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Manaklal Porwal Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtRajasthan High Court
Decided On
Case NumberD.B. Income-tax Reference No. 40 of 1977
Judge
Reported in(1986)53CTR(Raj)337; [1985]155ITR648(Raj); 1985(2)WLN124
ActsIncome Tax Act, 1961 - Sections 147 and 153
AppellantManaklal Porwal
RespondentCommissioner of Income-tax
Appellant Advocate K.C. Bhandari, Adv.
Respondent Advocate J.P. Joshi and; J.L. Daga, Advs.
Cases ReferredState of Kerala v. Karimtharuvi Tea Estate Ltd.
Excerpt:
income tax act, 1961 - section 147(b)--term 'information'--constituting of--aac derived information from order dated 13-3-1969 that firm is genuine--held, order dated 13-3-1969 constitutes 'information' the information that the assessee-firm is genuine was derived from the order dated march 13, 1969 of the aac. the order dated march 13, 1969 of the aac, in our opinion, constitutes 'information' within the meaning of section 147(b) of the act.;(b) income tax act, 1961 - sections 147(b) and expl. 3 to section 153 read with section 50--proceeding initiated under section 147(b)--validity of--acc found that firm was genuine and m was assessable in respect of 1/4 share in firm--firm can not be regarded as stranger to assessment made on m--held, bar of limitation was saved and proceedings were.....s.k. mal lodha, j.1. the income-tax appellate tribunal, jaipur bench, jaipur (' the tribunal' herein), has referred the following questions of law arising from its order for our opinion:' (1) whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that proceedings in this case were validly initiated by the income-tax officer under section 147(b) read with section 150 and explanation 3 to section 153 of the income-tax act, 1961 ?(2) whether, on the facts and in the circumstances of the case, the tribunal was right in holding that the order dated january 31, 1965, filing the proceeding amounted to an order of assessment ?(3) whether, on the facts and in the circumstances of the case, the tribunal was justified in holding that opportunity of being.....
Judgment:

S.K. Mal Lodha, J.

1. The Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (' the Tribunal' herein), has referred the following questions of law arising from its order for our opinion:

' (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that proceedings in this case were validly initiated by the Income-tax Officer under Section 147(b) read with Section 150 and Explanation 3 to Section 153 of the Income-tax Act, 1961 ?

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order dated January 31, 1965, filing the proceeding amounted to an order of assessment ?

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that opportunity of being heard was given to the firm, M/s. Manaklal Porwal '

2. The assessee is a registered firm and the assessment year in question is 1961-62. The assessee-firm filed its return for the year under reference declaring an income of Rs. 52,110. Shri Manaklal Porwal, a partner of that firm, had also filed an individual return of income. The ITO came to the conclusion that the assessee-firm was not a genuine firm and the business of the firm, in fact, was exclusively that of Shri Manaklal Porwal. The ITO, therefore, assessed the income which was earned in the name of the assessee-firm in the hands of Shri Manaklal Porwal (Individual) and passed the following order on January 31, 1965 :

' Firm is not genuine. Income of the firm to be assessed in the hands of Shri Manaklal Porwal. Hence, firm's case is filed.'

3. Shri Manaklal Porwal went in appeal against his individual assessment. The AAC found that the Bombay Bench ' B ' of the Appellate Tribunal had held that the firm of M/s. Manaklal Porwal was a genuine firm, vide its order dated December 5, 1966, passed in I.T.A. No. 11925/1964-65. The AAC followed the aforesaid order and recorded a finding that Shri Manaklal Porwal could only be assessed in respect of his 1/4th share from the said firm as per allocation of the total income determined in the assessment of the firm, vide order dated March 13, 1969, The ITO initiated proceedings against the assessee-firm under Section 147 of the I.T. Act, 1961 (XLIII of 1961) (hereinafter called ' the Act '), for the assessment year 1961-62 on the basis of the information which he gathered from the AAC's order dated March 13, 1969. The ITO has recorded the following reasons for reopening the assessment :

