Income Tax Appellate Tribunal - Delhi
Indian Farmers Fertiliser Coop. Ltd. vs Jcit, Range 23 on 28 April, 2006
Equivalent citations: [2007]105ITD33(DELHI), [2008]296ITR68(DELHI), (2007)107TTJ(DELHI)98
ORDER
R.V. Easwar, Vice President
1. This appeal by the assessee involves 14 grounds but they all relate to a single issue and the gist thereof is that the order passed by the AO on 28-2-2003 purporting to be an order passed Under Section 147/143(3)/154 of the Income Tax Act is bad in law, without jurisdiction, time-barred and at any rate the issue sought to be rectified is a debatable one not amenable to rectification Under Section 154.
2. The facts giving rise to the appeal is as follows. An assessment was first made for the assessment year 1994-95 on 29-11-1996 Under Section 143(3) of the Act. Later, the assessment was reopened Under Section 147 and the reassessment was completed on 28-3-2002. In this reassessment, the AO observed that the assessment was reopened on the ground that the assessee had been allowed deduction Under Section80-I in respect of the Anola unit on dividend income. However, it appears from the reassessment order that the assessee had clarified before the AO in the course of the reassessment proceedings that no deduction had been claimed on the dividend income. The AO appears to have accepted the clarification. He therefore merely adopted the total income at the figure assessed originally, minus the relief given in appeal against the original assessment. No fresh demand was raised pursuant to the reassessment order.
3. The reassessment order passed as above was rectified Under Section154 by order dated 22-7-2002. Here again, no fresh demand was raised and the total income assessed in the reassessment order was repeated.
4. Thereafter, the AO issued notice Under Section154 to the assessee on 14-2-2003 seeking to rectify the assessment for the year under appeal consequent upon the passing of the order Under Section154 on 10-2-2003 for the assessment year 1993-94 regarding the claim Under Section80-I in respect of the Anola unit. It appears that the computation of the income of the Anola unit for that year had resulted in a loss which had to be carried forward and adjusted against the profit of the said unit for the assessment year under appeal apparently by virtue of Section 80-1(6). Such loss for the assessment year 1993-94 had been computed in the order passed on 10-2-2003 Under Section154 of the Act at Rs. 42,29,23,313 which was sought to be reduced from the profit of Rs. 103,83,73,093 for the year under appeal, for the purpose of computing the deduction Under Section80-I. The assessee objected to the proposed rectification on several grounds, including the ground that it was barred by time. It was contended that since the assessment for the year under appeal had first been completed on 29-11-1996, the last date for passing an order Under Section154 was four years from the end of the assessment year in which the order sought to be rectified was passed, which period ended on 31-3-2001, reckoning the starting point of limitation from 31-3-1997, the last date of the financial year in which the original assessment order was passed. It was further submitted that the issue of allowability of the deduction Under Section80-I was thoroughly scrutinized while passing the reassessment order on 28-3-2002, followed by a rectification order on 22-7-2002, and therefore the proposed rectification was bad in law.
5. The AO however did not accept the contentions of the assessee. He held that whenever a subsequent order of rectification or amendment is passed the original order gets merged with the subsequent order with the result that the date of such order "shifts to that date on which the subsequent order has been passed" and the "limitation for rectification Under Section 154 is to be counted from that date". He therefore held that the proposed rectification would be within the period of limitation, reckoning the period of limitation from the date of passing the reassessment order, i.e., 28-3-2002. He proceeded to reduce the losses of the Anola unit computed at Rs. 42,29,23,313 for the assessment year 1993-94 from the profits of the Anola unit for the assessment year 1994-95 (year under appeal) and correspondingly reduced the deduction Under Section80-I. This order was passed on 28-2-2003.
6. The assessee challenged the rectification order before the CIT(A) on several grounds including the ground that the issue sought to be rectified was a debatable one. All of them having been rejected by the CIT(A), the assessee has filed a further appeal to the Tribunal.
