ITAT, Indore

Arihant Builders Developers and Investors (P) Ltd., Agarwal Warehousing and Leasing Ltd. vs ACIT

ITA No.92/Ind/1996, A.Y.1992-93, ITA No. 952/IND/1994, A.Y. : 1989-90

Vimal Gandhi, President, Bhavnesh Saini, J.M. and M.L. Gulsia, A.M.

23 November 2006

P.M. Chowdhary, Adv. for the Appellant
Prabhash Shankar, Sr. DR and Manoj Kumar, DR for the Respondent

ORDER

These appeals were referred to Special Bench by the President, Income Tax Appellate Tribunal for disposal in accordance with law. After hearing both the appeals, a decision was pronounced by the Special Bench vide order dated 30th October, 2006. The question referred to the Special Bench was decided in favour of the Revenue by holding that notice issued by the Assessing Officer in this case u/s 143(2) of the Income-tax Act, 1961 (hereinafter referred to as the "Act") after issue of the refund to the assessee was valid. The appeal in I.T.A. No. 952/Ind/1994 was accordingly dismissed. However, I.T.A. No. 92/Ind/96 was allowed partly. While pronouncing the decision in both these appeals vide our order dated 30 October, 2006, it was directed that the detailed reasons for the conclusion would be separately furnished. We, therefore, give our reasons for decision in continuation of our order dated 30 October, 2006 (supra) and pass this order disposing of both the appeals in accordance with the decision already pronounced in Open Court.

2. We have heard Shri P.M. Chowdhary, ld. counsel for the assessee and S/Shri Prabhash Shankar, CIT, DR and Manoj Kumar, DR for the Revenue and perused the findings of the authorities below and material available on record. As per the order of President. I.T.A.T., this Special bench was constituted to decide the entire appeal including the following issue referred to it :-

"As whether after granting of refund u/s 143(1)(a) (ii) of the Income-tax Act, 1961, notice u/s 143(2) could be issued or not?"

3. The ld. counsel for the assessee at the out-set submitted that the appeal in I.T.A.No. 952/Ind/94 in the case of M/s.Agarwal Warehousing and Leasing Limited is not pressed and submitted that during the pendency of appeal, the assessee has applied for Kar Vivad Samadhan Scheme and has received a certificate for full and final settlement of tax arrears under the Scheme. Copy of the said certificate is also filed alongwith application with permission to withdraw the appeal. It was, accordingly, submitted that the assessee may be allowed to withdraw the appeal as the same has become infructuous. The ld. Departmental Representative did not oppose the request.

4. Since the aforesaid question of law was referred to the Special Bench for determination in both the above appeals, therefore, it was thought necessary to decide the aforesaid question of law even if the assessee has sought permission to withdraw the appeal in I.T.A.No. 952/Ind/1994.

5. The facts leading to the constitution of the Special Bench on the aforesaid question are that in the case of M/s. Arihant Builders, Developers and Investors Private Limited in I.T.A.No. 1014/Ind/93 for assessment year 1991-92. The assessee raised the additional ground of the same nature as is referred to the Special Bench, namely, "Order of the A.O. is illegal, bad in law and without jurisdiction for want of jurisdiction to issue notice u/s 143(2) of the Income-tax Act, 1961. The ld. Authorities below failed to see that once refund is granted u/s 143(1)(a)(ii), no notice could be issued u/s 143(2), because of absence of the words 'Without prejudice to the provisions of sub section (2)' ". The Division Bench of the I.T.A.T., Indore Bench vide order dated 19th July, 1994, held that the A.O, had exceeded his jurisdiction in issuing the notice u/s 143(2) of the Act and the assessment completed in pursuance thereof is null and void.

6. The Division Bench of I.T.A.T., Indore Bench in the case of M/s. Agarwal Warehousing and Leasing Limited, Indore, in I.T.A.No. 952/Ind/1994 considered the same issue relating to the jurisdiction of the A.O. to issue notice u/s 143(2) of the Act, after granting refund u/s 143(1)(a)(ii) of the Act. The assessee's counsel referred to the earlier decision of the I.T.A.T. Indore Bench dated 19th July, 1994, passed in I.T.A.No. 1014/Ind/1993 in the case of M/s. Arihant Builders, Developers and Investors Private Limited and submitted that since the point in issue has already been decided in favour of the assessee, there fore, the A.O. should not have issued notice u/s 143(2) after refund has been granted to the assessee u/s 143(1)(a)(ii) of the Act. The I.T.A.T. Indore Bench, in this case, however, was of the view that earlier the decision of Jurisdictional M.P.High Court in the case of Kamal Textiles and Others, 189 ITR 339, was not brought to the notice of the Tribunal, which is against the assessee on the similar issue. The I.T.A.T. Indore Bench, therefore, considering the matter in issue in the light of decision of the Jurisdictional M.P. High Court in the case of Kamal textiles and Others (supra) read with the provisions of section 143(1)(a)/143(2)(3) and 143(4) of the Act, held that the A.O. was perfectly justified and within his right to issue a notice u/s 143(2) after refund was granted to the assessee u/s. 143(1)(a)(ii) of the Act. This order was passed on 26th September, 1995. The assessee challenged this order dated 26th September, 1995. In I.T.A.No. 952/Ind/1994 reference u/s 256(1) was made before the M.P. High Court in Income Tax Reference No. 43 of 1997. Hon'ble High Court referred to the five questions for the purpose of deciding the income tax reference and the question nos. 1 to 3 were with regard to the binding nature of the decision of the Tribunal, which was refused to follow by the ld. CIT(A) and whether Tribunal was right in reviewing its own decision in the case of Arihant Builders, Developers and Investors, when reference was already pending before High Court. The rest of the questions were with regard to the same proposition whether the A.O. could issue notice. u/s 143(2) after grant of refund u/s 143(1)(a)(ii). The Hon'ble High Court vide its order dated 11th July, 2002, answered the question nos. 1 to 3 in favour of the assessee and against the Revenue leaving the remaining questions un-answered. The matter was remanded to the Tribunal for doing the needful in the light of the observations made hereinbefore. The I.T.A.T. Indore Bench in I.T.A.No. 92 of 1996 for the assessment year 1992-93 considered the appeal of M/s. Arihant Builders, Developers and Investors Private Limited on the same question of law, which is now referred to the Special Bench. The Appellate Tribunal vide order dated 22nd August, 1997, followed the latest judgment of I.T.A.T., Indore Bench dated 26th September, 1995, passed in the case of M/s.Agarwal Warehousing and leasing Limited and decided the question in favour of the Revenue and against the assessee. The Appellate Tribunal also referred to in its order that the reference made in M. C. C. No. 103 of 1985 in the case of M/s. Arihant Builders, Developers and Investors Private Limited for earlier assessment year 1991-92, the reference was dismissed due to non-appearance of the applicant Revenue and, therefore, the Hon'ble High Court had declined to answer the question referred by the Tribunal. The Appellate Tribunal, therefore, considered that the order on question of law cannot be said to be the view taken by the Tribunal has been upheld by the High Court. This issue was accordingly decided against the assessee vide order dated 22nd August, 1997. On merits. The Tribunal decided that authorities below are justified in invoking the provisions of section 145(2) of the Act for rejection of the books of account of the assessee. However, it was directed that the net profit rate, in this case, is to be applied @ 10 % instead of 12.5 % applied by the Assessing Officer. The appeal of the assessee was accordingly partly allowed. This order dated 22nd August, 1997, was challenged before the Hon'ble M.P. High court in Writ Petition No.1739 of 1997 and the Hon'ble High Court vide its order dated 17.11.2004 set aside the order of the Tribunal dated 22nd August, 1997 in I.T.A.No. 92 of 1996 for assessment year 1992-93 and the Appellate Tribunal was directed to decide the case afresh in accordance with law. It would be relevant to mention that the assessee in this writ petition has raised the plea that the order in assessment year 1991-92 in I.T.A.No. 1014 of 1993 should have been followed.

