Per Shri S. N. Rotho, Accountant Member - These four appeals, two field by the assessee and the other two field by the department, are heard together and disposed of by this common order for the sake of convenience.
2. Appeal No. 65 (Ctk.) of 1981 has been filed by the assessee against the order dated 8-12-1980 of the Commissioner (Appeals) relating to the assessment year 1975-76, the previous year of which ended on 31-12-1974. The assessee was a partnership firm which was doing business as a contractor till 1971 in which year it stopped the business. However, certain disputes relating to the assessees claim for further payment from the contractee in respect of the work done by it from March 1961 to April 1964 was pending before the arbitrator. This dispute related to Sundaragarh contract. The assessee followed the mercantile system of accounting and adopted the calendar year as its previous year. The arbitrator gave an award on 5-8-1972 for a sum of Rs. 3,09,304. He did not award anything by way of interest on the said amount up to the date of award. However, he awarded interest at 6 per cent per annum if the awarded amount was not paid to the assessee within 60 days of the date of award. This award was ratified by the Court as required under Arbitration Act, 1940 on 3-5-1974. The Court awarded interest even for the period prior to the date of award. The Government appealed to the High Court against the award of interest of the period prior to the date of award while the assessee appealed to the High Court seeking a higher amount as award. The High Court by their judgment dated 19-11-1975 restored the original award dated 5-8-1972 given by the arbitrator. As per this award which thus became final by the judgment of the High Court on 19-11-1975, the assessee became entitled to the payment of the awarded amount plus interest as awarded by the arbitrator for the period of the delay subsequent to the date of the award. This amount including the aforesaid interest was received by the assessee on 26-8-1976. Similarly, in respect of the Berhampur award, the arbitrator gave the award on 31-8-1974 for a sum of Rs. 11,089. Interest for the delayed payment after the award (was) amounted to Rs. 3,327. The award was confirmed by the Court on 3-7-1975 and the assessee received the same on 12-5-1976.
3. The assessee did not file any return for the assessment year 1975-76 which is under consideration. The ITO took the view that the aforesaid award amounts together with interest thereon accrued to the assessee during the calendar year 1974 relevant to the assessment year 1975-76.
He started proceedings under section 147 of the Income-tax Act, 1961 (the Act). Notice under section 148 of the Act was issued on 5-11-1979.
There is an acknowledgment on the file of the ITO received from the postal authorities showing that the said notice under section 148 was served on 22-11-1979. The ITO proceeded with the assessment and in the course of such proceedings, issued notice under section 141 and 142 of the Act. In response to these notice, the advocate of the assessee appeared and objected to the assessment proceedings. In a letter dated 25-1-1980, the learned advocate stated that though notices under section 148 have been issued for several years they are misconceived and invalid. However, the ITO overruled the above objections, and held that the assessee was liable to tax for the assessment year 1975-76 on the aforesaid amounts. He made the assessments on the award amounts after deducting therefrom the two sums, namely, the intangible additions made during the assessment year to which the above award amounts related and estimated expenses in the course of the arbitration proceedings. Though he deducted these two amounts from the amount awarded for the Sundargarh work, he did not deduct similar intangible additions in respect of the Berhampur award. In respect of both the awards, he taxed the interest relating to the period subsequent to the date of award in full.
4. The assessee appealed to the Commissioner (Appeals) and contended that the action of the ITO was not justified. The Commissioner (Appeals) states in his order that the assessee did not press the ground relating to the validity of the assessment made under section 147. It was contended by the assessee before him that the award amounts were taxable in the earlier assessment years in which the work was executed and in respect of which work the award amounts were given. The Commissioner (Appeals) rejected this contention relying on the decision in the case of A. P. S. Cold Storage & Ice Factory v. CIT  119 ITR 709 (All). Next, it was contended by the assessee that the principle amount as well as the interest was not taxable as income in view of the decision in the case of Govinda Chowdhury & Sons the v. CIT  109 ITR 497 (Ori.). The Commissioner (Appeals) accepted the above contention, viz., that in view of the aforesaid decision, no amount was taxable as income of the assessee. Finally, the assessee urged that the status taken as unregistered firm by the ITO was incorrect. This was rejected by the Commissioner (Appeals) on the ground that the assessee never filed an application praying for registration. In the light of the above findings, the Commissioner (Appeals) determined the income from the Sundargarh award by starting from the award amount of Rs. 3,09,304 (which did not include any interest) and deducting therefrom the intangible addition made in the assessment years in which the work was executed, he estimated the expenses incurred by the assessee in the course of the arbitration proceedings. Thus, he arrived at an income of Rs. 1,90,582. In respect of Berhampur contract, he found that the intangible additions made in the assessment year 1970-71 was more than the amount of award money.
