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A parallel problem

Padmini Srivatsan

Padmini Srivatsan on the scare of multiple assessment proceedings

AN INTIMATION under Section 143(1) of the Income-Tax Act is given without prejudice to the provisions of sub-section (2) of Section 143. This makes the position clear that even when intimation under Section 143(1) has been given, yet proceedings for assessment under Section 143(3) can be initiated by issuance of notice under Section 143(2). Of late, a mind-boggling question on assessment procedure that has come up for consideration of High Courts is whether proceedings under Section 154 of the Income-Tax Act, 1961, for rectification of an intimation under Section 143(1), can be initiated after the assessing officer (AO) has given notice under Section 143(2) to the assessee. Does the fact that the Act does not place any bar on the AO to invoke his jurisdiction under Section 154 even after notice under Section 143(2) has been served on the assessee, support the Revenue's stand of permissibility of parallel proceedings?

Punjab and Haryana High Court view

In the recent CIT vs Arihant Industries Ltd (2002 255 ITR 458 P&H) case, the assessee, a public limited company, had filed its return for the assessment year 1990-91. On April 16, 1991, the AO issued an intimation to the assessee. On February 9, 1992, the AO gave a notice under Section 143(2) to the assessee. Almost a year later, on January 28, 1993, a notice under Section 154(1)(b) was issued. Soon thereafter, an order dated February 25, 1993, was passed under Section 154(1)(b). Aggrieved by the order, the assesse filed an appeal. On September 7, 1994, the Commissioner of Income-tax (Appeals) accepted the assessee's claim. The Revenue challenged the order passed by the appellate authority. The Tribunal, vide order dated February 26, 2001, dismissed the appeal and, hence, the appeal under Section 260 A of the Act before the High Court as well.

The court adjudicated that the power under Section 154 can be invoked only to correct an error apparent on the record. The scope of proceedings under Section 143(2) is far wider. The competent authority had taken a view in the matter and issued a notice under Section 143(2) to the assessee. Such a notice is normally issued to ensure that the assessee has not understated the income, computed excessive loss or underpaid the tax.

It is only on consideration of the matter and on being satisfied that it is necessary or expedient to do so that the AO issues the notice under Section 143(2). Once that has been done, the AO has to proceed under sub-section (3) and make an assessment of the total income or loss of the assessee and determine the sum, if any, payable by it. It is no doubt correct that an error apparent on the record can be corrected under Section 154 of the Act. However, if parallel proceedings are permitted, it would only be a waste of time and serve no purpose. The judicial opinion, therefore, was against the Revenue.

Delhi High Court opinion

In CIT vs Punjab National Bank (2001 249 ITR 763 Delhi), one of the questions that had been raised for adjudication in appeal, was whether once notice under Section 143(2) has been issued after passing of an intimation, recourse to Section 154 is not warranted. As per the facts, order under Section 154 was passed after issuance of notice under Section 143(2) and during the pendency of the proceedings for assessment under Section 143(3). Whereas the order under Section 154 was passed on March 9, 1992, that under Section 143(2) was passed on March 27, 1992. The court held that if any change was permissible, the same could be done in the assessment under Section 143 of the Act, and not by exercising powers under Section 154.

Will these judgments — that the legislature does not permit simultaneous proceedings — deter the Department from initiating parallel assessment proceedings and save itself and the its counterpart, the assessee, the hassle of facing such multiple proceedings?

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