9911796707
TMI Blog1993 (2) TMI 162X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3). The assessee no doubt maintained the books of accounts for the year but at the time when the books of accounts were called during the assessment proceedings under section 147 for which notices were served for all these years, books of accounts maintained for these years had been lost or destroyed in riot which had affected the peace of the city in the year 1979. In April 1979, the Jamshedpur was the scene of a severe Communal riot which had compelled the Trustee to leave the City to another place for safety. The building where the books of accounts for the years were restored had been used by the authorities as refugee Camp where some of the destitutes driven from their homes were accommodated. To support his claim, the Trustee S.M. Shafiq filed an affidavit duly sworned before an Executive Magistrate, Jamshedpur. The ITO without bringing any material to show that the assessee had made a false claim that the books of accounts for all these years have been lost during the riot and without examining the trustee whose affidavit was filed reached a finding that the assessee had failed to produce books. This in finding in his view entitled him to make the assessment under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. For that reason it was not necessary for the assessee to file an appeal under clause (d) of subsection (1) of section 246. 4. We have considered the facts of the case but we are unable to persuade ourselves that the plea of revenue is one which can be adopted by us in recording a finding on the issue raised. Revenue has made its reliance on the well-known pronouncement of Bombay High Court in the case of Mauladin Ayub Firm v. CIT [1959] 35 ITR 449 where their lordships held that the validity of assessment under section 23(4) of a best judgment assessment could not be made the subject matter of a dispute in a quantum appeal filed against best judgment assessment. Validity could be assailed only in an appeal filed against the order passed under section 27 refusing to reopen the assessment. But this is not what the assessee has sought in the case before the CIT (Appeals). He had not questioned the validity of the assessments made by the Income-tax Officer. What he had questioned was the correctness of the assessment being made under section 144 instead of section 143(3). When the assessee had affirmed that he had lost his account books, the ITO without bringing any material to sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces under sections 143(2) and 142(1) on 27-8-1981. The assessee was duly warned on this date that failure on his part to make compliance may lead to ex parte assessment under section 144 with attendant penal liabilities. Again, on this date a time petition was filed and the case was adjourned to 31-8-1981. On 31-8-1981, Shri S.M. Shafiq and Shri D. Sengupta, Advocate both appeared. The books of account and other relevant documents were not produced on the plea that they were lost in the circumstances mentioned in an affidavit sworn in by the Trustee before the Executive Magistrate, Jamshedpur on 31-8-1981. In the absence of the supporting books and documents I am obliged to make assessment ex parte under section 144." A perusal of the above extract shows that after the return was filed on 16-7-1981, only the notice that was issued was one under section 143(2). The ITO depended upon the notices issued under section 142(1) prior to the filing of the returns. In his view these notices subsisted. As brought in the extract reproduced above he insisted for the compliance of those notices. A careful perusal of the above shows beyond doubt that no notice under section 142(1) was issued a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... remedy provided by clause (c) as is ensured against assessments made under section 143(3). A little thought about the effect of section 146 would show that the panacea presented in this provision cannot be understood as one ruling out other remedies provided in the Act under section 246(1)(c), section 154, section 264 and so on. But again we reiterate in this connection that the assessee had not challenged the validity of the assessments as such. He had not sought the assessments to be reopened which might have been obligatory to take recourse to the procedure prescribed under section 146. His grievance was that the assessments being rightly made under section 143(3) were incorrectly labelled as made under section 144. There was a mistake only in nomenclature of the section which the assessee had objected to and which the CIT (Appeals) has allowed. Supreme Court has again and again said mistake in mentioning of the section will not, if assessability is not challenged invalidiate the assessment. Therefore, as we have brought about in the above analysis, we are unable to appreciate the error pointed out by the revenue in the order of the CIT (Appeals) who has corrected the section un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... they were taxable. In working out the surpluses he also disallowed expenditure incurred on Waqf fee, trustee's remuneration and expenses incurred on furniture and fixtures. He had disallowed an aggregate of amounts incurred under these heads Rs. 7,865 for assessment year 1969-70, Rs. 45,055 for assessment year 1970-71, Rs. 27,937 for assessment year 1971-72 and Rs. 43,826 for assessment year 1972-73. The assessee felt aggrieved and he impugned the working of the ITO before the CIT (Appeals). The CIT (Appeals) found that the estimates made by the ITO were rather excessive and he, therefore, made his own estimates at Rs. 84,000 for assessment year 1969-70, at Rs. 1,20,000 for assessment year 1970-71, at Rs. 1,58,000 for assessment year 1971-72 and at Rs. 1,20,000 for assessment year 1972-73. He also allowed the claim of the assessee in respect of expenses incurred on Waqf fees, trustee's remuneration and those on furniture and fixtures. He accepted that these expenses were to be considered as applications towards charity. According to the CIT (Appeals), the surplus came to Rs. 20,088 for assessment year 1969-70, Rs. 17,006 for assessment year 1970-71, Rs. 15,974 for assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le cannot form subject matter of obligation contemplated by any legislator. Law never calls upon a citizen to accomplish the impossible. Therefore, who made the law that not less than 75 per cent of income should be applied towards the charity to avail exemption under section 11 of the Act could not have contemplated that any