2003 (4) TMI 83 - HC - Income Tax

The notices issued under section 154 of the Income-tax Act, 1961, seeking to rectify summary assessments made under section 143(1)(a) of the aforesaid Act for the assessment years 1990-91, 1992 93, 1993-94 and 1994-95 are under challenge in this writ petition. - In so far as the submission of Mr. Saha that the petitioner should be relegated to the departmental proceedings, the straight and simple answer is that an unjustified notice is a bad notice and there is no reason why the petitioner should wait until rectification is carried out under section 154 of the Act. - For the aforesaid reasons, the notices under section 154 seeking to rectify the intimation under section 143(1)(a) for the assessment years 1990-91, 1992-93, 1993-94 and 1994-95 are quashed.

Issues Involved:
1. Validity of notices issued under section 154 of the Income-tax Act, 1961, for rectifying summary assessments made under section 143(1)(a).
2. The applicability of the Supreme Court judgment in the case of Associated Power Co. Ltd. v. CIT to the rectification process.
3. The impact of issuing notices under section 143(2) on the validity of rectifying intimation under section 143(1)(a).
4. The principle of merger of summary assessment into regular assessment.
5. The relevance of CBDT Circular No. 68, dated November 17, 1971, in the context of rectification based on subsequent judicial decisions.

Detailed Analysis:

1. Validity of Notices Issued Under Section 154:
The petitioner challenged the notices issued under section 154 of the Income-tax Act, 1961, which sought to rectify summary assessments made under section 143(1)(a) for the assessment years 1990-91, 1992-93, 1993-94, and 1994-95. The court concluded that these notices were unjustified and quashed them, stating that an unjustified notice is a bad notice, and there is no reason why the petitioner should wait until rectification is carried out under section 154 of the Act.

2. Applicability of the Supreme Court Judgment:
The notices under section 154 were based on a judgment of the Supreme Court in the case of Associated Power Co. Ltd. v. CIT, wherein the apex court held that appropriation to contingency reserve account is not an allowable business expenditure. The court noted that the said judgment was delivered after the intimations under section 143(1)(a) were issued, raising the question of whether it is permissible to rectify an assessment based on a subsequent court decision. The court referred to its earlier unreported judgment in Geo Miller and Co. Ltd. v. Deputy CIT, which answered this question in the negative.

3. Impact of Notices Under Section 143(2):
Dr. Pal argued that once notices under section 143(2) were issued for regular assessments, the intimation under section 143(1)(a) could not be rectified under section 154. The court supported this view by referring to the Division Bench judgment in CIT v. Coventry Spring and Co. Ltd., which held that intimation under section 143(1)(a) cannot be rectified under section 154 after the issuance of notice under section 143(2). The court also cited the Supreme Court decision in CIT v. Gujarat Electricity Board, which held that issuing a notice under section 143(2) precludes the issuance of an intimation under section 143(1)(a).

4. Principle of Merger:
The court discussed the principle of merger, stating that the intimation issued under section 143(1)(a) merges into the regular assessment order under section 143(3). For the assessment years 1990-91 and 1992-93, regular assessments were completed, and the only effective and operative order was the one passed under section 143(3). The court cited several judgments, including CIT v. Amritlal Bhogilal and Co., to support the view that the original decision merges into the appellate decision, making the latter the operative order.

5. Relevance of CBDT Circular No. 68:
Mr. Saha, representing the Revenue, relied on CBDT Circular No. 68, which stated that rectification could be made based on a subsequent decision of the Supreme Court. However, the court referred to the Supreme Court judgment in Hindustan Aeronautics Ltd. v. CIT, which held that when the Supreme Court or High Court has declared the law, it is not open to a court to direct that a circular should be given effect to instead of the judicial decision. Therefore, the circular could not override the judicial pronouncements.

Conclusion:
The court quashed the notices issued under section 154 seeking to rectify the intimation under section 143(1)(a) for the assessment years 1990-91, 1992-93, 1993-94, and 1994-95. The court held that rectification based on a subsequent Supreme Court decision was not permissible, and the issuance of notices under section 143(2) precluded rectification under section 143(1)(a). The principle of merger further rendered the intimation under section 143(1)(a) ineffective once regular assessment under section 143(3) was completed. The CBDT circular could not override the judicial decisions.

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