9911796707
TMI Blog1987 (6) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... ce was issued by the Income-tax Officer on 15-11-1979 for appearance on 21-11-1979. As in respect of the first notice, this notice was also ignored by the assessee. One more set of notices was issued by the Income-tax Officer on 20-12-1979 for appearance on 8-1-1980. On 8-1-1980, Shri P. B. Bihani, Chartered Accountant, appeared on behalf of the assessee. He filed confirmation letters for loans received by the assessee. During the accounting period, the assessee had purchased shares for Rs. 75,000 in certain limited companies, and two shops for Rs. 1,20,000. The Income-tax Officer called upon Shri Bihani to file a copy of the purchase deed of the property and to furnish the dates of loans, as well as to explain as to how no rent was received from M/s Atlantic Pacific Travel Co. (P.) Ltd. which was stated to be using these shops. The hearing was adjourned to 19-1-1980. But on the adjourned date no appearance was put in on behalf of the assessee. The Income-tax Officer issued one more notice under section 143(2) read with section 142(1) on 14-5-1980 for appearance on 23-5-1980. But the assessee completely ignored this notice just as the first two notices. Thereupon the Income-tax Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of record, he found that even though the assessment was purported to have been completed under section 143(3), it was in reality an assessment made in the manner prescribed under section 144. Having held so, he proceeded to set aside the assessment and directed the Income-tax Officer to make a fresh assessment in accordance with law after permitting the assessee to furnish whatever evidence he may have to prove the source of the amounts credited or invested by him during the previous year. 4. The assessee has filed the present appeal before the Tribunal mainly on the ground that the Income-tax Officer having taken an adverse note of non-compliance of the various notices issued by the Income-tax Officer under sections 142(1) and 143(2) in the assessment order and also having proceeded to initiate proceedings for the levy of penalty under section 271(2) (b), the only course open to the Income-tax Officer was to make an ex parte assessment under section 144. The CIT (A) was justified in holding that the assessment was properly made under section 144 of the IT Act. Having held that the assessment was in fact made under section 144 of the IT Act, the assessee's grievance is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... servations of the Supreme Court might be classified in three categories, viz., the ratio of the decision on an issue; secondly an abater dictum which may have some relevance to an issue and thirdly some observations which may be called casual observations. The learned counsel has proceeded to invite our attention to the Bombay High Court decision in the case of Tata Iron & Steel Co. Ltd. v. D. V. Bapat ITO [1975] 101 ITR 292 wherein the learned Judges have proceeded to explain that even casual observations made by the Supreme Court are binding on all courts functioning in India. The learned counsel has further proceeded to explain that the relevant portion of the Supreme Court decision in the case of Segu Buchiah Setty cannot be held to be merely casual observations. Actually it is a part and parcel of the reasoning and, therefore, it is a part and parcel of the ratio laid down by the learned Judges of the Supreme Court in that case. In fact, in this decision, the learned Judges have proceeded to approve the Bombay High Court decision in the case of Chiranjilal Tibrewala v. CIT [1966] 59 ITR 42 wherein the learned Judges of the Bombay High Court have held that merely because the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ex parte assessment. The Income-tax Officer had acted on principles of natural justice by giving the assessee a further opportunity under section 144B. Reference, in this connection, is made to the Bombay High Court decision in the case of A. A. Ansari v. CIT [1953] 23 ITR 260. In particular reference is made to the observations made at page 269 of the Report. Further, the learned Department, a Representative has proceeded to argue that the assessee could not have been aggrieved by the order of the Income-tax Officer giving him a further opportunity to explain the investments and he had no right of appeal. In this connection, reference is made to the commentary on Income-tax Act, in Volume III of V S. Sundaram 2339, 2371 and 2377. Further, the learned departmental Representative has proceeded to argue that it was for the Income Tax Officer to decide the provision under which he proposes to make the assessment. All that the appellate authorities were entitled was to ascertain whether the conditions precedent for the invocation of the provision existed or not. In the instant case, the assessee had no objection to the Income-tax Officer resorting to the provisions of section 143( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llate order. 10. We have carefully considered the facts and circumstances of the case and the submissions on either side. The Income-tax Officer has issued notices under section 142(1) read with section 143(2) on four occasions on 25-9-1979, 15-11-1979, 20-12-1979 and finally on 14-5-1980. The first, second and the fourth notices are completely ignored by the assessee, not even an appearance has been put in. In response to the notice dated 20-12-1979 an appearance has been put in, but apparently the terms of the notice have not fully been complied with. Some material has been produced and some other material necessary to explain the return and to make the assessment was not produced for which the Income-tax Officer adjourned the hearing to 19-1-1980. Again on 19-1-1980, the assessee failed to appear. The Income-tax Officer has proceeded to hold that the assessee had not complied with the notices under section 143(2) read with section 142(1). The assessee does not deny that he has not complied with the notices. Even the Income-tax Officer has proceeded to initiate penal proceedings for non-compliance with these notices. In fact, even in the course of the hearing before us, it is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cise to examine whether the Income-tax Officer was bound to make an ex parte assessment under section 144 and whether the CIT(A) was justified in holding that the assessment was in fact made under section 144 to ascertain the validity of the CIT(A)'s finding that the assessment is under section 144. In respect of both the issues we are with the CIT(A). 