JUDGMENT
B.C. Patel, J.
1. The petitioners, by filing these petitions under Art. 226 of the Constitution, have challenged the validity of the proceedings under s. 154 of the IT Act, 1961 (hereinafter referred to as ‘the Act’) pending assessment proceedings under s. 143(3) of the Act. At the request of learned advocates, both these petitions are disposed of by this common judgment as question raised is common.
2. Brief facts of the case are :
The petitioner-assessee in Special Civil Appln. No. 1047 of 1996 is a public limited company, and by filing this petition, has prayed to issue a writ of certiorari or any other appropriate writ, order or direction quashing and setting aside the notice under s. 154 of the Act at Annexure ‘C’ to the petition, being invalid in law.
For the asst. yr. 1993-94, the petitioner-assessee filed a return of loss of Rs. 5,93,17,235, along with computation of total income, a copy of which is annexed to the petition at Annexure ‘A’. By order dt. 31st March, 1994, the Assessing Officer (AO) passed an order under s. 143(1)(a) of the Act, accepting the said loss, a copy of which is annexed to the petition at Annexure ‘B’.
The AO thereafter issued a notice under s. 143(2) of the Act on 12th July, 1995, vide Annexure ‘D’. Notice dt. 12th July, 1995 under s. 142(1) was also issued simultaneously, vide Annexure ‘E’. Thereafter proceedings commenced under s. 143(3) of the Act. The proceedings were conducted on different dates. The evidence called for by the AO was produced. Explanation in respect of certain points was also tendered and ultimately assessment order has been passed under s. 143(3) of the Act, for which there is no dispute. It appears that before completing the assessment under s. 143(3) and after issuance of notice under s. 143(2) for proceedings under s. 143(3), notice dt. 24th Jan., 1996, under s. 154 came to be issued by the AO, vide Annexure ‘C’, calling upon the petitioner to file objections on or before 5th Feb., 1996, with regard to royalty of Rs. 44.92 lakhs as the said amount is disallowable under s. 40(a)(i) of the Act. This notice is the subject-matter of Special Civil Appln. No. 1047 of 1996.
3. Special Civil Appln. No. 2178 of 1996
The petitioner-assessee in this case is also a public limited company and it submitted its return, vide Annexure ‘A’ along with a statement substantiating its claim of depreciation. The AO accepted the view of the assessee and passed an order dt. 18th Aug., 1994 under s. 143(1)(a), vide Annexure ‘B’ to the petition. Thereafter, on 7th Oct., 1994, a notice was issued by the AO under s. 143(2) of the Act, vide Annexure ‘C’ to the petition. It appears that notice under s. 142(1) also came to be issued on 10th July, 1995, vide Annexure ‘D’. After the issuance of notice under s. 143(2) of the Act, a notice under s. 154 came to be issued on 15th Dec., 1995, vide Annexure ‘E’. The petitioner, by letter dt. 20th Dec., 1995, at Annexure ‘F’ pointed out that he has rightly claimed the depreciation and there is no question of rectification. However, the AO, on 29th Jan., 1996, vide Annexure ‘G’ passed an order computing additional tax of Rs. 69,86,500 under s. 143(1A) of the Act. Thereafter, a demand under s. 156 of the Act was raised for Rs. 52,45,035, vide Annexure ‘H’. Thereafter, an assessment order is also passed on 22nd March, 1996, under s. 143(3) of the Act in accordance with the procedure. In this petition, the petitioner has challenged the legality and validity of the notice dt. 15th Dec., 1995, under s. 154 of the Act at Annexure ‘E’, order passed under s. 154 of the Act at Annexure ‘G’ and demand under s. 156 of the Act at Annexure ‘H’.
4. The petitioner has preferred an appeal against the said order. However, since this and other matters wherein similar question of law is involved, are heard together.
5. Mr. Shah, learned advocate for the petitioner, submitted that in view of the language used in s. 143(1)(a) sub-cls. (2) and (3) of the Act, the AO has to complete the assessment in the manner laid down in sub-s. (3) of s. 143, after issuing of notice under s. 143(2) of the Act.
As against this, Mr. Shelat, learned counsel for the respondent-Revenue submitted that by issuing a notice under s. 154 irrespective of proceedings pending under s. 143(3) the assessee can be called upon to file objections if there is a mistake apparent from the record and in view of sub-clause (b) of clause (1) of s. 154, it is open for the AO to amend the intimation sent by him under sub-s. (1) of s. 143, and the AO can enhance or reduce the amount of tax or refund granted by him under that section.
Sub-clause (i) of s. 143(1)(a) of the Act reads as under :
“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-s. (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 s. 156 and all the provisions of this Act shall apply accordingly.”
Reading this provision, it is clear that adjustment can be made without prejudice to the provisions of sub-s. (2). Thus, the right to issue notice under s. 143(2) of the Act is with the AO even after making the adjustment. Section 154(1)(b) refers to amendment in the intimation, sent by the authority under s. 143(1) and powers are conferred to rectify any mistake which is apparent from the record and not otherwise. Thus, after rectifying the mistake, the order would remain an order under s. 143(1)(a) of the Act, and in view of the language, it would be open for the AO to issue notice under s. 143(2) of the Act even thereafter to the assessee for making assessment under sub-s. (3) of s. 143 and, in that case, he will have to complete the assessment as laid down under sub-s. (3) of s. 143. We have taken the view that once notice is issued under s. 143(2), the AO has to complete the assessment under s. 143(3) in our decision rendered in Special Civil Appln. No. 425 of 1996, decided by us on 4th/5th July, 1996, [since reported as Gujarat Poly-Avx Electronics Ltd. vs. Dy. CIT ] and, therefore, we do not discuss in detail about the same in this judgment. If the AO would have rectified the order with the aid of s. 154(1)(b) of the Act, even then certainly he could have exercised the power under s. 143(2) of the Act. Once having issued the notice under s. 143(2), he has to complete the procedure of assessment as laid down under s. 143(3) of the Act. In the instant case, the order of assessment is passed by the AO and thus he has completed the assessment after scrutinising the evidence with proper application of mind. Therefore, in a case like this, after issuance of notice under s. 143(2) of the Act, there is no question of issuing notice under s. 154(1)(b) of the Act but the assessment is to be made under s. 143(3) of the Act. Therefore, the impugned notices deserve to be quashed and set aside.
6. Mr. Shah, learned advocate, has raised contention with regard to patently disallowable items under s. 143(1)(a) of the Act. We do not enter into the discussion of allowability or disallowability which may be patent or otherwise in the instant cases as we think it is not necessary, and we keep this question open.
7. In the light of the above discussions, Special Civil Appln. No. 1047/1996 is allowed. Notice at Annexure ‘C’ to the petition issued by the Dy. CIT(Asst.), Spl. Range-2, Baroda on 24th Jan., 1996, under s. 154 of the Act is quashed and set aside.
Similarly, Special Civil Appln. No. 2178/1996 is also allowed. Notice dt. 15th Dec., 1995 under s. 154 of the Act at Annexure ‘E’, order passed under s. 154 of the Act at Annexure ‘G’ and demand under s. 156 of the Act at Annexure ‘H’, in Special Civil Appln. No. 2178/1996 are quashed and set aside.
8. Rule in both these matters made absolute accordingly. No order as to costs.