Section 143 of the Income-tax Act, 1961

IN THE ITAT DELHI BENCH ‘G’ Herbert Smith, Singapore firm v. Director of Income-tax, International Taxation, Circle 1(2), New Delhi N. V. VASUDEVEN, JUDICIAL MEMBER AND K. G. BANSAL, ACCOUNTANT MEMBER IT APPEAL NO. 1632(DELHI) OF 2004 [ASSESSMENT YEAR 2002-03] JUNE 15, 2007 Section 143 of the Income-tax Act, 1961 - Assessment - General - Assessment year 2002-03 - Whether processing under section 143(1) can be done on basis of return only; Assessing Officer is not empowered to make any alteration in income or status without making inquiry from assessee, which cannot be done in such processing and past record regarding status of assessee can also be not taken into account - Held, yes – Assessee filed it return of income in status code ‘04’ and worked out tax payable by taking tax rate at 30 per cent – However, Assessing Officer levied tax at rate of 35 per cent applicable in case of firm on ground that it corresponded to ‘04’ status shown by assessee in its return – As against that, assessee’s case was that ‘04’ status pertained to an unregistered firm and since it had filed return as such, it should have been taxed as an AOP by applying rate of tax at 30 per cent – Thus, there was ambivalence about status of assessee which could only be resolved by questioning assessee failing which, a favourable view to assessee ought to have been adopted – Whether, therefore, Assessing Officer was not justified in adopting rate of tax at 35 percent without having recourse to assessee – Held, yes FACTS The assessee filed its return of income in the status code ‘04’. The Assessing Officer processed the said return under section 143(1) and levied tax at the rate of 35 per cent applicable to ‘04’ status against the tax rate of 30 per cent applied by the assessee. He also rejected assessee’s application filed under section 154 requesting, inter alia, to compute tax at the rate of 30 per cent on the ground that the assessee’s name suggested that it was a firm, which also corresponded to ‘04’ status shown in the return. On appeal, the Commissioner (Appeals) holding that there was no error apparent from record in the order of intimation, upheld the impugned order. On second appeal: HELD The processing under section 143(1) can be done on the basis of the return only. The Assessing Officer is not empowered to make any alteration in the income or status without making inquiry from the assessee, which cannot be done in such processing. Past record regarding status can also be not taken into account. There were evidences in the return, including under verification, which lead-to inference that the assessee was a ‘firm’, which did not comply with the provisions contained in section 184, thus, it could be assessed as firm u/s 185. However, the fact also stayed that the assessee computed its tax u/s 167B and paid it accordingly. The same was its manifest assertion that it was either an “AOP” or a “BOI” (Body of Individuals). The return as a whole was ambivalent about the status of the assessee as at other places it was described as a “firm”. That ambivalence could only be resolved by questioning the assessee failing which a favourable view to the assessee ought to have been adopted in applying the rate of tax. The cases cited by the assessee did not advance its case as the Assessing Officer had not enhanced its income. He had merely adopted one view, which was discernible from the entries made in the return and the audit report accompanying it However, another view was also a possible view,, which was manifest from the return, from the calculation of tax made by the assessee. In such a situation, the Assessing Officer could not have varied the rate of tax without having recourse to the assessee. Thus, the Assessing Officer and the Commissioner (Appeals) erred in holding that there was no mistake apparent from record in adopting tax rate at 35% for the reason that the Assessing Officer could not have changed the rate of tax on the peculiar facts of the instant case. (Para 6) In result, the appeal was allowed. (Para 7)