Where best judgment assessment order is set aside as being void by the appellate order the limitation period would not be extended.
The return for the assessment year 1974-75 was filed by the assessee on 26-12-1975 before which the Income Tax Officer had already made a best judgment assessment on 20-12-1975 without even issuing a notice under section 139(2). The Appellate Assistant Commissioner set aside the assessment on the ground that it was invalid since no notice under section 139(2) was given. Subsequently, another assessment was made on 26-5-1981 against which the assessee raised the question of limitation.
When the best judgment assessment was void, the appellate proceeding against such void order could not cure the defect and could not confer life to that void as assessment. The return was furnished on 26-12-1975 and the assessment should have been completed by 31-3-1977. The assessment made on 26-5-1981 was, therefore, barred by limitation.
1. This is a departmental appeal. The assessment year is 1974-75. The assessee is a broker in gold ornaments. An assessment was made on 26-5-1981. Substantial additions were made to the returned income. The AAC held that the assessment was barred by time limit. The additions were also deleted on merits. Hence the departmental appeals on the question of limitation as well as merits.
2. We propose to dismiss this departmental appeal on the only ground that the assessment was barred by limitation. So merits are not considered. The assessee filed its return on 26-12-1975. Ordinarily, the assessment for the year 1974-75 should have been made by 31-3-1977.
But what happened in this case is that the ITO made a best judgment assessment under Section144 of the Income-tax Act, 1961 ('the Act'), even on 20-12-1975. The AAC by order dated 6-4-1976 cancelled the best judgment assessment on the following ground : The appellant is aggrieved at the order of the ITO, rejecting his application under Section 146 of the Income-tax Act.... There is no material on record to show that a notice under Section 139(2) had been issued or served for the assessment year 1974-75. If no notice under Section 139(2)had been served, then no notice can be issued under Section 142(1). In view of this, I hold that there has been no valid issue of statutory notice for the assessment year in question.
It is purely on this technical ground that the order of the ITO under Section 144 is set aside with a direction to re-do the assessment on the basis of materials, which the assessee might bring in evidence.
3. If the assessment made on 26-5-1981 now attacked as barred by limitation is to be construed as an assessment made in pursuance of the appellate order after the best judgment assessment is set aside, then the assessment is perfectly within time. That is the line of argument taken by the department before us. But what the assessee says is that the best judgment assessment made under Section 139(2) notice (sic) is non est, that such a non est assessment has only to be ignored and treated as non-existent, that all proceedings like appellate order against such non est order are all only to be ignored, because it was not at all necessary to file an appeal against an assessment order which is non est and non-existent, that merely because some unnecessary appeals were filed that would not give life to the non est best judgment assessment or extend the time-limit available for the ITO to complete the assessment, that there turn furnished is under Section 139(4) of the Act and that, therefore, the ITO ought to have made an assessment before 31-3-1977.
4. What we think is that the assessee is certainly right. If this best judgment assessment is void one as contended by the assessee, then the appellate proceedings against such void orders, on which appellate proceedings the department pins its faith, cannot cure the defect.
There is no necessity for any such appeal. The assessee is entitled to ignore it. All the other authorities also must ignore it. In President, Common-wealth Co-op. Society Ltd. v. Joint Registrar (General) of Co-op. Societies AIR 1971 Ker. 34, it has been held that an order passed without notice is null and void and that such a defect will not be cured by appellate proceedings. In Jabbalpore Electric Supply Co.
Ltd. v. Madhya Pradesh Electricity Board AIR 1974 Cal. 309, it has been held that where the impugned order is void, there is no need for an order of the Court to set it aside.
5. So the next question is whether this best judgment assessment made on 20-12-1975 is void. In Kanga and Palkhivala's The Law and Practice of Income-tax, Seventh edition, Vol. I at page 823, it is stated as follows : ...the contingencies mentioned in Section 144 are such that no assessment can be made under that section either, unless the assessee has made a return or has been served with a notice under Section 139(2). Thus a notice calling for a return under Section 139(2), would be a condition precedent to assessment under Section 144 on a person who has not made a return and the validity of the notice would be a vital consideration in determining the validity of such an assessment made under Section 144 in default of a return....
So it is clear that the best judgment assessment was void. The unnecessary appellate proceedings against it do not confer life to that void assessment. So all those have to be ignored. Therefore it follows that all appellate proceedings against it have also to be ignored. The assessee had furnish-ed a return on 26-12-1975. That is to be construed as a return under-Section 139(4). Therefore, the assessment had to be completed by 30-3-1977.So the assessment made on 26-5-1981 is barred by limitation. The application by the to the Settlement Commission also will not in this context help the department because that petition was furnished only on 19-11-1977, a few months after the assessment got barred by time. So that application has also to be ignored.