Income Tax Appellate Tribunal - Delhi
Vakil Chand Jain vs Income-Tax Officer on 17 August, 1992
Equivalent citations: [1992]43ITD442(DELHI)
ORDER
A. Kalyanasundharam, Accountant Member
1. The assesses, an individual in this appeal has prayed for the annulment of the assessment, because, no notice under Section 143(2) of the Act, was issued on him. The appellant has raised the issue of validity of the assessment, when the mandatory provisions of law were not followed. The grouse of the appellant is that, the Assessing Officer, for making of an assessment under Section 143(3) of the Act, must necessarily issue the notice under Section 143(2) of the Act. The plea was that, since, the notice under Section 143(2) was never served, the assessment under Section 143(3) of the Act, is bad and needs to be annulled.
2. The plea advanced by the counsel Shri Agarwal was that, the Assessing Officer had committed an illegal act, by not issuing the required notice, under Section 143(2) of the Act. He submitted that, this illegal act of the officer is curable, by he being directed to issue the notice and then conclude the assessment. He submitted that when the CIT (Appeals) had heard the appeal, it was much after the expiry of the time that is allowed for the making of the assessment under Section 153(1) of the Act. He pleaded that, for curing the illegality, the time, which the Assessing Officer could gather, is the time that is available at the point, he had committed the illegal action. He contended that, the CIT (Appeals) by setting aside the assessment, had in effect extended the time limit for making of the assessment. He contended that, since the time limit of making of the assessment is prescribed under the Act, no authority who is to implement the Act, has the power of over-ruling the provisions of the Act. He pleaded that, if the order of CIT (Appeals), is upheld, then, it would open the floodgates to the revenue, not adhering to the mandatory provisions, and then completing the assessment, which would be subsequently set aside, to be redone. This would result in almost a similar situation of assessment being made under Section 144, which would be later on reopened under Section 146 of the Act. He also contended that, this kind of action of the revenue, would frustrate the legislative intent. He pleaded that, in a situation, where, the normal time for making of the assessment is available, when the order is set-aside by CIT (Appeals), he would have no objection to the assessment framed within that normal time. He strongly contested the act of setting aside of the assessment, by the CIT (Appeals). He submitted by placing reliance on the Delhi High Court decision in Intarcraft India v. CIT [1985] 154 ITR 662 [1984] 18 Taxnian 508, that, illegality committed during the course of assessment, would make the assessment, a nullity.
3. Shri Ramesh, the departmental representative, on the other hand pleaded that, the Delhi High Court (supra) had observed, that, the illegality of the assessment could be challenged in the assessment made consequent to the setting aside of the order of assessment. He contended that, non-following of the prescribed procedure would not make the assessment a nullity, but, it could be cured, by setting it aside.
4. We have given our very careful consideration to the rival submissions. The crux of the issue in the present appeal requires answers to the following questions-(a) whether, the prescribed provision under Section 143(2) is mandatory ? and (b) if it is not so followed, whether, it would be an illegal action or is it an irregularity committed?
5. The Income-tax Act has provided certain modes of making of the assessment of the return of income. One such mode, is the making of the assessment without calling the assessee, to produce the books or such other information. This mode is the summary assessment and is so made under Section 143(1) of the Act. However, the Assessing Officer has to necessarily conform to the provisions prescribed for making of an assessment under Section 143(1) of the Act. The Assessing Officer has very limited powers of modification to the returned income, when making the assessment under Section 143(1) of the Act.
The other mode of assessment is an assessment framed, on the basis of hearing conducted, consequent upon the issue of the notice of hearing under Section 143(2) of the Act, and production of books of accounts as per the notice under Section 142(1) of the Act. Section 143(2) of the Act, states that, where a return of income has been filed under Section 139 of the Act, where, the Assessing Officer considers it expedient to verify the correctness and completeness of the return, requiring the presence of the assessee or production of such evidence, he shall serve on the assessee a notice requiring him, on a date specified therein, either to attend or to produce such evidences as may be relied upon by the assessee. Section 143(3) states that, the assessing either on the date specified in the notice under Section 143(2) or soon afterwards, after considering the evidences as may be produced, and after taking into all the relevant material, 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. The Section 143(2) of the Act uses the words "shall serve on the assessee a notice". The reading of the Section 143(3) of the Act, indicate that, before making an assessment under this section, he must follow the set route or path of issuing of the notice under Section 143(2). Therefore, the issuing of the notice being a pre-condition for the making of the assessment under Section 143(3), it has to follow that, the requirement is mandatory or must be followed. The failure to follow the mandatory provision, would normally result in the assessment being categorised as a bad assessment.
