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Wealth-tax Officer Vs. Gopal Ramnarayan - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Bangalore
Decided On
Judge
Reported in(1983)4ITD31(Bang.)
AppellantWealth-tax Officer
RespondentGopal Ramnarayan
Excerpt:
.....appeal no. 379 (bang.) of 1980. he also relied on section 17a(3) of the act and submitted that the fresh assessment made is valid.4. the learned counsel for the assessee strongly urged that the tribunal has annulled the assessment. since there is no direction to make a fresh assessment, the wto has no jurisdiction to make a fresh assessment. an assessment can be made only once and, if that is annulled, the wto has no power to make the assessment again. in this connection, he placed reliance on a decision reported in air 1964 mad.111, surrendra overseas ltd. v. cit [1979] 120 itr 872 (cal.) and cit presidency & aden v. khemchand ramdas [1938] 6 itr 414 (pc). he distinguished the decision in 1978 see (tax) 149 and submitted that the decision in air 1964 mad. 111 is not disapproved. he.....
Judgment:
1. Originally the assessment was made under Section 16(3) of the Wealth-tax Act, 1957 ('the Act') on 26-11-1976 on a net wealth of Rs. 10,06,200. Against this, the assessee appealed to the AAC contending that the amounts due to other members of the family should be deducted.

The AAC, by his order dated 9-8-1977, held that the sum of Rs. 50,000 being the part of the converted property attributable to the share of the divided member Shri Jawahar Gopal is to be excluded from the total wealth of the assessee. The assessee as well as the revenue preferred appeals before the Tribunal. The assessee contended that the entire sum of Rs. 3,82,627 should be excluded from the net wealth, It was also submitted that since quantification of tax has not been made in the assessment order, the assessment would be invalid and should be cancelled. This Bench of the Tribunal, by its order dated 23-2-1979 in WT Appeal Nos. 126& 127 (Bang.) of 1977-78 and WT Appeal Nos. 131 & 132 (Bang.) of 1977-78 annulled the assessment on the ground that there is no computation of the tax made in the assessment order. After the above order of the Tribunal, the WTO, with a view to re-do the assessment under the provision of Section 16(3), read with Section 17A, of the Act, issued a notice under Section 16(2) to the assessee calling upon his objections. The assessee's representative filed objections contending that the Tribunal has annulled the assessment order and there is no direction to re-do the assessment. Hence, it is not competent for the WTO to re-commence the assessment proceedings. The WTO did not accept the objections raised by the assessee. He held that when an assessment is annulled, it goes back to the stage of filing of return of wealth by the assessee. Annulment does not wipe out the assessee's liability if it can legally be enforced upon de novo again by resorting to permissible provisions of law. Section 16(3), read with Section 17A, permits passing of an assessment order on a return of wealth filed by the assessee for the assessment year 1975-76 before 31-3-1980. The return of wealth for the assessment year 1975-76 cannot be ignored and a disposal has to be given to it. Thus, he rejected the contention of the assessee and passed the assessment order dated 4-10-1979 computing the net wealth of the assessee at Rs. 9,38,040.

2. The assessee appealed to the AAC. The AAC held that the very act of annulment does not clothe the WTO with any more powers to re-do the assessment. The annulment which arises on account of laches in law completely takes away any legal right to re-do the assessment. Thus, he annulled the assessment order dated 4-10-1979. Against the same, the present appeal is filed.

3. The learned departmental representative submitted that as there was no computation of tax made in the assessment order, the Tribunal annulled the assessment though with regard to the merits, the assessee's contentions were rejected. Since the annulment was on account of computation of tax not having been made in the assessment order, the WTO had jurisdiction to make the assessment order again from the stage where the illegality supervened. The return filed by the assessee was pending as it has to be disposed of. Hence, the WTO rightly issued a notice under Section 16(2). The objection raised by the assessee before him was not valid. The assessment order dated 4-10-1979 is made validly. The AAC was not justified in annulling that assessment. This is not a case of any inherent lack of jurisdiction. It is permissible under law to continue the proceedings from the stage at which the illegality occurred. Annul does not mean cancelling the whole proceedings. Annul means that the order is vacated but it does not prohibit the WTO to make a fresh order by starting the proceedings from the stage where the illegality occurred. In this connection, he placed reliance on the decisions of the Supreme Court reported in Guduthur Bros. v. ITO [1960] 40 ITR 298, CIT v. Bidhu Bhusan Sarkar [1967] 63 ITR 278, and the decision of the Delhi High Court reported in Raza Buland Sugar Co. Ltd. v. ITO [1980] 3 Taxman 281. He also relied on a decision reported in Lachhiram Basantlal & Basantlal Nathani v. CIT 5 ITC 114, Smt. Santosh Debi Baid v. ITO [1971] 81 ITR 552 as well as on an order dated 6-2-1982 of this Bench in TT Appeal No. 379 (Bang.) of 1980. He also relied on Section 17A(3) of the Act and submitted that the fresh assessment made is valid.

