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TMI Blog2005 (1) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... for a separate assessment of undisclosed income are no more applicable on searches initiated after 31-5-2003), therefore, one has to follow the procedure laid down there. Essentially, therefore, there is no choice to apply part of the section and leave the other part when the effect has to be given to the scheme contained in the whole section i.e. section 143(2) of the Act along with the proviso. Proviso, therefore, cannot be divorced from the main section. It has to be construed with reference to the preceding parts of the section to which it is appended and as subordinate to the main provisions of the Act. It has been said that there is no rule that an Act containing a proviso is to be construed as to its first or enacting part without reference to the proviso. The section must be construed as a whole, each portion throwing light on the rest. Section 148 confers jurisdiction merely to issue notice, calling for a return, in cases where income has escaped assessment, for making assessment or reassessment as provided u/s 147. This section however does not make the assessment or reassessment mandatory but leaves it to the discretion of the Assessing Officer when read with section 147 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... statutory period provided u/s 143(2) of the Act. The Assessing Officer had lost its jurisdiction to make assessment u/s 143(3), read with section 147 of the Act in the light of the decision reached by the Special Bench. The interveners shall have the orders in their appeals from the respective Benches as the only purpose of granting an intervention, is to entitle the interveners to address arguments in support of one or the other side. This is so held by the Apex Court in Saraswati Industrial Syndicate Ltd. v. CIT [ 1999 (3) TMI 3 - SUPREME COURT] . Since we have decided in assessee's favour the interveners may take advantage of that order. In the result, the appeals stand allowed. - HON'BLE N.V. VASUDEVAN, J.M., PRADEEP PARIKH, A.M. AND B.R. JAIN, A.M. For the Appellant : K. Sampath, Dinesh Gupta, Ripudaman, Pradeep Gupta and Vithal Das, Advs. For the Respondent : Rajnish Kumar, Sanjay Kumar and Kumar Sanjay, Advs. ORDER B.R. Jain, Accountant Member. 1 . A Special Bench was constituted by the Hon'ble President, Income Tax Appellate Tribunal, under section 255(3) of the Income-tax Act, 1961 (the Act) to hear the appeals in the cases of S/Shri Raj Kumar Chawla, Rajiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel further placed reliance on the decision of Punjab Haryana High Court in the case of Mrs. Rama Sinha v. CIT [2002] 256 ITR 481, where the Hon'ble Court upheld the contention that once a notice under section 148 of the Act is issued, the assessment has to be completed under section 147 and not under section 143(3) is totally devoid of any merits. The Hon'ble Court also observed that the position was the same even prior to the amendment of section 148 with effect from April 1, 1989 and as the return filed in response to notice under section 148 has to be treated as if it has been filed under section 139, the procedural provisions for making an assessment under section 143(3) of the Act also come into play. 4. It has further been contended that the view taken by the Full Bench of the Kerala High Court in Mrs. tally Jacob v. ITO [1992] 197 ITR 439 that any assessment made for the first time by resort to section 147 will also be a regular assessment for the purpose of invoking section 217 of the Act. This decision has been confirmed by the Apex Court in the judgment in K. Govindan Sons v. CIT [2001] 247 ITR 192. 5. Learned counsel cited judgments in the case of Orissa St ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... antasetty v. CIT [1986] 160 ITR 517 (Kar.). 7. Learned counsel also contends that the decision of Agra Bench of the Tribunal in Chander Bhan Bansal v. Dy. CIT [2001] 79 ITD 639, was relevant to assessment year 1988-89 and the Tribunal while holding proviso to section 143(2) as a substantive law, missed the mandatory provision of section 148 which deems such a return as if it were a return under section 139 of the Act. The Bench at Agra in Asstt. CIT v. Baikunth Nath Singhal [2004] 89 ITD 109, did not follow this earlier decision. Likewise, Delhi Bench of the Tribunal in Vishal Gupta v. Jt. CIT in [ITA Nos. 3256 to 3260 (Delhi) of 2000, dated 23-10-2001] have taken a view favourable to the assessee. The decision of Special Bench of Lucknow in Nawal Kishore Sons Jewellers v. Dy. CIT [2003] 87 ITD 407 is with respect to block assessment procedure prescribed under Chapter XIV-B which contains special procedure. This judgment has no application to the returns filed pursuant to notice under section 148. He, therefore, concludes his submissions by saying that the first question in the present appeals is covered by the judgments of Supreme Court and various High Courts and keeping in view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be followed to the extent possible. Reference was made to the judgment of Delhi High Court in R. Dalmia v. CIT [1992] 194 ITR 700, for the proposition that the expression so far as may be applies to all the provisions and at page 721 of the report the Hon'ble Court has observed: How can it be that Parliament would have applied the provisions of section 144B to assessment under section 143(3) of the Act and not to those under sections 147 and 148 of the Act. 11. It has further been stated that the Apex Court in R. Dalmia v. CIT [1999] 236 ITR 480, has held that in making assessment and re-assessments under section 147, the procedure laid down in sections subsequent to section 139, including that laid down by section 144B has to be followed. The