The question that arises at this point, is whether, the assessment so considered bad, could be cured, with the direction to redo it or has it to be cancelled. The remedy to this kind of situation, to our mind is provided in Section 292B of the Act. As per this section, the department cannot hold a return of income to be invalid, merely for the reason that, it contains certain mistake or defect. It also provides that, a notice, summons or other proceeding shall not be treated as invalid, if it contains curable defect or mistake or omission. The only condition attached to this curing is that, the proceeding or the summons or the notice should be in conformity with the provisions and according to the intent of the Act. What could constitute a mistake or omission or defect would of course depend upon the facts of each case.
In the instant case, the Assessing Officer has not issued the notice under Section 143(2) of the Act, without which, he could not have made the assessment under Section 143(3) of the Act. The only claim of the assessee is that, the non-issuance of the notice must be held to invalidate the assessment. This claim, clearly implies that, but for the failure to the issue the notice under Section 143(2), the framing of the assessment under Section 143(3) is in conformity and according to the intent and the purpose of the Act. In fact, the Assessing Officer had proceeded to frame the assessment, after hearing the assessee and also, considering the relevant material. As observed earlier, the issuing of the notice, being mandatory for the making of the assessment under Section 143(3) of the Act, non-issue of such notice, in view of Section 292B of the Act, in the circumstances of the case, has only to be treated as an omission or defect or mistake. Therefore, to remedy this mistake or defect or omission, the Assessing Officer has only to be told to follow the mandatory requirement of issuing the notice and to redo the assessment. The purpose of the Income-tax Act being to determine the tax payable by every tax-payer, it prescribes various procedures to be followed by the tax collector and one such procedure is the determination of the total income. This in turn contains several related procedures, one of which, is the issuing of the notice. Therefore, non-following of the prescribed procedure, would only result in a procedural mistake. This is what has been amplified by Section 292B of the Act.
There is subtle difference between irregularity and illegality. An irregular action can be cured, but an illegal action would not contain any cure in any statute. The term 'irregular' means not conforming to rule or to the ordinary rule. The term 'illegal' means contrary to law. Therefore, an irregular action could be cured, by adhering to the rule, but, an illegal action, which is contrary to law, could not be cured. In the case of Intarcraft India (supra) cited by the counsel for the assessee, Delhi High Court had considered the ratio laid down by the Supreme Court of India in Guduthur Bros. v. ITO [1960] 40 ITR 298. In Guduthur Brothers' case, the penalty was imposed without affording an opportunity to the assessee and it was held that, the order imposing penalty was tainted with illegality. It was observed that, the AAC had held the order imposing the penalty as defective, because, opportunity of being heard was not provided and set aside the penalty order. The officer, in the remand proceedings, issued a notice to the assessee, calling for his explanation, which was considered, after which, he again imposed penalty. It was observed with reference to the action of the officer in the remand proceeding that, his action of restarting the proceedings from the point where he had committed the illegality, was proper.
Since in the instant case, the Assessing Officer having merely failed to follow the rule of issuing of a notice, before framing of the assessment, the assessment so framed is not conforming to the ordinary rule and therefore, is an irregularity or a defect or a mistake, which is not fatal to the assessment framed. It only makes the assessment imperfect and to enable him to remove the imperfection, the proper course to be followed, is to set aside the assessment. The argument of the assessee, that, such remands would result in extending the time limit prescribed under Section 153(1) of the Act, in our opinion is not justified. It is for irregular or imperfect assessments, that, the first appellate authority has been conferred with the power of remand and considering such situations of remand that, the Legislature has provided in Section 153(2A) of the Act, the time limit of two years has been allowed for the making of the assessment, from the end of the financial year, in which the order of remand was made. The appeal of the assessee is rejected.