Kerala High Court
Kerala Kaumudi (P.) Ltd. vs Commissioner Of Income-Tax on 27 October, 1989
Equivalent citations: [1990]181ITR30(KER)
Author: K.S. Paripoornan
Bench: K.S. Paripoornan
JUDGMENT K.S. Paripoornan, J.
1. The Income-tax Appellate Tribunal, Cochin Bench, has referred the following question of law for the decision of this court at the instance of the assessee :
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that Section 144B of the Income-tax Act is applicable while making reassessment under Section 147(b) and whether the reassessment completed on September 20, 1979 is barred by limitation ?"
2. The respondent is the Revenue. The matter relates to the assessment year 1974-75. The assessee (applicant) is a private limited company in which the public are not substantially interested. The previous year ended on March 31, 1973. Originally, the assessment was completed on June 30, 1975. It was reopened under Section 147(b) of the Income-tax Act. The reassessment was made on September 20, 1979. After the assessment was reopened, the Income-tax Officer followed the procedure prescribed under Section 144B of the Act as the intended additions to the returned income were more than Rs. 1 lakh. The assessee filed an appeal before the Commissioner of Income-tax (Appeals) and put forward the plea that the assessment is barred by limitation. It was stated that Section 144B can be invoked only in the case of an assessment made under Section 143(3) of the Act and it cannot be invoked while completing an assessment initiated -in pursuance of Section 147 of the Act On this basis, it was pleaded that the extra time available under Clause (iv) of the Explanation 1 to Section 153 of the Act, for completing the assessment to comply with the procedure under Section 144B of the Act was not available, and that in this view, the reassessment made on September 20, 1979 is barred. As the time available for completing the assessment under Section 153(2)(b) is four years from the end of the assessment year 1974-75, it necessitated the assessment to be made before March 31, 1979. But the reassessment was made only on September 20, 1979. It is on the above reasoning that the Commissioner of Income-tax (Appeals) held that the reassessment was time-barred. The Income-tax Appellate Tribunal held that Section 144B of the Act was applicable to the reassessment made in the case and the reassessment is not, therefore, barred by limitation. It is thereafter, at the instance of the asses-see, that the Appellate Tribunal has referred the question of law, formulated hereinabove, for the decision of this court.
3. We heard counsel for the applicant (assessee), Mr. C. N. Ramachandran Nair as also counsel for the respondent (Revenue), Mr. P. K. R. Menon. The main thrust of the argument of the assessee's counsel was that, in proceedings initiated under Section 147 of the Act, the reference under Section 144B is unauthorised, that the assessment is made only under Section 147 of the Act and that, in this view, the assessment should have been held to be barred by applying Section 153(2)(b) of the Act. Counsel for the Revenue submitted that a fair and proper reading of Section 147 of the Act points out that it is only a machinery provision and once it is invoked, the assessment proceedings start afresh and any assessment to be made can only be under Section 143(3) or 144 of the Act and in this view the reference made under Section 144B of the Act is authorised and the consequential assessment completed on September 20, 1979 is valid under the law.
4. On hearing the rival contentions of the parties, we are of the view that the plea of the Revenue should succeed. For the purpose of understanding the true import of the relevant sections, it will be useful to extract Sections 147, 143(3), 144 and 144B of the Income-tax Act, 1961 (the corresponding provisions in the earlier Act, the Indian Income-tax Act, 1922, are Sections 34, 22, and 23). They are 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 to the Assessing 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,
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for 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).
143. Assessment. --...
* * * * (3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, after hearing such evidence as the asses-see may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, --
(a) in a case where no assessment has been made under Subsection (1), the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment;
(b) in a case where an assessment has been made under Sub-section (1), if either such assessment has been objected to by the assessee by an application under Clause (a) of Sub-section (2) or the Assessing Officer is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the Assessing Officer shall, by an order in writing, make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.
144. Best judgment assessment. -- If any person -
(a) fails to make the return required by any notice given under Sub-section (2) of Section 139 and has not made a return or a revised return under Sub-section (4) or Sub-section (5) of that section, or
(b) fails to comply with all the terms of a notice issued under Sub-section (1) of Section 142 or fails to comply with a direction issued under Sub-section (2A) of that section, or
(c) having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of Section 143, the Assessing Officer, after taking into account all relevant material which the Assessing Officer has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.
144B. Reference to Deputy Commissioner in certain cases.--(1) Notwithstanding anything contained in this Act, where, in an assessment to be made under Sub-section (3) of Section 143, the Assessing Officer proposes to make, before the 1st day of October 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under Sub-section (6), the Assessing Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.
(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Assessing Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Assessing Officer may allow on an application made to him in this behalf.
(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Assessing Officer the acceptance of the variation, the Assessing Officer shall complete the assessment on the basis of the draft order.
(4) If any objections are received, the Assessing Officer shall forward the draft order together with the objections to the Deputy Commissioner and the Deputy Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment:
Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.
(5) Every direction issued by the Deputy Commissioner under Subsection (4) shall be binding on the Assessing Officer.
(6) For the purposes of Sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit:
Provided that different amounts may be fixed for different areas :
Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees.
(7) Nothing in this section shall apply to a case where a Deputy Commissioner exercises the powers or performs the functions of an Assessing Officer in pursuance of an order made under Section 125 or Section 125A."
