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Surajmal Ganeshram Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 76 of 1977
Judge
Reported in[1979]120ITR715(Cal)
ActsIncome Tax Act, 1961 - Sections 143, 144, 147 and 246; ;Indian Income Tax Act, 1922 - Sections 23(4), 30 and 34
AppellantSurajmal Ganeshram
RespondentCommissioner of Income-tax
Appellant AdvocateSanjoy Bhattacharyya, Adv.
Respondent AdvocateB.K. Naha, Adv.
Cases ReferredKiran Singh v. Chaman Paswan
Excerpt:
- .....he could also appeal from assessments under sections 143 or 144 challenging the quantum of the income assessed or tax determined and also against assessment or reassessment or recomputation under section 147 of the 1961 act and, where the liability to be assessed was denied, it was not confined to any particular section of the act. mr. bhattacharyya drew our attention to section 146 of the 1961 act under which an assessee had a right to make an application for cancellation of an assessment made under section 144 of the said act on the grounds specified in the said section. he submitted that an appeal against an order refusing or rejecting an application under section 146 of the 1961 act would necessarily also be limited to those specified grounds. but section 246 did not limit in any.....
Judgment:

C.K. Banerji, J.

1. This reference arises out of the income-tax assessment of Surajmal Ganeshram, an unregistered firm, the assessee, for the assessment year 1947-48, for which the relevant previous year in respect of income from business ended on Rathajatra of Samvat year 2003 and in respect of income from other sources on the 31st March, 1947. The facts are shortly as follows :

One Mukhalal Khaitan carried on business under the name and style of Surajmal Ganeshram as its sole proprietor up to the assessment year 1947-48. By a deed dated the 2nd July, 1946, the said proprietary business was converted from the 1st July, 1946, into a partnership firm with the same name with Mukhalal Khaitan, Bhudarmal Khaitan, Ramkaran Khaitan alias Hargobind Khaitan and Dedraj Khaitan as its partners. The said firm was first assessed to income-tax, as a registered firm, in the assess-ment year 1948-49, the relevant previous year being the one ended on Rathajatra, Samvat year 2004. Long thereafter, the ITO discovered that there were several deposits in the United Commercial Bank aggregating to Rs. 1,96,000 in the names of Bhudarmal Khaitan, Mukhalal Khaitan, Durgadutt Agarwalla and Ramkaran Khaitan which had been furnished as security against an overdraft account of the firm with the said bank and he called upon the assessee to explain the source of the said deposits. The explanation furnished having been found unsatisfactory and unacceptable, the ITO, with the prior approval of the CBDT, initiated proceedings against the assessee under Section 147(a) of the I.T. Act, 1961 (hereinafter referred to as 'the 1961 Act'), for the assessment year 1947-48, and issued a notice under Section 148 thereof. The said notice and subsequent notices under Section 142(1) of the 1961 Act were not complied with. The ITO, accordingly, made the assessment under Section 144 of the 1961 Act to the best of his judgment. The said sum of Rs. 1,96,000 with interest and the capital contribution of Rs. 3,00,000 by the three partners in the said firm were held to be income of the assessee from undisclosed sources and added to its total income.

2. In its appeal to the AAC the assessee contended that the ITO was not justified in passing any order under Section 144 of the 1961 Act as the assessee denied its liability to be assessed. It was also contended that the assessee's accounts were closed for the first time in June, 1947, and its first assessment was made for the assessment year 1948-49. The assessee prior thereto was allowed registration and capital contribution of Rs. 1 lakh each by its partners were duly explained to and accepted by the ITO concerned. The ITO, therefore, could have no reason to believe that the assessee had not disclosed fully and truly all material facts necessary for its assessment or any part of its income had escaped assessment. The initiation of the proceedings under Section 147(a) of the 1961 Act was illegal and ab initio void as the same was based on the information that certain persons deposited moneys in the United Commercial Bank and not that the same were deposited by the assessee or were credited in its books. The AAC rejected such contentions of the assessee and upheld the assessment.

