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Third Income-tax Officer Vs. Shivaji Park Gymkhana - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Mumbai
Decided On
Judge
Reported in(1983)4ITD462(Mum.)
AppellantThird Income-tax Officer
RespondentShivaji Park Gymkhana
Excerpt:
1. this is a departmental appeal. it relates to the assessee's assessment for the assessment year 1977-78. return for the year was filed on 7-7-1979 disclosing 'nil' income on the ground that its income was exempt under sections 10(25) and 11 of the income-tax act, 1961 ('the act'). after hearing the assessee on quite a few occasions, the ito held that the income was not exempt from tax as claimed and completed the assessment under section 143(3) of the act on 19-3-1980 determining the total income at rs. 1,49,060.2. it was, inter alia, contended before the commissioner (appeals) that the variation between the assessed income and the income returned exceeded the amount of rs. 1,00,000 fixed by the central board of direct taxes under section 144b(1)/(6)of the act, and, therefore, the.....
Judgment:
1. This is a departmental appeal. It relates to the assessee's assessment for the assessment year 1977-78. Return for the year was filed on 7-7-1979 disclosing 'nil' income on the ground that its income was exempt under Sections 10(25) and 11 of the Income-tax Act, 1961 ('the Act'). After hearing the assessee on quite a few occasions, the ITO held that the income was not exempt from tax as claimed and completed the assessment under Section 143(3) of the Act on 19-3-1980 determining the total income at Rs. 1,49,060.

2. It was, inter alia, contended before the Commissioner (Appeals) that the variation between the assessed income and the income returned exceeded the amount of Rs. 1,00,000 fixed by the Central Board of Direct Taxes under Section 144B(1)/(6)of the Act, and, therefore, the completion of the assessment by the ITO under Section 143(3) without following the mandatory provisions of Section 144B was bad and illegal.

For reasons given in paragraphs 5 to 7 of his order, the Commissioner (Appeals) accepted the assessee's submission and held that the order of the assessment was a nullity being not a legal order, and annulled the assessment.

3. Being aggrieved by the order of the Commissioner (Appeals), the department has come up in appeal. Finding that different Benches of the Tribunal were taking contrary and conflicting views on the issue, the members who heard the appeal originally, referred the case to the President for constituting a Special Bench. The Special Bench was constituted and this is how the matter has come up for hearing before this Bench.

4. It is common ground that the provisions of Section 144B(1) are applicable in this case and that the ITO should have completed the assessment after going through the procedure laid down in Section 144B.However, while according to the department, the omission to follow the procedure laid down under Section 144B is only a curable procedural defect, the case of the assessee which has been accepted by the Commissioner (Appeals) is that the provisions of Section 144B are mandatory and, therefore, the completion of the assessment in violation of the provisions of Section 144B is null and void. In support of their rival contentions, the assessee's counsel and the departmental representative advanced detailed arguments and supported their contentions by placing reliance on a number of the High Court and the Supreme Court decisions. However, for the sake of brevity, we propose to deal with the arguments in the course of our order.

5. In order to appreciate the rival contentions, it is desirable to refer to the provisions of Section 144B. 144B. (1) Nothwithstanding anything contained in this Act, where, in an assessment to be made under Sub-section (3) of Section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under Sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Income-tax Officer shall forwar the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment: Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Inspecting Assistant Commissioner under Sub-section (4) shall be binding on the Income-tax Officer.

(6) For the purposes of Sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit: Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees.

(7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income-tax Officer in pursuance of an order made under Section 125 or Section 125A.It is pertinent to mention that simultaneously, with the introduction of Section 144B, Section 144A was also inserted in the Act, with effect from 1-1-1976. For understanding the scheme of the Act in this regard and the purpose for which Section 144B is introduced in the Act, it will, therefore, be necessary to refer to Section 144A which leads as under: 144A. (1) An Inspecting Assistant Commissioner may, on his own motion or on a reference being made to him by the Income-tax Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment and such directions shall be binding on the Income-tax Officer: Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.

Explanation: For the purposes of this sub-section, no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.

(2) The provisions of this section shall be in addition to, and not in derogation of, the provisions contained in Sub-section (3) of Section 119.

