Calcutta High Court
Coates Of India Ltd. vs Deputy Commissioner Of Income-Tax And ... on 19 September, 1994
Equivalent citations: [1995]214ITR498(CAL)
Author: Ruma Pal
Bench: Ruma Pal
JUDGMENT Mrs. Ruma Pal, J.
1. Two issues are involved in this writ application, namely, (i) the status of an intimation under Section 143(1)(a) of the Income-tax Act, 1961 (referred to as "the Act"), and (ii) the scope of the power of an Assessing Officer under Sections 154 and 143(1)(a) of the Act.
2. The issues have arisen in the context of the following facts. The assessment year in question is 1991-92. The petitioner filed its return claiming a sum of Rs. 5,76,165 on account of loss on fluctuation of exchange. On March 31, 1992, an intimation was issued to the petitioner under Section 143(i)(a) of the Act by the Deputy Commissioner of Income-tax accepting the petitioner's return in toto without making any adjustment. According to the petitioner, the Deputy Commissioner erred in certain other respects which are not material for the purpose of this application.
3. On May 13, 1992, and May 3, 1993, the Deputy Commissioner issued two notices on the petitioner under Section 143(2) of the Act calling upon the petitioner to produce books of account, documents and evidence in support of its return. A notice under Section 142(1) of the Act was also issued. The petitioner complied with the notices. The Deputy Commissioner then made an assessment of the petitioner's income by, inter alia, disallowing the claim of the petitioner on account of loss on fluctuation of exchange. The assessment order is dated March 28, 1994. On April 26, 1994, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals). During the pendency of the appeal on May 24, 1994, the petitioner received a notice under Section 154/155 of the Act dated April 22, 1994, by which the Deputy Commissioner informed the petitioner that he intended to rectify the order under Section 143(1)(a) of the Act. The nature of the mistake proposed to be rectified according to the notice was "incorrect allowance of exchange amount". This notice is impugned in these proceedings.
4. As far as the first issue is concerned, in my view, an order under Section 143(1)(a) may or may not be followed by a regular assessment under Section 143(3). The option is with the Assessing Officer. The jurisdiction under Section 143(1)(a) is limited to the obvious and also to that which is deducible from the return as filed and only when there is no doubt or debate : See judgment of this court dated April 27, 1994 (March 7, 1994 ?) in Matter No. 4101 of 1992 : Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496. In such circumstances, the order becomes final in the sense that it is effective for the purposes of raising a demand on the assessee or obliging the Department to make a refund to the assessee.
5. Where, however, the order under Section 143(1)(a) is followed by a regular assessment under Section 143(3), the order under Section 143(1)(a) in so far as it is contrary to the regular assessment under Section 143(3), ceases to be executable and becomes ineffective.
6. The respondent authorities termed the intimation under Section 143(1)(a) as a provisional assessment. But, according to the respondents, this provisional assessment did not merge with the final assessment and that the order under Section 143(1)(a) continues to exist justifying the issuance of a notice under Section 154 of the Act. The respondents have relied upon the provisions of Section 143(1)(b), Section 154(1) and Section 154(1A) in this connection.
7. Section 143(1)(b) does not support the submission of the respondents. Section 143(1)(b) deals with a situation arising out of the passing of orders under Section 143(3), etc., in respect of an earlier assessment year and not in respect of the year in question.
8. The petitioner has also relied on an unreported decision in Matter No...... of 1994 (Philips India Ltd, v. Dy. CIT) where, in a similar situation, the court held that once a final assessment has been made under Section 143(3), the Assessing Officer cannot make a rectification of a provisional assessment under Section 143(1)(a) of the Act. However, an appeal was preferred by the Department from this decision and the judgment was set aside. It may be that the decision was not set aside on the merits, but nevertheless it cannot be considered to be an existing authority.
9. In any event, even assuming that the prima facie view formed at the time of issuing the intimation under Section 143(1)(a) of the Act survives despite the regular assessment under Section 143(3) of the Act, the answer to the second issue would clearly determine the matter in favour of the petitioner.
