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Commissioner of Income-tax Vs. Badri Prasad Bianwalla - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 478 of 1975
Judge
Reported in[1982]133ITR433(Cal)
ActsIncome Tax Act, 1922 - Sections 23(2) and 24(3); ;Income Tax Act, 1961 - Sections 147 and 148
AppellantCommissioner of Income-tax
RespondentBadri Prasad Bianwalla
Appellant AdvocateA.K. Sengupta and ;M.L. Bhattacharjee, Advs.
Respondent AdvocateNone
Excerpt:
- .....basis of such assessment. section 30 of the act says that an assessee objecting to the amount of loss computed may file an appeal against the assessment under section 30 of the act. section 30(2) provides the period of limitation as 30 days from the date of receipt of the notice. with reference to section 29 of the act, it is urged that where any tax, penalty or interest is due in consequence of an order passed under or in pursuance of the act, the ito shall serve upon the assessee or other person who is liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sums so payable. according to him, there is no provision for issuing any notice on a determination of loss. it is further argued by him that section 23(3) of the act does not.....
Judgment:

Sudhindra Mohan Guha, J.

1. The present reference relates to the assessment year 1959-60 for which the corresponding accounting period is 2015 R.N. The assessee had filed the original return on the 12th June, 1961, declaring a loss of Rs. 41,935. The ITO issued a notice under Section 23(2) of the Indian I.T. Act, 1922, in response to which the assessee's authorised representative appeared and produced the books of account, which were examined by the ITO on 20th August, 1963. On 11th September, 1963, the ITO passed an order fixing the date of hearing on 13th September, 1963, but there was no entry in the order sheet of that date. But the ITO passed an entry in the order sheet to the effect 'assessed at loss of Rs. 8,851'. Subsequently, the ITO had reason to believe that the assessee had not disclosed the true and correct facts at the time of original assessment and as such income had escaped assessment. Hence, he reopened the assessment under Section 147 of the I.T. Act, 1961. He issued the notice under Section 148 of the I.T. Act, 1961, in response to which the assessee filed a return of income under protest. The assessee challenged the authority of the notice issued under Section 148 contending that the return for the assessment year 1959-60 which was filed by him on 12th June, 1961, was pending and no assessment had been made on that return. Hence, the notice under Section 148 was said to be invalid. The ITO held that the assessment of the assessee for the assessment year 1959-60 was completed on 31st October, 1963, assessing the total loss at Rs. 8,851. Hence, he computed the reassessment by adding the cash credit of Rs. 53,000 as the assessee's income and also disallowing the interest thereon and thus determined the total income at Rs. 50,980.

2. The assessee preferred an appeal to the AAC. It was contended before him that the assessment alleged to have been completed on 31st October, 1963, was not validly made and, in fact, no assessment had been made at all, and no copy of the assessment order nor the demand notice was ever served on the assessee. Thus, it was urged that there was no such assessment order or demand notice on record. Since the original return filed on 12th June, 1961, was pending, the ITO was not justified in issuing the notice under Section 148. It was contended by the ITO before the appellate authority that the case had been duly entered in Register IV for the month of October, 1963, along with other cases which had been completed in the same month and the assessment was completed on 31st October, 1963, determining the loss at Rs. 8,851.

3. The AAC found that the total income had been computed in a separate sheet of paper, but it was not signed by the ITO. It was also noticed that the order of assessment was not in the traditional form in which the assessment orders were generally passed. Accordingly, it was held by him that the entry in the order sheet dated 31st October, 1963, computing the total income at a loss of Rs. 8,851 could not be accepted as the assessment order. It was further held that the computation of income made had to be followed by the determination of the tax payable as required by Section 23(3) of the Indian I.T. Act, 1922, and even if the income resulted in a loss the ITO had to determine the tax payable at 'nil'' and without such determination the assessment proceedings could not be considered as concluded. It was also held that where the assessment results in a loss it was incumbent on the ITO under Section 24(3) of the Indian I.T. Act, 1922, to notify to the assessee by an order in writing the amount of loss as computed by him for the purpose of this section. But the ITO did not notify the computation of loss to the assessee. Accordingly, it was held by him that the computation of loss made on 31st October, 1963, could not be treated as a valid assessment and it had to be held that no assessment was made on the return furnished by the assessee on the 12th June, 1961. The notice issued on 28th March, 1968 was, accordingly, held as incompetent and invalid and the assessment made in pursuance of such illegal notice was a nullity.

