Madhya Pradesh H.C : The petitioner—an assessee, is engaged in the business of sale of kerosene and transport.

Counsel Appeared

G.M. Chafekar, for the Petitioner : R.L. Jain, for the Respondents

ORDER

A.M. SAPRE, J. :

By filing this writ petition under Arts. 226 and 227 of the Constitution of India, the petitioner—an assessee, has questioned the legality and validity of an order dt. 14th July, 1992 (Annexure C), passed by ITO, Ward 2(3), Indore, under s. 143(1)(a) of the IT Act (for brevity “the Act”). Facts which lie in a narrow compass and which are relevant for the disposal of this writ petition need mention infra. The petitioner—an assessee, is engaged in the business of sale of kerosene and transport. He is also engaged in other kind of businesses which he is carrying on as partner with some other persons. He also owns certain immovable properties which yields yearly income liable to be taxed under the provisions of the IT Act. The petitioner is being assessed to payment of income-tax as an individual. The present petition relates to asst. yr. 1991-92 for which the accounting year is 1st April, 1990, to 31st March, 1991. The petitioner for the year in question (asst. yr. 1991-92 filed his income-tax return on 30th Sept., 1991, in his individual capacity. In the statement of account submitted in the return the petitioner disclosed some of his income to have been received from “Long-term capital gains”. By impugned order dt. 14th July, 1992 (Annexure C), the AO (ITO) in exercise of its power conferred under s. 143(1)(a) of the Act, held that the income shown by the assessee (petitioner) under the head “Long-term capital gains” is not or/and cannot be described to have been received from/under the head income from “Long-term capital gains” but it is in fact an incomereceived from/under the head “Adventure in the nature of trade”. It is against this finding changing the head of sources of income, as referred supra, the petitioner has felt aggrieved and filed this writ petition.

The Revenue has supported the order impugned in the writ petition and has prayed for its dismissal, both on merits and also on the ground of an alternative remedy being available to the petitioner under s. 154(1)(b) of the Act for questioning the correctness and validity of an order passed under s. 143(1)(a) of the Act. Heard Shri G.M. Chafekar, learned senior counsel for petitioner, and Shri R.L. Jain, learned counsel for respondents. Learned counsel for the petitioner while assailing the legality and validity of the order in question, urged that the AO (ITO) did not have any jurisdiction while passing an order under s. 143 (1)(a) of the Act to change the nature of sources of income which the assessee has disclosed in the return. It was his submission that while exercising the powers conferred under s. 143(1)(a), the AO (ITO) cannot equate the assessment proceedings under s. 143(1)(a) of the Act with that of the regular assessment proceedings under s. 143(3), Learned counsel urged that under s.143(1)(a), the AO (ITO) is only empowered to make prima facie adjustment appearing in the statement of return filed by the assessee and that too as enumerated in first proviso to s. 143(1)(b) ibid. It was urged that the change made by the AO (ITO) in the hand “Long-term capital gains” disclosed by the assessee to that of “Adventure in nature of trade” is not permissible under s. 143(1)(a) and hence order to that extent is rendered without jurisdiction and falling outside the perview of s. 143 (1)(a) of the Act requiring it to be set aside. This, in substance, was the submission of learned counsel for the petitioner (assessee).

Learned counsel for the Revenue in reply raised a preliminary objection about the maintainability of the writ. Relying upon s. 154(1)(b) of the Act, learned counsel urged that the remedy of the petitioner (assessee) is to invoke the provisions of s. 154(1)(b) to get rid of impugned order passed under s. 143(1)(a) of the Act rather than to file a writ petition under Arts. 226 and 227 of the Constitution of India. Learned counsel urged that it being a settled principle of law that when the petitioners has a statutory remedy available to raise his grievances, then in that event, writ should not be entertained and if entertained should not be proceeded with on merits. It was, therefore, urged that petitioner should be left to pursue his remedy available to him under the IT Act.Alternatively, it was urged that even otherwise; impugned adjustment made by the AO (ITO) falls within the four corners of s. 143(1)(A) of the Act and hence the AO was perfectly justified in making those adjustments which are impugned in this writ petition. Having heard the learned counsel for the parties and having perused the impugned order, I find force in the submission made by the learned counsel for the petitioner and as a consequence, I am inclined to allow the writ petition and quash the adjustment made in the order of assessment, passed under s. 143(1)(a) of the Act. Coming to the preliminary objection raised by the learned counsel for the respondent-Revenue, I find no merit in it. Once this Court admits the writ petition under Arts. 226 and 227 of the Constitution of India against an order then this Court ordinarily would not dismiss the writ petition essentially on the ground of alternativeremedy. Indeed this issue was examined by their Lordships of Supreme Court in the case L. Hirday Narain vs. ITO (1970) 78 ITR 26 (SC) : AIR 1971 SC 33 : TC 56R.1106, while overruling the preliminary objection so raised by the respondents, this is what their Lordships ruled : “An order under s. 35 of the IT Act is not appealable. It is true that a petition to revise the order could be moved before the CIT. But Hirday Narain moved a petition in the High Court of Allahabad and the High Court entertained that petition. If the High Court had not entertained his petition, Hirday Narain could have moved the CIT in revision, because at the date on which the petition was moved the period prescribed by s. 33A of the Act had not expired. We are unable to hold that because a revision application could have been moved for an order correcting the order of the ITO under s. 35, but was not moved, the High Court would be justified in dismissing as not maintainable the petition, which was entertained and was heard on the merits.”

In view of the aforesaid view taken by their Lordships of Supreme Court, I have no hesitation in overruling the preliminary objection raised by the learned counsel for the Revenue. Perusal of s. 143(1)(a) of the Act and in particular its first proviso shows that the AO is empowered to allow to make following adjustment in the income or loss declared in the return namely : “(i) any arithmetical errors in the return, accounts or documents accompanying it are to 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, is to 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, is to be disallowed.” If I examine the impugned adjustment made by the AO (ITO), I find that they do not fall in any of the category specified supra. The question, whether a particular income disclosed by the assessee to be taxed under a particular head cannot be changed for being taxed under altogether a new source of income under s. 143(1)(a). The impugned adjustment in the present case does not appear to me to be prima facie bad. In the return, assessee disclosed that a particular income is being shown to be received under the head “Long- term capital gains”. This was changed to an income to have been received from an “Adventure in the nature of trade” by the learned AO (ITO). This in my opinion, needed a factual inquiry and could not be termed as a prima facie adjustment within the meaning of s. 143(1)(a), first proviso. This could be done only by issuing proper notice to the assessee or in the regular assessment under s. 143(3) of the Act where assessee would get an opportunity to satisfy the assessing authority that what he has disclosed in the return is correct sources of income and the same cannot be taxed under the head “Adventure in the nature of trade”. Accordingly and in view of the aforesaid discussion, the impugned adjustment, treating the income to have been received under the head “Adventure in the nature of trade” is set aside by issuing a writ of certiorari. As a consequence petition is allowed. No costs, Security amount, if deposited by the petitioner, be refunded.

[Citation : 248 ITR 550]