Punjab Tractors Ltd. vs Joint Commissioner of Income Tax

Jawahar Lal Gupta, J.—Is the action of the respondent-Joint Commissioner of Income Tax, Special Range, Patiala, in issuing notice dated March 29, 2001, u/s 148 of the Income Tax Act, 1961, rendered illegal merely for the reason that notice u/s 143(2) had not been issued to the petitioner ? This is the short question that arises for consideration in this petition under Article 226 of the Constitution. A few facts may be noticed.

On December 24, 1999, the petitioner filed its return of income for the assessment year 1999-2000. It declared an income of Rs. 1,45,26,10,930. On May 23, 2000, the respondent informed the petitioner that after adjusting the tax already paid, it was liable to pay an amount of Rs. 1,46,88,952. A copy of this "intimation" is at annexure P-2 with the writ petition. The petitioner filed an appeal claiming that the amount of Rs. 1,70,20,247 charged by way of interest u/s 234C was not leviable. Vide order dated November 23,2000, the Commissioner of Income Tax (Appeals) accepted the petitioner''s claim.

On February 25, 2001, the Assessing officer issued notice u/s 154/155 for amendment of the intimation u/s 143(1). On March 8, 2001, the petitioner filed its reply. It also filed a revised return of income on March 19, 2001.

On March 31, 2001, the petitioner received a notice dated March 29, 2001, u/s 148 of the Act. A copy of this notice is at annexure P-3 with the writ petition. The petitioner filed its reply on April 28, 2001. Thereafter, on May 17, 2001, the petitioner requested the respondent to disclose the reasons for reopening of the assessment u/s 148 of the Act. A copy of this communication is at annexure P-4 with the writ petition. The reasons were supplied by the respondent with letter dated July 31, 2001. A copy has been produced as annexure P-5 with the writ petition. Having received the communication, the petitioner submitted an application dated September 6, 2001, to the respondent that the proceedings be dropped. The petitioner alleges that no reply has been received. Thus, it has filed the present writ petition.

The petitioner alleges that the initiation of proceedings by issuance of "notice u/s 147/148 suffers from . . . legal infirmities." It is, inter alia, alleged that if the Assessing Officer felt that there was "any understatement of income in the return submitted and wanted to verify its correctness, it was obligatory on his part to issue a notice u/s 143(2) of the Act ...". Having failed to do so, "he cannot now say that income should be deemed to have escaped assessment and issue a notice u/s 147/148 after the expiry of twelve months from the end of the month in which the first return was submitted." Various other grounds have also been raised. It has been further alleged that if the respondent is to "make an assessment u/s 143(3) after issuing notice u/s 143(2), the period for making assessment available will be up to March 19, 2002, whereas if he is allowed to make an assessment u/s 147/148, the period of limitation will be up to March 31, 2003. Such a discriminatory device cannot legitimately be permitted to be adopted by the respondent so as to extend the period of limitation." On these premises, the petitioner prays that the notice dated March 29, 2001, a copy of which has been produced as annexure P-3, be quashed.

We have heard Mr. G. C. Sharma, learned counsel for the petitioner. The solitary contention raised by learned counsel is that the assessment having not been finalised and no notice u/s 143(2) having been issued, the impugned notice cannot be sustained. Learned counsel has referred to the decisions in Kamal Textiles and Others Vs. Income Tax Officer and Others, ; Pradeep Kumar Har Saran Lal Vs. Assessing Officer, and MTNL Vs. The Chairman, Central Board of Direct Taxes and Another, .

The short question that arises for consideration is--Has the respondent erred in initiating proceedings u/s 147/148 ?

A perusal of Section 147 shows that "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year," he can proceed to "assess or reassess such income." This power has to be exercised subject to the provisions of Sections 148 to 153. Thus, the condition precedent for proceeding u/s 147/148 is that the Assessing Officer should have reason to believe that income has escaped assessment. Nothing more. It is not necessary that assessment should have been finalised u/s 143(3) before it can be reopened.

Mr. Sharma contended that income can be said to have escaped levy of tax only when the assessment has been made. Not otherwise.

"Escape" in its ordinary sense means to elude; to succeed in avoiding. As observed by their Lordships of the Supreme Court in Tax-Officer-Cum-Regional Transport Officer, Raipur, and Others Vs. Durg Transport Co. P. Ltd., "the term ''escaped assessment'' includes both non-assessment as well as underassessment. When a person is not assessed to tax though he is liable to be taxed the tax escapes assessment." However, before proceeding to consider this matter in its strictly technical sense, the factual position deserves to be noticed.

It is the admitted position that after the filing of the return, an intimation was sent to the petitioner u/s 143(1) of the Income Tax Act on May 23, 2000. A copy of this document is at annexure P-2. The petitioner had filed an appeal to challenge the levy of interest u/s 234C. Still further, even notice u/s 154 had been given to the petitioner and a reply had been filed. Thereafter, the notice u/s 148 was served on the petitioner. It had filed a reply. The petitioner had then asked for reasons. These were supplied. Thereafter, an application dated September 6, 2001, was submitted by the petitioner to the respondent. A copy is at annexure P-6. This application opens with the following words :

"Our assessment for the assessment years 1999-2000 was completed by your honour vide intimation u/s 143(1) dated 23rd May, 2000."