5. In this case, we are posed only with the question regarding the legality and propriety of a reference made under Section 144B of the Act, in a proceeding initiated under Section 147 of the Act. Whether the assessment proceedings will revive or will be deemed to continue so as to make applicable Section 143(3) or Section 144 of the Act is the short question. We are not concerned with the validity or existence of the original assessment order as such, if the initiation of proceedings under Section 147 of the Act results in a reassessment or a (revised) assessment or any other order in a particular case. That was the subject-matter of the decision in CIT v, K. Kesava Reddiar [1989] 178 ITR 457 (Ker) (See also Chaturvedi and Pithisaria's Law of Income Tax, Vol. 7, (Supplement), p. 6472).
6. In CIT v. Makaliram Ramjidas [1940] 8 ITR 442 (PC), the Judicial Committee of, the Privy Council, at pages 448 and 449, observed as follows :
"The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment... The operative part of Section 34 empowers the Income-tax Officer to proceed de novo under Sub-section (2) of Section 22, and that in turn leads, if there should still be a question of the accuracy of the return, to an enquiry under Section 23(2) and (3), and in that enquiry the assessee has a statutory right to appear and to produce evidence."
7. The above observations were relied on in a decision of the Bombay High Court in Deviprasad Kejriwal v. CIT [1976] 102 ITR 180 at p. 184. In V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373, at page 380, the Supreme Court held as follows :
"... once assessment is reopened by issuing a notice under Subsection (2) of Section 22, the previous under-assessment is set aside and the whole assessment proceedings start afresh."
8. Section 148 of the present Act, corresponding to Section 34 of the earlier Act, visualises a notice to be issued under Section 139(2) of the present Act (Section 22(2) of the old Act).
9. Counsel for the assessee contended that the scheme of Section 147 of the Income-tax Act taken along with, the provisions providing for an appeal from an order rendered under Section 147, shows that an independent and additional order of assessment should be passed in proceedings initiated under Section 147 of the Act. It was also argued that proceedings initiated under Section 147 of the Act are distinct and different and the assessment order passed thereon is also a separate and distinct one from the original assessment. Pursuing the logic, counsel contended that if that be so, a reference under Section 144B of the Act is visualised only in the original assessment proceedings for which an order of assessment should be passed under Section 143 of the Act. Since, in this case, the assessment was reopened under Section 147 of the Act, the reference made under Section 144B of the Act is unauthorised. We see no force in this plea. We are not concerned in this case with the larger question canvassed which was the subject-matter in Kesava Reddiar's case [1989] 178 ITR 457 (Ker), referred to above. We are only concerned with the limited question as to whether Section 143(3) or Section 144 of the Act will apply in proceedings initiated under Section 147 of the Act. As stated by the Judicial Committee, when once an assessment is reopened, the proceedings start de novo. It is settled law that as per the scheme of the Income-tax Act, 1961, as it exists at present, there can be only one assessment against a person (in one status), for one year, (See N. Khader Sheriff Saheb's case [1978] 113 ITR 50 (Mad)). In K. C. Mukherjee v. CIT [1959] 37 ITR 224 (Pat), delivering the judgment of the court, Ramaswami C. J., at page 228, stated as follows :
"Essentially, the proceeding under Section 34 with regard to the escaped income relate to the same proceeding which is commenced with the publication of the general notice under Section 22(1). In some respects, it may lead to a supplementary assessment and in other cases it may result in an assessment for the first time. There is, however, no justification for the argument that proceedings under Section 34 are separate and distinct proceedings from the original assessment proceedings. I, therefore, reject the argument of learned counsel for the assessee on this point and hold that proceedings under Section 34 essentially relate to the same proceeding which is initiated with the publication of the general notice under Section 22(1) of the Act."
10. Similarly, in CIT v. Burmah Oil Co. Ltd. [1963] 47 ITR 25 (Cal), the court held that there can be only one assessment for each year and the wording of Section 34 of the Income-tax Act itself shows that it is only one assessment, the original and escaped income being one. Proceeding further at page 43, the court observed as follows :
"Essentially, the proceedings under Section 34, whether partially or totally, relate to the same proceeding which must be deemed to have commenced with the publication of the general notice under Section 22(1). In some respects and in some cases it may lead to a supplemental assessment. In other cases, it may result in assessments for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under Section 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under Section 34, so long as they all relate to the same assessee and the same period."
11. A survey of the above decisions establishes that there can be only one assessment for each year, that once proceedings under Section 147 of the Act are initiated by issuing a notice under Section 148 read with Section 139(2) of the Act, the assessment proceedings start afresh, and that the proceedings for assessment of that year will be pending and will continue until a final order of assessment is rendered. We are not called upon to decide in this case whether, by the issue of a notice for reopening, the previous assessment as such is set aside or only the previous underassessment alone is set aside. In this case, when the assessment is reopened, Section 143(3) of the Act is attracted and since the intended addition to the returned income was more than one lakh rupees (during the relevant time) it behoved the Income-tax Officer to refer the matter under Section 144B of the Act. The Income-tax Officer is mandated by Section 144B of the Act to make such a reference. The Appellate Tribunal was justified in holding so.
12. In the light of the above, we answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue. It is common ground that if the reference under Section 144B of the Act is legal, the assessment is made within the extended period under Clause (iv) of the Explanation 1 to Section 153 of the Act. The reassessment completed on September 20, 1979 is within the time allowed by law and not barred by limitation. We hold accordingly.
13. A copy of this judgment under the seal of this court and the signature of the Registrar will be forwarded to the Income-tax Appellate Tribunal, Cochin Bench.