Income Tax Appellate Tribunal - Mumbai
Income Tax Officer vs Hind Filders [P.] Ltd. on 30 March, 1996
Equivalent citations: [1982]1ITD323(MUM)
ORDER
Shri K. B. Menon, Judicial Member
1. This appeal by the department relates to the assessment year 1977-78.
2. The appeal arises out of the order of the Commissioner (Appeals) holding that the assessment in the case was one under section 143(3) read with section 144B of the Income-tax Act, 1961 ("the Act"), and quashing the same on the ground that the assessment was made beyond the period of limitation.
3. The assessee is a private limited company. The appeal relates to the assessment year 1977-78, the accounting period for which ended 31-12-1976. The return was due to be filed on or before 30-6-1977. The assessee filed a return on 24-6-1977 showing an income of Rs. 5,71,750. The time limit prescribed by section 153 for completing the assessment was to expire on 31-3-1980. The ITO proposed to make a variation in the income of the assessee by an amount exceeding Rs. 1 lakh, thus attracting section 144B to the proceedings. A draft of the proposed assessment order was, therefore, finalised on 28-3-1980 and was dispatched by registered post to the assessee on the same day. It was received by the assessee on 2-4-1980, for which an acknowledgment was on record. No objections were forwarded by the assessee to the ITO within the period of seven days prescribed by sub-section (2) of section 144B. It filed its objections only by a letter dated 11-4-1980 which was received by the ITO on 14-4-1980. There was no application by the assessee for extension of the period for the filing of the objections. The ITO ignored the objections on the ground that they were filed out of time and passed the assessment order on 19-4-1980 under sub-section (3) without forwarding the draft order and the objections to the IAC under sub-section (4).
4. It is necessary at this stage to refer to the provisions of section 144B and section 153, so far as they are relevant for the questions involved in this appeal.
5. When the proposed variation in the income is more than Rs. 1 lakh sub-section (1) of section 144B requires the ITO to "forward" a draft of the proposed order to the assessee. Sub-section (2) provides that "on receipt of the draft order" the assessee may forward his objections to such variation, within seven days of the receipt by him or within such further period not exceeding 15 days as the ITO may allow on an application made to him. Sub-section (3) provides that if no objections are received within the period or the extended period aforesaid or if the assessee intimates acceptance of the variation, the ITO shall complete the assessment on the basis of the draft order. Sub-section (4) provides that "if any objections are received" the ITO shall forward the draft order together with the objections to the IAC. The assessment is to be finalised in the light of the directions, if any, received from the IAC.
6. Section 153 of the Act prescribes the time limit for completion of the assessment. Under sub-clause (iii) of sub-section (1) (a) of section 153, the ITO has to complete the assessment within two years from the end of the assessment year in which the income was first assessable. This period in the present case expired on 31-3-1980. Explanation 1 to section 153 provides for exclusion of certain periods in computing the period of limitation prescribed by the section. Clause (iv) of the Explanation relates to assessments involving the procedure under section 144B. Under the same, a period not exceeding 180 days commencing from the date on which the ITO forwards the draft order to the assessee under sub-section (1) and ending with the date on which the ITO receives the directions form the IAC under sub-section (4) is to be excluded. The clause also provides that in a case where no objections to the draft order are received from the assessee, the period to be excluded shall be 30 days.
7. It is clear from what is stated above that in cases where the draft order and the objections are forwarded to the IAC, the exclusion will be 180 days and in cases where the assessment is finalised without forwarding the objections, the exclusion will be only 30 days. In the present case, the two-years period expired on 31-3-1980 and the assessment was completed on 19-4-1980. The assessment will be in time if a period of 30 days is excluded, treating the case as one falling under sub-section (3) of section 144B. But it will be out of time if section 144B is not attracted and a period of one month is not excluded.
8. The contention of the assessee is that it is not enough if the draft order is forwarded by the ITO before the expiry of the period of two years available for completing the assessment and that it is also necessary that the draft order should be served on the assessee within the period of two years. As in the present case the draft order was served only two days after the expiry of the period of two years, it is claimed that there were no valid proceedings under section 144B, that the assessment can, therefore, be treated as only one under section 143(3) of the Act and not one under section 143(3) read with section 144B, and that the assessment is, therefore, time-barred. The contention was accepted by the Commissioner (Appeals) and the assessment was annulled as illegal and inoperative. Hence the present appeal by the department.
