Case: M/s. Jaipur Udyog Limited &amp; Another Vs. Commissioner of Income Tax, Delhi, Rajasthan &amp; Another

1. 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 income or loss computed for the years by the Income-tax Officer onof AssessmentIncome or loss returned by the CompanyIncome or loss computed by the I. T. O.1954-5561,24,270 (Loss)22,53,457 (Loss)1955-564,59,963 (Profit)19,84,447 (Profit)1956-5712,02,958 (Profit)16,88,480 (Profit)1957-5823,05,305 (Loss)12,53,222 (Loss)1958-5940,44,779 (Loss)31,48,707 (Loss)1959-6028,77,487 (Loss)20,62,180 (Loss)1960-6111,35,365 (Loss)Assessment pending.1961-6266,086 (Loss)Assessment pending.1962-6344,93,236 (Profit)Assessment pending.1963-6474,52,402 (Profit)Assessment pending.1964-6559,89,757 (Profit)Assessment pending.Against the orders of assessment made by the Income-tax Officer for the year 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 date of commencement of the petitions in the High Court of Rajasthan which give rise to the proceedings in this Court. Assessment 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. 1,03,03,935/- 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 141ofthe Income-tax Act, 1961, and against the income returned by the Company he allowed deduction of Rs. 39,89,731/- as loss carried forward from the earlier years, and made a demand for Rs. 8,73,873/- as tax provisionally due and Rs. 87,387/- 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.3. For the assessment year 1964-65 the Company returned a net income of Rs. 59,89,757/- as profit, and claimed to set off against that amount Rs. 36,01,735/- as loss of the previous years and paid Rs. 12,13,596.65 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. 59,89,757, returned by the Company without allowing any deduction claimed and ordered the Company to pay an additional amount of Rs. 17,32,768.60. Against that order the Company moved petition No. 26 of 1965 for an order quashing the demand of tax and for an injunction restraining the Income-tax Officer from enforcing the demand.4. For assessment year 1965-66 the income-tax Officer relying upon Section 210 (3) of the Act called upon the Company to pay Rs. 29,45,365.25 as advance-tax. The Company moved petition No. 67 of 1965 in the High Court of Rajasthan for an order quashing the demand.5. The High Court rejected the three petitions. Against the orders passed by the High Court, these three appeals have been preferred by the Company.

Reasoning: 8. 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 S. 141 of the Act, assessment of tax must also be made in accordance with and subject to the provision of the Act, i. e. in making a 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 perclaim 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 S. 80 which apply both to a regular assessment and a provisional assessment under S. 141.9. 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 S. 141 is to call upon the assessee to pay tax provisionally at the appropriate rate on what he admits is his taxble income, subject to the benefit of the allowances under sub-s. (2). 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 filled. 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.10. 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. 59,89,757/- returned, Rs. 36,01,735/- should be permitted to be debited. The order demanding tax of Rs. 17,32,768-60 for the year1964-65 also was, in our view, erroneous.11. 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 S. 210 as inserted by Act 13 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 S. 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 S. 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.