Full Judgment Text
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CASE NO.:
Appeal (civil) 2614 of 2001
PETITIONER:
KILLICK NIXON LTD., MUMBAI
RESPONDENT:
DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI AND ORS.
DATE OF JUDGMENT: 25/11/2002
BENCH:
RUMA PAL & B.N. SRIKRISHNA
JUDGMENT:
JUDGMENT
2002 Supp(4) SCR
The Judgment of the Court was delivered by
SRIKRISHNA, J. This appeal by special leave is directed against the
judgment of the High Court of Bombay dated 04.12.2000 dismissing the Writ
Petition under Article 226 of the Constitution by which the appellant
challenged the notice issued under Section 142(1) of the Income Tax Act,
1961 (hereinafter referred to as ’the Act’)
The brief facts necessary to decide this appeal are as under:
On 26th February, 1993 the appellant filed its return for assessment year
1992-93 and followed it up with a revised return. The Assessing Officer
made an order dated 27th March, 1995 under Section 143(3) of the Act
disallowing certain claims and rejecting the contentions of the assessee.
The appellant filed an appeal before the Commissioner of Income Tax
(Appeals). The Appellate Authority by its order dated 25.09.1998 confirmed
the order of the Assessing Officer in respect of the following items:
(a) Premium amount of Rs. 3,57,153.00
(b) Depreciation to the extent of Rs. 2,13,000.00
(c) Interest of Rs. 27,14,000.00 (Totaling Rs. 32,84,153.00)
With regard to four items/heads the Appellate Authority set aside the order
of the assessment and remitted the matter back to the Assessing Authority
with the direction to recompute/reassess after giving an opportunity of
hearing to the assessee. The four items/heads remitted to the Assessing
Officer were:
"(a) Whether receipt of Rs. 27,93,977.00 represented income from house
property or whether it represented business income.
(b) Claim for bad debt of Rs. 68,02,046.00.
(c) Determination of capital gains to the extent of Rs. 4,00,000.00.
(d) Disallowance under Rule 6D to the extent of Rs. 31,963.00."
Being aggrieved by the decision of the CIT (Appeals), the assessee carried
an appeal before the Income Tax Tribunal in respect of premium,
depreciation and interest, which together represented an amount of Rs.
32,84,153.00.
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Pursuant to the order of the CIT (Appeal), the Assessing Officer made an
order dated 25.9.1998 giving effect to the appellate order. The Assessing
Officer determined the assessed income of the appellant at Rs. 33,65,298.00
and raised a demand of Rs. 26,27,545.00 In the meanwhile, Kar Vivad
Samadhan Scheme, 1998 (herein after referred to as KVSS) was brought into
effect by Finance (No. 2) Act, 1998. The appellant filed a declaration
under the KVSS on 20.11.1998 disclosing its assessed income as Rs.
33,65,298.00 and working out the tax payable under the Scheme at Rs.
8,65,795.00. The said declaration was accepted by the Designated Authority
under the KVSS by an order dated 19.1.1999 made under Section 90(1) of the
Finance (No. 2) Act, 1998. The Designated Authority accepted the assessed
income of the appellant at Rs. 33,65,298.00 and determined the tax payable
by the appellant at Rs. 9,35,888.00. This amount of Rs. 9,35,888.00 was
paid by the appellant on 12.02.1999 upon which a final certificate under
Section 92 read with Section 91 of the Finance (No. 2) Act, 1998 and the
KVSS, 1998 was issued certifying that the appellant had paid towards full
and final settlement of the tax arrears determined in the order dated
19.1.1999 on the declaration made by the appellant and granting immunity
consequent under the provisions of the Scheme.
By an order made on 16th August, 1999 purportedly under Section 142 (1) of
the Act, the Assessing Officer called upon the appellant to furnish details
in respect of Assessment Year 1992-93 in connection with taxing of the
licence fee of Rs. 24,12,114.00 received from the State Bank of India for
let out portion of its property under the head "Income from House Property"
as also to furnish evidence to establish that the written-off debts had
become bad and have been written-off in the books of accounts.
The appellant protested by its letter dated 21st January, 2000 and pointed
out that the assessment for the Assessment Year 1992-93 had obtained
finality in view of the declaration under KVSS, the determination of the
tax under the Scheme and the final certificate issued by the Designated
Authority The Assessing Officer refused to accept it as final closure of
the proceedings pertaining to Assessment Year 1992-93. Hence, the appellant
moved the High Court under Article 226 to quash the impugned notice and
further proceedings consequent thereto. The High Court by its judgment
dated 04.12.2000 dismissed the writ petition. Hence this appeal.
A look at the material provisions of KVSS is necessary to appreciate the
contentions urged...
