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Grindlays Bank Ltd. Vs. Income-tax Officer, h Ward and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberAppeal from Original Order No. 884 of 1976
Judge
Reported in[1978]115ITR799(Cal)
ActsIncome Tax Act, 1961 - Sections 141(2), 142(1), 144, 153(3), 271(1) and 276D
AppellantGrindlays Bank Ltd.
Respondentincome-tax Officer, "h" Ward and ors.
Appellant AdvocateDebi Prosad Pal, ;Pranab Kr. Pal and ;Manisha Seal, Advs.
Respondent AdvocateBalai Lal Pal, ;Ajit Sengupta and ;Sailendra Nath Dutta, Advs.
Cases ReferredBarium Chemicals v. A. J. Rana
Excerpt:
- anil k. sen, j. 1. the appellant in this appeal under clause 15 of the letters patent is a banking company within the meaning of the banking regulation act, 1949, and was incorporated under the laws of the united kingdom having its head office and registered office at london. the appellant carries on banking business in several countries of the world including india and is assessed in the status of a company by the income-tax authorities in india. the principal office of the appellant in india is at calcutta. the appellant causes a separate profit and loss account and balance-sheet to be drawn up for its own business in india and for the said purpose the head office at london has been allocating those expenses incurred there which are specifically attributable to india and a portion of.....
Judgment:

Anil K. Sen, J.

1. The appellant in this appeal under Clause 15 of the Letters Patent is a banking company within the meaning of the Banking Regulation Act, 1949, and was incorporated under the laws of the United Kingdom having its head office and registered office at London. The appellant carries on banking business in several countries of the world including India and is assessed in the status of a company by the income-tax authorities in India. The principal office of the appellant in India is at Calcutta. The appellant causes a separate profit and loss account and balance-sheet to be drawn up for its own business in India and for the said purpose the head office at London has been allocating those expenses incurred there which are specifically attributable to India and a portion of the balance determined on a particular formula claimed to have been consistently followed since 1948 and not disputed by the tax authorities for years. That formula is as follows :

Head Office General Charges X Indian Management Expenses

Management Expenses of all Territories.

2. In deciding the dispute now before us we are, however, not concerned directly with the formula as aforesaid.

3. The appellant filed its return for the assessment year 1972-73, which corresponds to the accounting year of 1971. In such returns as in previous years, the appellant claimed deduction in respect of its expenses including head office expenses. Dealing with the said return the ITO sought for information to meet his own doubts and apprehensions for the purpose of making the assessment. There is no dispute that on September 18, 1974, the ITO sought for such information on various points including some in respect of head office expenses. The appellant gave reply on November 27, 1974. The reply did not satisfy the ITO who on February 12, 1975, requested the appellant ' to produce the cash book, ledger and journal for the year 1971 relating to the head office relevant to the assessment year 1972-73 '. The appellant expressed its inability to produce such books of account from the head office as according to the appellant it was not practicable. On February 18, 1975, the ITO called upon the appellant to furnish .certain clarifications with reference to the appellant's earlier letter written in reply to the ITO's requisition, A few days thereafter, the ITO addressed a letter to the appellant enclosing therein a notice under Section 142(1)of the I.T. Act, 1961, calling upon the appellant to produce or cause to be produced ' all financial books of accounts including the cash book, ledger and journal of the head office of the National and Grindlays Bank Ltd. and evidence in support of the entries therein relating to the accounting year ended on December 31, 1971 '. In the covering letter, the ITO refers to previous correspondence and further states that he has to satisfy himself ' as to the reasonableness of the head office expenses claimed to arrive at the taxable income of the bank under the I.T. Act, 1961 ', for which the appellant has to produce the evidence called for.

