Income Tax Appellate Tribunal - Delhi
Income-Tax Officer vs Deepak Agarwal (P) Family Trust on 30 April, 1993
Equivalent citations: [1993]45ITD127(DELHI)
ORDER
Anand Prakash, Accountant Member
1. This is a departmental appeal on the following grounds :
" 1. Under the facts and circumstances, the Appellate Assistant Commissioner was not justified in admitting the appeal against the assessment order under Section 143(1) because in such cases instead of providing appeal under Section 246(1)(c) the scheme of the Act has provided filing of application under Section 143(2)(b).
2. The learned Appellate Assistant Commissioner has erred in holding that while framing the assessment under Section 143(1), the Income-tax Officer can make only two adjustments mentioned in Section 143(1)(b) and in ignoring that Section 143(1)(b) limits the Income-tax Officer's powers of adjustments only in regard to determination of income but not in regard to determination of tax payable.
3. The learned Appellate Assistant Commissioner has erred in holding that the Income-tax Officer's action of taking the status as association of persons unspecifie'd shares is not permissible under Section 143(1) of the Income-tax Act.
4. The Appellate Assistant Commissioner was not justified in directing the Income-tax Officer to charge tax under Section 161/166 of the Income-tax Act, 1961.
The order of the learned Appellate Assistant Commissioner being erroneous to set aside and the order of the Income-tax Officer be restored."
2. The relevant facts may be noted. The assessee has filed the return for the assessment year 1984-85, declaring an income of Rs. 26,800 and claiming that the assessment should be made in accordance with the provisions of Sections 161 and 166. The Income-tax Officer made assessment with reference to the said return under Section 143(1), but, while working out the tax, he levied tax treating the status as association of persons with unspecified shares of the members of the association.
3. Against the said order under Section 143(1), the assessee did not move an application under Section 143(2)(a). Instead, the assessee filed an appeal against the said order to the Appellate Assistant Commissioner under Section 246(1)(c) of the Income-tax Act, 1961.
4. The learned Appellate Assistant Commissioner disposed of the said appeal of the assessee by observing, inter alia, as below :
" The question whether order under Section 143(1) is appealable or not has been considered by me in several cases of this Range. After considering the various legal provisions, I have held that the order is appealable when the assessee denied his lability to be assessed to tax. This view is based on several decisions including that of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225.1, therefore, hold that the appeal is maintainable.
The jurisdiction of the Income-tax Officer under Section 143(1) of the Income-tax Act is very limited and he cannot make any assessment other than those specified in the Act. The Income-tax Officer's action in taking the status as association of persons with unspecified shares is not permissible under Section 143(1). The Income-tax Officer is, therefore, directed to charge the tax according to the provisions of Sections 161 and 166 as claimed by the appellant."
5. The present appeal of the Revenue is against the aforesaid order of the learned Appellate Assistant Commissioner. According to the learned Departmental Representative no appeal could lie against an order under Section 143(1), in terms of Section 246 of the Income-tax Act, 1961, and that the Appellate Assistant Commissioner erred in holding that an appeal would lie against an order under Section 143(1). Even the presumption made by the learned Appellate Assistant Commissioner that, in the present case, the assessee was denying its liability to be assessed was not correct. What the assessee was claiming before the Appellate Assistant Commissioner was that the quantum of tax determined with reference to the assessee's total income was excessive and that it should have been computed according to the provisions of Sections 161 and 166 and that, therefore, it would be wrong to say that the assessee was denying his liability to be assessed under the Income-tax Act, 1961.
6. On the date of hearing, none attended on behalf of the assessee. An application for adjournment was, of course, received from the assessee stating, inter alia, as below :
" It is submitted that due to trustee's illness it is not possible for me to appear on February 2, 1988. Kindly give another date."
7. The aforesaid application was rejected because the plea that the trustee was ill was neither supported by any evidence of illness nor had it been explained as to how counsel was handicapped in-arguing the present appeal on account of the said illness. The appeal is, therefore, being disposed of on merits after taking into account the submission of the learned Departmental Representative as above.
Relevant part of Sub-Section (2)(a) of Section 143, reads as below :
"Where a return has been made under Section 139, and -
(a) an assessment having been made under Sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an application to the Income-tax Officer objecting to the assessment,. . . .
the Income-tax Officer shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any1 evidence on which the assessee may rely in support of the return. ..."
8.Explanation to the above sub-section makes it clear that -
" (i) an assessment under Sub-section (1) shall be deemed to be incorrect, inadequate or incomplete in a material respect if -- . . .
