Income Tax Appellate Tribunal - Mumbai
Thacker And Co. Ltd. vs Income-Tax Officer on 7 July, 2006
Equivalent citations: [2007]106ITD141(MUM)
ORDER
K.C. Singhal, Judicial Member
1. Both these appeals were heard together and are being disposed of by the common order for the sake of convenience. The issue involved in these appeals, is purely legal one, i.e., whether, disallowance under Section 14A of the Income-tax Act, 1961 ("the Act"), can be made against the dividend income exempted under Section 10(33) of the Act in the course of assessment proceedings under Section 147 of the Act.
2. Briefly stated, the facts are these : The return for the assessment year 1998-99 was filed on November 3, 1998, which was processed under Section 143(1) and intimation was issued on June 18, 1999. The time-limit for issuance of notice under Section 143(2) of the Act expired on January 3, 2000. Subsequently, the assessment was reopened under Section 147 after recording the reasons and issuing the notice under Section 148 of the Act on June 1, 2001. In the course of reassessment proceedings, the Assessing Officer made disallowance of Rs. 16,90,135 under Section 14A against dividend income exempted under Section 10(33).
3. Similar are the facts relating to the assessment year 1999-2000. The return for the assessment year 1999-2000 was filed on December 22, 1999 and the same was processed under Section 143(1)(a) of the Act by issuing intimation on March 8, 2002, excepting the returned loss. The period for issuing the notice under Section 143(2) expired on January 22, 2001 and subsequently, the assessment was reopened by issuing of notice under Section 148 on June 1, 2001. In such reassessment proceedings, the Assessing Officer disallowed the sum of Rs. 33,00,554 under Section 14A against the dividend income exempted under Section 10(33).
4. The learned Commissioner of Income-tax (Appeals) has confirmed the orders of the Assessing Officer for both the years. Aggrieved by the same, the assessee has preferred these appeals before the Tribunal.
5. Both the parties have been heard at length. The first contention raised by learned Counsel for the assessee Mr. Gulanikar is that, the Assessing Officer could not reopen the concluded assessment by issuing notice under Section 148 in view of the proviso to Section 14A of the Act. He drew our attention to the provisions of Section 14A which reads as under:
14A. Expenditure incurred in relation to income not indudible in total income.-For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act:
Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under Section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under Section 154, for any assessment year beginning on or before the 1st day of April, 2001.
6. He also drew our attention to the Board Circular No. 11 dated July 23, 2001, which reads as under (see [2001] 250 ITR (St.) 84):
4. The Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April 2001, should not be reopened under Section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted Section 14A of the Act.
7. Our attention was drawn to paragraph 4 of the above circular for the proposition that, where the assessment proceedings have become final, the Assessing Officer is prohibited from issuing notice under Section 148. He also relied on the decision of the Tribunal, Mumbai Bench, in the case of Mahabir Prasad Jatia v. Deputy CIT copy of which is placed on record at pages 37 to 40 of the paper book.
8. In our opinion, the above contention of Mr. Gulanikar cannot be accepted for the reasons given hereinafter. There is no dispute that assessments concluded cannot be reopened by issue of notice under Section 148 for making disallowance under Section 14A, as is apparent from the provisions of Section 14A read with the Board circular. However, on facts, we find that the assessment was not reopened for making disallowance under Section 14A. We have gone through the reasons recorded under Section 148, copy of which is placed at page 28 of the paper book. The perusal of the reasons recorded reveals that income escaped assessment inasmuch as the loss in purchase and sale of shares being speculative loss as per the provisions of Explanation to Section 73 of the Act, could not be allowed against the other business income. Thus, there is no reference regarding disallowance under Section 14A of the Act. It is not the case of the assessee that reopening was bad in law on the basis of the reasons recorded by the Assessing Officer. Thus, it is clear that the assessment was not reopened on the basis of the provisions of Section 14A but was reopened on some other ground. Accordingly, it cannot be said that the Assessing Officer reopened the assessment for making disallowance under Section 14A. The decision of the Tribunal relied upon by the assessee's counsel is distinguishable inasmuch as in that case, the assessment was reopened for the purpose of making disallowance under Section 14A. Hence, the first contention raised by the assessee's counsel is rejected.