The petitioner''s statement is clear and categorical. It completely belies the suggestion that there was no assessment.

Mr. Sharma referred to three decisions to contend that proceedings u/s 147/148 could not be initiated unless notice u/s 143(2) has been issued to the assessee. First of all, counsel referred to the decision of the Madhya Pradesh High Court in the case of Kamal Textiles and Others Vs. Income Tax Officer and Others, . In this case, the petitioner was aggrieved by the issue of notice u/s 143(2). It was contended that the intimation u/s 143(1) being "a notice of demand of tax u/s 156 of the Act, the proceedings for assessment should be taken as complete in all respects, subject of course to the assessment being reopened in terms of Section 147." This contention was rejected with the observation that the purpose of the fiction u/s 143(1) being limited, it was "difficult to accept the contention that, on issuance of such intimation, the assessment proceedings can be reopened only in terms of Section 147 and the authority is not entitled to proceed under Sub-section (2) of Section 143." This decision, in our view, does not support the petitioner''s contention in any way whatsoever.

In Pradeep Kumar Har Saran Lal Vs. Assessing Officer, , it was categorically observed at page 47 that "the only requirement of Section 147 is that the Assessing Officer must have good reason to believe that some income had escaped assessment. Once this belief is well-founded, recourse to reassessment proceedings cannot be said to be illegal. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps u/s 143(2) will not render the Assessing Officer powerless to initiate the re-assessment proceedings." In our view, the decision clearly militates against the contention raised by learned counsel for the petitioner.

Similarly, in the case of MTNL Vs. The Chairman, Central Board of Direct Taxes and Another, , the Chief Justice Mr. Arijit Pasayat (as his Lordship then was), was pleased to observe as under (headnote) :

"So long as the ingredients of Section 147 are fulfilled, the Assessing Officer is free to initiate proceedings u/s 147 and failure to take steps u/s 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued."

The decision does not support the petitioner''s claim. In fact, their Lordships have categorically sustained the Department''s action in a similar situation.

Mr. Sharma was at pains to point out that till the assessment is finalised, notice for reassessment u/s 148 of the Act could not have been issued. He referred to the observations of their Lordships of the Supreme Court in Trustees of H. E. H. the Nizam''s Supplemental Family Trust v. CIT [2000] 242 ITR 381. In this case, it was held by their Lordships that (headnote) "unless the return of income already filed is disposed of, notice for reassessment u/s 148 of the Income Tax Act, 1961, cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated."

There is no quarrel with this proposition. However, in the present case, as noticed above, it is the petitioner''s own case as pleaded in its representation to the respondent that the assessment for the year 1999-2000 "was completed by your honour vide intimation u/s 143(1) dated May 23, 2000." Still further, even an appeal was filed against this order. In this situation, it cannot be said that the assessment had not been made. Factually, even interest u/s 234C was levied. The petitioner''s liability to pay tax and interest was determined. A demand was raised and an appeal was filed. In this situation, it cannot be said that the return of income had not been "disposed of". In our view, the intimation u/s 143(1) operates as an order of assessment unless the authority proceeds to give notice u/s 143(2) and passes an order u/s 143(3). Furthermore, if the competent authority has reason to believe that income had escaped assessment while issuing intimation u/s 143(1), it can proceed u/s 148. The absence of order u/s 143(3) is no bar.

Mr. Sharma submitted that the petitioner had filed a revised return of income on March 19, 2001. It is undoubtedly so. However, it is the petitioner''s own case that in response to the notice u/s 148, it had filed a reply "asking the respondent to make revised return... as return of income against notice u/s 148." This statement clearly appears at page 4 of the list of events. Still further, in the representation dated September 6, 2001, it has been stated that "we had duly filed a reply to the notice u/s 148 vide our letter dated April 28, 2001, categorically stating that the revised return of income filed by us on March 19, 2001, should be taken as the revised return in compliance to the notice u/s 148." In view of this factual position, it cannot be said that the return of income as originally filed by the petitioner had not been disposed of.

There is another aspect of the matter. The proviso to Section 147, inter alia, provides that "no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year" in a case "where an assessment under Sub-section (3) of Section 143... has been made for the relevant assessment year." This provision is clearly indicative of the legislative intent. It shows that the provision of Section 147 can be invoked not only after the order has been passed u/s 143(3) but even otherwise.

A faint attempt was made to contend that by proceeding u/s 147/148, the period of limitation would be extended.

We are unable to accept this contention. Firstly, it is the petitioner''s own case that the assessment u/s 143(3) could be made up to March 19, 2002. In the present case, the impugned notice was issued to the petitioner on March 29, 2001. It was almost a year before the date on which an order could be passed u/s 143(3). The notice having been given well in advance, it cannot be said that any prejudice had been caused to the petitioner. Secondly, we find that the reasons were conveyed. It has not been suggested by counsel that these were not relevant. There is no injustice. We find no ground to interfere under article 226.

In view of the above, we answer the question posed at the outset against the petitioner. It is held that the notice u/s 147/148 issued to the petitioner is not vitiated merely for the reason that notice u/s 143(2) had not been issued to it.

No other point was raised.

In view of the above, we find no merit in this petition. It is, consequently, dismissed in limine.