1983 (4) TMI 72 - AT - Income Tax

Summary

Issues Involved:
1. Applicability and mandatory nature of Section 144B of the Income-tax Act, 1961.
2. Consequences of non-compliance with Section 144B.
3. Distinction between procedural irregularity and nullity in fiscal matters.

Issue-wise Detailed Analysis:

1. Applicability and Mandatory Nature of Section 144B:

The case revolves around the applicability and mandatory nature of Section 144B of the Income-tax Act, 1961. The assessee filed a return disclosing 'nil' income, claiming exemption under Sections 10(23) and 11. The Income-tax Officer (ITO) completed the assessment without following the procedure under Section 144B, leading to a dispute. The Commissioner (Appeals) annulled the assessment, holding it as a nullity due to non-compliance with Section 144B. The department argued that the omission was a curable procedural defect, while the assessee contended that the provisions were mandatory, making the assessment null and void.

2. Consequences of Non-Compliance with Section 144B:

The Tribunal examined the provisions of Section 144B, which mandates the ITO to forward a draft assessment order to the assessee if the proposed variation in income exceeds a specified amount. The assessee can object to the draft order, and the ITO must forward the objections to the Inspecting Assistant Commissioner (IAC) for directions. The Tribunal noted that Section 144B is a procedural section but mandatory. Non-compliance with its provisions renders the assessment invalid but not necessarily a nullity. The Tribunal referred to various High Court and Supreme Court decisions, including the Madhya Pradesh High Court's rulings in Banarsidas Bhanot & Sons v. CIT and H. H. Maharaja Raja Pawer Dewas v. CIT, which held that non-compliance with Section 144B is a procedural irregularity that can be cured by remanding the proceedings to the ITO.

3. Distinction Between Procedural Irregularity and Nullity in Fiscal Matters:

The Tribunal emphasized that in fiscal matters, if the initial jurisdiction to proceed is validly assumed, any lapse or omission in following the mandatory procedure does not make the order a nullity. Instead, the order is unsustainable and must be set aside with directions to cure the defect. The Tribunal distinguished between procedural irregularities and nullities, stating that mandatory provisions enacted in public interest cannot be waived. However, the completion of an assessment without complying with Section 144B is an irregularity, not a nullity. The Tribunal concluded that the proper course is to set aside the assessment and direct the ITO to pass a fresh order after complying with all legal requirements, including Section 144B.

Conclusion:

The Tribunal modified the order of the Commissioner (Appeals), set aside the assessment, and directed the ITO to pass a fresh order according to law after complying with Section 144B. The appeal was thus allowed, emphasizing that procedural lapses in fiscal matters do not render the proceedings null but require rectification through proper legal channels.