1973 (8) TMI 30 - HC - Income Tax

(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 ?

Summary

Issues Involved:
1. Whether section 143 is a substantive section or merely a procedural section.
2. Whether section 143 is directory or mandatory.
3. Whether the Tribunal was right in confirming the order of the Appellate Assistant Commissioner (A.A.C.) whereby the assessment was set aside for being made de novo but was not annulled.

Issue-Wise Detailed Analysis:

1. Whether section 143 is a substantive section or merely a procedural section:

The court found no difficulty in answering this question. A perusal of section 143 shows that this section is purely procedural and contains various methods of making an order of assessment. Section 143(1) and (2) lay down the procedure to be adopted by the Income-tax Officer in two different contingencies. Sub-section (1) deals with cases where the Income-tax Officer does not doubt the correctness of the return and accepts it without issuing any notice. Sub-section (2) deals with cases where the Income-tax Officer is not satisfied with the return and must issue a notice to the assessee. Sub-section (3) regulates the manner in which notice is to be issued and the hearing conducted. Thus, it is clear that section 143 is purely procedural and not substantive. The court agreed with the Tribunal's view that section 143 is a procedural section.

2. Whether section 143 is directory or mandatory:

The court held that sub-section (2) of section 143 incorporates the essential rule of audi alteram partem, meaning no man should be condemned unheard. This provision must be construed to have a mandatory force, as it ensures that the assessee is given an opportunity to explain and satisfy the Income-tax Officer regarding the correctness of the return. The words "shall serve on the assessee a notice" imply a duty or an obligation, making the provision mandatory. The word "shall" used in the sub-section further connotes that the provision is mandatory. The court was fortified in its view by decisions from the Allahabad High Court and the Calcutta High Court, which held that similar provisions in the old Income-tax Act were mandatory. Thus, the court agreed with the Tribunal that the provisions of section 143(2) are mandatory and non-compliance with these provisions vitiates the order of the Income-tax Officer.

3. Whether the Tribunal was right in confirming the order of the A.A.C. whereby the assessment was set aside for being made de novo but was not annulled:

The court found no ground to differ from the view taken by the A.A.C. The A.A.C., as an appellate court, had plenary powers to make any order on the facts and circumstances of the case. Section 250(4) of the Act empowers the A.A.C. to direct 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. The A.A.C. passed a legal order by directing the Income-tax Officer to issue a notice to the assessee before making an assessment, as he was not satisfied with the correctness of the return. This order did not prejudice the assessee but was in favor of him. The court also rejected the argument that the order of remand and a fresh notice amounted to reopening the assessment, which was time-barred. The assessment was still pending, and the appeal before the A.A.C. was a continuation of the assessment proceedings. Thus, the court held that both the A.A.C. and the Tribunal took the correct view, and the order of the A.A.C. was legally correct and did not suffer from any infirmity.

Conclusion:

All the three questions referred to the court were answered as indicated above, and the reference was disposed of accordingly.