Mtnl vs The Chairman, Central Board Of ...
2000 Latest Caselaw 831 Del

ORDER

Arijit Pasayat, CJ.

1. Notice issued under Section 148 of the Income-tax Act, 1961 (in short, the Act) is challenged by the Mahanagar Telephone Nigam Limited (in short, MTNL) on the purported ground that there was no under-assessment of income or escapement of income requiring re-assessment and the impugned notice which was issued on the basis of mere change of opinion about allowability or otherwise of an expenditure is invalid, inoperative and unsustainable.

2. Factual position in a nutshell, as stated by the petitioner, is as follows:-

(a) Petitioner was incorporated as a limited company on 28.2.1986 for the purpose of establishment, maintenance and working of telephone services for Metros of Delhi and Mumbai and licence for effecting the same was granted by the Government of India, Department of Telecommunications under sub-Section (2) of Section 4 of the Indian Telegraph Act, 1885 (in short, Telegraph Act) initially for a period of five years and it was subsequently extended from time to time and the last extension is valid for a period of 15 years w.e.f. 1.4.1998. Petitioner was paying licence fee of Rs. 101 in terms of the licence from financial years 1986- 87 to 1992-93, the relevant assessment years being 1987-88 to 1993-1994. Such payment was made to the Department of Telecommu- nications, Government of India. Subsequently, licence fees were enhanced to Rs.800/- as intimated to the petitioner vide letter No. 26-10/94-TA I dated 13.5.1994 and the licence fees was fur- ther enhanced to Rs.900/- per WDEL w.e.f. the financial year 1995-96. The present dispute relates to the assessment year 1994-

95. Return of income for the said year was filed on 30.11.94. A sum of Rs.124,85,60,000/- was claimed as licence fee. There was no such claim for the preceding year. Intimation in terms of Section 143(1) of the Act was given to the petitioner. Subse- quently a notice under Section 148 of the Act was issued on 23.3.1999 requiring it to file a return as the assessing officer had reasons to believe that the petitioner's income for the concerned year i.e. 1994-95 has escaped assessment within the meaning of Section 147 of the Act. Petitioner filed its reply stating that the reasons be communicated in order to enable it to file its return.

(b) It was petitioner's stand that no income chargeable to tax had escaped assessment and notice had been issued to reassess the petitioner by a mere change of opinion. The assessing authority, Joint Commissioner of Income-tax, Special Range-20, New Delhi intimated the petitioner that no return of income in response to the notice has been filed and the petitioner was directed to file it immediately and in case, it had filed the return, a copy of acknowledgment was to be submitted. Petitioner thereafter file this petition questioning validity of the notice issued.

By order dated 7th March, 2000, this Court directed the assessing authority to supply the reasons for issuance of the impugned notice. In compliance with the directions, reasons have been indicated.

3. Mr. Gauri Shankar, learned counsel for the petitioner submitted that the action as taken is impermissible as the view regarding allowability of the claim of expenditure was arrived at by mere change of opinion. Factual- ly, it was submitted that there was no escapement or under-assessment and therefore, the notice was at the threshold to be nullified. It was further submitted that even though the return has been acted upon in terms of Section 143(1)(a) of the Act and an intimation was given about the payabil- ity or otherwise of the tax, in essence, it was an order of assessment as ultimately the facts of computation of income and tax payable were in- volved. Though the expression "assessment" is not used in Section 143(1) yet an interpretation has to be given which would harmonize the concepts of assessment and computation of tax. In the background of a procedure for assessment, even an intimation under Section 143(1) can result in liability and therefore conceptually the expression "intimation" as used in Section 143(1) is same as assessment in the manner understood in common parlance. The fact that an appeal has been provided under Section 246 of the Act against an intimation under Section 143(1)(a) makes the position clear that assessment is involved and is inbuilt. Therefore, it was a clear case of mere change of opinion about the acceptability of the claim which is in issue. It is to be noted that Section 143(1) has undergone a change by Finance Act 1999 with effect from 01-06-1999.