Hence, he held that no portion of the award of Rs. 11,089 was assessable. As has been stated earlier, the Commissioner (Appeals) deleted the interest for the period subsequent to the date of award in respect of both the awards on the ground that they did not constitute income of the assessee on the authority of the decision of Govinda Choudhury & Sons case (supra).
5. In this appeal filed by the assessee before us three grounds have been taken. Firstly, it is urged by Shri L. P. Patnaik, the learned representative for the assessee that the assessment as made under section 148 is arbitrary, capricious and illegal because no notice under section 148 was served on the assessee at any time. He has filed an affidavit dated 15-1-1985 sworn by Shri Uchhab Pradhan, a partner of the assessee-firm, stating that no notice under section 148 was ever served on the assessee for or any of its partners. Shri G. P. Nanda, the learned representative for the department, on the other hand, produced the records of the ITO and showed the postal acknowledgment wherein the service of the notice has been effected on 22-11-1979. Shri L. P. Patnaik examined the signature on the said acknowledgment slip and stated that it was signed by a person, viz., Purushottam Pradhan and that he was familiar with his signature as he was a partner in another firm which was also doing business under the name and style of P. Pradhan &Co. and it was also his client. He produced a bunch of papers relating to P. Pradhan & Co. to show the signature of P. Pradhan in those documents was exactly similar to the one appearing on the postal acknowledgment in the file of the ITO in the case of the assessee before us which was doing business in the name and style of Pradhan Construction Co. It may be stated that the address of both the firms was Uditnagar, Rourkela. Shri L. P. Patnaik stated that the postal authorities had served the notice on a wrong person and so, the assessing ITO never acquired any valid jurisdiction to proceed against the assessee before us. In this connection, he relied on the decision in the cases of Thangam Textiles v. First ITO  90 ITR 412 (Mad) and CIT v. Hyderabad Deccan Liquor Syndicate  95 ITR 130 (AP) wherein it has been held that proper service of a notice under section 148 in accordance with law is a condition precedent to the validity of any assessment under section 147. Shri G. P. Nanda referred to the letter dated 25-1-1980 written by Shri L. P. Patnaik and addressed to the ITO wherein it has been stated that notices under section 148 have been issued to the assessee. Shri Nanda urged that the assessee was having knowledge of the notice under section 148 when that letter was written. Shri Patnaik explained that the assessee erroneously assumed that the notice under section 148 must have been issued as notices under sections 142(1) and 143(2) of the Act have been served on the assessee even though the assessee had filed no return for this year.
The said letter dated 25-1-1980 was written in response to the notice under section 142(1) without verifying the assessees record as to whether notice under section 148 was served. He urged that the validation of jurisdiction under section 147 goes to the very root of the matter and is a legal issue and so, it could be taken at any time.
Further, he vehemently urged that he did not give up this ground before the Commissioner (Appeals). Shri G. P. Nanda did not produce anything from the record of the Commissioner (Appeals) to corroborate the statement in order of the Commissioner (Appeals) to the effect that this ground was given up by the assessee. Shri Patnaik urged that, without prejudice to the earlier argument, he still urged this legal ground before us. Then, Shri G. P. Nanda contended that the affidavit as well as the bunch of papers containing the alleged signature of Shri P. Pradhan might all be sent back to the ITO for verification and comments.
6. We have considered the contentions of both the parties as well as the facts on record. In our opinion, there is force in the claim of Shri G. P. Nanda that the affidavit and the papers relating to P.Pradhan & Co. should be examined by the ITO for the purpose of verification and comments. Normally, we would have done so. But, for reasons which will be apparent in the subsequent paragraphs, we do not do so because it may then amount only to an exercise in futility.
7. The second ground urged before us by Shri L. P. Patnaik was that no amount of the award was taxable during the assessment year 1975-76 which is under consideration. He urged that in his petition dated 25-1-1980 he has requested the ITO to determine the year of taxability of the awarded amounts if they are taxable. The ITO did not do so.
