Allahabad High Court
M/S Khandelwal Rubber Products P Ltd. ... vs The Commissioner Of Income Tax on 3 May, 2024
Author: Saumitra Dayal Singh
Bench: Saumitra Dayal Singh
HIGH COURT OF JUDICATURE AT ALLAHABAD Neutral Citation No. - 2024:AHC:80206-DB Court No. - 39 Case :- INCOME TAX APPEAL No. - 400 of 2005 Appellant :- M/S Khandelwal Rubber Products P Ltd. Pratapgarh Respondent :- The Commissioner Of Income Tax Counsel for Appellant :- S.K. Garg,Ashish Bansal Counsel for Respondent :- S.C.,Krishna Agarawal Hon'ble Saumitra Dayal Singh,J.
Hon'ble Donadi Ramesh,J.
1. Heard Sri Ashish Bansal, learned counsel for the assessee and Sri Krishna Agarwal, learned counsel for revenue.
2. The present Income Tax Appeal has been filed under Section 260-A of the Income Tax Act, 1961, (hereinafter reference to as the 'Act') arising from the order passed by the Income Tax Appellate Tribunal, Allahabad Bench, Allahabad dated 29.04.2005 in ITA No. 85(Alld) of 2001 (Khandelwal Rubber Products (P) Ltd. vs. Addl. C.I.T. (Asstt), Special Range, Allahabad) for AY 1995-96. By that order, the Tribunal has dismissed the appeal filed by the assessee and confirmed the demand of additional tax, imposed under Section 143(1A) (a) (ii) (B) of the Act.
3. The appeal was admitted on the following questions of law :-
(ii) WHETHER the order dated 19.02.1999 levying Additional tax of Rs.57,481, with reference to the loss shown in the "original return" was valid in the eyes of law, even though such a 'return' had been become non-existence by the reason of revision of the same and even notice under Section 143(2) had been issued by the Assessing Officer with reference to the 'revised return'?
(iii) WHETHER on a true and correct interpretation of Section 253 of the Act, the Tribunal was legally correct in drawing an adverse inference about the assessee's bonafide in filing the revised return (withdrawing its claim for deduction of interest payable to UPFC) and inter-alia on that basis in upholding the levy of 'Additional tax' under Section 143(1A)?
4. Submission of learned counsel for assessee is, the original intimation issued under Section 143(1)(a) dated 28.02.1996 stood washed out and no legal effect may have been caused occasioned by any declaration made by the assessee in his original return dated 30.11.1995, for reason of revised return dated 06.09.1996 filed by the assessee upon the proceeding being remitted to the Assessing Authority by the Commissioner of Income Tax (Appeals) vide his order dated 16.07.1996.
5. In any case, the revised return was taken up in scrutiny assessment proceeding under Section 143(3) of the Act and regular assessment order was passed on 06.03.1998. According to that order, the petitioner was assessed at loss Rs.5,25,390/-. Once assessment proceeding had thus concluded, there neither survived the original intimation issued under Section 143(1)(a) of the Act dated 28.02.1996 nor there survived legal basis to invoke the provision of Section 143(1A) of the Act. In fact, a valid revised return was filed within time. That itself eclipsed the power of the Assessing Authority under Section 143(1A) of the Act.
6. On the other hand, learned counsel for revenue has heaviely relied on the reasoning of the Tribunal and submitted, the assessee cannot be permitted to take advantage of the order of the CIT (Appeals) dated 16.07.1996, to avoid the consequence that otherwise was visited on it for reason of exaggerated loss claimed in the original return. While tax liability may remain to be enforced against the assessee on the strength of order passed under Section 143(3) of the Act, insofar as the additional tax liability under Section 143(1A) of the Act is concerned, that may survive on the basis of conduct offered by the assessee, in filing a return disclosing exaggerated loss. Insofar as the assessee had itself not supported the figure of loss claimed in the original return and further insofar as against original loss declared Rs.11,79,119/- the assessee has been assessed at a much lower loss Rs.54,44,000/-, the exaggerated loss claimed in original return stood established.