7. The facts noted above shows that in both the appeals as referred to the Special Bench to decide the aforesaid question were pending before the Tribunal for decision in accordance with law.

8. Since the assessee has made request for withdrawal of appeal in the case of M/s. Agarwal Warehousing and Leasing Limited, because it opted for K.V.S.S., it would be relevant to record the facts as referred to in the case of M/s. Arihant Builders, Developers and Investors Private Limited for the purpose of disposal of both the appeals.

9. Ld. counsel for the assessee in the case of M/s. Arihant Builders, Developers and Investors Private Limited raised preliminary objections to the constitution of the Special Bench. The ld. counsel for the assessee submitted that I.T.A.T. Indore Bench in I.T.A.No. 952/Ind/1994 vide order dated 7th February, 2003, referred above question to the Hon'ble President to constitute a Special Bench. He has, however, submitted that in the case of M/s. Arihant Builders, Developers and Investors Private Limited, the I.T.A.T. Indore Bench vide order dated 28th October, 2005, blocked the appeal, because the issue is still to be decided by the Special Bench of the Tribunal as is discussed in the case of M/s. Agarwal Warehousing and Leasing Limited. The ld. counsel for the assessee submitted that since the appeal in the case of M/s. Agarwal Warehousing and Leasing Limited, is requested to be dismissed as withdrawn, therefore, there was no valid reference made by the I.T.A.T. Indore Bench to the Hon'ble President of the I.T.A.T. to constitute the Special Bench. Hence, it goes to show that the order passed by the Division Bench of I.T.A.T. on 28th October, 2005, after decision of the Hon'ble High Court, the letter dated 30th December, 2005, forwarded by the Members of the Tribunal can, by no stretch of imagination, be said to be a reference under Regulation 98-A. Further, in the absence of judicial order making a reference, the present constitution of Special Bench also does not satisfy the Test laid down by the Hon'ble Supreme Court of India in the case of I.T.A.T; vs. Dy. CIT and Others reported in 218 ITR 275, wherein their Lordships have dealt with the issue and regarding powers of the President to constitute a Special Bench. It was, accordingly, submitted that the matter may be sent back to the Division Bench directing them to maintain judicial consistency and to accept order of I.T.A.T. in I.T.A.No.1014 of 1993 in assessment year 1991-92, which have become final because of rejection of the reference by the High Court.

10. On the other hand, the ld. Departmental Representative submitted that the Hon'ble President of I.T.A.T. has discretion to constitute Special Bench consisting of three or more Members u/s 255(3) of the Act. The ld. Departmental Representative further submitted that the powers of the Hon'ble President of the Appellate Tribunal are administrative functions and are plenary, which cannot be challenged in the aforesaid Forum. The ld. Departmental Representative further submitted that even if the assessee has made a request for withdrawal of the appeal in I.T.A.No. 952 of 1994 would not make any difference, because on mere request of withdrawal of the appeal, the constitution of the Special Bench cannot be challenged. The ld. Departmental Representative also submitted that the I.T.A.T., Indore Bench vide reference u/s 255(3)/(4) of the Income-tax Act, 1961, dated 30th December, 2005, in both the above appeals in I.T.A.No. 952 of 1994 and I.T.A.No. 92 of 1996 has made a request to the Hon'ble President for constitution of the Special Bench to decide the aforesaid question of law, on which Hon'ble President has constituted the aforesaid Special Bench for hearing the question proposed by the Bench. The ld. Departmental Representative, accordingly submitted that there is no merit in the preliminary objection raised by Counsel for the assessee.

11. We have considered rival submissions and material on record. Section 255(3) provides that the Hon'ble President of I.T.A.T. may for the disposal of any particular case constitute a Special Bench consisting of three or more Members, one of whom was necessarily be a Judicial Member and one Accountant Member. The powers of the Hon'ble president of I.T.A.T. are absolute discretion of the Hon'ble President to constitute a Special Bench for disposal of any particular case. Hon'ble Supreme Court of India in the case of I.T.A.T. vs. Dy. CIT ( Assessment ) (supra) also held that the functions entrusted under sub sections (1) and (3) of section 255 to the President of the Appellate Tribunal are obviously administrative function. They have nothing to do with exercise of any judicial powers. It was further held that it is obvious that the President in this connection may even act suo motu if it is brought to his notice that any important point is pending for decision in the matter which requires to be decided by a larger Bench. If the President acting on such information and in bona fide exercise of his powers constitutes a larger Bench or a Special Bench for deciding a matter it cannot be said that he acts ultra vires his functions entrusted to him by the legislature under section 255(1) read with section 255(3) of the Income-tax Act, 1961.

