9911796707
TMI Blog1985 (6) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... ects in the account books of the assessee and a further addition of Rs. 1,04,555 on account of unexplained credits appearing in the name of one Sebastian Co., Nagercoil. The assessee sent a letter dated 5-4-1982 objecting to the addition proposed under section 144B, which was received by the ITO on 7-4-1982. In that letter the assessee pointed out that at the time of hearing they had submitted many facts to prove the genuineness of all the transactions and stated that they object to the proposed addition, which is arbitrary. It is also further stated that they have to get further particulars to submit their detailed objection against the proposal and requested further time of at least 14 days for the same. It appears, the ITO had in his order-sheet on 8-4-1982 noted that 'time granted as requested', but this note, it appears, was not communicated to the assessee. On 16-4-1982, the assessee sent another letter to the ITO which was received by him on 17-4-1982 wherein the assessee wanted further time of 15 days for filing further particulars, but the ITO in this connection noted in the order-sheet on 24-4-1982 as under : "Further time cannot be granted under section 144B. Assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed out that the Commissioner (Appeals) has annulled the assessment not for mere non-compliance under section 144B, but for certain fundamental infirmities stated in paragraph No. 6. The learned counsel submitted that the Special Bench decision referred to and relied on by the departmental representative is distinguishable because in that case no draft order at all was sent to the assessee. He also took us through the Special Bench order, paragraph No. 9 in this connection. It is pointed out that in the present case a draft order was sent proposing certain additions in regard to which there were earlier some discussions and the final order of assessment refers to certain attempts to cross-verify the transactions claimed by the assessee, but the result of such cross-verifications have not been put to the assessee for rebuttal and, thus, there has been a gross violation of natural justice, which has rendered the assessment illegal and void and in such a situation there is no case for sending back the matter to the departmental authorities for a fresh assessment. It was submitted that the decision of the Madhya Pradesh High Court in Banarsidas Bhanot Sons v. CIT [1981] 129 ITR 488 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1 lakh. This is not a case where without a prior hearing of the assessee and discussions on the various doubtful items considered by the ITO as warranting addition, he has proposed additions of certain items on his own and was yet to receive the assessee's explanation or objection to the proposal. In other words, even when he had issued a draft assessment order, there was already on record the objections raised by the assessee which were considered by him to be not satisfactory. In such circumstance what he has done by sending the draft assessment order is only to comply with the statutory requirement of section 144B of having to forward the draft assessment of the proposed order of assessment and to invite the formal objection. It is seen that the draft order was served on the assessee on 1-4-1982. The assessee sent its objection letter dated 5-4-1982 which was received by the ITO on 7-4-1982. In that letter the assessee, inter alia, pointed out that at the time of hearing they have submitted many facts to prove the genuineness of all transactions and that they object to the proposed addition, which is arbitrary. In the second paragraph they stated that they have to gather furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sitive objection taken by the assessee against the proposed addition in the draft order and we fail to see how the ITO can reasonably believe that there was no objection to the proposed order. We need not go into the question whether when the assessee objects to the addition proposed in the draft assessment order he must adduce reasons therefor even at that stage and any failure to do so would render the objection non est because as we have already noticed, the proposed additions have already been earlier discussed and the assessee has given its reasons and explanations against the proposed additions and unless the assessee has categorically withdrawn those explanations or reasons, they continue to constitute the reasons for the objections taken by the assessee against the addition proposed in the draft assessment order. All that the assessee has stated in the letter in reply to the draft order is that it wanted to reinforce the objection by further particulars for which time was sought. Further, in out view, there is nothing in the provisions of section 144B to show that the assessee must send its objections to the ITO along with the reasons therefor and that unless the reasons ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er observing the procedure is the question that arises for our consideration. 