Income Tax Appellate Tribunal - Cochin
N. Krishnan Navabharat Cashew Traders vs Income-Tax Officer on 18 November, 1992
Equivalent citations: [1993]44ITD618(COCH)
ORDER
G. Santhanam, Accountant Member
1. The appeals are by the assessee and the revenue and the cross objection is by the assessee. As common issues are involved a consolidated order is passed for the sake of convenience.
2. The assessee is mainly a cashew exporter, but had business in foreign liquor and toddy besides deriving share income from a few firms. The previous year is the financial year ending on 31-3-1981 relevant to the assessment year 1981-82. The return of income was filed on 3-11-1983 admitting a loss of Rs. 58,216 for the relevant previous year. The total loss returned in the return was at Rs. 11,53,920. As a result of the failure of the assessee to comply with the requirements of the notices issued by the Income-tax Officer, the assessment was completed ex parte under Section 144 of the I.T. Act on 12-9-1984. The notice of demand along with the assessment order was served on the assessee's advocate. On the basis of a petition dated 15-9-1984 filed by the assessee's advocate, the exparte assessment was cancelled under Section 146 on 24-9-1984 and the fresh assessment was completed on 27-3-1987 making certain additions and disallowances as follows :
1. Inclusion of income from foreign liquor shop and interest on kist advance Rs. 25,815
2. Addition to net income from Poliathode Toddy Shop Rs. 33,800
3. Disallowance of car and travelling expenses - personal - over and above Rs. 3,650 - added back in the Memo of Total income Rs. 9, 600
4. So-called profit on unaccounted sale of cashew kernels Rs. 2,52,292
5. Addition to value of closing stock Rs. 48,960
6. Disallowance out of Bonus Rs. 1,83,178
7. Addition made under other sources -
so-called unaccounted investment in raw eashewnuts Rs. 19,79 030
8. Disallowance of claim under Section 35B Rs. 52,369
9. So-called unaccounted purchases - of Tin Sheets, and Addition under other sources Rs. 8,156 Thus against the income initially assessed under Section 144 at Rs. 2,16,336 the income that was finally determined upon cancellation of the ex parte assessment came to Rs. 23,28,394. The assessee appealed against the additions and disallowances to the CIT (Appeals) without much success. The assessee is on second appeal. The revenue is on appeal against the relief granted by the CIT (Appeals) and the cross objection of the assessee is on the question of limitation.
3. After presentation of the appeal by the assessee against the merits of additions and disallowances sustained by the CIT (Appeals) for the impugned assessment year, the assessee had filed an additional ground of appeal on 5-8-1991 as follows:
Additional grounds of appeal:
1. The assessment order passed by the learned Income-tax Officer on 27-3-1987 is without jurisdiction.
2. The learned Income-tax Officer ought to have found that the so-called best judgment assessment said to have been made by him under Section 144 on 12-9-1984 has not been set aside. The Advocate has no authority l.o present a petition under Section 146. Appellant prays that the Hon'ble Income-tax Appellate Tribunal may be pleased to call for the assessment records and verify the authorisation of the Advocate and the petition under Section 146.
Another set of additional grounds were preferred on 5-9-1991 as follows:
1. The Income-tax Officer has no jurisdiction to make this impugned assessment. The ex parte assessment under Section 144 has not. been set. aside. The assessee has admittedly as is evident from Department records filed any application under Section 146 to set aside the assessment. The Advocate who presented the application has no authority under the Vakkalath given to him in the light of Section 288 and Section 146 of the I.T. Act, 1961.
2. In any event this being a fresh assessment under Section 146 of the I.T. Act read with Section 143 the Income-tax Officer has no power to make any additions in excess of the income assessed under Section 144 of the I.T. Act, 1961 and under any new heads of income not assessed under Section 144.
It is submitted that these grounds are only question of law and further investigation into fresh facts are necessary. All the necessary facts are on records. The questions go to the very root of the matter and jurisdiction of the Income-tax Officer. The questions are of vital importance to the assessee. If not allowed to be raised the assessee will suffer great prejudice. The first ground is already raised in cross objection to Department appeal. It. is more appropriate to raise it in the appeal of the assessee itself. Ground No. 2 is only a legal argument and not a ground as such. The omission to raise this ground earlier is not on account of any wilful negligence or default. Permission may therefore be granted.