4. The department preferred an appeal before the Tribunal. It was contended on behalf of the revenue that the return filed by the assessee was considered by the ITO and the assessment had been made on 31st October, 1963, determining the loss at Rs. 8,851 and the entry in the order sheet dated 31st October, 1963, computing the loss at Rs. 8,851 was the assessment order. The reassessment proceedings, accordingly, were said to be valid. It was, however, contended that the order sheet dated 31st October, 1963, had been signed by the ITO and the case had been duly entered in Register IV in the month of October, 1963, along with other cases which were completed in the same month. Accordingly, it was urged that the ITO had ample jurisdiction to reopen the assessment as he had reason to believe that the income had escaped assessment.

5. It was, however, contended on behalf of the assessee that the entry in the order sheet could not be equated, or be synonymous, with an order of assessment.

6. The Judicial Member of the Tribunal found that the assessee had tiled the return on 12th June, 1961, declaring a loss of Rs. 41,935. The ITO made an entry in the order sheet on 31st October, 1963, stating 'assessed at a loss of Rs. 8,851.' The computation sheet was not signed by the ITO, nor any demand notice was served on the assessee. The Tribunal on examining the provisions of Sections 139, 142, 143 and 147 of the I.T. Act, 1961, held that the ITO would have to pass an order, in writing, assessing the total income or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such assessment. The computation form, which is generally known as IT-30, was also not signed by the ITO nor any demand notice was available in the file. Thus, it held that there was no computation of the income and a determination of the tax payable by the assessee as required under Section 143. Thus, the Judicial Member held that the entry made in the order sheet dated 31st October, 1963, could not be treated as an order of assessment as there was no determination of income and the tax payable by the assessee. It was also observed that under Section 157 of the I.T. Act, 1961, the ITO was to notify to the assessee by an order, in writing, the amount of loss as computed by him. It was observed that in the absence of the communication of an order made by the authority such an order could not be said to be a valid order having the effect of prejudicing the rights of the parties. Thus, the Judicial Member held that the entry made in the order sheet dated 31st October, 1963, which was not communicated to the assessee could not be treated as a valid assessment order. Once that could not be treated as an assessment order, it follows that the return filed by the assessee on the 12th, June, 1961, was pending and, as such, the ITO could not ignore the same and reopen the assessment under Section 147 of the Act.

7. The Accountant Member in a separate order agreed with the conclusion arrived at by the Judicial Member that the entry made in the order sheet on 31st October, 1963, was not communicated to the assessee and as such could not be treated as a valid assessment order made by the ITO and once that could not be treated as an assessment order the. subsequent proceedings taken by him under Section 147 could not also be sustained. Thus, the Tribunal dismissed the departmental appeal.

8. On the above facts, the following questions of law are referred to this court under Section 256(1) of the I.T. Act, 1961, for its opinion :

'1. Whether, on the facts and circumstances of the case, the entry made in the order sheet on 31st October, 1963, assessing the loss at Rs. 8,851 can be treated as an order of assessment ?

2. Whether, on the facts and circumstances of the case, the Tribunal was justified in holding that the proceedings started under Section 147 of the Income-tax Act, 1961, were illegal and the consequent assessment made by the Income-tax Officer for the assessment year 1959-60 was invalid?'

