Kishan Dutt
Taxation – Direct Taxation – Income Act, 1961 S 264 – Claim for deduction – Held, if there is failure on part of petitioner in making claim for deduction, whether it is possible for Commissioner to grant one more opportunity - Petitioner sought for deduction of Rs. 4,60,617/- on premise that said expenditure was claimed as application for purpose of charitable purpose - Commissioner in Ext. P1 observed that intimation under S 143(1) of 1961 Act is not order of assessment for purpose of S 264 of 1961 Act - Statutory provisions that mere intimation does not amount to order which could be revised under S 264 of 1961 Act - Revisional powers are very wide - Even if no such claim has been made earlier, such a claim can be entertained by Commissioner under S 264 of 1964 Act - Commissioner of Income Tax is directed to reconsider matter – Petition disposed (P 13, 16, 17 and 19)
Kishan Dutt Kalaskar 10 Nov 2017

Taxation – Direct Taxation – Income Act, 1961 S 264 – Claim for deduction – Held, if there is failure on part of petitioner in making claim for deduction, whether it is possible for Commissioner to grant one more opportunity - Petitioner sought for deduction of Rs. 4,60,617/- on premise that said expenditure was claimed as application for purpose of charitable purpose - Commissioner in Ext. P1 observed that intimation under S 143(1) of 1961 Act is not order of assessment for purpose of S 264 of 1961 Act - Statutory provisions that mere intimation does not amount to order which could be revised under S 264 of 1961 Act - Revisional powers are very wide - Even if no such claim has been made earlier, such a claim can be entertained by Commissioner under S 264 of 1964 Act - Commissioner of Income Tax is directed to reconsider matter – Petition disposed (P 13, 16, 17 and 19)

KDK_1_KER_247502

 Kerala High Court

Agarwal Yuva Mandal (Kerala) vs Union Of India on 11 December, 2014

Taxation – Direct Taxation – Income Act, 1961 S 264 – Claim for deduction – Held, if there is failure on part of petitioner in making claim for deduction, whether it is possible for Commissioner to grant one more opportunity - Petitioner sought for deduction of Rs. 4,60,617/- on premise that said expenditure was claimed as application for purpose of charitable purpose - Commissioner in Ext. P1 observed that intimation under S 143(1) of 1961 Act is not  order of assessment for purpose of S 264 of 1961 Act  - Statutory provisions that mere intimation does not amount to  order which could be revised under S 264 of 1961 Act - Revisional powers are very wide - Even if no such claim has been made earlier, such a claim can be entertained by Commissioner under S 264 of 1964 Act - Commissioner of  Income Tax is directed to reconsider matter – Petition disposed (P 13, 16, 17 and 19)

1_KER_247502

The Judgment of the Court was delivered by

A.M. Shaffique, J.:— This writ petition is filed challenging Ext. P1 by which the Principal Commissioner of Income Tax, Kochi-2 has issued an order under Section 264 of the Income Tax Act, 1961 dismissing a petition for revision filed by the assessee. Petitioner also seeks for a direction to hear him and pass appropriate orders.

2. The short facts involved in the writ petition would disclose that the petitioner is a society registered under the Travancore Cochin Literary Scientific and Charitable Societies Registration Act, 1955. Return was filed for the assessment year 2013-14 on 26/12/2013 showing the taxable income of Rs. 3,03,183/-. Petitioner received an intimation under Section 143(1) of the Income Tax Act, 1961 on 16/11/2014 disallowing the claim of expenses for the reason that petitioner does not have registration under Section 12A of the Act. Petitioner was assessed to a liability of Rs. 2,85,190/-. Petitioner filed an objection to the proposed assessment. Thereafter no response was received. Petitioner later revised its return on 3/2/2015. Ext. P9 is the revised return. No action was taken by the revenue based on the revised return. Petitioner thereafter received a reminder dated 19/2/2015 for non payment of the outstanding amount of Rs. 2,85,190/-. Petitioner sent a reply requesting to consider his revised return. Since there was no response, he filed a revision petition under Section 264 of the Act (Ext. P12). It was heard by the Principal Commissioner of Income Tax Kochi on 23/3/2016 and by Ext. P1 order dated 28/3/2016, he declined to exercise the revisional authority.