7. We may now consider the decisions stated by the parties. In Banarsidas Bhanot Sons' case, a case relied on by the department, the facts were that a draft assessment order was served on the assessee setting out various proposed additions and disallowances, but the quantum of total income was not computed. The assessee's objections to the proposed draft assessment order were not received within the prescribed time, but were received by the ITO after he completed the assessment. The Tribunal in that case set aside the assessment order and restored the matter to the ITO for making a fresh assessment after serving a fresh and complete draft order on the assessee. It is in these circumstances that the High Court upheld the order of the Tribunal. It was pointed out that in that case the draft order contained full details of the proposed additions and variations and all that it lacked was the computation of total income which could not have caused any prejudice to the assessee. It was not a case where the ITO did not start the proceeding or complete the assessment within the time prescribed. In H.H. Mahara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be set aside, but the appellate authority has also to give a direction to make a fresh assessment after complying with the legal requirements. The facts in this case are distinguishable from the facts in the case before us. This is not a case where the ITO was not aware of the procedure and had made the assessment which he had jurisdiction to do. He was fully aware of the requirement of section 144B and had followed it up to the stage of sending the draft assessment order and inviting the objections of the assessee. Where he has committed an illegality, which, in our opinion, is not curable, but fatal, is to assume jurisdiction to make the assessment on the face of the categorical objection of the assessee in the proposed draft assessment order by perversely holding that there is no objection and, thus, trying to vest himself with the jurisdiction to make the assessment, even though the requirement under the section required that he should refer the matter to the IAC and abide by his directions. Further, as pointed out by the learned counsel for the assessee, the ITO appears to have gathered materials and information in regard to certain items subsequent to the draft assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leted by 31-3-1982, but under Explanation 1 to that section, in a case where the procedure under section 144B is resorted to, the period not exceeding 180 days from the date on which the ITO forwards the draft order under section 144B(1) to the assessee and ending with the date on which the ITO receives the directions from the IAC or in a case where no objections to the draft order are received from the assessee, a period of 30 days is excluded. In the present case, as we have already found and it was also undisputed on behalf of the department, that objection has been received from the assessee to the draft order and, therefore, the period of 30 days applicable to a case where no objection is received is not applicable, but only the period ending on the date on which the ITO receives directions from the IAC if he had referred the matter to the IAC and obtained his directions within the period of 180 days allowed under the section. The ITO cannot avail himself of the period of 30 days from the date on which he forwarded the draft order as it applies only to a case where no objections are received from the assessee and, therefore, the assessment made by him is clearly time barred. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITO from his counterpart at Nagercoil. This reply confirmed one of the transactions propounded by the assessee and the ITO has accepted the claim of the assessee by reducing the addition by Rs. 13,500. 3. One of the points made out by the assessee and accepted by my brother is that the ITO has varied the draft assessment order on the basis of material not disclosed to the assessee, to wit, the aforesaid reply from the ITO, Nagercoil, and has, thus, violated the principles of natural justice. It is difficult to accept this point in view of the fact that the ITO's acting on the information in this letter has only been to reduce the addition originally proposed. The action of the ITO has enured to the benefit of the assessee and not to his detriment. It cannot, therefore, be said that the ITO has acted in violation of the principles of natural justice. As far as the rest of the additions are concerned, the ITO has provided opportunity to the assessee of being heard before he issued the draft assessment order. The assessment, in my opinion, cannot be annulled on this score. 4. The ITO has passed the final assessment order without referring the draft assessment order to his IAC. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O could not be said to be a nullity, that though the Tribunal could have affirmed the assessment made by the ITO, it took a view more favourable to the assessee by setting aside the assessment and sending back the case to the ITO which would enable the assessee to object within time to the variation which the ITO proposed to make. These cases clearly show that any irregularity in following the procedure laid down in section 144B cannot have the effect of displacing the jurisdiction of the ITO to make the assessment and the assessment so made cannot be annulled but necessary orders will have to be passed to rectify the error in procedure which might have caused prejudice to the assessee. 