7. We have carefully considered the issue in the light of the rival arguments ably presented before us. We may straightaway say that we are not inclined to agree with the contention that the issue sought to be rectified, viz., the deduction of the brought forward losses relating to the Anola unit for being adjusted against the profits of the said unit for the year under appeal, is a debatable issue in the light of the clear provisions of Sub-section (6) of Section 80-I. That sub-section says that the profits of the industrial undertaking shall, for the purpose of determining the quantum of the deduction for the assessment year immediately succeeding the initial assessment year or any subsequent year, be computed "as if such industrial undertaking...were the only source of income of the assessee during the previous years relevant to the initial assessment year and to every subsequent assessment year up to and including the assessment year for which the determination is to be made". If this provision is applied, then it would appear unarguable that the Anola unit has to be treated as the only source of income of the assessee throughout, with the result that the brought forward losses relating to the unit require to be set-off against the profits of the unit for the year in question by applying the provisions of Section80-I(6). In Cambay Electric Supply 113 ITR 84 the Supreme Court held that the provisions of Section 72 are computation provisions and have to be given effect to before determining the profits of the unit for the year in question. By analogy, it must be held that the provisions of Section 80-I(6) are also computation provisions. Thus the view taken by the AO regarding the adjustment of the losses brought forward from the assessment year 1993-94 against the profits of the said unit for the assessment year under appeal is unassailable and no two views are possible. It can be rectified, provided Section 154 otherwise permits it.
8. The argument of the assessee before us however is that the reassessment order Under Section 143(3) r.w. Section 147 passed on 28-3-2002 is itself without jurisdiction and is a bad order with the result that the time-limit for rectification Under Section 154 cannot be reckoned from that order, but has to be reckoned from the original assessment order passed on 29-11-1996. Three reasons are given for the proposition. It is first contended that the reassessment order is barred by limitation. It is submitted that the notice of demand attached with the reassessment order (creating nil demand) is dated 17.5.2002 which has to be taken as the date of passing the reassessment order according to the judgment of the Calcutta High Court in Mohendra J.Thacker and Co v CIT W.B. 139 ITR 793. Under Section 153(2), as substituted by the Direct Tax Laws (Amendment) Act, 1987 w.e.f. 1-4-1989, the reassessment order ought to have been passed on or before the expiry of one year from the end of the financial year in which the notice Under Section 148 was served. The notice is dated 26-5-2000 and the period of one year from the end of the financial year 31-3-2001 expired on 31-3-2002. The reassessment having been completed, according to the assessee, only on 17-5-2002, the date which the demand notice bears, is barred by limitation. We are unable to accept the contention. The AO has to serve a demand notice on the assessee Under Section 156 of the Act only if any tax etc. is payable in consequence of any order passed under the Act. It is not denied that reassessment order passed on 28-3-2002 did not raise any demand of tax. The AO was therefore not liable to serve any demand notice upon the assessee pursuant to the reassessment order. The issue of the demand notice on 17-5-2002 was unnecessary and has to be ignored as superfluous. In the judgment of the Calcutta High Court cited above, there was a demand raised consequent to the passing of the assessment and hence it was held that the demand notice, signed on a date after the period of limitation, and not on the same date as that of the assessment order, was signed after the period of limitation. In the present case, the factual position is different and hence the same legal consequence as in the case of the Calcutta High Court does not follow. Further, in the present case the tax computation form in ITNS 150 also shows the tax payable consequent to the reassessment order as "nil". It is therefore not appropriate to apply the judgment of the Calcutta High Court to the facts of the present case.
9. The second argument is that the assessee cannot challenge the "nil" demand order made by the AO. We are unable to appreciate the argument. Even if no demand is created, if the assessee feels aggrieved by the reassessment order, it was open to it to file an appeal and challenge the correctness of the order.