A third set of additional grounds were presented on 2-1-1992 as follows:
1. As the assessment under Section 144 has not been set aside the assessment now challenged is beyond time and without jurisdiction.
2. The Income-tax Officer should have followed Section 144B proceedings. Having not done it he has no authority to make an addition in excess of Rs. 1.00,000.
3. In an assessment done under Section 143 after Section 144 is set aside the income assessed should not exceed Section 144 assessment figures.
These are only questions of law on admitted facts. The omission to raise it earlier is not wilful.
These grounds were not raised before the CIT (Appeals) and they are for the first time raised before the Tribunal.
4. Sri C.K. Nair, the learned counsel for the assessee submitted that the assessee was not aware of the fact that there was an ex parte assessment which was later on cancelled by the Income-tax Officer at the instance of his Advocate, giving rise to fresh proceedings for assessment. Even from the order of assessment under Section 143(3) read with Section 146 of the I.T. Act, he had no occasion to think that the ex parte assessment was cancelled by the Income-tax Officer on a petition preferred by his Advocate. This explained the conduct of the assessee in not preferring a ground against the legality of the impugned assessment before the CIT (Appeals). Even at the time of filing the appeal before the Tribunal it did not occur to the assessee that the original assessment was cancelled at the instance of his advocate's petition. Therefore, the assessee did not challenge the legality of the assessment in the grounds of appeal filed before the Tribunal. It was only late in the day that the assessee had gathered that the original assessment was cancelled by the Income-tax Officer on the basis of petition under Section 146 prepared and signed by the assessee's Advocate without his authority or knowledge and it is in these circumstances that he filed the additional ground first on 5-8-1991 followed by two more additional grounds on 5-9-1991 and 2-1-1992 respectively. The second and third additional grounds are consequential grounds arising out of the first additional ground of appeal. In the exceptional circumstances of the case, substantial justice required that the additional grounds should be admitted and justice rendered.
5. Sri C. Abraham, the learned senior departmental representative vehemently opposed the admission of the additional grounds. He submitted that the assessee did not co-operate with the Income-tax Officer which led to the passing of an ex parte assessment order. The ex parte assessment was cancelled and the original assessment proceedings were reopened under Section 146 at the instance of the assessee through his Advocate. The assessee had also participated in the fresh assessment proceedings by complying with the notices and putting in appearances through his authorised representative. In the circumstances, it is not open to the assessee now to challenge the legality of the impugned assessment order or question the jurisdiction of the Income-tax Officer in invoking Section 146 of the I.T. Act leading to the present proceedings. Even if the assessee was ignorant of such inter se developments in the course of the assessment proceedings, it cannot be said that the assessee continued to have such misapprehensions after the receipt of the impugned assessment order in which the passing of the ex parte assessment order, the reopening of the assessment under Section 146 and cancellation of the ex parte assessment order were all referred to. Therefore, at least before the CIT (Appeals) the assessee should have challenged the proceedings. This he did not do. Further, the assessee had not objected to the impugned assessment proceedings in the grounds of appeal before the Tribunal. Right through the assessee was only aggrieved against the additions and disallowances. Therefore, it does not lie in the hands of the assessee to turn round at this stage of the proceedings and challenge the jurisdiction of the Income-tax officer or question the legality of reopening of the assessment under Section 146 of the Income-tax Act. Hence the additional grounds, first, second and third or all put together should not be entertained.