(b) the amount of tax payable as determined under Sub-section (1) is greater or smaller than the amount of the tax properly payable under this Act by the assessee ; or ...
(f) the status in which the assessee has been assessed under Sub-section (1) is different from the status in which the assessee is properly assessable under this Act ;"
9. Inasmuch as the assessee's grievance in the present case was that the tax charged by the Income-tax Officer on the returned income was more than was properly payable under the Act by the assessee in terms of Section 161/166 of the said Act, the assessment passed by the Income-tax Officer would be deemed to be incorrect in terms of Clause (1)(b) of the Explanation to Sub-section (2) of Section 143 of the Income-tax Act, 1961. The assessee was, therefore, entitled to object to the assessment in terms of Clause (a) of Sub-section (2) referred to above. When such objection is raised by the assessee, it is obligatory on the Income-tax Officer to reopen the assessment completed by him earlier under Section 143(1) and to issue to the assessee a notice under Sub-section (2) of Section 143 to produce any evidence on which the assessee may rely in support of the return. Any order passed subsequent to this notice would fall under Sub-section (3) of Section 143 or under Section 144 depending on the facts of the case.
10. Section 246 of the Income-tax Act, 1961, which provides for the procedure of appeal, stipulates, inter alia, as below :
" 246. (1) Subject to the provisions of Sub-section (2), any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order --...
(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, ..."
11. As can be seen from the bare reading of Clause (c), it has two limbs. The first limb deals with " an order against the assessee where the assessee denies his liability to be assessed under this Act". The second limb deals with " any order of assessment under Sub-section (3) of Section 143 or Section 144. ..." Apparently, the assessee's case is not covered by the second limb because the order appealed against was passed by the Income-tax Officer neither under Section 143(3) nor under Section 144. The assessee's case could, therefore, have been covered, if at all, under the first limb of Clause (c) referred to above, namely, where the assessee denied his liability to be assessed under this Act. But, as has been rightly pointed out by the learned Departmental Representative in the present case, the assessee was not denying his liability to be assessed under this Act. It had itself filed its return of income under Section 139 and it requested the Income-tax Officer to charge tax on the returned income in terms of Sections 161 and 166 of the Income-tax Act, 1961. Section 161 deals with assessment of a representative assessee, whereas Section 166 deals with direct assessment on the beneficiaries. The Income-tax Officer, instead of computing the assessment in the above manner, computed the tax in terms of Section 164 of the Income-tax Act, 1961. It was this determination of tax that was the cause of grievance of the assessee. For this wrong determination of tax, in case it was really true, the remedy which is open to the assessee, was the one prescribed by Clause (a) of Sub-section (2) of Section 143 of the Income-tax Act, 1961. This remedy was not an appeal against the order in question in terms of Clause (c) of Section 246(1) of the Income-tax Act, 1961. This being so, the learned Appellate Assistant Commissioner was, in our opinion, wrong in admitting the appeal in question. Accordingly, his order is hereby vacated.
12. In the result, the Departmental appeal stands allowed.
S. P. Kapur, Judicial Member
13. Since I have not been able to persuade myself with the reasoning and conclusions arrived at by my learned brother (the Accountant Member) in his proposed order, I am venturing to append thereto, my "note" of dissent as under :
14. The impugned order of the learned first appellate authority against which the Revenue is aggrieved reads as under (at page 71):
" The question whether order under Section 143(1) is appealable or not has been considered by me in several, oases of this Range. After considering the various legal provisions, I have held that the order is appealable when the assessee denied his liability to be assessed to tax, This view is based on several decisions including that of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. I, therefore, hold that the appeal is maintainable.
The jurisdiction of the Income-tax Officer under Section 143(1) of the Income-tax Act is very limited and he cannot make any assessment other than those specified in the Act. The Income-tax Officer's action in taking the status as association of persons with unspecified shares is not permissible under Section 143(1). The Income-tax Officer is, therefore, directed to charge the tax according to the provisions of Sections 161 and 166 as claimed by the appellant."
Section 143(1) of the Act reads as under :
" 143. Assessment. -- (1)(a) Where a return has been made under Section 139, the Income-tax Officer may, without requiring the presence of the assessee or the production by him of any evidence in support of the return, make an assessment of the total income or loss of the assessee after making such adjustments to the income or loss declared in the return as are required to be made under Clause (b) with reference to the return and the accounts and documents, if any, accompanying it, and for the purposes of the adjustments referred to in Sub-clause (iv) of Clause (b), also with reference to the record of the assessments, if any, of past years and determine the sum payable by the assessee or refundable to him on the basis of such assessment.