9. The contention of the department, on the other hand, is that it is enough if the draft order is dispatched to the assessee before the expiry of two years available for completing the assessment and that it is not necessary that the order should be served on the assessee within two years. As already stated, in the present case the order has been despatched within two years. It is the further case of the department that as the objections were not filed within seven days of the receipt of the draft order, the objections subsequently received could not be taken note of and were rightly ignored by the ITO and that the completion of the assessment under sub-section (3) of section 144B will, therefore, be correct. As such, it is claimed that a period of one month can be excluded and the assessment will, therefore, be within time.
10. The learned counsel for the assessee also raised an alternative contention that if it is held that it is sufficient to dispatch the draft order within the period of two years and it is not necessary that it should be served on the assessee within two years, even then, the present proceedings are bad for the reason that the ITO failed to forward the draft order along with the objections received from the assessee to the IAC as provided in sub-section (4). The contention was that even if the objections were received beyond the period of seven days mentioned in sub-section (2), they have to be forwarded to the IAC, if they have actually been received before completing the assessment. Thus, according to the assessee, even the proceedings under section 144B have not been properly completed.
11. Before dealing with the issues emerging from the contentions set out above, we may deal with another contention raised by the learned counsel for the assessee that the ITO should have heard the assessee before treating the objections to the draft order as having been filed beyond the period of seven days permitted for the purpose. It appears to have been claimed by the assessee before the Commissioner (Appeals) that the draft order was received by the assessee only on 7-4-1980. If this is a fact, the objections dated 11-4-1980 may be within time. But it is found that a report of the Ward Inspector has been placed on the-record which shows that the draft order, along with the covering letter was served on the assessee on 2-4-1980. There is nothing to show that this is not correct. When the records revealed that the objections were out of time, it was perfectly open to the ITO to treat the objections as time-barred. In our opinion, it was not necessary for the ITO to have heard the assessee on this aspect before proceeding with the case. This contention is, therefore, overruled.
12. We may now deal with the question whether it is sufficient if the ITO dispatches the draft order within two years allowed for completing the assessment or whether it is necessary that the draft order should reach the assessee within two years.
13. The relevant provision in sub-section (1) of section 144B is that "the ITO shall, in the first instance, forward a draft of the proposed order of assessment ... to the assessee." The contention of the learned counsel for the assessee is that the word "forward" occurring in the sub-section has been used in the sense that the draft order should be served on the assessee. In support of the contention, the learned counsel relied upon certain rulings to the effect that the word "issued" occurring in similar provisions means "served". The first ruling to which the reference was made by the learned counsel was that of the Supreme Court in Banarsi Devi v. ITO [1964] 53 ITR 100. In this case, the Supreme Court was interpreting the word "issued" occurring in section 4 of the Indian Income-tax (Amendment) Act, 1959, which was enacted to save the validity of notices issued under section 34(1) (a) of the 1922 Act. This section related to income escaping assessment. Section 34(1) as it stood at the relevant time provided that the notice to be issued in the matter had to be served on the assessee within eight years of the end of the assessment year. In many cases the notices were issued within eight years but were served beyond eight years. The Indian Income-tax (Amendment) Act was enacted to save the validity of such notices. Section 4 of the Amending Act saved all notices "issued" before a certain period. The Supreme Court while interpreting the scope of the word "issued" occurring in the Amending Act and taking into consideration the fact that section 34(1) prescribed the limitation with reference to the service of notice, held that the expression "issued" occurring in the Amending Act can only mean "served".
