KILLICK NIXON LTD., MUMBAIversusDEPUTY COMMISSIONER OF INCOME TAX, MUMBAI AND ORS.

A                       KILLICK NIXON LTD., MUMBAI
                                          v.
     DEPUTY COMMISSIONER OF INCOME TAX, MUMBAI AND ORS.

                              NOVEMBER 25, 2002

B                   [RUMA PAL AND B.N. SRIKRISHNA, JJ.]


          Income Tax Act, 1961:

          Sections 142(1), 143, 90 and 91--Assessee filing return-Assessing
C Officer disallowing certain claims-Appellate Authority upholding order of
    Assessing Officer in respect of certain items but setting aside the order with
    regard to four heads and remitting the matter to assessing authority-Assessing
    Officer giving effect to the appellate order, determining the assessed income
    and raising demand-Meanwhile assessee filing declaration under Kar Vivad
D   Samadhan Scheme-Tax arrears determined and paid-Designated authority
    issuing final certificate-Assessing Officer re-opening assessment-Correctness
    of-Held: Assessing Officer has no jurisdiction to reopen assessment since the
    order made by designated authority is considered order, conclusive in respect
    of tax arrears-However, if any material particular furnished in the declaration
E   is found to be false, assessment can be re-opened-Further the plea that
    Assessing Officer has not assessed the disputed heads while giving effect to
    Appellate order is not tenable since no demand notice/refund order could
    have been issued if the assessment was not complete-Kar Vivad Samadhan
    Scheme, 1998.

p       Appellant-assessee filed return for assessment year 1992-93,
  following by a revised return. Assessing Authority disallowed certain
  claims. Appellate Authority upheld the order of Assessing Officer in
  respect of certain claims, but set aside the assessment order with regard
  to four heads, viz, claim for bad debt, income from house property,
  determination of capital gains, disallowance under rule 6D and remitted
G the matter to the assessing authority. Giving effect to the Appellate Order,
  the Assessing Officer determined the assessed income and raised the
  demand. Meanwhile Kar Vivad Samadhan Schei;ne, 1998 was passed.
  Appellant filed a declaration under the Scheme disclosing the assessed
  income and worked out the tax payable. Designated Authority determined
H the tax arrears which was paid by the assessee and then the Designated
                                         348
                KILLICK NIXON LTD .. MUMBAI ,. DY. COMMR. OF INCOME TAX      349

      Authority issued a fin~I certificate. Thereafter, Assessing Officer issued     A
      notices to appellant under Section 142(1). Appellant objected but Assessing
      Officer refused to accept it as final closure of proceedings pertaining to
      assessment year 1992-93. Aggrieved appellant filed writ petition for
      quashing the notice which was dismissed. Hence the present appeal.

            Appellant-assessee contended that once. the assessment for the entire B
      year was settled by following the provisions of the Kar Vivad Samadhan
      Scheme and the Designated Authority after application of mind had made
      an order under Section 90 of the Act, 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             C
      Designated Authority; and that 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.

           Respondent-Revenue Department contended that the Assessing D
      Officer while giving effect to the Appellate Order had not taken into
      account the four major heads of dispute.

            Allowing the appeal, the Court

             HELO: I. The order to be made by the Designated Authority under
                                                                                     E
      Section 90 of the Income Tax Act, 1961 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. That upon such          F
      declaration being made, tax arrears being determined, paid and certificate
      issued under the Kar Vivad Samadhan Scheme, there is no jurisdiction
      for the Assessing Officer to reopen the assessment by a notice under
      Section 143 of the Acfexcept where the case falls under proviso (2) of sub-
      section (I) of Section 90 as it is found that any material particular          G
      furnished in the declaration is found to be false. It is not the case of the
      Revenue that any material particular furnished by appellant-assessee in
      the declaration was found to be false. Consequently, Assessing Officer
      could not have re-opened the assessment by a notice under Section 143 of
      the Act. [357-F-H; 358-A)
...        2.1. No demand notice/refund order could have been issued if the
                                                                                     H
    350                     SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A 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 the contention that the Assessing Authority had not assessed the
B   disputed heads while giving effect to the appellate order is not acceptable.
    Furthermore, a careful scrutiny of the order of the Assessing Officer
    suggests that, even while giving effect to the appellate order, the Assessing
    Officer has taken account of bad debt and amount treated as business
    income while working out the revised total income. Income from house
    property and claim of bad debt were deducted by the Assessing Authority,
C   indicating that he agreed with the Assessee's claim. [356-G, H; 357-A-C)

          2.2. It is true that even after the order of the Assessing Officer there
    was correspondence between the appellant and authorities with respect
    to disallowance of certain items of tax deducted at source as the appellant-
D   assessee was unable to produce documentary evidence, though it had
    furnished the necessary indemnity bonds. That, however, was an
    outstanding dispute by which 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 60
    disallowance'. The grievance, if any, on this count can only be made by
E   the assessee and not the Revenue. [357-D-E)

            CIVIL APPELLATE JURISDICTION             Civil Appeal No. 2614 of
    2001.