(b) In making an assessment of the total income or loss of the assessee under Clause (a), the Income-tax Officer shall make the following adjustments to the income or loss declared in the return, that is to say, he shall,--
(i) rectify any arithmetical errors in the return, accounts and documents referred to in Clause (a) ; . . .
(iv) give due effect to the allowance referred to in Sub-section (2) of Section 32, the deduction referred to in Clause (it) of Sub-section (3) of Section 32A or Clause (ii) of Sub-section (2) of Section 33 or Clause (ii) of Sub-section (2) Section 33A or Clause (i) of Sub-section (2) of Section 35 or Sub-section (1) of Section 35A or Sub-section (1) of Section 35D or subsection (1) of Section 35E of the first proviso to Clause (ix) of Sub-section (1) of Section 36, any loss carried forward under Sub-section (1) of Section 72 or Sub-section (2) of Section 73 or Sub-section (1) of Section 74 or Sub-section (3) of Section 74A and the deficiency referred to in Sub-section (3) of Section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years."
15. Now, an order to be an assessment order under Section 143(1) of the Act has to be as the law provides, i.e., it has to be an assessment order strictly in accordance with Section 143(1) in terms of its tenor, import and has to be such in letter and spirit. If the assessment order is lebelled as an assessment order made under Section 143(1) of the Act but substantially and strictly it is not so as the said Section 143(1) provides, i.e., " adjustments " have to be as provided in Clause (b) of the said Section 143(1), then the assessment order cannot be said to be so but it is an assessment order made under Section 144 of the Act or else Section 143(3) of the Act and that too without giving a reasonable opportunity of being heard to the assessee. If the "adjustments" as provided in Clause (b) of Section 143(1) of the Act have been, made then the assessment order may not be an appealable order but if it does not strictly conform to the requirements of the said section, then it is not an assessment order made under Section 143(1) and as such, it is not only against all canons of natural justice but it is an assessment order against which an appeal lies. In fact, an assessment order labelled as having been framed under Section 143(1) of the Act but exceeding the limits of "adjustments" as provided therein is an order whereby the authority making the order has exceeded its jurisdiction or else it is an order made by the authority exercising jurisdiction not vested in it. Either way the assessment order will become an appealable one for the two reasonings:
(i) It is not an assessment order made under Section 143(1) of the Act ; and
(ii) It has been made without giving a reasonable opportunity of being heard to the assessee.
Either way, it is bad in law and will be an appealable order under Clause (c) of Sub-section (1) of Section 246 of the Act.
16. That apart in an assessment order made under Section 143(1) of the Act the jurisdiction of the assessing authority extends to making of such "adjustments" as are provided therein, in Clause (b) of Section 143(1) and accordingly neither further additions/adjustments could be made nor the status of the assessee for the purposes of charge of its income to tax under the provisions of the Act could be changed.
17. Section 4 of the Act which is the charging section enjoins a statutory duty upon the Assessing Officer to make an assessment, " in accordance with and subject to the provisions of the Act" and if that is not so, then action will lie. against such an assessment.
18. Whenever an authority goes wrong in law, it goes outside the jurisdiction conferred on it and its decision is void, because Parliament only conferred on it the jurisdiction, on condition that it decided in accordance with law. Error of law goes to jurisdiction. Natural justice means :
(i) of being required to act fairly ; and
(ii) to be given a chance of answering.
19. In view of the above discussion, on the facts and in the circumstances of the assessee's case, on my part, I will uphold in toto the reasoning and conclusions arrived at by the learned Appellate Assistant Commissioner in the presently impugned order. I will as such reject the Revenue's grounds as also the appeal.
ORDER OF REFERENCE TO THIRD MEMBER
20. This appeal was heard by a Division Bench "C". The Members constituting the Bench have difference of opinion on the following point :
" Whether, on the facts and in the circumstances of this case, assessment order, made is an order under Section 143(1) of the Act ?
If so, whether it was an appealable one ?"
21. Therefore, by virtue of the provisions of Section 24(11) of the Wealth-tax Act, 1957, read with Section 255(4) of the Income-tax Act, 1961, we refer the points of difference to the Hon'ble President of the Tribunal for necessary action.
ORDER OF THIRD MEMBER G. Krishnamurthy, President
22. The assessee in this appeal is a trust which filed its return of income claiming that the assessment should be made under the provisions of Sections 161 and 166 of the Income-tax Act, 1961. The Income-tax Officer, however, purporting to make the assessment under Section 143(1) computed the income at Rs. 26,800 and instead of making the assessment under Sections 161 and 166 as prayed for by the assessee, completed the assessment in the status of an association of persons. Aggrieved by this assessment, the assessee appealed to the Appellate Assistant Commissioner, Range II, Agra. The question that arose before him, apart from the merits, was whether an order passed under Section 143(1) of the Income-tax Act, 1961, was at all appealable. Section 143(1) of the Income-tax Act, 1961, as substituted by the Taxation Laws (Amendment) Act, 1970, with effect from April 1, 1971, introduced a totally different procedure than obtaining earlier to the substitution. Under the substituted procedure, where a return has been made under Section 139, the Income-tax Officer may, without requiring the presence of the assessee or the production of any evidence, make an assessment of the total income or loss after making such adjustments to the income or the loss declared in the return as are required to be made under Clause (b) of Section 143(1). Clause (b) has listed the adjustments that could be made by the Income-tax Officer to the income or loss declared in the return without requiring the presence of the assessee or calling for production of any evidence. Sub-section (2) of Section 143 provided the procedure where the adjustments made by the Income-tax Officer are not to the satisfaction of the assessee or where the Income-tax Officer considers it necessary or expedient to verify the correctness or completeness of the return by requiring the presence of the assessee or the production of evidence by him. It provided that where the assessment was made under Sub-section (1) but the assessee objects to such an assessment, the assessee may make an objection within one month from the date of the service of the notice of demand in consequence of such assessment by making an application. Then, the Income-tax Officer shall have to serve on the assessee a notice, examine the points and make another assessment after meeting the objections. Such an assessment is to be made under Section 143(3) of the Income-tax Act. Only orders made under Section 143(3) were appealable to the first appellate authority under Section 246 of the Income-tax Act. Since a procedure for raising objections to the assessments made under Section 143(1) were already provided for under Sub-section (2) of Section 143, the assessee must adopt that procedure and not seek the procedure provided for the assessments made under Sub-section (3) of Section 143, i.e., filing appeals before the first appellate authority. Since, in this case, the assessment was made under Section 143(1), the assessee should have adopted or taken recourse to the procedure provided for in Sub-section (2) by objecting to such assessment within one month from the date of service of the notice of demand and should not have filed an appeal to the first appellate authority. Therefore, the appeal filed before the first appellate authority was not valid and maintainable. It was this question that arose before the first appellate authority on the appeal filed by the assessee. The first appellate authority dealt with this objection in the following manner (at page 71) :
" 3. The question whether an order under Section 143(1) is appealable or not has been considered by me in several cases of this Range. After considering the various legal provisions, I have held that the order is appealable when the assessee denies his liability to be assessed to tax. This view is based on several decisions including that of the Supreme Court in the case of CIT v. Kanpur Coal Syndicate [1964] 53 ITR 225. I, therefore, hold that the appeal is maintainable."
23. Having thus held that the appeal was maintainable, he went into the merits and having found that the Income-tax Officer's act was without jurisdiction, directed him to charge the tax according to the provisions of Sections 161 and 166 as claimed by the assessee.
24. The Department was aggrieved by this order. It filed an appeal before the Tribunal stating in particular that the Appellate, Assistant Commissioner should not have entertained the appeal at all. It also raised several other questions but this was the main ground of grievance of the Department before the Tribunal. This matter was heard by "C" Bench of the Tribunal. The learned Accountant Member was of the opinion that no appeal having been provided against assessments made under Section 143(1), no appeal lay against the order to the first appellate authority and, therefore, the order passed by the first appellate authority was wrong and deserved to be set aside. He, therefore, vacated that order. He quoted extensively from Sections 143 and 246 of the Income-tax Act, 1961, to justify his conclusion. But, the learned Judicial Member did not agree with this view. According to him, the adjustments that the Income-tax Officer was authorised to make to the income or loss returned under Section 143(1) were those which were specified in Clause (b) of Section 143(1). Any adjustment made beyond that provided for in that sub-clause was without jurisdiction and an assessment made making such adjustments beyond the authority permitted by Clause (b) of Section 143(1) was in truth and effect an assessment made under Section 143(3) and not under Section 143(1), though it was purported to be called an assessment under Section 143(1). In other words, an assessment made beyond the power of Section 143(1) was not an assessment at all under Section 143(1) and such order is appealable to the first appellate authority for being set aside. This order passed by the Income-tax Officer in the present case fell within that category and, therefore, appealable and was rightly held so by the Appellate Assistant Commissioner and considered by him on merits. There was a difference of opinion between the two Members and that difference of opinion was referred to me as a third Member :
" Whether, on the facts and in the circumstances of this case, the assessment order made is an order under Section 143(1) of the Act ?