12. We further find from the order dated 11th July, 2002, of the Hon'ble M.P. High Court in Income Tax Reference No. 43 of 1997, that the precise issue raised by the assessee before the Hon'ble High Court was with regard to the consistent view to be adopted by the Appellate Tribunal. Hon'ble High Court referred to the decision of the Hon'ble Supreme Court of India in the case of Pradip Chandra Parija and Others vs. Pramod Chandra Patnaik and Others, (2002) 254 ITR 99, in which it was held that if the Bench of Two Judges concludes that if an earlier judgment of a Bench is so very incorrect that in no circumstances can it be followed, the proper course for the Bench of two judges to adopt is to refer the matter before it to a Bench of Three Judges. Another decision of Gujarat High Court in the case of Sayaji Iron, 253 ITR 749, is also referred to deal with the almost similar situation laying down the guidelines by holding that if a different view is to be taken by the Bench then matter should be referred to the President of the Tribunal, so that he could have referred the matter to the Bench consisting of three or more Members. The Hon'ble M.P. High Court in the background of the aforesaid decision held in para 11 of the impugned order that the requisite provision is contained in sub section (3) of section 255, where the President of the Tribunal is authorized to constitute Special Bench of Three or More Members in the instant case also. The learned Members of the Indore Bench of the Tribunal instead of reviewing own earlier judgment ought to have referred the matter to the larger Bench. The matter was remanded to the Tribunal to do the needful in the light of the observations. The Division Bench of I.T.A.T., Indore Bench in I.T.A.No. 952 of 1994 referred the aforesaid question to the Hon'ble President for constitution of the Special Bench vide order dated 7th February, 2003. Similarly, a joint request was made for constitution of a Special bench u/s 255(3)/(4) of the Act, by the I.T.A.T., Indore Bench to the Hon'ble President of the Tribunal to constitute the Special bench in both the cases/appeals vide order dated 30th December, 2005. All these materials were placed before the Hon'ble President of the Tribunal and the Hon'ble President of the Tribunal vide order dated 23rd March, 2006, has constituted this Special Bench for hearing of the question proposed by the Bench. These facts clearly show that the preliminary objections raised by the ld. counsel for the assessee has no force and is liable to be rejected. The Hon'ble President has exercised his plenary powers in order to constitute Special Bench to dispose of these two appeals because of the appropriate and germane grounds in the given circumstances. We may also mention that even if the assessee has made a request for withdrawal of appeal in I.T.A.No. 952 of 1994, would not affect the constitution of the Special Bench in the aforesaid case. The Special Bench is competent and empowered to decide the question referred to it in the light of the material available on record. It appears to us that ld. counsel for the assessee has raised the preliminary objection in the hope that if ultimately the matter is considered by Division Bench of I.T.A.T., it has to follow its earlier order in I.T.A.No. 1014/Ind/1993 dated 19-7-1994, whether such view is legally permissible or not. Considering the facts and circumstances noted above, we are of the view that preliminary objections raised by the assessee is without substance and is rejected.

13. Legal issue before the Special Bench is "As to whether after granting of refund u/s 143(1)(a)(ii) of the Act, notice u/s 143(2) could be issued or not ?

14. The facts of the case in the case of M/s. Arihant Builders, Developers and Investors Private Limited are that the assessee company had filed a return claiming refund after adjustment of pre paid taxes. The A.O. processed the return u/s 143(1)(a) of the Act and the refund was granted to the assessee. Subsequently, the A.O. issued notice u/s 143(2) of the Act requiring the assessee to appear before him on the date fixed in the notice, he wanted to have some further information in respect of particulars furnished in the return of income. The assessee objected to the issue of the notice u/s 143(2) on the ground that on acceptance of the return filed by the assessee and on granting the refund u/s 143(1)(a)(ii), the assessment becomes final and the A.O. has no jurisdiction to issue notice u/s 143(2). In support, the assessee has filed order of I.T.A.T., Indore Bench dated 19th July, 1994, for assessment year 1991-92 in the case of M/s. Arihant Builders, Developers and Investors Private Limited (supra). The contention of the assessee was not accepted by the Assessing Officer on the reasons that only condition laid by sub section (2) of section 143 is that a notice under this section shall be served before the expiry of 12 months from the end of the month in which return is furnished. The assessee challenged the order of the A.O. before the CIT(A) on the same reasons, but the CIT(A) rejected the claim of the assessee and relied upon order of the I.T.A.T., Indore Bench in the case of M/s. Agarwal Warehousing and Leasing Limited, Indore, dated 26th September, 1995, for assessment year 1989-90 in I.T.A.No. 952 of 1992 in which the Tribunal has decided this issue against the assessee.

15. Ld. counsel for the assessee submitted that in sub clause (i) of section 143(1)(a), the words "Without prejudice" have been used, whereas such words are not used in sub clause (ii). He has contended that if the return is processed u/s 143(1)(a) and an intimation is sent to the assessee in respect of the tax or interest found due on the basis of the return, then such intimation is issued without prejudice to the provisions of sub section (2) of section 143. Since the words "Without prejudice" are not mentioned in sub clause (ii), it was contended that grant of refund under that clause become final and subsequent to the grant of refund, the A.O. cannot assume jurisdiction to issue notice u/s 143(2). Since the words "Without prejudice" are not to be found in sub clause (ii), it is not open to add such words to the language of the clause. The ld. counsel for the assessee submitted that absence of such words has to be understood in that sense. He has submitted that the phrase "Without prejudice" is missing in sub clause (ii) of section 143(1)(a). However, that language of section 143(1)(a)(i) cannot be stretched to section 143(1)(a)(ii) of the Act. According to him, such words were omitted from sub clause (ii) and this fact has not been appreciated by the CIT(A). The ld. counsel for the assessee submitted that the interpretation placed by the Tribunal in the case M/s. Arihant Builders, Developers and Investors Private Limited in assessment year 1991-92 while deciding I.T.A.No. 1014 of 1993 is in accordance with the above proposition. He, accordingly, submitted that once refund is issued u/s 143(1)(a)(ii), then the A.O. cannot issue notice u/s 143(2). The ld. counsel for the assessee further submitted that the Revenue has not lost its remedy, because it could proceed against the assessee in case of escapement of income u/s 147 Explanation 2(b) of the Income-tax Act, 1961. The ld. counsel for the assessee submitted that if the legislature omitted particular phrase in the statute, then the Court should not fill the gap in the same. He has submitted that Statute has to be understood in the sense in which it prescribed the rule without adding or substituting any words. The ld. counsel for the assessee submitted that the decision of Hon'ble Madhya Pradesh High Court in the case of Kamal Textiles and Others, 189 ITR 339, deals with the proposition laid down in section 143(1)(a)(i) of the Income-tax Act, 1961, and as such it cannot be applied in the case of the assessee on the referred question, which falls in different categories of provision of section 143(1)(a)(ii) of the Income-tax Act, 1961. The ld. counsel for the assessee submitted that both the provisions of section 143(1)(a)(i) and 143(1)(a)(ii) are on different propositions of law. The ld. counsel for the assessee apart from referring to certain decisions also briefly referred to the text book for the purpose of stressing as to how the language of the statute should be read. He has submitted that intention of the Legislature is primarily to be gathered from the language used, which means the attention should be paid to what has been said as also to what has not been said. As a consequences, a construction, which requires for its support, addition or substitution of words or which results in rejection of words as meaningless has to be avoided. He has submitted that the intention of the legislature not to be speculated on. The meaning of the words ought to be understood to bear is not to be ascertained by any process akin to speculation : The primary duty of Court of Law is to find the natural meaning of the word used in the context in which they occur, that context including any other phrase in the Act, which may throw light on the sense in which the maker of the Act used the words in dispute. He has submitted that even though a Court is satisfied that the Legislature did not contemplate the consequences of an enactment, a Court is bound to give effect to its clear language. The ld. counsel for the assessee further submitted that casus omissus not to be created or supplied and submitted that the second consequence of the rule is that the Statute may not be extended to make a case for which provisions has clearly and undoubtedly not been made. He has submitted that since the Legislature has deliberately did not mention the phrase "Without prejudice" in sub clause (ii) of section 143(1)(a), therefore, such omission or gap in the statute cannot be supplied by the Courts. The ld. counsel for the assessee referred to following decisions :-

(I) Lt Col. Prithi Pal Singh Bedi and Others vs. Union of India, AIR (1982) S.C. 1413, in which it was held that the dominant purpose in construing a statute is to ascertain the intention of the Parliament. One of the well recognized cannons of construction is that the legislature speaks its mind by use of correct expression and unless there is any ambiguity in the language of the provision, the Court should adopt literal construction if it does not lead to an absurdity.

