Skip to content


income-tax Officer Vs. Jag Mohan Gupta - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Allahabad
Decided On
Judge
Reported in(1983)3ITD1(All.)
Appellantincome-tax Officer
RespondentJag Mohan Gupta
Excerpt:
.....man mohan gupta, b.m.gupta, anil gupta, pankaj gupta and ajai gupta, is a partner in a firm, auto sales. the assessment year is 1970-71 and the relevant previous year ended on 31-12-1969.4. in order to better appreciate the rival contentions of the parties, it would be necessary to narrate the facts in some detail: (1) the assessee filed his return of income for the year under appeal on 17-9-1970 wherein he had shown his share of profit from auto sales of rs. 81,713. auto sales had also filed its return of income for the self same year oh 17-9-1970 (sic). (2) prior to framing the assessment in. the case of auto sales, the ito framed the assessment in the case of the assessee on 29-1-1973 under section 143(3) of the act, determining the total income at rs. 98,123. in doing so, the.....
Judgment:
1. As both the parties as well as the Bench before which this appeal had come up for hearing on an earlier occasion, felt that there were, prima facie, conflicting orders of the Gauhati Bench Camp at Allahabad in the case of Man Mohan Gupta [IT Appeal No. 1062 (All.) of 1980 dated 24-1-1981] and of the 'A' Bench Allahabad in the case of Pankaj Gupta [IT Appeal No. 799 (All.) of 1980 dated 24-10-1981] on the point involved in the present appeal, the matter was referred to the President, Appellate Tribunal, with a request to constitute a Special Bench to resolve the conflict. Under Section 255(3) of the Income tax Act, 1961 ('the Act'), the President has constituted the present Bench to hear the appeal.

2. The issue involved in the appeal is: Whether the order of the ITO amending the assessment of the partner consequent to granting of Regis tration to a firm in an appeal, is an order under Section 154(3), read with Section 155(1), of the Act or an order under Section 267 of the Act and whether such an order, which has the effect of enhancing the tax, can be passed without first giving to the assessee, a partner of the firm, an opportunity of being heard.

3. The assessee, along with S/Shri C.M. Gupta, Man Mohan Gupta, B.M.Gupta, Anil Gupta, Pankaj Gupta and Ajai Gupta, is a partner in a firm, Auto Sales. The assessment year is 1970-71 and the relevant previous year ended on 31-12-1969.

4. In order to better appreciate the rival contentions of the parties, it would be necessary to narrate the facts in some detail: (1) The assessee filed his return of income for the year under appeal on 17-9-1970 wherein he had shown his share of profit from Auto Sales of Rs. 81,713. Auto Sales had also filed its return of income for the self same year oh 17-9-1970 (sic).

(2) Prior to framing the assessment in. the case of Auto Sales, the ITO framed the assessment in the case of the assessee on 29-1-1973 under Section 143(3) of the Act, determining the total income at Rs. 98,123. In doing so, the ITO had taken the assessee's share of Rs. 82,000 from Auto Sales with the remarks subject to the rectification under Section 154/155 taken as 'URF'.

(3) On 28-3-1973, the ITO framed the assessment in the case of Auto Sales under Section 143(3) in the status of an unregistered firm as on the same date, by a separate order under Section 184(7) of the Act, he had declined to grant renewal of registration to the said firm on some technical ground.

(4) Auto Sales preferred appeals against the aforesaid order of the ITO. On 30-8-1973, the AAC decided the quantum appeal wherein he gave certain relief. At the end of his order the AAC made the following remarks 'consequential effect may please be given in the hands of the partners'. On the same date by a separate order, the AAC granted renewal of registration to Auto Sales.

(5) On 9-11-1973, the ITO gave effect to the aforesaid orders of the AAC in the case of Auto Sales. In doing so, he determined the assessee's share in the said firm at Rs. 1,30,054.

(6) On 17-12-1973, the ITO revised the total income of the assessee in consequence to the direction given by the AAC in the quantum appeal preferred by Auto Sales. After revision the total income of the assessee stood at Rs. 1,42,950 as against Rs. 98,123 originally determined by the ITO. This included the assessee's share from Auto Sales of Rs. 1,30,054 as against Rs. 82,000 earlier included in the total income of the assessee of Rs. 98,123. The ITO issued a notice of demand of Rs. 99,402 and called upon the assessee to pay the tax.

