1994 (6) TMI 40 - AT - Income Tax

Summary

Issues Involved:

1. Legality and validity of the assessment proceedings.
2. Adjustments made by the Assessing Officer (AO) under section 143(1)(a) of the Income Tax Act.
3. Issuance of notice under section 143(2) of the Income Tax Act.
4. Application of section 115J of the Income Tax Act.
5. Treatment of various additions and disallowances.
6. Levy of interest under section 234B of the Income Tax Act.

Detailed Analysis:

1. Legality and Validity of the Assessment Proceedings:

The assessee, a limited company, challenged the order of the CIT (Appeals) which upheld the legality and validity of the assessment proceedings initiated by the AO. The assessee contended that the assessment proceedings were illegal and arbitrary. The CIT (Appeals) observed that the assessee did not file any rectification application, appeal, or revision petition against the intimation dated 11-3-1991. The CIT (Appeals) also noted that the AO's actions were in line with the legal provisions and upheld the validity of the assessment.

2. Adjustments Made by the Assessing Officer (AO) under Section 143(1)(a):

The AO prepared an intimation under section 143(1)(a) on 11-3-1991, accepting the income returned by the assessee based on section 115J. The AO attached an 'Adjustment Explanatory Statement' detailing various adjustments. The assessee argued that these adjustments were not prima facie and required a hearing, thus the intimation should be treated as an assessment under section 143(3). The Tribunal referred to several decisions where it was held that prima facie adjustments do not include disallowances requiring further information from the assessee.

3. Issuance of Notice under Section 143(2):

The AO issued a notice under section 143(2) on 14-6-1991, to which the assessee responded. The assessment under section 143(3) was framed on 30-3-1993. The CIT (Appeals) and the Tribunal observed that the AO is empowered to issue a notice under section 143(2) irrespective of whether an intimation under section 143(1)(a) was sent. The Tribunal emphasized that the notice under section 143(2) is necessary to ensure the correctness and completeness of the return.

4. Application of Section 115J:

The AO computed the book profits under section 115J and objected to certain deductions. The Tribunal noted that section 115J is a presumptive income provision requiring the AO to compute the total income under the Act and compare it with 30% of the book profits. The Tribunal concluded that the AO must issue a notice under section 143(2) before applying section 115J, as it involves a detailed examination of accounts.

5. Treatment of Various Additions and Disallowances:

The AO made several disallowances and adjustments, including those under sections 37(2A), 43B, 80G, and 80M. The Tribunal observed that some adjustments, such as those under section 43B, required further information from the assessee and could not be considered prima facie adjustments. The Tribunal held that these adjustments were not permissible under section 143(1)(a) and should have been addressed through a notice under section 143(2).

6. Levy of Interest under Section 234B:

The Tribunal did not specifically address the issue of the levy of interest under section 234B in detail, as the primary focus was on the legality and validity of the assessment proceedings and the adjustments made by the AO.

Conclusion:

The Tribunal concluded that the AO's actions in the adjustment explanatory sheet were not mere calculations but involved adjustments that required further information, thus not permissible under section 143(1)(a). The Tribunal held that the AO should have issued a notice under section 143(2) before applying section 115J. Consequently, the Tribunal quashed the present assessment proceedings as illegal and invalid. The appeal was allowed in part, and the necessity of examining the issue on its merits was not felt.