4. Mr. Salve, learned Solicitor General, on the other hand, submitted that at the stage of intimation under Section 143(1), there is no scope for any assessment. On the contrary, adjustment of items of expenses/receipts as spelt out in the provision itself is the permissible limit of exercise of powers under the provision. There is no question of the assessing offi- cer considering or applying its mind to anything beyond that aspect. The intimation is the result of ministerial work and cannot be termed to be an assessment for the purposes of the Act. The requirements under Section 148 are that there must be reasons to believe about escapement or under-assess- ment. The requisite ingredients are present in the case in hand and, there- fore, the action as taken is clearly permissible. The question of change of opinion is not relevant in the light of provisions contained under Sections 147 and 148 of the Act as they presently stand. Further the committee set up to resolve inter-departmental disputes have advised petitioner to par- ticipate in the proceeding. Therefore this writ petition should not be have been filed.

5. In Oil and Natural Gas Commission Vs. Collector of Central Excise, , Apex Court directed to set up a committee to monitor disputes between Ministry and Ministry of Government of India Ministry and Public Sector Undertaking of Government of India and Public Sector Under- taking in between themselves to ensure that no litigation comes to Court or to a Tribunal without the matter being examined first by the Committee and its clearance for litigation. If the High Power Committee is unable to resolve the matter for reasons to be recorded by it clearance shall be granted for litigation. According to petitioner, Committee should have permitted filing of a writ petition to ventilate actual grievances instead of denying permission. It appears Committee has taken the following view in its meeting dated 9-12-1999.

"The Committee having regard to the fact that Mahanagar Telephone Nigam Ltd was contemplating writ petition against show-cause notice advised Mahanagar Telephone Nigam Ltd to await appealable order. The Committee accordingly, did not permit to file writ petition in the High Court at this stage".

Present writ petition was filed on 14-01-2000 and notice was issued on 17-01-2000. Therefore, we have taken up the matter for disposal, keeping in view Committee's decision.

6. In order to consider the rival submissions, it is necessary to take note of Sections 143(1), (as it stood before and after amendment w.e.f. 1-6-1999), 147 and 148. The provisions read as follows:-

AFTER AMENDMENT

Sec. 143. Assessment: (1) Where a return has been made under Section 139, or in response to a notice under sub-Section (1) of Section 142-

i. if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, the, without prejudice to the provisions of sub-Section (2) an intimation shall be sent to the assessee specifying the sum so payable, and such intima- tion shall be deemed to be a notice of demand issued under Sec- tion 156 and all the provisions of Act shall apply accordingly; and

ii. if any refund is due on the basis of such return, it shall be granted to the assessee and an intimation to this effect shall be sent to the assessee:

Provided that except as otherwise provided in this sub-Section, the acknowledgment of the return shall be deemed to be an intima- tion under this sub-Section where either no sum is payable by the assessee or no refund is due to him;

Provided further that no intimation under this sub-Section shall be sent after the expiry of two years from the end of the assess- ment year in which the income was first assessable.

(2)......

(3)......

(4)......

BEFORE AMENDMENT

Section 143(1) as it stood at the point of time when the intima- tion was given under the said provision, so far as relevant, read as follows:-

Sec. 143(1)(a): Where a return has been made under Section 139, or in response to a notice under sub-Section (1) of Section 142-

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-Sec- tion (2) an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under Section 156 and all the provisions of Act shall apply accordingly; and

b. if any refund is due on the basis of such return, it shall be granted to the assessee;

Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared in the return, namely:-

(i) any arithmetical errors in the return, accounts or documents accompanying it shall be rectified;

(ii) any loss carried forward, deduction, allowance or relief, which, on the basis of the information available in such return, accounts or documents, if prima facie admissible but which is not claimed in the return, shall be allowed;

(iii) any loss carried forward, deduction, allowance or relief claimed in the return, which, on the basis of the information available in such return, accounts or documents, is prima facie inadmissible, shall be disallowed:

Provided further that an intimation shall be sent to the assessee whether or not any adjustment has been made under the first proviso and notwithstanding that no tax or interest is due from him:

Provided also that an intimation under this clause shall not be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.