These two sections, it may be stated, were, inter alia, introduced through the Taxation Laws (Amendment) Act, 1975. The relevant Bill being the Taxation Laws (Amendment) Bill, 1973, was prepared after a detailed examination of the recommendations of the Direct Tax Enquiry Committee (Wanchoo Committee) and the 47th Report of the Law Commission insofar as it related to direct tax laws. The Bill was referred to the Select Committee whose report was presented in the Parliament on 20-3-1975. The report is silent as regards Section 144A. Regarding Section 144B, the report is unanimous and reads as under: 40, Clause 45 - The proposed new Section 144B seeks to provide that where an Income-tax Officer proposes to make additions and disallowances exceeding a prescribed amount, he shall send a draft assessment order to the assessee and where the assessee objects to the proposed assessment, the final order of assessment should be passed by the Inspecting Assistant Commissioner. The Committee feel that on receipt of objections, if any, from the assessee, in such cases, the Inspecting Assistant Commissioner may issue directions to the Income-tax Officer in respect of the matters covered by the assessee's objections and thereupon the assessment should be completed by the Income-tax Officer himself.

The proposed new Section 144B under this clause has been substituted accordingly.

In terms of Section 144B in the present form, the jurisdiction to make an assessment except in certain specific cases is with the ITO and remains with him until he finally completes the assessment. He prepares the draft assessment order, forwards a copy thereof to the assessee wherever necessary under Section 144B(1), sends the draft order with the assessee's objections to the IAC under Section 144B(4) and completes the assessment order in conformity with the directions given to him by the IAC under Section 144B(4).

Section 144A authorises the IAC, on his own motion as well as on a reference made by the ITO or on an application made by the assessee, call for and examine the record of any proceedings for which the assessment is pending and issue directions for the guidance of the ITO to enable him to complete the assessment. The powers envisaged in Section 144A are of the nature of general superintendence over the ITO's work. They naturally include both directing relief and enhancement of the assessment. As against this, the scope of powers envisaged in Section 144B is limited to whether and to what extent the IAC might, on consideration of the draft assessment order and the objections raised by the assessee and the assessment records, etc., direct the ITO not to make the additions/disallowances proposed by him in the draft assessment order. In any event, the jurisdiction to make assessment as stated earlier always remains with the ITO.The ITO is bound, in the first instance to forward the draft of the proposed assessment order in case he proposes to make variation of more than Rs. 1,00,000 in the net income or loss returned by the assessee.

However, it is for the assessee to make use of the powers available to the IAC under Section 144B to scrutinise the additions/disallowances, vis-a-vis, his objections as the matter does not go to the IAC unless he objects to the proposed variation in income or loss within the time allowed in the section.

6. As regards the proviso to Section 144B(4), the Delhi High Court decision in the case of Sudhir Sareen v. ITO [1981] 128 ITR 445 appears to give an impression that the IAC can even direct the ITO to enhance the income or reduce the loss as proposed by the ITO in his draft assessment order under Section 144B. It is, however, to be noted that that issue was not in dispute in that case. The main issues were whether the ITO could issue two draft assessment orders and whether the IAC can issue directions prejudicial to the assessee without giving an opportunity. This is a decision by a Single Judge in a writ matter. On the other hand, a Division Bench of the Calcutta High Court in the case of Bengal & Assam Investors Ltd. v. CIT 1982 Tax LR 2017 on a reference under Section 256 took a contrary view. Moreover, the legislative intention from the language used in the section appears to be that when the assessees are actually fastened with liabilities resulting from the final assessment, they should not be taken by surprise. They should know beforehand the additions and/or disallowances which the ITO proposes to make, the materials arrayed against them and to meet them by pointing out or producing such evidence or material or making submissions, etc. Perhaps, it was also intended that a superior officer should scrutinise the evidence before the liability is actually fastened on an assessee so that the number of ever-increasing appeals can be reduced.

We find that by its circular dated 29-4-1978, the CBDT has also taken the same view. For this and other reasons given in the order of the Special Bench of the Tribunal in the cases of Rex Cinema Co-owners v.Sixth ITO [1983] 3 ITD 633 (Bom.) and ITO v. Sippy Films [1982] 1 ITD 1031 (Bom) (SB), it has to be held that Section 144B is a procedural section though it cannot, perhaps, be disputed that the provisions therein are mandatory and if an assessment is completed without following the procedure laid down in the section, the assessment will not be a valid assessment.

