Punjab-Haryana High Court
Commissioner Of Income-Tax vs Khalsa Dewan (Regd.) on 29 January, 2008
Equivalent citations: [2008]300ITR357(P&H)
Author: Rakesh Kumar Garg
Bench: Satish Kumar Mittal, Rakesh Kumar Garg
JUDGMENT Rakesh Kumar Garg, J.
1. The present appeal has been filed by the Revenue against the order dated May 18, 2007 (annexure A-4), passed by the Income-tax Appellate Tribunal, Amritsar Bench, Amritsar, in I.T.A. No. 2(ASR)/2000 for the assessment year 1995-96 raising the following substantial questions of law:
(i) Whether, on the facts and circumstances of the case, the Appellate Tribunal was right in law in allowing the appeal of the assessee and setting aside the order of the learned Commissioner of Income-tax (Appeals) and quashing the intimation sent by the Assessing Officer under Section 143(1)(a) of the Income-tax Act, 1961?
(ii) Whether, on the facts and circumstances of the case, the learned Income-tax Appellate Tribunal is right in law in taking a view that the changing of status of firm from the trust to an association of persons (AOP) falls outside the purview of Section 143(1)(a) of the Income-tax Act 1961?
2. The brief facts out of which the present appeal has arisen are as under:
The assessee filed income-tax return in this case on March 27, 1997, showing its income as nil. While processing the return under Section 143(1)(a) of the Income-tax Act (for short "the Act"), the Assessing Officer found that the claim of the assessee for exemption under Section 11 of the Act was not allowable in the absence of registration certificate. A notice dated March 12, 1998 (annexure A-1), was issued to the assessee requiring him to explain why the status of the said trust may not be treated as an AOP in the absence of the registration certificate. On the required date neither any reply was received nor anybody attended the proceedings before the Assessing Officer on behalf of the assessee. Hence, the Assessing Officer proceeded with the computation of total income under Section 143(1)(a) of the Act and treated the status of the trust as AOP and all the income for the assessment year was treated as an AOP and was taxed accordingly. The Assessing Officer changed the status of the assessee from trust (08) claimed in the return to an AOP (07) while processing the return under Section 143(1)(a).
3. Aggrieved with this action of the Assessing Officer, the assessee went in appeal before the Commissioner of Income-tax (Appeals), who vide his order dated August 3, 1999, in Appeal No. 221-IT/OT(A)/BTI/97-98 dismissed the appeal of the assessee observing as under:
I have given due consideration to the rival submissions and I hold that there is no force in the arguments advanced by learned Counsel of the appellant. The appellant has claimed the status while filing the return as charitable trust, i.e., (08) but the same was not substantiated by enclosing the registration certificate from the competent authority as required under the statute. The Assessing Officer has, therefore, intimated the deficiency to the assessee for filing registration certificate under Section 12A to which the appellant failed to comply. The appellant failed to furnish the certificate of registration issued by the competent authority under Section 12A of the Income-tax Act 1961, even at the appellate stage. On the- contrary it is established that the trust of the appellant is not registered by the competent authority, i.e., the Commissioner of Income-tax under Section 12A of the Income-tax Act, 1961. I, therefore, hold that the Assessing Officer was right in his action in treating the trust as an AOP instead of religious trust in the absence of any proof having the trust been registered by the Commissioner of Income-tax under Section 12A of the Income-tax Act, 1961. It is more so because the appellant failed to remove the deficiency even when it was intimated by the Assessing Officer. This is the first year of the assessment of the trust and, therefore, the Assessing Officer had all the power including changing the status to rectify the mistake of prima facie nature including the status after duly intimating the appellant about his intention to do so. In the absence of registration of trust before the competent authority, the status of the trust can only be an AOP. The assessment so framed by the Assessing Officer in the status of an AOP is legal and in order by virtue of the provisions of Section 292B of the Income-tax Act, 1961. Keeping in view all the facts and legal position into consideration, I hold that the action of the Assessing Officer in changing the status and disallowing the exemption claimed under Section 11 is correct and justified and the same stands upheld.