3. The assessee went up on a further appeal to the Income-tax Appellate Tribunal and contended that in the assessment for the assessment year 1948-49, the ITO had accepted the capital contribution of the partners. The amounts deposited in the United Commercial Bank could not be added to the income of the assessee as the same had already been assessed in the hands of the partners. The assessee also denied its liability to be assessed for the said deposits and contended that Section 147(a) of the 1961 Act had no application on the facts. It was urged on behalf of the revenue that in view of the decisions of this court in Naba Kumar Singh Dudhuria v. CIT : [1944]12ITR327(Cal) and of the Andhra Pradesh High Court in Sundermul & Co. v. CIT : [1967]66ITR277(AP) , the assessment involved being a best judgment assessment, the assessee could not deny its liability to be assessed or urge non-applicability of Section 147(a) of the 1961 Act. Following the decision in Naba, Kumar Singh Dudhuria : [1944]12ITR327(Cal) , the Tribunal accepted the contention of the revenue and dismissed the appeal but allowed deletion of a portion of the interest on the said deposits.

4. On an application of the assessee under Section 256(1) of the 1961 Act, the Tribunal has drawn up a statement of case and has referred the following question of law for the opinion of this court :

' Whether, on the facts and in the circumstances of the case, and having regard to the position that the Appellate Assistant Commissioner discussed regarding the applicability of Section 147(a) of the Act in his order, the Tribunal was right in holding that the assessee could not agitate the applicability of Section 147(a) of the Act against an order passed under Section 144 of the Act when the assessee denied the liability to be assessed during the previous year ?'

5. Mr. Sanjoy Bhattacharyya, the learned counsel for the assessee, contended before us that Section 246 of the 1961 Act conferred on the assessee a specific right of appeal where the assessee denied his liability to be assessed under the said Act. He could also appeal from assessments under Sections 143 or 144 challenging the quantum of the income assessed or tax determined and also against assessment or reassessment or recomputation under Section 147 of the 1961 Act and, where the liability to be assessed was denied, it was not confined to any particular section of the Act. Mr. Bhattacharyya drew our attention to Section 146 of the 1961 Act under which an assessee had a right to make an application for cancellation of an assessment made under Section 144 of the said Act on the grounds specified in the said section. He submitted that an appeal against an order refusing or rejecting an application under Section 146 of the 1961 Act would necessarily also be limited to those specified grounds. But Section 246 did not limit in any way the right of appeal against an order under Section 144. Mr. Bhattacharyya urged that in the facts of this case if the owners of the fixed deposits could not explain the capital invested by them with the assessee, the same could be included in their individual assessments as their income and in fact this had been done. The deposits could in no circumstances be treated as the undisclosed income of the assessee. The conditions for invoking Section 147 were absent and there could be no reason to believe that the assessee failed to disclose fully and truly any material facts necessary for its assessments which might lead to escapement from assessment of any income of the assessee chargeable to tax. The assessee was entitled to raise the contention in an appeal under Section 246 of the 1961 Act which did not require that before preferring an appeal against an order under Section 144 the assessee must make an application under Section 146 for cancellation of the assessment. The decision in Naba Kumar Singh Dudhuria : [1944]12ITR327(Cal) was contrary to the provisions of Section 246 of the 1961 Act.

6. Mr. Bhattacharyya next urged that the assessment in this case was under Section 147(a) of the 1961 Act for which Section 246 provided a separate appeal. For this reason also the decision in Naba Kumar Singh Dudhuria : [1944]12ITR327(Cal) did not apply in the facts and circumstances of the instant case.

7. Mr. Bhattacharyya urged that the initiation of the proceedings under Section 147(a) of the 1961 Act being without jurisdiction, the entire proceedings were a nullity and the assessee at any stage of the proceedings could urge that they were a nullity.

