Judgment:
1. The appellant-revenue by their present appeal contests the correctness of the order dated 16-2-1989 of the learned Dy. CIT (Appeals), Kanpur, for the assessment year 1980-81, inter alia, on the following grounds : 1. That the learned Dy. CIT (Appeals) erred in law and on facts of the case in holding that order of assessment passed under Section 143(3)(b) had been substituted in place of assessment order passed under Section 143(1) of the I.T. Act, 1961 and since this order under Section 143(3)(b) of the I.T. Act, 1961 has been cancelled, there is no assessment order and provisions of Section 55 of the Act is not available and revision under Section 55 of the I.T. Act is not possible.
2. That the learned Dy. CIT (Appeals) erred in law and on facts of the case in holding that there was no assessment order available for amendment under Section 55 becomes this tantamounts to review of the order passed by the Dy. CIT (Appeals) (then AAC of Income-tax, Kanpur) in the assessee's own case on 13-4-1987 in appeal No. 179/1(B)/1985-86 when it has been held that after cancellation of fresh assessment under Section 143(3) the original assessment under Section 143( 1) survives automatically and this finding had become final as no appeal was filed against this order.
3. That the learned Dy. CIT (Appeals) erred in law and on facts of the case in deciding the non-existence of order passed under Section 143(1) in appeal filed against order passed under Section 155 of I.T. Act because the scope of order under Section 155 is limited to enhancing the income or reducing a refund.
2. The assessee by status in this case is an individual and return was filed on 15-11 -1980 reflecting the income of Rs. 22,783. Initial assessment was framed on 12-1-1983 under Section 143(1) of the Income-tax Act, 1961. Unfortunately the copy of the said order is not placed on record either by the appellant-revenue or the assessee in spite of our asking.
3. Subsequently, the learned ITO issued notice under Section 143(2)(b) of the Act, on 24-2-1983. Forms 28 and 29 were said to have not been filed by the assessee. The payment of tax under Section 210 of the Act was seen to have been made of Rs. 3,929, including TDS at various stages. In response to a notice under sections 148(2) and 142(1). Shri R.K. Gupta learned Advocate, contested the proceedings initiated after issuing the notice on 24-2-1983. The total income of the assessee thereafter was determined at Rs. 36,057 vide order dated 7-3-1983, framed under Section 143(3) of the Act. The copy of the said order is on the record.
4. The said order dated 7-3-1983 was contested by the assessee in first appeal and before the learned AAC, Kanpur, the learned counsel Shri R.K. Gupta argued that the assessment completed under Section 143(2)(b) of the Act was invalid and should be quashed on the ground that such an assessment can only be made if an assessment made under Section 143(1) of the Act was incorrect, inadequate or incomplete in any material respect. It was further submitted that the sanction to reopen the assessment under Section 143(2)(b) of the Act was accorded by the learned IAC, Kanpur on 3-3-1983, whereas the notice under Section 143(2) and 142(1) of the Act were issued by the learned ITO on 28-2-1983 and was served on 2-3-1983. According to the learned counsel, the assessment completed under Section 143(3) was invalid.
5. The learned AAC demanded a remand report from the lea ned ITO and it was conveyed that the learned IAC accorded sanction on 24 2-1983, to issue notice under Section 143(2)(b) of the Act. It was further pointed out by the learned ITO that the sanction was accorded on his letter of 24-2-1983. The assessee's first appeal was allowed by the learned AAC, Kanpur, vide order dated 30-6-1984, with the following observations : The above facts have been verified by me from the records and it is seen that the contention of Shri Gupta regarding validity of notice under Section 143(2)(b) is not acceptable. All the conditions mentioned for issuing the notice under Section 143(2)(b) have been complied by the ITO. However, now the question arises whether the reassessment made under Section 143(3)(b) is valid or not. Shri Gupta has contended that the only variation made in the re-assessment is in the share income. In the re-assessment the determined share has been taken since the assessment of the firm had already been made. After going through the original form No. 7 which was served on the appellant it is seen that the original assessment under Section 143(1) was made subject to rectification under Section 155. Since in the re-assessment the only variation in the income has taken place in the share income the ITO should have rectified the original assessment under Section 155. Though it cannot be refuted that notice under Section 143(2)(b) was correctly issued I feel that the re-assessment under Section 143(3)(b) should not have been made since the original assessment had already been made subject to rectification under Section 155. From the above, it is clear that the original assessment made under Section 143(1) is not incorrect, inadequate or incomplete in any material respect because the original assessment was made subject to rectification under Section 155 and the only change the ITO has made is that he has taken the determined share when the re-assessment has been made by him.
Considering the above facts the reassessment made under Section 143(3)(b) is cancelled and the ITO is directed to rectify the original assessment which stands under Section 155 as had been mentioned in his earlier order. It may be mentioned that a specific provision should be applied before a general provision of the IT Act.
