JUDGMENT
(A. K. Mathur, C.J.)
This is a reference under Section 256(1) of the I.T.Act at the instance of the Applicant/Revenue and the following question of law has been referred by the Tribunal for answer of this Court :
“Whether, on the facts and in the circumstances of the case, Tribunal was justified in law in holding that having issued the notice u/s. 143(2) of the Act, assessing officer’s action in making prima facie adjustment and in issuing intimation u/s 143(1)(a) were without jurisdiction?”
2. The brief facts which are necessary for disposal of this reference, are that the assessee is a co-operative society. For the assessment year 1991-92, the assessee file return declaring loss of Rs. 4,70,99,141. The assessing officer processed the return under section 143(1) of the Act and made the following adjustment
Rs.
(i)
Depreciation on building since it was shown in the balance sheet
71,31,250
(ii)
Depreciation on plant & not shown in the Balance Sheet.
1,91,13,145
(iii)
Entertainment expenditure
2,105
2,62,46,500
As a result of above adjustments, the loss was reduced to Rs. 2,08,52,641. Accordingly, the assessing officer issued intimation under Section 143(1)(a) of the I.T Act on 18/12/1992 levying additional tax under section 143(1A) of the Act at Rs.20,56,830A Against the said intimation, the assessee moved an application under Section 154 of the Act on 6/1/1993 which was rejected by the A.O. The assessee then went in appeal before the Commissioner (Appeals), who rejected the appeal. Thereafter, the assessee filed an appeal before the Tribunal and also raised an additional ground regarding validity of intimation u/s. 143(1)(a) dated 18/12/1992 while a notice under Section 143(2) for making scrutiny assessment was already issued on 29/5/1992 Le. prior to the issue of intimation.
3. The Tribunal after considering the matter and relying on the decision of Calcutta High Court in Modern Fibolex India Ltd. v. Dy. CIT(A) (1995 (212) ITR 496), held that having issued the notice under section 143(2) of the I.T. Act, the assessing officer’s action in making prima facie adjustment and in issuing intimation under Section 143(1)(a) was without jurisdiction. Accordingly, the Tribunal quashed the Intimation dated 18/12/1992 issued under Section 143(1)(a) of the I.T.Act. Thereafter, the Tribunal referred the aforesaid question for answer of this Court.
4. In order to appreciate the controversy involved in the matter, it will be necessary to refer to the provisions of law. Section 143(1)(a)(i) reads as under:
“S.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,-
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 notice of demand issued under section 156 and all provisions of this Act shall apply accordingly; and sub-section (2) of Section 143 of the Act, which is relevant for our purposes, reads as under:
Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the assessing officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve the assessee a notice requiring in 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.”
The reading of both the aforesaid provisions would show that if any notice under sub-section (2) of Section 143 of the I.T.Act has been issued for the scrutiny of the assessment and the matter is in progress in sub-section (2) then to charge the course and resort to Section 143(1)(a)(i) of the Act would be against the principles of natural justice.
5. Once return has been filed under section 139 of the Act and A.O. is proceeding in the matter to scrutinise the return filed and to make an assessment under section 143(2), thereafter, he suddenly sents an intimation under Section 143(1)(a)(i), it would mean that he has changed the course from usual course and takes assessee by surprise which is not contemplated by Legislature. Section 143(1)(a)(i) of the Act is almost like an ex parte assessment because on the basis of the return filed by the assessee and it is scrutinised by the assessing officer then intimation is sent to the assessee specifying the sums so payable because that is a sort of a demand notice under section 156 of the Act. But, the expression ‘without prejudice to the provisions of subsection (2)’ appearing in section would mean that once a notice has been issued under sub-section (2) then in that case, the A.O. shall not resort to Section 143(1)(a)(i). The expression ‘without prejudice to the provisions of sub-section (2)’ means that it saves the action already initiated under Section 143 (2) of the Act. If Legislature really intended to give full power to A.O. under Section 143(1)(a)(1) then they would not have saved the action under section 143(2). In fact, this expression had carved out an exception that A.O. can send intimation to assessee if A.O. has not exercised its power under Section 143(2) of the Act.
