ORDER
R.S. Padvekar, Judicial Member
1. This appeal by the assessee is directed against the order of the CIT (Appeals)-IV, Kochi dated 20-4-2004 relevant to the assessment year 1997-98. In this appeal, the assessee has raised the following effective grounds of appeal:
i) The CIT(A) has erred in holding that rectification of intimation lies when with effect from 1-6-1999 there is no power vested with the assessing officer to make any amendment to the returned income.
ii) The CIT(A) ought to have appreciated that when the assessing officer has no power to amend the returned income, he cannot do the same indirectly by way of rectification of an intimation.
iii) The CIT (Appeals) ought to have appreciated that additional tax being penal in nature, cannot be levied in the case of addition of income/reduction of loss arising purely out of arithmetical mistakes.
2. The facts of this case are in narrow compass. The assessee filed its return of income for the assessment year 1997-98 on 28-11-97 and the same was processed Under Section 143(1)(a) on 23-3-99 accepting the loss declared by the assessee of Rs. 7,44,36,381/-. Subsequently, it was noticed by the assessing officer that there was a mistake in the computation of the net loss and hence, he proposed to rectify the intimation by invoking the provisions of Section 154 of the IT Act. After hearing the assessee, the assessing officer worked out the loss at Rs. 6,89,14,911/- as per his order dated 31-1-2000. Subsequently, the assessee filed a letter dated 13-11-2000 pointing out that in the order passed under Section 154 dated 31-1-2000 there was a mistake, and hence, net loss was worked out, after considering the submission of the assessee. By another order passed under Section 154 on 15-1-01, the assessing officer rectified the intimation, determining the final figure of net loss at Rs. 6,91,14,911/-. The assessing officer reduced the ‘ loss so determined by Rs. 53,21,469/- and levied additional tax payable at Rs. 4,57,646/-. Being aggrieved, the assessee took the matter in appeal before the CIT (Appeals).
3. Before the CIT (Appeals), the assessee challenged the very validity of the order under Section 154. It was contended that the intimation had to be issued only where the assessee had to pay the tax or refund was due to the assessee and if no adjustment was made and no tax or refund was due, then there was no power to issue the intimation. Hence, the intimation issued was non-est and the rectification made to the non-est intimation was invalid. The assessee also alternatively argued before the CIT(Appeals) that with effect from 1-6-1999 Section 143(1 A), which empowered the assessing officer to levy additional tax, was, deleted and hence the assessing officer could not levy additional tax on 15-1-01 while passing the order under Section 154 of the IT Act. The CIT(Appeals) rejected both the contentions of the assessee, but the assessee was given relief in the quantum of additional tax levied. Not satisfied with the order of the CIT(Appeals), the assessee is on further appeal before the Tribunal.
4. We have heard the ld.CA, Shri K.M. Jose and the ld.departmental representative for the revenue. The ld.CA submitted that the return for the assessment year 1997-98 was accepted and processed under s.143(1)(a) on 23-9-99 and the loss declared by the assessee at Rs. 7,44,36,381/- was accepted. The ld.CA filed a Xerox copy of the intimation dated 23-2-99 for the assessment year 1997-98. He further submitted that initially the intimation was revised under Section 154 vide order dated 31-1-2000 and the net loss was reduced to Rs. 6,89,14,911/-. Again the loss was revised to Rs. 6,91,14,911/- by passing order under Section 154 of the IT Act on 15-1-01. The ld.CA submitted that upto assessment year 1997-98 there was no power to the assessing officer to issue the intimation under s.143(1)(a) if no adjustments were made to the income or loss declared by the assessee. He further submitted that the second proviso to Section 143(1)(a) was amended, from the assessment year 1998-99 and after amendment, statutory duty was cast on the assessing officer to send the intimation to the assessee, whether “any adjustment to the income or loss declared by the assessee has been made or not. The ld. CA, therefore, submitted that the intimation sent by the assessing officer was non-est and hence it could not be rectified under Section 154. The ld. departmental representative supported the order of the CIT(Appeals).
