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Shiv Charan Gupta Vs. Inspecting Assistant - Court Judgment

LegalCrystal Citation
CourtIncome Tax Appellate Tribunal ITAT Delhi
Decided On
Judge
Reported in(1991)38ITD567(Delhi)
AppellantShiv Charan Gupta
Respondentinspecting Assistant
Excerpt:
.....and style of m/s.century plastics has been assessed by the assessing officer in the hands of the assessee shri shiv charan gupta on substantive basis for all the assessment years under consideration and the same income has also been assessed on protective basis, in the hands of his wife smt.sheela gupta. in computation of income from century plastics, various additions have been made, both in the case of shri shiv charan gupta and his wife smt. sheela gupta, including additions made on account of investment in factory building and construction of a house property, which is different from the house property in respect of which an addition of rs. 99,400 has been made. this addition has been assailed in ground no. 12 in the appeal filed for the assessment year 1978-79.according to the.....
Judgment:
1. As all these appeals give rise to some common issues, they were heard together and for the sake of convenience, are being disposed of by a common order.

2. In all these appeals the assessees were represented by Shri G.C.Sharma, Shri Mukul Gupta and Shri Wazir Singh advocates. The department was represented by Shri Subhash Kumar, Sr. Departmental Representative.

3. We shall first lake up the appeals filed by Shri Shiv Charan Gupta.

In these appeals an application has been moved by the assessee, seeking leave to raise the following additional ground:- That the principles of natural justice having been totally violated by the Income-tax Officer in making the impugned additions to the total income of the appellant and the appellant having not been confronted with any material justifying the said impugned additions, the entire additions are liable to be deleted from the assessment being null and void ab initio.

4. We have heard learned authorised representatives of the parties. In the grounds, set up in the memoranda of appeals, the assessee has challenged various additions. The additional ground, which the assessee seeks to raise, relates to those additions. According to the assessee, the assessments insofar as they relate to these additions, are null and void ab initio, as principles of natural justice have been totally violated by the Assessing Officer while making the impugned additions to the total income of the assessee. Through the additional ground, the assessee seeks to raise a legal issue. In our opinion, the additional ground should be admitted and we order accordingly.

5. After admitting the additional ground, learned Sr. departmental representative was given full opportunity to prepare the case for the Department on the additional ground raised on behalf of the assessee and for this purpose several dates were fixed and parties were heard at length. Income from the business, run under the name and style of M/s.

Century Plastics has been assessed by the Assessing Officer in the hands of the assessee Shri Shiv Charan Gupta on substantive basis for all the assessment years under consideration and the same income has also been assessed on protective basis, in the hands of his wife Smt.

Sheela Gupta. In computation of income from Century Plastics, various additions have been made, both in the case of Shri Shiv Charan Gupta and his wife Smt. Sheela Gupta, including additions made on account of investment in factory building and construction of a house property, which is different from the house property in respect of which an addition of Rs. 99,400 has been made. This addition has been assailed in ground no. 12 in the appeal filed for the assessment year 1978-79.

According to the findings of the authorities below, Shri Shiv Charan Gupta is the owner of the business run under the name and style of Century Plastics and that this business is ostensibly carried on by Smt. Sheela Gupta as benamidar of her husband. The most important issue arising in these appeals is as to who is the owner of the business of M/s. Century Plastics and the income derived therefrom. This question also embraces another minor issue as to who is the owner of the factory building in respect of which addition has been made on account of under-statement of investment. Another connected issue is, as to who is the owner of the building in respect of which an addition of Rs. 99,400 has been made in the case of Shri Shiv Charan Gupta for the assessment year 1978-79.

6. Shri G.C. Sharma submitted before us that additions on account of income from business, run under the name and style of M/s. Century Plastics and additions on account of investment in factory building and construction of house property were made in the hands of Shri Shiv Charan Gupta on the basis of materials regarding which the assessee was not given an opportunity of being heard and that he was not confronted with those materials by the Assessing Officer before making additions on the basis of those materials. According to Shri Sharma, no opportunity was afforded to the assessee by the Assessing Officer to show cause as to why the said additions should not be made in his hands. It was thus contended that assessments, insofar as the additions made by the Assessing Officer without affording an opportunity of being heard to the assessee were concerned void ab initio and have to be struck down. Elaborating his argument on the point Shri Sharma further submitted that in case of breach of principles of natural justice the order would be a nullity and non est and, therefore, in such a case the question of setting aside such an order to the Assessing Officer with a direction to frame the assessment de novo after observing the principles of natural justice would not arise. Thus, the thrust of the arguments, advanced by Shri Sharma, is that in the instant case, the assessments framed in the case of Shri Shiv Charan Gupta, insofar as they relate to the additions made by the Assessing Officer by flouting the principles of natural justice would be null and void ab initio and hence the assessments to that extent should be struck down and quashed.