6. The learned counsel for the assessee has submitted that once notice under sub-section (2) of section 143 has been issued then A.O. cannot resort to the ex parte assessment under Section 143(1)(a)(i). From expedient point of view, a notice under section 143(2) has been issued for calling the assessee for the purpose of scrutinising the assessment then suddenly resort to Section 143(1)(a)(i) by changing the course to surprise of assessee will also be not conducive to justice. The expression, without prejudice to the provisions of sub-section M’ clearly stipulates that notwithstanding the fact that a intimation has been issued under Section 143(1)(a)(i), still A.O. reserves the power to resort to subsection (2) of Section 143 of the Act. In fact, the very expression, without prejudice to the provisions of sub-section (2) shows that this is an exception to sub-section (1) of Section 143 of the Act that the regular assessment power can still be exercised by the A.O. under Section 143(2) of the Act. The expression ‘without prejudice to’ makes a whole of difference and on account of this expression, the power of the A.O. to resort to formal assessment is saved. It shows that if the A.O. has sent an intimation under Section 143(1)(a)(i) and he realise that assessee need to be heard in the matter, he will not be denuded of his power to summon him under Section 143(2) of the Act. The idea behind reserving power under section 143(2) of the Act was that the A.O. shall not be bound by issuing intimation issued under Section 143(1)(a)(i) of the Act and the legislature has given him a sufficient power to resort to normal procedure of assessment under Section 143(2) of the Act. This power has been given for the benefit of the assessee so that the assessing officer. can be apprised of the correct facts. It is a cardinal principle of interpretation of statute that normally the Court should endeavour to interpret the provisions of the Statutes in a manner which will advance the cause of justice. Therefore reading of section 143(1) and 143(2) together, it appears that notwithstanding the fact that A.O. has issued a notice under section 143(1) (a) still the power under sub-section (2) of section 143 reserved for the A.O. that he cab exercise the same; therefore, the expression, which has been used, is ‘without prejudice to the provisions of sub-section (2)’ of the Act meaning thereby that the A.O. has a power under sub-section (2), despite the fact that he has exercised his power earlier in sub-section (1) (a) (i) of section 143 of the Act. But the converse of it not true. If the A.O. has already issued a notice under sub-section (2) of Section 143 of the Act then in that case, he cannot send an intimation on the basis of the return filed and issue a notice of demand, that would amount to changing the course which the A.O. had already set for himself. In this connection, a reference may also be made to sub-section (3) section 143 of the Act, which says that if notice under sub-section (2) has been issued then the A.O. shall proceed and decide the matter. This shows that there is a mandate that the A.O. should proceed and complete the assessment proceedings initiated under Section 143(2) of the Act. If the Legislature wanted that the A.O. can resort to Section 143(1)(a)(i) of the Act, despite that he has already issued a notice under sub-section (2) of section 143 then they would not have used the expression, without prejudice to the provisions of sub-section (2)’. It only shows that the intention of the Legislature was that the power of the A.O. should not be circumscribed simply because he issued a notice under Section 143(1)(a)(i) of the Act, he still has power to Issue notice to the assessee under sub-section (2) of Section 143 of the Act and assess the liability with the assistance of the assessee.
In support of the aforesaid contention, our attention was invited to a decision of Calcutta High Court given in the case of Modern Fibotex India Ltd. & another v. Deputy Commissioner of Income-tax & another (1995 (212) I.T.R. 496). In that case, it was held :
“The jurisdiction under Section 143(1)(a)(i) is a summary one, whereas section 143(2) precedes on assessment under section 143(3). It is true that the word ‘shall’ has been used in connection with the issuance of an intimation but it is well established at the construction of the expression ‘shall’ depends upon the provisions of the Act, the setting in which the direction is given and the consequences that would follow from the infringement of the direction and other such consideration. The context in which the word ‘shall’ has been used in section 143(2) has to be read is the background of the proviso to the section and that is that where there is no scope for any adjustments in terms of the proviso, there would be no scope for sending any intimation.’
Similarly, our attention was also invited to the decision of Gujarat High Court given in the case of Gujarat Poy-Avx Electronics Ltd. v. Deputy Commissioner of Income-tax (1996 (222) I.T.R. 140) and in that case, it was held
“Reading the language of sub-clause (I) of clause (a) of sub-section (1) of section 143 of the Income Tax Act, 1961, it is clear that the Assessing officer is permitted to make adjustments and the same is without prejudice to the provisions of sub-section (2). The right of the assessing officer to proceed under section 143(2) is preserved the despite intimation to the assessee under section 143(1) of the Act. The use of the word ‘shall’ in subsection (2) of section 143 of the Act mandates the assessing officer to issue notice to the assessee with a view to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. After expiry of 12 months from the end of the month in which the return is furnished no notice can be served on the assessee. But, intimation under section 143(1) can be sent before the expiry of two years from the end of the assessment year. Thus, the Legislature has not permitted simultaneous proceedings, The Central Board of Direct Taxes in its Circular No. 549 dated October 31, 1989, has advised the assessing officer to issue intimation under sec. 143(1) before issuance of notice under Section 143(2) of the Act Hence, after issuance of notice under section 143(2) of the Act, it is not open for the assessing officer to make adjustment or to pass order under section 134(1) of the Act, but he has to make assessment in accordance with law, i.e. under section 143(3) of the Act.”