9. Mr. Ajit Kr. Sengupta, learned advocate for the revenue, challenged the findings of the Tribunal on the ground that it had considered the various provisions of the I.T. Act, 1961, though the assessment related to the year 1959-60, when the I.T, Act, 1961, had not come into operation. He draws our attention to Section 23(3) of the Indian I.T. Act, 1922, which provides that on the dates specified in the notice and on hearing the evidence as produced before him the ITO shall, by an order in writing, assess the total income of the assessee and determine the sum payable by him on the basis of such assessment. Section 30 of the Act says that an assessee objecting to the amount of loss computed may file an appeal against the assessment under Section 30 of the Act. Section 30(2) provides the period of limitation as 30 days from the date of receipt of the notice. With reference to Section 29 of the Act, it is urged that where any tax, penalty or interest is due in consequence of an order passed under or in pursuance of the Act, the ITO shall serve upon the assessee or other person who is liable to pay such tax, penalty or interest a notice of demand in the prescribed form specifying the sums so payable. According to him, there is no provision for issuing any notice on a determination of loss. It is further argued by him that Section 23(3) of the Act does not contemplate any determination or ascertainment of loss. With reference to the assessment Form R-20 of the Indian I.T. Rules, 1922, he points out that there is a column for the computation of tax. But, there is no column as to the 'loss' to be determined. In such a case, according to Mr. Sengupta, the assessee cannot demand a notice under Section 29 of the Act of 1922. In this connection, reliance was placed on the decision of the Supreme Court in the case of K.C. Daga : [1961]42ITR177(SC) . In this case, it was contended that the loss which had been determined and ordered to be carried forward, must be deemed to have become final, because no appeal was filed against the determination. At p. 178 of the report, it is observed that the procedure laid down by Section 24(3) under which the ITO has to notify to the assessee by order in writing the amount of loss as computed by him for the purpose of that section, was not followed. No doubt, under Section 30, an appeal, lies, if the assessee objects to the amount of loss computed and notified under Section 24 bat inasmuch as the ITO had not notified the loss computed by him by an order in writing an appeal could not be taken on that point. In the opinion of the Supreme Court, the assessee was, therefore, entitled to have the loss redetermined in a subsequent year. Section 24(3) of the Indian I.T. Act, 1922, was thus substituted by Section 7 of the Finance (No. 3) Act of 1956 (sic), with effect from 1st April, 1957. Section 24(3) reads as follows :

'24. (3) When, in the course of the assessment of the total income of any assessee, it is established that a loss of profits or gains has taken place which he is entitled to have set off under the provisions of this section, the Officer shall notify to the assessee by order in writing the amount of the loss as computed by him for the purposes of this section.'

10. Next, it is argued by Mr. Sengupta, that the impugned order having not been passed without jurisdiction could not be treated as invalid. According to him, as long as the order is not set aside it remains in force and takes the full force. The order is not totally without jurisdiction, at best it is an order not contemplated by law and it cannot be treated as a non-existing order. In support of his submission, he relies on the decision of the Supreme Court in the case of CIT v. Bidhu Bhusan Sarkar : [1967]63ITR278(SC) .

11. As to the effect of return filed and any notice of reassessment, reference may be made to the decision of the Supreme Court in the case of CIT v. Ranchhoddas Karsondas : [1959]36ITR569(SC) . It is held therein that where in respect of any year a return has been voluntarily submitted before assessment, the ITO cannot choose to ignore the return and any notice of reassessment and a consequent assessment under Section 34 ignoring the return is invalid.

12. Lastly, Mr. Sengupta draws our attention to the decision of this court in the case of Sun Engineering Works (P.) Ltd. v. CIT : [1978]111ITR166(Cal) . It is laid down therein that in order to determine the income that had escaped assessment, the ITO cannot wholly ignore the losses whichwere suffered in the year in question. In an assessment under Section 34 theincome which had escaped assessment cannot be computed in isolation.

13. In the instant case, it is found by the Tribunal that the ITO made an entry in the order sheet dated 31st October, 1963, stating 'assessed at a loss of Rs. 8,851'. The computation sheet was not signed by the ITO norany demand notice was served on the assessee. The ITO had not served acopy of the assessment order on the assessee which is said to have beenpassed on 31st October, 1963. The Tribunal inadvertently referred to Section 157 of the I.T. Act, 1961, under which the ITO was to notify to the assessee, by an order in writing, the amount of loss as computed by him. In this connection, it would not be out of place to refer to the corresponding section, viz., Section 24(3) of the Act of 1922, which also provides that in the course of assessment if a loss is computed the ITO was to notify to the assessee by an order in writing the amount of the loss as computed by him. Thus, there was no escape from the finding that it was incumbent on the ITO on the computation of loss to notify to the assessee as to such computation or determination. In the absence of such a communication it was rightly found by the Tribunal that the assessment could not be treated as a valid assessment order. It naturally follows that the subsequent notice for reopening the assessment and the assessment made, were not according to the provisions of law and as such invalid.

14. In the premises, question No. 1 is answered in the negative and in favour of the assessee. Question No, 2 is answered in the affirmative andalso in favour of the assessee.

15. There will be no order as to costs.

Sabyasachi Mukharji, J.

16. I agree.


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