Skip to content


Rattan Lal Tiku Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtJammu and Kashmir High Court
Decided On
Case NumberIncome-tax Reference No. 11 of 1972
Judge
Reported in[1974]97ITR553(J& K)
ActsIncome Tax Act, 1961 - Sections 143, 143(2) and 250(4)
AppellantRattan Lal Tiku
RespondentCommissioner of Income-tax
Appellant Advocate A.N. Raina, Adv.
Respondent Advocate J.N. Bhan, Adv.
Cases ReferredNirmal Kumar Singh v. Secretary of State
Excerpt:
- .....was incorrect or incomplete, he was bound to issue a valid notice under section 23(2), and as this mandatory notice was not issued, the officer could not proceed to make the best judgment assessment on failure of compliance with notice under section 22(4), because if a valid notice had been issued under section 23(2), the assessee might have removed the suspicions of the officer and might have satisfied him that his return was correct and complete, and it would be a great hardship if a best judgment assessment was made under section 23(4) because of a non-compliance with the notice to produce accounts when such accounts were in reality not necessary, for the purpose of checking the return. there is some force in this contention.. ....the phraseology of section 23(2) suggests that under.....
Judgment:

Ali, C.J.

1. By order dated May 22, 1972, the Income-tax Appellate Tribunal, Chandigarh Bench, has referred the following points of law to this court for opinion :

'(1) Whether, Section 143 is a substantive section or it is merely a procedural section ?

(2) Whether Section 143 is directory or mandatory;

(3) Whether, on the facts and in the circumstances of the case, the Tribunal was right in confirming the order of the Appellate Assistant Commissioner whereby the assessment was only set aside for being made de novo but was not annulled ?'

2. Before answering the questions referred to us it will be necessary to mention a few facts which are not disputed by the counsel for the parties. The assessee is carrying on business in the name and style of Messrs. Amar Industries, Srinagar. The accounting year in dispute is the year 1963--assessment year 1963-64. The assessee filed his return for the year 1963-64 on May 1 8, 1965, showing an income of Rs. 570. It may be mentioned here that the assessee carries on business in the manufacture and sale of ruffal and silk. In the return which was signed by the assessee, his mother, Mst. Shobawati, was shown as the proprietor of the business. Notice under Section 143(2) of the Income-tax Act (hereinafter to be referred to as 'the Act') was issued to the assessee on January 19, 1968, fixing the date of hearing for January 29, 1968. On several dates the Income-tax Officer examined the case of the assessee and in the course of his examination found that the cash credits in the books of the assessee during the period January 1, 1962, to March 31, 1963, stood as follows :

Rs.

Triloki Nath Tiku

8,500

Dr. Amar Nath Tiku

7,000

Shambu Nath

2,500

Rattan Lal Tiku

3,500

(the assessee)

Total21,500

3. Before, however, the Income-tax Officer could complete the assessment, the assessee filed a fresh return on March 25, 1968, under Section 139(5) of the Act and in his revised return declared his income as Rs. 727. The Income-tax Officer after examining the books produced by the assessee and other materials assessed him on an income of Rs. 14,950. In making this assessment the Income-tax Officer gave a credit of Rs. 8,500 standing in the name of Triloki Nath Tiku which was explainable on the materials furnished by the assessee. Being aggrieved by the assessment order passed by the Income-tax Officer, the assessee filed an appeal before the Appellate Assistant Commissioner (for the sake of brevity to be referred to as the A.A.C.) wherein he submitted that as the Income-tax Officer had issued no notice under Sections 143(2) and 143(3) of the Act, the assessment should be annulled. In the alternative it was pleaded by the assessee that he was not given an adequate opportunity to prove the credits standing in the names of Dr. Amar Nath Tiku, Shambu Nath and the assessee himself which were not accepted by the Income-tax Officer. The A.A.C. partly accepted the appeal, and instead of annulling the assessment he set aside the assessment and remanded the case to the Income-tax Officer with the direction that he should issue a notice under Section 143(2) of the Act and then make the assessment after hearing the assessee. Thereafter the assessee went up in further appeal to the Income-tax Appellate Tribunal where he raised two points : (1) whether Section 143 of the Act was substantive or merely a procedural section, and (2) whether the provisions of Section 143 were mandatory or only directory in nature. The Tribunal, after hearing counsel for the parties, came to the finding that Section 143(3) was merely a procedural section and Section 143(2) was mandatory. Another point raised before the Tribunal was whether the A.A.C. should have annulled the assessment completely or whether he was right in remanding the case to the Income-tax Officer. On this point also the Tribunal upheld the order of the A.A.C. Thereafter, the assessee approached the Income-tax Appellate Tribunal for making a reference to this court which having been accepted, the present reference has been made to this court.