(II) Babaji Kondaji Garad and Others vs. Nasik Nasik Merchants Co-op. Bank Limited,Nasik and Others, AIR (1984) S.C. 192, in which it was held that before going in search of any external aids of construction, let us look at the language employed by the Legislature because no canon of construction can be said to be more firmly established than this that the Legislature uses appropriate language to manifest its intention.

(III) M/s. Patheja Bros, Forgings and Stamping and another v. ICICI Limited and Others, AIR (2000) S.C. 2553, in which it was held that when the words of a legislation are clear, the Court must give effect to them as they stand and cannot demur on the ground that the Legislature must have intended otherwise.

(IV) Gaurav Distributors P. Ltd. vs. Commissioner of Customs, (2004) 3 RC 200 (S.C), in which Hon'ble Supreme Court held in the head note that Interpretation of the Statutes -Statute Clear and Unambiguous effect to be given.

(V) Vam Organic Chemicals Ltd vs. State of U.P. and Others, (2003) 2 STJ 9 (All), in which it was held where the language of a provision is plain, Courts cannot ordinarily concern with the policy behind the provisions. It was further held that it is a corollary to the literal rule of interpretation that omissions in a statute are not to be inferred. If there is any defect or omission in the phraseology used by the Legislature it is not for the Court to make good the deficiency.

(VI) Ganga Enterprises vs. Commissioner of Sales Tax, (2004) 4 STJ 422 (MP), in which in the head note, Hon'ble High Court of Madhya Pradesh at Jabalpur.held that it is a trite law that a taxing statute has to be construed strictly - an Explanation has to be strictly construed in the context in which it appears and it cannot be imported or it cannot be read in other provision where it is not warranted.

(VII) GRASIM Industries Limited vs. Collector of Customs, Bombay, 128 STC 349, in which the Hon'ble Supreme Court held that -

"No words or expressions used in any statute can be said to be redundant or superfluous. In matters of interpretation one should not concentrate too much on one word and pay too little attention to other words. No provision in the statute and no word in any section can be construed in isolation. Every provision and every word must be looked at generally and in the context in which it is used. Every statute is an edict of the Legislature. The elementary principle of interpreting any word while considering a statute is to gather the mens or sentential legis of the Legislature. Where the words are clear and there is no obscurity and the intention of the Legislature is clearly conveyed, there is no scope for the court to take upon itself the task of amending or altering the statutory provisions. Wherever the language is clear the intention of the Legislature is to be gathered from the language used. While doing so what has been said in the statute and what has not been said has to be noted."

16. The ld. counsel for the assessee on the same proposition also relied upon 48 STC 239 and 108 ITR 345 as have been discussed in the above decisions referred to. The ld. counsel for the assessee lastly submitted that intimation u/s 143(1)(a) of the Act does not amount to assessment and has submitted that in his own argued case before Hon'ble M.P. High court in the case of CIT vs.Om Prakash Bagria (HUF), (2006) 155 Taxman 427. Hon'ble High Court has held that section 143(1)(a) would show that an intimation sent to assessee, the same would not make the intimation as assessment. The ld. counsel for the assessee conceded before us that it is a settled law that intimation of the processing of return u/s 143(1)(a) is not an assessment. The ld. counsel for the assessee, accordingly, submitted that since the phrase "Without prejudice" is not used in section 143(1)(a)(ii), therefore, if refund is issued under the same provision then the A.O. cannot issue notice u/s 143(2) of the Act.

17. On the other hand, the ld. Departmental Representative relied upon the order of the CIT(A) and submitted that from 1.4.1989, the provisions contained u/s 143(1)(a) have been inserted in the Income-tax Act, because it was not possible to scrutinize all the returns. The A.O. can make, prima facie, adjustment as having provided u/s 143(1)(a) and according to sub section (i), the A.O. can issue demand notice raising a demand of tax or interest, which is payable by assessee and according to the sub clause (ii), the refund is to be issued after processing is done u/s 143(1)(a) of the Act. The ld. Departmental Representative further submitted that the word "and" has been used in between section 143(1)(a)(i) and sub clause (ii), which shows that both sub clauses (i) and (ii) have to be read together. The ld. Departmental Representative submitted that the provisions contained in section 143(1)(a) have to be read together for the purpose of processing the return. The ld. Departmental Representative submitted that the provisions of section 143(1)(a) would be used only for a limited purpose, so that the tax payable by the assessee are paid through the demand notice and that refund is granted in case the same is due to the assessee. The ld. Departmental Representative submitted that the phrase "Without prejudice" to the provisions of sub section (i) have to be read in conjunction in these provisions. The ld. Departmental Representative further submitted that the phrase "Without prejudice" is not used in section 143(2). The ld. Departmental Representative submitted that the A.O. has power u/s 143(2) to issue notice to the assessee even after intimation is issued u/s 143(1)(a), if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner. The ld. Departmental Representative further submitted that even sub clause of (4) of section 443 is applicable, which states that even after refund is granted, the same would be adjusted towards.tax after regular assessment is made u/s 143(3) by issue of notice u/s 143(2). The ld. Departmental Representative submitted that all the sections have to be read together in order to achieve the purpose and intent of the legislator. The ld. Departmental Representative submitted that there is no omission in the statute. The ld. Departmental Representative submitted that it is not appropriate to equate the provisions of section 147 with section 143. The ld. Departmental Representative relied on the following decisions :

(a) Kamal Textiles and Others vs. ITO, 189 ITR 339, in which Hon'ble M.P. High Court has held :-

"A reading of section 143(1)(a)(i) makes it clear that giving of intimation in terms of that provision is "without prejudice" to the provisions of subsection (2) of section 143.