In support of this contention Shri Sharma sought to draw strength from the decision of the Kerala High Court in Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508, which has been affirmed by the Division Bench of the same High Court in Addl. CIT v. Ponkunnam Traders [1976] 102 ITR 366 (Ker.). Reliance has also been placed on the decision of the Supreme Court in Raja Jagdambika Pratap Narain Singh v. CBDT [1975] 100 ITR 698 and Swadeshi Cotton Mills v. Union of India AIR 1981 SC 818. Reliance has also been placed on the decision of Delhi High Court in the case of Amritsar Sugar Mills Co. Ltd. v. Union of India AIR 1983 Delhi 337 and of the Punjab & Haryana High Court in CIT v. Sham Lal [1981] 127 ITR 816. Shri Sharma also cited the decision of the Supreme Court in the case of Ajantha Industries v. CBDT [1976] 102 ITR 281 in support of the contention that if an order is passed in breach of natural justice, such an order would be a nullity.

7. Shri Subhash Kumar learned Sr. D.R. submitted that assessment proceedings relating to the assessee Shri Shiv Charan Gupta and his wife Smt. Sheela Gupta were taken up together by the Assessing Officer and even though no explicit opportunity seemed to have been given to Shri Shiv Charan Gupta in respect of the additions made in his case, such an opportunity could be inferred from the fact that proceedings in both the cases were taken up together and that in the assessment of his wife, the assessee was appearing on her behalf before the assessing officer and so he knew that income from M/s. Century Plastics was being proposed to be assessed in his hands. Thus, according to the submissions made on behalf of the Department, though Shri Shiv Charan Gupta was not explicitly given an opportunity of being heard in respect of additions made in his hands, such an opportunity could be inferred from the facts and circumstances of the case and, therefore, there was no violation of the principles of natural justice in his case.

8. It was then contended by Shri Subhash Kumar that in case it was held that no opportunity was given to Shri Shiv Charan Gupta by the Assessing Officer before making additions in his case in respect of the income derived from M/s. Century Plastics, in that event his order on the point would be illegal, since it suffered from an irregularity which could be cured by setting aside his order on the point and directing him to frame assessment afresh by giving an opportunity of being heard to Shri Shiv Charan Gupta in respect of the additions made in his case. It was further contended that the Assessing Officer had jurisdiction to make assessments in the case of Shri Shiv Charan Gupta.

He had correctly assumed jurisdiction to assess him and that it was in the course of the assessment proceedings that a procedural illegality was committed by him inasmuch as an opportunity of hearing was not given to Shri Shiv Charan Gupta in respect of the proposed additions which were ultimately made in his assessments. In order to cure this technical defect, the assessments on the point may be set aside.

Reliance has been placed on the decision of the Supreme Court in the case of the Guduthur Bros. v. ITO [1960] 40 ITR 298. Shri Subhash Kumar also contended that the authorities cited on behalf of the assessee related to the period when Section 142(3) was in force. It was submitted that Under Section 142(3) the assessing officer was required to give an opportunity of being heard to the assessee in respect of the materials collected by him and utilized for the purpose of making the assessment. According to the learned D.R. in view of the amendment introduced w.e.f. 1-4-1976 in Section 142, the said authorities were no longer applicable in the instant case.

9. In reply, Shri G.C. Sharma reiterated the submissions already made by him. He, however, made it clear that in case the assessments framed in the case of Shri Shiv Charan Gupta in respect of additions were annulled, the protective assessments framed in the case of Smt. Sheela Gupta would become substantive assessments. However, in case assessments in the case of Shri Shiv Charan Gupta relating to the additions are set aside, both the assessments, both in his case and in the case of his wife would have to go back to the Assessing Officer, since the main issue involved would be as to who is the real owner of the business in the name and style of M/s. Century Plastics and income derived therefrom.