4. The learned counsel for the assessee strongly urged that the Tribunal has annulled the assessment. Since there is no direction to make a fresh assessment, the WTO has no jurisdiction to make a fresh assessment. An assessment can be made only once and, if that is annulled, the WTO has no power to make the assessment again. In this connection, he placed reliance on a decision reported in AIR 1964 Mad.

111, Surrendra Overseas Ltd. v. CIT [1979] 120 ITR 872 (Cal.) and CIT Presidency & Aden v. Khemchand Ramdas [1938] 6 ITR 414 (PC). He distinguished the decision in 1978 see (Tax) 149 and submitted that the decision in AIR 1964 Mad. 111 is not disapproved. He further submitted that when two views are taken by two Courts, the view favourable to the assessee should be accepted. He also submitted that Section 17A(1)(a) prescribes only time limit but does not enlarge the powers of the WTO.Thus, he justified the order of the AAC.5. We have considered the rival submissions. Earlier, the assessee had come up in appeal before the Tribunal in WT Appeal No. 127 (Bang.) of 1977-78 for this year. The relief claimed in the appeal was--(1) exclusion of the whole of the value of the converted property from the net wealth of the assessee ; and (2) cancellation of the assessment order as there was no quantification of tax made. So far as the first point is concerned, the Tribunal gave its finding rejecting the assessee's contention on merits. The alternative contention with regard to the value of the converted property was also rejected except that to the extent of one-fifth of the converted property should be excluded from the net wealth of the assessee and not Rs. 50,000 as held by the AAC. So far as the second contention is concerned, the Tribunal held that as there is no computation of tax made in the assessment order, the assessment has to be annulled. Thus, it is clear from the findings of the Tribunal that it is only on "technical ground that the assessment has been annulled, though on merits, as to the exclusion of the value of the converted property, the assessee's contention was rejected. It is true that there is no direction in the order of the Tribunal that a fresh assessment should be made by the WTO, but still the question that is to be considered is when an assessment is annulled on technical grounds, whether fresh assessment could be made.

6. In this case, the assessee has made a return of wealth. In the original assessment order dated 26-11-1976, the assessment was made under Section 16(3) on a net wealth of Rs. 10,06,200. Since the computation of tax was not made in the assessment order, the Tribunal has annulled the assessment. The infirmity in the assessment order was that the tax payable was not determined. It is on account of that infirmity the assessment order dated 26-11-1976 was invalid. It is on account of that invalidity in the assessment order that the assessment has been annulled. It is true that there is no direction to make fresh assessment. The relief asked for in the appeal of the assessee was for the cancellation of the assessment. This is a case where the Tribunal has given its decision on merits upholding the inclusion of the value of the converted property. Thus, the Tribunal having decided the case on merits against the assessee, has allowed the appeal on the technical ground that the computation of tax has not been made in the assessment.

Thus, this is a case where the assessment order was vitiated by an illegality which supervened in the assessment order by not determining the tax payable. This is not a case where the assessment order is ab initio void for lack of jurisdiction by the WTO. He had ample jurisdiction. When an order is vacated or annulled on account of some illegality which occurred in the course of the assessment proceedings, it is open to the WTO to take up the matter again from the stage at which the illegality supervened and make the assessment afresh. In this case, the assessee had filed a return of net wealth which remains to be disposed of. The WTO has jurisdiction to take up the proceedings from the stage at which the illegality has occurred and dispose of the return by making the proper assessment order. In this connection, we may refer to the decision of the Supreme Court in Guduthur Bros, (supra). In this case, the assessee failed to file a return within time. A notice under Section 28(1)(a) of the 1961 Act was issued in response to which the assessee filed an explanation. The ITO levied penalty without affording hearing to the assessee as required under Section 28. In appeal, the AAC held that an opportunity of being heard was not granted to the assesee and, as such the penalty order was defective. He set aside that order and directed the refund of penalty if it had been recovered. Thereafter, the ITO issued notice of hearing to the assessee. Against that, a writ petition was filed which was dismissed. By special leave, the matter was carried to the Supreme Court. The Hon'ble Supreme Court held as under: ...Sub-section (3) of Section 28. however, requires that the penalty shall not be imposed without affording to the assessee a reasonable opportunity of being heard. This opportunity was denied to the appellants and, therefore, the order of the Income-tax Officer was vitiated by an illegality which supervened, not at the initial stage of the proceedings, but during the course of it. The order of the learned Appellate Assistant Commissioner pointed out the ground on which the illegality proceeded and his order directing the refund of the penalty, if recovered, cannot but be interpreted as correcting the error and leaving it open to the Income-tax Officer to continue his proceedings from the stage at which the illegality occurred. No express remand for this purpose, as is contended, was necessary. (p.