9. The next contention of Mr. Gulanikar is that, assuming that reassessment proceedings were validly initiated, the Assessing Officer is prohibited to reassess under Section 147 or pass an order enhancing the assessment order reducing a refund already made or otherwise increasing the liability of the assessee under Section 154 for any assessment year beginning on/or before the first day of April 2001. According to him, if the proceedings of assessment are concluded or have become final, then no action whatsoever can be taken by the Assessing Officer either under Section 147 or under Section 154 for making any disallowance of an expenditure related to exempted income by invoking the retrospective amendment by way of Section 14A. He relied on the judgment of the hon'ble Bombay High Court in the case of CIT v. Anderson Marine and Sons P. Ltd. , for the proposition that an intimation issued under Section 143(1) is an order of assessment. He again relied on the Board circular to contend that assessment proceedings once concluded, then the provisions of Section 14A cannot be invoked. He drew our attention to the factual events to point out that the period for issuance of notice under Section 143(2) had already expired before the issue of notice under Section 147 and, therefore, no disallowance could be made in this regard.
10. On the other hand, the learned Departmental Representative Mr. Ankur Garg, submitted that each judgment should be considered in the context in which it was decided. Thus, it was contended that the judgment of the hon'ble Bombay High Court relied upon by the assessee's counsel is distinguishable inasmuch as the decision was rendered in the context of Section 263 and, therefore, the principle laid down by the hon'ble Bombay High Court cannot be said to be of universal application. According to him, the intimation under Section 143(1) cannot be equated with the order of assessment. In this connection, he relied on three decisions of the High Courts, namely, Pradeep Kumar Har Baron Lal v. Assessing Officer , Inder Narayan Jhalani v. Union of India and Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT . In reply, Mr. Gulanikar has submitted that the decision of the jurisdictional High Court is binding and, therefore, the other decisions cannot be applied.
11. The rival submissions of the parties have been considered carefully. No doubt, there is divergence of opinion on the question whether, intimation under Section 143(l)(a) can be considered as an order of assessment inasmuch as the hon'ble High Courts of Allahabad, Madhya Pradesh and Delhi have opined that intimation under Section 143(1)(a) cannot be treated as an order of assessment while the hon'ble Bombay High Court has specifically stated that intimation under Section 143(1) amounts to an order of assessment. No doubt, the High Court was considering this aspect of the issue for the purpose of assumption of jurisdiction under Section 263 of the Act but the conclusion was reached by the hon'ble High Court by independently evaluating the entire provisions of Section 143. The relevant portion of the judgment of the hon'ble Bombay High Court [2004] 266 ITR 694) is being reproduced as under:
The amended provision of Section 143(1) of the Income-tax Act, 1961, is applicable with effect from April 1, 1989, i.e., the assessment year 1989-90. The amendment has introduced a change in the procedure for assessment. The scheme is that the return as filed by the assessee should be accepted at its face value being self-assessment. However, the said sub-section is without prejudice to the provisions of Sub-section (2) of Section 143. In other words, the procedure for assessment has been simplified so as to dispense with a regular assessment order to be passed by the Assessing Officer in every case. Acceptance or acknowledgement of the return filed by the assessee and intimation sent for the purpose of Section 143(1) is an assessment. Assessment has been defined in Section 2(8) as 'assessment includes reassessment'. Section 143, as a whole, is a provision regarding assessment. The modalities and procedure for assessment have been provided for in Sub-section (1), which is different from the procedure under Sub-section (2) read with Sub-section (3) of the same provision. In both cases, they are proceedings under the Act and the assessment is accepted or made by the Revenue, as the case may be. In the latter case, i.e., Section 143(3), an order is passed ; whereas in the former case, i.e., Section 143(1), it is an intimation or acknowledgement. Nevertheless, the intimation sent by the Assessing Officer, in law, will have to be understood as having the force of an order on self-assessment. This construction is reinforced by the legal fiction provided in the amended provision, which postulates that 'intimation' shall be deemed to be notice of demand issued under Section 156 and all the provisions of the Act shall apply accordingly. Interference under Section 263 of the Act by the Commissioner even against an intimation referable to Section 143(1) is open. If the Legislature had intended to exclude the jurisdiction of the Commissioner in respect of the proceeding under Section 143(1) of the Act, which is also an assessment and therefore, in the nature of an order, it would have expressly made provision in that behalf just as it has amended Section 154 of the Act by the Finance Act, 1999, in respect of the provision for 'rectification of mistake' as a consequential amendment made to envelop the amended Section 143(1). It is the decision of the Assessing Officer whether to send intimation or to proceed under Sub-section (2) of Section 143. That is surely a process of taking a decision in the matter. Sending an intimation being a decision of acceptance of self-assessment is, therefore, in the nature of an order passed by the Assessing Officer for the purpose of Section 263 of the Act. In the other situation, the action culminates with the order in writing under Section 143(3) of the Act, which is indubitably amenable to Section 263.(as per headnote)
12. Since the judgment of the Bombay High Court is binding on us, we hold that the intimation under Section 143(1) was an order of assessment and, therefore, as a necessary corollary, it has to be held that income of the assessee got assessed by virtue of the provisions of Section 143(1) and consequently the Assessing Officer was prohibited to reassess by invoking the provisions of Section 14A.