' In this case, the ITO in office during the course of assessment for the assessment years 1958-59, 1959-60 and 1960-61, noticed that the firm is not genuinely constituted and dropped the proceedings initiated in the case of the firm and assessed the income of the firm in the hands of the individual, Shri Manaklal Porwal. He, therefore, dropped the proceedings for the assessment years 1961-62 and 1962-63 in the case of the firm and following the above findings assessed the income in the hands of Shri Manaklal Porwal (individual). Later on, the decision of the ITO was upheld up to the AAC stage but was reversed by the Income-tax Appellate Tribunal, Bombay Bench-B, Bombay. The ITO in office following the Tribunal's decision reopened the proceedings in the case of the firm-under Section 148 and assessed the profits in the firm's case in the status of R.F. and the assessment proceedings for the assessment year 1961-62 remained dropped. The AAC, vide his order for the assessment year 1961-62 in the case of Shri Manaklal Porwal, held that income of Shri Manaklal Porwal should have been the share income from the firm and deleted the whole income. Now, in order to start proceedings to assess the income of Rs. 1,06,918 in the case of the firm already assessed in the hands of an individual, approval as contemplated in Section 147 read with Section 150 (Explanation 3 to Section 153) is solicited. '

4. A notice under Section 148 of the Act was issued to the assessee-firm. The assessee-firm did not file any return of income, but stated in a written reply that the return furnished earlier may be treated as return furnished in response to the notice under Section 148 of the Act under protest. The ITO overruled the objection of the assessee and completed the reassessment on February 28, 1974, on a total income of Rs. 1,01,750. An appeal was filed by the assessee-firm to the AAC and the AAC, by his order dated December 7, 1974, held that the notice under Section 148 of the Act was barred by limitation and was otherwise invalid. He, therefore, opined that Section 150 has neither any application nor Explanation 3 to Section 153 could be invoked in the case and further that Section 153 had nothing to do with the time-limit for initiating the proceedings under Section 147 of the Act. The Revenue went in appeal and the Tribunal held in its order dated February 28, 1977, that the assessment in this case was reopened by the ITO under Section 147(b) rather than under Section 147(a) of the Act and that the view of the AAC that it was reopened under Section 147(a) was not correct. The Tribunal addressed itself to the question whether reopening of the proceedings under Section 147(b) of the Act was valid and within limitation. While considering this question, it overruled the objection of the assessee-firm that there was no assessment of the firm for the assessment year 1961-62 as the proceedings were only ordered to be filed by the ITO. It rejected the contention of the assessee-firm that reopening of the assessment under Section 147(b) was barred by limitation. According to the Tribunal, the bar of limitation was saved by Explanation 3 to Section 153 read with Section 150 of the Act. A contention was also raised before the Tribunal that the assessee-firm was not given an opportunity of being heard but that was also found to be unsustainable. The Tribunal upheld the reassessment under Section 147(b) of the Act. An application under Section 256(1) of the Act was filed and the Tribunal was of the opinion that the questions of law referred to hereinabove do arise from its order and so, it has referred them for our opinion.

5. We have heard Mr. K. C. Bhandari, learned counsel for the assessee-firm and Mr. J. P. Joshi and Mr. J. L. Daga for the Revenue.

6. Question No. 1.--The original return for the assessment year 1961-62 was filed on August 29, 1962. On that return, on January 31, 1965, an order was passed that the firm is not genuine. It was also recorded in that order that income of the firm be assessed in the hands of Shri Manak-lal Porwal. The firm's case failed. After this, the Income-tax Appellate Tribunal, Bombay Bench ' B', Bombay, in respect of the assessment years 1958-59, 1959-60 and 1960-61, held that the firm was genuine. It, therefore, directed the ITO to register the firm for the three assessment years 1958-59, 1959-60 and 1960-61. After that, the AAC in his order opined that Shri Manaklal Porwal (Individual) has to be assessed only in respect of his l/4th share from the said firm as per allocation of the total income determined. On the basis of the order dated March 13, 1969, a notice under Section 148 of the Act was issued and the assessment of the firm was reopened under Section 147 read with Section 150 and Explanation 3 to Section 153. The AAC was of the view that the notice under Section 148 was barred by limitation. The Tribunal, on appeal, was, however, of the opinion that the case was reopened under Section 147(b) as the conditions laid down therein were satisfied and not under Section 147(b) and that the reopening of the proceedings under Section 147(b) was valid and within limitation. The first question can conveniently be split up into two parts : (i) Whether the proceedings were validly initiated by the ITO under Section 147(b) ; and (ii) whether Section 150 and Explanation 3 to Section 153 are applicable to this case ?