10. The third ground for the contention is on stronger footing. It is said that the notice issued Under Section148 is barred by time. According to the assessee, this is a case where the original assessment was framed Under Section 143(3) and therefore the proviso to Section 147 applies. The proviso says that if an assessment has been framed Under Section 143(3), no action for reopening the same can be taken after the expiry of four years from the end of the relevant assessment year. The relevant assessment year is 1994-95. The last date of the assessment year is 31-3-1995. The four year period expired on 31-3-1999. The AO has recorded reasons for reopening the assessment only on 17-4-2000 and has issued the notice Under Section 148 on 24-5-2000. These are matters of record. Thus it is contended that the notice has been issued beyond the period prescribed. This contention has force and is required to be accepted. The learned CIT(DR) however points out that if it is a case of income chargeable to tax escaping assessment by reason of the failure of the assessee to disclose fully and truly all material facts necessary for his assessment, the proviso to Section 147 is not applicable. But the present case is not of this type. The reasons recorded (copy filed) show that there is no allegation that income chargeable to tax had escaped assessment because of the failure of the assessee to disclose fully and truly all material facts. On the contrary, the assessee had disclosed the dividend income and interest income in the profit and loss account and is alleged to have claimed deduction thereon Under Section80-I in respect of the Anola unit. That is only a legal position taken by the assessee after furnishing all the material facts. It is open to the assessee to put forth a legal contention or claim after furnishing all the material particulars. The assessee cannot be shut out from doing so. He cannot be said to have furnished untrue particulars or incomplete particulars for having raised a legal plea. The inference from the facts is for the AO to draw, as held by the Supreme Court in Calcutta Discount Co Ltd. 41 ITR 191. The duty of the assessee, even under the proviso to Section 147, extends only to the furnishing of the material facts. It is not for him to advice the AO as to what inference should be drawn therefrom. The assessee, having filed the basic facts, may raise his own inference there from and put forth the same to the AO which the AO may, in his wisdom, accept or reject. But rejection of the assessee's inference from the material facts cannot be equated with furnishing of untrue or incomplete particulars necessary for the assessment. In this view of the matter, we are of the view that the reassessment order passed on 28-3-2002 is invalid, the notice Under Section148 having been issued beyond the period of limitation prescribed under the proviso to Section 147. It is now well-settled that the issue of a valid notice Under Section 148 is a condition precedent for the validity of the reassessment (please see Supreme Court decision in the case of Kurban Hussain Ibrahimji Mithiborewalla 82 ITR 821). Therefore the assessee is right in saying that the limitation for rectification Under Section154 should be reckoned from the date of the original assessment order passed on 29-11-1996. In that case, the 4-year period expired on 31-3-2001. The order Under Section154 having been passed on 28-3-2002 is barred by limitation and hence invalid.
11. While hearing the rival arguments on the above point, a doubt arose in our minds as to whether it is open to the assessee, not having appealed against the reassessment order, to set up or canvass its correctness in collateral proceedings taken for rectification thereof Under Section154 and we requested both the sides to address arguments on the subject. The assessee has cited several authorities to contend that it can question the correctness of the reassessment order on the principle of "coram non judice", whereas the learned CIT(DR) has sought to distinguish the authorities on facts, without disputing the correctness of the legal position as explained in the authorities, to contend that it is not open to the assessee to now question the correctness of the reassessment proceedings.
12. According to the learned CIT(DR) where territorial or pecuniary jurisdiction is lacking in a court or tribunal or jurisdiction is lacking over the subject-matter of the dispute, only then can the principle of "coram non judice" apply and not in cases of the present type. He says that the reassessment order is not a nullity, as it has been passed in purported exercise of the jurisdiction vested in the AO Under Section 147/148. The order may be voidable when challenged, but till it is set aside on a successful challenge, it remains effective and all consequential proceedings based on the effective order are beyond challenge.