7. Apparently, the issue is squarely covered by the two recent decisions of the Madhya Pradesh High Court in the cases of Banarsidas Bhanot & Sons v. CIT[1981] 129 ITR 488 and H.H. Maharaja Raja Pawer Dewas v. CIT [1982] 138 ITR 518, against the assessee and in favour of the revenue. In this context, the observations by their Lordships of Banarsidas Bhanot (supra): Learned counsel for the assessee relied on the well-known principle that if a power is conferred and the manner of exercising the power is also indicated, the power must be exercised in the manner indicated by the Act conferring the power and not otherwise. But this principle does not mean that every defect in the manner of exercise of the power makes the ultimate order passed in the exercise of the power invalid. A question of this nature has to be answered having regard to the relevant statutory provision, the object behind it and the deviation in the particular case from its strict compliance. We have already indicated that Section 144B is a procedural provision and the object behind this section is to give a comprehensive opportunity in cases where the variations proposed by the ITO in the income returned are in excess of Rs. 1 lakh. If the draft order issued. is capable of giving full opportunity to the assessee to meet the proposed variations, it cannot be said that the defect in the draft order makes the entire proceedings invalid. At any rate, no question of jurisdiction is involved in such cases. Any non-compliance with Section 144B can be set right by the Tribunal by remanding the proceedings to the ITO. Besides the argument, that the assessment order was totally invalid or non est on account of non-compliance with the procedure laid down, under Section 144B of the Act, is not correct. There was no jurisdictional error even though the procedure under Section 144B of the Act was not complied with. The scheme of Section 144B clearly envisages that the jurisdiction to pass an order even when there is a variance of rupees one lakh and more between the income returned and the income assessed, is with the ITO, though Section 144B provides for a machinery for the service of a draft order on the assessee and a consultation with a superior officer. This is only a procedural matter not involving jurisdiction and, therefore, if there is a non-compliance or an irregular compliance with this provision, it is only a procedural irregularity which can be cured by directing the ITO to frame an assessment after following the correct procedure....

However, it was vehemently contended by Shri S.E. Dastur, the learned counsel for the assessee, that the non-following of procedural provisions also, if mandatory, results in the nullity of the proceedings. He argued that the Madhya Pradesh High Court decisions should not be followed as (1) notice has not been taken in that case of the following Supreme Court, High Court and English decisions: Grunwick Processing Laboratories Ltd. & Advisory, Conciliation & Arbitration Service [1978] AC 655, Lala Ram Swamp v. Shikar Chand AIR 1966 SC 893, Union of India v. Tarachand Gupta & Bros. AIR 1971 SC 1558 and Bhupendra Singh v. G.K. Umath AIR 1970 SC 91, and (2) issues in those cases were different. The Court was not called upon to decide the issue that arises in this case and, therefore, the observations relied upon are mere obiter dicta.

8. We have carefully gone through the above four decisions. In the English case, it was obligatory on the part of the 'service' to ascertain the opinion of the workers to whom the issue relate by means it thought fit. The recommendation was made without complying with this mandatory direction. It was held that this failure of the 'service' rendered the recommendation void. Apart from the fact that in that context the expressions 'void' or 'invalid' have the same meaning the question of time-limit within which a fresh report can be submitted by the 'service' was not involved.

In the decision of the Supreme Court in the case of Lala Ram Swamp (supra) the question was whether and to what extent the jurisdiction of the Civil Court to deal with particular matters can be excluded by the Special Acts. It was in that context that their Lordships made observations regarding the jurisdiction of the Civil Courts in paragraph 13 of the decision at page 896 relied upon by the assessee's counsel.

In the decision in the case of Tarachand Gupta (supra), again, the question was whether and to what extent the jurisdiction of Civil Courts was excluded by the special provisions of the Import and Export (Control) Act, 1947. It was in that context that their Lordships held in paragraph 21 that: A determination which takes into consideration factors which the officer has no right to take into account, is no determination. This is also the view taken by Courts in England. In such cases the provision excluding jurisdiction of civil courts cannot operate so as to exclude an inquiry by them.

In fact, the thrust of the above two Supreme Court decisions can be found in the observations of their Lordships in paragraph 22: 22. The principle thus is that exclusion of the jurisdiction of the Civil Courts is not to be readily inferred. Such exclusion, however, is inferred where the statute gives finality to the order of the Tribunal on which it confers jurisdiction and provides for adequate remedy to do what the Courts would normally do in such a proceeding before it. Even where a statute gives finality, such a provision does not exclude cases where the provisions of the particular statute have not been complied with or the Tribunal has not acted in conformity with the fundamental principles of judicial procedure.