8. In support of his contentions, Mr. Bhattacharyya cited the following decisions;

9. CIT v. Khemchand Ramdas [1938] 6 ITR 414 . Here the assessee, Khemchand Ramdas, a registered firm, having failed to comply with notices under Sections 22(2) and 22(4) of the Indian I.T. Act, 1922, the ITO made a best judgment assessment under Section 23(4). The CIT in exercise of his powers under Section 33 of the said Act cancelled the registration of the assessee and at his directions the ITO made a fresh assessment treating the assessee as an unregistered firm and super-tax was levied.

10. The assessee's appeal to the AAC was dismissed. On an application under Section 33 of the said Act the Commissioner held that no appeal lay against an order of assessment under Section 23(4) of the said Act. He rejected the application of the assessee but on the same ground quashed the order of the AAC.

11. There was a reference to the High court and the matter ultimately went up to the Privy Council which considered the validity of the said order of fresh assessment made by the ITO levying super-tax and observed as follows (p. 426) :

' For the order could only be justified, if at all, as one made, not under Section 23(4) but under either Section 34 or Section 35. If it was made as the Commissioner has found, in purported exercise of the powers given by Section 23(4) the assessee nevertheless had a right of appeal to the Assistant Commissioner under Section 33 and the Commissioner was in error when he quashed the proceedings on that appeal.'

12. Sundermul & Co. v. CIT : [1967]66ITR277(AP) . Here, on the failure of the assessee, a registered firm, to file a return for the assessment year 1961-62 and to comply with notices under Section 22(4) of the Indian I.T. Act, 1922, for production of its accounts and fixing the date of hearing which remained unheeded, the ITO made an ex parte assessment under Section 23(4) of the said Act, whereafter the assessee filed a return of its income without accounts. The subsequent application of the assessee under Section 27 for reopening the assessment was rejected by the ITO. The assessee filed an appeal against this order and also another appeal against the assessment made under Section 23(4). The AAC rejected the appeal against the rejection of the application under Section 27 but in the other appeal, on the basis of profit and loss account and trial balance filed before him, reduced the assessment. The assessee's further appeal to the Tribunal against the order of the AAC rejecting the assessee's appeal was dismissed. The appeal of the revenue against the order of the AAC reducing the assessment was allowed by the Tribunal. It was held that in an appeal against an assessment under Section 23(4), the AAC had no power to consider any material other than those which were before the ITO. On a reference from the said orders of the Tribunal the Andhra Pradesh High Court held as follows (p. 280) :

' An appeal against the order rejecting an application under Section 27 and an appeal against the assessment under Section 23(4) are two separate remedies provided under the Act and different considerations will weigh with the Appellate Assistant Commissioner in disposing of those appeals. In an appeal against the rejection of an application under Section 27, all that the Appellate Assistant Commissioner has to see is whether the assessee had shown sufficient cause which would have satisfied the Income-tax Officer for not making a return or complying with the notices specified therein. If the assessee has not satisfied the Income-tax Officer in respect of these matters, and the Appellate Assistant Commissioner agrees with the order of the Income-tax Officer the appeal will be rejected. But that is far from saying that the Appellate Assistant Commissioner cannot thereafter consider the merits of the assessment on appeal, which is a distinct and concurrent remedy provided to the assessee under the Act, In that appeal, it is open to the Appellate Assistant Commissioner to say that the Income-tax Officer acted without material, or acted arbitrarily or capriciously......

It may here be stated that prior to the amendment of the Income-tax Act in 1939, a best judgment assessment under Section 23(4) could only be challenged or questioned by an application under Section 27, and, thereafter, by an appeal under Section 30. But the Amendment Act has made a provision, in Section 30, permitting an appeal by an assessee against an order of the Income-tax Officer making an assessment under Section 23(4), thereby enlarging the right of the assessee to question the assessment itself......

If an assessee does not choose to appeal against an order under Section 27, he simply loses the right to have the assessment reopened on the ground mentioned in Section 27...... Though the assessee might have lost thatright by not appealing against an adverse order under Section 27 or by not succeeding in an appeal which he might have preferred against such an order, it does not preclude the Appellate Assistant Commissioner underSection 31(2) to order further enquiry for the purposes of disposing of the appeal or the question in appeal before him.'

