By C. N. Vaze
Shailesh Kamdar
Jagdish T. Punjabi
Bhadresh Doshi
Chartered Accountants
Section 263 r.w.s. 143 and 153 of the Income-tax
Act — AO cannot be directed by CIT to re-do the assessment when no valid
notice was issued within the given time limit.
Facts:
The
assessee was a managing director of Ponds (India) Limited (‘PIL’). M/s.
Chesebrough Ponds Inc, USA (CPI) had a controlling interest in PIL.
Later on, after coming into force of regulations under FERA the CPI’s
holding was reduced to 40%. Thereafter PIL was sold to Unilever Ltd. The
assessee continued to be the MD of PIL and when the shares were diluted
CPI started representative office in India in 1988. The assessee was to
look after the interest of CPI’s representative office for which
necessary facilities were to be provided to him.
CPI provided a
Mercedes car and an amount of USD 1 lakh to the assessee. Since the
customs authorities did not allow import of car in the name of the
assessee, the car was imported in the name of CPI.
The return
was processed u/s.143(1) of the Act on 27- 1-1989 accepting the
assessee’s claim for exemption of USD 1 lakh and the value of Mercedes
Benz car amounting to Rs.8,10,104. The CIT later on initiated
proceedings u/s.263 and passed an order on 22-3- 1991 directing the AO
to re-do the assessment. The CIT further found that the assessee held
power of attorney for the CPI authorising him to do several acts on its
behalf and that he had the status of head of its representative office.
So, CIT held that the value of car and USD 1 lakh should be taxed
u/s.17(iii). The assessee contended that there was no employeremployee
relationship, nor had he offered any services to CPI, USA and he was
full-time employee of M/s. Ponds India Ltd. He had received it as a gift
from CPI for which gift tax was paid by CPI.
Held:
The
Tribunal held that section 143(1) permits only certain arithmetical
adjustments while making the assessment and that the taxability of the
amount received from the US company (i.e., CPI) and the value of Benz
car cannot fall in the category of those adjustments. The CIT can invoke
the provisions of section 263 only when there is a failure on the part
of AO to make an enquiry u/s.143(2). Section 263 cannot be invoked when
only an intimation u/s.143(1) was sent to the assessee.
At the
most a fresh assessment should be made u/s.143(3) and if this is so, the
AO can make the assessment under this provision only if valid notice
u/s.143(2) had been issued to the assessee on or before 31-3-1990.
However, since that date had elapsed when the CIT passed the order (on
22-3- 1991) it is not possible to either issue such a notice or make an
assessment u/s.143(3). The position would have been different if the AO
in the first place completed the assessment u/s.143(3) after issuing
notice u/s.143(2). In that case the AO can be directed by the CIT to
make fresh assessment. The order of the CIT can be primarily challenged
on the ground that his direction to the AO to re-do the assessment would
result in an assessment being made after the period of limitation and
thus would be contrary to law. Section 153(2A) (as the sub-section stood
at that time) of the Act states that fresh assessment order may be
passed at any time before the expiry of two years from the end of the
financial year in which order u/s.263 is passed. Since the order u/s.263
was passed on 22-3-1991 the AO could pass the fresh assessment order on
or before 31-3-1993. But this sub-section cannot be applied to this
case as section 153(2A) does not confer jurisdiction upon the AO, which
does not exist in him prior to passing of the order of section 263.