6. The said first appellate order dated 30-6-1984 was subsequently contested by both the parties, i.e., the assessee and the revenue. The assessee's grievance was against the learned AAC's observation that the revenue rectified the assessment order dated 12-1-1983 framed under Section 143(1) of the Act, after operating the provisions of Section 155 of the Act. The revenue's appeal, on the other hand, was against the cancellation of order dated 7-3-1983 framed under Section 143(3) of the Act.
7. The 'A" Bench of the Income-tax Appellant Tribunal vide a consolidated order dated 16-5-1985 allowed the assessee's appeal in part and dismissed that of the revenue. The copy of the first appellate order dated 30-6-1984 and the Tribunal's order dated 15-5-1985, are placed on record.
8. The assessee's grievance before the Income-tax Appellate Tribunal was against the learned AAC's observation that assessment order dated 12-1-1983 framed under Section 143(1) of the Act, was still available for rectification. Cancellation of assessment order dated 7-3-1983 framed under Section 143(3) of the Act notwithstanding. On such appeal, filed by the assessee, the Bench vacated the learned AAC's fateful observation, with the following observations :- We now come to another important question. The Appellate Assistant Commissioner also directed the Income-tax Officer to rectify the assessments made under Section 143(1) of the Act, under Section 155 of the Act. Both sides agreed that such a direction issued by the Appellate Assistant Commissioner was beyond his jurisdication. In our opinion, their view is correct. The Appellate Assistant Commissioner was called upon to deal with the validity or otherwise of the fresh assessments made under Section 143(3)(b) of the Act.
The assessments under Section 143(1) of the Act were not the subject matter of appeal before him. He could not, therefore, issue any direction in regard to such assessments.
9. The learned ITO thereafter, taking note of the first appellate order (supra) dated 30-6-1984 and the Tribunal's order (supra) dated 15-5-1985, considered that the order dated 12-1-1983 framed under Section 143(1) of the Act was valid and still survived for being rectified under Section 155 of the Act. The learned ITO, Kanpur, thus vide order dated 7-3-1986, framed under Section 155/143(1) of the Act, rectified the initial order dated 12-1-1983, with the following observations :- Looking to the above facts, a notice under Section 154/155 was served on the assessee on 16-1-1986. In compliance to the notice the assessee furnished his/her reply on 20-1-1986 stating therein that even order under Section 143(1) does not exist after the findings of the Tribunal Bench. As the assessee's contention has no force looking to the findings of even Hon'ble Bench of Tribunal in the matter of ITO's order under Section 143(1) the order passed under Section 143(1) on 12-1-1983 is revised under Section 155 and income is computed as under :-3. Int. Income 8,192 ______ 10. Against the said rectificatory order dated 27-3-1986, the assessee filed first appeal and the learned authorised representative Shri Ram Kumar Gupta explained that original assessment was made under Section 143(1) of the Act in which the return filed by the assessee was accepted. It was further pointed out that a notice under Section 143(2)(b) of the Act was issued after the approval of the learned IAC and served on the assessee and thereafter the income was said to have finally been assessed at Rs. 36,060, after enhancing the income of the assessee. The assessee's contention before the learned AAC was that the order dated 27-3-1986 was invalid and so also the order dated 7-3-1983.
It was pointed out that the learned ITO was not justified to assume that the assessment order dated 12-1-1983 framed under Section 143(1) of the Act, was valid and available for being rectified under Section 155 of the Act. It was pointed out that on initiation of proceedings under Section 143(3)(b) of the Act, the assessment order frarmed under Section 143(1) of the Act, no longer survived. Mention was also made of the principle of merger. The learned authorised representative on behalf of the assessee also brought on record written submissions.
11. According to the learned Dy. CIT(A), it was submitted on behalf of the Revenue that fresh assessment framed on 7-3-1983 did not touch the original assessment order and thus cancellation of fresh assessment by itself, according to the revenue, did not wipe out original assessment order.
12. The learned Dy. CIT(A), Kanpur after considering the facts and the rival submissions, allowed the assessee's first appeal, with the following observations : The written submissions, statement of facts and the grounds of appeal furnished by the appellant, supported with the order of the AAC, the decision of the learned ITAT and also the principle laid down by the Hon'ble Supreme Court as quoted above, have been looked into very carefully. Side by side the action taken by the ITO while passing assessment order under sections 143(1)/143(3)(b) and 155/143(1) have been considered judiciously. After giving patient thought I came to the conclusion that the submissions made to the appellant seem to be justified and reasonable. Since initial order of assessment under Section 143(1) was reopened which seems to be operative soon after the issuance of a notice under Section 143(2)(b), and, fresh order of assessment passed under Section 143(3)(b) was substituted in place of initial order of assessment which has been cancelled, therefore, this resulted that there remain no any assessment order and provisions of Section 155 of the Act is not available and as such no revision is possible under the Act.
13. Hence, the present appeal by the Revenue before us, inter alia, on the grounds mentioned above against the order allowing assessee's first appeal. The learned Departmental Representative Shri S.K. Sagar supported the assessment order dated 27-3-1986 and argued that the order framed under Section 143(1) of the Act survived for being rectified even after the order passed under Section 143(2)(b) of the Act was cancelled. He read from the provisions of sections 155 and 143 of the Act. It was pointed out by the learned Departmental Representative that Section 143(1) assessment continued even after notice under Section 143(2)(b) was issued and a 143(3)(b) assessment order was cancelled. He argued that the law was clear on the point and thus accordingly the learned D.R., the ITO was competent to operate Section 155 of the Act and the learned Dy. CIT(A) was not competent to vacate such assessment.
