1. SHAH, ACTG. C. J.-Jaipur Udyog Ltd., a company registered under the Indian Companies Act, 1913, established in 1953 a cement factory at Sawai Madhopur in the State of Rajasthan. From time to time the company filed its returns under the Income-tax Act, 1922, and after the repeal of that Act under the Act of 1961. The following chart sets out the income or loss returned by the company for the years 1954-55 to 1964-65 and the Income or loss computed for the yearn by the Income-tax Officer on assessm ent : Year of Income or loss Income or loss assessm ent returned by the computed by company the Income-- tax Officer.
2. 1954-5561,24,270 (Loss)22,53,457 (Loss)
3. 1955-564,59,963 (Profit)19,84,447 (Profit)
4. 1956-5712,92,958 (Profit)16,88,480 (Profit)
5. 1957-5823,05,305 (Loss)12,53,222 (Loss)
6. 1958-5940,44,779 (Loss)31,48,707 (Loss)
7. 1959-6028,77,487 (Loss)20,62,180 (Loss)
8. 1960-6111,35,365 (Loss)Assessm ent pend ng.
9. 1961-6266,086 (Loss)
10. 1962-6344,93,236 (Profit)
11. 1963-6474,52,402 (Profit)
12. 1964-6559,89,757 (Profit)
13. Against the orders of assessm ent made by the Income-tax Officer for the years 1954-55 to 1959-60 determining its net income or loss as set out in the chart the company appealed to the Appellate Assistant Commissioner, and the appeals were pending at the dates of commencement of the petitions in the High Court of Rajasthan which give rise to the proceedings in this Court.
14. Assessm ents for the years 1960-61, 1961-62, 1962-63, 1963-64 and 1964-65 were, however, then not completed. In its return of income for the assessment year 1963-64 the company claimed to set off against the income returned Rs. 1,03,03,935 being the aggregate amount of loss which it claimed it had suffered in the previous years and has entitled to set off against the income of that year. The Income tax Officer made a provisional assessment of the tax under section 141 of the Income-tax Act, 1961, and against the income returned by the company he allowed deduction of Rs. 39,89,731 as loss carried forward from the earlier years, and made a demand for Rs. 8,73,873 as tax provisionally due and Rs. 87,387 as penalty for default in compliance with the demand. The company moved Petition No. 51 of 1964 in the High Court of Rajasthan and challenged the order claiming that the Income-tax Officer was bound to accept the return made by the company and could not assess it to tax on income not admitted.
15. For the assessm ent year 1964-65 the company returned a net income of Rs. 59,89,757 as profit, and claimed to set of against that amount Rs. 36,01,735 as toss of the previous years and paid Rs.
16. 12,13,596.65 as tax due by it in accordance with section 140-A(1) of the Act. But the Income-tax Officer made a provisional assessm ent and computed the tax on the total income of Rs. 59,89,757 returned by the company without allowing any deduction claimed and ordered the company to pay an additional amount of Rs. 17,32,768.60. Against that order the company moved Petition No. 26 of 1965 for an order quashing the demand of tax and for an injunction restraining the Income tax Officer, from enforcing the demand.
17. For the assessm ent year 1965-66 the Income-tax Officer relying upon section 210(3) of the Act, called upon the company to pay Rs. 29,45,365.25 as advance tax. The company moved --Petition No. 67 of 1965 in the High Court of Rajasthan for a, order quashing the demand.
18. The High Court rejected the three petitions. Against the orders passed by the High Court. These three appeals have be:; preferred by the company.
19. Section 141 of the Income-tax Act, 1961, authorises the Income tax Officer to make a provisional assessm ent of the income of the assessee on the basis of the return made under section 139 and the accounts and documents, if any, accompanying the return The assessment so made is summary and is based only on the return and the accounts and documents filed by the assesses The Income-tax Officer is not bound to make any enquiry before making a provisional assessment ; he is not bound even to give to the assessee any notice of his intention to make a provision:; assessm ent, nor to hear the assessee. He may, if he desires, cp upon the assessee to elucidate the return or the entries posted in the accounts and documents, but he is not obliged to do s Section 141 has been enacted with the object of expediting collection of tax on the basis of the return made by the assesses The Act contains several provisions for collection of tax before regular assessment, e.g., payment of advance tax, deduction tax at source from salary, and dividends, provision for se assessm ent, etc. The object of these provisions is to collect to on certain classes of income before regular assessm ent. T: provisional assessment does not bind the assessee nor is Department : the quantum of tax computed and the levy there are not binding upon the assessee and the revenue.
