1. Assessee, a company, has filed this petition under Art. 226 of the Constitution of India for a writ of certiorari or any other appropriate writ, order or direction for quashing the intimation/order Annexure 'D' dt. 18th Dec., 1995 under s. 143(1)(a) of the IT Act, 1961 (hereinafter referred to as 'the Act'). It has also prayed for quashing the demand of Rs. 1,30,83,741.
2. The short facts leading to the present proceedings are as under :
On 12th Sept., 1994 the assessee submitted a return of loss of Rs. 1,74,78,530 for the asst. yr. 1993-94 as per the computation of income and depreciation chart annexed to the petition at Annexure A. The assessee claimed depreciation of Rs. 1,74,78,526. Manufacturing activities started on 24th March, 1993, i.e. during the accounting year ending on 31st March, 1993 (the asst. yr. 1993-94). It was specifically pointed out that
"the amount of interest received during the public issue of Rs. 1,07,85,590 is not to be considered as income and has been given set off against the interest outgoings included under pre-operative expenditure"
in view of several decisions including that of the apex Court.
3. As stated by the learned counsel, on filing of the return, the Assessing Officer (AO) under the new scheme for the assessment under s. 143 of the Act, had two options; i.e., (i) either to accept the return under s. 143(1) with necessary adjustments, if there is any, or (ii) to proceed to make assessment under s. 143(3) or under s. 144 by issuing notice under s. 143(2) of the Act. In the instant case, instead of accepting the return under s. 143(1) of the Act, undisputedly, the AO issued notice under s. 143(2) of the Act on 1st Dec., 1994, vide Annexure C. It is contended in the petition that in continuation of the notice the AO addressed a letter on 15th Nov., 1995 calling upon the assessee to attend on 27th Nov., 1995, vide letter Annexure C-1. The assessee's representative appeared before the AO on 27th Nov., 1995 but the AO adjourned the case to 1st Dec., 1995. On 1st Dec., 1995 there was a discussion between the representative of the assessee and the AO. The assessee was called upon to make clarifications regarding various points and was also asked to clarify as to how the depreciation as claimed should not be disallowed and why interest should not be taxed as receipt on the revenue account. It is contended by the assessee that the AO was in the midst of the proceedings under s. 143(3) of the Act. However, AO issued intimation/order under s. 143(1)(a) of the Act, vide Annexure D, rejecting the return of income as computed by the assessee resulting in disallowing depreciation as claimed and by taxing the interest income of Rs. 1,07,85,590 as income from other sources and thus raised the demand of Rs. 1,30,83,741 under various heads and sections of taxes, surcharge and additional tax under ss. 143(1A), 234A and 234B.
4. Mr. Shah, learned counsel appearing for the assessee, has contended that once the AO has exercised option to proceed under s. 143(3) of the Act by issuing notice under s. 143(2) of the Act even if adjustments that may be made by the AO are in order, AO has forfeited the authority to act under s. 143(1) by virtue of his option having exercised to make an assessment under s. 143(3) of the Act by issuing a notice under s. 143(2) of the Act.
As against this, Mr. Shelat, learned counsel (for the Revenue), has contended that it is open for the AO to follow the procedure under s. 143(1) and 143(2) simultaneously. His contention is that it is open to have parallel proceedings and is not compulsory to assess as per s. 143(3) of the Act though notice under s. 143(2) of the Act is issued and before making assessment under s. 143(3) of the Act he can proceed under s. 143(1) of the Act. No other contention is raised.
5. It would be better to have a look at the relevant section which is reproduced as under :
"143(1)(a) Where a return has been made under s. 139, or in response to a notice under sub-s. (1) of s. 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-s. (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be notice of demand issued under s. 156 and all the provisions of this Act shall apply accordingly;
(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 where adjustments are made under the first proviso, an intimation shall be sent to the assessee, notwithstanding that no tax or interest is found due from him after making the said adjustments :
Provided also that an intimation for any tax or interest due 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.......