(7) The assessee preferred an appeal against the said demand of Rs. 99,402 which the AAC dismissed on the ground that no appeal is provided against a notice of demand issued under Section 156 of the Act vide his order dated 29-3-1974.

(8) Subsequently, the ITO served on the assessee 'Assessment/Refund Form' popularly known as ITSO (now called ITNS 150), giving the computation of the tax demand worked out at Rs. 99,402.

(9) On 8-8-1974, the ITO pointed out to the AAC that while disposing of the appeal pertaining to the renewal of registration in the case of Auto Sales, no directions regarding consequential effect (to be given to in the case of the partners), we're given by him (the AAC).

He, therefore, requested the AAC to pass necessary order as contemplated under Section 267.

(10) The assessee once again preferred an appeal against the 'Assessment/Refund Form', which too was dismissed by the AAC vide his order dated 16-8-1974, on the ground that (i) it was incompetent as it was not accompanied by a notice of demand, (ii) the ITO had simply recomputed the total income of the assessee in consequence to the appeal effect given in the case of Auto Sales and (iii) the appeal was filed beyond the time prescribed.

(11) On 6-9-1974, the AAC passed an order on the basis of the aforesaid request made by the ITO in the following manner : The ITO, Special Circle, Allahabad, has pointed out vide his letter F. No. 4177 dated 8-8-1974 that while deciding the appeal of Auto Sales, P.D. Tandon Road, Allahabad, against the order of the ITO refusing registration, the order under Section 267 of the IT Act, 1961 was not passed. As the mistake is apparent from records and since the order under Section 267 is an obligatory requirement, I hereby pass the said order as follows : 2. The ITO had in the case of the above-noted assessee refused registration for the assessment year 1970-71. Vide my order dated 30-8-1973 in appeal No. 15/C-11/1973-74 I allowed registration for that year. As the status of Auto Sales for the assessment year 1970-71 will be that of R.F., the ITO is directed to give consequential effect in the hands of the partners.

(12) On 30-5-1975, the Tribunal passed a consolidated order in [IT Appeal Nos. 1206 and 1231 (All.) of 1974-75] pertaining to the appeals preferred by the assessee against the orders of the AAC dated 29-3-1974 and 16-8-1974. The relevant portions of the order of the Tribunal read as under: These appeals were heard by us along with similar appeals filed by another partner of the firm Shri Pankaj Gupta [IT Appeal Nos. 1226 and 1227 (All.) of 1974-75]. The facts involved in those appeals and in the present appeals are exactly the same and we have vide order of date allowed both the appeals (sic). The reasons given are that the revision had the effect of increasing the liability of the assessee and could not be done without issuing a notice to the assessee under Section 154(3) of the Act. No such notice had been issued to the assessee as claimed by him and from the income-tax records available with the departmental representative also we could not find that any such notice had been issued or any such opportunity of being heard had been allowed to the assessee. On this ground, therefore, the order was invalid.

It has also been held that the AAC was not justified in dismissing the first appeal filed by the assessee on the ground that the demand notice submitted by the assessee with the appeal memo was not accompanied by any order since no such order had been issued to the assessee by the ITO with the demand notice and none could, therefore, have been submitted. Similarly, the subsequent appeal filed by the assessee on receipt of the order made under Section 154/155 was wrongly dismissed on the ground that it was not accompanied by a demand notice. The demand notice had already been filed in the first appeal and could not possibly have been filed with the second appeal. The appeal against the first order is marked as time-barred, but keeping in view the circumstances of the case, the delay has been condoned. Following the reasons given in that order, we are inclined to record the same finding in the present appeals and they are liable to be allowed. The delay in filing of IT Appeal No. 1231 (All.) of 1974-75 is condoned.

(13) On 31-7-1976, the Tribunal dismissed the departmental appeal [IT Appeal No. 1492 (All.) of 1973-74] against the order of the AAC granting renewal of registration to Auto Sales.