4. The appellant challenged the validity of the aforesaid notice in a writ petition out of which the present appeal arises. It was so challenged on the ground that the notice had not been issued in any lawful or bona fide exercise of powers more so when it would appear on the face of the notice that the same had been issued without any application of mind. To support the challenge; so thrown, it was argued before the learned trial judge that two essential requirements are to be fulfilled before any document can be requisitioned by the ITO under Section 142(1), viz., (i) firstly, the documents called for must be required for the purpose of making the assessment, and (ii) secondly, the ITO must require the said documents for the assessment. Fulfilment of such requirement necessarily postulates application of mind by the ITO who in issuing such a notice must satisfy himself as to the relevancy of the documents with reference to the assessment to be made and his own requirement thereof. It was, therefore, urged that where the ITO does not apply his mind and does not satisfy himself on the above points while issuing a notice for production of documents under Section 142(1), he does not do so in lawful exercise of his powers. On the particular facts of the present case, it was urged that the impugned notice is of such an omnibus character, that the same on its face betrays utter lack of application of mind because what the appellant had been called upon to produce is not only all its financial books of accounts but all evidence in support of all the entries therein made. It was pointed out that the appellant as an institution carrying pn banking business has to maintain varied books of account and the attention of the court was drawn to Batliboi's Advance Accounts to show what numerous types of books, principal and subsidiary, a banking institution is to maintain. All such books of accounts maintained at the head office certainly could not have any relevance to the assessment and the ITO could not have bona fide required all such books as also all evidence in support of all the entries made therein for the purpose of the present assessment. Reliance was placed on the decision of the Supreme Court in the case of Barium Chemicals Ltd. v. A. J. Rana : [1972]2SCR752 , to support the contention that the impugned notice had not been issued in lawful exercise of powers by the ITO.

5. The learned trial judge accepted what was contended on behalf of the appellant to be the requirement of Section 142(1). He agreed on principle that the ITO must apply his mind to satisfy himself as to the relevance of the documents and his own requirement thereof for the purpose of making the assessment before he could lawfully issue a notice under Section 142(1) requiring production of such documents. He further found that the notice read by itself indicated no such application of mind since a very large number of books and documents had been asked to be produced though it cannot be said that all such books and documents were considered relevant or necessary for the purpose of assessment by the ITO. As a matter of fact, the learned judge further found that the notice read by itself covers a large number of books many of which could not be required or relevant for the purpose of the question involved in the assessment. Notwithstanding such a finding, the learned judge proceeded to hold that the notice under Section 142(1) should not be read merely on its terms but the same should be' interpreted with reference to the facts and circumstances in the background. Interpreting the impugned notice in the background of the correspondence between the parties and in the background of facts set out in the affidavit-in-opposition the learned judge held : ' What financial books of accounts including cash book, ledger and journal of the head office, in my opinion, the ITO meant and the petitioner understood must be judged in the background whether such books, papers and documents were evidence in support of items constituting head office expenses, a portion of which has been claimed as deduction. Only such books, papers and documents had been directed to be produced.' Construing the notice in the manner aforesaid, the learned judge overruled the appellant's, claim that the impugned notice had not been issued in compliance with the requirement of Section 142(1).

6. We could have understood the view of the learned judge if he had dismissed the writ petition on his conclusions as aforesaid, upholding the notice on its interpretation put by the learned judge as one issued in lawful exercise of powers under Section 142(1) of the Act but the learned judge did not do so. On the other hand, he proceeded to dispose of the writ petition by recording the following direction :

' In my opraion, therefore, this notice means that the petitioner was required to produce such books, accounts or documents in support of the items constituting head office expenses, a portion of which has been claimed as allowable deduction for the relevant assessment year. Having regard to the facts and circumstances of the case, in my opinion, it would be sufficient compliance with the notice if the petitioner produces an abstract of the relevant entries in the original books and documents and papers certified or attested by a duly authorised person to the ITO. If thereafterthe ITO requires the examination of the originals of any of the said abstracts of relevant entries the petitioner would cause such inspection either by production or by convenient method mutually agreed.'

7. He then recorded certain consequential directions as to how the appellant is to produce such abstracts and how the follow-up steps are to be taken.

