SECTIONS 142(1) & 143(2) DO NOT PERMIT ASSESSING OFFICERS TO MAKE ROVING ENQUIRIES
An Educational Trust recently received a letter from the A.O. in respect of A.Y. ‘X-Y’ soliciting information in exercise of powers u/ss 142(1) & 143(2) on the following matters:-
“Sub: Information required u/s 142(1)/143(2) of the I.T. Act for the A.Y. X-Y – regarding.
Please refer to your return of income for the A.Y. X-Y. In this connection, you are requested to furnish the details/information/evidence on the following points:-
1. Please give a brief note indicating the past history of activities since inception. Also file copy of trust deed/instrument with which your trust/institution was created.
2. Furnish copy of subsequent modifications to the deed stated above.
3. Furnish copy of certificate of registration of your trust/society.
4. Whether the trust/society is registered u/s 12A/12AA of the I.T. Act. If yes, please furnish a copy of registration certificate.
5. Whether the trust/society is notified u/s 80G of the I.T. Act. If yes, please furnish the copy of the certificate.
6. Whether the trust/society is notified under any of the clauses of section 10 of the I.T. Act. If yes, please furnish the copy of the said certificate.
7. Please furnish the copy of Income & Expenditure account or P&L A/c, as the case may be, along-with balance sheets for the past three years.
8. If any assessment u/s 143(3) have been framed in your case in earlier years, please furnish a copy of the latest assessment order.
9. Please furnish name, complete address and assessment particulars of each trustee in the following format. Also give the details of business concerns where the trustees are working as partner, director or running as a proprietorship concern. Details of other trusts where these trustees/members are involved, if any:-
Name and address Where assessed to tax PAN Source of income Nature of business
10. Please furnish the copies of resolutions passed by your trust in the year under consideration.
11. Please give nature of services provided to M/s.Microsoft Corpn. (I) and M/s.Macmillan India Ltd. against which professional receipts received during the year. Also copy of agreement made with these parties.
12. Please give the details of surplus/deficit for the last 5 years and show as to how the accumulated surplus has been utilized in subsequent years. Please certify that the accumulated income has been utilized within the time period allowed for the same and for the same purpose in the following format:-
Year of accumulation To be used upto Purpose Date of utilization Evidence thereof
13. List of donors in the following format, in respect of donations received during the year:-
Name & address PAN Amount received Mode of payment received Date of receipt of giving Ch./DD/Pay Order No. donation date and name and address of the bank
14. In case you have made donations, please furnish the name and address of the donees, amount paid and mode of the payment.
15. Please give addresses of all the premises used by the trust for its normal working. Also furnish the documentary evidence of premises, which are used by the trust.
16. Details of charitable activities of the institution, which justifies running of institutions, not as a commercial organization but on charitable basis.
17. Copy of statement of all bank account maintained in the name of trust for the period under consideration. Also furnish bank reconciliation statement, if there is any difference in balance as on 31.03.08.
18. Details of application or use of income or property for the benefit of person referred to in section 13(3) along with an explanatory note on its justification. Please file details of payments made to specified person in last two years as well as in the year under consideration.
19. Copy of all bank loan account with details of utilization of loan with documentary evidence.
20. Confirmation of sundry creditors with complete postal addresses and their assessment particulars.
21. Details of additions made in fixed assets, with documentary evidence. Also give source of payment made.
22. Confirmation of unsecured loans with their complete postal addresses and assessment particulars.
23. Name and complete postal addresses of sundry debtors.
24. Details of expenses claimed in Income and Expenditure account under various heads with the following details:-
(i) Name and postal addresses of teaching and non-teaching staff with their salary/allowance.
(ii) Name and addresses of employees, who retired during the year with details of retirement benefits paid.
(iii) Documentary evidence of vehicle owned by foundation with name and addresses of drivers. Also give name and addresses of persons, who used these vehicles.
25. Documentary evidence of ownership of immoveable assets owned by the trust as on 31.03.08.
26. Name and addresses of students from whom caution money received during the year.
27. Details of additions made in fixed assets during the year with documentary evidence.
28. Name and addresses of students from whom advance fee received during the year.
29. Name and addresses of students to whom free of cost technical/management education provided during the year.
30. Name and addresses of students to whom given fee concession.
31. Produce complete books of accounts.
Statutory notice u/s 143(2)/142(1) is enclosed, fixing the case for hearing on ____ at 11.30 AM.”
2. Trust is an old assessee
It is proposed to examine, in later paragraphs, whether the A.O. can make such cumbersome and detailed enquiries, without indicating how these are relevant in the context of assessment proceedings before him, by recourse to sections 142(1) & 143(2) from an assessee, who is on the record of the Department since many years and in whose case enquiries on the above lines have already been made in the past in the course of the scrutiny by the A.O.