(14) On 31-10-1975, the Tribunal set aside the assessment framed in the case of Auto Sales in the appeal [IT Appeal Nos. 1504 and 1499 (All.) of 1973-74] preferred by both the revenue and as well as Auto Sales against the order of the AAC in the quantum proceedings of the said firm. The Tribunal, however, directed the ITO to reframe the assessment afresh keeping in mind the directions contained in its order.

(15) On 11-6-1980, the ITO framed the assessment in the case of Auto Sales as per the directions of the Tribunal in its order dated 31-10-1975.

(16) On 17-11-1979, the ITO passed an order captioned 'order under Section 143(3)/267' which is the beginning of the present proceedings, whereby he computed the total income of the assessee at Rs. 1,42,950 and worked out the tax payable at Rs. 40,907 in the following manner : The order of the AAC, Central Range, Meerut, in the case of Auto Sales, Allahabad, under Section 267 of the IT Act, 1961, dated 6-9-1974 states that 'the ITO had in the case of the above-noted assessee refused registration for the assessment year 1970-71 vide my order dated 30-8-1973 in appeal No. 15-CC-IT/1973-74 I allowed registration for the assessment for that year. As the status of Auto Sales for the assessment year 1970-71 will be that of registered firm, the ITO is directed to give consequential effect in the hands of the partners'.

As per the direction of the AAC, Central Range, Meerut, in the afore said order under Section 267, the total income of the assessee is recomputed as follows :as per order dated 22-7-1975 1,30,054Share of profit from Commercial155 3,600 7,408 _________ _________4,963 4,963 7,037Other sources :Interest from Bank 128Refund of annuity deposit asshown 1,550Less : LIP @ 60 per cent ofTotal income 1,42,948 or Assessed under Section 143(3)/267 as above. Tax as per ITNS 150. Charge interest under Section 217(1A). Issue Demand Notice and Challan.

Rs. Rs.Tax calculation : 77,960Income-tax 7,769 _________ 5. In appeal before the Commissioner (Appeals), the assessee contended that the order passed by the ITO on 17-11-1979 was invalid in law as he had passed the said order without giving an opportunity to the assessee as contemplated under Section 154(3), more so, by the said order, the ITO had increased the tax liability of the assessee. In support of the stand taken by him, the assessee relied on the order of the Tribunal in the case of another partner of Auto Sales, viz., Man Mohan Gupta (supra), wherein the Tribunal had dismissed the appeal preferred by the revenue against the order of the Commissioner (Appeals) setting aside similar order passed by the ITO in that case. On 3-3-1981, following the said order of the Tribunal the Commissioner (Appeals) cancelled the order of the ITO as under: Thus, this matter has been almost concluded by the Commissioner of Income-tax (Appeals) as well as the Income-tax Appellate Tribunal in the case of another partner of the firm, The order passed by the Income-tax Officer is, therefore, considered to be illegal and not in accordance with the provisions of law. In the circumstances the order made by the Income-tax Officer is cancelled.

6. Being aggrieved by the order of the Commissioner (Appeals), the revenue has come up in appeal before the Tribunal. Relying on the consolidated order of the Tribunal in the case of Pankaj Gupta (supra), another partner of Auto Sales, the learned representative for the department submitted that the Commissioner (Appeals) was not justified in cancelling the order of the ITO dated 17-11-1979. Adopting the arguments which were advanced on behalf of the revenue in the case of Pankaj Gupta (supra) the learned representative for the department submitted that in giving effect to the directions given by the AAC under Section 267, the ITO is not required to give an opportunity of being heard to a partner of a firm.