expression has to be followed used in this judgment has the mandate of the Apex Court and therefore one has to confine to such a mandate. Reliance was placed on the judgment of ITC v. CCE [2004] 171 ELT (4)445 (sic). For the analogous expression so far as may be appearing in Chapter IV of the Act, reliance was also placed on another judgment of the Supreme Court in C.A. Abraham v. ITO [1961] 41 ITR 425. In the present appeals, the reven ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Vipin Khanna v. CIT [2002] 255 ITR 220 (Punj. Har.), for the proposition that service of notice within twelve months period as per proviso to section 143(2) is essential. Non-service of notice would render the return invalid. Cases cited are Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC) and AC. Metal Works v. CIT [1967] 66 ITR 14 (Raj.). It is a jurisdictional requirement to serve notice within the period specified. Lack of jurisdiction cannot be repaired. Assessee cannot confer jurisdiction where limitation has expired. In P.V. Doshi v. CIT [1978] 113 ITR 22 (Guj.), difference in irregularity and illegality has been explained. In K.M. Sharma v. ITO [2002] 254 ITR 772 (SC), it has been held that a provision regulating period of limitation must receive strict construction. 16. Shri Rastogi also filed the analysis of Lucknow Special Bench order in Nawal Kishore Sons, Jewellers v. Dy. CIT [2003] 87 ITD 407. The judgment of the Special Bench was that in contradistinction to the assessment under section 143(3), where jurisdiction is assumed by issue of notice under section 143(2) within the time specified, under section 158BC, the power of jurisdiction to make assessment is duly ve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stly authorized to serve a notice, in the circumstances mentioned therein, on the assessee or the principal officer of the company, if the assessee is a company, which notice may contain all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and upon the service of such a notice, the Income-tax Officer is authorized to take proceedings for assessment, or reassessment or re-computation. Then comes the direction that the provisions of the Act shall, so far as may be, apply accordingly as if the notice were a notice issued under sub-section (2) of section 22 of the Act This section thus contains a fiction of law which has been introduced for the purpose of making the procedure laid down in section 23 of the Act applicable to the proceedings for assessment, reassessment or re-computation taken by the Income-tax Officer in pursuance of a notice issued under section 34(1)(a). The fiction of law is introduced by using the words as if the notice were a notice issued under that sub-section. Clearly the effect of this fiction of law is that, even though a notice under section 34(1)(a) is different from a notice under sub-section (2) of section 22 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sub-section (1) of section 142 of the Act. 20.2 There are preconditions to be satisfied before the Assessing Officer can assume jurisdiction to start proceedings under section 148, which would lead to filing of such returns. 20.3 As per the provisions of section 139 of the Act, a person has to furnish a return of income by the specified date, if his income or the income of the other person in respect of which he is assessable, exceeds the amount which is not chargeable to income-tax. 20.4 Thus the initiation of proceedings under sections 139 and 148 are quite different and distinct. The purpose of proceedings under section 148 is to bring to tax income, which has escaped assessment. Thus, by looking at the very nature of both the proceedings, it is obvious that the proceedings under section 148 are initiated to correct the omissions creeping in the total income determined in the proceedings initiated after returns furnished under section 139 or 142(1) or ex parte assessments in pursuance of notice under section 142(1). 20.5 In the case of a return furnished under section 139 or in response to a notice under section 142(1) of the Act, the Assessing Officer has to take recourse to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, the applicability of these provisions is restricted only as per the requirement to make assessment. 20.10 The phrase 'so far as may be' indicates that only those provisions, which facilitate the achieving of the objective of making an assessment shall apply. Section 143(2) incorporates the requirement of 'Audi alteram partem', i.e., right of being heard. This requirement is the essence of making an assessment. Therefore, notice under section 143(2) is required to be served in a case where the return has been filed but the limitation of time for service of this notice would have no application in making the assessment so it is not required to be taken into consideration - Dr. Pratap Singh v. Director of Enforcement [1985] 155 ITR 166 (SC). 20.11 The proviso to sub-section (2) of section 143 was brought into the statute w.e.f. 1-4-1989 and later amended w.e.f. 1-10-1991. According to the explanatory note circulated vide Circular No. 549, dated 31-10-1989, the purpose was to impose a time-limit for the Assessing Officer to reach a decision whether he considers that notice under section 143(2) is required to be issued in respect of a return furnished under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs. There is no corresponding amendment in the proviso. The Assessing Officer is under obligation to pass assessment order within one year but the assessee may furnish the required return at the fag end just before the order is passed. In terms of the proviso the Assessing Officer would have time to issue, notice which would extend much beyond the limitation date. It shows that the Legislature never thought of making the said proviso