13. M.M. Muthuwappa v. CIT : [1962]46ITR1107(Mad) . Here one of the contentions before the Madras High Court was whether in an appeal against a beat judgment assessment under Section 23(4) of the Indian I.T. Act, 1922, the assessee could deny his liability to be assessed when there was no such denial at the stage of the assessment and the High Court observed as follows (pp. 1113, 1121):

' Prior to the amendment of the Act in 1939, the best of judgment assessment could be canvassed only by an application under Section 27 and by an appeal there from under Section 30. The Act before its amendment contained no provision in section 30 permitting an appeal by an assessee against the order of the Income-tax Officer making an assessment under Section 23(4). Such a best of judgment assessment could be brought up in appeal only by way of proceedings taken under Section 27. After the amendment, however, the right of the assessee has been enlarged in this regard. He could, if he so chose, move the Income-tax Officer himself under Section 27 and obtain the necessary relief from him. The order of the Income-tax Officer refusing to cancel the assessment under Section 27 could be brought up in appeal to the Appellate Assistant Commissioner. In the alternative, he could directly take an appeal under Section 30 of the Act to the Appellate Assistant Commissioner objecting to the amount of income assessed under Section 23 or the amount of tax determined under that section...... The first question is whether it is open to the assessee to raise the question of non-liability to be assessed when such a contention had not been taken before the Income-tax Officer. We can find nothing in any of the relevant provisions of the Act which places any fetter upon the right of the assessee to deny his liability to be assessed at all (as distinct from his liability to be assessed under Section 23(4)) in the appeal before the Appellate Assistant Commissioner...... The mere fact that that ground was not taken before the Income-tax Officer is not sufficient to our minds to deny this right to the assessee. Indeed Section 30 specifically provides for an appeal on this ground.'

14. Kiran Singh v. Chaman Paswan, : [1955]1SCR117 . Here the Supreme Court observed as follows (p. 342) :

' It is a fundamental principle that a decree passed by a court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties.'

15. Mr. B.K. Naha, the learned counsel for the revenue, contended on the other hand that the assessee could not prefer an appeal against a best judgment assessment without first exhausting the other remedy provided by the 1961 Act, that is, without first making an application under Section 146 of the 1961 Act. Mr. Naha urged that in objecting to a best judgment assessment in an appeal the assessee must in the first instance prove that he was prevented by sufficient cause from making a return of his income or from appearing before the ITO when called upon to do so. Mr. Naha further urged that by an application under s, 146 for cancellation of the best judgment assessment the assessee also denies his liability to be assessed otherwise there will be no meaning in his seeking to reopen the assessment. In the instant case, the assessee did not make any application under Section 146 of the 1961 Act for reopening the assessment but preferred an appeal to the AAC against the assessment itself which the assessee was not entitled to do.In support of his contention, Mr. Naha cited the following decisions I (a) Naba Kumar Singh Dudhuria v. CIT : [1944]12ITR327(Cal) . In this case, the assessee having contended that the return filed was invalid, the ITO accepted such contention and made a best judgment assessment under Section 23(4) of the Indian I.T. Act, 1922. The assessee having failed in the appeal before the AAC, appealed to the Tribunal. The Tribunal held that the assessee not having adopted the procedure under Section 27 of the said Act for reopening the assessment was not entitled to raise the question of invalidity of the assessment in the appeal and dismissed the appeal. The assessee came up before this court in a reference and a Division Bench of this court observed as follows (p. 332):

