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Paper House Vs. Income-tax Officer - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Kolkata
Decided On
Judge
Reported in(1983)5ITD301(Kol.)
AppellantPaper House
Respondentincome-tax Officer
Excerpt:
.....order of the assessment to the assessee on 26-3-1980. the contention of the assessee was that the draft assessment order was received on 3-4-1980, i.e., after the limitation period relevant to the year under appeal, which ended on 31-3-1980. this point was taken up by the assessee before the commissioner (appeals), before whom it was contended that the ito sent two drafts of the proposed assessment orders. according to the ito, the draft assessment order was served on the assessee on 26-3-1980 through inspector of income-tax by affixation. it was claimed by the assessee that two drafts were received by the assessee-one draft containing pages 1 to 8 was received on 3-4-1980 and the second draft containing pages 1 to 13 was received on 3-5-1980. the assessee submitted a reply dated.....
Judgment:
1. The first ground by the assessee in the present appeal is that the assessment order passed under Section 143(3)/144B of the Income-tax Act, 1961 ('the Act'), is time-barred and void ab initio and without jurisdiction.

2. From the order of the ITO dated 26-9-1980, it is seen that the assessee followed mercantile method of accounting and its year of account ended on 31-12-1976. The assessment order was passed under Section 143(3) read with Section 144B. The provisions of Section 144B came into play as the ITO initially proposed to assess the income at a much higher figure than the returned income. Section 144B provides that when the ITO proposed to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds Rs. 1,00,000 (in the instant case), the ITO at the first instance, shall forward a draft of the proposed order of the assessment to the assessee. ft also provides that on receipt of the draft order, the assessee may forward its objection, if any, to the ITO within seven days. Accordingly, the ITO in the instant case, following the provisions of Section 144B, forwarded a draft of the proposed order of the assessment to the assessee on 26-3-1980. The contention of the assessee was that the draft assessment order was received on 3-4-1980, i.e., after the limitation period relevant to the year under appeal, which ended on 31-3-1980. This point was taken up by the assessee before the Commissioner (Appeals), before whom it was contended that the ITO sent two drafts of the proposed assessment orders. According to the ITO, the draft assessment order was served on the assessee on 26-3-1980 through Inspector of Income-tax by affixation. It was claimed by the assessee that two drafts were received by the assessee-one draft containing pages 1 to 8 was received on 3-4-1980 and the second draft containing pages 1 to 13 was received on 3-5-1980. The assessee submitted a reply dated 15-4-1980 as an objection to the draft assessment order. Thus, it was submitted before the Commissioner (Appeals) that the draft assessment order having been served after 31-3-1980, the assessment was barred by limitation.

3. After hearing the assessee, the Commissioner (Appeals) scrutinised the records from which he noted that the draft assessment order was served by the Inspector of Income-tax on 26-3-1980, which was countersigned by the ITO. According to the Commissioner (Appeals), the draft assessment order was duly served on the assessee before 31-3-1980. He also noted that the records indicated that a copy of the draft order was also sent by registered post on 26-3-1980, postal receipt of which is on the ITO's record. He, therefore, remarked that apart from getting it affixed through Inspector, the ITO took precaution of sending the draft assessment order through registered post. He also noted that the draft assessment order received by the assessee on 3-4-1980 was alleged to have been contained pages 1 to 8 only and, therefore, such draft order was an incomplete order and, therefore, was irregular, which, in view of the Commissioner (Appeals), was not correct. The Commissioner (Appeals) further noticed that in the assessee's reply dated 15-4-1980, reference by the assessee was made to certain issues relating to Jatia Group which did not feature in the first draft assessment order, but which appeared only in the second draft assessment order. According to the Commissioner (Appeals), therefore, if the assessee had not received a full copy of the draft assessment order dated 9-3-1980, it could not have replied to this specific finding of the ITO in its objection dated 15-4-1980.

4. The Commissioner (Appeals) further noted that it was apparent that the present case was within Clause (c) of Sub-section (1) of Section 271 of the Act and, hence, the time-limit for completion of the assessment was increased to 8 years in terms of Section 153(1)(b) of the Act.

5. Being aggrieved by the above order of the Commissioner (Appeals), the assessee has raised his ground of appeal, as stated above before us. It is submitted by the assessee's learned counsel that the authorities below erred in holding that the order of the assessment was within the time. The contentions raised before the Commissioner (Appeals), are reiterated and stressed here before us. It is submitted that the draft sent by the ITO at the first instance was incomplete and, therefore, the whole procedure was invalid. It is further stressed that the second draft order was received on 5-5-1980 which contained 13 pages. It is submitted that since the draft assessment order was obviously received after 31-3-1980, the assessment itself is ab initio void. That apart, it is also argued by the assessee's learned counsel that the assessee has all along kept the office open on all working days and there could be no refusal of receiving any notice from the ITO which would have necessitated service of the draft assessment order by affixation through the Inspector, as done by the ITO in the present case. It, is urged, therefore, that the [TO has violated the provisions of Section 282 of the Act in this respect. It is, therefore, contended that even on this score, the whole assessment proceedings were bad and ab initio void and the Commissioner (Appeals) should have cancelled the assessment. In this connection, reference is made to the decision of the Hon'ble Calcutta High Court in the case of Lilooah Steel & Wire Co.