3. The main contention urged by the petitioner is that revenue has assessed the petitioner to tax without affording him an opportunity of being heard. The assessing officer has not responded to his claim to consider the clarifications on the income and expenditure. He is prejudiced on account of the failure of the 2nd respondent to entertain the revision petition under Section 264 and hence challenging the impugned order, this writ petition is filed.

4. Heard the learned counsel for the petitioner and the learned Standing Counsel appearing on behalf of the respondents. Several judgments have been cited which are dealt hereunder:—

5. In Parekh Brothers v. Commissioner of Income Tax [1983 (15) Taxman 539 (Kerala)], a Division Bench of this Court had occasion to consider a question regarding the scope of revisional power of the Commissioner under Section 264 of the Income Tax Act, 1961. After an evaluation of the various judgments, it was held that even though a mistake was committed by the assessee and it was detected by him after the order of assessment, and the order of assessment is not erroneous, nonetheless it is open to the assessee to file a revision before the Commissioner under Section 264 and claim appropriate relief. In the said case, the question under consideration was whether the Commissioner can exercise the revisional jurisdiction, when the assessee having included the income for assessment, can claim the relief of weighted deduction under Section 35B for the first time in a petition filed under Section 264. It was held that the Commissioner has jurisdiction to entertain a revision under Section 264.

6. In S.R. Koshti v. Commissioner of Income Tax [2005 (146) Taxman 335 (Guj.)], a Division Bench of the Gujarat High Court held that an intimation under Section 143(1) of the Act is not an order of assessment. However, regardless of whether revised return was filed or not, once an assessee is in a position to show that he had been over assessed under the provisions of the Act, regardless of whether the over assessment is a result of assessee's own mistake or otherwise, the Commissioner of Income Tax has the power to correct the assessment as per Section 264(1) of the Act.

7. In Manoharlal Agarwal v. Commissioner of Income Tax (2014 (222) Taxman 138 (Guj)), a revision under Section 264 was rejected and one of the grounds was that the petitioner's return under Section 143(1) of the Act cannot be described as an order which is subject to revision under Section 264. It was held that if any person having furnished a return under sub section (1), or in pursuance of a notice issued under sub section (1) of Section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of assessment, whichever is earlier. It was held that the revised return submitted by the petitioner was within time and therefore he was entitled for refund of the TDS already deposited with the Department.

8. Yet another judgment relied upon is Assam Roofing Ltd. v. Commissioner of Income Tax [2014 (43) Taxman.com 316 (Gauhati)]. In this case, placing reliance upon judgment in Parekh Brothers (supra), the High Court held that intimation passed under Section 143(1) by the assessing authority is equally an order which can be questioned and can be made subject matter of revision under Section 264 before the Commissioner for deciding the issues raised therein by the assessee on merits.

9. The Delhi High Court in Vijay Gupta. v. Commissioner of Income Tax [2016 (238) Taxman 505 (Delhi)], held that intimation under Section 143(1) is regarded as an order for the purpose of Section 264 and therefore an application under Section 264 is maintainable against such an intimation.

10. In Larsen and Toubro Ltd. v. Asst. Commissioner of Income Tax [2010 (190) Taxman 373 (Bombay)], it was held that rejection of an application under Section 197 amounts to an order and the expression “order” for the purpose of section 264 has a wide connotation. Any order passed by an authority subordinate to the Commissioner, other than an order to which Section 263 applies, is subject to the revisional jurisdiction under Section 264.