300) ... What the Appellate Assistant Commissioner did was to vacate the order and direct refund of the penalty in view of an illegality which had occurred during the course of the assessment proceedings.

On receipt of the record it was open to the Income-tax Officer to take up the matter from the point at which the illegality supervened and to correct his proceedings. It was pointed out in the course of the statement of the case by the appellants that such proceedings could only be taken during the courts of assessment proceedings and those proceedings are concluded. In our opinion, the notice issued to the appellants to show cause why penalty should not be imposed on them did not cease to be operative, because the Appellate Assistant Commissioner pointed out an illegality which vitiated the proceeding after it was lawfully initiated. That notice having remained still to be disposed of, the proceedings now started can be described as during the course of the assessment proceedings, because the action will relate back to the time when the first notice was issued. (pp.

300-301) It is very clear from the above decision that it is open to the ITO to start fresh proceedings from the point at which the illegality supervened and to correct his proceedings. The above ratio squarely applies to the instant case.

7. In Lacchimm Basantlal (supra), a valid notice dated 30-4-1927 was issued by the ITO of the district having jurisdiction over the assessee. Subsequently, the Commissioner had transferred the file to the Special ITO who made the assessment on 30-3-1928 which order was cancelled by the Calcutta High Court on the ground that the Special ITO had no jurisdiction to make an assessment. Thereafter, the ITO having jurisdiction made the assessment on 20-1-1930. On the above facts, the Calcutta High Court held that the illegal proceedings of the Special ITO did not abrogate the notice of 30-4-1927 which had not proceeded to a final assessment and the assessment made on the basis of that valid notice served during the assessment year was legal.

8 In Raza Buland Sugar Co. Ltd. (supra), the facts are: The original assessment was completed for the assessment year 1957-58 on 29-1-1960 allowing a set off of loss. Subsequently, the ITO issued on 12-3-1962 a notice under Section 34(1)(6) of the 1922 Act. While this notice was pending, the 1961 Act came into force on 1-4-1962. The ITO made the re-assessment on 12-3-1963 under Section 144 of the 1961 Act, which was cancelled under Section 146 and a fresh assessment was made under Section 143(3) on 20-5-1963. This assessment order was annulled by the Tribunal on 27-3-1968 on the ground that the proceedings having been initiated under Section 34(1)(b) of the 1922 Act, the reassessment should also have been completed under that Act. Thereafter, the ITO initiated proceedings under Section 147(a) and issued notice under Section 148 on 19-2-1970. Against this, a writ petition was filed before the Delhi High Court challenging the validity of the notice. The Delhi High Court held that the Tribunal had annulled only the reassessment without expressing any opinion on the validity of the notice. The resultant position was that the notice issued on 12-3-1962 under Section 34(1)(6) of the 1922 Act still held the field and awaited further consequent action in accordance with law. Pending this notice, the department could not initiate proceedings under Section 147(a) of the 1961 Act. The department was directed to proceed further from the stage of the notice dated 12-3-1962 and the return filed in response thereto and to complete the reassessment as permissible under law. The above decision is not fully reported but it is a short note published in [1980] 3 Taxman 281, but the facts have been given therein. The ratio laid down squarely applies. In this case also, the Tribunal had annulled the assessment. In spite of it, the Delhi High Court directed the department to proceed from the stage of the notice dated 12-3-1962 and the return filed in response thereto and complete the reassessment.

In the instant case, what the WTO has done is exactly the same.

