2024 (5) TMI 705 - HC - Income Tax

Demand of additional tax on simple processing of income - Applicability of provision of Section 143(1A) where assessment may have been completed u/s 143(3) - HELD THAT - The opening words of Section 143(1A) are unequivocally clear. The legislature clearly intended to apply that provision of law to a case where a loss declared in the return is reduced or converted to income as a result of adjustments made u/s 143(1)(a) only. Therefore, by necessary implication the said provision would not apply to a case where such adjustment may be made as a result of scrutiny assessment made u/s 143(3) of the Act. As to the submission that the non-compliance made by the assessee would survive for consideration despite subsequent assessment made, we are unable to accept the submission being advanced by learned counsel for the revenue. It is a sine qua non under the Act, that an assessee may be assessed only once. Summary assessment may arise and survive and the consequence of its non-compliance noted u/s 143(1)(a) of the Act may also survive for consideration for the purpose of invocation of Section 143(1A), in a case where the intimation issued u/s 143(1)(a) may not have been set aside. Those would be cases where despite issuance of intimation u/s 143(1)(a) of the Act, notice may be issued to an assessee in terms of Section 143(2) of the Act. If assessment proceeding had thus arisen in linear progression of the assessment proceedings, different considerations would arise. However, in these facts, material difference had arisen. Here, intimation issued u/s 143(1)(a) itself was set aside by the C.I.T. (A). Once the intimation stood set aside, it could never be said with any conviction that any adjustment made under Clause a(1) of section 143 survived. Once the object i.e. the intimation stood removed, its shadow i.e. the consequence could not survive. In view of the surviving limitation to file a revised return, the assessee was within its rights to file the revised return on 06.09.1996. It would also have been another case, where that Assessing Officer may have chosen to still process the return. However, the AO chose to initiate scrutiny assessment proceeding under Section 143(3) of the Act. That course adopted by the Assessing Authority itself destroyed completely, the basis to invoke section 143(1A), in the present facts. On general principle, it is fundamental to the scheme of the Act, that there may only arise one assessment order for one assessment year in the case of any assessee. Once that assessment order came to be passed under Section 143(3) of the Act, it is the only that assessment order that may be enforced against the assessee. The intimation issued under Section 143(1) (a) of the Act, prior in time, lost its effect and stood subsumed in the subsequent scrutiny assessment order. Therefore, it could never be looked at independently for the purpose of imposition of demand of additional tax. As noted above, processing of a return u/s 143(1)(a) of the Act is not an assessment order. Decided in favour of the assessee and against the revenue.

Summary

Issues Involved:
1. Validity of levying additional tax with reference to the loss shown in the original return after a revised return was filed.
2. Correctness of the Tribunal's inference about the assessee's bona fide in filing the revised return and upholding the levy of additional tax u/s 143(1A).

Summary:

Issue 1: Validity of Levying Additional Tax with Reference to the Original Return

The appeal questions the validity of the additional tax levied u/s 143(1A) of the Income Tax Act, 1961, based on the original return, which was revised later. The court noted that the original intimation dated 28.02.1996 under Section 143(1)(a) was set aside by the CIT (Appeals) on 16.07.1996, and the matter was remitted for fresh proceedings. Consequently, the original return became pending, and the assessee filed a revised return on 06.09.1996. The revised return was not rejected, and scrutiny assessment proceedings u/s 143(3) were initiated, leading to a regular assessment order on 06.03.1998. The court found that once the original intimation was set aside, any adjustments made under Section 143(1)(a) did not survive, and thus, the basis to invoke Section 143(1A) was destroyed.

Issue 2: Correctness of Tribunal's Inference and Levy of Additional Tax

The Tribunal had drawn an adverse inference about the assessee's bona fide in filing the revised return and upheld the levy of additional tax u/s 143(1A). The court clarified that Section 143(1A) applies only to adjustments made under Section 143(1)(a) and not to scrutiny assessments under Section 143(3). The court emphasized that once an assessment order is passed u/s 143(3), it subsumes any prior intimation issued under Section 143(1)(a). Therefore, the additional tax levied based on the original return's exaggerated loss claim could not be sustained after the scrutiny assessment concluded.

Conclusion:

The court answered both questions in favor of the assessee and against the revenue, allowing the appeal and setting aside the additional tax demand.