11. On the other hand, learned standing counsel for the revenue placed reliance on the judgment of this Court in Commissioner of Income Tax v. K.V. Mankaram and Company [2000 (245) ITR 353]. In this case, the Division Bench considered the question as to whether a proceeding under Section 143(1)(a) amounts to an order of assessment. It is held that the expression “assessment” is clearly referrable to sections 143, 144 and 147 of the Act. A proceeding under Section 143(1)(a) does not result in an order of assessment. For the purpose of Sections 154, 246 and 264, proceeding under 143(1)(a) is treated as an order by the assessing authority. However, the intimation given under Section 143(1)(a) cannot be treated to be an order of assessment. It is only to be deemed as an order for the limited purpose of sections 246 and 264 of the Act. Under section 143(1)(a)(i), the intimation is deemed to be a notice of demand under Section 156 of the Act and it is not treated as an order of assessment. The two are conceptually different and except intimation, no other order is contemplated under 143(1)(a). It was also held that there is a distinction between an order of assessment and a notice of demand and an intimation under Section 143(1)(a) is deemed to be a notice of demand. However, in the judgment, it is held that an intimation under 143(1)(a) is deemed to be an order for the limited purpose of Section 264 of the Act as well.

12. In Asst. Commissioner of Income Tax v. Rajesh Jhaveri Stock Brokers Private Ltd. (2007 (291) ITR 500 SC), the Apex Court had occasion to consider the scope of Section 143(1)(a). It was observed that as a result of the insertion of Explanation to Section 143 by the Finance Act, 1991 from October 1st 1991 and subsequently with effect from 1st June, 1994 by the Finance Act, 1994 and ultimately omitted w.e.f. 1st June, 1999, an intimation sent to the assessee under Section 143(1)(a) was deemed to be an order for the purposes of Section 246 between 1st June, 94 and 31/5/1999 and under Section 264 between 1st October, 91 and 31st May 1999. It is held that the expressions “intimation” and “assessment order” have been used at different places. Assessment is used as meaning sometimes “the computation of income” sometimes “the determination of the amount of tax payable” and sometimes “the whole procedure laid down in the Act for imposing liability upon the tax payer”. It is held that in the scheme of things, the intimation under Section 143(1)(a) cannot be treated to be an order of assessment.

13. Coming back to the facts, Ext. P7 is the intimation received by the petitioner under Section 143(1) of the Act. Pursuant to Ext. P7, petitioner submitted Ext. P8 reply on 11/12/2014 indicating that receipt of Rs. 7,63,800/- consists of voluntary contribution of Rs. 7,41,300/- and its interest. The sum of Rs. 7,41,300/- was received towards specific projects or activities and not a blanket contribution against which the petitioner had incurred the expenditure as directed by the donor. The relevant details were also furnished. Hence, the petitioner sought for deduction of Rs. 4,60,617/- on the premise that the said expenditure was claimed as an application for purpose of charitable purpose. Petitioner also sought for rectifying the return and accordingly a rectified return had been furnished as Ext. P9. Ext. P12 dated 22/4/2015 is the revision filed before the Commissioner. The Commissioner in Ext. P1 observed that intimation under Section 143(1) is not an order of assessment for the purpose of Section 264 whereas it is deemed to be a notice of demand under Section 156 as held by the Karnataka High Court in Avasaraja Automation Ltd. v. Deputy Commissioner of Income Tax (2004 (269) ITR 163).

