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V. Raju Vs. Commissioner of Income-tax, Tamil Nadu-ii - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtChennai High Court
Decided On
Case NumberTax Case Nos. 1009, 1010 and 1017 of 1977 (Reference Nos. 689, 690, 691 of 1977)
Judge
Reported in(1983)36CTR(Mad)17; [1984]147ITR212(Mad)
ActsIncome Tax Act, 1961 - Sections 129, 147, 263 and 263(1)
AppellantV. Raju
RespondentCommissioner of Income-tax, Tamil Nadu-ii
Appellant AdvocateT.V. Ramanathan, Adv.
Respondent AdvocateJ. Jayaraman, Adv.
Cases ReferredIn Anisminic Ltd. v. Foreign Compensation Commission
Excerpt:
.....proposition of law that any order passed by an authority without following the principles of natural justice is null and void, even though it has been passed well within its jurisdiction. even though this point was not urged before the supreme court and considered by it in the case referred to above, it has clearly proceeded on the basis that even in the case of an order which has been passed by the commissioner without following the statutory procedure or the principles of natural justice, the tribunal can set aside that order with a direction to the commissioner to pass a fresh order after giving a reasonable opportunity to the assessee. but in respect of those aspects of principles of natural justice which have been embedded in the statute as a statutory procedure, if order is..........of the revenue before the tribunal was that though the non-compliance with the principles of natural justice can make the order passed by the commissioner as erroneous or illegal, it cannot be said that the order of the commissioner is ab initio void. it was further contended that in view of the procedural irregularity, the order may be set aside with a direction to the commissioner to give fresh opportunity to the assessee before passing the order under s. 263 of the act. the tribunal, after considering the rival contentions referred to above, held that, in the circumstances of the case, the commissioner was justified in initiating suo motu proceedings under s. 263 of the act, that the procedure contemplated by the statute of giving an opportunity to the assessee before passing an.....
Judgment:

Ramanujam, J.

1. Since the assessee is the same in all these cases and the points involved are also the same, they are dealt with together.

2. The assessee is a lorry body builder. For the assessment years 1968-69 to 1970-71, the assessee had made investments in his own name as well as in the name of his wife. He had also borrowed money from outsiders. The ITO completed the assessments in respect of those years without a through probe and investigation regarding the genuineness of the loans claimed by the assessee. Long after the completion that the assessment, the commissioner of Income -tax came to the conclusion that the assessment orders passed by the ITO were erroneous and prejudicial to the interests of the Revenue and, therefore, in exercise of his power of suo motu revision under s. 263 of the I.T. Act, 1961, hereinafter referred to as the Act, set aside the assessments and directed the ITO to pass fresh assessment orders after looking into all the borrowals made by the assessee.

3. Against the said order of the Commissioner, the assessee filed appeals before the Income-tax Appellate Tribunal contending that he was served with the notice of the suo motu revisional proceedings initiated by the Commissioner only on March 1, 1975, fixing the date of hearing on February 27, 1975, that the Commissioner had passed the order on March 1, 1975, without giving an opportunity to the assessee of being heard and that, therefore, the order passed by the Commissioner was void ab initio and non set in law. The contention of the Revenue before the Tribunal was that though the non-compliance with the principles of natural justice can make the order passed by the Commissioner as erroneous or illegal, it cannot be said that the order of the Commissioner is ab initio void. It was further contended that in view of the procedural irregularity, the order may be set aside with a direction to the Commissioner to give fresh opportunity to the assessee before passing the order under s. 263 of the Act. The Tribunal, after considering the rival contentions referred to above, held that, in the circumstances of the case, the Commissioner was justified in initiating suo motu proceedings under s. 263 of the Act, that the procedure contemplated by the statute of giving an opportunity to the assessee before passing an order under s. 263 of the Act had not been complied with that, therefore, as there was non-compliance with the statutory provision, the order passed by the Commissioner was only erroneous and not void, as there had been a valid assumption of jurisdiction over the subject-matter and the non-compliance was only on a matter of procedure. Since the Tribunal felt that as the order passed was only illegal and not void ab initio, it could give a direction to the Commissioner to pass a fresh order under s. 263 of the Act after giving a reasonable opportunity to the assessee, and it gave a direction to the Commissioner accordingly. Aggrieved by the order of the Tribunal directing the Commissioner to pass a fresh order, after giving an opportunity to the assessee, the assessee has obtained a reference to his court on the following two questions :

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that failure to give reasonable opportunity to the assessee of being heard was only a procedural irregularity and was curable and did not render the order dated March 1, 1975, passed by the Commissioner ab initio void and non est in law

(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in setting aside the order of the Commissioner under section 263 with a direction to give fresh opportunity to the assessee and then consider the question of passing the order under section 263 of the Income-tax Act, 1961 ?'

