Appeals Nos 586588 of 1967
Appeals from the judgment and order dated April 20 1965 of the Rajasthan High Court in DB Civil Writ Petitions Nos
51 F of 1964 and 26 and 67 of 1965
MC Chagla Bishambar Lal HK Puri MK Garg and KK Jain for the appellants
ST Desai ND Karkhanis RN Sachthey and B D Sharma for the respondents
The Judgment of the Court was delivered by Shah J
Jaipur Udyog Ltd a Company registered under the Indian Companies Act 1913 established in 1953 a cement factory at Sawai Madhopur in the State of Rajasthan
From time to time the Company filed its returns under the Income tax Act 1922 and after the repeal of that Act under the Act of 1961
The following chart sets out the income or loss returned by the Company for the years 1954 55 to 1964 65 and the 195 income or loss computed for the years by the Income tax Officer on assessment Year of Income or loss returned Income or loss compu Assessment by the Companyted by the1
ted bythe T0
1954 55 6124270 Loss2253457LOSS 1955 56 1459963Profit1984447Profit 1956 57 1292958Profit1688480Profit 1957 58 2305305Loss1253222Loss 1958 59 4644779Loss3148707Loss 1959 60 2877487Loss2062180Loss 1960 61 1135365LossAssessmentpending
1961 62 66086 Loss 1962 63 4493236 Profit 1963 64 7452402 Profit 1964 65 5989757 Profit Against the orders of assessment made by the Income tax Officer for the years 1954 55 to 1959 60 determining its net income or loss as set out in the chart the Company appealed to the Appellate Assistant Commissioner and the appeals were pending at the dates of commencement of the petition in the High Court of Rajasthan which give rise to the proceedings in this Court
Assessments for the years 1960 61 1961 62 1962 63 1963 64 and 1964 65 were however then not completed
In its return of income for the assessment year 1963 64 the Company claimed to set off against the income returned Rs 10303935 being the aggregate amount of loss which it claimed it had suffered in the previous years and was entitled to set off against the income of that year
The Income tax Officer made a provisional assessment of tax under section 141 of the Incometax Act 1961 and against the income returned by the Company he allowed deduction of Rs 3989731 as loss carried forward from the earlier years and made a demand for Rs 873873 as tax provisionally due and Rs 87387 as penalty for default in compliance with the demand
The Company moved petition No 51 of 1964 in the High Court of Rajasthan and challenged the order claiming that the Income tax Officer was bound to accept the return made by the Company and could not assess it to tax on income not admitted
For the assessment year 1964 65 the Company returned a net income of Rs 5989757 as profit and claimed to set off against that amount Rs 3601735 as loss of the previous years and paid Rs 1212596 65 as tax due by it in accordance with section 140A 1 of the Act
But the Income tax Officer made a provisional assessment and computed the tax on the total income of Rs 5989757 returned by the Company without allowing any deduction claimed and ordered the Company to pay an additional amount of Rs 1732768 60
Against that order the Company moved petition No 26 of 1965 for an order quashing the demand 196 of tax and for an injunction restraining the Income tax Officer from enforcing the demand
For the assessment year 1965 66 the Income tax Officer relying upon section 2103 of the Act called upon the Company to pay Rs 2945365 25 as advance tax
The Company moved petition No 67 of 1965 in the High Court of Rajasthan for an order quashing the demand
The High Court rejected the three petitions
Against the orders passed by the High Court these three appeals have been preferred by the Company
Section 141 of the Income tax Act 1961 authorises the Income tax Officer to make a provisional assessment of the income of the assessee on the basis of the return made under section 139 and the accounts and documents if any accompanying the return
The assessment so made is summary and is based only on the return and the accounts and documents filed by the assessee
The Income tax Officer is not bound to make any enquiry before making a provisional assessment he is not bound even to give to the assessee any notice of his intention to make a provisional assessment nor to hear the assessee
He may if he desires call upon the assessee to elucidate the return or the entries posted in the accounts and documents but he is not obliged to do so
Section 141 has been enacted with the object of expediting collection of tax on the basis of the return made by the assessee
The Act contains several provisions for collection of tax before regular assessment eg payment of advance tax deduction of tax at source from salary and dividends provision for self assessment etc
The object of these provisions is to collect tax on certain classes of income before regular assessment
The provisional assessment does not bind the assessee nor the Department the quantum of tax computed and levy thereof are not binding upon the assessee and the Revenue
Tax paid pursuant to provisional assessment is liable to be adjusted in the light of the final order in the regular assessment
An appeal against the order is expressly prohibited
The Income tax Officer must however apply the rate operative in the assessment year by virtue of the Finance Act and give effect to the allowances mentioned in sub section
2 of section 141 whether the assessee has claimed them or not
But the assessee has no right to be heard or to explain or elucidate and has no right of appeal against the computation or the levy of tax
The Company claimed that it was entitled to deduct the aggregate of losses which it had suffered since the year 1954 55 year after year from the profits of the year 1963 64
It is true that the loss returned by the Company year after year was in excess 197 of the amount of loss determined by the Income tax Officer
But in respect of the orders of assessment appeals were pending
Counsel for the Revenue concedes that assessment under section 141 being provisional the Income tax Officer cannot make an enquiry into disputed questions of fact or law but he submits relying upon sub section
2 of section 141 that the assessee cannot claim and the Income tax Officer cannot allow loss in respect of previous years in excess of the loss certified by the Income tax Officer
That he says is the effect of sections 72 and 80 of the Income tax Act 1961
