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Packers (I) v Income Tax Officer

Income Tax Appellate Tribunal

AHMEDABAD

16 December 2005

Ita Nos. 3555 and 3556/Ahd/2004

The Judgment was delivered by : R. P. GARG (VICE PRESIDENT)

These two Appeals by the Assessee are against the orders of Commissioner of Income-tax (Appeals) for the assessment year 1999-2000 and 2000-01. Since the common dispute are raised in the appeals these are decided by this common order for the sake of convenience.

2. The common dispute raised is whether CIT (A) is right in upholding the rectification of intimation/orders of the Assessing Officer u/s 143(1) by invoking the provisions of section 154 of the Act. The assessee’s industrial undertaking is located in backward area of Daman. It is entitled to deduction u/s 80IB. The returns of income for the assessment years under consideration were filed in which the deduction u/s 80IB was claimed on the total income computed without deduction of depreciation, thought allowable to the assessee but not claimed. These returns were processed u/s 143(1) and intimations issued/deemed to have been issued on the basis of the returned income. Subsequently, the Assessing Officer formed an opinion that claim of the assessee u/s 80 IB without deducting depreciation on fixed assets for the respective years under consideration was not correct. According to him it was a colourful device to defraud the revenue to which the decision of the Supreme Court in the case of McDowell and Co. Ltd. 1985 (154) ITR 48 (SC) = (2002-TIOL-40-SC-CT) applied. The assessing Officer, therefore, invoked the provisions of section 154 and recomputed the income of the assessee by deducting the depreciation and, consequently, reduced the net profit and the consequent reduction of 80IB deduction of the assessee in the years under consideration. He referred to in this connection the decision of the Supreme Court in Cambay Electric Supply Co. 1978 Indlaw SC 241 ) = (2002-TIOL-76-SC-IT) and the decision of jurisdictional High Court of Bombay in the case of Indian Rayon Corporation Ltd 2001 Indlaw ITAT 275 (Bom).

3. On appeal the CIT(A) upheld the orders of the Assessing Officer in page No.13 of his order (for AY 1999-2000), by concluding as under:-

“23… 1) If an order of the A.O. is not in conformity with provisions of the Act or meaning of a section has been construed contrary to the one given by the Supreme Court or the jurisdictional High Court, earlier to the passing of such order proposed to be rectified or subsequently, such error is to be treated as a mistake apparent from the record.

In the instant case when the return of income was processed u/s. 143(1) of the Act on 21.09.99, the claim of the appellant u/s. 80IB was allowed without considering the claim of depreciation. Allowance of such claim u/s.80IB of the Act without considering the claim of depreciation is a mistake apparent form the records as has been clearly spelt out in the decisions reported in 1978 Indlaw SC 241 (SC) and 2001 Indlaw ITAT 275(Bom.). In respect of such mistake apparent from the record, A.O. was justified in resorting to the provisions of section 154 of the Act.

Thus the appellant’s contention that A.O. erred in passing order u/s. 154 of the Act is dismissed and the action of the A.O. in resorting to the provisions of section 154 of the Act is upheld.

2) From the Supreme Court/High Court decisions referred to in the earlier paras it clearly emerges that it is no longer optional for the appellant to avail or not to avail the benefit of section 32 of the Act to enlarge profit for the purpose of higher claim of deduction u/S. 80 IA 80. The appellant is not permitted to circumvent the claim of depreciation for 6 years to enlarge the profits and gains and to get higher claim u/s.8OIB of the Act. In this respect the observations of the Apex Court in the oft-cited case of McDowell and Co. Ltd. reported in 1985 Indlaw SC 426 = ((2002-TIOL-40-SC-CT)) are also relevant.

24. It is thus held that the A.O. has rightly deducted the claim of depreciation from the gross total income of the appellant and has also rightly reduced the amount of eligible deduction u/s.801B of the Act by that amount i.e. Rs. 230, 894/-. Accordingly the alternate contention of the appellant that the A.O. was not justified in thrusting the claim of depreciation for the year under consideration is also hereby rejected.”