4. According to the learned counsel for the assessee, the notice of suo motu proceedings was served on the assessee only on March 1, 1975, fixing the date of hearing as February 27, 1975, and the order was passed by the Commissioner on March 1, 1975, itself without giving an opportunity to the assessee of being heard and, therefore, the order of the Commissioner passed without complying with the principles of natural justice should be taken to be void ab initio and non est in law. It is also contented by the assessee that when the Tribunal agreed with the assessee's contention that the order has been passed by the Commissioner in violation of the principles of natural justice, it should have merely declared the order as null and void, without giving a direction to the Commissioner to pass a fresh revisional order after giving a reasonable opportunity to the assessee.

5. Thus, the main question involved in this case is, whether, on the facts and in the circumstances of the case, the Tribunal has jurisdiction or justification to give a direction to the Commissioner to pass a fresh order under s. 263 of the Act, after giving a reasonable opportunity to the assessee of being heard. This question, however, has been split up into two in the statement of the case. The first question raises the issue as to whether the Tribunal is right in treating the order passed without giving an opportunity to the assessee under s. 263 of the Act by the Commissioner as a procedural irregularity, in which case alone the Tribunal will have the power to give a direction to the Commissioner to pass a fresh order and not an order which is ab initio void and non est in law. The second question relates to the power of the Tribunal to give such direction as it has given, while setting aside the order of the Commissioner on the ground that he had violated the procedure set down by the statute.

6. The learned counsel for the assessee, in support of his submission that any order passed by a statutory authority without following their principles of natural justice will be ab initio void and non est in law, refers to certain decisions. However, it is necessary to refer to all the decisions on that point and it will suffice if the following two decisions alone are considered, viz., (1) Collector of Customs v. A. H. A. Rahiman, : AIR1957Mad496 and (2) Anisminic Ltd. v. Foreign Compensation Commission (1969) 1 All ER 208.

7. In Collector of Customs v. A. H. A. Rahiman, : AIR1957Mad496 Rajamanner C.J., speaking for the Bench, held that an order of confiscation or penalty passed under the Sea customs Act without notice and without any enquiry contravened the principles of natural justice and was, therefore, void ab initio. In that case, the following observation of Scrutton L.J. in Rex v. North : Ex Parte Oakey (1927) 1 KB 491, has been referred to with approval :

'To order a man to pay what is in the nature of a penalty for an offence without first giving him notice that an application for such an order is going to be made, is both contrary to the general law of the land, and is so vicious as to violate a fundamental principle of justice.'

8. After referring to a contention urged on behalf of the Collector of Customs in that case the order impugned in the writ petition having been appealed against the appeal having been dismissed, the order impugned had merged with the appellate order and, therefore, the writ petitioner cannot seek a relief of declaration of nullity, and also referring to the following passage of Denning L. J. in Barnard v. National Dock Labour Board (1953) 2 QB 18; (1953) 1 All ER 1113, 1120 (CA).

'So far as the decision of the appeal Tribunal is concerned, it seems to me that, once the port manager's order is found to be a nullity, it follows that the order of the appeal Tribunal is also a nullity. The appeal Tribunal has no original jurisdiction of its own; it cannot itself make a suspension order; it can only affirm or disaffirm a suspension order which has already been made. If none has been made because it is a nullity, the Tribunal can do nothing. It cannot make something out of nothing any more than anybody else can'.

9. The Bench held that if the order which was the subject-matter of the appeal was a nullity, the order in the appeal also would be a nullity and therefore, the order which was a nullity could not be said to have become valid merely because an ineffective appeal had been filed against it. The Bench has also referred to the following observation of Rajagopala Aiyangar J., in the judgment which was under appeal before it, with approval (p. 503 of AIR 1957) (Mad) :

'If the order of the Collector was one passed with jurisdiction, then there might be some basis for the argument that it got merged in the appellate order. But if that order was a nullity in that procedure dictated by natural justice was not followed, there was no order which could be the subject of and confirmation by the appellate authority.'