13. We have carefully considered the matter. In Kiran Singh and Ors. v. Chaman Paswan and Ors. it was held by the Supreme Court that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect in jurisdiction, it was held, whether it is pecuniary or territorial or in respect of the subject matter of the action, "strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of the parties". The principle was reiterated in Sunder Dass v. Ram Prakash and Chiranjilal Shrilal Goenka (deed) through Legal heirs v. Jasjit Singh and Ors. . In Raja Jagadambika Pratap Narain Singh v. CBDT and Ors. 100 ITR 698, the Supreme Court held that "merely because an order has been passed by the officer and has not been appealed against, it does not become legal and final if otherwise it is void; for instance, if there is a flagrant violation of natural justice, the order by a Tribunal may be a nullity". In the light of these judgments, it is difficult to entertain the objection of the learned CIT(DR) that the assessee cannot question the reassessment order now on grounds of lack of jurisdiction. It is well settled that the AO assumes jurisdiction to reopen the assessment and frame a reassessment order only by the act of issue of a valid notice Under Section148. If the notice is barred by time, as we have shown earlier, the reassessment proceedings are wholly without jurisdiction. It is not a case of mere irregular exercise of lawful jurisdiction. This point can be taken when the AO seeks to rectify the reassessment order later, though the reassessment order itself was not made the subject-matter of an appeal. The issue can be looked at also from another angle. Though the reassessment proceedings were initiated on the ground that the assessee erroneously claimed deduction Under Section80-I in respect of the dividend income also treating the same as profits derived from the Anola unit, it has been accepted by the AO in the course of the reassessment order that the assessee had placed documentary evidence on record to show that the dividend income has not been taken into account while computing the deduction Under Section80-I. In that case, he ought to have merely closed or dropped the proceedings for reassessment and there was no need to pass an order of reassessment reiterating the original assessment, and without raising any demand. If that had been done, the assessee could not have challenged the action of the AO in appeal. It should not make any difference to that position merely because the AO chose to pass a detailed order of "reassessment" merely to accept the assessee's clarification and without raising any demand and also chose to communicate the same to the assessee. The assessee was not "aggrieved" by the reassessment order and hence could not have filed any appeal to the CIT(A) under Section 246. But that should not be held against it when it seeks to challenge the reassessment proceedings as being without jurisdiction, when action for rectification is sought to be taken on the assumption of the validity of the reassessment order. Then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it.
14. Mr. Rajnish Kumar, the learned CIT(DR), with his usual thoroughness, invited our attention to the judgment of the Allahabad High Court in the case of Bharat Rice Mill 278 ITR 599 and submitted that on facts it is close to the present case and hence ought to govern it. In that case an addition of Rs. 37,548 had been made to the value of the closing stock in the reassessment proceedings which the assessee did not challenge. The reassessment order became final between the parties, but its validity was sought to be set up by the assessee when penalty proceedings were initiated for concealment of income. The High Court did not permit the same. It is significant to note that the High Court examined the contention of the assessee that no reasons were recorded for issuing the notice Under Section148 but found the same to be incorrect, as the assessee had filed a revised return showing higher income which was considered to be sufficient reason for reopening the assessment. With regard to the question whether the assessee can challenge the validity of the reassessment proceedings in collateral proceedings, it was held following the Supreme Court judgment in State of Kerala v. M.K. Kumhikannan Nambiar Manjeri and Rafique Bibi that even a void order rendered between parties cannot be said to be non-existent in all cases and situations; it was observed that a decree is a nullity only if the court passing it has usurped a jurisdiction which it did not have and a mere wrong exercise of jurisdiction does not result in a nullity. Applying these judgments, it may be seen that in the case before the High Court that the AO having had sufficient reasons for reopening the assessment, there was no lack of jurisdiction or "coram non judice" and hence the reassessment order was not a nullity. On that basis, it was held that it cannot be challenged on the principle of lack of jurisdiction and that it was only a case of mere erroneous exercise of jurisdiction.
15. Mr. Rajnish Kumar then contended that under Explanation 1 below Section 147, production before the AO of the books of account from which material evidence could with due diligence have been discovered by the AO will not necessarily amount to disclosure of material facts, and therefore merely because the assessee produced the profit and loss account before the AO from which he ought to have gathered that the assessee did claim deduction Under Section80-I even with respect to the dividend income in the Anola unit it does not mean that material facts were fully and truly disclosed. It was thus contended that the case did not fall under the proviso to Section 147. A perusal of the reasons recorded on 17-4-2000 reveals that the AO did not make any allegation therein that income chargeable to tax has escaped assessment because of the failure of the assessee to furnish full and true material facts. His case is that the dividend income on which also deduction has been claimed cannot be said to be "derived from" the industrial undertaking. It seems to us thus that the AO was questioning the legal inference to be drawn from the admitted facts and not that the assessee failed to furnish full and true particular necessary for its assessment. We have already touched this aspect.