14. The power of the Commissioner of Income Tax to revise orders is dealt with under Section 264. The short question involved in the present lis is whether an intimation issued under Section 143(1) amounts to an order which could be revised under Section 264. In fact, it is relevant to note that there had been some changes in the statutory format over a period of time. Section 143 has undergone certain changes w.e.f. 1/6/1999. The statute uses the word intimation and not order. Section 143(2) further provides that in an instance where a return has been furnished or in response to a notice under Section 142(1), the assessing officer has reason to believe that any claim of loss exemption, deduction, allowance or relief made in the return is inadmissible, it is open for him to serve on the assessee a notice specifying particulars of such claim, loss, exemption, etc. and after conducting such enquiry in terms with sub section (2), the assessing officer can pass an order under Section 143(3). It is in the light of the aforesaid change in the statutory provision that one has to consider the scope and effect of the revisional powers under Section 264. The Delhi High Court in Vijay Gupta (supra) held that an intimation under section 143(1) is regarded as an order for the purpose of section 264 of the Act. Reference was made to the judgments in K.V. Mankaram and Co. (supra), Assam Roofing Ltd. (supra) and S.R. Koshti (supra). But it is relevant to note that there is a modification or change in the statutory format where an intimation under Section 143(1) was deemed to be an order for the purpose of Section 264 at some point of time. This aspect of the matter has been explained by the Kerala High Court in K.V. Mankaram and Co. (supra), wherein, it was held that a proceeding under Section 143(1)(a) is treated as an order by the assessing authority for the purpose of Section 264. The Division Bench was considering the question relating to assessment year 1995-96. The change in the statutory provision had been explained by the Apex Court in Rajesh Jhaveri Stock Brokers P. Ltd. (supra) wherein it is clearly indicated that an intimation sent to the assessee under Section 143(1a) was deemed to be an order for the purpose of Section 264 from 1st October 1991 to 31st May 1999. The Apex Court was in fact considering the question relating to assessment year 2001-02. It was held at paras 12 and 13 as under:—

“12. What were permissible under the first proviso to section 143(1)(a) to be adjusted were, (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return and similarly (iii) those claims which were on the basis of the information available in the return, prima facie inadmissible, were to be rectified/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. The Assessing Officer had no authority to make adjustments or adjudicate upon any debatable issues. In other words, the Assessing Officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief.

13. One thing further to be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from April 1, 1989 to March 31, 1998, the second proviso to section 143(1)(a), required that where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1, 1998 and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word intimation as substituted for assessment that two different concepts emerged.

While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No. 2) Act of 1991 with effect from October 1, 1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No. 2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994, to May 31, 1999, and under section 264 between October 1, 1991, and May 31, 1999. It is to be noted that the expressions intimation and assessment order have been used at different places. The contextual difference between the two expressions has to be understood in the context the expressions are used. Assessment is used as meaning sometimes the computation of income, sometimes the determination of the amount of tax payable and sometimes the whole procedure laid down in the Act for imposing liability upon the tax payer. In the scheme of things, as noted above, the intimation under section 143(I)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(I)(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 Legislature, i.e., to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny 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]. It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment 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 is an emphatic no. 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. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143(1)(a), the question of change of opinion, as contended, does not arise.”

15. The next question to be considered is whether the said intimation being a demand under Section 156 of the Act, can a revision under 264 be filed. Section 156 reads as under:—

“156. Notice of demand.- When any tax, interest, penalty, fine or any other sum is payable in consequence of any order passed under this Act, the Assessing Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum so payable.”

16. It is clear therefore from the statutory provisions that a mere intimation does not amount to an order which could be revised under Section 264. In Parekh Brothers (supra), the question which was considered was whether Section 264 can be invoked for the purpose of making a claim of deduction under Section 35B.

17. The argument is that independent of the notice issued under Section 143(1)(a), if there is failure on the part of the petitioner in making a claim for deduction, whether it is possible for the Commissioner to grant one more opportunity in the matter. It is settled law that the revisional powers are very wide. Petitioner is now faced with a demand which according to the petitioner is liable to be reduced on specific reasons. In Parekh Brothers (supra), this Court held that even if no such claim has been made earlier, such a claim can be entertained by the Commissioner under Section 264. Viewed in that angle, I am of the view that though not as a challenge to Section 143(1) notice, when the petitioner has filed a revised return and has sought for interference by the Commissioner, necessarily the claim has to be considered in accordance with law.

18. In the result, I am of the view that taking cue from Parekh Brothers (supra), the Commissioner will be justified in considering the claim for deduction by the petitioner in accordance with law under Section 264 of the Act.

19. Accordingly, this writ petition is disposed of as under:—

(i) Ext. P1 is set aside.

(ii) The Commissioner of Income Tax is directed to reconsider the matter in accordance with law. This shall be completed within a period of three months from the date of receipt of a copy of this judgment after hearing the petitioner.

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