7. The assessee-firm questioned the validity of the reopening of the assessment under Section 147 of the Act. The AAC was of the view that it was reopened under Section 147(a). The Tribunal was of the view that the reopening was under Section 147(b) as from the reasons recorded by the ITO and other circumstances, it is clear that the ITO had gathered information from the order dated March 13, 1969, of the AAC which was passed in the case of Shri Manaklal Porwal (Individual) that income in the case of the firm, M/s. Manaklal Porwal, had escaped assessment. It may be mentioned here that in CIT v. Ayodhyakumari (D.B.C.I.T. Ref. No. 29 of 1971, decided on February 3, 1984 ), a Division Bench of this court to which one of us (S, K. Mal Lodha J.) was a party, after considering various authorities, held as under (p. 611):

' Section 147 of the Act deals with reassessment. Section 147 empowers the ITO to assess income which escaped assessment in the relevant year, on the fulfilment of the requisite conditions laid down under Clause (a) or Clause (b) of Section 147. It is not necessary for the ITO to specify in the notice which is issued under Section 147 of the Act that whether he is issuing under Clause (a) or Clause (b) of Section 147. Section 147 empowers the ITO to reopen an assessment already made. That jurisdiction and power can be exercised by him if the necessary conditions laid down in Clause (a) or Clause (b) of Section 147 are satisfied. '

8. The Division Bench followed the view taken in Mriganka Mohan Sur v. CIT : [1974]95ITR503(Cal) and Bhupatrai Himchand v. CIT : [1977]109ITR97(Cal) . It is clear from the reasons recorded by the ITO that he had initiated proceedings for reopening of the assessment on the basis of the information which he gathered from the order dated March 13, 1969, of the AAC. It was submitted by Mr. K. C. Bhandari, learned counsel for the assessee-firm, that this could not have constituted an information within the meaning of Section 147(b) of the Act. It may be recalled here that the order for filing the case in the matter of the assessee-firm was passed on January 31, 1965, whereas the Tribunal of the Bombay Bench ' B ' passed the order on December 5, 1966. Thus, there cannot be any dispute that the finding that the assessee-firm is a genuine firm was recorded for the first time in the order dated December 5, 1966, which could not be there when the order dated January 31, 1965, was passed.

9. The material part of Section 147 of the Act is as follows:

' 147. If--...

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.'

10. The word ' information ' used in Section 147(b) was considered in United Mercantile Co. Ltd. v. CIT : [1967]64ITR218(Ker) , wherein it was held that the expression ' to inform ' means ' to impart knowledge '. The Supreme Court in CIT v. A. Raman & Co. : [1968]67ITR11(SC) held that the expression ' information ' in the context in which it occurs in Section 147(b) of the Act must mean instruction or knowledge derived from an external source concerning facts or particulars, or as to law relating to a matter bearing on the assessment. In Glen Leven Estates Ltd. v. 1TO : [1973]88ITR39(Ker) , V. Balakrishna Eradi J., as he then was, opined that ' information ' means knowledge and that it need not necessarily be derived from outside sources and further that it may be gathered by the assessing authority from his own records. The word 'information' as used in Section 34(l)(b) of the Indian I.T. Act, 1922 (the ' old Act '), came up for consideration before their Lordships of the Supreme Court in Kalyanji Mavji & Co. v. CIT : [1976]102ITR287(SC) , wherein their Lordships have stated the following tests and principles which would apply to determine the applicability of Section 34(l)(b) to the following categories of cases (head-note) :

' (1) Where the information is as to the true and correct state of the law derived from relevant judicial decisions ;

(2) where in the original assessment the income liable to tax has escaped assessment due to oversight, inadvertence or a mistake committed by the Income-tax Officer ;

(3) where the information is derived from an external source of any kind: such external source would include discovery of new and important matters or knowledge of fresh facts which were not present at the time of original assessment; and

(4) where the information may be obtained even from the record of the original assessment from an investigation of the materials on the record or the facts disclosed thereby or from other enquiry or research into facts or law. '