Therefore, what it comes to that once a notice under sub-section (2) of Section 143 has been issued, then suddenly, the A.O. cannot revert back to section 143(1) (a) and issue intimation and that would amount to committing a breach of section 143(3) which says that once a notice under Section 143(2) has been issued then he shall proceed and decide the matter. For this purpose, this power has been specifically saved to the A.O. where it says that if intimation has been issued by the A.O. under Sec. 143(1)(a)(i) of the Act, still without prejudice to that, the A.O. has a power under sub-section (2) of Sec. 143 of the Act to take up the proceedings in a regular assessment. But reverse is not correct. In case, a notice under Section 143(2) has been issued, it cannot revert to issue intimation under Section 143(1)(a)(i) of the Act. Similarly, in this connection, our attention was invited to the decision of this Court given in the case of Kamal Textiles v. Income Tax Officer (1991 M.P.L.J.441) and in that case, it was 6bserved :
“A reading of clause (i) of sub-section (1) (a) of Section 143 of the Income Tax Act, 1961, makes it clear that the giving of the intimation in terms of that provision is ‘without prejudice to the provisions of sub-section (2)’. By force of his expression as inserted in sub-section (1) (a) (i) of Section 143 the right of the assessing authority to proceed under sub-section (2) of section 143 despite intimation to the assessee of the sum payable by him as tax or interest is not taken away. That right is clearly saved and is not in any way curtailed or hampered by giving of the intimation. The expression shall mean only that an intimation sent to the assessee specifying the sum payable by him in terms of that sub-section, although technically a demand issued under section 156, shall nevertheless not preclude the operation of sub-section (2). When proceedings are taken under section 143(2), it partakes the nature of a regular assessment and the assessing authority should pass an order under section 143(3). The intimation under Section 143(1)(a)(I) is only fictionally taken as a notice of demand under section 156. A notice of demand under section 156 is to be served in the prescribed form. The intimation under Section 143(1)(a)(i) is not in such prescribed form. It cannot be said that one issuance of such intimation, the assessment proceedings can be reopened only in terms of section 147 and the authority is not entitled to proceed under sub-section (2) of section 143.”
Our attention was also invited to the decision of Delhi High Court given in the case of Apogee International Ltd. & Another v. Union of India & Another (1996) (220) I.T.R. (248). We have gone through that decision, but with great respect the view taken by the Delhi High Court does not appear to be well founded in the present case for the simple reason that what it reserved is the power of the A.O. under section 143(2) that if the intimation has been issued to the Assessee, still the A.O. reserved the power to issue notice under section 143(2) for a regular proceeding. But the reverse is not true. Once the A.O. has issued a notice under section 143(2) and proceeding has already been initiated then he cannot reverse back to issue an intimation and raise a demand under Section 156 of the Act. what is saved is the power of the A.O. under sub-section (2) of Section 143(1)(a)(i) of the Act to issue an intimation and raise a demand under section 156 of the Act. Therefore, with great respect, we are of the opinion that the view taken by the Delhi High Court reversing the process does not appear to be well founded in scheme of things.
In the present case, notice under Section 143(2) was issued to the assessee for making scrutiny of the assessment on 20/5/1992 and intimation under Section 143(1)(a)(i) of the Act was issued on 18/12/1992. Therefore, it appears that the A.O. has already issued notice to the party for scrutinising assessment and he was in process of passing the regular assessment order under sub-section (3) of section 143; but he reversed the process and sent an intimation under Section 143(1)(a)(i) on 18/12/1992 levying additional tax of Rs. 20,56,830/-. This action of the A.O. was not in consonance of the law and also the circular issued by the department. In this view of the matter, the view taken by the Tribunal appears to be correct. This reference is accordingly answered in favour of the Assessee and against the Revenue.
OPEN