10. We have considered the rival submissions and have gone through the record of the case including the paper book filed by the parties. We may also point out here that during the course of hearing the assessment records pertaining to Shri Shiv Charan Gupta were produced by the learned Sr. D.R., but even with the help of these records he was not able to show that in the case of Shri Shiv Charan Gupta an opportunity of being heard was afforded to him by the Assessing Officer in respect of the additions made in his assessments. Even if the assessee knew during the course of assessment proceedings that income from M/s. Century Plastics was proposed to be assessed in his hands, it does not follow from this that he was afforded an opportunity by the Assessing Officer to explain as to why this income should not be assessed in his hands. The Departmental Representative was not able to show, even with the help of the assessment records, that Shri Shiv Charan Gupta was given an opportunity of hearing by the Assessing Officer before making additions in his hands. As rightly pointed out by Shri Sharma, in course of arguments, the computation of income from M/s. Century Plastics including various additions and disallowances, made in the case of Smt. Sheela Gupta was bodily lifted and incorporated in the assessments framed in the case of Shri Shiv Charan Gupta. On the basis of the materials, made available to us, there is no escape from the conclusion that in respect of the additions made in the case of Shri Shiv Charan Gupta in respect of income from M/s. Century Plastics, no opportunity of hearing was afforded to him. He was not confronted with the materials and documents, on the basis of which these additions were made. After having recorded this finding, on the basis of facts, materials and evidence placed before us, we now take up for consideration the question as to what would be the effect of failure on the part of the Assessing Officer to give an opportunity of hearing to the Assessee before making the aforesaid additions in his case.

11. As held in the case of Amritsar Sugar Mills Co. Ltd. (supra), by the Delhi High Court, "it is now well settled that the principles of natural justice have to be complied with if the action taken results in adversely affecting a civil right. The rule of audi alterant partem is one of the facts of the principles of natural justice. This rule requires that a person, who may be adversely affected by a decision, should be given a reasonable opportunity of being heard". According to the submissions made before us on behalf of the assessee it. was this rule of natural justice which has been violated in this case by the Assessing Officer and it is because of breach of this rule that the assessments framed by him become null and void. Some of the decisions, cited on behalf of the assessee, do lay down the proposition that an order passed in violation of principle of natural justice is not merely avoidable order but is void and has to be quashed. This is the ratio of the decision of the Delhi High Court in the case of Amritsar Sugar Mills Co. Lid. (supra).

In Swadeshi Cotton Mills' case (supra) it has been held by the Hon'ble Supreme Court that a quasi-judicial or administrative decision rendered in violation of the audi alterant partem rule, wherever it can be read as an implied requirement of the law, is null and void. In Raja Jagdatnbika Pratap Narain Singh's case (supra) it has been held by the Hon'ble Supreme Court that if there is a flagrant violation of natural justice, the order by a Tribunal may be a nullity. In the case of Ponkunnam Traders (supra) decided by Hon'ble single Judge of the Kerala High Court, it was held that the failure to conform to the principle of natural justice of audi alterant partem would make a judicial or quasi-judicial order void. The decision in that case, as already pointed out, was affirmed by the Division Bench of the same High Court in the Ponkunnam Traders' case (supra).

12. In the case of Ajantha Industries (supra) it was held by the Supreme Court that the requirement of recording reasons under Section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee. It was further held that non-communication of the reasons in the order passed Under Section 127(1) is a serious infirmity in the order for which the same is invalid. In the case of Sham Lal (supra,) the ITO had included certain amounts in the income of the assessee on the basis that he was a partner in a firm. On appeal, the AAC annulled the assessment because he found that the assessee was not a partner in the firm and that the ITO had relied on certain materials which had not been put to the assessee for coming to the conclusion that he was a partner. On further appeal, the Tribunal found that the amounts assessed in the hands of the assessee, as his share of income from the firm was based on material placed on the 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. On a reference it was held by the Punjab & Haryana High Court that the only correct course open to the Tribunal was to annul the assessment order passed by the ITO. The authorities cited on behalf of the assessee to lay down the proposition that an order passed in violation of the principle of natural justice of audi alteram partem is null and void and has to be quashed. So. the question which crops up at his stage is whether in the instant case the assessments have been framed by the Assessing Officer in violation of the principles of natural justice as contended before us on behalf of the assessee.