(1A)(a) Where as a result of the adjustments made under the first proviso to clause (a) of sub-s. (1) -
(i) the income declared by any person in the return is increased; or
(ii) the loss declared by such person in the return is reduced or is converted into income, The AO shall, -
(A) in a case where the increase in income under sub-clause (i) of this clause has increased the total income of such person, further increase the amount of tax payable under sub-s. (1) by an additional income-tax calculated at the rate of twenty per cent on the difference between the tax on the total income so increased and the tax that would have been chargeable had such total income been reduced by the amount of adjustments and specify the additional income-tax in the intimation to be sent under sub-clause (i) of clause (a) of sub-s. (1) :
(B) in a 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-s. (1);
(C) where any refund is due under sub-s. (1), reduce the amount of such refund by an amount equivalent to the additional income-tax calculated under sub-clause (A) or sub-clause (B), as the case may be...........
(2) Where a return has been made under s. 139, or in response to a notice under sub-s. (1) of s. 142, the AO shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return :
Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.
(3) On the day specified in the notice issued under sub-s. (2) or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him on the basis of such assessment.
(4) Where a regular assessment under sub-s. (3) of this section or s. 144 is made -
(a) any tax or interest paid by the assessee under sub-s. (1) shall be deemed to have been paid towards such regular assessment;
(b) if no refund is due on regular assessment or the amount refunded under sub-s. (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly........."
Reading the language of sub-clause (i) of clause (a) of sub-s. (1) of s. 143 it is clear that AO is permitted to make adjustments and the same is without prejudice to the provisions of sub-s. (2). If AO is accepting the return after making adjustments then he has to send intimation to the assessee in that behalf. The proviso makes it clear that in computing tax or interest payable or refund to the assessee adjustments shall be made in the income or loss declared in the return under three types of cases as mentioned in the proviso. If the assessee has not claimed deduction in his return but if the deduction is prima facie admissible then in that case the AO is duty bound to allow that deduction straightway. In the same way if relief claimed in the return is prima facie inadmissible the same is to be disallowed. Mr. Shah, learned counsel for the petitioner, has contended that the legislature has intentionally used the word prima facie. According to him, merely looking at the return filed by the assessee the AO should be satisfied about the claim being admissible or inadmissible. If admissibility or inadmissibility of the claim requires evidence or further information then it cannot be said that the claim is "prima facie" inadmissible or admissible "prima facie".
It is thus clear that the AO even after issuing intimation after making adjustments as per provisions of s. 143(1) of the Act can call upon the assessee, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. Once this opinion is formed then the AO will have to serve on the assessee a notice under s. 143(2) of the Act requiring him to produce evidence before him on the date specified in the notice. This is permissible in view of saving clause in s. 143(1) of the Act. Section 143(1) of the Act is to be exercised without prejudice to the provisions of sub-s. (2) of s. 143 of the Act. However, exercise of powers under s. 143(1) is not made permissible after issuance of notice under s. 143(2) of the Act. The AO cannot exercise powers under s. 143(1) of the Act as he himself has decided to make regular assessment under s. 143(3) of the Act. That in s. 143(2) like under s. 143(1) powers are not saved. As the AO has called upon the assessee to furnish evidence to satisfy himself about the correctness or legality of the claim made by the assessee in his return, hence, only after hearing the assessee and after considering the evidence that may be produced by the assessee the AO has to make the order in writing making assessment of the total income or loss of the assessee and he has to determine the amount payable on the basis of such assessment, that is, under s. 143(3) of the Act. Mr. Shelat, learned counsel for the Revenue, fairly stated that notice under s. 143(2) of the Act cannot be withdrawn. Notice under s. 143(2) of the Act is a step towards regular assessment under s. 143(3) of the Act and, therefore, in absence of any provision it is not open to make assessment in any other manner than provided as per s. 143(3) of the Act.
