1997 (4) TMI 506 - AT - Income Tax

Summary

Issues Involved:
1. Levy of additional tax under section 143(1A) in the absence of positive income.
2. Validity of directions by the CIT (Appeals) to issue a notice under section 143(2) after the expiry of the time limit and to complete regular assessment under section 143(3).

Detailed Analysis:

1. Levy of Additional Tax under Section 143(1A):
- Dismissal of Ground No. 1: The assessee's counsel did not press ground No. 1 during the hearing, leading to its dismissal.

2. Validity of Directions by CIT (Appeals) to Issue Notice under Section 143(2):
- Assessee's Argument: The assessee contended that the CIT (Appeals) lacked the power and jurisdiction to direct the Assessing Officer (AO) to issue a notice under section 143(2) after the expiration of the statutory time limit. The directions were deemed invalid as the time limit for issuing such notice had already expired.
- Adjustments Made by AO: The AO had made adjustments under section 143(1A), reducing the declared loss by Rs. 1,02,04,033 and subsequently levied additional tax amounting to Rs. 10,71,423. The adjustments included disallowances under sections 43B, 6B, and entertainment expenses.
- CIT (Appeals) Order: The CIT (Appeals) accepted the assessee's submission that the adjustments made by the AO were debatable and not within the AO's powers under section 143(1A). Consequently, the additional tax was canceled. However, the CIT (Appeals) directed the AO to issue a notice under section 143(2) and make a regular assessment under section 143(3), despite acknowledging that the time limit for issuing such notice had expired.

Para 7 of CIT (Appeals) Order:
> "In the circumstances of the case as indicated above, it appears to me that the Assessing Officer should verify each and every item of the claim for deduction aggregating to Rs. 1,02,04,033. It is required to be seen as to whether the assessee company satisfies the conditions for deduction under section 43B in respect of various items. Therefore, he is directed to issue a notice under section 143(2) and make regular assessment after allowing proper opportunity to the appellant company. The proviso to section 143(2) lays down that no notice under this sub-section shall be served on the assessee after the expiry of the financial year in which the return of income is furnished or the expiry of six months from the end of the month in which the return was so furnished, whichever is later. This time limit is already over. But it appears to me that this time limit is applicable only at the stage of the Assessing Officer. Because of this provision, the Assessing Officer cannot issue a notice under section 143(2) in his own beyond this time limit. It appears to me that this time limit is not applicable to the assessment to be made in pursuance of the directions of the appellate authorities. Therefore, I hold that the time limit laid down in the proviso to section 143(2) will not come in the way of the Assessing Officer in making a regular assessment under section 143(3)."

- Tribunal's Analysis:
- Section 250 and 251 Powers: The Tribunal noted that section 250(4) empowers the CIT (Appeals) to make further inquiries or direct the AO to do so, but only concerning issues necessary for disposing of the appeal. The CIT (Appeals) cannot direct the AO to make an assessment in a particular manner or extend the statutory limitation period for issuing notices under section 143(2).
- Jurisdiction Limitation: Section 251(1)(c) allows the CIT (Appeals) to pass such orders as deemed fit, but only concerning the subject matter of the appeal. Directing the AO to issue a notice under section 143(2) falls outside this scope.
- Exclusive AO Authority: The power to issue notices under section 143(2) is vested solely with the AO. No other authority, including the CIT (Appeals), can issue such notices or direct the AO to do so.
- Time-Barred Notices: The Tribunal emphasized that notices under section 143(2) served after the statutory period are invalid and void. The CIT (Appeals) cannot revive a time-barred remedy or extend the limitation period through appellate directions. This view is supported by precedents from the Supreme Court and High Courts.

- Conclusion: The Tribunal held that the CIT (Appeals) had no jurisdiction to direct the AO to issue a notice under section 143(2) or to extend the limitation period for such notices. The directions given by the CIT (Appeals) were declared invalid and void.

Result:
- The assessee's appeal was allowed. The directions by the CIT (Appeals) to issue a notice under section 143(2) and to complete the assessment under section 143(3) were deleted and expunged.