' Coming now to the provisions of the Income-tax Act, Section 30 gives the assessees the right to object to the amount of income assessed under Section 23 or Section 27. They may also object to the amount of tax determined under those sections and they may appeal if they object to the refusal of the Income-tax Officer to make a fresh assessment under Section 27. To that extent only has the proviso in the same section of the Act prior to the amendment been limited. What the assessees are apparently trying to do now as it appears to me is to raise an objection not merely to the amount of the assessment or to the amount of tax determined under any provision of Section 23, but to object to the validity of the assessment. Although Section 30 as amended grants them a right of objecting to the quantum of the assessment, it does not in my view give them the right to leave aside the machinery which has been provided by Section 27 and to come to this court and ask that the court should deal with it without having had the matter dealt with, as provided by the Act, by the income-tax authorities. It appears to me that on repealing the proviso in the old section the Legislature has expressly limited the manner in which appeals may be allowed against decisions under Section 23 or Section 21, and by inserting the words applicable to Section 23 or Section 27 with the word 'amount' they have definitely intended that the assessee's right of appeal under Section 30 should be limited as regards those sections to the quantum of the assessment or tax.'

(b) Gaurishanker Kedia v. CIT : [1963]49ITR655(Bom) . In this case the ITO initiated proceedings under Section 34(1)(a) of the Indian I.T. Act, 1922, and served a notice on the assessee under Section 34(1)(a) read with Section 22(2)of the said Act. The assessee not having filed any return in response to the said notice, the ITO made a best judgment assessment under Section 23(4) of the said Act and issued a notice of demand to the assessee. The assessee made an application under Section 27 of the said Act for reopening of the said assessment contending, inter alia, that he was neither a resident nor carried on any business nor had any taxable income in Bombay and as such had no address there and as no notice either under Section 22(4) or Section 23(2) or any other notice was served on him he had no opportunity to comply with the same. On the date fixed for hearing of the said application the assessee prayed for adjournment which was allowed. On the adjourned date, however, no one appeared and the ITO dismissed the said application. The assessee did not appeal against the said order but preferred an appeal against the assessment before the AAC and contended before him that the ITO had no territorial jurisdiction to initiate the proceedings under Section 34 of the said Act and the said assessment was erroneous. The AAC dismissed the appeal. The assessee took a further appeal to the Tribunal, and reiterated his contentions. The Tribunal held that the appeal should be restricted to the quantum of assessment and the jurisdiction of the ITO to make the assessment could not be challenged in an appeal against an assessment made under Section 23(4) of the said Act. The Tribunal, however, reduced the quantum of income. The assessee took up the matter in a reference before the Bombay High Court. The High Court held that the appeal of the assessee should be confined only to the quantum of income and quantum of tax determined and the assessee could not challenge in the appeal the validity of the order made under Section 23(4) of the Act.

16. The provisions for appeal against an assessment or other orders of the ITO are contained in Section 30(1) of the Indian I. T, Act, 1922 (hereinafter referred to as the '1922 Act'), and Section 246 of the 1961 Act, relevant portions whereof are set out below :

(1) Indian Income-tax Act, 1922 :

'30. Appeals against assessment under this Act.--(1) Any assessee objecting to the amount of income assessed under Section 23 or Section 27, or the amount of loss computed under Section 24 or the amount of tax determined under Section 23 or Section 27, or denying his liability to be assessed under this Act, or objecting to the cancellation by an Income-tax Officer of the registration of a firm under Sub-section (4) of Section 23 or to a refusal to register a firm under Sub-section (4) of Section 23 or Section 26A, or to make a fresh assessment under Section 27...... may appeal to theAppellate Assistant Commissioner against the assessment or against such refusal or order.' (2) Income-tax Act, 1961 :

' 246. Appealable orders,---Any assessee aggrieved by any of the following orders of an Income-tax Officer may appeal to the Appellate Assistant Commissioner against such order-

(a) an order against the assessee, being a company, under Section 104 ;

(b) an order imposing a fine under Sub-section (2) of Section 131 ;

(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;

(d) an order under Section 146 refusing to reopen an assessment made under Section 144;

(e) an order of assessment, reassessment or recomputation under Section 147 or Section 150..,......'