6. Mr. Shelat, learned counsel for the Revenue, has submitted that with a view to have clarification the AO may issue notice and if he is satisfied, he may pass order under s. 143(1)(a) of the Act. We are concerned with the notice which is issued under the provisions contained in s. 143(2) of the Act. In reading the language of s. 143(2) of the Act, only conclusion possible is that the AO has to make assessment under s. 143(3) of the Act. Once having come to the conclusion the AO has called upon the assessee to produce evidence before him for making assessment under s. 143(3) of the Act. Notice under s. 143(2) is issued with a view to ensure that the assessee has not understated income or has not computed excessive loss or has not underpaid tax in any manner. As indicated earlier, in view of the saving clause in s. 143(1) of the Act, right of the AO to proceed under s. 143(2) is preserved despite intimation to the assessee under s. 143(1) of the Act. It may be noticed that the section is amended and one of the main changes brought about is that under s. 143(1) regular assessment order as such is not to be passed but only an intimation after adjustment, if any, is to be sent.
Powers to make assessment in terms of its proviso can be invoked and when the claim is prima facie inadmissible or prima facie admissible, as the case may be, adjustment is to be made. The word prima facie clearly indicates that it must be first evidenced. A decision on the debatable issue is not envisaged. Issuance of notice under s. 143(2) of the Act suggests that the AO has determined to make assessment under s. 143(3) of the Act. It is clear, looking to the language used in different sub-sections that order under s. 143(1) is a summary one and the AO on perusal of the return, that is, computation of income, is able to accept it as it is or with necessary adjustments as indicated in sub-clause (a) of sub-s. (1) of s. 143 of the Act. The submission made by learned counsel for the Revenue is that even after issuance of notice under s. 143(2) of the Act, it is permissible for the AO to assess under s. 143(1) of the Act. One has to examine the claim on account of results of adjustments made in the income shown in the return whether it results into increase or loss declared in the return is reduced or is converted into income. If that is so it would entail further tax at the rate of 20% on the income so increased or a further tax of 20% on the loss so reduced as if it is income and assessee will be charged as per sub-s. (1A) of s. 143 of the Act. With a view to see that taxpayers in the return furnish details with accuracy and correctness this provision is made. The assessee is aware about the provision and should take care that no incorrect statement is made with a view to save additional tax which may be imposed on him. However, when the AO is not assessing the correctness about the claim which is either prima facie admissible or prima facie inadmissible, and AO with a view to ensure that the assessee has not computed excessive loss or has not underpaid tax in any manner has issued notice under s. 143(2) of the Act, then there should be evidence before him and on the basis of the evidence that may be produced by the assessee assessment is to be made under s. 143(3) of the Act, and assessee will be liable to the tax in the manner laid down in the Act if he is required to pay. After calling upon the assessee to produce evidence if the AO is sending intimation instead of making regular assessment under s. 143(3) of the Act then in that case the AO would assess and would charge tax as per s. 143(1A) of the Act which is not contemplated under s. 143(3) of the Act and thus what is not permissible under s. 143(3) of the Act cannot be made permissible by allowing the AO to resort to s. 143(1) of the Act.
7. The use of word "shall" in sub-s. (2) of s. 143 of the Act mandates the AO to issue notice to the assessee with a view to ensure that the assessee has not understated income or has not computed excessive loss or has not underpaid the tax in any manner. This power has to be exercised when the AO has formed opinion that it is necessary or expedient to call upon the assessee to ensure that the tax is paid in accordance with law and for that purpose he shall call upon the assessee to produce evidence before him. Thus in view of the language used in s. 143(2) of the Act notice must be issued in case where the opinion is formed by the AO as stated above. In sub-s. (3) the word used is "shall". It reads as under :
"Assessing Officer shall, by order in writing, make assessment of total income or loss of the assessee."
Thus, reading the language it is mandatory for the AO to call upon the assessee to produce evidence before him to ensure that the tax paid is in accordance with law and to make assessment under s. 143(3) of the Act.
