1969 (8) TMI 29 - HC - Income Tax

Notice under section 154 of the Income-tax Act, 1961, proposing to rectify the petiotiner asseesmment for 1959-60 which was made under 1922 Act - validity of proceedings

Issues Involved:
1. Validity of the notice under section 154 of the Income-tax Act, 1961.
2. Applicability of the 1961 Act to assessments completed under the 1922 Act.
3. Jurisdiction of the Income-tax Officer post the appellate order.
4. Requirement of a valid notice under section 35 of the 1922 Act.

Issue-wise Detailed Analysis:

1. Validity of the notice under section 154 of the Income-tax Act, 1961:
The petitioner challenged the notice dated 19th April 1967, issued under section 154 of the Income-tax Act, 1961, proposing to rectify the assessment for 1959-60. The petitioner contended that the assessment order had merged with the order of the Appellate Assistant Commissioner, who alone could rectify it. The court observed that section 154(1A) of the 1961 Act, introduced in 1964, allowed the Income-tax Officer to rectify any matter not considered or decided by the Appellate Assistant Commissioner. Since the valuation of bonus shares was not specifically addressed by either the Income-tax Officer or the Appellate Assistant Commissioner, the notice under section 154(1A) was deemed valid.

2. Applicability of the 1961 Act to assessments completed under the 1922 Act:
The petitioner argued that the assessment for 1959-60, completed under the 1922 Act, could not be rectified under the provisions of the 1961 Act. The court examined section 297(2)(a) of the 1961 Act, which provided for the continuation of proceedings as if the repealing Act had not been passed. The court referred to the Supreme Court's decisions in S. Sankappa v. Income-tax Officer and Kalawati Devi Harlalka's case, which held that rectification proceedings are part of the assessment process. Therefore, the proceedings could be initiated under section 35 of the 1922 Act, and the notice under section 154 of the 1961 Act was not valid for rectifying assessments completed under the 1922 Act.

3. Jurisdiction of the Income-tax Officer post the appellate order:
The petitioner contended that after the appellate authority had disposed of the appeal, the effective order was that of the appellate authority, and the Income-tax Officer could not rectify it. The court agreed with this contention, stating that the assessment order had merged with the appellate order, and only the Appellate Assistant Commissioner could rectify it. The court cited the Supreme Court's decisions in Commissioner of Income-tax v. Amritalal Bhogilal & Co. and Collector of Customs v. East India Commercial Ltd., which supported this view.

4. Requirement of a valid notice under section 35 of the 1922 Act:
The petitioner argued that a valid notice under section 35 of the 1922 Act was the foundation of the Income-tax Officer's jurisdiction to rectify the assessment order. The court referred to the decision in Income-tax Officer North Satara v. Arvind N. Mafatlal, which emphasized the importance of a valid notice for jurisdiction. However, the court also considered the recent decision in Giridharilal Jhajharia v. Commissioner of Income-tax, which held that the jurisdiction to rectify flows from the statutory provisions and not from the notice itself. The court concluded that the notice under section 154 of the 1961 Act was a mere irregularity and did not nullify the proceedings, provided the assessee was given a reasonable opportunity to be heard.

Conclusion:
The court quashed all proceedings pending under the impugned notice and directed the respondents to forbear from taking any further steps in pursuance thereof. The rule was made absolute, and each party was ordered to bear its own costs.

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