act impossible of achievement should be prescribed as a part of the obligation to be carried out by the Trust. As it was a notional income resulting from the estimate and was placed outside books of accounts it could not be applied towards charity taking a strict view of the matter. It is only when we consider that it was as real and live income and not merely notional that it would be allowed to be considered as a part of total income out of which application could be made. Umpteen times courts have ordained that it is the real income which is being assessed under the IT Act. It is not the notional income which is not real income and which has no existence can be sought to be assessed under the provisions of the IT Act. Therefore, we cannot allow any objection on the score that the surplus was notional income resulting from the estimate and did not find a pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 217(1A). Revenue has assailed also the entertainability of the appeal against the levy of interest under these sections. It is now well settled in law and there is unanimity in judicial pronouncements that wherever levy of interest under these provisions are assailed along with other grounds of appeal filed against an assessment order, right of the assessee to impugne the levy of interest cannot be denied. Acting on the consensus of the judicial pronouncements we overrule the plea of the revenue that the appeal against the levy of interest was not under these sections maintainable. Similarly, we overrule the plea of the revenue in respect of interest under these sections and uphold the finding of the CIT (Appeals) that on facts of the case levy of interest under these sections was an erroneous exercise. When the assessee was not liable for tax he could not be held liable for interest under these sections. Therefore, we find no error in the finding of the CIT (Appeals) who had entertained the appeal and recorded a finding on the issue against the revenue. We reject the contrary contention of the revenue and dismiss its appeal on the issue. 8. In the result, the appeals of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income for charitable purposes. The assessee was given one more opportunity for production of the relevant books of account and other documents in support of the return and compliance was required on 24-7-1981. On 24-7-1981, again adjournment was sought and the case was accordingly adjourned to 6-8-1981. Again on 6-8-1981, a time petition was moved, seeking further extension of time for making compliance. The case was again adjourned to 13-8-1981 as per the request of the assessee. On 13-8-1981, Shri D. Sengupta, Advocate appeared on behalf of the assessee but compliance with the terms of the notices under sections 142(1) and 143(2) already served were not made. On the other hand, the assessee filed a petition dated 11-8-1981, seeking my replies to certain irrelevant matters, introducing a noval concept of taxation of income of a trust. I did not feel bound to reply to the assessee's letter. However, the assessee was requested once more to comply with the notice under sections 142(1) and 143(2) on 27-8-1981. The assessee was duly warned on this date that failure on his part to make compliance may lead to ex parte assessment under section 144 with attendant penal liability. Again, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of cancellation of registration of a firm which is in terms do not fall under section 27, every other case of contumacious refusal of an assessee to comply with only notice issued by the Income-tax Officer under section 23(4) can only be challenged under section 27." 4. It is clear that the validity of the ex parte assessment cannot be challenged in quantum appeal as per decision of Lordships of Bombay High Court in the said case. My learned brother in this connection has stated that no notice under section 142(1) was issued after the return was filed and my learned brother has also held that notice under section 142(1) lapsed after the filing and under the effect of filing the returns. I do not find any provision of law by which notice under section 142(1) lapses or becomes redundant after the filing of return. I do not agree with the finding at all. The ITO, as detailed in his order (quoted above) had issued notice under section 142(1) dated 21-9-1978 which was duly served. Further notice under section 142(1) dated 1-6-1981 was served on 11-6-1981. No compliance was made of these notices. As the DR pointed out the first notice under section 142(1) was issued and served in 1978 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er sub-section (2) of section 139, or (ii) that he did not receive the notice issued under sub-section (1) of section 142 or sub-section (2) of section 143, or (iii) that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying with the terms of any notice referred to in clause (ii). the Income-tax Officer shall, if satisfied about the existence of such ground, cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of section 143 or section 144. (2) Every application made under sub-section (1) shall be disposed of within ninety days from the date of receipt thereof by the Income-tax Officer: Provided that in computing the period of ninety days aforesaid, any delay in disposing of the application which is attributable to the assessee shall be excluded." From a perusal of the above sections, it would be clear that the assessment under section 144 cannot be changed into an assessment under section 143(3) without setting aside the assessment and making the assessment afresh. This is the scheme of the IT Act and it, in my opinion, cannot be circumvented by the device adopted by the assessee. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed more than 75 per cent of the total income for charitable purposes no part of the total income is taxable. My learned brother has agreed with his view and has also stated that the total income which is over and above the income disclosed was no doubt income outside the books and notional income. But according to him the same has to be taken into consideration in finding out whether the assessee has applied 75 per cent for purposes of charity or not. It has also been mentioned by him that an impossible act cannot be contemplated by the Legislature. 