Sec. 147. Income escaping assessment. - If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of Section 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this Section, or recomputed the loss or the depreciation allowance or any other allowance, as the case may be for the assessment year concerned (hereinafter in this Section and in Sections 148 to 153 referred to as the rele- vant assessment year):

Provided that where an assessment under sub-Section (3) of Sec- tion 143 or this Section has been made for the relevant assess- ment year, no action shall be taken under this Section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under Section 139 or in response to a notice issued under sub-Section (1) of Section 142 or Section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year.

Explanation 1. - Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.

Explanation 2. - For the purposes of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

c. Where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;

d. Where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assess- ing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;

e. Where an assessment has been made, but-

(i) income chargeable to tax has been under-assessed; or

(ii) such income has been assessed at too low a rate; or

(iii) such income has been made the subject of excessive relief under this Act; or

(iv) excessive loss or depreciation allowance or any other allow- ance under this Act has been computed.

148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, re-assessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-Section (2) of Section 139, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub- Section.

(2) The Assessing Officer shall, before issuing any notice under this Section, record his reasons for doing so."

7. It is to be noted that substantial changes have been made to Section 143(1) w.e.f. 1.6.1999. Upto 31.3.1989 after a return of income was filed the assessing officer could make an assessment under Section 143(1) without requiring presence of the assessee or production by him of any evidence in support of the return. Where the assessee objected to such an assessment or where the officer was of the opinion that the assessment was incorrect or incomplete or the officer did not complete the assessment under Section 143(1), but wanted to make an inquiry, a notice under Section 143(2) was required to be issued to the assessee requiring him to produce evidence in support of his return. After considering the material and evidence produced and after making necessary inquiries, officer had power to make assessment under Section 143(3). With effect from 1.4.1989, the provisions underwent substantial and material changes. A new scheme was introduced and the new substituted Section 143(1) prior to subsequent substitution w.e.f. 1.6.1999 in Clause (a), a provision was made that where a return was filed under Section 139 or in response to a notice under Section 142(1), and any tax or refund was found due on the basis of such return after adjustment of tax deducted at source, any advance tax or any amount paid otherwise by way of tax or interest, an intimation was to be sent without prejudice to the provisions of Section 143(2) to the assessee specifying the sum so payable and such intimation was deemed to be a notice of demand issued under Sec- tion 156. The first proviso to Section 143(1)(a) allowed the department to make certain adjustments in the income or loss declared in the return. They were as follows:-

a. an arithmetical error in the return, accounts and documents accompanying it were to be rectified;

b. any loss carried forward, deductions allowance or relief which on the basis of the information available in such return, ac- counts or documents, was prima facie admissible, but which was not claimed in the return was to be allowed;

c. any loss carried forward, relief claimed in the return which on the basis of the information as available in such return, accounts or documents were prima facie inadmissible was to be disallowed.

8. What were permissible under the first proviso to Section 143(1)(a) to be adjusted were: (i) only apparent arithmetical errors in the return, accounts or documents accompanying the return, (ii) loss carried forward, deduction, allowance or relief, which was prima facie admissible on the basis of information available in the return but not claimed in the return, and similarly, (iii) those claims which were on the basis of the informa- tion available in the return, prima facie inadmissible, were to be recti- fied/allowed/disallowed. What was permissible was correction of errors apparent on the basis of the documents accompanying the return. Assessing Officer had no authority to make adjustments or adjudicate upon any debata- ble issue. In other words, the assessing officer had no power to go behind the return, accounts or documents, either in allowing or in disallowing deductions, allowance or relief.