The intimation u/s 143(1)(a)(i) is only fictionally taken as a notice of demand u/s 156. Like all other fictions, to understand the meaning of this fiction so created here, one must look to its purpose. The apparent purpose of the fiction is to make the machinery provision for recovery of tax applicable to the recovery of tax assessed in terms of section 143(1)(a)(i) and nothing more. A notice of demand u/s 156 is to be served in the prescribed form. The intimation u/s 143(1)(a)(i) is not in any such prescribed form. Nevertheless, by the fiction so created, all incidents of the notice of demand shall become applicable even to that-intimation, for any statutory fiction must be carried to its logical conclusion. Such being the limited purpose of the fiction, it is difficult to accept the contention that on issuance of such intimation, the assessment proceedings can be reopened only in terms of section 147 and the- authority is not entitled to proceed under sub-section (2) of section 143. The assessment made in proceedings u/s 143(2) shall, for purposes of an assessment, be an assessment of tax made u/s 143(3) and, in that event, shall be applicable u/s 246(1)(a). Therefore, the notice issued under section 143(2) after issuing intimation u/s 143(1)(a)(i) is valid."

(b) CIT vs. Gujarat Electricity Board, (2003) 260 ITR 84, in which Hon'ble Supreme Court held -

Even otherwise, the view taken by the Gujarat High Court seems to be correct on principle. There is no dispute that section 143(1)(a) of the Act enacts a summary procedure for quick collection of tax and quick refunds. Under the scheme if there is a serious objection to any of the orders made by the A.O. determining the income-, it is open to the assessee to ask for rectification u/s 154. Apart therefrom, the provisions of section 143(1)(a)(i) indicate that the intimation sent under section 143(1)(a) shall be without prejudice to the provisions of sub-section (2). The Legislature, therefore, intended that, where the summary procedure under sub-section (1) has been adopted, there should be scope available for the Revenue, either suo motu or at the instance of the assessee to make a regular assessment under sub-section (2) of section 143. The converse is not available; a regular assessment proceeding having been commenced u/s 143(2), there is no need for a summary proceeding u/s 143(1)(a)."

(c) Apogee International Ltd and Another vs. Union of India (1996) 220 ITR 248 (Del), in which Hon'ble Delhi High Court held that a notice u/s 143(2) after issue of intimation u/s 143(1)(a)(i) is not invalid. -Section 143(1)(a) itself says that the intimation under sub clause (i) thereof is without prejudice to the provisions of sub section (2)."

(d) Gujarat Poly-Avx Electronics Limited, (1996) 222 ITR 140 (Guj) in which Hon'ble Gujarat High Court held -

"Reading the language of sub-clause (a) of sub-section (1) of section 143 of the Income-tax Act, 1961, it is clear that the A.O. is permitted to make adjustments and the same is without prejudice to the provisions of subsection (2). The right of the A.O. to proceed under section 143(2) is preserved despite intimation to the assessee u/s 143(1) of the Act. The use of the word "shall" in subsection (2) of section 143 of the act mandates the A.O. to issue notice to the-assessee with a view to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner. After expiry of 12 months from the end of the month in which" the return is furnished no notice can be served on the assessee. But intimation u/s 143(1) can 6e sent before the expiry of two years from the end of the assessment year. Thus, the Legislature has not permitted simultaneous proceedings. The Central Board of Direct Taxes in its Circular No.549 dated October 31, 1989, has advised the A.O. to issue intimation u/s 143(1) before issuance of notice u/s 143(2) of the act. Hence, after issuance of notice u/s 143(2) of the Act. Hence, after issuance of notice u/s 143(2) of the Act, it is not open for the A.O. to make adjustment or to pass order u/s 143(1) of the Act but he has to make assessment in accordance with law, i.e. u/s 143(3) of the Act."

18. The ld. Departmental Representative further submitted that phrase "Without prejudice" is used in section 143(1)(a) for abandoned precautions, otherwise meaning of the Act and section is very clear. Therefore, the A.O. has power to proceed for regular assessment u/s 143(3) by issuing notice u/s 143(2) even after intimation is issued on the processing of the return.

19. We have considered the rival submissions and material available on record. In order to appreciate the contention advanced by the ld. Representatives of both the parties, it would be relevant to reproduce the relevant provisions attracted in this case, which are relevant to the assessment year in question.

143. [(1)(a) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,-

(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and

(ii) if any refund is due on the basis of such return, it shall be granted to the assessee :

Provided that in computing the tax or interest payable by, or refundable to, the assessee, the following adjustments shall be made in the income or loss declared, namely : -

xx xx xx xx xx xx

[(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer shall, if he considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, serve on the assessee a notice requiring him, cause to be produced there, any evidence on which the assessee may rely in support of the return :

[Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.]

xx xx xx xx xx

4) Where a regular assessment under sub-section (3) of this section or section 144 is made,-

(a) any tax or interest paid by the assessee under sub-section (1) shall be deemed to have been paid towards such regular assessment;

(b) if no refund is due on regular assessment or the amount refunded under sub-section (1) exceeds the amount refundable on regular assessment, the whole or the excess amount so refunded shall be deemed to be tax payable by the assessee and the provisions of this Act shall apply accordingly.

20. The question whether after issue of intimation u/s 143(1)(a)(i), notice u/s 143(2) can be issued by the Assessing Officer had come up for consideration before Hon'ble Jurisdictional High Court in the case of Kamal Textiles and Others (supra), the Hon'ble High Court held that notice u/s 143(2) can be issued even after intimation u/s 143(1)(a)(i) is issued. It was further held that notice then sent u/s 143(2) cannot be said to be invalid. Even after sending intimation, ITO's right to proceed u/s 143(2) is not taken away. The point in issue was, therefore, decided in favour of the Revenue and against the assessee. This decision is reproduced above in this order. The same view is taken by Hon'ble Delhi High Court in the case of Apogee International Limited (supra). Hon'ble Supreme Court, in the case of Gujarat Electricity Board (supra) while dealing with the slightly different proposition has decided the proposition in favour of the Revenue. We may mention that Hon'ble Jurisdictional M.P. High Court in the case of M/s. Kamal Textiles and Others (supra) gone to the extent of saying that it is difficult to accept the contention that on the issuance of such intimation, the assessment proceedings can be reopened only in terms of section 147 and the authorities are not entitled to proceed under sub section (2) of section 143. The above principle laid down in the aforesaid decision would make it clear that after issue of an intimation u/s 143(1)(a)(i), the A.O. has jurisdiction to issue notice u/s 143(2). In the aforesaid decision, the point whether after grant of refund u/s 143(1)(a)(ii) of the Act, the A.O. has authority to issue a notice u/s 143(2) of the Act was not directly involved. However, we noticed that in between sub clauses (i) and (ii) of section 143(1)(a), the word "and" is used. It is clear that when the word "and" is used, the same indicates the connection and the addition of the items within the same class or type. Therefore, by using the word "and" in between sub clauses (i) and (ii) of section 143(1)(a), the Legislature clearly intended to use the expression "Without prejudice" for both the provisions.