16. The learned CIT(DR) finally argued that in any case the rectification order passed by the AO can be sustained as an order of amendment under Section 155(4), if the power of the AO can be traced to this provision. This sub-section provides for a situation where a loss has been recomputed by the AO in reassessment proceedings for a particular year. In the assessment for the subsequent year or years the loss originally computed, which would normally have been higher than the loss recomputed in the reassessment proceedings, would have been brought forward from the earlier year and set off against the profits of the subsequent year or years. But by virtue of the reassessment for the earlier year and the recomputation (normally a reduction) of the loss to be carried forward, consequential amendments have to be carried out in the assessments of the subsequent year or years. The figures of loss to be brought forward and adjusted against the income of the subsequent year or years have to be amended. This exercise is permitted to be carried out by Sub-section (4) of Section 155. By the time the AO purports to do it, the statutory limitation period of 4 years prescribed by Section 154(7) might have been crossed. Therefore, Section 155(4) further provides that the consequential amendments to the assessments of the subsequent year or years may be carried out within a period of 4 years reckoned not from the end of the financial year in which the assessments of the subsequent year or years were completed, but should be reckoned from the end of the financial year in which the reassessment order for the earlier assessment year was passed Under Section 147. This sub-section provides for an entirely different situation. It refers to changes in the figure of business loss due to passing of a reassessment order, which are to be carried forward and adjusted against the income of the subsequent years under Section 72 to Section 74A. The specific provisions of Section 80-I are not covered by the sub-section.
17. In the case of Kalindi Investment P. Ltd v. CIT 213 ITR 207, the Gujarat High Court has brought out the distinction between the provisions of Section 154 and those of Section 155. It was held that under Section 154 it is a primary requirement that the mistake sought to be rectified should be apparent from the record, whereas there is no such requirement in the case of Section 155. It was pointed out that Section 154 would apply where the order as passed contained a mistake apparent from the record, whereas Section 155 would apply to a case where the order originally passed contained no mistake but became liable to be corrected because of some later order passed in other proceedings or because of some events taking place subsequent to the passing of the original order. The words "rectification of a mistake apparent from the record" are appropriate only to Section 154, whereas orders passed under Section 155 are orders of "amendment". The authority who passes an order of amendment Under Section 155 will have to necessarily establish the coming into existence of such facts which have shown the earlier order to contain an error, before he can assume jurisdiction under the section and "if for establishing the jurisdictional fact inquiry into debatable issues of fact and law are to be gone into, that jurisdiction is inherent in the exercise of power under Section 155". Thus, it would be no defence to an amendment order Under Section 155 to say that it impinges upon issues that are debatable, an argument which would be available against a rectification order passed Under Section 154. Applying respectfully these principles, we find that in the present case it is not open to the assessee to argue that the order passed by the AO, if it is considered to be one under Section 155(4), seeks to amend debatable issues. In fact no such attempt was made before us on behalf of the assessee. What was argued before us, as we have already noticed, is that the power of amendment has to be traced to a specific power in the various sub-sections of Section 155 and that there is no specific power conferred upon the AO to pass the type of amendment order which he did on 28-2-2003. The provisions of Section 155(4) refer specifically only to the adjustment of the figures of losses or depreciation to be carried forward and adjusted against the profits of a subsequent year or years under Sections 72 to 74A. Such adjustments alone can be carried out through an order of amendment. There is no specific power conferred upon the AO to amend the assessment of a later year to give effect to the change in the figure of loss in respect of an industrial undertaking arising out of a rectification order passed for the earlier year, purely for the purpose of adjusting the figure of deduction available Under Section80-I in the later year. As we have already noticed in the earlier part of our order while narrating the facts, even in the notice under Section 154 for the year under appeal the AO has stated that he proposed to amend and recompute the claim for deduction Under Section80-I in respect of the Anola unit for the year under appeal "consequent upon passing of order Under Section 154 dt. 10.2.2003 in the asstt. year 93-94 regarding claim of 80-I of the IT Act, 1961 on Aonala Unit". There is no reference to any order of reassessment passed Under Section 147 as required by Sub-section (4) of Section 155 for the assessment year 1993-94. This sub-section can be invoked only if the amendment for a later year is found necessary "as a result of proceedings initiated under Section 147" for an earlier year, as the opening words of the sub-section show. Going by the notice issued prior to the impugned order of rectification, it is seen that the basic requirement of the sub-section has not been satisfied.