7. Having heard learned counsel for parties and having perused the record, what is to be first examined is whether the provision of Section 143(1A) of the Act could apply to a case where assessment may have been completed under Section 143(3) of the Act. Under the scheme of the Act, a return may be filed by an assessee under Section 139 of the Act. It may be processed under Section 143(1)(a) of the Act. At that stage, no assessment is to be made. Only the disclosures made in the return are tested for arithmetical errors and on the strength of accounts and documents, appended to that return. Thus, to the benefit of an assessee, a loss carried forward or a deduction or allowance or relief available on the strength of the disclosures made in the return and the supporting documents may be allowed if it be admissible, though not claimed. Similarly, a loss carried forward or a deduction or allowance or relief claimed in the return that may prima facie be inadmissible on the basis of information available to the Assessing Officer in the return or accounts or documents appended thereto, may be disallowed. Upon such exercise made, the Assessing Officer would issue a notice of demand, in terms of Section 156 of the Act. That course was adopted in the present case.
8. Thus, the assessee's return for AY 1995-96 disclosing loss Rs. 11,79,190/- was processed under Section 143(1)(a) of the Act. On 28.02.1996, the Assessing Officer disallowed interest payments claimed by the assessee in its return, to the tune of Rs. 6,69,792/-.
9. Again under the scheme of the Act, since that processing of the return gave rise to a notice of demand, that itself gave right of appeal to the assessee under Section 246(2) of the Act. That appeal was allowed by the C.I.T. (Appeals) on 16.07.1996.
10. Perusal of that order reveals that the C.I.T. (Appeals) was of the view that the assessee ought to have been granted opportunity of hearing, before his return was thus processed. Accordingly, the intimation dated 28.02.1996 was set aside and the matter remitted to the Assessing Authority to proceed afresh. The correctness of that order passed by the C.I.T. (Appeals) was never challenged by the revenue. Admittedly, it attained finality.
11. Consequently, by way of legal effect caused, the original return of the assessee became pending, at the stage of processing. One year time from the end of AY 1995-96 having survived, the assessee filed its revised return on 06.09.1996. It is also undisputed that the said return was not rejected by the Assessing Authority. Instead of processing the return as revised, the Assessing Authority now initiated scrutiny assessment proceedings, under Section 143(3) of the Act.
12. Consequently, he passed the assessment order dated 06.03.1998 wherein he computed the net loss and concluded the assessment proceeding on the following terms :-
"9. After discussion, total loss is computed as under :-
Net Loss as per P/L A/s (-) Rs. 9,37,518/-
Add : (i) Depreciation taken back as Rs. 4,45,376/-
claimed in P/L A/c by the
assessee
(ii) U.P.F.C. intt. As claimed Rs. 6,69,792
(iii) Misc. expenses as discussed Rs. 2,000
above
(iv) Vehicle running exp. As above Rs. 5,000
(v) Staff welfare expenses as Rs. 7,000
discussed
(vi) Freight outward as discussed Rs. 2,000 Rs. 11,22,168
--------------- -----------------
Rs. 2,06,650
Less : U.P.F.C. intt. paid Rs. 45,000
Depreciation as I.T. Rule Rs.6,87,044 Rs.7,32,044
----------------- ---------------
Rs. 5,25,394
Or. Rs. 5,25,390
10. Thus, asstt. Is completed on total loss of Rs. 5,25,390/- This loss will be carried forward to be set off against the future assessment years when there is positive income.
13. That assessment order was not made subject matter of revision under the Act. It has also attained finality.
14. In view of the above facts that emerge from the order passed by the Tribunal and are apparent on record, it has to be recognized that the assessee was first subjected to processing of return for AY 1995-96. That was set aside by the appeal authority. Thereafter, it was assessed to tax under Section 143(3) of the Act.
15. As to law, there can be no doubt that the provisions of Section 143(1A) of the Act, would apply and remain confined to situations covered under Section 143(1)(a) of the Act. For ready reference provision of Section 143(1)(a) read:
"143.(1)(a) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, -
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this act shall apply accordingly; and
(ii) if any refund is due on the basis of such return, it shall be granted to the assessee:
Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely, :-
(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;
(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of information available in such return, accounts or documents, is prima facie admissible but which is not claimed in the return, shall be allowed;
(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed.
16. Also the provisions of Section 143(1A)(a)(ii)(B) read as below :-
"(1A)(a) Where as a result of the adjustments made under the first proviso to clause (a) of sub-section (1),
(i) - - - - - - - - - - -
(ii) the loss declared by such person in the return is reduced or is converted into income, the Assessing Officer shall, -
(A) - - - - - - - - - -
(B) in case where the loss so declared is reduced under sub-clause (ii) of this clause or the aforesaid adjustments have the effect of converting that loss into income, calculate a sum (hereinafter referred to as additional income-tax) equal to twenty per cent of the tax that would have been chargeable on the amount of the adjustments as if it had been the total income of such person and specify the additional income-tax so calculated in the intimation to be sent under sub-clause (i) of clause (a) of sub-section (1);"
17. The opening words of Section 143(1A) are unequivocally clear. The legislature clearly intended to apply that provision of law to a case where a loss declared in the return is reduced or converted to income as a result of adjustments made under Section 143(1)(a) of the Act, only. Therefore, by necessary implication the said provision would not apply to a case where such adjustment may be made as a result of scrutiny assessment made under Section 143(3) of the Act.
18. Plainly, the above noted provision creates a levy in the nature of a compliance penalty to ensure strict compliance of the law. Thus, where an assessee may have filed a return claiming excess loss not be supported by documentary evidence appended to that return, that non-compliance of law may be inferred, and additional tax levied. However, where scrutiny assessment may have been made, such levy is not seen contemplated by the legislature. In that case different penalties could arise under the Act. Those are not in issue before us.
19. As to the submission that the non-compliance made by the assessee would survive for consideration despite subsequent assessment made, we are unable to accept the submission being advanced by learned counsel for the revenue. It is a sine qua non under the Act, that an assessee may be assessed only once. Summary assessment may arise and survive and the consequence of its non-compliance noted under Section 143(1)(a) of the Act may also survive for consideration for the purpose of invocation of Section 143(1A), in a case where the intimation issued under Section 143(1)(a) may not have been set aside. Those would be cases where despite issuance of intimation under Section 143(1)(a) of the Act, notice may be issued to an assessee in terms of Section 143(2) of the Act. If assessment proceeding had thus arisen in linear progression of the assessment proceedings, different considerations would arise. However, in these facts, material difference had arisen. Here, intimation issued under Section 143(1)(a) itself was set aside by the C.I.T. (Appeals) vide his order dated 16.07.1996. Once the intimation stood set aside, it could never be said with any conviction that any adjustment made under Clause a(1) of section 143 survived. Once the 'object' i.e. the intimation stood removed, its 'shadow' i.e. the consequence could not survive.
20. In view of the surviving limitation to file a revised return, the assessee was within its rights to file the revised return on 06.09.1996. It would also have been another case, where that Assessing Officer may have chosen to still process the return. However, the Assessing Officer chose to initiate scrutiny assessment proceeding under Section 143(3) of the Act. That course adopted by the Assessing Authority itself destroyed completely, the basis to invoke section 143(1A), in the present facts.
21. On general principle, it is fundamental to the scheme of the Act, that there may only arise one assessment order for one assessment year in the case of any assessee. Once that assessment order came to be passed under Section 143(3) of the Act, it is the only that assessment order that may be enforced against the assessee. The intimation issued under Section 143(1)(a) of the Act, prior in time, lost its effect and stood subsumed in the subsequent scrutiny assessment order. Therefore, it could never be looked at independently for the purpose of imposition of demand of additional tax.
22. The decision in the case of Biland Ram Hargan Dass vs. Commissioner of Income-tax (1987) Taxman 423 (Allahabad) 1987 (35) is of no help to the revenue inasmuch as that was a case involving penalty under Section 271(1)(c) of the Act. That penalty being impossible for concealment of income consequent to scrutiny assessment order under Section 143(3) of the Act, it has no application to the present facts involving demand of additional tax on simple processing of income. As noted above, processing of a return under Section 143(1)(a) of the Act is not an assessment order.
23. In view of the above discussion, the questions raised in the present appeal are answered, accordingly, i.e. favour of the assessee and against the revenue.
24. The present appeal is allowed. No order as to costs.
Order Date :- 3.5.2024
Manoj
(Donadi Ramesh,J.) (Saumitra Dayal Singh,J.)