Ltd. v. ITO [1972] 86 ITR 611 in which inter alia it was held that notices under Section 148 of the Act ought to have been served on that assessee by 31-3-1964. It was submitted in the decided case, that the ITO has not recorded a finding that before ordering service by affixation the assessee was not to be found in its place of regular business. It was also held that a notice sent by registered post on 24-3-1964 and served on 3-4-1964 would not be sufficient as service of notice within the time prescribed is a condition precedent for initiating the proceedings. Reference is also made to a decision of the Hon'ble Supreme Court of India in the case of CIT v. Ramendra Nath Ghosh [1971] 82 ITR 888, in which a notice was served on the assessee by affixing such notice in the assessee's place of business, but the Inspector did not mention the names and addresses of the persons, who identified the place of business of the assessee, nor did he mention in his report that he personally knew the place of business of the assessee. Hence the service of notice was not held to be a valid service in accordance with law. It is submitted by the assessee's learned counsel that although the assessee has not obtained the copy of the Inspector's report on service of affixation, it is apparent that the Inspector did not even obtain the signature of the service (sic) to the affixation. Reference is also made to another decision of the Hon'ble Supreme Court of India in the case of CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581 in which the word 'issued' was held to mean 'served'. Thus according to the assessee's learned counsel, the assessment on the facts of the present case was bad in law initially and deserved to be cancelled. In addition to the above, it is also urged ?hat the drafts as received by the assessee from the ITO were not signed and this fact alone, it is contended, would go to show that the assessment proceedings in, the instant case were invalid and void.

6. On behalf of the revenue, the learned departmental representative resists the submissions made on behalf of the assessee, while supporting the order of the Commissioner (Appeals). According to him, the draft of the proposed assessment order, is only a draft and need not be signed. It is argued that assuming, without admitting, that there were some defects in the order of the ITO, the same were corrected by the IAC, to whom the ITO forwarded the draft assessment order and the assessee's objection thereto, as provided under Section 144B. According to the revenue, the machinery of Section 144B is a part of the assessment proceedings. It is also stressed that the Commissioner (Appeals) has given his finding on the point raised by the assessee, as could be seen from the records itself. It is submitted that one Sri B. Chowdhury was a witness to the affixation made by the Inspector and, therefore, there was no irregularity if that Sri Chowdhury did not put his signature on the Inspector's report. In short, the learned departmental representative emphasised the findings and the observations made by the Commissioner (Appeals) in the impugned order. That apart, it is pointed out that even if there were any defects in the notice, etc., the provisions of Section 282 would come into play and, therefore, there was no question of any irregularity or illegality in the assessment order as contemplated by the ITO and as confirmed by the Commissioner (Appeals) in the present case.

7. After going through the orders of the authorities below and after hearing both the sides, it is seen that the ITO forwarded the draft of the proposed order of the assessment to the assessee on 26-3-1980, as per affixation report of the Inspector, which the assessee is presently challenging. The Commissioner (Appeals) has also given a finding that the record indicated that the copy of the draft assessment order was also sent by registered post on 26-3-1980 through GPO, Calcutta. The case of the assessee is that since the draft assessment orders were received after 31-3-1980 and the affixation made by the Inspector being defective, the assessment order was barred by time and otherwise void.

8. We have gone through the case laws referred to on behalf of the assessee, which dealt with service of notices. The Courts have taken note of the provisions of Section 282, which is referred to by the assessee's learned counsel. Section 282 speaks of service of notice generally. It is provided that a notice or requisition under the Income-tax Act may be served on the person either by post or as if it were summons issued by a Court under the Code of Civil Procedure, 1908.

This Section 282 speaks of and deals with notice or requisition. But forwarding a draft of the proposed order of the assessment cannot be equated with a notice. To our mind, the draft sent by the ITO to the assessee as provided under Section 144B cannot be considered as a statutory notice or requisition. In Section 144B, the word 'forward' is used and not 'issue'. The word 'issue' has been dealt with by the Hon'ble Supreme Court in the case referred to above, so as to mean 'service'. But as stated above, the word 'forward' is used in Section 144B. Thus the arguments of the assessee's learned counsel in this respect cannot be applied to the facts of the present case.