6. We have thus heard rival submissions and perused the records. There is a challenge to the jurisdiction of the Income-tax Officer in having acted on the petition preferred by an Advocate by reopening the assessment which has resulted in the cancellation of the exparte assessment and has given rise to the impugned proceedings. Thus the issues raised in the additional grounds of appeal go to the root of the matter. It is settled law that the assessee is at liberty to challenge the vires of the jurisdiction at any stage of the proceedings - R.J. Singh Ahluwalia v. State of Delhi AIR 1971 SC 1552, where the jurisdictional point was allowed to be raised for the first time before the Supreme Court. It is equally settled that the assessee would be entitled to raise a new ground, provided it is a ground of law and does not necessitate any other evidence to be recorded, the nature of which would not only be a defence to the appeal itself, but may also affect the validity of the entire assessment proceedings. The refusal of the Tribunal to allow the assessee to challenge the assessment on a ground of law would not be in accordance with law - B.R. Bamasi v. CIT [1972] 83 ITR 223 (Bom), Gaddem Chinna Venkata Rao v. Koralla Satyanarayanamurthy AIR 1943 Mad. 698 (FB). Further a pure question of law or a plea which is based on the evidence already on record can for the first time be raised and pleaded before the Tribunal. On such a plea being taken, the Tribunal is under a statutory obligation to entertain the plea and decide the same, no matter at what stage it was taken -Dy. CST v. P.K. Chellappan Achari [1980] 45 STC 236 (Ker.). There can be no estoppel on a question of law. On a consideration of the judicial pronouncements and also the facts and circumstances of the case, we admit the additional grounds of appeal.
7. The following facts are not in dispute before us:
(i) The original assessment was completed under Section 144 on 12-9-1984. The demand notice, challan and assessment order were served on the assessee's Advocate on 13-9-1984. Photostat copy of the demand notice with endorsement is found in the paper book of the department.
(ii) The Advocate of the assessee, Sri B. Gopalakrishnan had signed the petition under Section 146 of the I.T. Act on 15-9-1984 and the same was put up to the Income-tax Officer on 24-9-1984. Photostat copy of the petition is found in the paper book of the department. The above petition is as follows :
I beg to submit as follows:
I am served with an assessment order for the year 1981-82 under Section 144.
On 18-8-1984 vide my letter I have asked for time to produce the detail. This was denied and assessment is completed. It is submitted that there were two raids on my business premises and most of the books were and are with the Income-tax authorities. I could produce the details called for 1981-82 only after copying down the books kept under your custody. Hence the delay in submitting the details. At present I have started copying and hence I may be granted an opportunity to produce the details in the name of fairness and justice. Yours faithfully.
Sd/-
for N. Krishnan.
Quilon, 15-9-1984.
(iii) It is pertinent to point out that even though the petition is drafted in the name of N. Krishnan, the assessee, it has been signed only by Sri B. Gopalakrishnan, the Advocate for the assessee. (IV) On the basis of the above representation by the Advocate, the Income tax Officer reopened the assessment under Section 146 of the IT Act on 24-9-1984 cancelling the ex parte assessment dated 12-9-1984 giving rise to the impugned proceedings.
From the facts narrated above, which are not in dispute, the question that is being agitated before us is can the Income-tax Officer invoke the provisions of Section 146 on the basis of a petition preferred by the Advocate of the assessee.
8. Sri Nair vehemently contends that Section 146 if and when invoked results in the cancellation of a valid assessment and opens up the assessment proceedings afresh. On completion of the assessment, the Income-tax Officer's jurisdiction to assess the person again can be traced only to Section 146 or Section 147 of the Act. These two sections, viz., Section 146 and Section 147 confer jurisdiction on the Income-tax Officer to reopen the completed assessment and, therefore, the clutching of the jurisdiction should be based on sound principles. The assessee's Advocate was only authorised "to appear for me/us, in the above appeal/assessment proceedings/to conduct the same and all proceedings that may be taken in respect of any applications connected with the same or order passed thereon, including all applications for return of documents, and applications for review, in appeals and in applications for leave to appeal to the High Court, Supreme Court and to draw any moneys payable to me/ us in the said appeal/assessment proceedings".
(vide Vakalath dated 2-11-1983). Therefore, the Advocate signing the petition for N. Krishnan (the assessee) was totally not authorised to do so either "for or on behalf of N. Krishnan. On such an unauthorised petition, the Income-tax Officer had acted by invoking the provisions of Section 146. In other words, there was no valid petition or prayer before the Income-tax Officer by the assessee to invoke the provisions of Section 146. Hence the action of the Income-tax Officer in calling to aid the provisions of Section 146 resulting in the cancellation of a validly made assessment and reopenment of the assessment was totally void ab initio. In short, the Income-tax Officer lacked jurisdiction when he acted on a petition from a stranger. Sri Nair relied on the following decisions :
(i) CIT v. Chemmeens (Regd.) [1991] 188 ITR 634 (Ker.);
(ii) P.N. Sasikumar v. CIT [1988] 170 ITR 80 (Ker.);
(iii) D. Arasappa v. ITO [1970] 77 ITR 201 ( Mys.);
(iv) CIT v. Girdharilal [1984] 147 ITR 379 (Raj.);
(v) TRO v. K. Basavarajappa [1992] 197 ITR 398 (Kar.);
(iv) B H. Satyanarayanamurthi v. ITAT [1958] 33 ITR 123 (AP);
(vii) K. Veeraswami v. CIT [1960] 40 ITR 583 (AP);
(viii) CIT v. ITAT (1987] 167 ITR 250 (Mad.);
(ix) General Mechanical Works v. Third ITO [1981] 131 ITR 273 (Kar.);
(x) Byram Peslonji Gariwala v. Union Bank of India [1992] 1 SC 31.
9. Sri Abraham, the learned senior departmental representative contended that the assessee by his letter dated 18-8-1984 had sought for adjournment in order to enable him to file certain details. As he did not file the details and as there was non-compliance with the notices issued by the Income-tax Officer, an ex parte assessment was made on 12-9-1984. Thereupon, the Advocate who had a valid Vakalat in his favour had represented to the Income-tax Officer requesting him to reopen the assessment under Section 146. Then, in the reopened assessment proceedings, the assessee had participated by furnishing details and offering explanations. Therefore, the assessee cannot now contend that the proceedings in which he had participated are all non est proceedings and are not binding on him.
10. Section 146 of the IT Act is only a procedural section. No question of jurisdiction is in-built in that section. Therefore, even if the provisions of Section 146 are held to have been invoked incorrectly, at best it was only a supervening illegality which can be cured. That will not make the proceedings totally bad or non est in the eye of law. Adverting to the contents stated in the Vakalat. Sri Abraham vehemently contended that the Vakalat empowered the Advocate to do very many things including making applications for and on behalf of the assessee. Therefore, it cannot be construed that the Advocate was not authorised to petition to the Income-tax Officer inviting action under Section 146. Sri Abraham relied on the following cases:
(i) ITATs case (supra);
(ii) K. Sambasivam v. CIT [1963] 49 ITR 335 (Mad.);
(iii) B. H. Satyanarayanamurthi's case [supra);
(iv) K. Veeraswami's case (supra).
He also contended that some of the cases on which reliance was placed by the assessee's learned counsel support his stand rather than that of the assessee. He also placed reliance on the decision of the Supreme Court cited by the learned counsel for the assessee.
11. Thus we heard rival contentions. Section 146 as it then stood was as follows :
146. Reopening of assessment at the instance of the assessee.(1) Where an assessee assessed under Section 144 before the 1st day of October, 1984 makes an application to the Income-tax Officer, within one month from the date of service of a notice of demand issued in consequence of the assessment, for the cancellation of the assessment on the ground
(i) that he was prevented by sufficient cause from making the return required under 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 receipt thereof by the Income-tax Officer:
Provided that in computing the period of ninety days aforesaid, any delay in deposing of the application which is attributable to the assessee shall be excluded.
No application form has been prescribed in the rules for purpose of Section 146 - General Mechanical Works' case (supra). Therefore, the application by the assessee can be made out even on a piece of paper or other records containing the prayer of the assessee for reopenment of the assessment. In the case cited supra, after the completion of assessment under Section 144, the firm filed a return for the assessment year and a request in writing for setting aside the assessment typed at the end of its profit and loss account was annexed to its return. At the end of the profit and loss statement there was a single signature by the managing partner of the assessee-firm. This prayer was rejected on the ground that there was no proper application under Section 146. The Karnataka High Court held that there was substantial compliance with the requirements of Section 146 of the Income-tax Act, inasmuch as, there was a prayer to set aside the best judgment assessment for the reasons given in writing and, therefore, the Income-tax Officer should have disposed of that application on merits. The learned senior departmental representative relies on this very case stating that as there was an application by the assessee's advocate there was substantial compliance. We are unable to appreciate his stand. In the Karnataka case, there was a prayer of the assessee for reopenment of the assessment under Section 146 and that prayer was contained in a statement of profit and loss account which was signed by the assessee and that profit and loss account was annexed to the return of income which again was signed by the assessee. It is on these facts, the Court inferred that the assessee had made a valid prayer for reopenment of the assessment under Section 146, even though that particular prayer had not been attested by the signature of the managing partner of the firm. In the case before us the facts are different. There was a separate application. That application was not signed by the assessee. It was only signed by the Advocate. The common law "qui facit per alium facit per se" governs the matter of signature of persons. According to that rule what a man can do himself can equally well be done by his duly authorised agent. It is well settled that unless there is a specific provision of law, requiring the signatures and verification of the assessee himself, the signature etc. may be validly affixed by the constituted attorney - Bhawani Shanker v. State [1968] 68 ITR 873 (All.). Section 140 enacts such provisions for verification and signature of the returns of income. As there is no specific provision in Section 146 or in the Income-tax Rules requiring the signature of the assessee himself in an application under Section 146, the common law principle enacted in Section 140 of the Income-tax Act can be called to aid in order to test the validity of the application in the present case. In other words, we hold that the application can be signed either by the assessee himself or by his duly constituted attorney or by some other person duly authorised by him in this behalf.
12. The contents of the Vakkalath executed by the assessee have been narrated in para 8 above. It authorises the Advocate "to appear for the assessee" in appeal/assessment proceedings and "to conduct" the same. It authorises the Advocate "to appear for the assessee" or "to conduct all proceedings" that may be taken in respect of any application connected with the appeal/assessment proceedings or orders passed therein. Such authorisation "to appear for"/"to conduct" will include all proceedings in respect of applications for return of documents and applications for review in appeals or applications for leave to appeal to the High Court or Supreme Court. Further, it authorises the Advocate to draw any moneys payable to the assessee in the said appeal or assessment proceedings. Thus, the Vakkalath is specifically intended to enable the Advocate to appear for and conduct the proceedings. It did not authorise the Advocate to initiate the proceedings. There is no specific authorisation in the Vakkalath in this behalf. The authorisation is limited only to his appearance on behalf of the assessee in order to conduct the proceedings. Therefore, the Advocate was not authorised or empowered to sign the petition praying for reopenment of the assessment under Section 146 of the Income-tax Act for or on behalf of the assessee. Therefore, the application or petition signed by the Advocate who was not authorised to do so should be held to be an invalid application as it is non est in the eye of law. It is only on a valid application, the Income-tax Officer would be clothed with the jurisdiction to reopen the assessment under Section 146. He cannot act on a petition from a stranger which is the case before us, though he is an Advocate authorised to conduct the case before the Income-tax Officer once it is initiated. Therefore, the basic requirement for clutching at the jurisdiction under Section 146 is conspicuous by its absence in this case. Hence, we hold that the reopenment of the assessment under the provisions of Section 146 resulting in the cancellation of the original assessment made under Section 144 giving rise to the impugned assessment proceedings is void ah initio.
13. Sri Abraham, the learned senior departmental representative strenuously contended that at best the petition preferred by the Advocate could only be viewed as an illegality that intervened the proceedings and the assessee by participating in the reopened assessment had given his consent and the supervening illegality, if any. stood cured by the assessee's own conduct in the subsequent proceedings. The argument albeit attractive is devoid of substance. Once an assessment is completed either under Section 144 or under Section 143(3) or even under Section 143(1) resulting in the computation of income or loss, the assessment proceedings come to an end. The Vakkalath authorises the Advocate only to represent the assessee in a proceeding before the Income-tax Officer. Once the proceedings have come to an end in the culmination of an assessment order, no proceedings can be said to be pending before the Income-tax Officer, especially when no further steps had been taken by the assessee in appeal or revision. Therefore, the Advocate who was authorised only to appear for the assessee or to conduct the proceedings lacks authority to initiate on his own another bout of fresh proceedings in connection with the assessment. Further, in order that a proceeding under Section 146 conferring the jurisdiction to cancel the assessment under Section 144 and re-open the assessment, can be validly taken, the Income-tax Officer must have before him a petition duly signed by the assessee or by a person duly authorised in this behalf. In the absence of such a petition, the Income-tax Officer cannot clutch at the jurisdiction. Once there is failure of jurisdiction to reopen the assessment, all the consequences that flowed from such lack of authority should be held to be without jurisdiction. Sri Abraham would be right only if the proceedings had been validly initiated and then some illegality intervened the proceedings. Where there is total failure of jurisdiction itself, it cannot be dismissed as a case of supervening illegality which could be cured. In this view of the matter we hold that the cancellation of the ex parte assessment and the resulting assessment proceedings cannot be sustained.
14. Both the counsels relied on the decision of the Supreme Court in the case of Byram Pestonji Gariwala (supra). We have gone through decision of the Apex Court. In that case, the notice issued under Order 21 Rule 22 was personally served on the defendant, but he did not appear or show cause why the decree should not be executed. The notice was accordingly made absolute and leave was granted to the plaintiff to execute the decree. The decree passed by the High Court in terms of the compromise was a valid decree. It remained unchallenged. The appellant never raised any doubt as to its validity or genuineness. He had no case that the decree was vitiated by fraud or misrepresentation or his counsel lacked authority to enter into a compromise on his behalf. Nevertheless, after six years he questioned its validity by means of chamber summons. This was an unsuccessful challenge by reason of delay, estoppel or res judicata, and was rightly so held by the High Court. Dealing with the case, the Hon'ble Supreme Court held at para 30 and para 37 as follows:
30. There is no reason to assume that the Legislature intended to curtail the implied authority of counsel, engaged in the thick of proceedings in court, to compromise or agree on matters relating to the parties, even if such matters exceed the subject-matter of the suit. The relationship of counsel and his party or the recognised agent and his principal is a matter of contract, and with the freedom of contract generally, the Legislature does not interfere except when warranted by public policy, and the legislative intent is expressly made manifest. There is no such declaration of policy or indication of intent in the present case.
37. We may, however, hasten to add that it will be prudent for counsel not to act on implied authority except when warranted by the exigency of circumstances demanding immediate adjustment of suit by agreement or compromise and the signature of the party cannot be obtained without undue delay. In these days of easier and quicker communication, such contingency may seldom arise. A wise and careful counsel will no doubt arm himself in advance with the necessary authority expressed in writing to meet all such contingencies in order that neither his authority nor integrity is ever doubted. This essential precaution will safeguard the personal reputation of counsel as well as uphold the prestige and dignity of the legal profession.
Thus this case is an authority for the proposition that an Advocate can concede or compromise in the course of the proceedings before the Court or any other authority; even there the Supreme Court in its superior wisdom has administered words of caution requiring the advocates to arm themselves with the requisite authority in the interests of legal profession. This decision of the Supreme Court can be viewed in favour of the assessec, as his advocate was not acting in the course of any proceedings when he signed the application purported to be for and on behalf of the assessor after the assessment proceedings had come to an end. The other cases cited before us are not on this critical point. Arguments were advanced before us for and against the additions and disallowances made in the reassessment. In the view we have taken on the validity of the reassessment proceedings under Section 146, it would be an academic exercise for us to decide the issue on the merits of such additions and disallowances, and we leave the issues open.
15. In the result, the assessee's appeal is allowed. The revenue's appeal against the reliefs granted by the CIT (Appeals) does not survive for consideration as the reassessment order itself is vacated in the appeal by the assessee. The cross objection filed by the assessee has become in fructuous and the same is dismissed.