The word 'jurisdiction' has both a narrow and a wider meaning. In the sense of the former, it means the authority to embark upon an enquiry, in the sense of the latter it is used in several aspects, one of such aspects being that the decision of the Tribunal is in non-compliance with the provisions of the Act. Accordingly, a determination by a Tribunal of a question other than the one which the statute directs it to decide would be a decision not under the provisions of the Act, and, therefore, in excess of its jurisdiction.

The Madhya Pradesh High Court in the case of Bhupendra Singh (supra) was again considering the question whether Sub-section (1) of Section 39 of the Bhopal Abolition of Jagirs and Land Reforms Act (10 of 1953) bars the jurisdiction of civil and revenue courts. The summing up of the legal position has been by their Lordships in paragraph 5 of the decision, the relevant portion being: The legal position arising from the above discussion may now be summed up as follows: (1) An Exclusionary Clause using the formula 'an order of the tribunal under this Act shall not be called in question in any Court' is ineffective to prevent the calling in question of an order of the tribunal if the order is really not an order under the Act but a nullity.

(2) Cases of nullity may arise when there is lack of jurisdiction at the state of commencement of inquiry, e.g., when: (a) authority is assumed under an ultra vires statute, (b) the tribunal is not properly constituted, or is disqualified to act, (c) the subject-matter or the parties are such over which the tribunal has no authority to inquire, and (d) there is want of essential preliminaries prescribed by the law for commencement of the inquiry.

(3) Cases of nullity may also arise during the course or at the conclusion of the inquiry. These cases are also cases of want of jurisdiction if the word 'jurisdiction' is understood in a wide sense. Some examples of these cases are: (a) when the Tribunal has wrongly determined a jurisdictional question of fact or law, (b) when it has failed to follow the fundamental principles of judicial procedure, e.g., has passed the order without giving an opportunity of hearing to the party affected, (c) when it has violated the fundamental provisions of the Act, e.g., when it fails to take into account matters which it is required to take into account or when it takes into account extraneous and irrelevant matters, (d) when it has acted in bad faith, and (e) when it grants a relief or makes an order which it has no authority to grant or make.

In the circumstances, we are of the view that the above four decisions have no direct bearing on the point at issue before us and, therefore, the fact that these decisions have not been noticed by the Madhya Pradesh High Court in its two decisions in Banarsidas Bhanot's case (supra) and H.H. Maharaja Power's case (supra) is of not much consequence. Shri Dastur is right that the issue in Banarsidas Bhanot's case (supra) was whether and to what extent the draft, order of assessment was defective. Having held that in spite of defects, the draft assessment order forwarded was in substantial compliance with Section 144B(1), there was, perhaps, no necessity for the High Court to make the observations relied upon by the departmental representative.

Shri Dastur is also right when he says that the issue in H.H. Maharaja Pawar's case (supra) was whether the order of assessment was erroneous inasmuch as the variation in the income made by the ITO exceeded Rs. 1,00,000 and yet the ITO had completed the assessment without following the procedure laid down in Section 144B. However, on carefully going through the two decisions it does not appear to us that the observations made therein are mere obiter dicta. The issue arising before us in this case indirectly, if not directly, did arise in those cases and the observations have been made after due and careful consideration. In the circumstances, it is not possible to accept Shri Dastur's submission that the aforesaid two decisions of the Madhya Pradesh High Court should not be followed.

9. Again, the three decisions (two of the Gauhati High Court and one of the Punjab & Haryana High Court) respectively--Shashi Prasad Baruah v.Agrl. ITO [1973] 91 ITR 488, Jai Prakash Singh v. CIT [1978] 111 ITR 507 and CIT v. Sham Lal [1981] 127 ITR 816--apparently support the assessee's contention, namely, that assessments completed without complying even with the procedural but mandatory provisions result in nullity of the proceedings. Apart from the fact that all the three cases hereinabove are distinguishable inasmuch as: (1) notice under Section 19(2) of the Assam Agricultural Income-tax Act, 1939, was not served in the case of Shashi Prasad Baruah (supra) and this notice was the very foundation of the order, (2) in the case of Jai Prakash Singh (supra) the assessment was to be made on the legal representatives of the deceased. However, the proceedings were taken against only one of the several representatives. The whole estate was thus not represented, and (3) in the case of Sham Lal (supra) the assessment was based on materials placed on record in violation of the principles of natural justice and, in fact, there was no evidence to come to the conclusion that the assessee was a partner in the firm. It was in those circumstances that the High Court held that the only course open to the Tribunal was to annul the assessment order passed by the ITO. Against this, the Allahabad High Court has specifically held in the case of Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 that if the initiation of the proceedings was valid, the proper course was to set aside the assessment with a direction to make a fresh assessment. It may be stated that in this case, the assessment was made under Section 143(3) without issue and service of a valid notice under Section 143(2). The Jammu and Kashmir High Court has also taken the same view in the case of Rattan Lal Tiku v. CIT [1974] 97 ITR 553. The Andhra Pradesh High Court has, in the case of Addl. CIT v. Boina Suranna [1980] 124 ITR 328 also held that in a case like the one before us, the whole proceedings do not become a nullity and the assessment can and should be set aside with a direction to make a fresh assessment from the stage at which the illegality supervened. It is true that the Supreme Court's decision in the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 is distinguishable in the sense that in that case the Supreme Court was concerned with imposition of penalty under Section 28(1)(a) of the 1922 Act, for which no time-limit was prescribed under that Act. All the same, however, the decision makes it clear that when the proceedings initiated started were valid, the whole proceedings do not become illegal. The proceedings become illegal only from the stage at which the illegality supervened.

