THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.257 OF 1996 Dated:28.12.2011 Between: The Commissioner of Income Tax, Visakhapatnam .. Appellant And Sri Satya Sai Marine (P) Limited, Visakhapatnam .. Respondent THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA REFERRED CASE No.257 OF 1996 ORDER: (Per the Hon’ble Sri Justice V.V.S.Rao) The Income Tax Appellate Tribunal, Hyderabad Bench ‘B’ referred the following two questions for the opinion of the Court at the instance of the Revenue. 1. Whether an intimation u/s.143 (1)(a) which does not speak of any tax payable or refund of tax can be rectified u/s.154 of the I.T. Act, 1961 or not? 2. Whether calling for evidence for claims hit by provisions of sec.43B which the assessee ought to have furnished with the return of income but did not is in the scheme of sec.143(1)(a) or not? At the outset, we may notice the brief fact of the matter. The respondent (hereafter, the assessee) filed their returns of the income for the assessment years 1989-1990 and 1990-1991. The Income Tax Officer (ITO) processed the same under Section 143(1)(a) of the Income Tax Act, 1961 (the Act, for brevity). The return of income declaring loss was accepted without any order as to refund. An intimation under Section 143(1) (a) of the Act was also sent to the assessee. Subsequently, the ITO in purported exercise of power under Section 154 of the Act issued notice for rectifying the intimation on the ground that some prima facie adjustments i.e., interest paid to financial institution was not disallowed – was not considered, which is a mistake. The assessee submitted explanation to the notice rejecting the objections. The ITO passed two orders for two assessment years on 28.11.1991 determining the income tax payable. Aggrieved thereby, the assessee went in appeal before the Commissioner of Income Tax (Appeals) (CIT(A)), Visakhapatnam. Finding that the assessing officer did not make any “adjustment” as per the provisions of Section 143(1)(a) of the Act, the CIT(A) came to the conclusion that the non-statutory communication was not capable of being modified under Section 154 of the Act. Accordingly, the appeal was allowed. The Income Tax Appellate Tribunal dismissed the appeal filed by the Revenue as well as the cross objections filed by the assessee holding that in the absence of any valid intimation, the question of rectification under Section 154(1) (b) does not arise. Aggrieved thereby, the Revenue sought the reference. This Court heard the Junior Counsel for the Income Tax Department and none appears for the respondent/assessee. Indeed, as seen from the statement of the case, even when the Appellate Tribunal considered the reference application, the assessee remained ex parte. Section 143(1) as amended by the Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989 with its proviso reads as under. Section 143(1) as it stood between 01.04.1989 and 31.05.1999-Section 143(1), as substituted (w.e.f.01.04.1989) and as subsequently amended from time to time, prior to its substitution (w.e.f.01.06.1999) by the Finance Act, 1999, stood as under:- [(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 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 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 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. When an assessee files return of income under Section 139 of the Act, the assessing officer ordinarily has two courses opened, (i) processing the return under Section 143(1) and (ii) undertaking assessment under Section 143(2) and (3) after complying with procedural requirements. The processing of return under Section 143 (1) only enables making of adjustments of any tax deductions at source, any advance tax paid and any amount paid otherwise by way of tax or interest and sending an intimation to the assessee specifying the sum payable. In such case, the intimation shall be deemed to be notice of demand under Section 156. If no adjustments are made and no intimation is sent before the expiry of two years from the end of the assessment year in which the income was first assessable, the law construes that the return of income has been accepted. In either case, the power of rectification of mistake under Section 154 would not be available prior to 01.04.1989. We may mention that Section 154 enables rectification to a limited extent of enhancing or reducing the amount of refund granted by the assessing authority which only means when adjustments are made, an intimation is sent under Section 143(1)(a), but such rectification cannot be permissible when no intimation is sent or only a non-statutory communication is sent. I n Assistant Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers P. Ltd[1], the Supreme Court had an occasion to consider the effect of return of income being processed under Section 143(1) of the Act. While dwelling upon the scope of Section 143(1) (as it stood prior to 01.06.1999 and thereafter), the Supreme Court held that by making adjustments under the first proviso to Section 143(1)(a) of the Act, no addition which is permissible by the information given in the return could not be made by the assessing officer. It was also held that under Section 143(1)(a) of the Act only recovery indicated in the intimation which is deemed to be notice of demand is permissible. The relevant observations are as follows. … The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. … Therefore, when an intimation under Section 143(1)(a) of the Act is silent as to the tax payable or refund of tax to be made the rectification under Section 154 is not permissible. The second question as extracted hereinabove is with regard to deductions claimed by the assessee in the return of income which was processed. When the intimation is sent under Section 143(1)(a), it shall be deemed that the assessing officer has accepted the claim for deduction under Section 143(1)(b) and therefore the assessing officer cannot call for the evidence of such claims under Section 43B. With regard to deductions, it is always open to the assessing officer to issue notice under Section 143(2) and assess him under Section 143(3). But if the return is processed under Section 143(1) and an intimation is sent under Section 143(1)(a), the matter must rest there and calling for the information is not permissible. In the result, for the above reasons, we answer the first question in the negative holding that the intimation under Section 143(1)(a) cannot be rectified under Section 154 and we also answer the question in the negative to the effect that the assessing officer cannot call for the evidence for claims under Section 43B, when the return of income is processed under Section 143(1)(a). Both the questions are answered in favour of the assessee and against the Revenue. The Referred Case shall stand disposed of accordingly. ________________ (V.V.S. RAO, J) _____________________ (B.N.RAO NALLA, J) 28.12.2011 KH Under Section 143(1)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legistlature i.e., to minimize the Departmental work to scrutinize each and every return and to concentrate on selective scruity of returns. These aspects were highlighted by one of us (D.K. Jain J.) in Apogee International Limited v. Union of India (1996) 220 ITR 248 (Delhi). It may be noted above that under the first provision to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgement of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any “assessment” is done by them? The reply [1] (2007) 291 ITR 500 (SC)