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2008 Supreme(Ori) 218
2008 (II) OLR — 175
THE CHIEF JUSTICE AND B.N. MAHAPATRA, J.
Tata Sponge Iron Limited, Keonjhar, Orissa... Appellant
Versus
Commissioner of Income Tax Sambalpur, Orissa... Respondent
I.T.A. No.17 of 2003
Decided on 24th April, 2008.
For Appellant:M/s. M. K. Badu and S. N. Ratho
For Opp. Parties:Standing Counsel (I.T.)
Headnote:INCOME TAX ACT, 1961 - Sec. 143(1), 143(2) - Whether after issuance of notice under Sec. 143(2) of the Act, it is not open to the Assessing Officer to make adjustments or pass an order under Sec. 143(1) of the Act ? - Held, after issuance of notice under Sec. 143(2) of the Act, it is not open to the Assessing Officer to make adjustments as provided under Sec. 143(1) of the Act and to issue intimation under the said section.
A plain reading of the provisions of Section 143(1)(a) makes it clear that the Assessing Officer is authorized to make prima facie adjustments to the return of income which is without preju¬dice to the provisions of Sub-section (2) of Section 143 of the Act. The role of the Assessing Officer to proceed under Section 143(2) is preserved despite intimation to the assessee under Section 143(1) of the Act. The Assessing Officer is under no obligation to accept the return filed by the assessee in case of any doubt. Assessing Officer has option to call upon the assessee to produce materials and evidence in support of his return. Notice under Section 143(2) is issued with a view to ensure that the assessee has not under-stated income or has not computed the excessive loss or has not paid any tax in any manner. Once notice under Section 143(2) of the Act is issued to make regular assess¬ment under Section 143 (3) of the Act, the Assessing Officer is bound to make assessment under Section 143 of the act. Thus, issuance of notice under Section 143(2) of the Act suggests that the Assessing Officer is determined to make assessment under Section 143 (3) of the Act. Processing return under Section 143(1) does not act as bar to make assessment under Section 143(3) which is regular assessment. Further, while processing the return filed by the assessee under Section 143(1)(a), if any prima facie adjustment is made resulting in increase of income or the reduction of loss declared in the return further tax @ 20% on the income so increased or further tax of 20% on the loss so reduced as if it is income of the assessee it shall be charged as per Sub-section (1A) of Section 143 of the Act. Such a provision is made with a view to create awareness among the tax payers to take necessary care so that no incorrect return of income is submitted with a view to save additional tax which may be imposed on them. This additional tax is not leviable when an assessment order is passed under Section 143(3) of the Act. Thus, what is not permissible under Section 143(3) of the Act cannot be made permissible by allowing the Assessing Officer to resort to Sec¬tion 143(1) of the act. What cannot be done directly cannot be done indirectlty. (Paras - 7 to 12)
JUDGMENT
B. N. MAHAPATRA, J. — This appeal is directed against the Order dated 25.11.2002 passed by the Income Tax Appellate Tribu¬nal, Cuttack (hereinafter referred to as ‘ITAT)) in ITA No.401(CTK)/98 and C.O. No.109 (CTK)/1998. This Court has admit¬ted the appeal on the following substantial questions of law:
(i) Whether on the facts and in the circumstances of the case, the learned Income Tax Appellate Tribunal is right in holding that the cross objection filed by the Appellant had become aca¬demic and infructuous ?
(ii) Whether after issuance of notice under Section 143(2) of the Act, it is not open to the assessing officer to make adjustments or pass an order under Section 143(1) of the Act, and he has to make the assessment under Section 143(3) of the Act ?
2. The relevant facts, in nutshell, which give rise to the present appeal are as follows :-
The appellant is a Public Limited Company engaged in busi¬ness of manufacture and sale of sponge iron. It was incorporated under the Companies Act, 1956 on 31.07.2005 and assessed to income tax since the assessment year 1984-85. The appellant filed return under Section 139 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) for the assessment year 1997-98 on 26.09.1997 and subsequently revised it by return dated 30.12.1997. The return was accompanied by audited profit and loss account and balance sheet as well as tax audit report. On receipt of the return the assessing officer has initiated proceedings of assessment by issuing notice under Section 143(2) of the Act on 19.2.1998 and 18.3.1998 posting the case for hearing. The assess¬ing officer thereafter processed the return under Section 143 (1) of the Act on 31.3.1998. While processing the return under Sec¬tion 143 (1) of the Act, the learned Assessing Officer made various adjustments in respect of loss of capital investment, interest due, depreciation of guest house and salary of guest house staff and has enclosed an explanatory note to the intima¬tion in respect of said adjustments. The Assessing Officer made addition of Rs.95,73,489/- to the return of income while process¬ing the return. He also levied additional income tax amounting to Rs.8,23,318/- @ 20% of the income tax and surcharge due on the addition of Rs.95,73,489/- made to the return of income as pro¬vided under Sub-section (1A) of Section 143 of the Act. Being dissatisfied with the intimation issued under Section 143(1)(a) of the Act, the appellant preferred an appeal before the Commis¬sioner of Income Tax (Appeals), Orissa (hereinafter referred to as ‘CIT (A)’) basically on the two grounds, i.e., (i) the prima facie adjustment made under different heads was outside the pur¬view of Section 143(1)(a), and (ii) issuance of intimation under Section 143(1)(a) of the Act subsequent to initiation of proceed¬ing for completion of assessment under Section 143(3) of the Act by issue of notice under Section 143(2) of the Act was bad in law.
The learned CIT(A) after relying on some judicial pronounce¬ments allowed the first contention by holding that the adjustment effected by the Assessing Officer in respect of various items did not come within the purview of Section 143(1)(a) of the Act. However, interpreting provisions contained in Section 143(1)(a)(i) held that the said provisions clearly authorized the Assessing Officer to make prima facie adjustments even after initiation of proceedings under Section 143(2) of the Act. Against the order of CIT (A), the Department went in appeal before the learned ITAT. The present appellant also filed cross objection inter alia on the ground that once the proceeding under Section 143(2) was initiated, resort to Section 143(1) thereaf¬ter is bad in law. The learned ITAT vide its order dated 25.11.2002 allowed the appeal filed by the Department holding that CIT(A) was not justified in granting relief claimed on account of depreciation of guest house and salary and wages paid for the maintenance of guest house. The learned