20. Tax pa: pursuant to provisional assessment is liable to be adjusted in the light of the final order in the regular assessm ent. An appeal against the order is expressly prohibited. Tile Income-tax Officer must, however, apply the rate operative in the assessment year by virtue of the Finance Act and give effect to the allowance mentioned in subsection (2) of section 141 whether the assessee --has claimed them or not. But the assessee has no right to be heard or to explain or elucidate and has no right of apps against the computation or the levy of tax.
21. The company claimed that it was entitled to deduct the aggregate of losses which it had suffered since the year 1954-55 year after dear from the profits of the year 1963-64. It is true that the loss returned by the company year after year was in excess of the amount of loss determined by the Income-tax Officer. But in respect of the orders of assessment appeals we pending. Counsel for the revenue concedes that assessee under section 141 being provisional, the Income-tax Office, cannot make an enquiry into disputed questions of fact or law but he submits, relying upon subsection (2) of section 141, that the assessee cannot claim and the Income-tax Officer cannot allow, loss in respect of previous years in excess of the loss certified by the Income-tax Officer. That he says is the effect sections 72 and 80 of the Income-tax Act, 1961. Section 72 provides : "(1) Where for any assessm ent year, the net result of the computation under the head 'Profits and gains of business or profession' is a loss to the assessee . . . . . . And such loss cannot be or is not wholly set off against income under any head of income in accordance with the provisions of section 71, so much of the loss as has not been so set off or, . . . Or where he has no income under any other head, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessm ent year, and-
(i) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessme nt year : Provided that the business or profession for which the loss was originally computed continued to be carried on by him in the previous year relevant for that assessment year ; and
(ii) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessm ent year and so on ....
(3) No loss shall be carried forward under this section for more than eight assessment years immediately succeeding the assessm ent year for which the loss was first computed."
22. Section 80 of the Act provides: "Notwithstanding anything contained in this Chapter, no loss which has not been determined in pursuance of a return filed under section 139, shall be carried forward and set off under subsection
(1) of section 72 or . . . ."
23. Under section 72(1) read with section 80 loss of a previous gar under the head of income from profits and gains of business, profession or vocation may be carried forward to the next succeeding year only if it has been determined in pursuance of a return filed under section 139. If it is not so determined in the assessm ent of the subsequent year the loss cannot be carried forward and set off against the profit of the subsequent year or ears. By subsection (2) of section 141 the Income-tax Officer is enjoined to give effect to the loss so certified and carried forward. But it does not follow therefrom that when the assessee claims that out of the income of the years returned by in certain amounts are liable to be deducted in computing the taxable total income, the Income- tax Officer may adjudicate upon ire validity of the claim in making a provisional assessment. In our judgment, if it be granted that the Income-tax Officer has jurisdiction to hold an enquiry into disputed matters, the expression "provisional assessment" may lose all significance the Income-tax Officer may under a summary assessment without giving an opportunity to the assessee to explain his claim negative it and the assessee has no redress under the Act against any erroneous or arbitrary action. The Court would not, unless the phraseology of the statute or by the clear implication arising therefrom, be justified in accepting that view. The clearest implication of section 141 bars an enquiry at the stage of making a provisional assessment into disputed questions of law and fact it is a matter of no moment that the dispute raised is complicated or is easy of solution. In or, judgment, once a dispute is raised by the assessee the Income-tax Officer has no discretion. By subsection (2) of section 141 the Income-tax Officer is enjoined to give effect to the provisions of sections 32(2), 72(1), 73(2) and 74(1) of the Act : subsection (2) does not enlarge his jurisdiction under subsection (1).