11. A. Raman & Co.'s case : [1968]67ITR11(SC) and Kalyanji Mavji & Co/5 case : [1976]102ITR287(SC) were noticed in CIT v. D. S. Bottlewala [1978] 135 ITR 441 , wherein the Tribunal held that what was proposed to be done was on the basis of a mere change of opinion and Section 34(l)(b) was not applicable. On a reference, the Bombay High Court held that the proceedings for reassessment initiated under Section 34(1 )(b) were valid. In Beverley Estates Ltd. v. CIT : [1979]117ITR302(Mad) , the asses-see, a public limited company, owning coffee estates sold certain trees, which had been planted and nurtured by it for providing shade to the coffee plants, as standing trees though they had fallen down due to natural causes. The claim of the assessee that the sale proceeds shown in the accounts as 'miscellaneous sales and receipts ' were not taxable was accepted by the ITO. However, later, the officer reopened the assessment and assessed the amount to capital gains tax on the basis of the decision of the Supreme Court in State of Kerala v. Karimtharuvi Tea Estate Ltd. : [1966]60ITR275(SC) . This was confirmed by the AAC and the Tribunal. The Tribunal, however, fixed the capital gains at 50 per cent. of the sale proceeds. On a reference, at the instance of the assessee, the Madras High Court held that the ITO had information only when he came to know that the amount in question represented sale proceeds of the shade trees and as this was after the date of completion of the original assessment, the reopening was valid and the gains arising by the sale of such shade trees was assessable as capital gains.

12. Learned counsel for the assessee-firm referred to Addl. CIT v. Seth Hemani Bhagubhai Trust : [1983]140ITR471(Bom) . In that case, the assessment proceedings of the beneficiary for the year 1958-59, as well as the proceedings for 1962-63, both in respect of the beneficiary and the trust were dealt with by the same ITO, who was also the ITO who had issued the notice for reassessment. It was observed that the ITO must be presumed to have knowledge of the manner in which the AAC had construed the terms of the trust deed on June 24, 1959, and that the ITO cannot rely on the order of the AAC dated September 17, 1966, which merely followed the view taken by him in respect of the trust deed, vide order dated June 24, 1959. It was held that the reopening of the assessment was not in consequence of any information in the possession of the ITO and the reassessment proceedings were not valid. We have read the decision in Seth Hemant Bhagubhai Trust's case : [1983]140ITR471(Bom) with requisite care. The facts of that case are altogether different from the facts of the case on hand and so, the learned counsel for the assessee-firm cannot avail of that case. From the facts narrated hereinabove, it is clear that the 1TO on the basis of the AAC's order dated March 13,1969, came to know that the assessee-firm was genuine. This information was conveyed from the aforesaid order and it attracts the third test laid down in Kalyanji Mavji & Co.'s case : [1976]102ITR287(SC) , viz., that the information that the assessee-firm is genuine was derived from the order dated March 13, 1969, of the AAC. The order dated March 13, 1969, of the AAC, in our opinion, constitutes information within the meaning of Section 147(b) of the Act.

13. The further question is whether the ITO could take recourse or resort to Section 150 and Explanation 3 to Section 153 of the Act, for, it was contended on behalf of the assessee-firm that reopening of the assessment under Section 147(b) of the Act was barred by limitation. Section 149 of the Act provides for time-limit for notice in regard to cases falling under Section 147(b) of the Act. It is provided in Section 149 of the Act that no notice shall be issued after the expiry of four years from the end of the relevant assessment year. We have already stated that the assessment proceedings for the assessment year 1961-62 were filed on January 31, 1965, and the notice under Section 148 was issued on March 9, 1970. Section 150 of the Act provides that a notice under Section 148 of the Act may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceedings under this Act by way of appeal, reference or revision. It was urged on behalf of the assessee-firm that Section 150 has no application to this case because the reassessment was not made in this case in consequence of or to give effect to any finding or direction validly issued by the AAC in the order dated March 13, 1969, and that Explanation 3 to Section 153 invoked by the ITO in this case has no application for two reasons, for, the AAC had no jurisdiction to give a direction in the appeal filed by Shri Manaklal Porwal, as individual, for reopening the assessment in the case of the firm, M/s, Manaklal Porwal, which was a different entity and that the firm was not given an opportunity of being heard before the order was passed. Explanation 3 to Section 153 of the Act specifically makes mention of Section 150 and even under Section 150, such an order will be deemed to have been made in consequence of or to give effect to any finding or direction contained in an order passed in appeal, reference or revision or in any proceeding under this Act.

14. Explanation 3 to Section 153 of the Act is as follows :

' Explanation 3.--Where, by an order referred to in clause (ii) of Sub-section (3), any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of Section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.'