10. In Anisminic Ltd. v. Foreign Compensation Commission (1969) 1 All ER 208, the question arose as to what was the appropriate form of relief that could be granted in a case where an order passed by an inferior Tribunal was found to be vitiated by the principles of natural justice. After referring to the relevant earlier decisions on the point, the House of Lords held that although the Tribunal had jurisdiction to enter on the enquiry, if it had done of failed to do something in the course of the enquiry which was of such a nature that its decision was a nullity, then its order will be void in law. Various instances of the order being a nullity have been referred to, namely, (1) when a decision is given by the Tribunal in bad faith; (2) if the Tribunal fails in the course of the enquiry to comply with the principles of natural justice; and (3) if the Tribunal misconstrues the provisions giving it power to act so that it has failed to deal with the question remitted to it and decided some questions which was not remitted to it. According to this decision, if a Tribunal passes an order, although in exercise of its the said order will be a nullity. We do not propose to refer to any more decisions on this point, for, it is a well established proposition of law that any order passed by an authority without following the principles of natural justice is null and void, even though it has been passed well within its jurisdiction.

11. But the question here is, whether the order passed by the Commissioner in this case can be taken to be null and void. So long as the order is passed under a statutory provision, it continues to be enforceable, unless it is set aside by the appropriate forum constituted under the same Act. Therefore, the assessee will be acting at his risk and peril if he ignores the order as being null and void. It is for this reason the assessee had filed an appeal before the Tribunal against the order of the Commissioner under s. 263 which according to him, was null and void. Once the order of a statutory authority has been made a subject of an appeal before the Tribunal, the question will arise whether the Tribunal has merely to declare the order to be null and void or whether it can set aside the order and give a direction to the Commissioner to pass a fresh order after giving a reasonable opportunity of being heard to the assessee.

12. In this case, as already pointed out, the Tribunal has proceeded on the basis that the irregularity is only procedural and, therefore, it is curable and that view is challenged by question No. 1. We are inclined to agree with the view of the Tribunal that on the facts and in the circumstances of this case, it is only a procedural irregularity. The Commissioner, before passing an order under s. 263, has to comply with the principles of natural justice embedded therein.

13. Sub-section (1), (2) and (3) of s. 263 of the Act, which are relevant are extracted below :

'263. (1) The Commissioner may call for an examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Income-tax Officer, is erroneous in so far as it is prejudicial to the interests of the Revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessments, or canceling the assessment and directing a fresh assessment.

(2) No order shall be made under sub-section (1) -

(a) to revise an order of reassessment made under section 147, or (b) after the expiry of two years from the date of the order sought to be revised. (3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.

Explanation. -In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be re-heard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded.'

14. Section 263(1) sets out the procedure to be followed by the Commissioner, while exercising the power conferred by that section. It says that the Commissioner may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass an order enhancing or modifying the assessment or canceling the assessment of the ITO and directing a fresh assessment. But such an order cannot be passed after the expiry of two years from the date of the order sought to be revised. Thus, the statute itself has made a provision for an effective opportunity of being heard to the assessee before the Commissioner passes an order in revision under s. 263. In this case, the Commissioner having passed an order without giving the assessee an opportunity of being heard, can be taken to have infringed the statutory provision and, therefore, the order passed by him suffers from procedural irregularity. In the face of s. 263 in which the principles of natural justice have been embedded as a statutory procedure to be followed by the Commissioner before passing an order in his revisional jurisdiction, the order of the Commissioner in the present case suffers from procedural violation or irregularity and not from violation of abstract principles of natural justice. If the principles of natural justice are not embedded in the statute and those principles are found to have been violated, then the order can be said to be one passed in violation of the principles of natural justice. But where principles of natural justice are embedded in the statute as a statutory procedure, then there will be a violation of that statutory procedure if the officer has not followed that procedure. We cannot, therefore, see any error in view taken by the Tribunal that this is a procedural irregularity and hence it is curable.