12. Once it is accepted that the assessment is made under section 144 of the IT Act, the provisions of section 144B made it absolutely clear that provisions of that section have no application to the facts of the present case. The extended time limit available to the Income-tax Officer under that section read with section 143(3) of the IT Act would also not be applicable. Therefore, in our opinion, the assessee is justified in his plea that the assessment as made by the Income-tax Officer in September 1980 was time barred. The CIT (A) by his direction in his order could not revive an action which had already been time barred and give further directions to improve upon it. In the circumstances, the assessee's appeal is allowed. 13. No doubt, as a result of this decision, the assessee would be appeared to have benefited by his own wr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding of the Commissioner (Appeals) that the assessment was one under section 144 and on that basis contends that it will then be time barred as section 144B is not attracted to an assessment under section 144 and there will be no extension of time for completing the assessment under section 153. 3. In this case, the return was filed by the assessee on 2-6-1979. He did not appear in response to two notices issued under section 143(2) /142(1) for the appearance of the assessee on 9-10-1979 and 21-11-1979, respectively. But in response to a third notice issued on 20-12-1979, the Chartered Accountant of the assessee appeared on 8-1-1980. He filed confirmation letters for certain loans taken by the assessee. The Income-tax Officer asked the Chartered accountant to file a copy of the deed of purchaser of a house property purchased by the assessee and also to furnish the dates of certain loans taken by the assessee. The assessee was also asked to explain as to how no rent was received with regard to two shops purchased by the assessee. The matter was adjourned for the purpose to 19-1-1980. On that day, there was no appearance for the assessee. He did not also respond to a notice sent on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier will show that the assessee filed a return, appeared in pursuance to one of the notices issued under section 143(2) /142(1) and fully participated in the proceedings under section 144B. He, however, did not respond to three of the notices issued under section 143(2) /142(1). The view taken by my learned brother is that as there has been failure to respond to three of the notices issued, the assessment should have been made only under section 144. 6. At the outset, I may point out that if the position, as set out by my learned brother, is accepted, if there has been failure to respond to the first notice issued under section 143(2) /142(1), thereafter there can be no assessment at all under section 143(3), even if the assessee complied with the subsequent notices and furnished all the particulars required by the Income-tax Officer. This in my opinion, would show that the question whether an assessment is to be under section 143(3) or 144, depends not on the technical aspect as to whether there was a failure to submit the return or failure to comply with any of the notices issued, but on the practical aspect, namely, whether the Income-tax Officer had enough materials to make an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the Officer may act in one of the two ways. He may accept the evidence, he may accept the books of account, and he may base his assessment solely upon the evidence produced by the assessee; or the Income-tax Officer may not accept the books of account in the evidence of the assessee as genuine or reliable and he may collect other evidence besides that evidence and he may act not on the figures so found in the books of account of the assessee, but on his own estimate of the assessee's income. In that sense the assessment of the Income-tax Officer would be a best judgment assessment, but still it would be as assessment under section 23(3). Under section 23(4) the Income-tax Officer acts when there is no evidence before him, when there is a default on the part of the assessee, and in the absence of any evidence he has got to exercise his best judgment to arrive at the assessment of the income of the assessee. But whether it is under sub-section (3) or under sub-section (4) that the Income-tax Officer proceeds, his estimate of the assessee's income cannot be either arbitrary or capricious. Therefore, the line that divides sub-section (3) and (4) of section 23 is a every thin line. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of multiple defaults, for each one of which an ex parade best judgment assessment has to be made, the assessee can ask for cancellation of the assessment by merely showing cause for one of such defaults. It was in this connection that the Supreme Court observed that under section 23(4) of the old Act, a best judgment assessment has to be made in the case of any one of the defaults mentioned in section 23(4). The ruling does not seem to be an authority for the position that the moment any one of the defaults occurred, the Income-tax Officer should switch over to section 23(4) of the old Act, corresponding to section 144 of the present Act. The ruling of the Bombay High Court in the case of Chiranjilal Tibrewala, is to the same effect only. My attention was not drawn to any ruling in which it has been held that an assessment completed under section 143(3) will be bad, merely because the assessee had not responded to some of the notice issued to him and had not furnished all the particulars which he was asked to furnish. 9. I am, therefore, of the view that the assessment in the present case, which was actually made under section 143(3), was validly made and that it cannot be tre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to proceed under section 143(3). It is settled law that consent cannot conferee jurisdiction, when there was none. I need refer only to the case of Swaran Yash v. CIT [1982] 138 ITR 734 (Delhi). The only ruling, which can lend some support to the contention of the department is the case of the Supreme Court in Pannalal Binjraj v. Union of India [1957] 31 ITR 565. In that case, the assessee had acquiesced in the jurisdiction of a particular Income-tax Officer, to whom the assessment was transferred, but later questioned the same. The validity of the orders transferring the case was question on various grounds by the assessee before the Supreme Court by petitions under Article 32 of the Constitution. These grounds failed Thereafter, the Supreme Court also observed that the assessee who has acquiesced in the jurisdiction of the Income-tax Officer, is not entitled to invoke the jurisdiction of the Court under Article 32 of the Constitution. This ruling cannot apply to the facts of the present case where the assessee is contending that the assessee is under a wrong provision of law and that the assessment under the correct provision is barred by limitation. The department cannot, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident, ITAT, Bombay, for reference to a Third Member/ Members, the following two questions, which summarise the difference between the two Members : (1) Whether, on the facts and in the circumstances of the case, the appeal filed by the assessee is entitled to succeed for the reasons stated by the Accountant Member in his order. Or it is liable to dismissal for the reason stated by the Judicial Member ? (2) Whether, on the facts and in the circumstances of the case, the cross-objection filed by the revenue is entitled to succeed for the reasons stated by the Accountant Member. Or it is entitled to succeed for the reasons given by the Judicial Member ? 2. The order passed by the two Members are submitted herewith, with the record of the appeal. THIRD MEMBER ORDER Dr. S. Narayanan, Vice President - The assessee is an individual. The relevant accounting year ended on 31-3-1977. 2. An assessment was made on the assessee for this year which was described by the ITO as one under section 143(3) /144B. This assessment was completed on 24-11-1980. The assessee took the assessment in appeal. 3. A major contention raised in the appeal was that there having been failure on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t also filed a cross-objection. 5. The objections taken before the Tribunal by the assessee were, inter alia, as under : (i) The assessee had not complied with the notices issued under section 142(1) /143(2). Hence, the ITO was bound to complete the assessment under section 144. The Commissioner (Appeals) also rightly held so. Once section 144 had to be invoke section 143 became inapplicable. (ii) In the ordinary course such as assessment under section 144 should have been completed by or before 31-3-1980. On the other hand, the assessment for this year was actually completed on 24-11-1980 with the benefit of the extended time available in terms of section 144B, i.e., the assessment was clearly time-barred. (iii) Since the assessment itself was time-barred, the Commissioner (Appeals) was wrong in setting aside the assessment and directing investigations. To that extent his order should be vacated. 6. For the department the plea taken in the cross-objection was that the ITO had brought on record all relevant material before completion of the assessment. There was no further material that was needed for deciding the issues before the Commissioner (Appeals) one way or the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and not mere abater dicta. (v) Even if Segu Buchiah Setty's case had to be ignored, there was no getting away from Laxminarayana Badridas' case and Chiranjilal Tibrewala's case. These decisions were binding on the Tribunal. (vi) Once it is seen that the ITO was bound to make the assessment under section 144, it follows automatically that the Commissioner (Appeals)'s finding that the assessment was in fact made under section 144 though described as one under section 143(3) had to be upheld as correct. In fact neither the assessee nor the Revenue challenged the Commissioner (Appeals)'s finding in this regard viz., that the assessment was an assessment under section 144. All the same, the legal position in relation to this was done into suo motu to find out whether the ITO was bound to make an assessment under section 144 and whether the Commissioner (Appeals) was justified in holding that the assessment was in fact made under that section though described otherwise. (vii) It followed from the position that the assessment was indeed in law one under section 144 and that the provisions of section 144B had no application. The extended time-limit available in such a contexts [143(3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the proceedings under section 144B. He however, did not respond to three of the notices issued under section 143(2) /142(1). (iii) The question