15. The material part of Sub-section (3) of Section 153 of the Act is as follows :

' (3) The provisions of Sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of Sub-section (2A), be completed at any time--...

(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Sections 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act.'

16. The expression ' any person ' as used in Section 153(3)(ii) of the Act was considered by the Tribunal. The Tribunal has noticed ITO v. Murlidhar Bhagwan Das : [1964]52ITR335(SC) and Daffadar Bhagat Singh and Sons v. ITO : [1969]71ITR417(SC) in this connection. In Murlidhar Bhagwan Das' case : [1964]52ITR335(SC) , the Supreme Court held that the expression ' any person ' occurring in the second proviso to Section 34(3) of the old Act refers to one who would be liable to be assessed for the whole or a part of the income that went into the assessment of the year under appeal of revision. It was further held that the person should be intimately connected with the proceedings in which the findings were given. Murlidhar Bhagwan Das' case : [1964]52ITR335(SC) was applied in Bhagwan Das Sita Ram (HUF) v. CIT : [1984]146ITR563(SC) . In Bhagwan Das Sita Ram's (HUF) case, a larger HUF was one. A claim was made by the larger HUF that there was a partition in the family on May 19, 1945, as a result of which the appellant and another smaller HUF came into existence. Pending this claim, the appellant filed voluntary returns of its income for the assessment years 1946-47 to 1949-50 on November 10, 1950. Both the ITO and the AAC rejected the claim of partition of the larger HUF. The larger HUF preferred appeals against the order under Section 25 A of the old Act, refusing to accept the claim of partition and consequent assessments on the larger HUF for those four years.

17. The Tribunal accepted the claim by an order dated August 31, 1954, set aside the assessments on the larger HUF and directed that fresh assessments should be made, one for the period up to May 19, 1945, upon the larger HUF and the others on the two smaller HUFs. Thereupon, the ITO issued notices under Section 34(l)(b) to the appellant and completed the assessments, but these assessments were quashed by the High Court on the ground that no proceeding under Section 34 could be taken so long as the voluntary returns filed by the appellant were pending. Thereafter, the ITO initiated proceedings on the basis of the voluntary returns and passed the assessment orders on May 31, 1962, in respect of the four years. The question arose whether any direction could be made by the Tribunal in relation to the appellant and in view of the directions, whether those assessment orders passed beyond four years were valid. The Tribunal upheld the validity of the assessments and, on a reference, a Full Bench of the High Court, by a majority, held that valid assessments could be made on May 31, 1962, on the basis of the voluntary returns filed on November 18, 1950. The Department preferred appeals to the Supreme Court in regard to all the years but later withdrew those relating to the assessment years 1946-47 and 1947-48. In those facts, affirming the decision of the High Court, the Supreme Court held as under (headnote) :

' That this was a case where the income could belong either to the larger HUF or to the two smaller HUFs, viz., the appellant and the other smaller HUFs. A finding that the income belonged or did not belong to the larger HUF which had disrupted on partition would determine the issue whether it could be taxed in the hands of the appellant. The appellant could, therefore, be said to be a ' person' who would be liable to be assessed for the whole or part of the income that went into the assessment of the larger HUF in the years under appeal and was intimately connected with the assessments of the larger HUF. The income could not be the income of both the larger HUF and the appellant. Directions given by the Tribunal in the appeals filed by the larger HUF would be applicable to the appellant. The directions were clearly within the contemplation of the second proviso to Section 34(3) and the appellant, the smaller HUF, was one of the persons clearly contemplated by Section 34(3). The assessability of income and the quantum of the income of the appellant was linked up with the assessability of the larger HUF; if the larger HUF was liable to be assessed if there was no disruption, then there was no income of the smaller HUF. The income in the hands of smaller HUF could then not have been liable to be assessed. If, on the other hand, it was the other way, viz., that there was a valid partition, the larger HUF no longer existed and the smaller HUF would be liable to be assessed.

Whether the income of the smaller HUF, viz., the appellant, was liable to be taxed was so intimately or inextricably linked up with the question of assessability of the larger HUF, which again was dependent upon the question whether there was disruption of the larger HUF and that being the very subject-matter of appeals in which directions had been given, the directions given by the Tribunal were valid and would save the assessments against the assessee for the two years in question, viz., assessment years 1948-49 and 1949-50.'