3. Nature of assessment proceedings
The word ‘assessment’ in the context of income tax proceedings, by and large, means computation of income and determination of tax payable/refundable. However, this word has been used in a more comprehensive sense in the context of Income Tax Act, 1961 (Act). In S. Sankappa v. ITO (1968) 68 ITR 760 (SC), the Apex Court has said that the word ‘assessment’ as used in the I.T. Act in a number of provisions in a comprehensive sense and includes all proceedings starting with the filing of the return or issue of notice and ending with determination of tax payable by the assessee. In some sections, the word ‘assessment’ is used only with reference to computation of income, and in other sections, it has the more comprehensive meaning.
In Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC), the S.C. has observed that an assessment proceeding is a quasi-judicial proceeding. It acquires finality on the assessment order being made.
It was held in Rambhai Jethabhai Patel v. CIT (1977) 108 ITR 771 (Gau) that the finality attaches to every order of assessment, subject to that finality being disturbed in proceedings adopted for example, under section or section 157 or section 263 or sections 154 and 155.
4. Process of assessment
Assessment can be made in two ways i.e. (i) in a summary way as per the provisions of section 143(1) & (ii) by scrutiny after enquiries u/s 143(3) through the issue of notices as per the provisions of sections 142 & 143. In this write-up, the later category of assessments would be considered.
5. Section 142
Section 142 has 4 sub-sections i.e. (i) to (iv). In between, there are sub-sections (2A) to (2D) [dealing with special audit], which are not relevant in the context of the subject being considered in this article. Similarly, sub-sections (3) & (4) are also not relevant except in so far as sub-section (3) provides that the principle of natural justice would be adhered to in making use of the information collected against the assessee. The sub-sections that can have relevance are sub-sections (1) & (2), which stipulate as under:-
5.1 Section 142(1)
According to section 142(1), for the purpose of making an assessment under the Act, the A.O. may serve on any person who has made a return u/s 139 or in whose case the time allowed u/s 139(1) for furnishing the return has expired a notice requiring him, on a date to be therein specified, -
(i) where such person has not made a return within the time allowed under sub-section (1) of section 139, to furnish a return of his income or the income of any other person in respect of which he is assessable under the Act, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, or
(ii) to produce, or cause to be produced, such accounts or documents as the A.O. may require, or
(iii) to furnish in writing and verified in the prescribed manner information in such form and on such points or matters (including a statement of all assets and liabilities of the assessee, whether included in the accounts or not) as the A.O. may require.
The proviso to section 142(1) places two-fold restrictions on the powers of A.O. u/s 142(1). These are:-
(a) the previous approval of the Joint Commissioner shall be obtained before requiring the assessee to furnish a statement of all assets and liabilities not included in the accounts.
(b) the A.O. shall not require the production of any accounts relating to a period more than three years prior to the previous year.
5.2 Section 142(2)
According to section 142(2), for the purpose of obtaining full information in respect of the income or loss of any person, the A.O. may make such inquiry as he considers necessary.
6. Section 143
This section has sub-sections (1) to (4), including sub-sections (1A) to (1C), which have no relevance in the present context. Sub-section (1) relates to assessments accepting the income/loss as shown after making the adjustments as stipulated in the sub-section. This is not relevant in the present context. Provisions of 143(2)(i) are not applicable from 01.06.03 and hence, need no discussion. Sub-section 143(2)(ii) is applicable in cases of scrutiny assessments. The scheme of these provisions is as under:-
7. Making of an assessment order
After hearing such evidence as the assessee may produce in response to the notice u/s 143(2)(ii) and such other evidence as the A.O. may require and after taking into account all relevant materials, which the A.O. has gathered, he shall pass an assessment order in writing determining (a) the total income or loss of the assessee; and (b) the sum payable by the assessee (or refund of any amount due to him) on the basis of such assessment order.
8. Scope of notices u/s 142(1) & 143(2)
In the above background, the scope of notices u/s 142(1) & 143(2) can be examined. Sub-section (1) of section 142 provides that a notice under this section can be issued and served on a person:-
(a) who has already made a return under any of the sub-sections of section 139; or
(b) in whose case the time allowed for furnishing the return under sub-section (1) of section 139 has expired but no return has been made within this time.
8.1 The section does not provide any limitations or conditions for the issue of notices there-under except the two mentioned above. However, the power conferred cannot be exercised in an un-briddled way, even calling for that information again, which is already with the A.O. or which has been filed in response to notices for earlier years. Before any notice can be issued u/s 142(1), application of mind is necessary or before calling upon the assessee to produce documents/information, the A.O. must be satisfied that (i) the same are not already with the I.T. Department and (ii) it would be needed for the purpose of making an assessment for the year for which notice is being issued. If these two aspects get neglected at the time of issue of notice, the same cannot be said to have been validly issued.