24. The High Court was of the view that the basic scheme of the Act is that tax is to be charged at the rate or rates prescribed for the year on the total income of the assessee and in accordance with the provisions of the Act, and that this basic scheme applies alike to a provisional assessment as to a regular assessm ent. Consequently, in construing the provisions of section 141 of the Act, assessm ent of tax must also be made art accordance with and subject to the provisions of the Act, i.e., in making a provisional assessm ent, the "necessary facts" about the income of the assessee must be taken by the Income-tax Officer from the return and the documents accompanying it and he should not travel beyond, but, in making the provisional assess--ment he cannot ignore the other statutory provisions : he must apply the law correctly to the admitted facts as per return. The High Court proceeded to observe : "The combined effect of the two sections, namely, sections, 72 and 80 of the Act, is that a business loss can be carried forward to the subsequent assessment years only when it has been determined in pursuance of a return filed under section 139 of the Act."
25. The claim of the company that it was entitled to the benefit of carry-forward of losses of previous years, merely because it had shown such losses in the returns, could not, in the view of the High Court, be accepted a to give effect to the claim of the company, in the view of the High Court, will be to ignore the provisions of section 80 which apply both to a regular assessment and a provisional assessm ent under section 141.
26. We are unable to accept the opinion of the High Court. If it be assumed that provisional assessm ent has to be made in accordance with and subject to the provisions of the Act, distinction between a provisional assessm ent and a regular assessment gets completely blurred. The scheme of section 141 is to call upon the assessee to pay tax provisionally at the appropriate rate on what he admits is his taxable income, subject to the benefit of the allowances under subsection (2). The section does not permit an enquiry to be made whether the total income returned by the assessee exceeds the amount admitted by him, nor whether the allowances or deductions claimed are admissible. If there be a discrepancy between the return made and the accounts and documents accompanying the return, the Income-tax Officer may ask the assessee to explain the discrepancy, but he must make a provisional assessment on the basis of the return initially made or clarified and the account and documents filed. He cannot make a provisional assessment holding that certain claims made by the assessee are in law Justified. If it transpires that the assessee has without reasonable cause concealed particulars of his income or has furnished inaccurate particulars of his income, it may be open to e Income-tax Officer to impose penalty upon him after the regular assessm ent is completed. But it is not open to him to determine whether there has been any concealment of particulars income or to decide whether claims which have been made are unwarranted. In the view we have expressed, the Income-tax Officer was not justified in holding that the claim made by the company for carrying forward and seeking to debit against Rs. 74 lakhs odd an amount of Rs. 103 lakhs odd was liable to rejected.
27. For the same reasons in making the provisional assessment for the year 1964-65 the Income-tax Officer was not entitled to ignore the claim made by the company that against the income of Rs.
28. 59,89,757 returned Rs. 36,01,735 should be permitted to be debited. The order demanding tax of Rs.
29. 17,32,768.60 for the year 1964-65 also was, in our view, erroneous.
30. For the year 1965-66 the Income-tax Officer demanded payment advance tax on the provisional assessm ent for the year 1964-65. Is true that under subsection (3) of section 210 as inserted by N Finance Act, 1963 (XIII of 1963), and later modified by the Direct Taxes (Amendment) Act, 1964 (XXXI of 1964), the Income-- Officer is entitled to make an order for payment of advance tax the basis of provisional assessm ent made under section 141, and he is not obliged to demand advance tax only for the amount provisionally assessed by way of regular assessment in respect of any previous year. Subsection (3) of section 210, however, predicates a valid provisional assessment on the basis of which advance tax may be demanded. But the provisional assessment for the year 1964-65 made by the Income-tax Officer was invalid, and tax could not be demanded on that invalid assessm ent. No order for payment of advance tax for the year 1965-66 could then be made, relying upon the provisional assessm ent for the year 1964-65.
31. The appeals will be allowed and the orders passed by the High Court set aside. The orders of provisional assessm ent made by the Income-tax Officer in respect of the years 1963-64 and 1964- 65 will be set aside and the order for payment of advance tax for the year 1965-66 is also set aside.
32. There will be no order as to costs in these appeals. The order of penalty in respect of the year 1963- 64 is also quashed.