4. Shri B.D. Kariya and Shri M.K. Patel appeared on behalf of the assessee and submitted that the action of the AO in resorting to rectification provisions was not valid much less when the issue as to whether the depreciation can be thrust upon the assessee when it does not want to claim the same was debatable one. Shri S.A. Bohra, the ld. Departmental Representative, however, supported the action of the assessee officer in the view of the decisions referred to by the AO and the Special Bench decision of the Tribunal in the cases of Vahid Paper Converters and Others in ITA No. 1686/Ahd/2004 and others dated 9-11-2005 wherein the Tribunal held that depreciation has to be deduced while computing the income of an assessee for determining the amount of deduction under Chapter VIA of the Act of which section 80IB is a part irrespective of the fact whether it was claimed by the assessee or not.

5. The parties are heard and their rival contentions considered. Records were also gone through. The rectification orders passed by the Assessing Officer are in connection with the proceedings u/s 143(1). The provisions of section 143(1) as they were in force at the relevant time are as under:-

“S.143. Assessment.- (1) Where a return has been made under section 139, or in response to a notice under subsection (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, any tax paid on self-assessment 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 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 and an intimation to this effect shall be sent to the assessee:

Provided that except as otherwise provided in this subsection, the acknowledgement of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him;

Provided further that no intimation under this sub-section shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.”

6. On a reading of the aforesaid provisions, it is apparent that the Income-tax Officer under this section is only to find out tax or interest, if any, was due on the basis of such return after adjustment of any tax deducted at source, any advance tax paid or any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, and then to send an intimation specifying the sum so payable or to grant refund to the assessee along with the intimation to this effect, if the payment of tax, on the contrary were in excess of tax due on the basis of such return. He is not authorised to do any further. No power has been given to the Assessing Officer to vary or disturb the figures of the income declared by the assessee in its return.

7. This is also evident if we look into the legislative history of the provisions of section 143(1). Originally section 143(1) appeared in the statute book as under:-

“S.143. Assessment.- (1) Where a return has been made under section 139 and Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assessee, and shall determine the sum payable by him or refundable to him on the basis of such return.”

7.1 As we see that the original idea was to make an assessment u/s 143(1) without requiring the presence of the assessee or production of any evidence and where the Assessing Officer was satisfied that the return is correct and complete, he was to determine the sum payable by an assessee or refundable to him on the basis of such return.

7.2 It was amended with effect from 1-4-1971 by the Taxation Laws (Amendment) Act, 1970 to the following:-

“143. Assessment.- Where a return has been made under section 139, the Assessing 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 Assessing 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);

(ii) allow any deduction, allowance or relief which, on the basis of the information available in such return, accounts and documents, is, prima facie facie, admissible, but is not claimed in the return;

(iii) disallow any deduction, allowance or relief claimed in the return which, on the basis of the information available in such return, accounts and documents, is, prima facie, inadmissible.

(iv) give due effect to the allowance referred to in subsection (2) of section 32, the deduction referred to in clause (ii) of sub-section (3) of section 32A or clause (ii) of sub-section (2) of section 33 or clause (ii) of subsection (2) of 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 sub-section (1) of section 35E or the first proviso to clause (ix) of subsection (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) or sub-section (3) 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.”

7.3 The Assessing Officer was invested with power to make adjustments as specified in clause (b) of section 143(1). This power remained for a period of about 10 years. Finance (No.2) Act, 1980 however had again taken away that power of AO and deleted sub-clauses (ii) and (iii) with effect from 1-4-1980 empowering the AO to allow or disallow any depreciation, relief allowable or disallowable on the basis of information available In the return or accompanying accounts or documents.

7.4. Again, the Taxation Laws (Amendment) Act, 1987 substituted the provisions with effect from 1-4-1989 as under:-

“Section 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 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 the 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;

Provided further that an intimation shall be sent to the assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him;

Provided also that an intimation under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable;

(b) Where as a result of an order made under sub-section (3) of this section or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any order of settlement made under sub-section (4) of section 245D relating to any earlier assessment year and passed subsequent to the filing of the return referred to in clause (a), there is any variation in the carry forward loss, deduction, allowance or relief claimed in the return, and as a result of which, –

(i) if any tax or interest is found due, 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, it shall be granted to the assessee:

Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such order was passed.

