High Court Of Kerala
Kerala Kaumudi (P) Ltd. vs. CIT
Sections 144B, 147
Asst. Year 1974-75
K.S. Paripoornan & Varghese Kalliath, JJ.
IT Ref. No. 19 of 1986
27th October, 1989
Ramachandran Nair for the Assessee : P.K.R. Menon & N.R.K. Nair for the Revenue
S. PARIPOORNAN, J.:
The Tribunal, Cochin Bench, has referred the following question of law for the decision of this Court at the instance of the assessee :
“Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that s. 144B of the IT Act is applicable while making reassessment under s. 147(b) and whether the reassessment completed on September 20, 1979 is barred by limitation ?”
The respondent is the Revenue. The matter relates to the assessment year 1974-75. The assessee (applicant) is a private limited company in which the public are not substantially interested. The previous year ended on March 31, 1973. Originally, the assessment was completed on June 30, 1975. It was, reopened under s. 147(b) of the IT Act. The reassessment was made on September 20, 1979. After the assessment was reopened, the ITO followed the procedure prescribed under s. 144B of the Act as the intended additions to the returned income were more than Rs. 1 lakh. The assessee filed an appeal before the CIT (Appeals) and put forward the plea that the assessment is barred by limitation. It was stated that s. 144B can be invoked only in the case of an assessment made under s. 143(3) of the Act and it cannot be invoked while completing an assessment initiated in pursuance of s. 147 of the Act. On this basis, it was pleaded that the extra time available under cl. (iv) of the Explanation I to s. 153 of the Act, for completing the assessment to comply with the procedure under s. 144B of the Act was not available, and that in this view, the reassessment made on September 20, 1979 is barred. As the time available, for completing the assessment under s. 153(2)(b) is four years from the end of the asst. yr. 1974-76, it necessitated the assessment to be made before March 31, 1979. But the reassessment was made only on September 20, 1979. It is on the above reasoning that the CIT of Income-tax (Appeals) held that the reassessment was time-barred. The Tribunal held that s. 144B of the Act was applicable to the reassessment made in the case and the reassessment is not, therefore, barred by limitation. It is thereafter, at the instance of the assessee, that the Tribunal has referred the question of law, formulated hereinabove, for the decision of this Court.
3. We heard counsel for the applicant (assessee), Mr. C. N. Ramachandran Nair as also counsel for the respondent (Revenue), Mr. P. K. R. Menon. The main thrust of the argument of the assessee’s counsel was that, in proceedings initiated under s. 147 of the Act, the reference under s. 144B is unauthorised, that the assessment is made only under s. 147 of the Act and that, in this view, the assessment should have been held to be barred by applying s. 153(2)(b) of the Act. Counsel for the Revenue submitted that a fair and proper reading of s. 147 of the Act points out that it is only a machinery provision and once it is invoked, the assessment proceedings start afresh and any assessment to be made can only be under s. 143(3) or 144 of the Act and in this view the reference made under s. 144B of the Act is authorised and the consequential assessment completed on September 20, 1979 is valid under the law.
4. On hearing the rival contentions of the parties, we are of the view that the plea of the Revenue should succeed. For the purpose of understanding the true import of the relevant sections, it will be useful to extract sections 147, 143(3), 144 and 144B of the IT Act, 1961 (the corresponding provisions in the earlier Act, the Indian IT Act, 1922, are ss. 34, 22, and 23). They are as follows : “147. Income escaping assessment.â Ifâ (a) the AO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any assessment year to the AO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or, (b) notwithstanding that there has been no omission or failure as mentioned in cl. (a) on the part of the assessee, the AO has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of ss. 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in ss. 148 to 153 referred to as the relevant assessment year). 143. Assessment. . . (3) On the day specified in the notice issued under sub-s. (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points, and after taking into account all relevant material which he has gathered,â (a) in a case where no assessment has been made under sub-s. (1), the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment; (b) in a case where an assessment has been made under sub-s. (1), if either such assessment has been objected to by the assessee by an application under cl. (a) of sub-s. (2) or the AO is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the AO shall, by an order in writing, make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment. 144. Best judgment assessment. âIf any personâ (a) fails to make the return required by any notice given under sub-s. (2) of s. 139 and has not made a return or a revised return under sub-s. (4) or sub-s. (5) of that section, or (b) fails to comply with all the terms of a notice issued under sub-s. (1) of s. 142 or fails to comply with a direction issued under sub- s. (2A) of that section, or (c) having made a return, fails to comply with all the terms of notice issued under sub-s. (2) of s. 143, the AO, after taking into account all relevant material which the AO has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment. 144B. Reference to Dy. Commr. in certain cases. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-s. (3) of s. 143, the AO proposes to make, before the 1st day of October 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-s. (6), the AO shall, in the first instance, forward draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee. (2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the AO within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the AO may allow on an application made to him in this behalf. (3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the AO the acceptance of the variation, the AO shall complete the assessment on the basis of the draft order. (4) If any objections are received, the AO shall forward the draft order together with the objections to the Dy. CIT and the Dy. CIT shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the AO to enable him to complete the assessment Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard. (5) Every direction issued by the Dy. Commr. under sub-s. (4) shall be binding on the AO. (6) For the purposes of sub-s. (1), the Board may, having egard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit: Provided that different amounts may be fixed for different areas Provided further that the amount fixed under this sub- section shall, in no case, be less than twenty-five thousand rupees. (7) Nothing in this section shall apply to a case where a Dy. Commr. exercises the powers or performs the functions of an AO in pursuance of an order made under s. 125 or s. 125A.”