8. Whether simultaneous or parallel proceedings are permissible ? Looking to the proviso to sub-s. (2) of s. 143, after expiry of 12 months from the end of the month in which the return is furnished no notice can be served on the assessee. Intimation under s. 143(1) is to be sent before expiry of 2 years from the end of the assessment year in which the income was first assessable. Under s. 153 of the Act no order of assessment shall be made under s. 143 at any time after expiry of 2 years from the end of the assessment year in which the income was first assessable. Thus, in any case, for regular assessment under s. 143(3) of the Act notice is to be issued within the period of one year as per proviso to s. 143(2) of the Act, however, after expiry of that period as indicated under s. 143(2) of the Act intimation as contemplated under s. 143(1) can be issued. Thus, the legislature has not permitted simultaneous proceedings. If we consider the submission made by the learned counsel that simultaneous or parallel proceedings can be commenced is certainly not acceptable. As indicated above, after expiry of 12 months from the end of the month in which the return is furnished no notice can be served on the assessee. Is it open for the Department to issue notice after period is expired ? Certainly it is not open but intimation under s. 143(1) can be sent before expiry of 2 years from the end of the assessment year and, therefore, parallel proceedings are not contemplated. The CBDT in its Circular No. 549 dt. 31st Oct., 1989 [printed at (1990) 182 ITR (St) 1] at para 5.16 has advised as under :
"In fact, it will be preferable if action under s. 143(1)(a) is completed even before the issuance of notice under s. 143(2) in such cases."
Thus, even the AOs are advised by the Department to issue intimation before issuance of notice under s. 143(2) of the Act.
9. Mr. Shah, learned counsel (for the assessee) has placed reliance on the decision of Calcutta High Court in the case of Modern Fibotex India Ltd. vs. Dy. CIT (1995) 212 ITR 496 (Cal). In view of the Calcutta High Court when once notice under s. 143(2) has been issued there is no scope for AO either to make prima facie adjustment on the basis of the return as filed or issue intimation under s. 143(1)(a) of the Act. Emphasis is given to the omission by the legislature with regard to savings of powers as is found in sub-s. (1) of s. 143. If issuance of notice under s. 143(2) would have been without prejudice to intimation under s. 143(1) it could be said that parallel proceedings are permitted. The legislature specifically provided that issuance of intimation under s. 143(1)(a) would be without prejudice to provisions of s. 143(2). The provision is made so as to indicate the difference in the nature of two sub-sections. In view of Calcutta High Court the jurisdiction exercised under s. 143(1)(a) of the Act is a summary one. Looking to the language of s. 143(3) of the Act, it is clear that the AO has to follow the procedure under s. 143(3) of the Act for making assessment. Mr. Shah, learned counsel, submitted that in the instant case by issuing notice under s. 143(2) of the Act proceedings commenced under s. 143(3) of the Act. According to him, once the proceedings under s. 143(3) of the Act have commenced the AO has no power to pass order under s. 143(1) of the Act. He submitted that order passed by AO is without jurisdiction and, therefore, it must be quashed and set aside and the party should not be relegated to alternative forum. He pointed out the procedure and drew our attention to the decision of the apex Court in the case of Calcutta Discount Co. Ltd. vs. ITO (1961) 41 ITR 191 (SC). The Court has held as under :
"..... though the writ of prohibition or certiorari would not issue against an order prohibiting an executive authority, the High Court had power to issue in a fit case an order prohibiting an executive authority from acting without jurisdiction. Where such action of an executive authority acting without jurisdiction subjected, or was likely to subject, a person to lengthy proceedings and unnecessary harassment, the High Courts would issue appropriate orders or directions to prevent such consequences. The existence of such alternative remedies as appeals and reference to the High Court was not, however, always a sufficient reason for refusing a party quick relief by a writ or order prohibiting an authority acting without jurisdiction from continuing such action. When the Constitution conferred on the High Courts the power to give relief it became the duty of the Courts to give such relief in fit cases and the Courts would be failing to perform their duty if relief were refused without adequate reasons."
In this view of the matter, we are of the opinion that after issuance of notice under s. 143(2) of the Act, it is not open for the AO to make adjustment or to pass order under s. 143(1) of the Act but he has to make assessment in accordance with law, i.e., under s. 143(3) of the Act.
10. In view of this, the order at Annexure 'D' dt. 18th Dec. 1995 as well as demand of Rs. 1,30,83,741 made are hereby quashed and set aside. The AO is directed to proceed further in accordance with law forthwith.
11. Other questions raised by Mr. Shah with regard to entitlement of depreciation and the interest being prima facie inadmissible is patently wrong are not considered by us. This petition is disposed of on a short question as discussed above.
12. Rule is made absolute to the aforesaid extent. No order as to costs.