9. One thing further to be noticed is that intimation under Section 143(1)(a) is given without prejudice to the provisions of Section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under Section 156, that did not per se preclude the right of the assessing officer to proceed under Section 143(2). That right is preserved and is not taken away. Between the period from 1.4.1989 to 31.3.1998, the second proviso to Section 143(1)(a), required that where adjustments were made under first proviso to Section 143(1)(a), an intimation had to be sent to the assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from 1.4.1998, second proviso to Section 143(1)(a) was substituted by the Finance Act, 1997 which was opera- tive till 1.6.1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to Section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between 1.4.1998 to 31.5.1999 send- ing of an intimation under Section 143(1)(a) was mandatory. Thus the legis- lative intent is very clear from the use of word "intimation" as substitut- ed for "assessment" that two different concepts emerged. While making an assessment, assessing officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to Section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the assessing officer. Reason is that under Section 143(1)(a) no opportunity is granted to the assessee and the assessing officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under Section 143(1)(a) indicates that the assessing officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of Explanation to Section 143 by the Finance Act No.2 of 1991 w.e.f. 1.10.1991 and subsequently w.e.f. 1.6.1994 by Finance Act 1994 and ultimately omitted w.e.f. 1.6.1999 by Explanation as introduced by Finance Act No.2 of 1999 an intimation sent to the assessee under Section 143(1)(a) was deemed to be an order for purposes of Section 246 between 1.6.1994 to 31.3.1995, and under Section 264 between 1.10.1991 and 31.5.1999. It is to be noted that the expressions "intimation" and "assess- ment order" have been used at different places. Contextual difference between the two expressions has to be understood in the context the expres- sions are used. Assessment is used as meaning sometimes `the computation of income', sometimes `the determination of the amount of tax payable' and sometimes `the whole procedure laid down in the Act for imposing liability upon the taxpayer'. In the scheme of things, as noted above, the intimation under Section 143(1)(a) cannot be treated to an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under Section 143(1)(a) as it stood prior to 1.4.1989, the assessing officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intents of Legislature, i.e. to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlight- ed by one of us (D.K. Jain, J.) in the case of Apogee International Limited And Another Vs. Union of India And Another: 1996, 220 ITR 248 by this Court. It may be noted above that under the first proviso to the newly substituted Section 143(1), with effect from 1.6.1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be intimation under Section 143(1) where (a) either no sum is payable by the assessee or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministe- rial staff. Can it be said that any "assessment" is done by them? The reply is an emphatic "no". The intimation under Section 143(1)(a) was deemed to be a notice of demand under Section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such appli- cation only recovery indicated to be payable in the intimation became permissible. And nothing more can be inferred from the deeming provision. Therefore, there being no assessment under Section 143(1)(a), the question of change of opinion, as contended, does not arise.

10. Additionally, Section 148 as presently stands is differently couched in language from what was earlier the position. Prior to the substitution by the Direct Tax Laws (Amendment) Act 1987, the provision read as follows:-

"148. Issue of notice where income has escaped assessment. - (1) Before making the assessment, re-assessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under sub-Section (2) of Section 139, and the provisions of this Act shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub- Section.

(2) The Assessing Officer shall, before issuing any notice under this Section, record his reasons for doing so."

11. Section 147 prior to its substitution by the Direct Tax Laws (Amend- ment) Act, 1987 stood as follows:-

"S. 147. Income escaping assessment.- If-

a. the Assessing Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Assessing Officer or to disclose fully and truly all material facts neces- sary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assess- ing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.

he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recomputed the loss or the deprecia- tion allowance, as the case may be, for the assessment year concerned (hereinafter in Sections 148 to 153 referred to as the relevant assessment year).

Explanation 1 - For the purposes of this Section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:-

(a) where income chargeable to tax has been under-assessed; or

(b) where such income has been assessed at too low a rate; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian Income-tax Act, 1922 (XI of 1922); or

(d) where excessive loss or depreciation allowance has been computed.

Explanation 2 - Production before the Assessing Officer of ac- count books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of this Section."

12. Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word "reason" in the phrase "reason to believe" would mean cause or justification. If the As- sessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to believe to reason that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evi- dence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for public exchequer with inbuilt idea of fairness to tax payers. As observed by the Apex Court in Central Provinces Manganese Ore Company Ltd. Vs. Income-tax Officer, (1991) 191 ITR 662, for initiation of action under Section 147(1) (as the provision stood at the relevant time) fulfilllment of the two requisite conditions in that regard is essential. At that stage, final outcome of the proceeding is not rele- vant. In other words, at the initiation stage, what is required is "reasons to believe", but not the established faction of escapement of income. At the stage of issue of notice, the only question is whether there was rele- vant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by Assessing Officer is within the realm of subjective satisfaction. (See Income-tax Officer Vs. Selected Dalurband Coal Co. Pvt. Ltd. (1996) 217 ITR 597 (SC), Raymond Woollen Mills Ltd Vs. Income Tax Officer and others (1999) 236 ITR 34).

13. The scope and effect of Section 147 as substituted with effect from 1- 4-1999 as also Sections 148 to 152 are substantially different from the provisions as stood prior to such substitution. Under old provisions of Section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or re-assessed. To confer jurisdiction under Section 147(a) two conditions were required to be satisfied, firstly, the Assessing Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and secondly, he must also have reason to believe that such escapement has occurred by reason of either (i) omis- sion or failure on part of assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions are condition precedent to be satisfied before the Assessing Officer could have jurisdiction to issue notice under Section 148 read with Section 147(a). But under substituted Section 147, existence of only the first condition suffices. In other words if the Assessing Officer for what ever reason has reason to believe that income has escaped assessment, it confers jurisdic- tion to reopen the assessment. It is however, to be noted that both the conditions must be fulfillled, if the case falls within the ambit of proviso to Section 147. Case at hand is covered by the main provision and not the proviso.

14. Another plea taken by the petitioner was that within that prescribed time limit action for assessment under Section 143(3) was not taken. We find no substance in this plea.

15. So long as the ingredients of Section 147 are fulfillled, the Assessing Officer is free to initiate to proceed under Section 147 and failure to take steps under Section 143(3) will not render the Assessing Officer powerless to initiate re-assessment proceedings even when intimation under Section 143(1) had been issued. Similar view has been taken in A. Pusa Lal Vs. Commissioner of Income (1988) 1691 ITR 215 (AP) and Jorawar Singh Baid Vs. Asstt Commissioner of Income-tax and Pradeep Kumar Har Saran Lal Vs. Assessing Officer . In the instant case, though statutorily reasons were not required to be communi- cated to the assessee prior to the submission of return in response to notice under Section 148, pursuant to the directions of this Court, reasons for proceeding under Section 147 have been indicated. They are as follows:-

"M/s. Mahanagar Telephone Ltd. with its office at Jeevan Bharati Tower-1, 12th Floor, Connaught Circus, New Delhi filed its return of income for the A.Y. 1994-95 on a total income of Rs. 778,01,90,342/-. The return so filed on 30.11.1994 was processed u/s 143(1)(a) on 28.03.1995. Examination of the return of income reveals that a sum of Rs.124,85,60,000/- has been claimed as license fee as against nil in the immediately preceding year. While finalizing the assessment for the A.Y. 1996-97 u/s 143(3) on 23.03.1999 for reasons discussed therein it is found that the claim made by the assessee is erroneous and should have been disallowed. It is so on account of the fact that the expenditure is application of income and does not tantamount to diversion of income by overriding title.

2. On the facts of the case I have reasons to believe that income chargeable to tax of Rs. 124,85,60,000/- has escaped assessment for the A.Y. 1994-95. Accordingly, notice u/s 148 r.w. Section 147 is issued to bring to tax the aforesaid amount. Notice signed may issue.

16. This cannot be said to be a case where initiation of proceedings in terms of notice under Section 148 can be said to be without jurisdiction or foundation. The reasons indicated cannot be said to be non-relevant. While deciding the validity of a notice under Section 148, the permissible limit of consideration is the existence of reasons and, as indicated above not sufficiency thereof.

17. Looked at from any angle, the notice issued under Section 148 of the Income-tax Act cannot be said to be invalid. We do not find any merit in this writ petition, which is accordingly dismissed. However, in view of the peculiar circumstances of the case, there will be no orders as to costs.