1993 (2) TMI 162 - AT - Income Tax

Summary

Issues Involved:
1. Validity of assessments under section 144 vs. section 143(3).
2. Taxability of excess income under section 11(4).
3. Deletion of interest charged under sections 139(8) and 217(1A).

Detailed Analysis:

1. Validity of Assessments under Section 144 vs. Section 143(3):

The primary issue was whether the assessments should be considered under section 144 (best judgment assessment) or section 143(3) (regular assessment). The Income-tax Officer (ITO) made assessments under section 144 due to the assessee's failure to produce books of account, asserting they were lost in a riot. The Commissioner of Income Tax (Appeals) [CIT (A)] ruled that the assessments should be under section 143(3) as the ITO did not provide evidence that the books were not lost in the riot. The Revenue contended that the assessee should have sought recourse under section 146 to reopen the assessments. The Tribunal upheld the CIT(A)'s decision, stating that the ITO's reliance on notices issued under section 142(1) prior to the filing of returns was misplaced, and no fresh notice was issued post-filing. The Tribunal concluded that the assessments should be considered under section 143(3) as there was no valid default under section 144.

2. Taxability of Excess Income under Section 11(4):

The ITO estimated higher incomes for the trust's cinema business, which were not reflected in the books. The CIT(A) reduced these estimates and allowed expenses on Waqf fees, trustee remuneration, and repairs, leading to the conclusion that the trust applied more than 75% of its income towards charitable purposes, thus qualifying for tax exemption. The Revenue argued that notional income resulting from estimates could not be considered applied towards charity. The Tribunal, however, endorsed the CIT(A)'s view, emphasizing that the law does not expect the impossible, and notional income should be treated as real income for determining application towards charity. Therefore, the excess income was not taxable under section 11(4).

3. Deletion of Interest Charged under Sections 139(8) and 217(1A):

The CIT(A) canceled the interest charged under sections 139(8) and 217(1A), reasoning that the trust was not liable for tax. The Tribunal upheld this decision, noting that judicial consensus supports the right to appeal against interest levies when raised alongside other assessment grounds. The Tribunal found no error in the CIT(A)'s conclusion that interest charges were erroneous since the trust was not liable for tax.

Separate Judgments:

The Accountant Member disagreed on three issues:
1. The validity of assessments under section 144 should not be challenged in a quantum appeal without a petition under section 146.
2. Excess income should be taxable under section 11(4) as it is deemed applied to non-charitable purposes.
3. Interest under sections 139(8) and 217(1A) should be chargeable due to the excess income.

The Third Member agreed with the Accountant Member that the validity of ex parte assessments under section 144 cannot be challenged in a quantum appeal without availing the remedy under section 146. However, the Third Member also concluded that excess income should not affect the trust's exemption under section 11(4) and upheld the deletion of interest charges, aligning with the Judicial Member's view on these points.

Final Decision:

The Tribunal, by majority, held:
1. Assessments should be treated under section 143(3), not section 144.
2. Excess income determined under section 11(4) does not affect the trust's exemption.
3. Interest under sections 139(8) and 217(1A) was rightly deleted.