In this context, Shri Dastur has, it may be stated, strongly relied on the use of two expressions in Section 251(1)(a) of the Act, by the Legislature regarding the powers to be exercised by the appellate authority. The expressions are: (i) 'annul the assessment' ; and (ii) 'set aside the assessment and refer the case back to, the ITO for making a fresh assessment....' It was stated that these two expressions were separate and independent and that in appropriate cases the appellate authority will have no option but to annul the assessment. In support, the reliance was placed on the decision of the Allahabad High Court in the case of CIT v. Rameshwardas Ram Narain [1977] 107 ITR 710 and the Calcutta High Court's decision in the case of Goombira Tea Co.

(P.) Ltd. v. ITO [1980] 125 ITR 260. It was pointed out that in both these cases it was held that after having held that the orders passed by the ITO were invalid, the appellate authority had no further power to direct a fresh assessment. While it is true that Section 251(1)(a) used two separate and independent expressions, the purpose seems to be that when the initiation of the proceedings itself is invalid, the proceedings have got to be annulled. On the other hand, if the initiation of the proceedings is valid and some lapse, defect or illegality supervenes subsequently in the proceedings, the order has got to be set aside with a direction to make a fresh order according to law. In our this view, we are supported by the decisions of the Supreme Court in the case of CIT v. National Taj Traders [1980] 121 ITR 535 and Kapurchand Shrimal v. CIT [1981] 131 ITR 451. It is pertinent to mention that in the case of National Taj Traders (supra), the Commissioner had passed his order under Section 263 of the Act without allowing the assessee an opportunity of being heard as required under Section 33B of the 1922 Act. When the matter came up before the Tribunal, the Tribunal set aside the order of the Commissioner directing him to pass fresh order after allowing the assessee an opportunity as required by the Act. In pursuance of the order of the Tribunal, the Commissioner passed his order which was, admittedly, after the expiry of two years from the date of the order sought to be revised. The assessee challenged the order. In fact, the Calcutta High Court accepted the assessee's contention. However, the Supreme Court reversed the Calcutta High Court's decision, holding that the time-limit applied to the first order to be passed by the Commissioner and not the order passed in pursuance of the Tribunal's order. In the case of Kapurchand Shrimal (supra), the ITO completed the assessment in the status of Hindu undivided family without making proper inquiry as required of him under Section 25A of the 1922 Act, in view of the fact that the assessee had made a claim for partition in time. The assessment so made was, held to be illegal. The question was whether the Tribunal should or should not have directed the ITO to make a fresh assessment. The Supreme Court held that "when the tribunal holds that such an assessment is liable to be set aside, the duty of the tribunal does not end with making a declaration that the assessment is illegal.

The proper order to be passed in such a case would be to set aside the assessment and to direct the ITO to make a fresh assessment in accordance with the procedure prescribed by law". In the circumstances, we are inclined to take the view that in cases where there is nothing wrong with the assumption of initial jurisdiction but some mandatory procedural provision has not been complied with while completing the assessment, the assessment cannot be sustained and will have to be set aside. However, the duty of the appellate authority and the Tribunal will not end by just declaring it as illegal or nullity. They will have to set aside the order with a direction to make a fresh order after complying with the legal requirements.

The departmental representative also placed reliance on the two decisions of the Supreme Court in the cases of L. Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 and Gursahai Saigal v. CIT [1963] 48 ITR 1. On going through them, however, we find that the cases are not applicable to the facts of the case.

10. There is one more aspect that we would like to deal with before we conclude. The departmental representative has contended that whether a provision is mandatory or directory does not depend upon the use of the word 'shall' or 'may' but if the non-following of that provision results in nullity of the proceedings, the provision should be treated as mandatory and not otherwise. In our view this is like putting the cart before the horse. Whether a provision is mandatory or directory depends upon the language of the section and the context in which it is used. We do not agree with departmental representative that all mandatory provisions, if not complied with, must result in nullity of the proceedings. In any event, there is no dispute that the assessment in which the provisions of Section 144B are applicable if completed without complying with the requirements of Section 144B, cannot be sustained as valid. Therefore, we have no difficulty in holding that the provisions of Section 144B(1) are mandatory.

Anticipating the arguments of the departmental representative, Shri Dastur submitted that the distinction drawn by the Gujarat High Court in the case of P.V. Doshi v. CIT [1978] 113 ITR 22 between mandatory provisions resulting in nullity of the proceedings and mandatory provisions not resulting in nullity of the proceedings should not be relied upon as no such distinction has been noticed by the Supreme Court in the two decisions relied upon by him, namely, Ram Swamp (supra) and Tara-chand Gupta (supra). Alternatively, he submitted that the provisions herein are in public interest and cannot be waived and, therefore, even if the test laid down by the Gujarat High Court is applied, the order of the Commissioner annulling the assessment will have to be upheld.On carefully going through the Gujarat High Court's decision (supra), we find no merit in the submission made by Shri Dastur. In this connection, it has to be noted that the proposition, namely, 'that the safest rule to determine what is an irregularity and what is a nullity is to see whether the party can waive the objection ; and if he can waive it, it amounts to irregularity ; if he cannot, it is quality' quoted with approval by the Gujarat High Court in the above case has been taken verbatim from the Supreme Court decision itself in the case of Dhirendra Nath Gorai v. Sudhir Chandra Ghosh AIR 1964 SC 1300 where at page 1304 their Lordships have gone into this material question. It has been further noted that this legal position was reiterated by the Supreme Court in another case in Superintendent of Taxes v. Onkarmal Nathmal Trust AIR 1975 SC 2065. In the circumstances, it is not correct to say that the distinction drawn between irregularity and nullity by the Gujarat High Court is against the Supreme Court's view. On the contrary, the proposition has been laid down by the Supreme Court and the Gujarat High Court has only drawn support from it.

The question will then arise whether an assessee can waive the procedure laid down under Section 144B. It has been held in that very case that if the jurisdictional provisions are mandatory and enacted in public interest, they could not be waived. Firstly, the provision of serving a draft assessment order under Section 144B(1) in a case calling under that clause is not a jurisdictional provision. No doubt, it is mandatory but if an assessee chooses to waive it, we do not think it involves public interest. In fact, even otherwise it is for the assessee to invoke the powers of the IAC under Section 144B(4). Even if the draft assessment order is served on it, the assessee may choose not to file objections and in that case there will be no occasion for forwarding the draft order and the assessee's objections by the ITO to the IAC under Section 144B(4). Having regard to the above discussion, we also hold that it is a provision which can be waived and, therefore, the completion of the assessment without complying with the requirements of Section 144B(1) is only an irregularity and not a nullity.

The Gujarat High Court, it may be stated, had an occasion to deal with Section 144B in its decision in the case of Mrs. Meeraben P. Desai v.Union of India [1981] 130 ITR 922. However, the said decision does not have any bearing on the point at issue before us. The Gujarat High Court has also considered the question of nullity and irregularity in its decision in the case of CIT v. Sumantbhai C. Munshaw [1981] 128 ITR 142. This case indirectly, if not directly, supports the view we have taken.

11. To sum up, the legal position is that, in fiscal matters, if the initial jurisdiction to proceed is validly assumed, any lapse, irregularity or omission in following the prescribed procedure, even though mandatory, will not make the order a nullity or ab initio void.

However, the order cannot be sustained but will have to be set aside with the direction to the concerned authority to pass the order afresh according to law after curing the defect which made the order unsustainable.

12. In the result, the order of the Commissioner (Appeals) is modified, the order of assessment is set aside and the ITO is directed to pass a fresh order according to law after complying with all the legal requirements including those of Section 144B. The appeal thus stands allowed.


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