According to him, the award amount were taxable if at all, in the years in which the works were executed. On the other hand, Shri G. P. Nanda pointed out to the provisions of section 176(3A) of the Act which state that where any business is discontinued in any year, any sum, received after the discontinuance shall be deemed to be the income of the recipient and charged to tax accordingly in the year of receipt, if such sum would have been included in the total income of the person who carried on the business had such sum been received before such discontinuance. When this provision of the law was pointed out by Shri G. P. Nanda, Shri L. P. Patnaik agreed with the same and urged that the amount was taxable in the year of receipt but not in the assessment year under consideration. Thus, we find that according to both the parties before us, section 176(3A) applied to the facts of the case and the award amount if at all taxable will be taxable only in the year of receipt and not during the assessment year under consideration because the amount was not received during this year. We find that the provisions of section 176(3A) clearly state that the amount will be charged to tax in the year of receipt if it is otherwise taxable. In this appeal we are not called upon to decide as to whether any portion or the whole of the amount received by the assessee was taxable or not.
All that has to be decided in this appeal is the year in which the taxability of the amounts has to be considered. We agree with the stand taken by both the parties and hold that the amount is not taxable during the assessment year 1975-76 which is under consideration because the amounts were not received during this year. Consequently, the assessment made under section 148 for the assessment year 1975-76 has to be cancelled. We hereby do so. It is for this reason that we refrain from sending the affidavit and the bunch of papers referred to above to the ITO for his verification and comments.
8. The last ground taken in this appeal states that the status of the unregistered firm taken by the ITO was incorrect. As we have cancelled the assessment itself, this ground has become infructuous and so, we reject the same as such.
9. Appeal No. 84 (Ctk.) of 1981 has been filed by the department against the same order dated 8-12-1980 relating to the assessment year 1975-76 Shri G. P. Nanda took us through the only ground taken in this appeal which states that the Commissioner (Appeals) erred in deleting the interested of Rs. 41,506 from the total income as determined by the ITO. As we have cancelled the assessment for this year, this ground has evidently become infructuous and so, we reject the same as such.
10. IT Appeal No. 292 (Ctk.) of 1981 has been filed by the department against the order dated 22-7-1981 of the AAC relating to the assessment year 1977-78 the previous year of which was the calendar year 1976. the ITO made the assessment under section 143(3) on a total income of Rs. 12,370 being interest at 6 per cent per annum on the award amount of Rs. 3,09,304 for the calendar year 1976. On appeal, the AAC by his order dated 22-7-1981 cancelled the assessment on the ground that the sum of Rs. 12,372 even though awarded as interest was not taxable as income because of the decision in the case of Govinda Choudhury & Sons (supra). Shri G. P. Nanda pointed out that the Commissioner has, subsequently, passed an order under section 263 of the Act vacating the aforesaid assessment order made by the ITO on a total income of Rs. 12,370. Consequently, the said assessment order no longer exists in the eye of law. Hence, it follows as a consequence that the order of the AAC against the said order of the ITO also becomes non-existent in the eye of law. We have also heard Shri L. P. Patnaik who agreed with the above position. We also agree with the above position in law as stated by the parties before us. As the very assessment order which was the foundation of appeal before us has been vacated by the Commissioner under section 263 and as it no longer exists, the present appeal filed by the department has evidently become infructuous. Hence, we reject the same as such.
11. IT Appeal No. 101 (Ctk.) of 1982 has been filed by the assessee against the order under section 263 dated nil relating to the assessment year 1977-78. It may be stated in this connection that the endorsement below the order under section 263 passed by the Commissioner made by the ITO (judicial) forwarding the copies to the assessee, the ITO, the IAC, etc., give a date. This forwarding memo typed below the order of the Commissioner passed under section 263 is captioned as Memo No. Adm. (ITO/263/90/80-81/48911/53, 218, dated 3rd March, 1981/19th Feb., 1981 in the copy given to the assessee and filed before us along with the memorandum of appeal. Shri G. P. Nanda pointed out before us from the correspondence between the departmental representative and the office of the Commissioner as well as from the original record of the commissioner that the order under section 263 was actually passed on 26-2-1981. We have verified this matter from the records as well as the fact that a copy of the said order was received by the ITO in March 1981 and we are satisfied that the order under section 263 was indeed passed on 26-2-1981 though this date was not mentioned due to inadvertence at the top of the order as is usually done in such cases.