Section 87 - In this Scheme, unless the context otherwise requires:
xxx xxx xxx
(e) "disputed income", in relation to an assessment year means the whole
or so much of the total income as is relatable to the disputed tax;
(f) "disputed tax" means the total tax determined and payable in respect of
an assessment year under any direct tax enactment but which remains unpaid
as on the date of making the declaration under Section 88:
xxx xxx
xxx
(m) "tax arrear" means - (1) in relation to direct tax enactment, the
amount of tax penalty or interest determined on or before the 31st day of
Mach, 1998 under that enactment in respect of an assessment year as
modified in consequence of giving effect to an appellate order but
remaining unpaid on the date of declaration;
Section 88 - "Subject to the provisions of this Scheme, where any person
makes,
On or after the 1st day of September, 1998 but on or before the 31st day of
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December, 1998, a declaration to the designated authority in accordance
with the provisions of Section 89 in respect of tax arrear, then,
notwithstanding anything contained in any direct tax enactment or indirect
tax enactment or any other provision for any law for the time being in
force, the amount payable under the Scheme by the declarant shall be
determined at the rates specified hereunder, namely :-
(a) Where the tax arrear is payable under the Income-tax Act, 1961 (43 of
1961), -
(i) in the case of a declarant being a company or a firm, at the rate of
thirty-five percent of the disputed income;"
Section 90 - (i) "Within sixty days from the date of receipt of the
declaration under Section 89, the designated authority shall, by order,
determine the amount payable by the declarant in accordance with the
provisions of the Scheme and grant a certificate in such form as may be
prescribed to the declarant setting forth therein the particulars of the
tax arrear and the sum payable after such determination towards full and
final settlement of tax arrears;"
Section 94 -"For the removal of doubts, it is hereby declared that, save as
otherwise expressly provided in sub-section (3) of Section 90, nothing
contained in this Scheme shall be construed as conferring any benefit,
concession or immunity on the declarant in any assessment or proceedings
other than those in relation to which the declaration has been made."
The Scheme of the KVSS is to cut short litigations pertaining to taxes
which were frittering away the energy of the Revenue Department and to
encourage litigants to come forward and pay up a reasonable amount of tax
payable in accordance with the Scheme after declaration thereunder.
The learned Senior Counsel for the appellant contended that once the
assessment for the entire year was settled by following the provisions of
the Scheme and the Designated Authority after application of mind had made
an order under Section 90, which was complied with by making payment of the
tax computed under the Scheme. there was no question of reopening any issue
which were subject matters of the Order of the Designated Authority. He
urged that the order of the Designated Authority is not mechanically
passed, but upon Careful scrutiny of all the facts and circumstances
pertaining to the declarant assessee and intended to bring about certain
legal consequences under the KVSS. It was not open to the Income Tax
Authorities to put back the clock by going back thereupon. The order of the
Designated Authority is conclusive on all items/heads, which go into the
computation of the total income of the assessee and not confined only to
the heads of income in respect of which an appeal or reference may be
pending.
Counsel for the Revenue however, emphasized that the expression "determined
and payable" used in Section 87 gives a clue to understanding the Section.
He contended that, in the case of the present appellant, the giving effect
order made by the CIT (Appeals) had not been fully worked out by the
Assessing Officer as income under the four heads i.e. a) disallowance of
bad debts to the extent of Rs. 68,02,046.00; b) income from house property
to the.extent or Rs. 27,93,977.00; c) dispute regarding capital gains to
the extent of Rs. 4,00,000.00 and d) disallowance under rule 6D amounting
to Rs. 31,963.00 had not been finally computed by the Assessing Authority
after the findings of the Assessing Authority on these four heads were set
aside by the CIT (Appeals) and the matter was remitted to the Assessing
Authority. It is Urged that the sum total of these amounts would be in the
vicinity of Rs. 99 lacs, while the dispute before the Tribunal was only
confined to disallowance of interest (Rs. 27,14,00.00), disallowance of
depreciation (Rs. 2,18,000.00) and disallowance in respect of premium paid
(Rs. 3,57,153.00). The demand notice issued was only in respect of these
items totalling Rs. 33,65,298.00, this amount which had been declared under
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the KVSS on which the appellant paid paltry amount of Rs. 9,35,888.00 as
tax in full and final settlement. It is also contended that the appellant
has escaped payment of tax on a large income of approximately Rs.
99,00,000.00 in respect of bad debts, income from house property, capital
gains and disallowance under rule 6D as these disputed issues were never
determined by the Assessing Officer. The Designated Authority had assessed
the income of the appellant at Rs. 33,65,298.00 only on the basis of KVSS
and that he could not have worked out the assessable income as he Assessing
Officer had not yet determined the income under the above four heads.