We do not have any quarrel with the proposition laid down by the authority cited by Shri P.M.Chowdhary, the learned counsel for the assessee. However, authorities cannot be read out of context and divorced from the background of the circumstances in which those authorities were rendered. Provisions of subsections (1) and (2) of section 143 are machinery provisions and not charging provisions. It is well settled that machinery provision of a taxing statute must be construed in a manner which makes the statute workable. These cannot be construed in a manner which will bring the machinery to a grinding halt and defeat the purpose of the enactment. A construction, which would lead to absurd results, is also to be avoided unless words and expressions employed leave no scope with courts but to face a dead end. In the present case no such situation prevails.

The contention of Shri Chowdhary that notice under section 143(2) cannot be issued in a case where refund was granted to the assessee under section 143(1)(a)(ii) of I.T. Act is totally misconceived and has to be rejected.

In the case of Om Prakash Bagria, HUF (supra) their Lordships of M.P.High Court held as under :-

"A plain reading of section 143(1)(a) would show that an intimation is sent to the assessee, specifying the sum payable towards any tax or interest found due on the basis of return filed by the assessee. Similarly, intimation is sent to the assessee if such refund is found due on the basis of return filed by the assessee."

Hon'ble Bombay High Court in the case of Khatau Junkar Ltd. and Another vs. K.S. Pathania and Another, 196 ITR 55 has observed as under (at page 65 ) :-

"On a plain reading of section 143(1)(a) of the Act, therefore, it is clear that if, on the basis of the return which is filed by the assessee, any tax or interest is found due after adjustments, as set out in the section, an intimation shall be sent to the assessee specifying the sum so payable. Similarly, if any refund is due to the assessee on the basis of such return, it shall be granted to the assessee. Therefore, such an intimation can be sent to the assessee only on the basis of the return."

Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Limited vs. Chairman, Central Board of Direct Taxes and Another, 246 ITR 173, has observed as under :-

"On thing further to be noticed is that intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2). Though technically the intimation issued was deemed to be a demand notice issued under section 156, that did not per se preclude the right of the Assessing Officer to proceed under section 143(2). That right is preserved and is not taken away. Between the period from April 1, 1989 to March, 31, 1998, the second proviso to section 143(1)(b), required that where adjustments were made under the first proviso to section 143(1)(a), an intimation had to be sent to the. assessee notwithstanding that no tax or refund was due from him after making such adjustments. With effect from April 1, 1998, the second proviso to section 143(1)(a) was substituted by the Finance Act, 1997, which was operative till June 1, 1999. The requirement was that an intimation was to be sent to the assessee whether or not any adjustment had been made under the first proviso to section 143(1) and notwithstanding that no tax or interest was found due from the assessee concerned. Between April 1,1998, and May 31, 1999, sending of an intimation under section 143(1)(a) was mandatory. Thus, the legislative intent is very clear from the use of the word intimation" as substituted for "assessment" that two different concepts emerged. While making an assessment, the Assessing Officer is free to make any addition after grant of opportunity to the assessee. By making adjustments under the first proviso to section 143(1)(a), no addition which is impermissible by the information given in the return could be made by the Assessing Officer. The reason is that under section 143(1)(a) no opportunity is granted to the assessee and the Assessing Officer proceeds on his opinion on the basis of the return filed by the assessee. The very fact that no opportunity of being heard is given under section 143(1)(a) indicates that the Assessing Officer has to proceed accepting the return and making the permissible adjustments only. As a result of insertion of the Explanation to section 143 by the Finance (No.2) Act of 1991 with effect from October 1,1991, and subsequently with effect from June 1, 1994, by the Finance Act, 1994, and ultimately omitted with effect from June 1, 1999, by the Explanation as introduced by the Finance (No.2) Act of 1991 an intimation sent to the assessee under section 143(1)(a) was deemed to be an order for the purposes of section 246 between June 1, 1994, to May,31, 1999, and under section 264 between October 1", 19991, and May, 31, 1999. it is to be noted that the Expressions "intimation" and "assessment order" have been used at different places. The contextual difference between the two expressions1 has to be understood in the context the expressions are used. Assessment is used as meaning sometimes "the computation of income", sometimes "the determination of the amount of tax payable " and sometimes "the whole procedure laid down in the Act for imposing liability upon the taxpayer?'. In the scheme of things, as noted above, the intimation under section 143(1)(a) cannot be treated to be an order of assessment. The distinction is also well brought out by the statutory provisions as they stood at different points of time. Under section 143(1)(a) as it stood prior to April 1, 1989, the Assessing Officer had to pass an assessment order if he decided to accept the return, but under the amended provision, the requirement of passing of an assessment order has been dispensed with and instead an intimation is required to be sent. Various circulars sent by the Central Board of Direct Taxes spell out the intent of the Legislature, i.e. to minimize the departmental work to scrutinize each and every return and to concentrate on selective scrutiny of returns. These aspects were highlighted by one of us D.K.Jain J. in the case of Apogee International Limited v. Union of India [1996] 220 ITR 248 by this Court. It may be noted above that under the first proviso to the newly substituted section 143(1), with effect from June 1, 1999, except as provided in the provision itself, the acknowledgment of the return shall be deemed to be an intimation under section 143(1) where (a) either no sum is payable by the assessee, or (b) no refund is due to him. It is significant that the acknowledgment is not done by any Assessing Officer, but mostly by ministerial staff. Can it be said that any "assessment" is done by them ? The reply is an emphatic "no". The intimation under section 143(1)(a) was deemed to be a notice of demand under section 156, for the apparent purpose of making machinery provisions relating to recovery of tax applicable. By such application only recovery of tax applicable. By such application only recovery indicated to be payable in the intimation became permissible. and nothing more can be inferred from the deeming provision. Therefore, there being no assessment under section 143)(1)(a), the question of change of opinion, as contended, does not arise."