The next ruling referred to was that of the Andhra Pradesh High Court in CIT v. Smt. Kailasa Devi & Smt. Rukmani Bai [1976] 105 ITR 479, which was a ruling under sections 148 and 149 of the Act. Relying upon the ruling of the Supreme Court in Banarsi Devi (supra), referred to above, it was held by the Andhra Pradesh High Court that the word "issued" in section 149 can only mean "served". Sections 148 and 149 also related to assessment of escaped income. While section 148 used the word "serve", section 149, which prescribed the period of limitation, used the word "issued". It was held that the notices issues before the period of limitation and served after the period will not confer jurisdiction on the ITO under section 147. The ruling of the Gujarat High Court in Shanabhai P. Patel v. R. K. Upadhyaya, ITO [1974] 96 ITR 141, which was next relied upon by the assessee, took the same view as the Andhra Pradesh High court with regard to sections 147, 148 and 149. The next ruling referred to was that of the Supreme Court in CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581 in which it was held that the word "issued" occurring in section 18(2A) of the Wealth-tax Act means "served". This was also based on the earlier ruling of the Supreme Court in Banarsi Devi's case (supra). It was held that a full disclosure of the wealth, made by the assessee before the receipt of the notice issued under section 17 of the Wealth-tax Act, conferred on the assessee the benefit of section 18(2A) and that the Commissioner was fully empowered to exercise his discretion under the section in the matter of penalty. The learned counsel for the assessee also referred to us to the ruling of the Bombay High Court in Petlad Bulakhidas Mills Co. Ltd. v. Raj Singh [1959] 37 ITR 264 wherein it was held that the period for the filing of the application for revision under section 33A of the 1922 Act begins to run from the date of receipt of the order of the AAC and not from the date of making the order.
On the basis of the above rulings it was argued that as the word "issued" has been interpreted to mean "served" and as the expression "making of the order" or "passing of the order" has been interpreted to mean service of the order, the word "forward" occurring in sub-section (1) of section 144B cannot mean mere despatch of the order but can only mean the service of the order on the assessee. It was also argued that if the "making of an order" or the "issue of an order" means the "service of the order", the "forwarding" of an order which can normally occur only after making or passing the order should also mean service of the order. It was also argued that if the word "forward" is interpreted to mean only despatch, it will lead to anomaly and uncertainty because the process server employed by the department or the transit through post may take its own time and will unduly extend the period of limitation prescribed for completing the assessment. The learned counsel for the assessee also referred to the ruling in Queen v. Recorder of Richmond [1857] 27 LJ 197. In that case the word "sent" was equated with "delivery" in connection with the notice of chargeability of a liability. As the ruling relates to an enactment, the nature of which is not fully available, we are not inclined to rely upon this ruling. Similar, we are also not inclined to place reliance on the ruling of the Supreme Court in Dara Singh v. State [1981] 51 Comp. Cas. 146 which was also relied upon by the learned counsel for the assessee, for the reason that it is one under Foreign Exchange Regulation and the Supreme Court only held that a criminal liability cannot be imposed without proof of the knowledge of the order. This has no application to the present case.
14. We may now refer to the rulings relied upon by the learned departmental representative. In K. N. K. Reddy v. CIT [1974] 97 ITR 450 it was held by the Mysore High Court that it is enough if an order imposing a penalty under section 271(1) (c) of the Act is passed within two years of the date of completion of the proceedings in the course of which the proceedings for imposition of penalty had been commenced and it is not necessary that the communication of the same to the assessee should also be within the said period of two years prescribed in section 275 of the Act. The decision does not depend upon the interpretation of expressions like "issued" or "forward" and this ruling does not, therefore, seem to be of help to decide the present issue. The ruling in Badriprasad Bajoria v. CIT [1967] 64 ITR 362 (Cal.), which was also relied upon by the learned departmental representative related, to the question whether it is sufficient if an assessment order is completed within the prescribed period for the purpose of section 34(3) of the 1922 Act, and whether it is further necessary that it should be communicated to the assessee before the expiry of the period. The Calcutta High Court rejected the contention of the assessee that the date of communication of the order of assessment should be taken to be the date of making the order. This ruling also does not seem to be of help in deciding the meaning of the word "forward" occurring in section 144B. But the ruling in Jai Hanuman Trading Co. (P.) Ltd. v. CIT [1977] 110 ITR 36 (Punj. & Har.) (FB), which was relied upon by the learned departmental representative fully supports the contention of the department. This was a case under sections 147,148 and 149. It was held by the Punjab and Haryana High Court that the word "issued" occurring in section 149 should be given its natural meaning and not the strained wider meaning of "served". In doing so, the Punjab and Haryana High Court overruled its earlier ruling in Tikka Kushwant Singh v. CIT [1975] 101 ITR 106 and dissented from the rulings to the contrary in Indu Prasad Devshankar Bhatt v. J. P. Jain, ITO [1965] 58 ITR 559 (Guj.), Shanabhai P. Patel v. R. K. Upadhyaya (supra) and CIT v. Kailasa Devi & Smt. Rukmini Bai (supra). The Punjab and Haryana High Court also distinguished the ruling of the Supreme Court in Banarsi Devi v. ITO (supra) which had been relied on in the rulings referred to above. The ruling of the Supreme Court was distinguished thus :
"The decision of the Supreme Court in Banarsi Devi's case [1964] 53 ITR 100 (SC), therefore, was that the expression 'issued' had a wide as well as narrow meaning and that in the context of section 34(1) which provided for service of notice within a period of eight years and in the context of the object of the Amending Act, the expression 'issued' could only be given a wider meaning in section 4 of the Amending Act. The Supreme Court did not lay down that the expression 'issued' whenever and wherever it occurred in the Income-tax Act, carried the wider meaning."