14. On behalf of the assessee, the learned Advocate Shri R.K. Gupta supported the order under challenge and argued further that once the learned ITO issued notice under Section 143(2)(b) of the Act, that the learned ITO's 143(1) order evaporated. According to Shri Gupta, order under sectionl43(3)(b) had taken the place of order under Section 143(1) of the Act. It was pointed out by the learned counsel that the revenue authorities did not adopt the correct course of action for attaining the objection set forth by them. According to the learned counsel, issuance of notice for rectification under Section 155 of the Act was irrelevant, meaningless and ineffective once 143(2)(b) notice had been issued. The learned counsel placed reliance on the ratio in the following cases :- (a) In the case of Kundan Lal Srikrishna Mathur v. CST [1987] UPTC 404 (SC) (c) In the case of Toss Printing Inks (P.) Ltd. [1989] UPTC 1091 at page 1094 (SC).
15. In reply on behalf of the Revenue, it was submitted by the learned Departmental Representative that the ratios relied upon by the learned counsel were of no help to the assessee as once case was under Sales-tax Act and the other two cases were on different facts.
16. The submissions made and the contentions raised on behalf of the parties have been heard and record carefully perused. The facts by and large have already been narrated in one form or the other. This case unfortnately has a protracted background and history. As mentioned earlier, the first assessment was framed on 12-1-1983 under Section 143(1) of the Act. The said order was reopened by the learned ITO after issuing notice under Section 143(2)(b) of the Act, which matter in the preceding paragraph has been discussed upto the Income-tax Appellate Tribunal's stage. Alter the cancellation of 143(1) order, the order was framed under Section 143(3)(b) of the Act and the learned ITO again issued notice under Section 144/155 of the Act and framed assessment on 27 3-1986 under Section 155/143(1) of the Act. The Revenue's case before us was that the initial order passed under Section 143(1) of the Act survived for rectification even after the cancellation of order framed under Section 143(3)(b) of the Act by the learned AAC and confirmation of such cancellation by the Tribunal. On the other hand, the assessee's case was that once, after the approval of the learned IAC, notice was issued under Section 143(2)(b) of the Act, the original assessment order framed under Section 143(1) of the Act became non-existent, invalid and inoperative and thus not available for being rectified. For attempting a reply to the issues at hand, raised on behalf of the contesting parties, the relevant provisions of law is contained in Section 143(3)(b) of the Act. According to that provision :- In a case where . . . the Assessing Officer is of the opinion that such assessment is incorrect, inadequate, or incomplete in any material respect, the Assessing Officer shall, by an order in writing, may make a fresh assessment of the total income or loss of the assessee and determine the same payable by him or refundable to him on the basis of such assessment.
17. It is not disputed before us that 143(3)(b) assessment had been completed in this case on 7-3-1983. As per the above provisions, the learned ITO, after issuing the notice, shall by an order in writing make a fresh assessment of the total income and also determine the tax liability payable by the assessee. In the present provision, the following things are required, namely, the Assessing Officer should be of the opinion that the earlier order was incorrect, a notice was issued conveying the intention to rectify and thereafter a fresh assessment of the total income was to be framed determining the assessee's tax liability. Once such thing is done, then the tax liability of the assessee is fixed. If such fixation of income-tax liability is there, then naturally the tax liability earlier created under Section 143(1) of the Act does not survive for clearance. In such like situation, naturally after passing of the order under Section 143(3)(b) of the Act, the earlier assessment order under Section 143(1) of the Act comes to an end and does not survive for subsequent further rectification. Thus, the learned ITO's attempt to rectify that order vide order dated 27-3-1986 was indeed misconceived, misplaced and not sanctioned by any provisions of law. This is our answer to the issue raised on behalf of the parties and more specially by the Revenue that even after passing of Section 143(3)(b) and cancellation thereof, order under Section 143(1) survived for rectification. Our answer to the remaining issue is not in the affirmative. For such a conclusion, we derive full support from the ratio in the case of Kundan Lal Srikrishna Mathur (supra) wherein it was observed that after the issuance of the notice, the original assessment ceased to be enforced and the only order of assessment in respect of that year, which should be taken into consideration for all the purposes, was the order subsequently passed.
According to this ratio, the original assessment order framed under Section 143(1) of the Act became non-existent once notice under Section 143(2)(b) of the Act had been issued and in pursuance thereto, the assessment had been framed. Similar is the view expressed by the Hon'ble Allahabad High Court in the case of Tass Printing Inks (P.) Ltd. (supra) and others and in another case of Toss Printing Inks (P.) Ltd. and another. These three ratios clearly support the view taken by us in the present case. In the light of the preceding paragraphs, we confirm the order under challenge.