2005 (5) TMI 56 - HC - Income Tax

Initiation of the proceeding under section 263 in respect of an order contemplated under section 143(1) was challenged on the ground that in respect of such an order section 263 has no manner of application. - by no stretch of imagination an intimation/acknowledgement under section 143(1)(a) can be treated as an order except as contemplated in the Explanation to section 143 thereof in view of the fiction created thereunder - The fiction is self-explanatory to limit itself to construe an intimation as a deemed order by reason of the fiction only to the extent of sections 246 and 264 and an order amenable to section 264 is outside the purview of section 263. Therefore so long the Explanation to section 143 remains operative an intimation/acknowledgement cannot be treated to be an order for the purpose of exercising power under section 263. Therefore the initiation of the proceeding under section 263 is wholly without jurisdiction and a nullity and void and cannot be sustained.

Issues Involved
1. Applicability of Section 263 of the Income-tax Act, 1961, to an order under Section 143(1).
2. Interpretation of fiscal statutes.
3. Nature and scope of an intimation under Section 143(1)(a).
4. Impact of the Explanation to Section 143.
5. Conditions for invoking Section 263.
6. Distinction between Sections 263 and 264.
7. Legal implications of the Explanation to Section 143 and Section 156.

Detailed Analysis

1. Applicability of Section 263 of the Income-tax Act, 1961, to an order under Section 143(1):
The primary issue is whether Section 263 can be invoked for an intimation issued under Section 143(1). The court held that Section 263 applies to "any erroneous order prejudicial to the Revenue." However, an intimation under Section 143(1) is not an assessment order but a ministerial act. The court concluded that the initiation of proceedings under Section 263 for an intimation under Section 143(1) is without jurisdiction and void.

2. Interpretation of fiscal statutes:
The court emphasized that fiscal statutes must be construed strictly. The court cannot add, subtract, or presume anything beyond the clear language of the statute. The provisions must be interpreted as they stand, and if two meanings are possible, the one beneficial to the assessee should be adopted.

3. Nature and scope of an intimation under Section 143(1)(a):
An intimation under Section 143(1)(a) is merely an acknowledgment of the return filed by the assessee and does not constitute an assessment order. The court noted that the adjustments permissible under Section 143(1)(a) are ministerial acts and do not involve any adjudication or assessment process. The court relied on several precedents to support this view, including Pradeep Kumar Har Saran Lal v. Assessing Officer and CIT v. Punjab National Bank.

4. Impact of the Explanation to Section 143:
The Explanation to Section 143 deems an intimation under Section 143(1) as an order for the purposes of Sections 246 and 264. The court held that this fiction is limited to these sections and cannot be extended to Section 263. The court cited Karimtharuvi Tea Estate Ltd. v. State of Kerala and CIT v. C.P. Sarathy Mudaliar to support the principle that statutory fictions are to be construed strictly and confined to their intended purpose.

5. Conditions for invoking Section 263:
For Section 263 to be invoked, four conditions must be met: (1) there should be a proceeding, (2) an order passed in such proceeding, (3) the order should be erroneous, and (4) the order should be prejudicial to the Revenue. The court found that an intimation under Section 143(1)(a) does not meet these conditions as it is not an order passed in a proceeding, nor does it involve any adjudication that could be erroneous or prejudicial to the Revenue.

6. Distinction between Sections 263 and 264:
Section 264 applies to orders other than those to which Section 263 applies. The court noted that the Explanation to Section 143 treats an intimation as an order only for the purposes of Sections 246 and 264, thereby excluding it from the purview of Section 263. This distinction is crucial in understanding the legislative intent and the scope of these sections.

7. Legal implications of the Explanation to Section 143 and Section 156:
The court explained that Section 156 allows for a notice of demand to be issued where any sum becomes payable by reason of an order passed under the Act. However, an intimation under Section 143(1)(a) is not considered an order, and a fiction is created to treat it as a notice of demand under Section 156. This fiction is limited and does not extend to treating the intimation as an order for the purposes of Section 263.

Conclusion
The court concluded that an intimation under Section 143(1)(a) cannot be treated as an order for the purposes of Section 263. The initiation of proceedings under Section 263 for an intimation under Section 143(1) is without jurisdiction and void. The appeal was allowed, and the order dated July 28, 2003, was set aside. The notice issued under Section 263 and all proceedings thereunder were quashed.

Order
The appeal succeeds, and the writ petition is allowed. The notice under Section 263 and all proceedings pursuant thereto are quashed. No order as to costs.

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