13. The Taxation Laws (Amendment) Act, 1975, introduced an amendment in Sub-section (1) of Section 142 and also inserted Sub-sections (2A), (2B), (2C) and (2D). No amendment was introduced Sub-section (3)of Section 142. Under Sub-section (2) of Section 142, the ITO is empowered to make such enquiry as he considers necessary for the purpose of obtaining full information in respect of the income or loss of a person. Sub-section (3) of Section 142 casts an obligation on the assessing officer to give an opportunity of being heard to the assesses in respect of any material gathered on the basis of an enquiry under Sub-section (2) and which is proposed to be utilized for the purpose of assessment. The provisions contained in Sub-section(3) thus, give a statutory recognition to the principle of natural justice, audi alteram partem. If an opportunity has not been given by a statutory authority to an affected party before an adverse order is passed against him, it amounts to violation of principles of natural justice.

However, when the principle of natural justice of audi alteram partem is given a statutory recognition and becomes part of a statute, in that case, denial of opportunity of being heard to an affected party, before an adverse order is passed against him does not amount breach of principle of natural justice, but it would only be a procedural violation. In the instant case in view of the obligation cast on the assessing officer under Sub-section(3) of Section 142, an opportunity of hearing should have been given to the assessee in respect of the materials gathered by the assessing officer on the basis of the enquiry under Sub-section(2) and which he utilized for the purpose of the assessment. In this case no such opportunity was afforded to the assessee. This resulted in breach of a statutorily prescribed procedure. The rule of audi alteram partem, which is one of the principles of natural justice, is now embodied in Sub-section(3) of Section 142 and, therefore, in the instant case there is a violation of the procedure prescribed under Sub-section (3) of Section 142 and, therefore, in the instant case there is only violation of statutory procedure and not violation of principles of natural justice. In this view of the matter, we are of the opinion that the decisions cited on behalf of the assessee, which lay down the proposition that if an order is passed by a statutory authority in violation of principles of natural justice, such order is void and has to be quashed, cannot be applied in the instant case for the simple reason that here it is not a case of breach of principles of natural justice, but it is case of violation of statutorily prescribed procedure. Where a procedure prescribed under the law has been violated, the order becomes illegal and not void. In such a case the order may be set aside to the authority concerned with a direction to pass a fresh order after following the prescribed procedure. It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in proceedings and to issue, if necessary, appropriate directions to the authorities against whose decision the appeal is preferred.

14. In the case of Guduthur Bros. (supra), cited on behalf of the Revenue, the ITO issued a notice to the assesee Under Section 28(1)(a) of the Income-tax Act, 1922, to show cause as to why penalty should not be imposed for failure to file a return in time. The ITO proceeded to impose penalty without affording a hearing to the assessee Section 28(3), however, required that the penalty shall not be imposed without affording to the assessee a reasonable opportunity of being heard. The Hon'ble Supreme Court held that since this opportunity was denied to the assessee, therefore, the order of the ITO was vitiated by an illegality, which supervened not at the initial stage of the proceedings but during the course of it. It was further held that the ITO was well within its jurisdiction to continue the proceedings from the stage at which the illegality has occurred and to assess the assessee to a penalty, if any, which the circumstances of the case may require. In this case also there was a violation of the slatutorily prescribed procedure and the order passed in violation of such procedure was held to be illegal. This authority supports the view that in the instant case also the assessments framed in the case of Shri Shiv Charan Gupta, insofar as they relate to the various additions made in violation of the procedure prescribed Under Section 142(3), are illegal and that the assessing officer should be asked to proceed from the stage at which the illegality occurred during the course of assessment proceedings. The assessing officer should, therefore, be required to recommence the proceedings from the stale at which the illegality has occurred and to assess the assessee in accordance with law, after following the procedure prescribed under the statute.

15. For the foregoing reasons, we would set aside the assessment orders in the case of Shri Shiv Charan Gupta insofar as they relate to the additions made without giving an opportunity of being heard to the assessee in respect of the material gathered by the assessing officer on the basis of which those additions were made.

16. to 52. [These paras are not reproduced here, as they involve minor issues.]


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