9. The decision in Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All.), which was relied before the AAC on behalf of the assessee, in fact, supports the revenue. In that case, the assessment was completed under Section 23(3) without the issue of notice under Section 23(2) of the 1961 Act. In view of that, in appeal, the AAC set aside the assessment and directed the ITO to make fresh assessment after issue of notice under Section 23(2). It was contended that the direction of the AAC to make fresh assessment is without jurisdiction and he should have annulled the assessment. On the above facts, the Allahabad High Court held as under: ... It is urged that the power conferred under Section 31(3)(b) to set aside the assessment and direct the Income-tax Officer to make a fresh assessment is a power exercised when the assessment is a valid proceeding. It seems to us that the contention that the Appellate Assistant Commissioner should have made an order under Section 31(3)(a) must be negatived. Section 31(3)(a) speaks of the power of the Appellate Assistant Commissioner to annul an assessment. That is a power to be exercised where the assessment proceeding is a nullity in the sense that the Income-tax Officer had no jurisdiction ah initio to take the proceeding. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case. The omission of the Income-tax Officer to issue a notice under Section 23(2) does not affect the ab initio jurisdiction enjoyed by the Income-tax Officer in respect of the proceeding. The Income-tax Officer had seisin over the case, he had overall jurisdiction over the case and in that sense had power to initiate the proceeding. The omission to issue a notice under Section 23(2) merely prevents the Income-tax Officer from making an assessment order under Section 23(3), and after he rectifies the omission by issuing that notice he can proceed further to the next stage, that is, to exercise the power of completing the assessment under Section 23(3). All these are steps within the overall jurisdiction vested in the Income-tax Officer over the entire assessment proceeding. We are of definite opinion that the failure of the Income-tax Officer to issue a notice under Section 23(2) does not call for an order by the Appellate Assistant Commissioner annulling the assessment. The Appellate Assistant Commissioner was right in merely setting aside the assessment. (p. 199) It has been held therein that the omission of the ITO to issue notice under Section 23(2) of the 1961 Act does not affect the ab initio jurisdiction enjoyed by the ITO. It merely prevents the ITO from making the assessment order under Section 23(3) and after his rectifying the omission by issue of notice he can proceed further to the next stage, i.e., to exercise the power of completing the assessment under Section 23(3). The failure of the ITO to issue notice under Section 23(2) does not call for an order annulling the assessment. In the instant case before us, the computation of tax has not been determined in the assessment. On account of that there was a invalidity in the assessment which was vacated by the Tribunal. That is rectifiable by making a fresh assessment computing the tax. That is what has been done.

10. The learned counsel for the assessee strongly relied on a decision of the Madras High Court in the case of Collector of Central Excise v.V.K. Palappa Nadar AIR 1964 Mad. 111. We find that this decision has not been approved by the Supreme Court in Superintendent (Tech. I), Central Excise v. Pratap Rai [1978] 3 SCR 729. It was observed that the interpretation by the Madras High Court in V.K. Palappa Nadar (supra) does not appear to be correct and is too narrow and does not carry out the object of the Act. Tn this case, before the Supreme Court, the Assistant Collector of Customs passed orders seizing the articles and levying penalty. That order was vacated in appeal by the appellate authority on the ground that no adequate opportunity was given to the appellant to defend his case.

I, therefore, without prejudice, vacate the order of adjudication passed by the Assistant Collector.

Thereafter, the Assistant Collector issued a fresh notice for starting fresh proceedings against which a writ petition was filed. The High Court allowed the petition on the ground that there was no indication in the appellate authority's order directing the Assistant Collector to start fresh proceedings. By special leave, the appeal was carried to the Supreme Court. On behalf of the revenue, it was contended that the appellate authority had merely vacated the order of the Assistant Collector because it suffered from technical infirmity and had not barred the commencement of fresh adjudicatory proceedings. On behalf of the respondent, it was urged that there was no jurisdiction in the Assistant Collector to issue a fresh notice and start adjudicatory proceedings again. The contention of the revenue was accepted by the Supreme Court. It was observed as under: ... In our opinion, the contention of counsel for the appellants appears to be sound and must prevail. A perusal of the order of the Appellate Collector extracted above clearly shows two important facts: (1) that the Appellate Collector has not set aside or vacated the order of the Assistant Collector on merits but has vacated it only on a technical infirmity, namely, the violation of the rules of natural justice and that is why the Appellate Collector has advised used the words 'without prejudice' in his order, (2) that the Assistant Collector in his order dated 30th June, 1969 had directed confiscation of the watches and imposed a penalty of Rs. 250 and if the Appellate Collector intended to set aside this order completely and irrevocably then he should have passed a consequential order for refund of the amount of the penalty and release of the property confiscated. The fact that no such order was passed by the Appellate Collector clearly shows that he never intended to bar fresh adjudicatory proceedings provided they were conducted according to the principles of natural justice. It seems to us that whenever an order is gtruck down as invalid being in violation of the principles of natural justice there is no final decision of the cause and fresh proceedings are left open. All that is done is that the order assailed by virtue of its inherent defect is vacated but the proceedings are not terminated. (pp.731-32) In short, therefore, the implication of the term 'without prejudice' means: (1) that the cause or the matter has not been decided on merits, (2) that fresh proceedings according to law were not barred.