F        From the Judgment and Order dated 4.12.2000 of the Mumbai High
    Court in W.P. No. 546 of 2000.

         S.E. Dastur R. Muralidhar, B.V. Desai, Sanjeev Singh and Ms. Vanita
    Mehta for the Appellant.

            S. Rajappa, B.V. Bairam Das and H. Jayaram for the Respondents
G
            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
H   Petition under Article 226 of the ConstitJtion by which the appellant
    challenged the notice issued under Section 142(1) of the Income Tax Act,
      KILLICK NIXON LTD., MUMBAI v. DY. COMMR. OF INCOME TAX [SRIKRISHNA, J.] 351

     1961 (hereinafter referred to as "the Act')                                       A
          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              B
     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                                    c
            (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
                                                                                       D
     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          E
             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."             F
'•
           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.
                                                                                       G

-          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 meanwhlle, Kar Vivad
     Samadhan Scheme, 1998 (herein after referred to as KVSS) was brought into         H
    352                     SUPREME COURT REPORTS [2002) SUPP. 4 S.C.R.

A   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 K VSS
    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
B   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 {;ertificate 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
C   tax arrears determined in the order dated 19. l.l 999 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
    (I) of the Act, the Assessing Officer called upon the appe Hant to furnish
D   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.

E         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 procee,lings
p   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
G   the contentions urged ...

          Section 87 - In this Scheme, unless the context otherwise requires:

                 xxx                    xxx                    xxx

H          (e)   "disputed income", in relation to an assessment year means the
KILLICK NIXON LTD., MUMBAI '"DY COMMR OFINCOMETAX [SRIK~ISHNA. J] 353

           whole or so much of the total income as is relatable to the disputed A
           tax;

     (f)   ·'disputed tax" means the to1al tax determined and payable in
           respect of an assessment year under any direct tax enact1nen~ but
           which remains unpaid as on the date of making the declaration
           under Section 88:                                                    B
           xxx                          xxx                         xxx
     (m) "tax arrear" means - (I) 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         C
         an oppellate 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 I st day of September, 1998 but on or before the       D
     31st day of 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,     E
     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    p
           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       G
     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,     H
    354                      SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A           nothing contained in this Scheme shall be construed as c~nferring
            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
B     which were frittering away the energy of the Revenue Depaitment and to
    · encourage litigants to come foi·ward 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
C   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, ~'· .;te was no question of reopening any
    issue which were subject mattets of the order of the Designated Authority.
    He urged that the order of the Designated Authority is not mechanically
D   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
E   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
F   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
G   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
H
 KILLICK NIXON LTD .. MUMBAI r. DY. COMMR OF INCOME TAX [SRIKRISHNA. J.] 3 55


(Rs. 3,57, 153.00). The demand notice issued was only in respect of these          A
items totalling Rs. 33,65.298.00, this amount which had been declared under
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             B
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.
                                                                                   c
        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. I 998, 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-1 to the
Writ Petition) makes the situation clear. The Assessing Officer starts by          D
saying "Consequent upon the order of the CIT (A) C-l/AP.72/95-96 dated
 I6.3. l 998 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:"              E

I.     Receipts of compensation treated as bad              Rs. 5428,077.00
       debts as against income from other sources
       in the original order (p.5)
                                                                                   F
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        G
       against income from other sources in the
       original order (p. 29)


                                 Totaling                 Rs. 2,00,81,732.00
                                                                                   H
    356                    SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A        He again deducts therefrom the reliefs which had been allowed by CIT
    (A) on account of following ;

    I.     Interest disallowance (p. 14)                     Rs. 43,35,244.00
           (70,50,000-27' 14, 756)

B 2.       Disallowance under Rule 68 (p. 17)                 Rs. 1,25,279.00

    ...
    .).    Foreign travel expenses (p. 21)                      Rs. 53,740.00


           Depn. Allowed on motor car, fan &                    Rs. 67,746.00
c 4.       furniture (p. 23)

                                    Totaling                 Rs. 45,82,009.00


D         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
E
           Treated as business income                        Rs. 27,93,977.00


           Income from other sources                       Rs. 1,73,18,438.00

F
          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
G   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
H out the revised total income. Out of the four items indicated at the end of the
  KILLICK NIXON LTD., MUMBAI '" DY. COMMR OF INCOME TAX [SRIKRISHNA, J J 3 57

order item Nos. I and 2 (income from house property~ Rs. 27,93,977.00 and           A
claim of bad debt = Rs. 68,02,046.00 have been deducted by the Assessing
Authority, indicating that he agrees with the Assessee's clai1n. 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.         B
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        C
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      D
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        E
gains' and rule 60 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 P•·"visions 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             p
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   G
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 (I) 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      H
    358                        SUPREME COURT REPORTS [2002] SUPP. 4 S.C.R.

A 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.

B        In the result, we allow the appeal, set aside the judgrnent 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 15.2.2000.

             In the facts and circumstances of the case, there shall be no qrder as to
    costs.
c
    N.J.                                                            Appeal allowed.