2008 (4) TMI 276 - HC - Income Tax

In view of CBDT Circular no. 549 AO should issue intimation u/s 143(1) before issuance of notice u/s 143(2) it is not open to AO to make prima facie adjustment u/s 143(1) after issuance of notice u/s 143(2) further as required u/s 253(4) the ITAT should have disposed of memorandum of cross-objection as if it were an appeal presented before it ITAT was not correct in holding that the cross-objection filed by assessee supported the action of CIT(A) and became academic and infructuous

Issues Involved:
1. Whether the cross-objection filed by the appellant had become academic and infructuous.
2. Whether the Assessing Officer can make adjustments or pass an order under section 143(1) of the Act after issuing a notice under section 143(2) of the Act.

Issue-wise Detailed Analysis:

Issue 1: Whether the cross-objection filed by the appellant had become academic and infructuous.
The appellant, a public limited company, filed a return for the assessment year 1997-98, which was later revised. The Assessing Officer initiated proceedings under section 143(2) of the Income-tax Act, 1961, and subsequently processed the return under section 143(1), making various adjustments and additions. The appellant challenged this before the Commissioner of Income-tax (Appeals) [CIT(A)], who allowed the first contention but upheld the Assessing Officer's authority to make adjustments even after initiating proceedings under section 143(2). The appellant filed a cross-objection against this, which the Income-tax Appellate Tribunal (ITAT) dismissed as academic and infructuous.

The court observed that the grounds taken in the cross-objection clearly challenged the decision of the CIT(A), particularly on the issuance of intimation under section 143(1) after initiating proceedings under section 143(2). The ITAT's observation that the cross-objection only supported the CIT(A)'s action was contrary to the record. Under section 253(4) of the Act, the ITAT should have disposed of the cross-objection as if it were an appeal. Therefore, the ITAT erred in holding the cross-objection as academic and infructuous.

Issue 2: Whether the Assessing Officer can make adjustments or pass an order under section 143(1) of the Act after issuing a notice under section 143(2) of the Act.
The court examined the relevant provisions of sections 143(1), 143(2), and 143(3) of the Act. It noted that section 143(1)(a) authorizes the Assessing Officer to make prima facie adjustments to the return of income, without prejudice to the provisions of section 143(2). However, once a notice under section 143(2) is issued, the Assessing Officer is bound to make an assessment under section 143(3), and cannot issue an intimation under section 143(1)(a).

The court referred to judicial precedents, including the Gujarat High Court in Gujarat Poly-AVX Electronics Ltd. and the Calcutta High Court in Modern Fibotex India Ltd., which held that after issuing a notice under section 143(2), the Assessing Officer cannot make adjustments or pass an order under section 143(1). The Supreme Court in CIT v. Gujarat Electricity Board further clarified that a regular assessment proceeding under section 143(2) precludes the need for a summary proceeding under section 143(1)(a).

The court concluded that the Assessing Officer cannot make adjustments under section 143(1) after issuing a notice under section 143(2). Therefore, the ITAT's order was set aside, and the appeal was allowed.

Conclusion:
The appeal was allowed, and the ITAT's order dated November 25, 2002, was set aside. The court ruled that the cross-objection was not academic and infructuous and that the Assessing Officer cannot make adjustments under section 143(1) after issuing a notice under section 143(2). There was no order as to costs.

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