7. The learned counsel for the assessee, on the other hand, supported the action of the Commissioner (Appeals). He also relied on the order of the Tribunal in the case of Man Mohan Gupta (supra). According to the learned counsel for the assessee, the rule of 'natural justice' requires that whenever there is an upward revision in the tax demand raised by the ITO, the assessee should be given an opportunity of being heard, irrespective of the provisions of the Act under which the ITO makes such a revision. In this connection he pointed out that in the return of income the assessee had shown his share of profit from Auto Sales at Rs. 81,713, the ITO had originally taken it at Rs. 82,000 and subsequently substituted it by Rs. 1,30,054 without giving an opportunity of being heard to the assessee. This action of the ITO was held to be invalid by the Tribunal vide its order dated 30-5-1975 in the assessee's own case in the proceedings under Section 155(1)/154(3) when the ITO had given effect to the order of the AAC in the case of Auto Sales and consequential amendments made by him in the case of the assessee in the quantum proceedings. He further stated that the applications made by the revenue under Section 256(1) and (2) of the Act on this issue have also been rejected by the Tribunal as well as the High Court respectively. He, therefore, urged that what the ITO could not do directly, should not be allowed to do indirectly by obtaining the order of the AAC under Section 267. Finally, he submitted that since the Tribunal has already set aside the assessment in the case of Auto Sales, vide its order dated 31-10-1975, much prior to the order of the ITO dated 17-11-1979, purported to be passed under Section 143(3)/267, it was clearly bad in law as he could not have taken the assessee's share of profit from Auto Sales at Rs. 1,30,054 without first framing a fresh assessment in the case of Auto Sales. He, therefore, urged that since, in any event, the order of the ITO dated 17-11-1979 was invalid in law, the Commissioner (Appeals) has rightly cancelled it.

8. The learned representative for the department, in his reply, submitted that since the earlier order of the Tribunal dated 30-5-1975 was passed by a Bench consisting of two members, the decision arrived at therein would not be binding on the present Special Bench constituted under Section 255(3) of the Act, if the Bench were of the view that the earlier decision of the Tribunal was not tenable in law, irrespective of the fact that the applications under Section 256 stood rejected. According to the learned representative for the department, on the earlier occasion, the Tribunal's attention was not invited to the decision of the Supreme Court, in the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 (SC).

9. We have carefully considered the rival submissions of the parties as well as the material placed before us. At the outset, we cannot help observing that if the concerned ITO had framed the assessment in the case of Auto Sales before framing the assessments of its partners and if appropriate steps were concurrently taken in the parallel proceedings of the firm and its partners perhaps, lot of unnecessary litigation could have been avoided. As noted above, the concerned ITO has now framed a fresh assessment in the case of Auto Sales on 11-6-1980 after earlier assessment was set aside by the Tribunal on 31-10-1975. Therefore, in any case, fresh proceedings will have to be taken in the case of the partners with a view to amend/modify their respective assessments. However, since both the parties have made their submissions, we proceed to give our decision.

10. At first, let us have a look at the relevant provisions of the Act.

For the sake of convenience they are reproduced (so far material) below : 154. (1) With a view to rectifying any mistake apparent from the record- (a) the Income-tax Officer may amend any order of assessment or of refund or any other order passed by him ; (2) Subject to the other provisions of this section, the authority concerned- (a) may make an amendment under Sub-section (1) of its own motion and (b) shall make such amendment for rectifying any such mistake which has been brought to its notice by the assessee and where the authority concerned is the Appellate Assistant Commissioner or the Commissioner (Appeals), by the Income-tax Officer also.

(3) An amendment, which has the effect of enhancing an assessment or reducing a refund otherwise increasing the liability of the assessee, shall not be made under this section unless the authority concerned has given notice to the assessee of its intention so to do and has allowed the assessee a reasonable opportunity of being heard.

(4) Where an amendment is made under this section, an order shall be passed in writing by the income-tax authority concerned.** ** ** (6) Where any such amendment has the effect of enhancing the assessment or reducing a refund already made, the Income-tax Officer shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable and such notice of demand shall be deemed to be issued under Section 156 and the provisions of this Act shall apply accordingly.

(7) Save as otherwise provided in Section 155 or Sub-section (4) of Section 186 no amendment under this section shall be made after the expiry of four years from the date of the order sought to be amended.

155. (1) Where in respect of any completed assessment of a partner in a firm it is found- (b) on any reduction or enhancement made in the income of the firm... under Section 250..., that the share of the partner in the income of the firm has not been included in the assessment of the partner or, if included, is not correct, the Income-tax Officer may amend the order of assessment of the partner with a view to the inclusion of the share in the assessment or the correction thereof, as the case may be; and the provisions of Section 154 shall, so far as may be, apply thereto, the period of four years specified in Sub-section (7) of that section being reckoned from the date of the final order passed in the case of the firm.