(c) Where the assessee is a member of an association of persons or body of individuals and as a result of the adjustments made under the first proviso to clause (a) of sub-section (1) in the income or loss declared in the return made by the association or body, as the case may be, or as a result of an order made under sub-section (3) of this section or section 144 or section 147 or section 154 or section 155 or section 250 or section 254 or section 260 or section 262 or section 263 or section 264, or any order of settlement made under sub-section (4) of section 245D, passed subsequent to the filing of the return referred to in clause (a), there is any variation in his share in the income or loss of the association or body, as the case may be, or in the manner of inclusion of his share in the returned income, then, –

(ii) if any refund is due, it shall be granted to the assessee:

Provided that an intimation for any tax or interest due under this clause shall not be sent after the expiry of four years from the end of the financial year in which any such adjustments were made or any such order was passed.”

7.5 A somewhat new scheme was introduced by this time with a primary purpose of reducing workload of the Department by greater reliance on voluntary compliance by the assessees with a limited number of cases of scrutiny assessments. The concept of making prima facie adjustments by way allowing or disallowing deductions, allowances or relief on the basis of information available in the return or the accompanying accounts or documents was Introduced along with a liability to additional tax on such adjustments, if made. Even rectification or consequential amendments were provided for.

7.6 The legislature again intervened present section as reproduced above is substituted by Finance Act, 1999 with effect from 1-6-1999. This newly substituted section 143(1) has again done away with the provisions empowering the Assessing Officer to make Prima facie adjustments and has virtually brought us back to the original position of 1962 except probably the omission of making assessment in the new provisions. Further the omission of section 143(1A) again w.e.f. 1-6-1999 is consequent upon the doing away with the provisions as to making of prima facie adjustments and such omission discontinued the levy of additional income tax on the basis of such prima facie adjustments. Likewise, the omission of section 143(1B) w.e.f. 1-6-199 does away with the provisions relating to applicability of sections 143(1) and 143(1A) to revised returns filed under section 139(5) after the intimation was sent or the refund was granted. The special provisions enacted in Section 143(5) have been omitted because of the fact that the newly substituted section 143(1) has to apply with effect from 1st June, 1999, irrespective of the assessment year involved. The omission of the Explanation occurring at the end of section 143 has been necessitated because of the fact that an intimation under the newly substituted w.e.f. 1-6-1999 section 143(1) can involve no grievance to the assessee concerned so as to entitle him to prefer an appeal against such an intimation and/or a revision application under section 264. it is no more an assessment at all.

7.7 On a careful looking into this legislative history, it is thus evident that the original idea to make an assessment u/s 143(1) without requiring the presence of the assessee or production of any evidence and where the Assessing Officer was satisfied that the return is correct and complete, he was to assess the income and determine the sum payable by an assessee or refundable to him on the basis of such return has been restored and instead an intimation is sent or deemed of the tax payable or refundable to an assessee. The cumulative effect of, the newly substituted section 143(1) and the omission of sections 143(1A), 143(1B) and 143(5), w.e.f. 1.6.99, in our opinion, is that neither any prima facie adjustment can be made nor any additional income tax can be levied on or after 1st June, 1999. The powers of AO under this section are very limited and restricted only to determine tax on the basis of the return of income filed by the assessee. The AO cannot look beyond the return but to compute tax or interest after adjustment of pre-paid taxes by the assessee. On a bare look of the provisions of section 143(1) itself, it is apparent that AO has no jurisdiction to compute the income by allowing or disallowing an expenditure including depreciation not claimed or claimed in the return nor to vary the amount of claim by the assessee in any other way. Under this section, it is beyond his power to disturb the income declared by an assessee in the return. In fact, he is not computing the income of the assessee by issue of intimation on the basis of return. He is just to take income as declared by the assessee as base for computing tax. Any adjustment made with respect to depreciation or allowing the same for computing relief u/s.80-IB of the Act at a different figure than claimed in the return of income filed for the years under consideration or disturb the income otherwise is not warranted and would be in violation of provisions of section 143(1) of the Act.