whether an assessment is to be under section 143(3) or 144 does not depend upon the technical aspect as to whether there was a failure to submit the return or failure to comply with any of the notices issued but on the practical aspect, viz., whether the ITO had enough material to make an assessment under section 143(3). Section 144 is an enabling provision. Its purpose is to ensure that these assessments is not defecated by lack of response from or non-cooperation of the assessee. In such a case section 144 enables the ITO to complete the assessment to the best of his judgment. It is, therefore, essential for the ITO to come to a decision as to whether he can make an assessment under section 143(3) or the circumstances leaves him no option but to make a best judgment assessment under section 144. (iv) It is always advantageous to an assessee to haves an assessment made under section 143(3). No assessee in his senses would claim that he should be assessed under section 144 and not under section 143(3), unless of course he could derive s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is no question of estimate and no question of best judgment." (vi) Merely because some estimation was involved, the ITO's assessment could not be described as one under section 144. In the present case due to the failure of the assessee to furnish certain particulars, the ITO held that certain investments were unexplained and certain additions were made on account of it. But at no stage of the proceedings did the ITO consider section 144. The assessment was, therefore, one completed under section 143(3). There was no justification for holding it to be one under section 144. (vii) Sequ Buchiah Setty did not help the assessee. The question for decision of the Supreme Court was totally different there. It was not an authority for the position canvassed for the assesses in the instant appeal. So was the case with Chiranjilal Tibrewala. In fact there was no direct authority cited for holding that an assessment competed under section 143(3) will be bad merely because the assessee had not responded to some of the notices issued to him and had not furnished all the particulars which he was asked to furnish. (viii) No doubt penal proceedings were initiated by the Income-tax officer fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M. B. Tikekar, the learned counsel for the assessee, reiterated the submissions made for the assessee before the authorities below and before the Tribunal when the Division Bench heard the appeal. He further contended that on the language of section 144 itself it would be quite clear that what the learned Accountant Member has recorded was the clear position in law. The section reads as under : 144. " Best judgment assessment-If any person-( a) ** ** ** (b) fails to comply with all the terms of a notice issued under sub-(b) fails to comply with all the terms of a notice issued under sub-section (1) of section 142(or fails to comply with a direction issued under sub-section (2A) of that section), or (c) having made a return, fails to comply with all the terms of a notice issued under sub-section (2) of section 143. the income-tax Officer, after taking into account all relevant material which the Income-tax Officer has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment." Emphasis is laid on the word "shall" in the above provision. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which he has gathered. (a) in a case where no assessment has been made under sub-section (1), the Income-tax Officer shall, by an order in writing make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment; " He refers to the word "shall" in the above provisions and submits that the conditions laid down in the above provision stand satisfied here and, hence, it could be argued that it was obligatory on the part of the ITO to complete the assessment under section 143[3]. No doubt section 144 also use the word "shall" in a different context. but then these two provisions have to be construed harmoniously, According to the learned counsel, this is exactly what the learned Judicial Member has attempted in his order. He has interpreted section 144 as an enabling provision to be used when there is a recalcitrant assessee who seeks to defeat the very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 23[4] and to proceed to make a fresh assessment even though there was no sufficient cause for non compliance with the notice under section 22[2] ?" The court analysed the provisions of section 27. It was in the course of such analysis that the observations extracted by the learned Accountant Member [Reproduced in para 10 above] came to be made by the court. These observations do indeed give the impression that the law laid down by the supreme court is that where there is non compliance of the nature mentioned insurrection 23(4), the ITO is bound to make the assessment to the best of his judgment as contemplated by section 23(4). But these observations were made in the course of analysing the provisions of section 27. 