1982 (2) TMI 45 - HC - Income Tax

Summary

Issues Involved:

1. Validity of the ITO's order under section 154 of the Income-tax Act, 1961.
2. Requirement of notice under section 23A(2) of the Indian Income-tax Act, 1922.
3. Entitlement of the assessee to notice under section 23A(2) given the alleged non-disclosure of income.

Detailed Analysis:

1. Validity of the ITO's Order under Section 154:

The primary issue was whether the Income-tax Officer (ITO) rightly vacated the order under section 154 of the Income-tax Act, 1961. The ITO initially levied additional super-tax of Rs. 2,907 on a shortfall in dividend distribution. Later, the ITO rectified this order under section 154, increasing the super-tax demand to Rs. 28,119, which the assessee contested. The Appellate Assistant Commissioner (AAC) and the Income-tax Appellate Tribunal (ITAT) both upheld the assessee's contention that the original order was void ab initio due to the lack of notice under section 23A(2), thus invalidating the rectification.

2. Requirement of Notice under Section 23A(2):

Section 23A(2) mandates that the ITO must give the company an opportunity to declare further dividends before taking action under section 23A(1) if the company has distributed the statutory percentage of dividends based on the income shown in its returns. The ITO failed to issue such a notice to the assessee, which was a crucial procedural requirement. The AAC and the Tribunal found that the absence of this notice rendered the ITO's original order invalid, thus invalidating any subsequent rectification under section 154.

3. Entitlement of the Assessee to Notice under Section 23A(2) Given the Alleged Non-Disclosure of Income:

The Commissioner argued that the assessee was not entitled to notice under section 23A(2) because the assessee had failed to disclose its income fully and truly, as evidenced by an addition of Rs. 10,000 as income from undisclosed sources. However, the Tribunal and the AAC did not address whether this non-disclosure exempted the ITO from issuing the notice. The court highlighted that this issue should have been considered by the Tribunal, as it directly impacts the validity of the ITO's actions.

Conclusion:

The court concluded that if the Tribunal finds the assessee was entitled to notice under section 23A(2), the ITO's order under section 154 was rightly vacated. Conversely, if the Tribunal finds the assessee was not entitled to such notice due to non-disclosure of income, the ITO's rectification under section 154 was not properly vacated. The matter was remanded to the Tribunal to determine the entitlement to notice.

Costs:

There was no order as to costs of the reference.