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TMI Blog1973 (2) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... ision, the necessary facts may be stated thus. There were two sources of income for the petitioner. They are income from two firms. At the time of the three assessments in question the incomes of one firm only were available and of the other firm was not available because the assessments of that firm were not over. It is not in dispute that with regard to the assessments in question the old Act applies. According to section 35 of the old Act where in respect of any completed assessment of a partner in a firm or on any reduction or enhancement made in the income of the firm the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the Commissioner or the Appellate Assistant Commissioner or the Income-tax Officer, as the case may be, may at any time within four years from the date of the final order passed in the case of the firm rectify any mistake in the completed assessment of the partner. A similar provision also is made in section 155 of the Income-tax Act, 1961 (hereinafter called " the new Act "). The dates of assessments for the three years 1955-56, 1956-57 and 1957-58, are respectively J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso contended before the Income-tax Officer that the order of the Appellate Assistant Commissioner is void and illegal inasmuch as he attempted to bypass the provisions of law and extend the period of limitation and any orders which the Income-tax Officer proposes to pass will be very much long after the four-year period and those orders would be illegal, void and bad in law and the Income-tax Officer cannot take shelter under the orders of the Appellate Assistant Commissioner. Overruling the objections of the petitioner, the Income-tax Officer passed fresh orders under section 155 of the new Act on January 18, 1969, rectifying the assessment orders of the petitioner by adding his share incomes from the firm in question. Against those orders of the Income-tax Officer, the petitioner again filed appeals before the Appellate Assistant Commissioner. The Appellate Assistant Commissioner allowed the appeals on June 4, 1969, and cancelled the rectification orders on the preliminary ground that the proceedings taken and finalised under section 155 of the new Act to rectify the assessments of the years 1955-56, 1956-57 and 1957-58 are invalid and ab initio void, because for the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent or reassessment made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 31, section 33, section 33A, section 33B, section 66 or section 66A, that is, provisions relating to appeals, revisions and references. There is a similar provision under section 153(3)(ii) of the new Act. Section 31 relates to hearing of appeals by the Appellate Assistant Commissioner. It is provided under section 31(3) that in disposing of an appeal the Appellate Assistant Commissioner may, in the case of an order of assessment, confirm, reduce, enhance or annul the assessment, or, set aside the assessment and direct the Income-tax Officer to make a fresh assessment. If the matter before us comes under the second proviso to section 34(3), the Income-tax Officer would be within his power in issuing the impugned notices and rectify the mistakes even though it was more than four years from the date of passing of final orders in the assessments of the firm. Two questions arise here one relates to the argument of Sri K. Jagannadha Raju, the learned counsel for the petitioner, that section 34 has no application to the facts of the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being heard in the matter. It is only subsequent to that the Income-tax Officer gave notices under section 155 of the new Act instead of under section 35 of the old Act and, therefore, when appeals were again preferred to the Appellate Assistant Commissioner he found the notices given under section 155 of the new Act to be wrong and cancelled the rectification order passed by the Income-tax Officer, but did not give any direction to pass fresh orders after giving notice under section 35 of the old Act. Sri P. Rama Rao, the learned counsel for the department has argued that though no direction was given by the Appellate Assistant Commissioner in the subsequent appeals, what the Income-tax Officer now sought to do to rectify the assessment orders of the petitioner should be taken as in pursuance of the direction given by the Appellate Assistant Commissioner in the earlier appeals as the action taken by him in pursuance of the earlier direction did not materialise. I do not think that this argument can be countenanced. A direction was given and in pursuance of that direction the Income-tax Officer did take action and passed orders of rectification. But that I think the direction has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proviso to this sub-section it is further provided that no such rectification shall be made having the effect of enhancing an assessment or reducing a refund unless the Income-tax Officer has given notice to the assessee of his intention so to do and has allowed him a reasonable opportunity of being heard. It is provided under sub-section (5) of section 35 that where in respect of any completed assessment of a partner in a firm it is found on the assessment or reassessment of the firm or on any reduction or enhancement made in the income of the firm under section 31, section 33, section 33A, section 33B, section 66 or section 66A that the share of the partner in the profit or loss of the firm has not been included in the assessment of the partner or, if included, is not correct, the inclusion of the share in the assessment or the correction thereof, as the case may be, shall be deemed to be a rectification of a mistake apparent from the record within the meaning of section 35 and the provision of sub-section (1) shall apply thereto accordingly, the period of four years referred to in that sub-section being computed from the date of the final order passed in the case of the firm. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in view of the provision of section 297(2)(a) of the new Act. It was contended that the proceedings for rectification under section 35(5) of the old Act were not " proceedings for assessment " within the meaning of section 297(2)(a) of the new Act and, therefore, the old Act could not be resorted to. Under section 297(2)(a) of the new Act provision is made that, where a return of income has been filed before the commencement of the new Act by any person for any assessment year, proceeding for the assessment of that person for that year may be taken and continued as if the new Act had not been passed. The Supreme Court held that the proceedings taken for rectification of assessment to tax either under section 35(1) or under section 35(5) of the old Act were proceedings for assessment. The orders that are to be passed by the Income-tax Officer under section 35(1) rectifying firms' assessments are all orders altering assessment orders made in proceedings for assessment of the firms and under the notices in question the Income-tax Officer was proposing to rectify orders made for computation of income and imposition of tax under the charging section in the case of individual partner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stant Commissioner and thereafter it is only the Appellate Assistant Commissioner that can deal with the matter for rectifying mistakes as provided under section 35. But in the cases before us no appeals were filed against the assessment orders of the Income-tax Officer. The assessment orders still remain that of the Income-tax Officer without having been merged with those of the Appellate Assistant Commissioner as no appeals were preferred against the assessment orders. The orders of the Appellate Assistant Commissioner in question are only in the appeals arising with regard to the proceedings taken by the Income-tax Officer for rectification of the mistakes in the assessment orders and not those passed in the appeals taken against the assessment orders as such. The assessment orders of the Income-tax Officer still remain untouched by the appellate authority. Under these circumstances, there is no force in this contention of the learned counsel. It may also be added that the appeals themselves filed by the petitioner to the Appellate Assistant Commissioner were not maintainable, as there is no-provision for appeal against the orders passed by the Income-tax Officer under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, he corrected the assessment without giving any notice to the assessee on February 25, 1964. Both these corrected assessments were based upon the profits indicated above. The assessee, although he had no notice of the correction proceedings, appealed against the orders of the Income-tax Officer. On December 15, 1965, the Appellate Assistant Commissioner set aside the order of the Income-tax Officer on the ground that notices ought to have been issued under section 35(2) to the assessee before any order correcting the assessment was made. The Income-tax Officer consequently gave fresh notices in regard to the three years on November 1, 1968. He made final fresh orders on January 18, 1969, which were almost the same as he had made before. On appeal to the Appellate Assistant Commissioner, this time the petitioner took the objection that notices under section 155 of the 1961 Act were misconceived. The old Act applied to the proceedings and the proceedings should have been commenced under section 35 of the old Act. The Appellate Assistant Commissioner, therefore, annulled the assessment proceedings declaring them to be void by his order dated June 4, 1969. The Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when he exercised the power it was exercise of the power for the first time. That question also does not, in our opinion, arise in the present case in the view which we are taking. The real question which arises in the present proceedings is whether the rectification order made by the Income-tax Officer on February 17, 1963, was a valid order. We think it was not. Under section 35(1) of the Act, a provision which admittedly applies to the present proceedings, it was incumbent upon the Income-tax Officer before he made any rectification to issue notice to the assessee communicating his intention to rectify the provisional assessment which he had earlier made. He was also under an obligation to allow a reasonable opportunity of being heard. It could not be doubted that the first proviso to section 35(1) is mandatory and ought to have been followed. The effect of not following that mandatory provision cannot but be to make the order passed by the Income-tax Officer a nullity. We are fortified in our view by a decision of this court in K. Ramakrishna Reddy v. Tax Recovery Officer . The fact that the assessee went in appeal against such an order would not alter the real position, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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