9. That apart, we should also refer to Explanation 1(iv) of Section 153, which provides that in computing the period of limitation in this respect, the period not exceeding 180 days, commencing from the date on which the ITO forwards the draft order under Section 144B, to the assessee and ending on the date on which the ITO receives the instructions from the IAC, shall be excluded. Here also, the word 'forward' is used and in fact the period of 180 days commences from the date on which the ITO 'forwards' the draft to the assessee and not from the date on which the assessee receives the draft order. In other words, this provision is quite clear that once the ITO proposed to make a variation in the assessment order to the extent of more than Rs. 1,00,000 the provisions of Section 144B would come into play. Once that point is decided by him, the machinery provision of Section 144B comes into play. In this respect, we may refer to the decision of the Hon'ble Madhya Pradesh High Court in the case of Banarsidas Bhanot & Sons v.CIT [1981] 129 ITR 488, in which the provisions of Section 144B are considered to be procedural. It is not the case of the assessee before us that the ITO did not start the assessment proceedings within the limitation period or did not complete them within the limitation. The strong case which the assessee is making is that the draft assessment orders were received after 31-3-1980 which, according to the assessee, was beyond limitation period. But as mentioned above, forwarding of a draft for proposed order of the assessment cannot be equated with the issue of a statutory notice or requisition. The Commissioner (Appeals) has given a finding that the ITO has also sent a copy of the draft by registered post on 26-3-1980 which in fact has not been controverted by the assessee. Once the ITO proposes to make the variation as indicated above in the assessed income, the machinery provision of Section 144B comes into play, which by itself is procedural in operation, inasmuch as the whole assessment proceeding goes on till the assessee sends his objections to the proposed draft till the ultimate receipt of the IAC's instructions by the ITO. For this exercise, the extra period of 180 days is provided for.

10. Again it is the ITO, who may make a proposal of a draft assessment order and if he so decides, the provisions of Section 144B cannot be avoided. Obviously as on 26-3-1980, the ITO has decided to make a variation in the proposed assessment order by more than Rs. 1,00,000 and that was why he forwarded the draft as such. In a similar situation in the case of CIT v. A.K. Das [1970] 77 ITR 31, the Hon'ble Calcutta High Court held that the ITO started penalty proceedings under Section 271(1)(c) and transferred the same to the IAC on 29-8-1964 as the penalty leviable was more than Rs. 1,000. The Hon'ble High Court held that the Tribunal was right in coming to the conclusion on the facts of that case, that the penalty proceedings commenced on 29-8-1964 when the ITO referred the case to the IAC. Thus, in our opinion, the receipt of the draft assessment order by the assessee on 3-4-1980 or on 3-5-1980 would not invalidate the assessment as such.

11. We find that there is force in the contentions made on behalf of the revenue relating to another aspect of the matter regarding signing of the draft assessment order. Similar situation has arisen before the Hon'ble Gujarat High Court in the case of Mrs. Meeraben P. Desai v.Union of India [1981] 130 ITR 922. On the facts of that case, it was held that what is material is the forwarding of the draft of the proposed order of the assessment to the assessee when the variation between the income or loss returned and the amount at which the ITO proposed to the assessee, exceeds Rs. 1,00,000 and that the whole purpose of Section 144B is to give an opportunity to the assessee concern at the earliest stage to be heard against line of action which the ITO proposed to take. It was also held that what is material for the purpose of the limitation under Section 144B(2), is the date when intimation is given to the assessee. It was also held in that case that while forwarding the draft of the proposed order of the assessment, if there is no proper authenticity to the forwarding letter, i.e., lack of date or lack of signature, then the condition precedent, i.e., forwarding of the draft will not be in accordance with law, but if the forwarding letter is proper and is in accordance with law, the mere fact that the draft order is neither signed nor dated, makes no difference.

12. It may be mentioned that at the time of hearing, it is urged by the assessee's learned counsel that the ITO, though on application by the assessee, extended the time to the assessee for submission of objection to the proposed assessment order, for more than two weeks, whereas Section 144B(2) authorises the ITO to allow such time to the assessee not exceeding 15 days time. It is urged, therefore, that on this point alone, the order of the ITO is vitiated. In our opinion, this plea has no substance at all. The ITO extended the time applied for by the assessee which was slightly more than 15 days. In our view, the ITO did so in order to facilitate and not to prejudice the assessee in submission of objections, etc. Having regard to the facts of the case, this plea of the assessee also cannot be accepted.

13. Having regard to the various aspects of the matter as raised and contended before us by both the sides, we are of the view that the order of the Commissioner (Appeals) impugned before us regarding limitation aspects of the dispute, requires to be sustained, which we hereby do. This ground of appeal is rejected.

14 to 26. [These paras are not reproduced here as they involve minor issues.]


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