17. From a comparison of the above provisions for appeals in the two Acts, it appears that under the 1961 Act, at least for the purposes of appeal, an assessment or reassessment under Section 147 of the said Act is treated in a separate category as distinct from assessments made under other sections or provisions of the said Act, and a specific and separate provision for, appeals against such assessment or reassessment under Section 147 has, therefore, been provided for. In the 1922 Act there was no separate provision for appeal from an assessment or reassessment under Section 34 of the said Act-In the instant case, we are concerned only with the 1961 Act, the scheme of which is basically as follows :

Section 139 requires the assessee to file a return of his income and authorises the ITO to make an assessment under Section 143 in the regular course. When no return has been filed or when notices under Section 142 or Section 143 are not complied with, the ITO is authorised to make a best judgment assessment under Section 144, Section 147 authorises the ITO to make an assessment or reassessment when he has reason to believe that any income of the asses-see chargeable to tax has escaped assessment for any assessment year. Before making an assessment or reassessment under Section 147 the ITO is required to serve a notice on the assessee under Section 148 containing all or any of the requirements which may be included in a notice under Section 139(2) and the provisions of the Act so far as may be shall apply as if the said notice was a notice under Section 139(2) of the Act. Thus, in an assessment or reassessment under Section 147, the same procedure or machinery for making an assessment under Section 143 or in making a best judgment assessment under Section 144, as the case might be, is to be followed. But irrespective of Section 143 or Section 144, the provisions of either of which may be followed, an assessment made in a proceeding initiated under Section 147 would nevertheless be in a separate category and cannot be equated for all purposes with an assessment made in accordance with the provisions of Section 143 or Section 144 simpliciter.

18. Both Naba Kumar Singh Dudhuria : [1944]12ITR327(Cal) and Gauri-shanker Kedia : [1963]49ITR655(Bom) were cases under the 1922 Act. On an interpretation of the provisions for appeal as provided in Section 30 of the 1922 Act, it might be possible to take a restricted view in respect of an appeal against a best judgment assessment under Section 23(4) of the 1922 Act as was taken by a Division Bench of this court in Naba Kumar Singh Dudhuria : [1944]12ITR327(Cal) or by the Bombay High Court in Gauri-shanker Kedia : [1963]49ITR655(Bom) , though made in a proceeding initiated under s, 24 of the said Act.

19. Construing the provisions of the I. T. Act, 1961, it appears to us that Section 246 of the said Act provides for appeal against an order of assessment or reassessment or recomputation made under Section 147. This section does not limit the scope or ambit of such an appeal. It is not indicated that where an appeal is made against an assessment or reassessment initiated under Section 147 but following the procedure laid down under other sections like Section 144 whereby a best judgment assessment can be made in the absence of return or the materials being furnished, the appeal from such assessment or reassessment would be limited only to objection as to the amount of the income assessed or tax determined and not on the question of reopening of an assessment under Section 147. In the instant case, the assessee has denied its liability to be assessed at all under the 1961 Act and one of the contentions of the assessee is that the proceedings initiated under Section 147 of the 1961 Act is without jurisdiction and a nullity. In these circumstances, we cannot read Section 246 of the 1961 Act in a manner which will limit and circumscribe the assessee's right to agitate all questions in the appeal. The right to appeal from an assessment or reassessment under Section 147 appears to be a general right and if such an appeal is admissible then it does not appear to us that the assessee is confined only to certain grounds and not others. The Privy Council in the case of Khemchand Ramdas [1938] 6 ITR 414 noted the distinction between an order under Section 34 and that made under Section 23(4) of the Indian I. T. Act, 1922. We hold that in the facts and circumstances of the instant case the assessee had a specific right of appeal against the reassessment made under Section 147 of the I. T. Act, 1961, and was entitled in such appeal to agitate all its objections to the reassessment including the objection that it was not liable to be assessed at all.

20. For the above reasons, the question referred is answered in the negative and in favour of the assessee. There will be no order as to costs.


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