4. Against the above order of the Commissioner of Income-tax (Appeals), Bathinda, the assessee preferred an appeal before the Income-tax Appellate Tribunal, Amritsar, who vide its order dated May 18, 2007, (annexure P-4) in I.T.A. No. 2(ASR)/2000 allowed the appeal and set aside the order of the Commissioner of Income-tax (Appeals) and quashed the intimation sent by the Assessing Officer under Section 143(1)(a) on the ground that the same was illegal and bad in law. While passing the impugned order dated May 18, 2007, the Tribunal held that changing the status of the firm/ trust to an AOP falls outside the ambit and purview of Section 143(1)(a). Even though the trust was not registered with the Commissioner of Income-tax, the assessment could not be made in the status of an AOP under Section 143(1)(a). Moreover, the Assessing Officer could have done so by issuance of notice under Section 143(2) of the Act.
5. Mr. Yogesh Putney, counsel for the Revenue has argued that admittedly the respondent-trust was not registered with the Commissioner of Income-tax under Section 12A of the Income-tax Act, therefore, was not entitled to the exemption as claimed under Section 11 of the Act and further the assessee failed to furnish any explanation/reply to the letter dated March 12, 1998, written by the Assessing Officer to him allowing it an opportunity to explain why the status of the trust may not be taken as an AOP in the absence of registration. Therefore, the trust/assessee was rightly treated as an AOP at the time of processing the return under Section 143(1)(a) of the Act. In support of his argument learned Counsel for the Revenue has placed heavy reliance upon the proviso (iii) to Section 143(1)(a) of the Income-tax Act.
6. We have heard learned Counsel for the Revenue and perused the record.
The material question which, in our view, requires to be decided is whether the Assessing Officer was justified in changing the status of the assessee from a trust to an AOP while processing the return under Section 143(1)(a) of the Act. The scope and ambit of powers vested with the Assessing Officer for making prima facie adjustments at the relevant time was provided under the proviso to Section 143(1)(a) of the Act and the same was confined only to such adjustments specifically enumerated in the proviso (i), (ii) and (iii) of the Act. In the case of S.R.F. Charitable Trust v. Union of India [1992] 193 ITR 95, the hon'ble Delhi High Court held that as per the provisions of Section 143(1)(a) of the Act the Assessing Officer could allow or disallow only such claims which were admissible/inadmissible on the basis of the returns and documents accompanying the return. It was also held that the Assessing Officer had no power to disallow the claim merely on the ground that no proof was furnished by the assessee. While interpreting Clause (iii) of the first proviso to Section 143(1)(a) of the Income-tax Act, 1961, it was held as under (page 98):
The said clause clearly provides that the Income-tax Officer can make an adjustment to the income or loss declared in the return if, on the basis of the information available in such return, accounts or documents, the deduction, allowance or relief claimed is prima facie inadmissible. The conclusion that the claim of the assessee is inadmissible must, in other words, flow from the return as filed. No power is given to the Income-tax Officer to disallow a claim for the reason that there is no proof in support of the claim made by the assessee. In a way, the said Clause (iii) of the proviso is analogous to Section 154 of the Act. Where it is evident from the return as filed, along with the documents in support thereof, that a claim of the assessee is inadmissible, only then an adjustment under the said proviso can be made. If proof in support of the claim is not furnished by an assessee, then for the lack of proof, no disallowance or an adjustment can be made. The only option which is open to the Income-tax Officer, in such a case, is that he can require the assessee to furnish proof in which case he will presumably have to issue notice under Section 143(2). This is also evident from the fact that, except for the documents specified, the assessee is not required to file the entire books of account or other documents along with the return. The proof in support of the claim may be evidenced from correspondence, from the books of account or other documents and it is not the law, as we understand it, that, in support of a claim made in the return for deduction or non-taxability of a receipt, all the proofs available and original documents must be filed along with the return. It is apparent on a reading of the said provision that adjustment can be made only if there is information available in such return that prima facie a claim or allowance is inadmissible.