5. We have considered the rival submissions. We have also carefully considered the facts as per record before us. It is not disputed in this case that the return of income filed by the assesses was processed under Section 143(1)(a) on 23-3-99. It is also not disputed that intimation was issued to the assessee on 23-3-99. After careful perusal of the copy of the intimation filed by the ld.CA for the assessee, it is clear that no adjustments are made to the total loss declared by the assessee i.e. Rs. 7,44,36,381/-. The intimation is dated 23-3-99. In the intimation, in the computation of tax liabilities the demand raised is Nil. The assessing officer has rectified the said intimation first on 31-1-2000 and subsequently on 15-1-01.
6. Section 143(1)(a) of the IT Act has undergone major changes by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-89. The section as it stood upto assessment year 1997-98 is as under:
Section 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-section (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 this Act shall apply accordingly; and
(ii) 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 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, is 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 where adjustments are made under the first proviso. an intimation shall be sent to the assessee, notwithstanding that no-tax or interest is found due from him after making the said adjustments.
Provided also that an intimation for any tax or interest due 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.
As per the second proviso to Section 143(1)(a), the assessing officer has to send intimation to the assessee, if, while processing the return of income, the assessing officer has made adjustment to the income or loss declared by the assessee and notwithstanding that no tax or interest is found due from him. In other words, there was statutory obligation on the assessing officer to send the intimation to the assessee only if adjustments are made to the income or loss declared by the assessee in his return. If no adjustments are made, the assessing officer was not legally required to send the intimation. By the Finance Act, 1997, the second proviso to s.143(1)(a) was substituted as under:
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.
The substituted proviso was made applicable from the assessment year 1998-99 assessment years. As per the substituted provision, it was the statutory duty of the assessing officer to send the intimation to the assessee, whether or not any adjustment has been made to the income or loss declared by the assessee and notwithstanding that no tax or interest is due from him.
7. In the present case, the relevant assessment year is 1997-98. As per the copy of the intimation filed by the ld. CA, no adjustments are made by the assessing officer nor any demand or any refund is shown in the said intimation. Now, the question is whether the intimation sent as per the proviso applicable to the assessment year 1997-98 is legally valid if no adjustment is made in the said intimation and if the intimation is not legally valid whether the assessing officer can proceed to amend it by invoking the provisions of Section 154 of the IT Act. As per the proviso which was applicable upto the assessment year 1997-98, the assessing officer was under legal obligation to send intimation if any adjustment is made. As per the substituted proviso which is applicable from the assessment year 1998-99 whether the assessing officer makes any adjustment or not to the income or loss declared in his return, it makes statutorily binding on him to send the intimation. In the present case, the assessing officer has not made any adjustment to the loss declared by the assessee and this fact is clear from the Xerox copy of the intimation filed by the assessee’s GA. If no adjustment is made by the assessing officer, then there was no statutory obligation to send the intimation. If without any statutory sanction, if the intimation is sent, then it will be non-est intimation. If the intimation is non-est, then the assessing officer cannot rectify or amend the non-est intimation under Section 154 of the IT Act. In our opinion, the intimation dated 23-3-99 sent to the assessee is non-est as per the proviso which is applicable upto the assessment year 1997-98. There is no statutory power vested in the assessing officer to send intimation to the assessee if no adjustments are made. If the intimation itself is non-est, then the assessing officer cannot amend or rectify the same under Section 154. We, therefore, hold that the assessing officer’s order dated 31-1-2000, under appeal, is illegal. We, therefore, cancel the order of the assessing officer dated 31-1-2000 passed under Section 154 of the IT Act and delete the additional tax of Rs. 4,74,846/- levied by the assessing officer. Consequently, the order of the first appellate authority also stands cancelled.
8. In the result, the assessee’s appeal is allowed.