8. In this background and the scope of power of the AO u/s 143(1), we have to examine the power to invoke rectification provisions u/s 154 of the Act. If the Assessing Officer had no power to tinker with the returned income of the assessee u/s 143(1), can he have resort to disturb the income of the assessee by invoking the provisions of section 154? The provisions of section 154 are:-

“(1) With a view to rectifying any mistake apparent from the record an income tax authority referred to in section 116 may, –

(a) amend by any order passed by it under the the provisions of the Act;

(b) amend any intimation or deemed intimation under sub-section (1) of section 143.”

9. There is a distinction made by the legislature in defining the powers of an authority to amend the ‘order’ and to amend the ‘intimation’. In this case there is no order made by the AO, which could be amended. It is only an intimation that was issued u/s 143(1) of the Act, and it is that intimation, which was amended u/s 154(1)(b) aforesaid. The power is available to AO only to rectify the mistake apparent from record. It has therefore to be judged with reference to the record available with the Assessing Officer and the power to act under the main section namely section 143(1), under which the intimation was issued and sought to be rectified in this case. The AO in the present case has varied the income of the assessee by deducting the depreciation and reworked the deduction u/s.80IB of the Act to an amount different to the amount of relief claimed in the return of income filed by the assessee.

10. The provisions of section 154(1)(b) simply give power to the AO to amend any intimation issued. It has to be restricted to the limited power of AO given u/s 143(1) to determination of tax, interest payable or refundable to the assessee only and not beyond that, as what cannot be done directly under section 143(1) cannot as well be done indirectly by taking resort to section 154(1)(b). Making any adjustment to the returned income by way of rectification under section 154 of the Act will be amounting to do an act that cannot be done directly under the provisions of section 143(1) of the Act. We find in a somewhat similar situation the Division Bench decision in the case of Choice Acquaculture P. Ltd. in ITA No.l476/Ahd/2005 vide order dated 29-11-2005. In this case the Division Bench of the Tribunal declined to allow depreciation on the higher written down value because of the adjustment of the capital expenditure in the earlier year. It was stated that such an adjustment was not permissible u/s 143(1) because it was not be reflected in the return filed by the assessee and consequently, the provisions of rectification sought for by the assessee cannot be invoked. The controversy in this case is also similar, with an only difference that there the assessee was claiming deduction but in this case, the Revenue sought adjustment of the depreciation by invoking the provisions of section 154 making a change in the returned income and consequent determination of tax u/s 143(1). Therefore, the principle as canvassed in the Division Bench case would also hold good in the present case.

11. The Tribunal observed that the proposition of law is well settled that what cannot be done “per directum” is not permissible to be done “per obliquum”, meaning thereby whatever is prohibited by law to be done, cannot legally be effected by an indirect and circuitous contrivance on the principle of “quando aliquid prohibetur, prohibetur at omne per quod devenitur ad iilud”. This principle of law has been explained by the Allahabad High Court in the case of Anupam Susil Garg vs. CIT and another 2003 Indlaw ALL 48 (All.) as under :-

“There is another aspect of the matter that under the garb of rectification, the appellant cannot have an opportunity of review of the order passed earlier in the absence of any provisions for substantive review under the said provisions of law.

It is a settled proposition of law that what cannot be done per directum is not permissible to be done per obliquum”, meaning thereby, whatever is prohibited by law to be done, cannot legally be affected by an indirect and circuitous contrivance on the principle of “quando a liquid prohibetur, prohibetur at omne per quod devenitur ad illud. ”

In Jagir Singh vs. Ranbir Singh, 1978 Indlaw SC 273, the apex court has observed that an authority cannot be permitted to evade a law by “shift or contrivance”. While deciding the said case, the Supreme Court placed reliance on the judgment in Fox vs. Bishop of Chester [1824] 2 B and C 635, wherein it has been observed as under (page 384):

“To carry out effectually the object of a statute, it must be construed as to defeat all attempts to do, or avoid doing, in an indirect or circuitous manner that which it has prohibited or enjoined. ”

Law prohibits to do something indirectly which is prohibited to be done directly. Similar view has been reiterated by the apex court in M.C. Mehta vs. Kamal Nath,2000 Indlaw SC 529, wherein it has been held that even the Supreme Court cannot achieve something indirectly which cannot be achieved directly by resorting to the provisions of article 142 of the Constitution, which empowers the court to pass any order in a case in order to do “complete justice.”