10. Different courts have held that both under Section 143(1)(a) and Section 154, the Assessing Officer has power to act only when there is no dispute as to fact and law. [ See Khatau Junkar Ltd. v. K.S. Pathania [1992] 196 ITR 55 (Bom) ; S. R. F. Charitable Trust v. Union of India [1992] 193 ITR 95 (Delhi) as also the unreported decision of this court in Modern Fibotex India Ltd. v. Dy. CIT (since reported in [1995] 212 ITR 496)].
11. Now, the question whether the loss on fluctuation of exchange should be allowed under Section 43A when the fluctuation takes place or when payment of the foreign exchange takes place is not a matter which can be said to be free from debate or dispute. The question arose in the context of the petitioner entering into agreements with a foreign concern. In consideration for certain benefits the petitioner was to pay the foreign concern in pound sterling. Subsequent to the agreement, the rupee was devalued. Consequently, the liability of the petitioner to pay in Indian rupees increased. The petitioner filed its return claiming loss by reason of its higher liability because of the devaluation of the rupee although no payment was made to the foreign concern. The Department says that loss by reason of exchange fluctuation can be claimed only when the payment is made to the foreign concern. The petitioner has relied on several decisions in support of its submission that exchange fluctuation loss could be claimed as an allowable item when the devaluation occurs.
12. These are as follows :
(1) CIT v. International Combustion (I) Pvt. Ltd. ;
(2) CIT v. Motor Industries Co. Ltd. [1988] 173 ITR 374 (Kar) ; and (3) CIT v. H. M. T. Ltd. (No. 1) [1993] 203 ITR 811 (Kar).
13. The respondents have sought to distinguish the cases and have submitted that submissions on the merits may arise when the order under Section 154 is passed and that the challenge under Article 226 apart from involving disputed questions was premature as only a notice had been issued. They have also said that the debatable issue must be with reference to facts and not to a question of law.
14. As far as the present case is concerned, the very matter which is sought to be rectified under Section 154 is pending decision before the Commissioner of Income-tax (Appeals). There is thus a "live" dispute on the subject-matter of Section 154, a dispute which cannot be dismissed out of hand in view of the decisions cited by the petitioner.
15. The decisions referred to earlier have not limited the nature of disputed points which cannot be rectified under Section 154 to questions of fact. The dispute may exist with regard to a legal point as well.
16. The respondents' submission that the court should not interfere with . the mere issuance of notice under Section 154 of the Act under Article 226 of the Constitution is contrary to law as established by judicial precedent.
17. The Supreme Court in T.S. Balaram, ITO v. Volkart Brothers has in no uncertain terms held that a decision on a debatable point of law is not a mistake apparent from the record which could be rectified under Section 154 of the Act. This view has also been held by the Calcutta High Court. In Harbans Lal Malhotra and Sons Pvt. Ltd. v. ITO [1972] 83 ITR 848, S. Mukharji J. (as his Lordship then was) also held that the assessee did not have to wait until an order was passed under Section 154 of the Act but could come to court even on receipt of notice under Section 154, if on undisputed facts, the initiation of the proceeding was without jurisdiction.
18. Thus, this writ petition cannot be dismissed as premature as the subject-matter of rectification as disclosed in the impugned notice is a debatable one. I can do no better than quote the observation of a Bench of this court. The Division Bench of the Calcutta High Court in ITO v. India Foils Ltd. has said (at page 78) :
". . . . Section 154 is quite clear that it must have to be a mistake apparent from the record and in the instant case, a notice under Section 154 was issued. If the notice was not in fact justified by the circumstances of the case, then the notice itself is bad and I do not see why the respondent should wait till the assessments are made pursuant to the notice before coming up to this court for a writ. "
19. Apart from no notice under Section 154 being permissible in the circumstances of the case, the Assessing Officer himself could not have decided any debatable issue under Section 143(1)(a). By the impugned notice under Section 154, the Deputy Commissioner is seeking to correct the intimation under Section 143(1)(a) by introducing a matter which he could not have decided under Section 143(1)(a) in the first place.
20. For all the reasons aforesaid, the writ application must be allowed. The impugned notice is set aside together with all proceedings thereunder which may have been taken in the meantime. There will be no order as to costs.
21. Let xerox copies of this judgment, duly signed by the Assistant Registrar of this court, be given to the parties upon their undertaking to apply for the certified copy of the judgment and on payment of usual charges.