13. Without prejudice to our above finding, we are of the view that disallowance could not be made under Section 14A in the reassessment proceedings even assuming that intimation under Section 143(1) does not amount to an assessment order. We have gone through the Board Circular No. 11 dated July 23, 2001 (see [2001] 250 ITR (St.) 84), wherein the Board has reduced the rigour of the provisions of Section 14A by providing in paragraph 4 of the Circular that where assessment proceedings have become final before April 1, 2001, then such proceedings should not be reopened under Section 147. Even at the cost of repetition, paragraph 4 of the Board Circular is being reproduced as under:
4. The Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April 2001, should not be reopened under Section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted Section 14A of the Act.
14. The perusal of the above clearly shows that the Board has referred to the finality of the assessment proceedings, which is different from the completion of the assessment proceedings by a formal order of assessment. It is the settled legal position that the assessment proceedings are initiated by filing of the returns. Now, therefore, the question arises whether the assessment proceedings became final after the expiry of the period of limitation provided under Section 143(2). This question has arisen before the hon'ble Punjab and Haryana High Court in the case of Vipan Khanna v. CIT , wherein their Lordships held that although, technically, no assessment is framed in such a case, yet the proceedings for assessment stand terminated after the expiry of the period provided under Section 143(2) of the Act. The relevant portion of the judgment is binding, which is reproduced as under:
Prior to the amendment with effect from April 1, 1989, the Assessing Officer could frame an assessment under Section 143(1) of the Income-tax Act, 1961, without requiring the presence of the assessee. Alternately, he could issue a notice under Sub-section (2) of Section 143 of the Act and require the assessee to produce his books of account and other evidence in support of the return filed by him and thereafter frame an assessment under Sub-section (3) of Section 143 of the Act. Therefore, it was necessary that an assessment order either under Sub-section (1) or under Sub-section (3) of Section 143 of the Act had to be passed. However, after the amendment made with effect from April 1, 1989, the position has materially changed. Now, the Assessing Officer initially processes the return under Section 143(1)(a) of the Act and determines the amount payable or refundable on that basis. It is not necessary for him to frame an assessment in each and every case. However, in case he chooses to verify the return and frame an assessment, he has to issue a notice under Sub-section (2) of Section 143 and require the assessee to produce his books of account and other materials in support of the return. Thereafter, he can make an assessment under Sub-section (3) of Section 143 of the Act. Another important change incorporated in Sub-section (2) of Section 143 of the Act is that the notice under this subsection cannot be served on an assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, in a case where a return is filed and is processed under Section 143(l)(a) of the Act and no notice under Sub-section (2) of Section 143 of the Act thereafter is served on the assessee within the stipulated period of 12 months, the assessment proceedings under Section 143 come to an end and the matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated.(As per headnote)
15. The above judgment clearly holds that even where intimation is not issued but the period of limitation provided in Section 143(2) has expired, the assessment proceedings became final. Therefore, such cases would fall within the ambit of paragraph 4 of the Board circular. Consequently, the Assessing Officer is prohibited from taking any action under Section 147. It is a settled legal position that what cannot be done directly cannot be done indirectly. If the Assessing Officer is prohibited to take any action under Section 147 in terms of the proviso to Section 14A, then in our opinion, he is also prohibited from reassessing the income even though the notice under Section 148 was valid. If the Assessing Officer is permitted to take action in the valid reassessment proceedings, then the purpose of the proviso would be defeated. The object of the proviso is to stop the Assessing Officer completely from taking any action where the assessment proceedings have become final. According to the settled rule of interpretation, the interpretation which augments the object should be preferred rather than the interpretation which frustrates the same. In view of the above discussion, we hold that the action of the Assessing Officer in disallowing the expenditure in the reassessment proceedings was not justified since the period of limitation under Section 143(2) had already expired before April 1, 2001, as noted by us while stating the facts.
16. In view of the above, the orders of the lower authorities are set aside and consequently, the disallowances made are deleted.
17. In the result, appeals stand allowed.