applicable to the proceedings under section 148. Otherwise, the period laid down in the said proviso would have been suitably reduced in conformity with the amendment in section 153(2) of the Act. 20.15 All the relevant provisions have to be construed harmoniously to make the machinery workable. The taxpayer does not have a vested right in the procedural provisions. The Kerala High Court in the case of CIT v. Commonwealth Trust (India) Ltd. [1996] 221 ITR 474, 480 observed that a resume of the legal situation re-emphasises the basic principles that the law of procedure has to be approached, understood and appreciated as a helpmate in the course of the process of administration of justice and never as a situation of obstruction or obstacle in regard the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erse consequences flow from its non-compliance. Section 143(2) does not bar the order to be passed as laid down in section 153 or 275 of the Act. The purpose of section 143(2) is to afford the assessee an opportunity of being heard. If the ingredients of section 143(2) are not satisfied, the assessment cannot be declared null and void. In following cases, the time-limit have been held to be only directory: (i) CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom.) (ii) Director of Inspection v. Pooran Mall Sons 96 ITR 390 (SC) (iii) Topline Shoes Ltd v. Corpn. Bank [2002] 6 SCC 33. 21.1 Even if the proviso to section 143(2) is held to be applicable to the returns required to be furnished under section 148 of the Act, it has to be only directory because the foundational jurisdiction to make assessment is laid down as soon as the Assessing Officer records his reasons to believe that taxable income has escaped assessment and serves a notice under section 148 on the assessee. With a valid proceedings in existence and mandate to make an assessment, the proviso cannot stand in way of the Assessing Officer to pass the order. 21.2 The present limitation to pass order in a case of proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return: Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished. 25. Both these sections, i.e., sections 148 and 143(2) are contained in Chapter XIV and prescribe procedure for making assessment as detailed in sections 139 to 158. Section 147 itself is a machinery provision for assessing escaped income for a particular assessment year. Such assessment can be a first assessment if no return has been filed earlier and reassessment if the same has been filed earlier. But the section does not prescribe any separate methodology of computation of such income, the procedure of such computation or the rate at which such income is to be taxed. In the absence of the same, the provisions from section 139 and onwards become applicable, i.e., starting from section 139 prescribing the form, particulars etc., to be furnished with the return, signed in the manner prescribed by section 140. Section 140A pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rches initiated after 31-5-2003), therefore, one has to follow the procedure laid down there. Here it is significant to quote the passage from the Full Bench decision of the Kerala High Court in Mrs. Lally Jacob v. ITO [1992] 197 ITR 439, which was quoted with approval by the Apex Court in K. Govindan Sons v. CIT [2001] 247 ITR 192 as under: A reading of sections 147 and 148 makes it clear that, at any rate, an assessment for the first time made by resort to section 147 is a regular assessment. Section 148 enjoins the Income-tax Officer before making an assessment under section 147 to serve a notice on the assessee containing all or any of the requirements which may be included in a notice under sub-section (2) of section 139. The further provision in that section is very significant which provides that the aforesaid notice has to be treated as if it is a notice under section 139(2) and that all the provisions of the Act shall apply to the subsequent procedure and the final assessment. In other words, the notice issued under section 148 has to be deemed to be a notice under section 139(2) and, if the other provisions of the Act have to be applied, an assessment in pursuance of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... practicable and not in the literal sense. The proviso in section 143(2) which is a part of jurisdictional aspect would be inapplicable to assessment/reassessment to be made under section 147 of the Act. Reference has been made to the decision of Special Bench at Lucknow of the Tribunal in the case of Nawal Kishore Sons Jewellers v. Dy. CIT [2003] 87 ITD 407, particularly, contending that the jurisdiction to assess or reassess is conferred by issue of notice under section 148 of the Act. We, however, are not inclined to agree with the learned departmental representative for the reasons given in subsequent paragraphs. 29. Section 148 confers jurisdiction merely to issue notice, calling for a return, in cases where income has escaped assessment, for making assessment or reassessment as provided under section 147. This section however does not make the assessment or reassessment mandatory but leaves it to the discretion of the Assessing Officer when read with section 147 of the Act. Section 147 has used the word may for making assessment or reassessment so as to give discretion to the Assessing Officer. For brevity, section 147 is reproduced as under: Section 147: If the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in response to notice under section 148. It is pertinent to note that clause (b) of section 158BC specifically talks of the applicability of section 142, sub-sections (2) and (3) of section 143. There is an omission of sub-section (1) to section 143. This chapter clearly prescribes its own return, form of own methodology for computation of income but falls back on the provisions of sections 142, 143, 144 etc. only for procedural aspect. If the proviso is made applicable, then a clash erupts between the provisions of Chapter XIV-B with section 143(2) as the assessment is mandatory under this chapter. This would be clear by reading the provision of sub-section (1) of section 158BA, which states as under: the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of this chapter. 