6. The order of the Special Bench of the Tribunal in the case of Shivaji Park Gymkhana has drawn a distinction between cases where the assessments should be annulled and cases where the assessments could only be set aside. It has been held that it is only in cases where there was an inherent lack of jurisdiction to assess, that the assessment could be annulled. It cannot be said in this case that the ITO did not have the jurisdiction at the time he commenced the proceedings for making the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 144B. The copy of the draft assessment order was received by the assessee on 1-4-1982. The assessee sent a letter dated 5-4-1982 objecting to the addition proposed by the ITO. This letter was received by the ITO on 7-4-1982. In the above letter, the assessee had, inter alia, requested for time of at least 14 days for submitting its detailed objections against the additions/disallowances. It is evident from the entry dated 8-4-1982 in the order-sheet that the time was granted by the ITO as requested. It, however, appears that the contents of the entry were not communicated to the assessee. On 16-4-1982 the assessee sent another letter to the ITO which was received by him on 17-4-1982 requesting for further time of 15 days for filing the detailed objections. The ITO has passed the following order in his order-sheet on 24-4-1982 : "Further time cannot be granted under section 144B--Assessment order dictated. The final assessment order has been made by him on 24-4-1982 which has been received by the assessee on 30-4-1982. 3. It was submitted on behalf of the assessee before the Commissioner (Appeals) that the assessment order passed by the ITO was bad in law and required to be an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment (which is invalid) has been made by the ITO on 24-4-1982, i.e., after the time limit for completion of the assessment had expired. Time barred assessments, according to the counsel for the assessee, can never be set aside with a direction to make them afresh. In this context, the counsel strongly relied on paragraph No. 2 of the order of the Commissioner (Appeals), the observations of the Madhya Pradesh High Court in the case of Banarsidas Bhanot Sons at page 492, of the Delhi High Court in the case of Sudhir Sareen at page 449 of the Gauhati High Court in the case of Sashi Prasad Baruah v. AITO [1973] 91 ITR 488 and of the Gauhati High Court in the case of Jai Prakash Singh. 6. In order to appreciate the rival contentions properly, it is desirable to mention that both the learned Members have held that the provisions of section 144B are applicable in this case, that it was not a case of 'no objection' by the assessee and that, therefore, a valid assessment could have been made by the ITO by forwarding the draft assessment order along with the assessee's objections to the IAC and completing the assessment thereafter in accordance with the directions received from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makes the assessment invalid but not illegal and without jurisdiction so as to justify the annulment of the assessment altogether instead of setting it aside with a direction to make it afresh. I also do not agree with the learned Judicial Member that any principles of natural justice is or can be said to be violated in the ITO's allowing relief to the assessee without giving an opportunity as distinct from making some additions/disallowances. In this context it may not be out of place to mention that as against the proposed addition of Rs. 1, 14,555 in the draft assessment order, the ITO made an addition of Rs. 1,01,055 only in the final assessment completed on 24-4-1982. 10. This takes me to the question of limitation about which the learned Accountant Member has not made any observation. Section 153(1) prescribes the time limit for completion of assessments. It lays down that no order of assessment shall be made under section 143 or 144 at any time after two years from the end of the assessment year in which the income was first assessable where such assessment year is an assessment year, commencing on or after 1-4-1969. Thus, no order of assessment could have been passed for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ya Pradesh High Court has in its decision in the case of Banarsidas Bhanot Sons clearly stated that they were proceeding in the case on the basis that--"This is not a case where the ITO did not start the assessment proceedings within limitation or did not complete them within limitation." The Supreme Court has also held in the case of Grindlays Bank Ltd. v. ITO [1980] 122 ITR 55 that setting aside of the order of assessment with a direction to make fresh assessment in that case was in order as the original assessment had been made within time permitted under clause (ii) of Explanation 1 to section 153. One need hardly refer to the Supreme Court decision in the case of Ahmedabad Mfg. Calico Printing Co. Ltd. v. S.G. Mehta, ITO [1963] 48 ITR 154 at page 171 in support of the proposition that where the Act prescribes a time limit within which an order is to be passed, the department cannot pass such an order on the expiry of that period. The Supreme Court in CIT v. National Taj Traders [1980] 121 ITR 535, where it was held that the time limit applies to suo motu orders passed by the Commissioner under section 263 and not to orders made by him pursuant to a direction or order pas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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