Pul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... side the notice issued under section 148 of the Act on the ground that the notice was issued beyond the period prescribed by law. A Special Bench (Delhi Bench 'A') of the Income-tax Appellate Tribunal in Bela Singh Pabla v. ITO [1982] 1 ITD 370 (Delhi), considered the question which is involved in the present case. In a detailed order rendered by Shri E. M. Narayanan Unni, Vice President, the Tribunal held that provisions of section 144B were applicable to an assessment made pursuant to the provisions of section 147 of the Act. Sampath Iyengar, in his book, 'Law of Income Tax' (Eighth edition) (Revised by Justice S. Ranganathan, Judge, Supreme Court of India) said as under on the applicability of section 144B : "Section 144B, being a provision enacted entirely for the benefit of the assessee and with a view to lessening the prospect of harassment in the course of assessment, it will be unreasonable to hold that such a beneficial provision is not applicable to additions and disallowances proposed in the course of an assessment or reassessment, pursuant to the provisions of section 147. A reasonable construction of the provisions of that section, would yield the result that the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any provision of the Act, the assessee shall be liable to pay such tax before furnishing the return and the return shall be accompanied by proof of payment of such tax. Under sub-section (2) of this section, after the regular assessment under section 143 or section 144 has been made, any amount paid under sub-section (1) shall be deemed to have been paid towards such regular assessment. Under section 142 (enquiry before assessment), for the purpose of making an assessment under the Act, the Income-tax Officer may serve on any person who has made a return under section 139, or to whom a notice has been issued under sub-section (2) thereof (whether a return has been made or not) a notice requiring him to produce accounts and documents and furnish such other information as the Income-tax Officer may require. Section 143 deals with assessment. Under sub-section (1) of this section, where a return has been made under section 139 of the Act, the Incometax Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of a return, make an assessment of the total income or loss of the assessee after making certain prescribed adjustments. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome-tax Officer to enable him to complete the assessment and such direction shall be binding on the Income-tax Officer : Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard. Explanation. -For the purposes of this sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee. Section 144B deals with reference to Inspecting Assistant Commissioner in certain cases and has already been set out earlier in the judgment. Section 147 (income escaping assessment) and section 148 (issue of notice where income has escaped assessment) have also been set out above. Section 149 prescribes the time limit for notice under section 148 ill cases falling under section 147 of the Act. Under section 150, irrespective of the period prescribed for issue of notice under section 148 or section 149, notice can be issued any time under section 148 for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on are beneficial to the assessee. There cannot be any dispute on this and for this we can refer to the report of the Wanchoo Committee reproduced above which led to the enactment of sections 144A and 144 B. In Mithilesh Kumari v. Prem Behari Khare [1989] 177 ITR 97 (SC), the Supreme Court has observed that, where a particular enactment or an amendment was a result of the recommendation of the Law Commission of India, it was permissible to refer to the relevant report of the Commission. The court referred to its earlier decision in Santa Singh v. State of Punjab [1977] 1 SCR 229, where it was considered necessary to trace the historical background and social setting under which a particular section in the Code of Criminal Procedure, 1973, was inserted for the first time and reference was made in that connection to the research done by the Law Commission which had made several recommendations in its report for changes in the provision. In Halsbury's Laws of England, Fourth edition, Vol. 44, para 901, it has been observed that "on the other hand, reports of Commissions or Committees preceding the enactment of a statute may be considered as showing the mischief aimed at and the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not been given any cogent reason as to why a different procedure could be said to have been contemplated for making an assessment under section 143(3) and for making one under section 147 of the Act. In fact, all these provisions must be interpreted to mean that section 144B would also be applicable to assessment under section 147 of the Act and that, in the circumstances, appears to be the only correct interpretation. Explanation 1 to section 153 has reference to the computation of the period of limitation for the purpose of section 143 itself and not particularly to sub-section (2) of section 153 thereof. If we refer to the commentary on the Law and Practice of Income Tax by Kanga and Palkhivala (Eighth edition, Vol. 1, page 1127), this is what it says about the word "assessment" "The word 'assessment' is used in this Act as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable, and sometimes the whole procedure laid down in the Act for imposing liability on the taxpayer. The word 'assessment' must be understood in each section of this Act with reference to the context in which it is used : in some sections it has a comprehensiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in an apparent contradiction. How can it be that Parliament would have applied the provisions of section 144B to assessment under section 143(3) of the Act and not to those under sections 147 and 148 of the Act. It is well established that "where the language of a statute, in its ordinary meaning and grammatical construction, leads to a manifest contradiction of the apparent purpose of the enactment, or to some inconvenience or absurdity, hardship or injustice, presumably not intended, construction may be put upon it which modifies the meaning of the words, and even the structure of the sentence ... where the main object and intention of a statute are clear, it must not be reduced to a nullity by the draftsman's unskilfulness or ignorance of the law, except in a case of necessity, or the absolute intractability of the language used. Nevertheless, the courts are very reluctant to substitute words in a statute, or to add words to it, and it has been said that they will only do so where there is a repugnancy to good sense." : See Maxwell on Statutes (Tenth edition) p. 229. In Seaford Court Estates Ltd. v. Asher [1949] 2 All ER 155, 164 (CA), Denning L. J., said : "When a defect appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppeal against an order of assessment, reassessment or recomputation under section 147 as provided under section 246 of the Act is of no consequence while interpreting the provisions of section 144B as to its applicability to the proceedings under sections 147 and 148 of the Act. Further, sub-section (2) of section 263 of the Act prohibits the Commissioner from making any order under sub-section (1) to revise an order of reassessment made under section 147 (and not to assessment or recomputation) and does not conflict with the view that section 144B would be applicable to proceedings under sections 147 and 148 of the Act. We note, however, that this bar on the power of the Commissioner has been deleted by an amendment made in 1984. For the purpose of answering the questions referred, we do not consider it necessary to refer to the arguments with reference to sections 214 and 215 of the Act relating respectively to payment of interest by the Central Government and by the assessee on the basis of the date of the regular assessment, the provisions as these existed at the relevant time and the subsequent amendments thereto. We, therefore, answer the reference in favour of the Revenue an ..... X X X X Extracts X X X X X X X X Extracts X X X X
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