Section 72 provides  1  Where for any assessment year the net result of the computation under the head Profits and gains of business or profession is a loss to the assessee  and such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71 so much of the loss as has not been so set off or  or where he has no income under any other head the whole loss shall subject to the other provisions of this Chapter be carried forward to the following assessment year and i it shall be set off against the profits and gains if any of any business or profession carried on by him and assessable for that assessment year Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year and ii if the loss cannot be wholly so set off the amount of loss not so set off shall be carried forward to the following assessment year and so on
2 3 No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessment year for which the loss was first computed
 Section 80 of the Act provides Notwithstanding anything contained in this Chapter no loss which has not been determined in pursuance of a return filed under section 139 shall be carried forward and set off under sub section 1  of section 72 or  Under section 721 read with section 80 loss of a previous year under the head of income from profits and gains of business profession 198 or vocation may be carried forward to the next succeeding year only if it has been determined in pursuance of a return filed under section 139
If it is not so determined in the assessment of the subsequent year the loss cannot be carried forward and set off against the profit of the subsequent year or years
By sub section
2 of section 141 the Income tax Officer is enjoined to give effect to the loss so certified and carried forward
But it does not follow therefrom that when the assessee claims that out of the income of the year returned by him certain amounts are liable to be deducted in computing the taxable total income the Income tax Officer may adjudicate upon the validity of the claim in making a provisional assessment
In our judgment if it be granted that the Income tax Officer has jurisdiction to hold an enquiry into disputed matters the expression provisional assessment may lose all significance the income tax Officer may under a summary assessment without giving an opportunity to the assessee to explain his claim negative it and the assessee has no redress under the Act against any erroneous or arbitrary action
The Court would not unless compelled by the phraseology of the statute or by the clear implication arising therefrom be justified in accepting that view
The clearest implication of section 141 bars an enquiry at the stage of making a provisional assessment into disputed questions of law and fact it is a matter of no moment that the dispute raised is complicated or is easy of solution
In our judgment once a dispute is raised by the assessee the Income tax Officer has no discretion
By sub section 2 of section 141 the Income tax Officer is enjoined to give effect to the provisions of section 322 721 732 and 741 of the Act sub section
2 does not enlarge his jurisdiction under sub section
The High Court was of the view that the basic scheme of the Act is that tax is to be charged at the rate or rates prescribed for the year on the total income of the assessee and in accordance with the provisions of the Act and that this basic scheme applies alike to a provisional assessment as to a regular assessment
Consequently in construing the provisions of section 141 of the Act assessment of tax must also be made in accordance with and subject to the provisions of the Act ie in making u provisional assessment the necessary facts about the income of the assessee must be taken by the Income tax Officer from the return and the documents accompanying it and he should not travel beyond but in making the provisional assessment he cannot ignore the other statutory provisions he must apply the law correctly to the admitted facts as per return
The High Court proceeded to observe The combined effect of the two sections namely sections 72 and 80 of the Act is that a business loss can be carried forward to the subsequent assessment years 199 only when it has been determined in pursuance of a return filed under section 139 of the Act
 The claim of the Company that it was entitled to the benefit of carry forward losses of previous years merely because it had shown such losses in the returns could not in the view of the High Court be accepted to give effect to the claim of the Company in the view of the High Court will be to ignore the provisions of section 80 which apply both to a regular assessment and a provisional assessment under section 14
We are unable to accept the opinion of the High Court
If it be assumed that provisional assessment has to be made in accordance with and subject to the provisions of the Act distinction between a provisional assessment and a regular assessment gets completely blurred
The scheme of section 141 is to call upon the assessee to pay tax provisionally at the appropriate rate on what he admits is his taxable income subject to the benefit of the allowances under sub section
The section does not permit an enquiry to be made whether the total income returned by the assessee exceeds the amount admitted by him nor whether the allowances or deductions claimed are admissible
If there be a discrepancy between the return made and the accounts and documents accompanying the return the Income tax Officer may ask the assessee to explain the discrepancy but he must make a provisional assessment on the basis of the return initially made or clarified and the accounts and documents filed
He cannot make a provisional assessment by holding that certain claims made by the assessee are in law unjustified
If it transpires that the assessee has without reasonable cause concealed particulars of his income or has furnished inaccurate particulars of his income it may be open to the Income tax Officer to impose penalty upon him after the regular assessment is completed
But it is not open to him to determine whether there has been any concealment of particulars of income or to decide whether claims which have been made are unwarranted
In the view we have expressed the Income tax Officer was not justified in holding that the claim made by the Company for carrying forward and seeking to debit against Rs 74 lakhs odd an amount of Rs 103 lakhs odd was liable
to be rejected
For the same reasons in making the provisional assessment for the year 1964 65 the Income tax Officer was not entitled to ignore the claim made by the Company that against the income of Rs 5989757 returned Rs 3601735 should be permitted to be debited
The order demanding tax of Rs 1732768 60 for the year 1964 65 also was in our view erroneous
For the year 1965 66 the Income tax Officer demanded payment of advance tax on the provisional assessment for the year 1964 65
It is true that under subs
3 of section 210 as inserted by of 1963 and later modified by Act 31 of 1964 the Income tax Officer is entitled to make an order for payment of advance tax on the basis of provisional assessment made under section 141 and he is not obliged to demand advance tax only for the amount provisionally assessed by way of regular assessment in respect of any previous year
Sub section 3 of section 210 however predicates a valid provisional assessment on the basis of which advance tax may be demanded
But the provisional assessment for the year 1964 65 made by the Income tax Officer was invalid and tax could not be demanded on that invalid assessment
No order for payment of advance tax for the year 1965 66 could then be made relying upon the provisional assessment for the year 1964 65
The appeals will be allowed and the orders passed by the High Court set aside
The orders of provisional assessment made by the Income tax Officer in respect of the years 1963 64 and 1964 65 will be set aside and the order for payment of advance tax for the year 1965 66 is also set aside
There will be no order as to costs in these appeals
The order of penalty in respect of the year 1963 64 is also quashed
VPS Appeals allowed


Summary:
The appellant filed its returns for the assessment years 1954 55 to 1964 65
The Income tax Officer passed orders of assessment for the years 1954 55 to 1959 60
While the appeals to the Appellate Assistant Commissioner for those years and the assessment proceedings before the Income tax Officer for the years 1960 61 to 1962 63 were still pending for the assessment year 1963 64 the return for which was flied under section 139 of the Income tax Act 1961 the Income tax Officer made a provisional assessment under section 141
He held that the appellant was not entitled to deduct the aggregate amount of losses as claimed by it during the previous years and allowed only a much smaller sum as loss which could be carried forward from the earlier years
For the assessment year 1964 65 the Income tax Officer made a provisional assessment without allowing any deduction of loss claimed by the appellant and for the assessment year 1965 66 the Income tax Officer called upon the appellant to pay a certain sum as advance tax under section 2103
The appellant filed writ petitions in the High Court for quashing the orders of the Income tax Officer for each of the three years but the petitions were dismissed
The High Court held 1 that under section 141 the provisional assessment of tax must also be made in accordance with and subject to the provisions of the Act and that the combined effect of sections 72 and 80 was that a business loss can be carried forward to subsequent assessment years only when it has been determined in pursuance of a return flied under section 139 and 2 that under section 2103 as inserted by Act 13 of 1963 and modified by Act 31 of 1964 the Income tax Officer was entitled to make an order for payment of advance tax for 1965 66 on the provisional assessment for the year 1964 65
In appeal to this Court HELD 1 Section 141 bars an enquiry at the stage of making a provisional assessment into disputed questions of law and fact it is immaterial that the dispute raised is complicated or easy
Therefore the Income tax Officer was not justified
in ignoring the appellant s claim
198 D F Under section 80 loss of a previous year under the head of income from profits and gains may be carried forward only if it has been determined in pursuance of a return filed under section 139 that is if it is not so determined it cannot be carried forward and set off against the profit of the subsequent year or years
But the section applies only to a regular assessment
In the case of a provisional assessment under section 141 if there has been such a determination of the allowances mentioned in sub section 2 in a regular assessment for an earlier year then under section 1412 194 the income tax officer must whether the assessee has claimed or not give effect to the allowances so determined
But he has no power to adjudicate upon a claim for deduction made by the assessee when making a provisional assessment
196 G 197 A 198 B 199 B C The section has been enacted with the object of expediting collection of tax on the basis of the return made by the assessee
The assessment so made is summary and is based only on the return and the accounts and documents filed by the assessee
If there be discrepancy between the return made and the accounts and documents accompanying the return the Income tax Officer may ask the assessee to explain the discrepancy but he must make a provisional assessment on the basis of the return initially filed or clarified but cannot hold that certain claims made by the assessee are in law unjustified
The provisional assessment does not bind the assessee nor the department and the tax paid pursuant to such provisional assessment is liable to be adjusted in the light of the final order in the regular assessment and it is open to the Income tax Officer to impose a penalty in appropriate cases after the regular assessment is completed
If it is held that the Income tax Officer has jurisdiction to hold an enquiry into disputed matters the expression provisional assessment  loses all significance the Income tax Officer
may under such a summary assessment without giving an opportunity to the assessee to explain his claim negative it and the assessee has no redress under the Act against any erroneous or arbitrary action because the Income tax OffiCer is not bound to give notice to the assessee or hear witnesses and an appeal against a provisional assessment is expressly barred
196 D E 198 B C B C199 2 Under section 2103 the Income tax Officer is entitled to make an order for payment of advance tax on the basis of provisional assessment under section 141 but it predicates a valid provisional assessment
Since the provisional assessment in the present case for the year 1964 65 is invalid an order for payment of advance tax or the year 1965 66 could not be made
200 A C