The same view was taken by the Delhi High Court in the case of Samtel Color Ltd. v. Union of India [2002] 258 ITR 1 and it was held as under (headnote):
A bare reading of Section 143(1)(a) of the Income-tax Act, 1961, makes it clear that if, on the basis of the return filed by the assessee, any tax or interest is found due after adjustments, as set out in the section, an intimation has to be sent to the assessee specifying the sum so payable. Similarly, if any refund is found due to the assessee on the basis of the said return, it shall be granted. However, the first proviso to the section authorises the Assessing Officer to make certain adjustments while calculating the tax or interest payable or while granting refund. The adjustments permitted to be made are also specified under the proviso. Clause (iii) of the first proviso lays down that unless the return or the accompanying documents or accounts show that the deduction, allowance or relief claimed therein is prima facie inadmissible on the basis of information available in the said documents, such deduction or allowance claimed cannot be disallowed. The phrase 'prima facie' is not defined in the Act. In common parlance the phrase 'prima facie' means 'on the face of it'. Going by the literal and dictionary meaning of the phrase 'prima facie', for the purposes of adjustments under Clause (iii) of the proviso, a deduction claimed must be inadmissible on the face of the return, documents and accounts accompanying it. If the deduction or allowance or relief so claimed is capable of a debate or requires further proof it cannot be made under Clause (iii) of the proviso to Section 143(1)(a) of the Act. It is not open to the Assessing Officer to make any adjustment in the returned income by disallowing any claim for deduction, allowance or relief, unless he is satisfied on the basis of information available in the return, documents and the accounts accompanying it, that such a claim is inadmissible on the face of it and there is no possibility of any debate thereon. If anything more is read into the power of the Assessing Officer to make unilateral adjustments it would render the provision wholly arbitrary and unreasonable because:
(a) a disallowance is made without giving an opportunity to the assessee to explain his view point in support of the deduction or allowance, and
(b) additional tax on the increased amount is charged from him arbitrarily. This would not only be in total violation of the principles of natural justice, it will also be not in consonance with the spirit of the provision to cause minimum inconvenience to the assessee and at the same time put the assessee on guard against claiming inadmissible deductions and allowances. No prejudice will be caused to the Revenue. In a given case where the Assessing Officer has any doubt about the allowability of deduction or claim made by the assessee, it is open to him to issue a notice under Sub-section (2) of Section 143 and have the evidence in support thereof.
7. The hon'ble Kerala High Court in the case of CIT v. K.V. Mankaram and Co. , while interpreting the scope of Section 143(1)(a) of the Act where the status of a firm was changed to an AOP, held as under (headnote):
The proceeding under Section 143(1)(a) does not result in an order of assessment. The intimation given under Section 143(1)(a) cannot be treated an order of assessment. It is only to be deemed an order for the limited purpose of Sections 154, 246 and 264 of the Act. Under Section 143(1)(a) of the Act, the intimation is deemed to be a notice of demand under Section 156 of the Act. Except intimation, no other order is contemplated under Section 143(1)(a). There is a distinction between an order of assessment and a notice of demand. Under Section 246 also, a clear distinction is made between an intimation and an order of assessment. The Assessing Officer cannot, under Section 143(1)(a), change the status of a firm to 'association of persons' which can be done under Section 185 of the Act, at the time of assessment.
8. We are in respectful agreement with the judgements in Samtel Color 'Ltd.'s case [2002] 258 ITR 1 (Delhi) and K.V. Mankaram and Co.'s case [2000] 245 ITR 353 (Ker).
9. The scope and ambit of the powers vested with the Assessing Officer for making prima facie adjustments at the time of processing the return under Section 143(1)(a) are very limited. The change of status of the assessee from trust to an AOP is not covered in the nature of adjustments mentioned in any of the provisos to Section 143(1)(a) much less under the proviso (iii) of the said section. It is immaterial that the trust was not registered with the Commissioner of Income-tax and was not eligible for the exemptions under Section 11 of the Act because there must be power vested with the Assessing Officer to allow or disallow the claim while processing the return which is not within the scope of Section 143(1)(a) of the Act. It is not open to the Assessing Officer to make any adjustment in the returned income by disallowing any claim for deduction, allowance or relief, unless he is satisfied on the basis of information available in the return, documents and the accounts accompanying it, that such a claim is inadmissible on the face of it and there is no possibility of any debate thereon. If anything more is read into the power of the Assessing Officer to make unilateral adjustments it would render the provision wholly arbitrary and unreasonable.
10. In view of the above, no substantial question of law arises for the determination of this court and therefore, the present appeal is dismissed.