There are several other decisions on above lines pointing out that intimation is to be sent under section 143(1) both in cases where sum is found to be payable by the assessee towards any tax or interest as also in cases where refund is. found to be due on the basis of return filed by the assessee. It is also not disputed by Shri Choudhary that intimation sent by the Assessing Officer under section 143(1) after amendment of the sub-section as noted by the Hon'ble Delhi High Court is not an "assessment". However, if arguments of Ld. Counsel for the assessee are accepted then above decisions have no meaning. The arguments of the assessee legally and logically are that the language of clause (ii) does not permit regular assessment after refund is granted to the assessee. However, a plain and simple reading of the provision would show that above argument is not sound. Clause (ii) of section 143(1) does not require that "intimation" be sent to the assessee in case refund is found to be due to the assessee. But we have seen that intimation is required to be sent in cases of refund also. There is no requirement in clause (ii) for adjustment of tax deducted at source, advance tax or any amount paid otherwise by the assessee. How do you find that refund is due under clause (ii) and shall be granted to the assessee ? Nothing else is stated in clause (ii). The said clause cannot independently operate without considering advance tax deducted at source, or other sum paid by the assessee to find that refund is "due" on the basis of return and it be granted to the assessee". It is, therefore, imperative to read clause (ii) alongwith clause (i) and consider it is an integral part of the aforesaid clause. Sub-section (1) has to be read as a whole alongwith other relevant provisions for giving it proper meaning and put it in operation. In other words clause (ii) is part of clause (i) dealing with separate situation applicable where refund is found to be due to the assessee. The said clause cannot be taken as an independent clause and separately read and considered in isolation. Otherwise it leads to an absurdity and cannot operate. The fact that it is part and parcel of clause (i) is made abundantly clear by the Legislature by use of word "and" in the sub section. Two clauses only govern two situations one where tax etc. is found to be payable and other where refund is found to be due to the assessee. However, issuance of "intimation", consideration of advance tax, TDS and "without prejudice to provision of sub section (2)" is to be considered for both the clauses treating them as integrated and not as independent clauses. There is no scope to argue that words "without prejudice to sub section (2)" should have again been provided in clause (ii).

Other reason why contention of the. assessee cannot be accepted is that subsection (1) and sub-section (2) govern different situations and operate in different fields. Sub-section (1) deals with issuance of "intimation" whereas sub section (2) enables the Assessing Officer to issue notice to make a regular assessment. The scope of sub-section (1) has been explained by CBDT in Circular No.541 dated 31st October, 1989. The purpose is to find and immediately recover if any amount is payable by the assessee on the basis of income returned by the assessee. Likewise if any refund is due to the assessee, the same should be immediately granted and higher payment of interest on refund on account of delay avoided. This intention is made more than clear by express language of sub-section (1) of section 143. It has nothing to do with a regular assessment.

Sub-section (2) enables the Assessing Officer to issue notice to the assessee if he consider it necessary or expedient to ensure that assessee has not understated the income or has not computed excessive loss or underpaid tax in any manner. Thus object of sub-section (2) is quire different from object of sub section (1) of section 143. Sub section (2) provide circumstances under which power of making a regular assessment is to be exercised by issuing notice.

So the pertinent question required to be asked is whether there is any provision in sub-section which can be construed as a bar to the exercise of power vested in Assessing Officer under sub-section (2) after refund has after been granted to the assessee. If there was indication in sub-section (1) that the refund issued is an assessment order, one could perhaps argue that having made an assessment under sub section (1), the Assessing Officer could not take steps to make a regular assessment and issue notice under sub-section (2) of section 143 as two assessments in the case of the same assessee for the same assessment year are not authorized under the statute unless the case falls under section 147 or similar other enabling provision. But here it is not in dispute that intimation or refund sent under sub-section (1) is not an "assessment". Then what is there in clause (1) which prevent the Assessing Officer from issuing notice under subsection (2)of section 143 ? Great emphasis was laid on the absence of words "without prejudice to the provision of sub-section (2)" in clause (ii) of the sub section. This contention cannot be accepted as clause (ii) is integral part of clause (i) as discussed above. In our opinion words "without prejudice to the provision of sub section (2)" are used for both the clauses. Further power to make a regular assessment by issuing notice under section 143(2) is separate and independent of power to issue "intimation" and grant of refund to the assessee under sub-section (1) of section 143. In our considered opinion, the Assessing Officer could exercise power under sub section (2) even if words "without prejudice to the provision of sub-section (2)" were not there in subsection (1). Above words have been used by Legislature out of abundant caution. Having regard to clear language of sub-section (2) it is not possible to infer that Assessing Officer cannot issue notice under the said provision even where he considered it necessary and expedient to ensure that the assessee has not understated income etc. Having regard to other statutory provisions and scheme of the Act as a whole, it is not possible to hold that Assessing Officer cannot make a regular assessment by issuing notice u/s 143(2) merely because, he had issued a refund to the assessee under section 143(1)(ii) of the Income-tax Act, 1961. We are dealing with a machinery provision of a taxing statute and must construe the same in a manner which would make it workable to achieve the purpose of legislature.

21. We are of the view that the principle laid down by Hon'ble Jurisdictional M.P. High Court in the case of Kamal Textiles and others (supra) would squarely apply to the case, where refund is granted by the Assessing Officer after processing of the return u/s 143(1)(a)(ii) of the Income-tax Act, 1961. Accordingly, the decision of the Hon'ble Delhi High Court in the case of Apogee International and the decision of Hon'ble Supreme Court in the case of Gujarat Electricity Board, also fortify our opinion on the said legal proposition.

22. Section 143(2) is meant for regular assessment whereas section 147 deals with the assessment for escapement of income. The A.O. is empowered to proceed for regular assessment under section 143(3) by issuing notice u/s 143(2). Both the provisions are altogether dealing with different situation. Even if Revenue has remedy to proceed under section 147 of the Income-tax Act, 1961, the powers of the A.O. cannot be curtailed for issuing notice u/s 143(2). for making regular assessment. We may further mention that we do not see any bar in any of the provisions of the Act on the powers of the A.O. to issue notice u/s 143(2) of the Income-tax Act, 1961. The A.O. for the purpose of scrutiny of the return could issue notice u/s 143(2) of the Act, if he considers it necessary or expedient to ensure that the assessee has not under-stated the income or has not computed excessive loss or has not underpaid the tax in any manner. The power of the A.O. u/s 143(2) for issuing the notice for regular assessment u/s 143(3) are not controlled by the provisions of section 143(1)(a)(i)(ii) of the Income-tax Act, 1961.

23. The language of section 143(4)(b) also suggests that the regular assessment can be made even in cases where refund has been granted u/s 143(1)(a)(ii). If the contention of ld. counsel for the assessee is accepted then it would make the provisions of section 143(4) as redundant, which is not the intention of the Legislature.

24. The ld. counsel for the assessee, during the course of the arguments, conceded before us that the intimation issued u/s 143(1)(a) does not amount to assessment. He has also conceded before us that the same proposition is held by Hon'ble M.P. High Court in the case of Omprakash Bagria (HUF) (supra), which is argued by the ld. counsel for the assessee before the High Court. The said decision is referred to above. Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Limited, 246 ITR 173, also held that intimation u/s 143(1)(a) does not amount to assessment. Considering above legal proposition, we may revert back to the first decision of the I.T.A.T., Indore Bench in the case of M/s. Arihant Builders, Developers and Investors Pvt. Limited, Indore dated 19th July,1994,in I.T.A.No. 1014 of 1993 for assessment year 1991-92, in which the Tribunal decided the referred question in favour of the assessee, which is heavily relied upon by the ld. counsel for the assessee. The D.B. of I.T.A.T. Indore Bench in I.T.A.No. 1014 of 1993 decided the issue in favour of the assessee on the premise that processing u/s 143(1)(a) is an assessment and, therefore, once refund is granted, no fresh assessment proceedings could begin by issue of notice u/s 143(2). The same contentions were raised before the Tribunal on behalf of the assessee. Thus, the Tribunal concluded that the assessment has become complete in that case and nothing more was needed to be complete the assessment. The ld. counsel for the assessee, therefore, demolished his own case by contending now that the processing of the return u/s 143(1)(a) is not an assessment, as is also held in his own argued case of Om Prakash Bagria (HUF) (supra). As per the decision in the case of Om Prakash Bagria (HUF), there is a distinction between processing of the return u/s 143(1)(a) and section 143(2). The case laws relied upon by the ld. counsel for the assessee would not support his contention at all. Considering the above discussion and the case laws referred to above, we hold that the A.O. was perfectly justified and have jurisdiction to issue notice u/s 143(2), even after refund was granted to the assessee u/s 143(1)(a)(ii) of the Act. This issue is, therefore, decided in favour of the Revenue and against the assessee.

25. Now we deal with the grounds on merits, because the Special Bench was constituted to decide the entire appeal including the issue referred to above as decided with regard to issue of notice u/s 143(2) after the refund.

26. The ld. counsel for the assessee in the case of M/s. Agarwal Warehousing and Leasing Limited in I.T.A.No. 952of 1994 has submitted that during the appeal the assessee has applied to K.V.S.S.1998 and has received a certificate for full and final settlement of tax arrears under the Scheme. Copy of the K.V.S.S. Certificate is also filed and it was, accordingly, submitted that the. assessee may be permitted to withdraw the appeal No. 952 of 1994, as the same has become rendered infructuous. The ld. Departmental Representative did not have any objection in this regard. We, accordingly, dismiss the appeal of the assessee as withdrawn being settled in K.V.S.S.

27. I.T.A.No. 952 of 1994 is, accordingly, dismissed.

28. The last issue is left for consideration in I.T.A.No. 92 of 1996 in the case of M/s. Arihant Builders, Developers and Investors Pvt. Limited, the A.O. rejected the books of account u/s 145(2) of the Income-tax Act, 1961. The assessee company is engaged in construction work taken on contract. During accounting period, the assessee has shown a gross receipt of Rs. 26,74,885/- for the work completed on contract. The net profit on such receipt shown by the assessee is only Rs. 12,951/- i.e. 0.48 % of the total receipt, which was found to be low in the line of the civil construction. During the course of the assessment, the A.O. observed that the assessee has claimed to have paid labour charges in a sum of Rs. 8,20,863/- and cartage is claimed at Rs. 1,84,619/-. On verification of the account books and vouchers, the A.O. found that the assessee has not maintained it in such a form to ascertain the correct expenses. The A.O. noted certain defects in the maintenance of the books of account with reference to the claim made for the payment of labour charges and cartages. The assessee was found not to maintain muster roll depicting the name of the persons employed and for the particular work and the rate paid for them. The vouchers were also found self printed upon which no revenue stamps were affixed. The payments were made in cash. Therefore, the A.O. was of the view that the correctness of the claim of the vouchers cannot be verified. The same was the decision with regard to cartage expenses and payments are made in cash without supporting vouchers. The A.O. issued show cause notice to the assessee to explain these issues and the defects pointed out in the books of account and the vouchers, but the assessee replied before the A.O. that since it is a case of Private Limited Company and books of account are audited. Therefore, the same cannot be rejected. The A.O., however, did not accept the contention of the assessee and considering the aforesaid defects in the vouchers and books of account rejected the book result and directed to apply the net profit rate at 12.5 % on the total receipts shown by the assessee and computed the income of the assessee accordingly. The addition was challenged before the CIT(A) and the ld.CIT(A) considering the defects pointed out by the Assessing Officer, confirmed the rejection of the books of account and also dismissed the appeal of the assessee.

29. The ld. counsel for the assessee did not argue on this issue. Therefore, we are left with no alternative except to consider and decide this issue on the basis of the merits and the material available on record in the light of the observations of the authorities below. On consideration of the above facts and material on record, we find that the assessee did not satisfy the A.O. with regard to correctness of the vouchers for the purpose of claiming deduction on account of labour charges as well as cartage expenses. The onus is upon the assessee to prove the genuineness of the payments made on account of labour charges and cartage expenses, because the assessee claimed ' deduction of the same amount. However, the assessee did not discharge the onus of proving genuineness of the claim of the expenses. The A.O. also held that the assessee has not maintained proper muster roll as to where the labours were employed and for which particular work they were engaged. Considering the finding of the authorities below, we do not find any merit in the case of the assessee with regard to the rejection of the books of account with the aid of section 145(2) of the act. We confirm the orders of the authorities below to that extent.

30. Another question left for consideration is as to whether net profit rate of 12.5 % applied by the Assessing Officer is justified in the matter. The assessee has shown the gross receipts of Rs. 26,74,885/-and the net profit declared was @ 0.48 %. Though it is a case of assessment year 1992-93, but we find that the provisions of section 44AD of the Income-tax Act, 196.1, have been inserted into the Income-tax Act, 1961, with effect from 1.4.1994 provided in sub section (1) special provision for computing profits and gains of business of civil construction. It provides that notwithstanding anything contained in sections 28 to 43-C in the case of the assessee engaged in the business of civil construction a sum equal to 8 % of the gross receipts paid or payable to the assessee in the previous year on account of such business or as the case may be, a sum higher than aforesaid sum declared "by the assessee in his return of income, shall be deemed to be the profits and gains of such business chargeable to tax under the head "Profits and Gains of the business or profession". Provided that nothing contained in this sub section shall apply in case the aforesaid gross receipt paid or payable exceed an amount of Rs. 40 lakhs. Though strictly these provisions are inserted in the act with effect from 1.4.1994, but these provisions could be a guideline for the purpose of applying a particular net profit rate in the case of the civil contractor even in earlier years. The assessee is also civil contractor engaged in construction work taken on contract and the gross receipt of the assessee are below Rs. 40 lakhs. Therefore, in our considered view, the net profit rate of 12.5 % applied by the authorities below in the case of the assessee is excessive and exorbitant. We, accordingly, modify the application of net profit rate from 12.5 % to 8 % on the gross receipt shown by the assessee. The A.O. shall work out the profit accordingly.

31. As a result, this ground of appeal of the assessee is in I.T.A.No. 92/Ind/1996 is partly allowed.

32. No other issue is argued or pressed. Accordingly, we answer the question referred to the Special Bench in favour of the Revenue. We dismiss I.T.A.No. 952/Ind/94 and partly allow I.T.A. No. 92/Ind/1996. We, accordingly, conclude our reasons for disposal of both the appeals as were directed vide our order dated 30th October, 2006.