8. Feeling aggrieved by the judgment and order so passed by the learned trial judge the appellant has preferred the present appeal. Dr. Debi Pal appearing in support of this appeal has contended that on the finding of the learned judge the impugned notice read on its terms not being a lawful one, he should have set aside the same. He has strongly disputed the correctness of the view taken by the learned judge that a notice under Section 142(1) could be read except on its terms. It has been pointed out by him that any default in the matter of complying with a requisition under Section 142(1) even in any part may not only result in summary assessment under Section 144(b) and imposition of penalty under Section 271(1)(b) but entails a criminal liability under Section 276D of the Act. According to Dr. Pal, such a notice has to be interpreted strictly on its terms and can never be left to the uncertainty of how it is interpreted by one or the other. Particular exception has been taken by Dr. Debi-Pal as to the manner in which the learned judge has construed the impugned notice. There is nothing--he contended--to show or establish that by the impugned notice the ITO merely meant the books, accounts or documents relating to head office expenses only. Even the facts and circumstances made out by the previous correspondence does not support such a construction. According to Dr. D. Pal, in the name of interpretation, the learned judge has in reality re-written the notice on behalf of the ITO by altering its terms. Dr. Pal points out that the learned judge has gone still further when he has not only altered the notice as regards the documents to be produced but has dispensed with production of such documents at the first instance by directing production of abstracts therefrom. Such a direction does not come within the provision of Section 142(1)(i) of the Act under which the notice had been issued.

9. The appeal is being contested by the respondents. Mr. Balai Lal Pal appearing 0n behalf of the revenue made his best endeavour to support the judgment and order as passed by the learned judge in the trial court. According to Mr, B. L. Pal, the learned judge was right in construing the notice with reference to its context and thus determine the true import thereof. According to Mr. B. L. Pal, having determined the true import of the notice, the learned judge in the trial court rightly concluded that, though on its terms the notice is too wide, really it was not so and the ITO thereby merely called upon the appellant to produce such books, papersand documents as were evidence in support of the items constituting the head office expenses, a portion of which had been claimed as deduction. That being the terms of requisition, Mr. B. L. Pal has contended that the ITO cannot be found guilty of any non-application of mind for fulfilling the requirements on which a notice under Section 142(1) could be issued. Though it was a matter of some embarrassment for Mr. Pal to support the consequential direction issued by the learned judge it had been contended by him that the learned judge in exercising his power in the writ jurisdiction was competent to give such consequential directions to suit the convenience of both the parties in the interests of justice. Alternatively, it had been contended by Mr. Pal that when the ITO had the jurisdiction vested in him to issue a notice under Section 142(1) of the Act, this court could not have interfered with issue of any notice in exercise of such powers in the writ jurisdiction even if there had been any illegality or irregularity in the matter of exercising such powers and issuing such a notice.

10. Before we proceed to consider the appeal on its merits we should first dispose of the last point raised by Mr. Pal on behalf of the revenue disputing the jurisdiction of this court to interfere with the notice. We should do so because if he succeeds there the appellant's writ petition must fail, so also the appeal. It must, however, be pointed out at this stage that the learned judge in the trial court in disposing of the writ petition had not dismissed the same totally. He had in effect limited the scope and contents of the impugned notice under Section 142(1) of the Act and had further issued modified directions as to how such a notice had to be complied with. To the extent such modifications were made, the revenue has preferred neither any appeal nor any cross-objection and, therefore, it would be rather embarrassing for us to allow Mr. Pal to raise an objection that the writ petition itself could not have been entertained by the learned judge in the trial court. Be that as it may, we are unable to accept the contention of Mr. Pal in this respect even on merits. Section 142(1) in the relevant part provides as follows :

' For the purpose of making an assessment under this Act, the Income-tax Officer may serve on any person who has made a return under Section 139 or upon whom a notice has been served under Sub-section (2) of Section 139 (whether a return has been made or not) a notice requiring him, on a date to be therein specified,-- (i) to produce, or cause to be produced, such accounts or documents as the Income-tax Officer may require,......'