18. At this juncture, it is necessary to notice one important aspect of the case. On the basis of the judgment of the Gujarat High Court in Kalindi Investment P. Ltd (supra), it is possible to hold that the provisions of Section 154 are not applicable at all in the present case since the order of reassessment made on 28-3-2002 (assuming it to be a valid order and within the AO's jurisdiction), on the date on which it was made, did not contain any mistake apparent from the record. The order became an order containing a mistake apparent from the record in the light of the rectification order passed on 10-2-2003 for the assessment year 1993-94 modifying the figure of loss relating to the Anola unit to be carried forward to the subsequent year. Applying the judgment cited above, this only called for an "amendment" of the reassessment order for which a specific power was required to be conferred upon the AO under Section 155. It is not a case of rectification of a mistake apparent from the record, which assumes that the order sought to be rectified was erroneous even when passed, which assumption is not correct at all in the case of the order of reassessment passed on 28-3-2002. It may be useful to recall the observations of the Privy Council in CIT v. Khemchand Ramdas 6 ITR 414, followed by the Supreme Court in ITO v. S.K. Habibullah 44 ITR 809 that an assessment once made is final and it is not open to the department to keep on modifying the same by issuing notices to the end of all time. In particular, it was held by the Supreme Court that "The provisions relating to assessments and rectification or reopening thereof are exhaustive, and may not be extended by analogies. The right to rectify an assessment may therefore be exercised in strict compliance with conditions prescribed by the statute in that behalf. Any assessment or other order made by the AO can be modified only by a process known to law and it is for the AO to trace the power to the specific provision of law which authorises him to do so. In the absence of any such power, the assessment or other order cannot be tampered with. In Kanumarlapudi Lakshminarayana Chetty v. First Additional ITO, Nellore 29 ITR 419, a judgment which was approved by the Supreme Court in Habibullah (supra), the Andhra Pradesh High Court speaking through Hon'ble Chief Justice Subba Rao (as His Lordship then was) held that Section 35(1) of the old Act which was similar to Section 154(1) of the 1961 Act did not apply to a case where the mistake arose out of the disposal of another case. The law was amended later by inserting Sub-section (5) to Section 35 with effect from 1-4-1952 by the Indian Income-tax (Amendment) Act, 1953. Section 155 of the present Act has been broadly fashioned on the lines of Section 35(5). Thus in both the old and new Acts the distinction between a mistake apparent from the record and an amendment to correct an earlier order consequent to orders passed after the earlier order was passed has always been maintained. Cases which fall in the latter category are covered by Section 155 and what is covered by this section cannot be said to be also covered by Section 154. The provisions of Section 154 have been referred to in Section 155 only for the limited purpose of reckoning the period of limitation of four years. In all other respects, both the sections operate on different fields. We have to therefore hold (sic) that in the present case the AO was not right in law in resorting to Section 154.
19. Our attention was not drawn to any other sub-section of Section 155 authorising the AO to amend the assessment in the manner he has done in the present case for the year under appeal so as to enable us to hold that the impugned order of rectification passed under Section 154 can be interpreted as an order of amendment passed under Section 155.
20. For the above reasons, we quash the impugned order of rectification passed by the AO on 28-2-2003 Under Section 154.
21. The appeal is allowed with no order as to costs. Decision pronounced in court on the 28th day of April 2006.