4. The only questions that fall for determination before us are as contained in the order of reference made by the Tribunal. We find no difficulty in answering the first question, namely, as to whether or not Section 143(3) is a procedural section. In fact, a perusal of Section 143 shows that this section' is purely procedural and contains various modes of making an order of assessment. Section 143(2) and (2) run thus :

'143. (1) Where a return has been made under Section 139 and the Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence that the return is correct and complete, he shall assess the total income or loss of the assessee, and shall determine the sum payable by him or refundable to him on the basis of such return.

(2) Where a return has been made under Section 139 but the Income-tax Officer is not satisfied without requiring the presence of the assessee or the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officer's office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return.'

5. A perusal of this section clearly shows that it lays down the procedure to be adopted by the Income-tax Officer in two different contingencies. Sub-section (1) contemplates cases where the Income-tax Officer does not doubt the correctness of the return or the materials produced before him by the assessee and accepts the return, in which case it is not necessary for him to issue any notice to the assessee, but he can proceed with the assessment straightaway by accepting the return of the assessee. Sub-section (2) deals with a case where the Income-tax Officer is not satisfied about the correctness of the return of the assessee and before making the assessment it is incumbent on the Income-tax Officer to give a notice to the assessee. Sub-section (3) merely regulates the manner in which notice is to be issued and the hearing is to be conducted. Thus, it is absolutely clear that Section 143 of the Act is purely a procedural section laying down the procedure for making assessment in various contingencies. For these reasons, we find ourselves in complete agreement with the view of the Tribunal that Section 143 is a procedural section and not a substantive one. The first question, therefore, is answered accordingly,

6. We now come to the second question, namely, the effect of Section 143(2). To begin with it would appear that Sub-section (2) of Section 143 incorporates the essential rule of audi alteram partern., i.e., no man should be condemned unheard. It is, therefore, clear that this provision must be construed to have a mandatory force, because the object of the legislature is that if the Income-tax Officer is not satisfied with the correctness of the return filed by an assessee or the documents or materials furnished by him, then before making the assessment he must give an opportunity to the assessee to explain and if possible to satisfy the Income-tax Officer regarding the correctness of the assessee's return. Secondly, the words 'shall serve on the assessee a notice' imply a duty or an obligation to be performed and, therefore, the words must be held to have a mandatory force. Thirdly, the word 'shall' used in the sub-section clearly connotes that the provision is a mandatory one, particularly having regard to the circumstances mentioned above. Apart from the decisions cited by the Tribunal in its order of reference, we are fortified in our view by a Division Bench decision of the Allahabad High Court in Rajmani Devi v. Commissioner of Income-tax, [1937] 5 I.T.R. 631, 644 (All.), wherein their Lordships observed as follows :

'In the present case the contention on behalf of the assessee is that because the Income-tax Officer had reached the frame of mind when he had reason to believe that the return made under Section 22 was incorrect or incomplete, he was bound to issue a valid notice under Section 23(2), and as this mandatory notice was not issued, the officer could not proceed to make the best judgment assessment on failure of compliance with notice under Section 22(4), because if a valid notice had been issued under Section 23(2), the assessee might have removed the suspicions of the officer and might have satisfied him that his return was correct and complete, and it would be a great hardship if a best judgment assessment was made under Section 23(4) because of a non-compliance with the notice to produce accounts when such accounts were in reality not necessary, for the purpose of checking the return. There is some force in this contention.. ....

The phraseology of Section 23(2) suggests that under the circumstances of the present case a valid notice under Section 23(2) was imperative, but the phraseology of Section 23(4) suggests that perhaps the Income-tax Officer could proceed to make a best judgment assessment because of the failure to comply with all the terms of a notice issued under Section 22(4). Our answer to the second question is that, although the issue of a valid notice under Section 23(2) was not a condition precedent under the circum-stances of the present case to the making of an assessment under Section 23(4), the issue of such a valid notice was imperative.... '

7. A similar view was taken by the Calcutta High Court in Nirmal Kumar Singh v. Secretary of State, A.I.R. 1925 Cal. 890, wherein their Lordships held as follows :

'Apart from all this the provisions of Sub-section (2) of Section 23, to my mind, are mandatory and no appeal in respect of an assessment made under Sub-section (4) of that section lies to the Assistant Commissioner. Under such circumstances there is no reason why the mandatory provisions of an enactment in a taxing statute like the Income-tax Act should not be strictly observed in the matter of making an assessment under its provisions.'

8. These decisions were given with reference to Sub-sections (2) and (3) of Section 23 of the old Income-tax Act which have now been reproduced as Sub-sections (2) and (3) of Section 143.

9. For these reasons we hold that the provisions of Section 143(2) are mandatory and non-compliance with these provisions vitiates the order of the Income-tax Officer. We, therefore, agree with the view taken by the Tribunal on this point and answer the second question referred to us accordingly.

10. Coming now to the third question as to the validity of the order passed by the A.A.C., we do not find any ground to differ from the view taken by the A.A.C. The learned counsel for the assessee submitted that, as the mandatory provisions of Section 143(2) of the Act hid not been complied with by the Income-tax Officer, the A.A.C. should have annulled rather than set aside the assessment and remanded the case for giving a fresh notice. We are, however, unable to accept this argument. As an appellate court the A.A.C. had plenary powers to make any order he liked on the facts and circumstances of the case. In fact Section 250(4) of the Act runs thus;

'The Appellate Assistant Commissioner may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Income-tax Officer to make further inquiry and report the result of the same to the Appellate Assistant Commissioner.'

11. The second part of this sub-section clearly empowers the A.A.C. to give directions to the Income-tax Officer to make further inquiry. The power of setting aside the order of assessment, where it is illegal, is inherent in any appellate court and the A.A.C. has passed a perfectly legal order in directing the Income-tax Officer to issue notice to the assessee before making an assessment because he was not satisfied regarding the correctness of the assessee's return. We do not see how this order prejudices the assessee : in fact the order is in favour of the assesses rather than against him. The A.A.C. had ample jurisdiction either to call for a report or to give directions to the Income-tax Officer to comply with the requirements of law.

12. In the instant case the assessee had no doubt filed his return and his accounts showed certain transactions which were not clear and understandable and, therefore, it would have been a wrong exercise of discretion on the part of the A.A.C. to annul the assessment altogether and thus deprive the revenue of an opportunity to reassess the assessee after hearing him. As the learned A.A.C. thought that the mandatory provisions of law had not been followed by the Income-tax Officer, he rightly set aside the assessment and remanded the case to him directing him to comply with the mandatory statutory requirements.

13. Mr. A. N. Raina, learned counsel for the assessee, then submitted that the order of remand and a fresh notice to the assessee amounted to reopening the assessment of the assessee which was time-barred. This argument also does not appear to us to be tenable. There could be no question of reopening an assessment in the present case. The admitted position is that the assessee had filed his return and while the assessment was pending, he filed a second return on which the Income-tax Officer made the assessment. The assessee then went up in appeal to the A. A.C. and so long as the appeal was pending before him, it was undoubtedly a continuation of the assessment proceedings. It is, therefore, manifest that at no time was the assessment by the Income-tax Officer closed or finalised so far as the assessee is concerned, Reopening of an assessment is made under Section 146 of the Act and that too at the instance of the assessee. No such application was ever made to the Income-tax Officer by the assessee, nor can it be said to be a case of an income escaping assessment because the conditions laid down in Section 147 of the Act do not apply to the present case at all. In these circumstances, we are not in a position to accept the argument of Mr. Raina on this point.

14. These were the only two arguments advanced before us in support ofpoint No. 3 referred to us by the Tribunal. On this point, therefore, wehold that both the A.A.C. and the Tribunal have taken the correct viewand the order of the A. A.C whereby he set aside the assessment and ordereda de novo assessment to be made was perfectly correct in law and thisorder did not suffer from any legal infirmity.

15. All the three questions referred to us are answered as indicated above and the reference is disposed of accordingly.

Mian Jalal-Ud-Din, J.

16. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //