Gujarat High Court
New Jagat Textile Mills Pvt. Ltd. vs Commissioner Of Income Tax on 24 March, 2005
Equivalent citations: (2005)196CTR(GUJ)110, [2006]282ITR399(GUJ)
JUDGMENT D.A. Mehta, J.
1. The assessee is a Private Limited Company which is in liquidation and is being represented by the Official Liquidator.
2. The following three questions have been referred by the Income Tax Appellate Tribunal, Ahmedabad Bench "C" under Section 256(1) of the Income Tax Act, 1961 (the Act) at the instance of the assessee.
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that powers u/s 263 could be exercised by the C.I.T. in respect of an order of the I.T.O. which was to the following effect :
"The assessee company untraceable proceedings dropped."
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in rejecting the plea of the assessee to the effect that powers u/s 263 could not have been exercised by the C.I.T. in respect of the order in question on the ground that the said order had not been served on the assessee?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in recording a finding that the order of the ITO dropping assessment proceedings was erroneous and prejudicial to the interests of revenue?"
3. The assessment year is 1983-84. As the assessee had not filed the return under Section 139(1) of the Act within the prescribed time, the Assessing Officer issued notice dated 1st September 1983 under Section 139(2) of the Act. The said notice was served on 13-9-1983. On September 30, 1983, the assessee sought extension of time for filing the return by making an application in Form No. 6 and requested that time for furnishing the return may be extended upto 31st March 1984. On receipt of the said communication, the Assessing Officer wrote to the assessee on 13th October 1983 requesting the principal officer of the Company to attend his office. It transpires that thereafter nothing further happened and ultimately, on 30-10-1985, the Income Tax Officer made the following entry in the order sheet :
"The assessee Company untraceable. Proceedings dropped."
4. On 21-3-1988, Commissioner of Income Tax, Gujarat I, Ahmedabad issued show cause notice under Section 263 of the Act. The assessee objected to the same by way of written submissions dated 22-3-1988 and also attended personally on 24-3-1988. The CIT ultimately passed an order on 28-3-1988 setting aside the order of the Assessing Officer dropping the assessment proceedings and directed the Assessing Officer to make a fresh assessment in accordance with law after making necessary inquiries and giving a reasonable opportunity of being heard to the assessee company and to produce evidence, if any, in this regard.
5. The said order came to be challenged by the assessee before the Tribunal, who for the reasons recorded in its order dated 24-1-1992, confirmed the order made by CIT under Section 263 of the Act, holding that the CIT had jurisdiction to exercise powers under Section 263 of the Act; the Assessing Officer had dropped the proceedings without proper inquiry when facts on record clearly necessitated such inquiry; such order of the Assessing Officer was erroneous and prejudicial to the interest of revenue; and the CIT was justified in directing the Assessing Officer to make fresh assessment after giving an opportunity. The assessee filed a Miscellaneous Application dated 16-10-1992 and the Tribunal rejected the same by its order dated 16-12-1992.
6. Heard Mr. S.N. Soparkar, the learned Senior Advocate for the applicant assessee. It was contended by Mr. Soparkar that firstly, there was no order made by the Assessing Officer, much less an order of assessment, and hence, the CIT could not have invoked Section 263 of the Act; secondly, even if the noting of the Assessing Officer could be termed to be an order, such an order had not been served on the assessee, and hence, was not amenable to action under Section 263 of the Act; and thirdly, there was no error or prejudice which would permit the CIT to assume jurisdiction under Section 263 of the Act. He placed reliance on the following decisions:
(1) Commissioner of Income Tax v. Gabriel India Ltd., 203 ITR 108 (Bombay) (2) Ramlal Kishore Lal v. Commissioner of Income Tax, U.P., 84 ITR 138 (Allhabad) (3) Smt. Jijeebai Shinde v. Commissioner of Gift-Tax, 157 ITR 122 (MP)
7. Mrs. M.M. Bhatt, the learned standing counsel appearing on behalf of the respondent - revenue submitted that the Tribunal's order was correct in the facts and circumstances of the case as well as the legal position in relation to exercise of jurisdiction under Section 263 of the Act. She placed reliance on Commissioner of Income Tax (Central), Calcutta v. Christian Mica Industries Ltd., 120 ITR 627 (Calcutta).
8. It is necessary to take note of the fact that, on 12-6-1982, the assessee had filed statement of advance tax payable under Section 209A of the Act showing total income subject to advance tax at Rs.1,35,404/-. Gross income-tax chargeable on the said income had been worked out at Rs.76,332/-, and after taking credit for Tax Deducted at Source of Rs.2,332/-, net amount of tax payable was worked out at Rs.74,000/-. In fact, in accordance with the aforesaid statement, the assessee had paid advance tax in three equal installments of Rs.24,667/-, totalling to Rs.74,001/-.
9. As already recorded hereinbefore, the Assessing Officer had issued notice under Section 139(2) of the Act and there was failure on part of the assessee to comply with the same. Even after extension had been sought, no return of income had been submitted within the extended period. In these circumstances, Section 144 of the Act, as it stood at the relevant point of time, was very much applicable. The relevant portion of Section 144 reads as under :
"Best judgment assessment.
144. If any person -
(a) fails to make the return required by any notice given under sub-section (2) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or
(b) xxxxx
(c) xxxxx 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."
10. On a plain reading of the provision, it cannot be disputed, on failure to file a return required by a notice under Section 139(2) of the Act, the Assessing Officer, was bound to make assessment of the total income or loss to the best of his judgment and determine the sum payable by an assessee or refundable to an assessee on the basis of such assessment. The Assessing Officer does not have any option not to make a best judgement assessment. The language employed by the provision is mandatory in terms and therefore, the Assessing Officer has to frame a best judgment assessment after taking into account all relevant material which he may have gathered. This legal provision by itself is sufficient to empower the CIT to invoke Section 263 of the Act and exercise jurisdiction. The action of the Assessing Officer in not making a best judgment assessment under Section 144(a) of the Act, despite failure of the assessee to file a return of income upon being served with a notice under Section 139(2) of the Act, was itself an action which was erroneous in law.
11. The assessee itself having submitted a statement of advance tax payable declaring income of more than Rs.1,35,000/- and having paid advance tax to the tune of Rs.74,001/-, itself indicated that the assessee Company was having positive income in the year under consideration and the assessee Company believed such a state of affairs to exist. Therefore also, the action of the Assessing Officer of dropping the proceedings had resulted in causing prejudice to the interest of revenue and the second limb of Section 263 of the Act also stood satisfied. Therefore, once the twin conditions for exercise of jurisdiction under Section 263 of the Act were shown to be fulfilled, the CIT was perfectly justified in taking action under the said provision and exercising his revisional powers.
12. In the aforesaid circumstances and the legal position, it cannot be stated that the view adopted by the Assessing Officer was a possible view in accordance with law and the CIT could not have acted under Section 263 of the Act. It is not even a case where the Assessing Officer was satisfied by the explanation tendered by the assessee and did not make any addition or disallowance. The reliance on behalf of the assessee on Bombay High Court decision in case of CIT v. Gabriel (India) Ltd., therefore, does not assist the case of the assessee.
13. The contention regarding the notings by the Assessing Officer not being an order, is not a correct contention. As held by the Apex Court in the following two cases, the order "No proceedings" would be an order which was amenable to re-assessment proceedings under Section 34 of the Indian Income Tax Act, 1922:
(1) Esthuri Aswathiah v. Income Tax Officer, Mysore State, 41 ITR 539 (2) Commissioner of Income Tax, Calcutta v. Bidhu Bhusan Sarkar, 63 ITR 278 13.1 In the second decision, the words used were "the case is, therefore, filed". The settled legal position, therefore, is that even if the proceedings are dropped, terminated or filed, any such noting would amount to an order and it would be open to the revenue to initiate re-assessment proceedings or revisional proceedings upon the necessary conditions being fulfilled for the exercise of jurisdiction under one or the other provision.
14. The Allhabad High Court decision in case of Ramlal Kishore Lal (supra), on which reliance has been placed on behalf of the assessee, instead of assisting the assessee, would go to support the stand adopted by CIT and approved by the Tribunal. In the case before the Allhabad High Court, it was held that the words "No penalty" written by the Inspecting Assistant Commissioner constituted an order under Section 274(2) of the Act, and was amenable to provisions of Section 263 of the Act, but the subsequent communication by the Assessing Officer and making a note thereof in the order-sheet was not an order and no action could be initiated against such communication of the Assessing Officer. Therefore, the decision of the Allhabad High Court does not support the proposition canvassed by the assessee.
15. In case of Smt. Jijeeben Shinde (supra), Madhya Pradesh High Court was called upon to decide the effect of non-service of an order. The Court, after referring various decisions of the Apex Court, summarized the law by holding that non-service of an order would result in deprivation of a valuable right of appeal, and hence, no action could be taken if the order was not served on the assessee. In the present case, it is not shown that non-service of the order made by the Assessing Officer resulted in causing any prejudice to the assessee. In fact, as the noting made by the Assessing Officer shows that the proceedings had been dropped, there was no assessment and the assessee was not even called upon to make payment of any tax. In these circumstances, there was no occasion for the assessee to challenge such an order by way of an appeal by exercising statutory right of appeal. 16. Section 263 of the Act states that the Commissioner may call for and examine the record of any proceeding under the Act, and if he considers that any order is erroneous, in so far as it is prejudicial to the interest of the revenue, he may, pass such order thereon as the circumstances of the case justify after giving the assessee an opportunity of being heard and after making or causing any inquiry to be made. Such an order may include an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. The contention, therefore, that the noting made by the Assessing Officer in the present case was not an assessment order and could not be subjected to action under Section 263 of the Act, is not supported by the plain language of section 263 of the Act. It empowers the Commissioner to take up for consideration "any order passed" in any proceeding under the Act. In these circumstances, it is not possible to read the provision as being limited to exercising revisional powers qua order of assessment only. It would take within its sweep even the orders wherein either proceedings are dropped or proceedings are filed. The Calcutta High Court decision in case of CIT v. Christian Mica Industries Ltd. (Supra) cited by the learned standing counsel takes a similar view under the provisions of the Indian Income Tax Act, 1922.
17. The Tribunal was, therefore, justified in law in upholding the exercise of jurisdiction and powers under Section 263 of the Act by the CIT. Once the assessee had submitted a statement of advance tax payable and paid advance tax of Rs.74,001/-, the Assessing Officer having served notice under Section 139(2) of the Act, it was not open to the Assessing Officer to drop the proceedings. There was an indication that the assessee itself believed that it had positive income exigible to tax and provision of Section 144 of the Act specifically mandated the Assessing Officer to frame a best judgment assessment. On his failure to do so, the noting recording "proceedings dropped" was erroneous in so far as it was prejudicial to the interest of revenue and was liable to be revised under Section 263 of the Act.
18. All the three questions are, therefore, answered in the affirmative i.e. in favour of the revenue and against the assessee. The Reference stands disposed of accordingly. There shall be no order as to costs.