15. As a matter of fact, in CIT v. National Taj Traders (1980) 121 ITR 535, exactly under similar circumstances, the Supreme Court held that the Tribunal had power to give a direction to the Commissioner to make a fresh assessment after giving a reasonable opportunity to the assessee to put forward his case against the proposed revision. In that case, the Commissioner had invoked his power under s. 33B of the Indian I.T. Act, 1922, which corresponds to s. 263 of the 1961 Act. The Commissioner issued a notice dated August 2, 1962, to show cause why the assessments passed by the ITO should not be canceled under s. 33B of the Indian I.T. Act, 1922 as being erroneous and also prejudicial to the interest of the Revenue. The notice was served on the assessee on August 3, 1962 and the hearing was fixed by the Commissioner for August 6, 1962. On the ground that none appeared and that there was no application for adjournment, the Commissioner passed an order on that date under s. 33B of the 1922 Act. By his order, the Commissioner canceled the assessments made by the ITO on various grounds with which we are not concerned. The order of the Commissioner passed under s. 33B of the 1922 Act was challenged. The Tribunal held that though the Commissioner had jurisdiction to act under s. 33B he had not conformed to the requirement of natural justice by giving due opportunity to the assessee to explain his case. In that view, the Tribunal allowed the appeal, vacated the Commissioner's revisional order and remained the case to him with a direction to dispose it of afresh, after giving due opportunity to the assessee. The order of the Tribunal was questioned on a reference to the Calcutta High Court. The High Court was of the view that the order of the Tribunal comprised of two aspects, one relating to the vacating of the Commissioner's order and the other relating to the giving of a direction to him to dispose of the case under s. 33B afresh after giving an opportunity to the assessee. The High Court held that in the exercise of the appellate powers, the Tribunal acted properly in vacating or canceling the Commissioner's order, but is did not act properly in directing the Commissioner to dispose of the case afresh under s. 33B, because the period of limitation of two years prescribed had expired. The matter ultimately went before the Supreme Court. The Supreme Court, after dealing with the powers of the Tribunal under the statute, held that the Tribunal had power to give such a direction. It is no doubt true that in that case the main point urged was that the Tribunal could not direct the Commissioner to pass an order afresh, having regard to the time-limit fixed under s. 33B(2)(b) of the 1922 Act and the question as now pressed before us by the Revenue did not arise then before the Supreme Court. The learned counsel for the assessee has not questioned the order of the Tribunal on the ground that any fresh order by the Commissioner will be beyond the time-limit fixed under s. 263(2)(b) of the Act. But what is contended is that the order passed by the Commissioner being a nullity, the Tribunal can only set aside that order and it cannot direct the Commissioner to pass a fresh order in accordance with the statutory procedure. Even though this point was not urged before the Supreme Court and considered by it in the case referred to above, it has clearly proceeded on the basis that even in the case of an order which has been passed by the Commissioner without following the statutory procedure or the principles of natural justice, the Tribunal can set aside that order with a direction to the Commissioner to pass a fresh order after giving a reasonable opportunity to the assessee.

16. As already stated, not giving due opportunity to an affected party before an order is passed against him by a statutory authority can be taken to violate the principles of natural justice. But when the principles of natural justice have been set down as a statutory procedure, then the violation can be taken to be only a procedural violation and it cannot any more be said to be violation of the principles of natural justice. It may be that the statutory procedure may not cover all aspects of the principles of natural justice and if there is violation of those principles which have not been set down in the statute, then it is possible to say that there is violation of the principles of natural justice. But in respect of those aspects of principles of natural justice which have been embedded in the statute as a statutory procedure, if order is passed by an authority in violation of that statutory procedure, one can complain of only violation of statutory procedure and not violation of the principles of natural justice. As already stated, in this case, the complaint of the assessee is that the Commissioner did not follow the procedure containt in s. 263(1) of the act, and the Tribunal has found that the procedure set down in s. 263 of the Act has been violated and, therefore, it is only a violation of the statutory procedure. This aspect has been discussed by the Supreme Court in the case referred to above.

17. The Supreme Court in the above case, after referring to the power of the Tribunal, held that the Tribunal had authority to deal with the order of the Commissioner in such manner as it deemed fit in exercise of its appellate powers and that it could after vacating the order, remand the case to the Commissioner for making a fresh assessment in the light of the observations made by in its judgment or it could after calling for a remand report, rectify the erroneous order of the ITO. The Supreme Court was well aware, when it upheld the power of the Tribunal to give a direction to the Commissioner to redo the case, that the Commissioner's order was invalid in that he did not follow the procedure set down by the statute. As a matter of fact, the Supreme Court posed the following question while discussing the power of the Tribunal to give such a direction (p. 543) :

'Where the appellate authority (Tribunal) has found (a) the ITO's order to be clearly erroneous as being prejudicial to the interests of the Revenue, and (b) the Commissioner's order unsustainable as being in violation of the principles of natural justice, how should the appellate authority exercise its appellate powers ?'

18. The Supreme Court has given the following answer (p. 543) :

'Obviously, it could not withhold its hands and refuse to interfere with the Commissioner's order altogether, for, that would amount to perpetuating the Commissioner's erroneous order, nor could it merely cancel or set aside the Commissioner's wrong order without doing anything about the ITO's order, for, that would result in perpetuating the ITO's order which had been found to be manifestly erroneous as being prejudicial to the Revenue. But such result would flow from the view taken by the High Court which has held that the Tribunal acted properly in vacating the Commissioner's order but did not act properly in directing him to dispose of the proceedings afresh after giving opportunity to the assessee. Such manifestly absurd result could never have been intended by the legislature.'

19. In a recent decision in Kapurchand Shrimal v. CIT : [1981]131ITR451(SC) , the Supreme Court has reiterated the abovesaid view in a more positive manner. That was a case arising under s. 25A of the Indian I.T. Act, 1922, where the ITO was bound to hold an enquiry into the claim of partition in an HUF, if it was made by or on behalf of any member of the HUF which was being assessed till then as such and record a finding thereon. Without holding an enquiry, as contemplated by s. 25A(1) of the 1922 Act and without considering the assessee's claim of partition, the assessment had been made. That assessment was ultimately set aside by the Tribunal in appeal on the ground that the order was passed in violation of the procedure prescribed for that purpose, but no direction was given to the ITO to consider the question of partition, after giving an opportunity to the assessee. That order was challenged by the Revenue before the Supreme Court. The Supreme Court held that the proper order to pass 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 and it would not be correct merely to cancel the order of assessment. The relevant observation of the Supreme Court in that case is (p. 460) :

'It is well known that an appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh, unless forbidden from doing so by the statute.'

20. The principle of the above decision applies to the case on hand. No doubt, as in that case, the order which was appealed before the Tribunal was an order passed in violation of the statutorily prescribed procedure. In such cases, the duty of the Tribunal does not end with making a declaration that the order passed in violation of the statutory procedure is illegal. The proper order to be passed would be to set aside the assessment and to direct the authority, which passed the illegal order, to pass a fresh order in accordance with the statute.

21. In view of the fact that we are not agreeing with the learned counsel for the assessee that the order of the Commissioner is vitiated by violation of the principles of natural justice, we hold, on the facts and in the circumstances of this case, that it is only violation of the statutory procedure and that the Tribunal is empowered to direct a fresh order being passed by the Commissioner in accordance with the statutory procedure. as already stated, the duty of the Tribunal does not end with merely setting aside the order of the Commissioner and it has got a duty to direct the Commissioner to pass an order afresh, after following the statutory procedure contained in s. 263(1) of the Act. As pointed out by the Supreme Court in CIT v. National Taj Traders (1980) 121 ITR 535, mere setting aside of the order by the Tribunal will leave the ITO's order which has been held by the Commissioner to be against the interest of the Revenue intact and, therefore, the Tribunal is in duty bound to give a direction to the Commissioner to make a fresh order under s. 263 of the Act, if the order already passed under that section is found to be one passed without following the statutory procedure and without giving a reasonable opportunity as contemplated by the statute.

22. In this view of the matter, we have to answer both the question in the affirmative and against the assessee. The reference are answered accordingly. The Revenue will have its costs from the assessee. Counsel's fee Rs. 500 (rupees five hundred only) one set.

23. The learned counsel for the assessee makes an oral application for leave to appeal to the Supreme Court against the judgment just now pronounced. Since our conclusions are merely based on the observations of the Supreme Court in CIT v. National Taj Traders (1980) 121 ITR 535, and in Kapurchand Shrimal v. CIT : [1981]131ITR451(SC) , we do not think that this is a fit case grant of leave as prayed for. The oral application for leave is, therefore, rejected.


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