1999 (2) TMI 48 - HC - Income Tax

Issues Involved:
1. Jurisdiction of the Assessing Officer in issuing intimation under section 143(1)(a) after issuing notice under section 143(2).
2. Validity of prima facie adjustments made by the Assessing Officer.
3. Interpretation of sections 143(1)(a) and 143(2) of the Income-tax Act, 1961.
4. Compliance with principles of natural justice.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer in issuing intimation under section 143(1)(a) after issuing notice under section 143(2):

The primary legal issue was whether the Assessing Officer (AO) had the jurisdiction to issue an intimation under section 143(1)(a) of the Income-tax Act, 1961, after a notice under section 143(2) had already been issued. The Tribunal relied on the Calcutta High Court decision in Modern Fibotex India Ltd. v. Dy. CIT [1995] 212 ITR 496, which held that once a notice under section 143(2) is issued, the AO cannot proceed with prima facie adjustments and issue an intimation under section 143(1)(a). The High Court agreed with this interpretation, emphasizing that the issuance of a notice under section 143(2) indicates that the AO is proceeding with a scrutiny assessment, and thus, issuing an intimation under section 143(1)(a) would be against the principles of natural justice.

2. Validity of prima facie adjustments made by the Assessing Officer:

The AO made adjustments to the assessee's return, reducing the declared loss by Rs. 2,61,46,500, which included depreciation on building and plant & machinery not shown in the balance sheet, and entertainment expenditure. The Tribunal quashed the intimation under section 143(1)(a) on the grounds that such adjustments and the subsequent intimation were without jurisdiction once the notice under section 143(2) was issued. The High Court upheld this view, indicating that the AO's action in making these adjustments and issuing the intimation was not justified.

3. Interpretation of sections 143(1)(a) and 143(2) of the Income-tax Act, 1961:

The High Court provided a detailed interpretation of sections 143(1)(a) and 143(2). Section 143(1)(a) allows the AO to make adjustments based on the return filed and issue an intimation, which acts as a demand notice under section 156. However, this is "without prejudice to the provisions of sub-section (2)," meaning that if a notice under section 143(2) has been issued, the AO should not resort to section 143(1)(a). The Court emphasized that the legislative intent was to ensure that the AO, after initiating scrutiny under section 143(2), should proceed with a regular assessment under section 143(3) and not revert to the summary assessment process of section 143(1)(a).

4. Compliance with principles of natural justice:

The Court highlighted that switching from a scrutiny assessment process (section 143(2)) to a summary adjustment and intimation (section 143(1)(a)) would take the assessee by surprise and violate principles of natural justice. The Court noted that the expression "without prejudice to the provisions of sub-section (2)" in section 143(1)(a) preserves the AO's power to proceed with a regular assessment under section 143(2), ensuring that the assessee has an opportunity to be heard and present evidence.

Conclusion:

The High Court concluded that the AO's action of issuing an intimation under section 143(1)(a) after initiating proceedings under section 143(2) was not in accordance with the law. The Tribunal's decision to quash the intimation was upheld, and the reference was answered in favor of the assessee and against the Revenue. The judgment emphasized the importance of adhering to procedural fairness and the correct interpretation of statutory provisions to ensure justice.

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