12. This well settled principle of law has also been accepted by the Delhi High Court in the case of J. N. Sahni vs. ITAT and others 2002 Indlaw DEL 5 (Del), Discussing the power of Tribunal to pass an order of rectification under section 254(2) the court held that review of an order cannot be done under the garb of section 254(2) as the powers of Tribunal was regarding rectification of a mistake that is apparent from record. The Tribunal cannot be allowed to do an act by resorting to section 254(2), which is not permissible to be done directly. This proposition was also applied for reopening the proceedings on the basis of change of opinion in the case of Kelvinator of India Ltd. 2002 Indlaw DEL 35 (Del)(FB). It was held by Hon. Delhi High Court that such assessment could not be reopened as it was based on change of opinion, the AO did not have such power as it will be tantamounting to do an act which could not be done directly under the statute. The AO was held to be lacking jurisdiction to achieve the object of making addition on the issue that was well considered during the course of original assessment by adopting the recourse to re-assessment proceedings. Again, it was, applied by the Supreme Court in proceedings u/s. 245E in the case of CIT vs. Paharpur coolling Towers Pvt. Ltd. 1996 Indlaw SC 3554 (SC). While discussing the powers of Settlement Commission in this case it was held by the Supreme Court that penalty proceedings do not fall within the ambit of section 245E of the Act and the Commission exceeded its jurisdiction in dropping penalty proceedings for Asst. Year 1970-71 to 1974-75 while deciding settlement application for Asst. Year 1975-76 and further assuming that section 147 was available to the Commission. It was held that assessment could be reopened only for the limited purpose of spread over of addition and not as a whole so as to include the penalty proceedings more so when the concealment did not have nexus with the income disclosed and thus what the Commission cannot do directly, he cannot be allowed to do indirectly.

13. Applying the above principle we hold that the AO cannot exercise powers under section 154 of the Act to amend an intimation u/s 143(1) with regard a matter which he cannot do or process u/s 143(1) of the Act itself.

14. It is true that the Special Bench of the Tribunal in the case of Vahid Paper Converters, Daman and others in ITA No.1686/Ahd/2004 and others for assessment year 2001-02 order dated 9-11-2005 has taken a view that the depreciation is to be allowed while computing deduction under Chapter VI-A of the Act irrespective of the fact whether the assessee has claimed the same or not and that there is no possibility of two views on this point but as aforesaid these are the cases where the power of the Assessing Officer was being considered for making regular assessment u/s.143(3). Here in this case, we are concerned with the power of AO to issue an ‘intimation’ to the assessee u/s 143(1) and this section, unlike the provisions of section 143(3), does not authorise the Assessing Officer to make any variation in the income returned by the assessee. He has just to raise a demand or issue refund based on the returned income of the assessee.

15. Before parting with the case, we may observe that the Special Bench decision has concluded that the depreciation has to be allowed to the assessee in view of the Supreme Court, the Jurisdictional High Court decision both Bombay and Gujarat and the Rajasthan High Court decision but as aforesaid those decisions might have a bearing if a rectification were sought in an order passed u/s 143(3) where-under the Assessing Officer has power to determine the income of the assessee on the basis of the returned income and/or the material produced and obtained by him during the assessment proceedings. While processing u/s 143(1) the Assessing Officer is not to call upon any evidence nor a material, but simply has to proceed on the basis of income returned by the assessee without going into or making an enquiry about the fact that the same was correct or incorrect. In these circumstances, neither the Supreme Court decision, Rajasthan High Court, Gujarat High Court and the Special Bench would be of any help to the Revenue in resolving the controversy. In the present cases the power of the Assessing Officer are to be judged with reference to the provisions of section 143(1) as it is the intimation issued thereunder that is being sought to be rectified by invoking the provisions of section 154. In such a situation when the AO has no power to tinker with the returned income of an assessee u/s 143(1) he cannot do that by resorting to the provisions of section 154 seeking rectification of such intimation u/s 143. We, therefore vacate the orders of CIT(A) as well as of the AO in these three years.

16. In view of the above, we need not discuss other issues relating to the debatable nature thereof raised in these appeals.

17. In the result, both the appeals of the assessee are allowed.