8.2 Further, section 142(1) specifically provides that the A.O. in his notice under that section should, inter-alia, require the assessee to produce or cause to be produced such accounts or documents as the A.O. may require. It is, therefore, incumbent on the A.O. to specify in the notice what documents or information he is requiring the assessee to produce before him. Hence, where there is no specification in the notice of particulars of documents or information required, or the portion meant for giving such details was struck out, it cannot be said that the assessee has without reasonable cause failed to comply with the notice. Any letter sent along with or subsequent to the 142(1) notice cannot be treated as a part of the notice so as to justify imposition of penalty for default in compliance with the terms of the notice [see, Calcutta Chromotype (P) Ltd. v. ITO (1971) 79 ITR 442, 446-7 (Cal), on appeal, (1974) 95 ITR 595 (Cal)]. In view of this, asking an assessee to make compliance [as given in the letter (supra)], saying ‘produce complete books of accounts’ (item No.31 in the letter (supra)] cannot be considered as consequent to application of mind.
8.3 Similarly, asking the assessee to produce papers/documents, which are already in the possession of the A.O./I.T. Department too shows that the notice is issued in a routine/mechanical way, without any application of mind. The extract from the notice reproduced earlier supports this view [refer information called for vide Sl. Nos.1,2,3,4,5,6&8]. The issue needing consideration on this matter is as to why the taxpayer should be asked to furnish the information/paper in regard to matters that emanate from the I.T. Department itself? Why the A.O. cannot refer to its own records for previous years assessment orders or order regarding registration of the trust or copy of Commissioner’s order granting registration. It is bizarre to ask the assessee to file copies of the assessment order passed by the A.O. himself.
8.4 It is true that the A.O. has power to call for accounts for past 3 years before the close of the A.Y., but the issue is whether it is necessary to do so every year in cases of assessees, who are assessed on regular basis? Why the past years’ records cannot be seen if reference to earlier year accounts becomes necessary? In this background, the information called for vide item No.7 in the notice [please furnish the copy of Income and Expenditure account or P & L A/c, as the case may be, along-with Balance Sheets for past three years] again seems to be a requirement, for which the assessee is required to make compliance because the A.O. does not want to do his homework himself before taking up the assessment. This is, thus, another instance of issuing notices in a routine way, without considering the relevance of the documents called for.
8.5 Vide Item No.25, the trust has been asked to furnish “documentary evidence of ownership of immoveable assets owned by the trust on the last day of F.Y. The justification of such a query has not been indicated. The information in regard to immovable properties is expected to be in the possession of A.O. for past years in the case of an existing assessee. Hence, the relevant query can at best be about details of such properties acquired or disposed of during the previous year - not as on 31.03.08. This again shows that information has been called for mechanically, without appreciating what would be its relevance for the year under consideration.
8.6 Calling for information regarding trustees [vide Sl.No.9 in the letter (supra)], including their assessment particulars and details of business concerns, where the trustees are working as partners/directors or carrying on any proprietorship business and their positions in other trusts in a general way again, prima-facie, shows mis-use of power u/s 142 of the Act.
8.7 There are many such instances but the foregoing ones illustrate very well how the powers conferred u/s 142 of the I.T. Act are being exercised by the A.Os. in an un-judicial way and mass of information is being collected mechanically without judging its relevance in the year for which notice is issued and without caring to find out whether the information called for is already available with the I.T. Department.
9. Section 143(2) notice
As stated earlier, clause (i) of section 143(2) is not applicable since 1.6.03. The circumstances under which notice can be issued u/s 143(2)(ii) have been mentioned in para 6 (supra). The letter issued to the trust does not mention about any such circumstances. Hence, prima-facie, this provision could not be said to be in-vokeable.
9.1 The difference in sections 142(2) & 143(2) is that while section 143(2) may be availed of where the assessee has filed a return, section 142(1) may be made use of irrespective of the filing of a return by the assessee. Again, under a 143(2) notice, the choice is with the assessee to produce such documents, etc., as he may rely on in support of the return filed by him.
The A.Os. have to appreciate that the time of the taxpayers is as valuable as that of the I.T. Department. In the garb of exercise of jurisdiction under the I.T. Act, 1961, they cannot be subjected to unnecessary harassment and unjustified costs in the form of man hours and time and money and uncalled for botheration in compiling the information, which is either already available with the Department or which is, prima-facie, irrelevant for the relevant A.Y. A look at the letter issued to the educational trust [para 1 (supra)] gives a clear indication that the same, in respect of many items, included in 31 items mentioned therein has been issued in a routine manner without application of mind. The power available for calling 3 years records/information has been mechanically exercised using the provisions of the I.T. Act, without trying to understand whether the same can be requisitioned in terms of sections 142(1) and 143(2).
Such mundane way of working needs to be checked by issue of instructions by the CBDT because besides causing undue costs and burden on the assessees, this projects a bad image of the functioning of the I.T. Department.
Summary of the article
The author, in this article, with reference to a notice issued in the case of an educational institution, examined the provisions of sections 142(1) & 143(2) and has concluded that notices calling for information in this manner cannot be issued invoking the provisions of these sections in a routine way without application of mind. These, besides causing undue strain on the taxpayers in terms of time and money and project a bad image of the I.T. Department. This style of functioning needs to be checked by issue of appropriate instructions by the CBDT.