18. The decision in Bhagwan Das Sita Ram's case is nearer home. Learned counsel for the assessee was quite fair in submitting that in view of Bhagwan Das Sita Ram's case, Explanation 3 to Section 153 of the Act is attracted.

19. In CIT v. Vadde Pullaiah & Co. : [1973]89ITR240(SC) , the facts are almost similar to the case on hand. In that case, the Tribunal held that the assessments for the three years were barred and were not saved by the second proviso to Section 34(3). On appeal to the Supreme Court, it reversed the decision of the High Court and held that in the appeals before him, the AAC had only two alternatives. He had to decide whether the business was that of the firm or that of P and he came to the conclusion that the business was that of the firm and not that of P. This finding given by the AAC was absolutely necessary for deciding both the appeals before him. It further held that the firm was not a stranger to the assessments made on P: it was intimately connected with P and the assessments made on him and, therefore, the assessment made on the firm were saved from the bar of limitation by the second proviso to Section 34(3) and were valid in law.

20. In the case on hand, the AAC decided the appeal of the assessee on March 13, 1969, and the same two alternatives were before him. For the purpose of disposing of the appeal of Manaklal Porwal, it was necessary for him to adjudicate upon the question whether the firm in which Shri Manaklal Porwal was a partner was a genuine firm or that the business 'was not that of the firm but of Shri Manaklal in his individual capacity. The AAC recorded a finding that the firm was genuine and Shri Manaklal Porwal was assessable only in respect of his l/4th share in the firm and that was absolutely necessary for the decision of that appeal. In that context, the firm cannot be regarded as a stranger to the assessment made on Shri Manaklal, individual, and on the other hand, it was intimately connected with Shri Manaklal Porwal and an assessment was made on him. In these circumstances, the principles laid down in Vadde Pullaiah and Co.'s case : [1973]89ITR240(SC) , are fully applicable. The bar of limitation was saved by the Explanation 3 to Section 153 read with Section 150 of the Act. The decision of the Tribunal that proceedings were validly initiated under Section 147(b) read with Section 150 and Explanation 3 to Section 153 of the Act is correct.

21. Question No. 2: The contention of the learned counsel for the assessee-firm is that the order dated January 31, 1965, which has been reproduced above does not amount to an order of assessment of the firm. It is not a determination order, for, before passing this order, the procedure laid down under Section 143 of the Act was not followed inasmuch as neither any notice was issued nor was assessment completed within the time provided therein and so, this cannot be said to be an assessment in the eye of law. In this connection, he referred to CIT v. M. K. K. R. Muthukaruppan Chettiar : [1970]78ITR69(SC) , wherein it was held that the order of the ITO was not an order terminating the proceedings with the result that there was no disposal of the voluntary returns submitted by the respondent family for the assessment years 1950-51 to 1952-53. It was further held that ignoring those returns, the ITO could not issue notices of reassessment under Section 34 and the reassessment proceedings for the three years were, therefore, invalid. In the case on hand, before the Tribunal, a question was raised that the ITO only ordered that the firm's case be filed. The Tribunal has also observed that an order filing the proceedings is also an order of assessment and in this connection, it relied on Sivalingam Chettiar v. CIT : [1966]62ITR678(Mad) and also on its own order. In Sivalingam Chettiar's case, on the returns filed by S, as an individual, the ITO-noted ' N. A.'. The orders were, however, not communicated to S. In allowing an appeal filed by the joint family for 1956-57, against such clubbing of the individual income, the AAC directed the officer to assess S in his individual capacity in respect of the same income. Treating this direction as information under Section 34(l)(b), the officer reopened the individual assessments of S for the two years. The assessee's objection that the returns filed by him for the two years had not been disposed of and the proceedings under Section 34(1)(b) were invalid was negatived by the Departmental Officers and the Tribunal. On a 'reference, the Madras High Court held (headnote) I

'(1) that the note 'N. A.' of the officer was intended to close the returns on his finding that what was shown as income of the individual really belonged to the joint family and Section 23(3) covers such orders as well.

(2) that the failure of the officer to serve the orders of assessment had not the effect of rendering them invalid because they were neither prejudicial to the assessee nor did they fasten any liability on him nor did they contain any finding which can be said to be prejudicial to him as an individual and a strict reading of the Act does not contemplate service of notice in such cases but only in. cases where the orders passed are prejudicial to the assesseee.