267. Where as the result of an appeal under Section 246, or Section 253, any change is made in the assessment of a firm or body of individuals or an association of persons or a new assessment of a firm or a body of individuals or an association of persons is ordered to be made, the Appellate Assistant Commissioner or the Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall pass an order authorising the Incometax Officer either to amend the assessment made on any partner of the firm or any member of the body or association or make a fresh assessment on any partner of the firm or on any member of the body or association.

11. On the aforesaid provisions of the Act, two conflicting decisions were taken by the two Benches of the Tribunal in the cases of two other partners of Auto Sales. The first order was passed by the Tribunal in the case of Man Mohan Gupta (supra) wherein the Tribunal dismissed the departmental appeal on the ground that the order passed by the ITO was invalid because no notice was given to the assessee under Section 154(3). The second order was passed by the Tribunal in the case of Pankaj Gupta (supra) wherein it came to the conclusion that since the order passed by the ITO was under Section 267, no opportunity of being heard should have been allowed to the assessee.

12. On first impression of the aforesaid sections, it appears that their scope is somewhat overlapping. However, on close scrutiny of the language used therein we are of the view that the ITO has nothing to do with Section 267. That section lays down a procedure, though mandatory, for the AAC to pass an order authorising the ITO either to amend the assessment made on any partner of the firm or make a fresh assessment of any partner of the firm, consequent upon any change in the assessment of the firm or a new assessment of the firm, ordered in an appeal preferred by such a firm under Section 246. The procedure laid down in Section 267 would not absolve the ITO to pass a consequential order in the case of any partner of the firm without following the procedure laid down in Section 155(1), read with Section 154. Section 155(1)(b), read with Section 154(3), requires that an order enhancing an assessment in the case of any partner of the firm could not be passed without giving an opportunity of being heard to such a partner.

Section 154(4) requires the ITO to pass an order in writing where an assessment is modified/ amended. In other words, Section 267 requires the AAC to pass an order authorising the ITO to amend the assessment made on any partner of the firm or to make a fresh assessment on such a partner, as the case may be, but the ITO derives his power to carry out the changes in the assessment of any partner of the firm only by virtue of the provisions contained in Section 155(1), read with Section 154.

Therefore, we are of a considered opinion that the order passed by the ITO on 17-11-1979 is an order under Section 155(1), read with Section 154. The said order cannot be held to be invalid merely because it is captioned by a wrong section of the Act. See the case of L. Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 (SC).

13. On a dose scrutiny of the original order dated 29-1-1973 passed under Section 143 of the Act and that, passed on 17-11-1979 captioned as order under Section 143(3)/267 we find that there is only one change so far as the assessee's share of profit from Auto Sales is concerned In the original order, the share of profit from Auto Sales was taken at Rs. 82,000 (subject to rectification under Section 154/155) wherein in the order under consideration, the ITO has taken it at Rs. 1,30,054.

The other figures given in both the orders are more or less the same.

The other change in the subsequent order is that the assessee has been allowed certain benefit consequent upon the registration granted to Auto Sales. Therefore, if the two orders, one passed on 29-1-1973 and the other on 17-11-1979 are perused, it is clear that the income of the assessee from Auto Sales had been enhanced at Rs. 1,30,054 from Rs. 82,000.

14. The next question, therefore, is whether an order passed under Section 155(1), read with Section 154(3), without affording an opportunity of being heard to any partner of the firm would be invalid so as to be deserved to be cancelled. In this connection we may refer to the decision of the Supreme Court in the case of Guduthur Bros, (supra), In that case, the Supreme Court has held that such an illegality could be cured by sending the matter back to the concerned authority with a direction to re-decide the issue after affording an opportunity of being heard to the assessee concerned. In other words, if in an order passed by the ITO, some illegality has crept in, the same could be cured as indicated above and his action could not be held to be null and void in the manner that no action could be taken.

15. Therefore, the order under consideration, under the circumstances, could be maintained at the stage where the illegality supervened. The decision of the Hon'ble Supreme Court in Guduthur Bros, (supra) supports this conclusion. The above conclusion has been taken after reading the two sections, viz., Section 155(1), read with Section 154(3) and also Section 267, harmoniously. Under the above circumstances, the order of the Commissioner (Appeals) is set aside and the matter is referred back to the ITO for taking the share income of the firm Auto Sales, after allowing an opportunity of being heard to the assessee under Section 154(3).


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //