1987 (8) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Validity of ex parte assessment under section 144 of the Income-tax Act, 1961.
2. Whether the Commissioner of Income-tax (Appeals) should have annulled the assessment instead of setting it aside.
3. Applicability of section 144B regarding reference to the Inspecting Assistant Commissioner.
4. Whether the assessee could challenge the validity of an ex parte assessment in an appeal against the quantum assessment under section 144.

Issue-wise Detailed Analysis:

1. Validity of ex parte assessment under section 144 of the Income-tax Act, 1961:
The Income-tax Officer (ITO) completed the assessment ex parte under section 144 due to the assessee's non-compliance with the notice issued under section 143(2). The assessee argued that there was compliance with the notice on March 27, 1979, and the failure to furnish information on March 31, 1979, should not result in an ex parte assessment. The Commissioner of Income-tax (Appeals) accepted the assessee's contention, noting that no notice under section 142(1) was issued, and thus, there was no default by the assessee. The Tribunal upheld this view, agreeing that the ex parte assessment was not warranted.

2. Whether the Commissioner of Income-tax (Appeals) should have annulled the assessment instead of setting it aside:
The assessee contended that the Commissioner should have annulled the assessment rather than setting it aside. The Tribunal, however, upheld the Commissioner's decision to set aside the assessment and direct a fresh one. The court noted that section 251(1) grants the appellate authority the power to either annul or set aside an assessment. The court found that setting aside the assessment and providing the assessee with a fresh opportunity to present their case was adequate to meet the ends of justice, despite the inconvenience of an extended limitation period.

3. Applicability of section 144B regarding reference to the Inspecting Assistant Commissioner:
The assessee argued that the ITO should have referred the case to the Inspecting Assistant Commissioner under section 144B due to the significant additions to the income. The court noted that this obligation arises only if the assessment is made under section 143(3) and not under section 144. Since the assessment was made ex parte under section 144, the requirement to refer the case under section 144B did not apply.

4. Whether the assessee could challenge the validity of an ex parte assessment in an appeal against the quantum assessment under section 144:
The court observed that it is well-settled law that an assessee cannot challenge the validity of an ex parte assessment under section 144 in a quantum appeal. The court referred to the decision of the Allahabad High Court in Sir Padampat Singhani v. CIT, which established that such a challenge should be made through an application under section 146 to reopen the ex parte assessment. The court noted that the assessee did not avail of this remedy and thus should not have been allowed to challenge the validity of the ex parte assessment in the quantum appeal. However, the court did not base its final decision solely on this ground, as it also concluded that the Commissioner was justified in setting aside the assessment.

Conclusion:
The court answered the reference in the affirmative, favoring the Revenue and against the assessee, affirming that the Tribunal was correct in rejecting the assessee's contention and that the Commissioner of Income-tax (Appeals) was justified in setting aside the assessment and directing a fresh assessment.