12. Shri L. P. Patnaik urged before us that the order under section 263 passed by the Commissioner was arbitrary and illegal. He pointed out that the original assessment was made by the ITO on 28-2-1980. The assesse filed an appeal against the said order before the AAC on 21-3-1980 though the assessee received a copy of the order under section 263 on 24-2-1982. It has been passed on 26-2-1981 as was found by us from the records. The AAC disposed of the appeal on 22-7-1981. He stated that his stand at the time he took the grounds in the appeal was that the order under section 263 was passed after the disposal of the appeal by the AAC on 22-7-1981 and so, the order under section 263 was illegal because of the doctrine of merger. However, in view of the present finding that the order was actually passed on 26-2-1981, his contention before us was that the order under section 263 was still illegal it was passed after the assessee filed an appeal before the AAC on 21-3-1980. He urged that the Commissioner had no jurisdiction to pass the order under section 263 in respect of the assessment order which has already become the subject matter of appeal before the first appellate authority. In support of this contention, he relied on the decision in the case of CIT v. Mandsaur Electric Supply Co. Ltd.  140 ITR 677 (MP) (FB). He also referred to the decision; in the case of Oil India Ltd. v. CIT  138 ITR 836 (Cal.) in support of his contention. His point was that once the assessee files an appeal, then the Commissioner loses his jurisdiction to act under section 263 even before the AAC passes the appellate order. On the other hand, Shri G.P. Nanda urged that the proposition stated by Shri L. P. Patnaik is not tenable in view of the decisions in the cases of CIT v. R. S.Banwarilal  140 ITR 3 (MP) (FB), Oil India Ltd. (supra), CIT v.Eimco-K. C. P. Ltd.  147 ITR 603 (Mad). and Russell Properties (P.) Ltd. v. A. Chowdhury, Addl. CIT  109 ITR 229 (Cal.).
13. We have considered the contentions of both the parties as well as the facts on record. In our opinion, the ground taken by the assessee is not tenable. We do not find any authority to support the proposition propounded by Shri L. P. Patnaik that the Commissioner loses his jurisdiction to act under section 263 of the Act merely because the appeal by the assessee pending before the AAC even though the appellate authority has not yet passed his appellate order. In the case of Mandsaur Electric Supply Co. Ltd. (supra) the question as reframed by the High Court appears at page 682. It states whether the Commissioner has jurisdiction under section 263 to set aside the order of assessment when the order was the subject matter in appeal preferred by the assessee before the AAC. We find from the facts of the case as narrated in the said judgment that the AAC had already passed his appellate order and that the order of the ITO had merged in the said order of the AAC (vide page 679). It is in this context that the High Court held that the Commissioner had no jurisdiction to set aside the order of assessment acting under section 263 if the assessment order was the subject matter of appeal before the AAC. That was not a case where the Commissioner passed his order under section 263 when the appeal was pending. Actually that was a case where the appellate order had already been passed before the Commissioner acted under section 263. This case is, therefore, of no help to the assessee. Similarly, coming to the second case relied on by Shri L. P. Patnaik, viz., Oil India Ltd.s case (supra), we find that the said case was also one in which the appellate authority had already passed the appellate order before the Commissioner assumed jurisdiction under section 263. At page 838 of the report, it is clearly stated that the AAC disposed of the appeal on 3-4-1974 and the Commissioner proceeded under section 263 thereafter on 5-3-1975. This case is also of no help to the assessee. On the contrary, there is a direct decision on the issue raised in this appeal. In the case of Eimco-K. C. P. Ltd. (supra) the question arose for consideration was as to whether the Commissioner could not act under section 263 when the assessees appeal is pending before the AAC.The following sentence appears : "... This direction, in revision, was made by the Commissioner at a time when the assessee-companys appeal from the assessment was even then pending." (p. 609) The High Court answered the question against the assessee. They have observed thus : "... In these events, we do not see in what ways the assessees appeal can tie the Commissioners hand and foot from exercising his power." (p.
611) This case is an authority for supporting the proposition of Shri G. P.Nanda to the effect that mere pending of an appeal does not debar the Commissioner to act under section 263. The case of R. S. Banwarilal (supra) was also a case of merger in the sense that the order under section 263 was passed after the appellate order was passed. Similar is the position in the case of Russell Properties (P). Ltd. (supra).
Hence, relying on the only authority available on the issue before us, viz., Eimco-K. C. P. Ltd.s case (supra) we reject this ground.
14. The next ground relating to applicability of section 176(3A) was not pressed before us and so, we reject the same.
15. The last ground in this appeal is based upon the misconception that the order under section 263 was passed after 22-7-1981 which, as we found earlier, was not a fact. Hence, we do not find force even on this ground and so, we uphold the order of the Commissioner passed under section 263.
16. In the result, the first appeal being assessees appeal for the assessment year 1975-76 is allowed while the remaining three appeals being the departmental for the assessment years 1975-76 and 1977-78 and the assessees appeal for the assessment year 1977-78 are dismissed.