11. We feel no hesitation in agreeing with the learned trial judge that before any notice under this provision could be issued calling upon an assessee to produce any document, the ITO must be satisfied that such a document would be needed for the purpose of making the assessment or inother words the document must have its bearing on the pending assessment, and, secondly, that he requires the document to be so produced for the purpose of making the assessment. To fulfil these requirements it is quite obvious that the ITO must apply his mind because without such application of mind he can never arrive at any bona fide satisfaction on the two points referred to hereinbefore. As pointed out by this court in a Bench decision in the case of Hindustan Motors Ltd. v. T. N. Kaul (Appeal No. 280 of 1970) arriving at such a satisfaction is a part of the jurisdictional fact so that the ITO never acquires jurisdiction to issue a notice under Section 142(1) for production of any document until he on application of his own mind arrives at a satisfaction that the document so directed to be produced would have its bearing on the assessment and that he requires the same to be produced for making the assessment. Where the ITO does not apply his mind to these requirements and does not arrive at any such satisfaction but issues the notice in mechanical exercise of his powers it would really be an act beyond his jurisdiction which can certainly be challenged before this court in the writ jurisdiction. Moreover, issue of a notice in mechanical exercise of powers under Section 142(1) would be merely a purported exercise of powers and not a real one and it is always open to a person aggrieved by such a notice to challenge it before this court in its writ jurisdiction (See Union of India v. Tarachand Gupta & Bros., : 1983(13)ELT1456(SC) ), and also the decision of the Supreme Court in the case of Barium Chemicals v. A. J. Rana [1972] 42 Comp Cas 245). This being the position, we are unable to accept the contention of Mr. Pal that even if we accept the contention of the appellant we should hold that the infirmity alleged constitutes such irregularity or illegality as would not entitle this court to interfere in exercise of its writ jurisdiction.

12. Next, we proceed to consider the appeal on its merits. As we have indicated hereinbefore the learned judge accepted what was contended by Dr. Pal to be the requirement in law for issue of a valid notice under Section 142(1) of the Act. The learned judge further found that the notice read by itself does Hot gosto show that it had been issued on due fulfilment of those requirements. It had been rightly pointed out by the learned judge that by the notice the appellant had been called upon to produce a very large number of books and documents. As a matter of fact, the notice requires the appellant to produce not only all their financial books of accounts of the head office but also all evidence in support of all entries therein made. It is difficult to appreciate how such a requisition could have been complied with by the appellant except by transferring all their records at the head office to the office of the ITO. That apart, all of them can have no bearing on the assessment now being made in India on the business carried on there. It is obvious, therefore, that the ITO, when heissued the impugned notice, was doing so in a mechanical manner without applying his mind to either of the two requirements, viz., relevancy of the document and his own requirement thereof for making the assessment. The learned judge being conscious of this position, met the objection by holding that the notice must not be read by itself but it must be read with reference to the background to be found from the correspondence between the parties and the facts disclosed in the affidavit-in-opposition. Construing the notice in this light, the learned judge came to the conclusion that by the notice the ITO merely called upon the appellant to produce such books, papers and documents as were evidence in support of the items constituting the head office expenses.........claimed as deduction. Injudging the correctness of such a conclusion we are to consider two things, viz., (1) whether one can go behind the notice to determine the import thereof as also the obligation arising therefrom or the same is to be determined on its own terms, and (2) whether the facts and circumstances in the background with reference to which the learned judge interpreted the notice, supports the judge's conclusion.

13. Taking the second aspect first for consideration we cannot but hold that the learned judge in the trial court wholly misread the very background relied on by him to think that the said background indicates or establishes the fact that what the ITO meant were the books, papers and documents relating to head office expenses, a portion of which has been claimed as deduction. Obviously it is not so. The requisition of the ITO dated September 18, 1974, would only show that information relating to head office expenses was merely one out of 19 items of information sought for from the appellant. Similarly, when we refer to the letter dated February 12, 1975, of the ITO we clearly find that the ITO was calling for cash book, ledger and journal for the purpose of certain intended test-checks or verification. He had not specified in detail what test-checks or verifications he intended, though a few examples that he set out in this letter would go to show that he intended to check certain guarantor's commission earned in the United Kingdom. Position is not different when we refer to the ITO's letter dated February 18, 1975. With all these facts in background made out by the correspondence between the parties it is difficult fot us to speculate what were the real purposes intended to be served by the documents requisitioned by the ITO and what he really meant by the impugned notice. In any event one thing is well established by these facts in the background, viz., the ITO was not limiting himself in his enquiries or investigation to head office expenses as held by the learned judge. Therefore, it was not correct on the part of the learned judge to conclude and infer that while issuing the impugned notice theITO really meant production of the books, papers and documents relating to head office expenses only. The covering letter no doubt speaks of head office expenses but it also refers to the previous correspondence and as such the ITO does not limit himself for his enquiries to such expenses only. The background does not furnish us any solid foundation for limiting the intended requisition of the ITO to books, papers and documents relating to head office expenses nor does it help us to find out what really the ITO meant to be produced in compliance with the notice issued by him.

14. Proceeding now to consider the other aspect we find ample substance in the contention of Dr. Pal that a notice under Section 142(1) of the Act must be interpreted on its terms particularly when such terms are clear and unambiguous. Non-fulfilment of such a notice may result in varied consequences. Firstly, as a consequence thereof the ITO may proceed to make the assessment on the best of his judgment under Section 144(b). Secondly, it would entail a liability for penalty under Section 271(1)(b) which may vary from 10% to 20% of the amount of tax, if any, which would have been avoided if the income returned by the assessee had been accepted as correct. Lastly, it entails a criminal liability under Section 276D, which provides that a person who wilfully fails to comply with such a notice commits an offence punishable with rigorous imprisonment for a term which may extend to one year or with fine or with both. In our view, a notice which entails such consequences in the event of its non-compliance must stand or fall on its own terms and the same can never be left to be interpreted on variant terms varying with each different authority interpreting the same. We agree with Dr. Pal that it would not be correct to accept the view as taken by the learned judge in the trial court that the requirement of such a notice would be open to ascertainment by interpreting the same with reference to the facts and circumstances in the background. To do so is to introduce an uncertainty in the notice itself because in that event the obligations imposed by the notice would be made dependent on the fortuitous circumstances as, to how it is interpreted. There is no reason to think that if interpreted with reference to the facts and circumstances in the background there will be any uniformity just as there is no uniformity in the view taken by the learned trial judge and the view taken by us as we ourselves have indicated hereinbefore. It would not be pertinent, in our view, to introduce such uncertainty as to the requirement of a notice like the one under Section 142(1), wilful non-compliance whereof has been rendered an offence punishable with rigorous imprisonment by the statute itself. Such being the position and particularly when the notice fey itself suffers no ambiguity in directing the appellant to produce all its financial books of accounts of the head office, the learned judge could not have substantially modified the same by a process of interpretation which in our view is not permissible in law and then uphold its validity only on such an interpretation. In the result, we accept the contention of the appellant that the ITO in issuing the impugned notice under Section 142(1) did so without application of his mind to the two requirements of that provision referred to hereinbefore and such a notice is no real notice under Section 142(1) of the Act nor is it a lawful one. Such a notice can hardly be sustained as a valid or competent notice under Section 142(1), and as such is liable to be set aside.

15. At this stage, we should consider the contention of Mr. Balai Pal to the effect that the learned trial judge could lawfully make an order the result whereof was to alter the requirement of the notice in material part. As we have indicated above, the learned judge not only altered the terms of the notice by limiting the books, accounts and documents to those only having reference to head office expenses but further dispensed with production of such documents at the first instance. We fail to appreciate how the learned judge in the jurisdiction he was exercising could do it. He was not exercising the same jurisdiction as that of the ITO. He was merely adjudicating as to whether the ITO in issuing the impugned notice has done so in accordance with law. Moreover, on the provisions of Section 142(1), it was for the ITO to decide what documents having relevance to the pending assessment he would require for making the assessment and whether he would require production of the documents themselves or merely abstracts therefrom. These things being left by the statute to the ITO who is to make the assessment, this court in our view cannot exercise the said discretion and substitute its own order while merely determining whether a step taken in this regard had lawfully been taken or not. We would, therefore, on our finding as to invalidity of the notice, set aside the same, leaving it to the ITO to issue a fresh notice, if he considers it necessary, but in accordance with law.

16. The only dispute involved in the writ petition and consequently in this appeal being in, respect of the validity of the impugned notice.under Section 142(1) of the Act, normally it would have been sufficient for us to dispose of the matter in the manner aforesaid. But in view of certain subsequent developments we cannot dispose of this appeal on such terms only. It is not in dispute that the assessment concerned would have become barred unless completed on or before March 31, 1975. The appellant, however, moved this court with the writ petition on March 17, 1975, and this court by an order of injunction restrained further proceedings for the assessment. The learned judge in disposing of the writ petition on August 31, 1976, directed the appellant to produce the abstracts of the relevant entries in the original books, documents and papers which are evidence in support of head officeexpenses claimed as allowable deduction by November 30, 1976. The learned judge further directed inspection of the originals if required thereafter and the assessment to be completed within March 31, 1977. On September 22, 1976, the learned judge on the oral prayer made on behalf of the revenue modified his order dated August 31, 1976, by altering the last direction whereby he had directed the assessment to be completed within 31st March, 1977, by directing that the assessment for the relevant year must be completed on 31st March, 1977, but must not be completed before 31st March, 1977. It is not in dispute that the appellant having preferred the appeal, thereafter prayed for stay of further proceedings of the assessment and the appeal court, however, permitted the ITO to proceed with the assessment without prejudice to the rights of the appellant that may accrue on its success in this appeal. Consequent to the said order of the appeal court the ITO had admittedly made the assessment on the best of his judgment on March 31, 1977, in terms of the order of the learned judge in the trial court.

17. In view of these developments we accept the contentions of Dr. Pal that in disposing of this appeal we should not only set aside the impugned notice under Section 142(1) of the Act but should also set aside the consequent assessment made on the best of judgment by the ITO on the ground of non-compliance with such a notice and that again in terms of the leave granted by this court but subject to the result of the appeal. When we are setting aside the impugned notice as an invalid one, it is but necessary that a summary assessment made on the ground of non-compliance of that notice should be set aside. This position cannot be disputed in view of the decision of the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) .

18. A strong controversy has, however, been raised before us as to whether after setting aside the assessment we should issue any further direction on the ITO to make a fresh assessment in accordance with law or not. While Mr. Balai Lal Pal appearing on behalf of the revenue has contended that we should make such an order as a necessary consequence to our setting aside the assessment, Dr. Pal, appearing on behalf of the appellant, has strongly contested such a claim made on behalf of the revenue. According to Dr. Pal such a direction is sought for on behalf of the revenue only to lift the limitation by bringing the case under Section 153(3) of the Act but since such a consequential order is not necessarily needed for the disposal of the writ petition or this appeal we should not make any such consequential order. According to Dr. Pal an order so made would not come within Section 153(3) of the Act. Strong reliance is placed by Dr. Pal on the decisions of the Supreme Court in the cases of ITO v. Muralidhar Bhagwan Das : [1964]52ITR335(SC) and CIT v. Mohd. Shakoor and Mohd. Bashir : [1973]89ITR57(SC) ,According to Dr. Pal, when this court can well dispose of the appeal by setting aside the notice under Section 142(1) and the consequent assessment and leave the matter there, there is no necessity of making any other consequential order as suggested on behalf of the revenue; the matter should at best be left to the discretion of the ITO who should be given liberty to proceed afresh if he so decides without, however, any direction by this court for reassessment. According to Dr. Pal, an order or direction which can lift the limitation on the provision of Section 153(3) of the Act must be an order necessary to be made for disposal of the matter under adjudication wherein the order is being passed. Any order made which is not so necessary will not lift the limitation. Secondly, it was contended by Dr. Pal that in any event when, in the facts and circumstances, the assessment had already become barred this court should not make such a consequential order directing the ITO to make the assessment afresh.

19. We have carefully considered the rival claims on this point. We are, however, unable to accept the contention of Dr. Pal. In our view, it would not be correct to hold that the assessment had already become barred so that this court should not direct the assessment to be made afresh. It is not in dispute that on the day the appellant moved this court with the writ petition the assessment had not become barred. It is also not in dispute that since the issue of the rule there was an injunction restraining the ITO from proceeding with the assessment so that on the date the learned judge disposed of the writ petition the assessment was still alive. As we have indicated hereinbefore the learned judge in disposing of the writ petition on August 31, 1976, issued certain directions as to production of abstracts of entries in certain original books, documents and papers by November 30, 1976, with further direction for inspection to follow such production. He then directs the assessment to be completed within March 31, 1977. Indeed, it is unfortunate that the learned judge modified the last part of his direction on an oral prayer made on behalf of the revenue on September 22, 1976, when he imposed an injunction en the ITO not to makefile assessment before March 31, 1977. It has been strongly contended by Dr. Pal that such an injunction was incorporated on September 22, 1976, to give it effect from August 31, 1976. Dr. Pal has seriously assailed the learned judge's jurisdiction to modify his earlier order in the manner as aforesaid without any appropriate proceedings for review of his earlier order. Be that as it may, in our view, even on the original order made by the learned judge on August 31, 1976, the limitation stood lifted in view of the directions incorporated in that order so that when the ITO ultimately made the assessment on March 31, 1977, it had not become time barred. As for the other objection raised by Dr. Pal the decisions relied upon by him are distinguishable on facts and the principlestherein laid down do not stand in the way of our accepting the contention of Mr. Balai Pal that in the present case we should direct a reassessment. In those cases, the Supreme Court was not considering the question whether a court setting aside an assessment on ground of a procedural lapse as in the present case should or should not direct the assessment to be made afresh. We are unable to accept the contention of Dr. Pal that there would be no necessity for making such consequential order when this court can well set aside the assessment leaving it to the discretion of the ITO to make a fresh assessment in accordance with law. We are not setting aside the assessment on any ground which would entitle us to hold that there should be no further assessment. If it is so, certainly it is not a matter to be left to the discretion of the ITO as to whether he should make a fresh assessment or not. The assessment having failed on procedural lapse has to be made again in accordance with law and an order to that effect follows as a necessary corollary to our setting aside the order of assessment. In our view, it cannot be disputed for a moment that any authority competent in law to set aside the assessment on grounds as in the present case is empowered to make such a consequential order and without the same the order that he makes would not be complete. We, therefore, accept the contention of Mr. Pal that in disposing of this appeal we should not only set aside the assessment made by the ITO pending the disposal of this appeal but direct him to make a fresh assessment in accordance with law.

20. In the result, the appeal succeeds and is allowed with costs. Hearing fee being assessed at 10 gold mohurs. The impugned notice under Section 142(1) of the Act issued by the ITO on March 4, 1975, is set aside. The assessment made on March 31, 1977, by the ITO in his best judgment based on non-compliance of the above notice under Section 142(1) of the Act is also set aside and the ITO is directed to make a fresh assessment in accordance with law. In making any such assessment it would be open to the ITO to issue any fresh notice under Section 142(1) of the Act in accordance with law.

21. On the prayer of Mr. Datta, learned advocate for the respondents, We stay the operation of the order for a period of three months from this date.

B. C. Chakrabarti, J.

22. I agree.


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