(3) that the assessments under Section 34(1 )(b) were held to be justified. '

22. In M. CT. Muthuraman v. CIT : [1963]50ITR656(Mad) , on a finding that the income returned by the assessee in that case in his individual capacity pertained to a HUF, the ITO closed the returns filed as an individual with the order ' N. A. '. (not assessed.) When this view was reversed on appeal, proceedings were later taken under Section 34(1). A similar objection, as in the instant case, was taken there on the ground that the order 'N. A. ' was no order at all and the returns being pending, the proceedings under Section 34(1)(b) would be without jurisdiction. Dealing with this objection, it was held as under (p. 659):

' We are of opinion that the proceedings for 1953-54 and 1954-55 were lawfully terminated by the ITO. It is true that Section 23 does not in express terms provide for closing the assessment proceedings with an order that no assessment would be levied. Though the assessee had offered an item of income for assessment as his, the ITO came to the conclusion that it was the Hindu undivided family that was liable to be assessed on that income and not the assessee. It was a conclusion, whether it was right or wrong, that he had jurisdiction to reach ; and once he reached that conclusion, he could not tax the assessee. In Esthuri Aswathaiah v. ITO, Mysore State : [1961]41ITR539(SC) , their Lordships of the Supreme Court pointed that the order ' no proceeding ' terminated the assessment proceedings, and that it should be construed as meaning that the assessee had no assessable income...The assessment proceedings that commenced with the returns filed by the assessee were lawfully terminated when they were closed with the entry ' N. A.' Thereafter, the finality or the termination of those assessment proceedings could be vacated only by recourse to Section 34, as this was not a case for the application of Section 35. '

23. In M. CT. Muthuraman's case : [1963]50ITR656(Mad) , it was also held that the orders terminating the assessment proceedings were not apparently communicated to the assessee but this did not affect the legality of those orders or their finality. We respectfully agree with the view taken in M. CT. Muthuraman's case : [1963]50ITR656(Mad) and V.S. Sivalingam Chettiar's case : [1966]62ITR678(Mad) . Having considered the order dated January 31, 1965, we are of the opinion that the Tribunal was right in holding on the basis of V. S. Sivalingam Chettiar's case : [1966]62ITR678(Mad) that the order dated January 31, 1965, filing the proceedings amounted to an order of assessment.

24. Question No. 3: It was submitted by the learned counsel for the assessee that the order dated March 13, 1969, was passed by the AAC in the appeal filed by Shri Manaklal Porwal, individual, for reopening the assessment in the case of the firm, M/s. Manaklal Porwal, which was a different entity and the firm was not given an opportunity of being heard before the order was passed. It is not in dispute that Shri Manaklal Porwal was a major partner of the assessee-firm and he was fully aware and was heard before the finding was recorded by the AAC in the appeal. The Tribunal also took notice of the fact that the assessee-firm had written so in its income and claimed registration and when its claim for registration was accepted for the assessment years other than the assessment years in question, the ITO proceeded because of the representation that the income was of the firm. In the facts and circumstances of the case, the opportunity that was afforded to Shri Manaklal Porwal as partner of the firm, before the passing of the order, tantamounts to giving an opportunity to the firm. An argument was also raised that the firm has been dissolved and so opportunity of hearing afforded to Shri Manaklal Porwal is no opportunity to the firm. The Tribunal was right in repelling that it was assessed as a firm under Section 189 of the Act and notice to a partner is notice to the firm under Section 283 of the Act. The appeal was of Shri Manaklal Porwal as partner of the firm and after the dissolution of the firm, the notice under Section 283(2) under the Act in respect of the income of the firm could be served on any person who was a partner not being a partner immediately before its dissolution. The Tribunal was thus right in repelling the argument that the assessee-firm was not given an opportunity of being heard before passing the order dated March 13, 1969. The opportunity of hearing given to the major partner, Shri Manaklal Porwal, was an opportunity of hearing o the firm, M/s. Manaklal Porwal.

25. For the reasons aforesaid, all the three questions referred to us are answered in the affirmative, i.e., in favour of the Revenue and against the assessee-firm.

26. In the circumstances of the case, we leave the parties to bear their own costs of this reference.

27. Let the answers be returned to the Tribunal under Section 260(1) of the Act.


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