It is true that the Appellate Collector does not say in so many words that the case is remanded to the Assistant Collector but the tenor and the spirit of the order clearly shows that what he intended was that fresh proceedings should be started against the respondent after complying with the rules of natural justice. Thus, in our view, a true interpretation of the order of the Appellate Collector would be that the order of the Assistant Collector was a nullity having violated the rules of natural justice and having been vacated the parties would be relegated to the position which they occupied before the order of the Assistant Collector was passed. In this view of the matter the Assistant Collector had ample jurisdiction in issuing the notice against the respondent in order to start fresh adjudicatory proceedings in accordance with law. (p.

733) Thus, it was held therein that whenever an order is struck down as invalid being in violation of principles of natural justice, there is no final decision of the cause and fresh proceedings are left open. All that is done is that the order issued by virtue of its inherent defect is vacated but the proceedings are not terminated. Here, the decision of the Andhra Pradesh High Court in the case of Thimmasamudram Tobacco Co. v. Assistant Collector of Central Excise AIR 1961 AP 324 was approved. In that case, it was held by the Andhra Pradesh High Court that nothing stands in the way of the Assistant Collector initiating the proceedings afresh when his order was quashed not on merits but on technical grounds and it is open to the officer concerned to start the procedure once again with a view to follow the rules of procedure and the principles of natural justice. The decision of the Gujarat High Court in the case of Marsden Spg. & Co. Ltd. v. L.V. Pol, Superintendent of Central Excise Tax ILR 1965 Guj. 111, which was referred to in the above decision of the Supreme Court, is a case where the impugned order was passed on merits of the case and the order was clear, explicit and final. On those facts, it was held that it was distinguishable. In our view, that decision of the Gujarat High Court is distinguishable and has no application to the facts of the instant case.

11. The decision of the Calcutta High Court in the case of Surrendra Overseas Ltd. (supra) relied on by the assessee's counsel is also distinguishable. In that case, while acting under the directions of the AAC to give a reasonable opportunity to the assessee to produce all evidence, the ITO withdrew the development rebate granted earlier which was not the issue before the AAC. On those facts, the Calcutta High Court held that the ITO had no jurisdiction to consider the admissibility or otherwise of the development rebate. The power and jurisdiction of the ITO to make further enquiry will be governed by and should be strictly conform to the order of the AAC. While considering the power of the ITO, it was further observed that the ITO can rectify a mistake in an order of assessment under Section 35 of the 1922 Act or Section 154 of the 1961 Act, or reopen the assessment under Section 34 of the 1922 Act, or Section 147 of the 1961 Act, but the issue in this appeal did not come up for consideration there.

12. In the case of Khemchand Ramdas (supra) on which reliance was placed is also distinguishable. The issu that arises for consideration in the present appeal was not considered there. It was observed therein that once a final assessment is arrived at it cannot be reopened except under Section 34 or 35 of the 1922 Act, but the issue whether a fresh assessment could be made when the original assessment order is vacated was not considered there.

13. In the instant case the return of wealth filed by the assessee was pending. The WTO issued notice under Section 16(2). After considering the objections of the assessee the assessment order dated 4-10-1979 was completed determining the net wealth and computing the wealth-tax thereon. The said assessment order dated 4-10-1979 is within the period of 4 years and it is not barred by time. Even Section 17A supports the case of the revenue for making fresh assessment order.

14. The contention of the assessee that when two High Courts have taken two views, the view favourable to the assessee should be accepted also do not come to his rescue as the Madras High Court's decision has not been approved by the Supreme Court. There is no decision which is in favour of the assessee.

15. Even though in the order of the Tribunal, the expression used is 'assessment annulled' it is necessary to see the tenor and spirit of the order. The assessment was annulled on account of technical infirmity in not computing the tax payable in the assessment order. In fact, on merits, the Tribunal has given a decision against the assessee. The assessment order is vacated by virtue of the invalidity for not computing the tax payable but it cannot be said that fresh proceedings are barred. As held by the Supreme Court in the case, referred to above, the proceedings can be started again from the stage at which the illegality supervened and correct the proceedings. The decisions in the case of Guduthur Bros, (supra) and in the case of Pratap Rai (supra) squarely apply. The decision of the Delhi High Court in Raza Buland Sugar Co. Ltd. (supra) also is directly on the point.

16. Thus, on a careful consideration of the entire facts, we are of the view that the fresh assessment order dated 4-10-1979 is valid and is in accordance with law. The AAC was wrong in annulling the assessment order dated 4-10-1979. We set aside the order of the AAC and remit the case back to him to decide the other grounds raised in the appeal which have not been considered by the AAC.


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