In this case, we are posed only with the question regarding the legality and propriety of a reference made under s. 144B of the Act, in a proceeding initiated under s. 147 of the Act. Whether the assessment proceedings will revive or will be deemed to continue so as to make applicable s. 143 (3) or s. 144 of the Act is the short question. We are not concerned with the validity or existence of the original assessment order as such, if the initiation of proceedings under s. 147 of the Act results in a reassessment or a (revised) assessment or any other order in particular case. That was the subject-matter of the decision in CIT vs. K. Kesava Reddiar (1989) 76 CTR (Ker) 111 : (1989) 178 ITR 457 (Ker) (See also Chaturvedi and Pithisaria’s Law of Income Tax, Vol. 7, (Supplement), p. 6472).
In CIT vs. Mahaliram Ramjidas (1940) 8 ITR 442 (PC), the Judicial Committee of the Privy Council, at pages 448 and 449, observed as follows: “The section, although it is part of a taxing Act, imposes no charge on the subject, and deals merely with the machinery of assessment … The operative part of s. 34 empowers the ITO to proceed de novo under sub-s. (2) of s. 22, and that in turn leads, if there should still be a question of the accuracy of the return, to an enquiry under s. 23(2) and (3), and in that enquiry the assessee has a statutory right to appear and to produce evidence.”
The above observations were relied on in a decision of the Bombay High Court in Deviprasad Kejriwal vs. CIT (1976) 102 ITR 180 at p. 184. In V. Jaganmohan Rao vs. CIT/CEPT (1970) 75 ITR 373, at page 380, the Supreme Court held as follows : “. . . once assessment is reopened by issuing a notice under sub-s. (2) of s. 22, the previous under-assessment is set aside and the whole assessment proceedings start afresh.” Sec. 148 of the present Act, corresponding to s. 34 of the earlier Act, visualises a notice to be issued under s. 139(2) of the present Act (s. 22 (2) of the old Act). Counsel for the assessee contended that the scheme of s. 147 of the IT Act taken along with the provisions providing for an appeal from an order rendered under s. 147, shows that an independent and additional order of assessment should be passed in proceedings initiated under s. 147 of the Act. It was also argued that proceedings initiated under s. 147 of the Act are distinct and different and the assessment order passed thereon is also a separate and distinct one from the original assessment. Pursuing the logic, counsel contended that if that be so, a reference under s. 144B of the Act is visualised only in the original assessment proceedings for which an order of assessment should be passed under s. 143 of the Act. Since, in this case, the assessment was reopened under s. 147 of the Act, the reference made-under s. 144B of the Act is unauthorised. We see no force in this plea. We are not concerned in this case with the larger question canvassed which was the subject-matter in Kesava Reddiar’s case (supra), referred to above. We are only concerned with the limited question as to whether s. 143(3) or s. 144 of the Act will apply in proceedings initiated under s. 147 of the Act. As stated by the Judicial Committee, when once an assessment is reopened, the proceedings start de novo. It is settled law that as per the scheme of the IT Act, 1961, as it exists at present, there can be only one assessment against a person (in one status), for one year. (See N. Khader Sheriff Saheb’s case (1978) 113 ITR 50 (Mad)). In K. C. Mukherjee vs. CIT (1959) 37 ITR 224 (Pat), delivering the judgment of the Court, Ramaswami C. J., at page 228, stated as follows: “Essentially, the proceeding under s. 34 with regard to the escaped income relate to the same proceeding which is commenced with the publication of the general notice under s. 22(1). In some respects, it may lead to a supplementary assessment and in other cases it May result in an assessment for the first time. There is, however, no justification for the argument that proceedings under s. 34 are separate and distinct proceedings from the original assessment proceedings. I, therefore, reject the argument of learned counsel for the assessee on this point and hold that proceedings under s. 34 essentially relate to the same proceeding which is initiated with the publication of the general notice under s. 22(1) of the Act.” Similarly, in CIT vs. Burmah Oil Co. Ltd. (1963) 47 ITR 25 (Cal), the Court held that there can be only one assessment for each year and the wording of s. 34 of the IT Act itself shows that it is only one assessment, the original and escaped income being one. Proceeding further at page 43, the Court observed as follows : “Essentially, the proceedings under s. 34, whether partially or totally, relate to the same proceeding which must be deemed to have commenced with the publication of the general notice under s. 22(1). In some respects and in some cases it may lead to a supplemental assessment. In other cases, it may result in assessments for the first time, as in this case where there has not been any assessment before. We do not find any justification for the artificial separation of a proceeding under s. 34 from a proceeding relating to the original assessment or to proceedings which started before a notice under s. 34, so long as they all relate to the same assessee and the same period.” A survey of the above decisions establishes that there can be only one assessment for each year, that once proceedings under s. 147 of the Act are initiated by issuing a notice under s. 148 r/w s. 139(2) of the Act, the assessment proceedings start afresh, and that the proceedings for assessment of that year will be pending and will continue until a final order of assessment is rendered. We are not called upon to decide in this case whether, by the issue of a notice for reopening, the previous assessment as such is set aside or only the previous under-assessment alone is set aside. In this case, when the assessment is reopened, s. 143(3) of the Act is attracted and since the intended addition to the returned income was more than one lakh rupees (during the relevant time) it behoved the ITO to refer the matter under s. 144B of the Act. The ITO is mandated by s. 144B of the Act to make such a reference. The Tribunal was justified in holding so.
In the light of the above, we answer the question referred to us in the affirmative, against the assessee and in favour of the Revenue. It is common ground that if the reference under s. 144B of the Act is legal, the assessment is made within the extended period under cl. (iv) of the Explanation I to s. 153 of the Act. The reassessment completed on September 20, 1979 is within the time allowed by law and not barred by limitation. We hold accordingly.
[Citation :181 ITR 30]