14. It was argued before me, not without substance, that even without the benefit of these observations the ratio of the decision would have remained unaffected. It was not necessary for the court to have observed that the ITO was bound to make an assessment under section 23(4) for any of the defaults stated therein because whether he was so bound or whether he was so bound or whether section 23(4) was only an enabling provision for the benefit of the Revenue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supreme Court in the case of Metal Box. Co. of India Ltd. v. Their Workmen (1969) 73 ITR 53 pertaining to the allowability of a provision for gratuity on actuarial basis under the Income tax act could not be regarded as the ratio decedent and were no more than mere casual observations not binding on the High court or subordinate courts and would not constitute the law of the land within the meaning of Article 141 of the Constitution of India. The counsel for the appellant [ the Taxpayer] on the other hand, contended that these were not casual observations and not even abater dicta but part of the ratio of the case and, hence, the law of the land. The Bombay High court considered the nature of the distinction between an abater dictum and a casual observation. It referred in this regard to the decision in the case of Mohandas Issardas v. A. N. Sattanathan Air 1955 Bom. 113. It was laid down in that case that an abater dictum of the Supreme Court had to be accepted in the same spirits, as the high court accepted the abater dictum of the privy council (obiter dictum was defined as an expression of opinion on a point not necessary for the decision of a case). On the other hand, "the qu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in hardship to the employees concerned. The Bombay a High court took note of this and observed that the supreme court seemed to have followed the above approach and that in view of that it would not be open to it (Bombay High court) to question that approach or to say that any observations made by the Supreme court whilst following that approach would be abater or casual observations. The court went on to note further that the Central board of Direct taxes (CBDT) itself did not consider these observation, to be casual observations as evident from the circular issued by the CBDT. The Bombay High court took note of other decisions also which strengthened its view that the above observations in Metal Box. Co. of India LTD. s' case were not at all causal observations, It view was that these observations were in line with the proviso decisions of the Supreme court under the Income-tax act and to that extent cannot be characterized as abater dicta but must be properly regarded as the ratio of the case, inasmuch as the supreme court appeared to have followed the approach of considering the position under the income tax act and applying the same position to that under the payment of Bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice under/section. 23(2) and 22(4) was legal and proper; and whether under the circumstances he could validly complete the assessment under/section 23(4); whether there was any evidence to substantiate the ITO's reasoning to the effect that legal enquiries provided that the assessee made an income of one lakh of rupees in the accounting year; whether the ITO's order was not vitiated by imaginary assumptions or irregular enquiry or here say evidence which the assessee had no chance to meet and which were not supported by the assessee's books. 21. The Privy Council in disposing of the above reference made the following points : (1) Under section 23(4) the ITO is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, vindictively or capriciously. He must make an honest and fair estimate after due consideration of the assessee's circumstances and past record and all other relevant matters. Necessarily there would be guess work in the matter, but it must be honest guess work. (2) There was no justification for holding that an assessment made under/section. 23(4) without the ITO conducting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided that the officer was in the events which had happened entitled to proceed to make an ex parte assessment under section 23(4)." 23. The above observations of the Privy council on which reliance had been placed by the learned Accountant Member do not, it is evident, form part o the ratio of the Privy councils decision to any question on the point whether an ITO was compelled to makes an assessment under/section 23(4) whenever any of the defaults mentioned therein occur or whether he was entitled to make an assessment under/section 23(4) in such a case. As noticed above, the Privy council itself used the word entitled in one part of its judgment and in another part of the judgment it says the fact of failure to comply with the notice under/section. 22(4) made it compulsory on the ITO to make the assessment under/section 23(4). The context in which such observations came to be made has already been described above and it would be clear form the above context as well as the questions referred to the Privy council that the observations of the Privy council on which the learned Accountant Member had relied upon were not part of the ratio but merely in the nature of a casual observat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recorded by the learned Judicial Member. There is no estoppel against law and if the assessment had really been one under/section. 144, it would have to be declared one under that section notwithstanding the conduct of the assessee before the ITO. The department cannot succeed on the ground of promissory estoppel alone.
26. As regards the cross objection of the department, here again I endorse the findings of the learned Judicial Member following the discussion supra.
27. The result is; the points of difference referred to me are answered as under :
(1) Whether, on the facts and in the circumstances No
of the case, the appeal filed by the assessee is
entitled to succeed for the reasons stated by the
Accountant Member in his order.
or
it is liable to dismissal for the reasons stated Yes
by the Judicial Member ?
(2) Whether, on the facts and in the circumstances No
of the case, the cross objection filed by the
stated by the Accountant member.
or
It is entitled to succeed for the reasons given Yes
by the Judicial Member ?
28. The matter will now go back to the Bench which originally heard the appeal and the cross-objection, for disposal in accordance with law. X X X X Extracts X X X X X X X X Extracts X X X X
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