1. In these references made under section 256(1) of the Income-tax Act, 1961 (Central Act 43 of 1961) ('the Act'), the Income-tax Appellate Tribunal, Bangalore Bench, Bangalore ('the Tribunal'), at the instance of the Revenue has referred the following question of law for the opinion of this court :
'Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the reassessment under section 147 was not valid in law ?'
2. In order to appreciate the question referred to us, it is necessary to notice the facts as found by the Tribunal in the first instance.
3. For the assessment years 1967-68 and 1970-71 relevant to the accounting years ending on March 31, 1967, and March 31, 1970, respectively, the assessee did not file his returns on or before the time stipulated by section 139(1) of the Act. In that view, the Income-tax Officer, Assessment-7 Circle-II, Bangalore, issued notices under section 139(2) of the Act calling upon the assessee to file his returns within the time stipulated therein, with which also he did not comply. But, the Income-tax Officer treating that the notices issued by him under section 139(2) of the Act had not been served on the assessee, by different but identical orders made for each assessment year, dropped the proceedings by stating 'N.P.'
4. But, some time thereafter, the Income-tax Officer commenced reassessment proceedings for the aforesaid years and for the year 19768-69, with which year we are not not concerned, and issued notices under section 148 of the Act in response to which the assessee filed his returns. On an examination of those returns, the Income-tax Officer completed the reassessments on March 20, 1974. Aggrieved by the assessment orders made by the Income-tax Officer, the assessee filed appeals the Appellate Assistant Commissioner of Income-tax, Bangalore Range-II, Bangalore, who by his common order dated March 15, 1976, dismissed them.
5. Aggrieved by the orders made by the Appellate Assistant Commissioner and the Income-tax Officer, the assessee filed second appeals before the Tribunal which by its common order dated June 30, 1977, has allowed them and has canceled the assessments taking the view that the reassessment proceedings commenced and completed were invalid. Hence, these references.
6. Sri K. Srinivasan, learned senior standing counsel for the Income-tax Department, assisted by Sri H. Raghavendra Rao, junior standing counsel, has appeared for the Revenue. Sri G. Sarangan, learned advocate, has appeared for the assessee. Both sides have relied on a number of rulings in support of their respective cases.
7. Sri Srinivasan has urged that there were completed assessment proceedings and the reassessment proceedings commenced under section 147 of the Act and concluded were valid in law.
8. Sri Sarangan in supporting the view expressed by the Tribunal has urged that there was no termination or completion of the assessment proceedings to commence reassessments under the Act.
9. In the assessment proceedings, the assessee had been duly served, but the Income-tax Officer erroneously holding that he had not been served, dropped or closed them as 'N.P.' and that those abbreviations stand for 'no proceeding' are not in dispute. On these facts, the Tribunal was of the view that the only course open to the Income-tax Officer in the assessment proceedings was to make a 'best judgment assessment' under section 144 of the Act and having failed to do so, it was not open to him to initiate and complete reassessment proceedings under section 147 of the Act. Whether this view expressed by the Tribunal is correct or not is the short question that arises for our determination.
10. The term 'no proceeding' or its abbreviation 'N.P.' is generally employed by Income-tax Officers in assessment proceedings to signify that there is nil assessment or to close or drop them. In Esthuri Aswathiah v. ITO : 41ITR539(SC) , the Supreme Court, examining the use of the term 'no proceeding' employed by an Income-tax Officer under the Indian Income-tax Act 1922 (old Act), construed the same as 'nil assessment'. In CIT v. Bidhu Bhusan Sarkar : 63ITR278(SC) , the Supreme Court again, in a case arising under the old Act, reiterating the dicta in Esthuri Aswathiah's case : 41ITR539(SC) , construed the term 'filed' as concluding and terminating the assessment proceedings. The principles enunciated by the Supreme Court in these cases apply in construing the term employed by the Income-tax Officer under the Act. What necessarily follows from this is that the Income-tax Officer willy nilly, rightly or wrongly, had closed or dropped or in any event terminated the assessment proceedings against the assessee. We see no merit in the contention of Sri Sarangan to the contrary.
11. When the assessee did not file his returns either voluntarily or in response to the notices issued to him under section 139(2) of the Act, it was undoubtedly open to the Income-tax Officer to complete his best judgment assessment under section 144 of the Act and that he did not do so, is not in dispute at all. But, that hardly makes any difference and has no relevance to determine the validity of the reassessmentjproceedings. We are not concerned with what the Income-tax Officer did or did not do then or even the illegalities, if any, committed by him. We are not now sitting in judgment on the validity of the earlier orders which is also impermissible. We are now only concerned with the true legal effect of the order made by the Income-tax Officer and his power, if any, to commence reassessment proceedings under the Act. We are of the view that a careful analysis of the observations of the Supreme Court in Bidhu Bhusan Sarkar's case : 63ITR278(SC) , only leads to this irresistible conclusion. But, unfortunately, the Tribunal, without reference to these legal principles and the principles enunciated by the Supreme Court in Bidhu Bhusan Sarkar's case, has erroneously examined the validity of the assessment proceedings completed by the Income-tax Officer which was not permissible for it to do in law.
12. What emerges from our above discussion as also the findings recorded by us earlier, is that there was termination of assessment proceedings against the assessee under the Act and they were not pending as urged by Sri Sarangan. We are of the view that this conclusion flows from the two rulings of the Supreme Court relied on by us. We, therefore, consider it not necessary to refer to the various rulings of the High Courts relied on by Sri Sarangan.
13. When once we hold that there was a termination of assessment proceedings which was the real controversy between the parties, it necessarily follows the reassessment proceedings initiated by the Income-tax Officer under section 147 of the Act and then concluded in conformity with the other provisions of the Act are legal and valid.
14. On the foregoing discussion, we hold that the answer to the question referred to us must be in the negative. We, therefore, answer the question referred to us in the negative, in favour of the Revenue and against the assessee. But, in the circumstances of the cases, we direct the parties to bear their own costs.