7. It would be relevant here to mention the arguments of the Standing Counsel on this topic. He argued that the part of the total income which is estimated over and above the inclosed/disclosed being outside the books could not be treated to have been part of the expenditure for charitable purposes as per books nor can it be treated to have been accumulated for charitable purposes being outside the books. Moreover the provisions of section 11(4) are clear that the part of total income which is in excess of the total income disclosed shall be deemed to have been utilized for non-charitable objects. The word used in section 11(4) is 's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (4) in the facts of the case? 3. Whether the CIT (Appeals) was correct as per reasons given by him in deleting the interest charged under sections 139(8) and 217(1A) in the facts of the case?" We, the Members of Patna Bench having differed on the above issue while deciding the case of M/s. Karimia Trust, Jamshedpur (in ITA Nos. mentioned above) for assessment years 1969-70 to 1972-73, refer the following questions to the President, Income-tax Appellate Tribunal under section 255(4): "1. Whether on the facts and in the circumstances of the case, the assessments made for the assessment years 1969-70 to 1972-73 should be treated as made under section 143(3) and not under section 144 as was done by the ITO? 2. Whether, it is correct in law that the validity of ex parte assessment can be impugned only in an appeal filed against the refusal of an ITO to re-open the assessment under section 146 of the Act? 3. Whether on the facts and in the circumstances of the case, any excess income estimated by the ITO for any of the years could be or could not be considered for applying provision contained in section 11(4) of the Act? (b) Whether the excess income on the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1972-73 should be treated as made under section 143(3) and not under section 144 as was done by the ITO? 2. Whether on the facts and in the circumstances of the case, there was any excess income at all which was not reflected in the returns shown by the assessee for any of the four assessment years 1969-70 to 1972-73? 3. Whether the excess income worked out in assessment which was not reflected in the returns on the facts and in the circumstances of the case would affect the claim of the assessee-trust for allowing exemption from tax under section 11(4) for any of the four assessment years 1969-70 to 1972-73? 4. Whether on the facts and in the circumstances of the case, the assessee-trust was liable to be charged with interest either under section 139(8) or under section 217(1A) for assessment years 1969-70 to 1972-73?" 2. The two separate orders passed by the learned Judicial Member and the learned Accountant Member were already forwarded to both the parties. The elaborate facts stated in both the orders are not repeated here for the sake of convenience because there is no dispute on facts. There is dispute only with regard to the interpretation of the relevant provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which is extracted in the order passed by the learned Accountant Member, it is specifically stated by the Assessing Officer that even on 27-8-1981, that is to say, after the returns of income were filed by the assessee, the assessee was specifically requested once more to comply with the notices under sections 142(1) and 143(2). Therefore, mere technical lapse, if it is assumed to be a lapse, of not giving a fresh notice and asking the assessee to produce the books of account, could not be treated as lack of notice subsequent to the filing of the returns of income. However, this point also becomes immaterial because on going through the assessment order for assessment year 1969-70 I find in paragraph 2 of the assessment order that the Assessing Officer has made the assessment ex parte under section 144 only in the absence of supporting books of account and documents. Therefore, certainly there was non-compliance even with the requirement of section 143(2) requiring the assessee to produce the relevant books of account in support of the returns of income filed by the assessee. Even for such non-compliance the assessment could be made under section 144. The learned Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee as per the books of account which are maintained on principles of accountancy. Therefore, merely because of such variation it cannot be said that there was any excess income at all which is not reflected in the books of the assessee or declared in returns. Similar is the position of assessment in other years. 6. With regard to question No. 3, it is not in dispute that section 11 (4) or the Act is applicable to the facts of the case, inasmuch as the Cinema Houses owned by the assessee-trust is the property held under the trust and that the income of the cinema houses cannot be included in the total income of the persons in receipt thereof, if there is no variation between the income disclosed by the assessee and income assessed. As stated earlier, in accordance with the provisions of the Income-tax Act governing the computation of income under the head 'business', income determined for the purpose of assessment would normally vary from the income disclosed by the books of account but this itself will not amount to forfeiture of the exemption under section 11(4) of the Act. That is why it was found necessary to refer in section to the treatment to be given to such differe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial amount as determined under section 11(4), which is deemed to have been applied to non-charitable purpose, the assessee is liable to pay tax thereon and hence interest is leviable. The learned counsel for the assessee, Mr. Jain submitted that section 139(4A) of the Act came on the statute book only w.e.f. 1-4-1971 and, therefore, until then there were no obligations upon the trustees of the charitable trusts to file the return of income. I accept this proposition because I find that earlier to such amendment the statute had not provided for any liability upon the trustees of the trust to file the return of income and only because of amendment appropriate rule was also inserted in the Income-tax Rules prescribing the manner in which and the particulars required to be filed in the form newly inserted for charitable or religious trusts or institutions. Mr. Jain further submitted that for the remaining two years since the assessments were completed consequent to action under section 148, no interest could be charged, because the assessment could not be treated as regular assessment within the meaning of section 2(40) of the Act. This contention of Mr. Jain is also acceptable and t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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