If so, whether it was an appealable one ?"
25. The learned Departmental Representative submitted relying very heavily upon the view expressed by the learned Accountant Member that when Section 143(1) provided for redressal of the grievance of the assessee to the adjustments made by the Income-tax Officer to the income returned, Section 143(1) must be considered as a complete code in itself and the asses-see must seek remedy within the parameters of that code and should not be permitted to travel beyond it, transgressing the permissible limits. When an efficacious remedy was provided for in Section 143(1), that alone should be taken recourse to and the assessee should not be permitted to take the alternative remedy provided. If the assessee had failed to raise objections within one month to the assessment made under Section 143(1); the assessee could have filed a revision petition before the Commissioner of Income-tax under Section 264 and got the remedy. The assessee, choosing neither of those courses, preferred an appeal to the Appellate Assistant Commissioner, which was never provided for in Section 246. The right of appeal not being an inherent right of appeal has to be availed of only when a statute expressly provides for it and when the statute provided for no appeal against an order passed under Section 143(1), no appeal shall lie against that order and the Appellate Assistant Commissioner was, therefore, wrong in saying that such orders were appealable. The reliance upon the judgment of the Supreme Court in the case of Kanpur Coal Syndicate [1964] 53 ITR 225 was totally misplaced. She, therefore, urged that the view taken by the learned Accountant Member, being in conformity with the statutory provisions, should be preferred to the view expressed by the learned Judicial Member. The learned Judicial Member, according to her, failed to take note of the fact that an efficacious remedy has already been provided for in Section 143(1) itself and for those who fail to avail of that remedy, an equally efficacious remedy was provided for in Section 264 and, therefore, the remedy of appeal not being made available with a different purpose should not have been availed of. This is in short her argument.
26. But learned counsel for the assessee submitted that this issue had come up before the Tribunal in several cases and the consistent view of the Tribunal in all such cases was that an appeal lay to the Tribunal. Citing an order of the Tribunal in the case of Ramnih Kumar Family Trust and producing before me the order passed by Delhi Bench "D", he submitted that not only the Tribunal held in this case that an appeal, in such circumstances, lay before the Appellate Assistant Commissioner and thereafter to the Tribunal, it also refused to grant a reference of the question of law to the High Court. Furthermore, when the Commissioner moved the Allahabad High Court under Section 256(2) even the High Court rejected the Department's application and, therefore, gave a finality to the view that such assessments made in such circumstances as in this case are appealable orders. He also filed several other cases, the latest one being in the case of ITO v. Print Roll Vdyog Specific Trust in I.T.A. Nos. 5005, 5006, 5015, 5016 and 5043 (Delhi) of 1987 decided on January 23, 1990.
27. I have gone through these orders passed by the Tribunal as well as the order passed by the High Court on a petition filed by the Commissioner of Income-tax under Section 256(2) and I am of the view that the orders passed by the Income-tax Officer are. appealable and the Appellate Assistant Commissioner has rightly entertained the appeal. The point for consideration is whether the Income-tax Officer could travel beyond the jurisdiction conferred upon him in making adjustments under Section 143(1)(b) and what is the remedy available to the assessee in case the Income-tax Officer transgresses the jurisdiction. Section 143(2) provided that objection can be raised to an assessment made under Section 143(1) objecting to the assessments. In other words, for an assessee to seek relief under Sub-section (2) of Section 143, there must be an assessment made under Sub-section (1) of Section 143. An assessment made beyond the reach of Sub-section (1) could not be called an assessment made under Sub-section (1) of Section 143 merely by so labelling it. The substance of the matter has to be looked into. If, in substance, the assessment made by the Income-tax Officer is not an assessment made under Sub-section (1) of Section 143, then it ceases to be an assessment made under Section 143(1) and, therefore, the remedy provided for in Sub-section (2) of Section 143 is not available to the assessee and the assessee is not obliged or can be compelled to seek the remedy provided for in Sub-section (2). Thereafter, to seek remedy against an assessment made in violation of Sub-section (1) is either under Section 264 or under Section 246. It is from this point of view that I am inclined to agree with the view expressed by the learned Judicial Member. The Income-tax Officer in this case has changed the status of the assessee and applied a different rate of tax by applying different provisions of the Income-tax Act, which were not the adjustments referred to in Clause (b) of Section 143(1). Therefore, the redressal for such an assessment has to be taken by filing an appeal before the Appellate Assistant Commissioner. I, therefore, agree with the view expressed by the learned Judicial Member.
28. The matter will now go back to the regular Bench for decision of the appeal according to the majority opinion.