We are unable to accept the contention urged on behalf of the Revenue on
both counts. In the first place, we are unable to accept that the assessing
Officer in his order dated 25.09.1998, while giving effect to the order of
CIT (Appeals), had not taken account of the four major heads of dispute
amounting to about Rs. 99 lacs. A reference to that order (which is at
Exhibit C-l to the Writ Petition) makes the situation clear. The Assessing
Officer starts by saying "Consequent upon the order of the CIT (A) C-
l/AP.72/95-96 dated 16.3.1998 the total income of the assessee is re-
computed as under:"
Then he starts with the figure of loss arrived at by his order dated
27.3.95 at Rs. 54,28,077.00 and adds thereto to the following items:"
1. Receipts of compensation treated as bad Rs.
5428,077.00 debts as against income from other sources
in the original order (p.5)
2. Rent & Licence fees treated as business Rs.
27,93,977.00 income as against income from house property
in the original order (p. 7)
3. Interest income treated as business income Rs.
15,49,724.00 against income from other sources in the
original order (p. 29)
Totaling Rs. 2,00,81,732.00
He again deducts therefrom the reliefs which had been allowed by C1T (A) on
account of following ;
1. Interest disallowance (p. 14) (70,50,000-27,14,756) Rs.
43,35,244.00
2. Disallowance under Rule 6B (p. 17) Rs. 1,25,279.00
3. Foreign travel expenses (p. 21) Rs. 53,740.00
4. Depn. Allowed on motor car, fan & furniture (p. 23) Rs.
67,746.00
Totaling Rs. 45,82,009.00
Finally, he further deducts the relief allowed on account of set-aside
issues:
Bad debt (P. 10) Rs.
68,02,046.00
Income from property Rs.
29,52,492.00
Treated as business income Rs. 27,93,977.00
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Income from other sources Rs. 1,73,18,438.00
After making these calculations, he arrived at the revised income Rs.
33,65,298.00. Finally, he appends a note on the foot of the order saying,
"the following points are set aside by the CIT(A) to be done afresh after
giving an opportunity to the assessee of being heard" and indicates the
four major heads.
A careful scrutiny of this order suggests that, even while giving effect to
the CIT (Appeals) order, the Assessing Officer has taken account of bad
debt amounting to Rs. 68,02,046.00 and amount treated as business income as
per the Appellate Authority direction of Rs. 27,93,977.00 while working out
the revised total income. Out of the four items indicated at the end of the
order item Nos. 1 and 2 (income from house property - Rs. 27,93,977.00 and
claim of bad debt = Rs. 68,02,046.00 have been deducted by the Assessing
Authority, indicating that he agrees with the Assessee’s claim. The
Assessing Authority does not seem to have taken account of two other items
(Capital gains = Rs. 4,00,000.00 and Rule 6D disallowance = Rs. 31,963). We
are, therefore, unable to accept the contention that the Assessing
Authority had not assessed the disputed heads while giving effect to the
CIT (A)’s order. We are fortified in our conclusion by reason of the fact
that no demand notice/refund order could have been issued if the assessment
was not complete. If the Assessing Officer had not completely assessed the
income after taking note of the four issues remitted to him, there was no
question of determining the revised total income, much less was there any
scope for issuing a demand notice/refund order at that stage. Hence, we are
unable to accept that the Assessing Officer had not fully given effect to
the CIT (Appeals) order with respect to the four major heads.
It is true that even after this order there was correspondence between the
appellant and authorities with respect to disallowance of certain items of
tax deducted at source as the appellant-assessee was unable to produce
documentary evidence, though it had furnished the necessary indemnity
bonds. That, however, was an outstanding dispute by which the assessee, if
at all, could be aggrieved. It is also pointed out that revised assessment
order giving effect to the appellate order has not taken account of the
heads of ’capital gains’ and rule 6D disallowance totaling Rs. 4,31,963.00.
The grievance, if any, on this count can only be made by the assessee and
not the Revenue.
As far as the provisions of KVSS are concerned, we agree with the
contention of the learned Senior Counsel for the assessee that the order to
be made by the Designated Authority under Section 90 is a considered order
which is intended to be conclusive in respect of tax arrears and sums
payable after such determination towards full and final settlement of tax
arrears. Once the declarant makes payment of the amount so determined under
Section 90, the immunity under Section 91 springs into effect. We are also
of the view that upon such declaration being made, tax arrears being
determined, paid and certificate issued under the KVSS, there is no
jurisdiction for the Assessing Officer to reopen the assessment by a notice
under Section 143 of the Act except where the case falls under the provisio
(2) of sub-section (1) of Section 90 as it is found that any material
particular furnished in the declaration is found to be false. In the
present case, it is not the case of the Revenue that any material
particular furnished by the appellant-assessee in the declaration was found
to be false. Consequently, the Assessing Officer could not have re-opened
the assessment by a notice under Section 143 of the Act.
In our view, the High Court erred in both counts in dismissing the writ
petition.
In the result, we allow the appeal, set aside the judgment of the High
Court and quash the notices under Section 142 (1) of the Act dated
16.8.1999 and 30.12.1999 read with letters dated 16.8.1999, 30.12.1999 and
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15.2.2000.
In the facts and circumstances of the case, there shall be no order as to
costs.