32. The word used in the above lines is 'shall', thus making assessment mandatory. If the notice is not issued in time then no assessment can be framed and a situation arises which this chapter does not envisage. Further, the purpose of proviso was only to make the assessee aware that his assessment is going to be taken or not under scrutiny. This is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar Prints v. Union of India [1989] 179 ITR 317 (SC) and CIT v. Bansidhar Jalan Sons [1994] 207 ITR 488 (Cal.) and Vishwanath Prasad Bhagwati Prasad v. CIT [1993] 202 ITR 469, 473 (All.) for the proposition that jurisdictional foundation is validly laid by issue of notice under section 148 and cannot be taken away by a procedural section. 35. In Dr. Pratap Singh's case the Apex Court held that the said phrase would mean, that those provisions may be generally followed to the extent possible . Similarly in Ujagar Prints' case the Apex Court held that it would mean 'to the extent necessary and practical'. Now saying so, would not mean that what is not followed is not necessary to be followed as the provisions were to be broadly followed and not in its entirety. We are afraid such type of construction would render the adoption of procedure as prescribed in sections 139 to 143 and other provisions as meaningless. The phrase has been used so as to provide that the provision would be generally applicable but to the extent it is not inconsistent with the express provisions of the adopting legislation. Now the Special Bench Lucknow specifically pointed out the inconsistency ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer not complete the assessment/reassessment or was he helpless. The answer is simply no. He would proceed to complete the same by resorting to the provision of section 144. Therefore, proviso nowhere comes in conflict with the provisions of section 147. Had the proviso curtailed the limitation period as prescribed under section 153(2), then certainly it will not apply. Assessing Officer has to be more vigilant in making assessment pursuant to notice under section 148. Therefore, in almost all cases, he will issue notice to the assessee for completion of assessment before the expiry of 12 months from the date of filing a return in response to notice under section 148 and no extra burden is cast upon him by following the proviso. We therefore do not subscribe to the view that it is not practical to follow the proviso. Further, we may also point out that these words have been considered by the Apex Court in R. Dalmia's case in the context of section 148 only and applicability of section 144B to the assessment made under section 147. There the contention of the assessee was that the extended limitation as per Explanation IV to section 153 would not apply to assessment made un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f AD Act as the charge of duty in the said Act is determined under section 3 and is only quantified in section 2. Therefore, only the procedural provisions of CE Act would be applicable and not the substantive provisions. In any case the definition as stood in CE Act, 1957 would apply and any subsequent changes made thereto would be inapplicable. 36. It is in this background the Apex Court discussed the nature of referential legislation and described it as under:- Referential legislation is of two types. One is where an earlier Act or some of its provisions are incorporated, by reference, into a later Act. In this event, the provisions of the earlier Act or those so incorporated, as they stand in the earlier Act at the time of incorporation, will be read into the later Act. Subsequent changes in the earlier Act or the incorporated provisions will have to be ignored because, for all practical purposes, the existing provisions of the earlier Act have been re-enacted by such reference into the later one, rendering irrelevant what happened to the earlier statute thereafter. Examples of this can be seen in Secretary of State v. Hindustan Co-operative Insurance Society AIR 1931 PC 149, B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arned D.R. further stated that even if it is assumed that the proviso to section 143(2) of the Act is applicable to returns filed pursuant to notice issued under section 148, the failure to issue notice within the prescribed time of 12 months will not render the assessment as a nullity. Such a failure is to be treated as a procedural lapse which will be construed as mere irregularity and not illegality. This is so because the limitation provisions are directory and not mandatory. For this proposition reliance has been placed on the decisions rendered in the cases of- (i) CIT v. Shivanand Electronics [1994] 209 ITR 63 (Bom.) (ii) Director of Inspection v. Puranmal Sons [1974] 96 ITR 390 (SC) (iii) Topline Shoes Ltd. v. Corpn. Bank [2002] 6 SCC 33. 39. It may be noted that no doubt, the foundation to assess or reassess is laid by issue of a valid notice under section 148, but such jurisdiction is subject to further compliance as has been stipulated in the statute itself. If compliance of the proviso is not made, the very purpose of creating the proviso is defeated, i.e., uncertainty of assessee with respect to assessment shall continue. It is again a settled principle of interpretati ..... X X X X Extracts X X X X X X X X Extracts X X X X
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