After making the above observations, the High Court compared the provisions of section 34(1) of the 1922 Act and those of sections 147, 148 and 149 of the 1961 Act and observed :
"The contrast between the provisions of the 1961 Act and the 1922 Act becomes immediately patent. While section 34(1) of the Indian Income-tax Act, 1922, prescribed limitation for the service of the notice on the assessee, section 149 now prescribes limitation for the issuance of the notice. It was because in the scheme of the 1922 Act, limitation was prescribed for the service of the notice that the Supreme Court had to hold in Banarsi Devi's case [1964] 53 ITR 100 (SC) that the expression 'issued' in section 4 of the Amending Act meant 'served'. In the scheme of the 1961 Act, limitation is prescribed with reference to the issuance of the notice. The scheme of the Act is that an Income-tax Officer must have reason to believe that the income chargeable to tax has escaped assessment either by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts or in consequence of information in his possession. He is then required to record his reasons. He is then required to issue the notice prescribed by section 148 within the period prescribed in section 149. This notice must be served before the Income-tax Officer can proceed to make the assessment or reassessment under section 147. That is the scheme of the present Act and there is no reason why the expression 'issued' occurring in section 149 should not be given its natural meaning instead of the strained, wider meaning 'served'. The departure from the old provision in section 34 of the 1922 Act is a conscious departure and it is our duty to give full effect a to it. We do not think that it is necessary to discuss the decisions in Indu Prasad Devshankar Bhatt v. J. P. Jain, ITO [1965] 58 ITR 559 (Guj.), Shanabhai P. Patel v. R. K. Upadhyaya, ITO [1976] 96 ITR 141 (Guj.), Tikka Khushwant Singh v. CIT [1975] 101 ITR 106 (Punj. & Har.) and CIT v. Kailasa Devi [1976] 105 ITR 479 (AP), since the learned judges who decided those cases merely purpose to follow the decision of the Supreme Court in Banarsi Devi v. ITO [1964] 53 ITR 100. We have given our reasons for holding that the Supreme Court did not decide in Banarsi Devi's case (supra) that the expression 'issued' wherever and whenever it occurred should always be given the wider meaning 'served' to the expression 'issued' occurring in section 4 of the Amending Act having regard to the context of the provision and the Amending Act. We are already of the opinion that in the context of the provisions and the object of the provisions of the Income-tax Act, 1961, the expression 'issued' occurring in section 149 cannot be given the meaning 'served'. We dissent from the views expressed by the Gujarat and Andhra Pradesh High Courts and we overruled the decision of the Punjab and Haryana High Court in Tikka Khushwant Singh's case (supra)."
With great respect, we prefer to follow the above ruling of the Punjab and Haryana High Court in preference to the rulings relied upon by the learned counsel for the assessee and which have been referred to earlier. Applying the ratio of this ruling, the word "forward" occurring in sub-section (1) of section 144B cannot mean "serve" as contended for by the learned counsel for the assessee.
15. There are some more reasons which would justify our taking the view indicated above. The word which came up for consideration in the rulings referred to above was "issued". In the present case, we have to consider the meaning of the word "forward" in the context in which it occurs in section 144B. This has not been done in the rulings referred to earlier. It also appears to us that the reasoning that the word "issued" occurring in section 149 would mean "receipt" because section 148 speaks of "service", cannot apply to the present controversy. Section 147 initiates a new action in relation to an assessment which had been completed before and in this respect the provision is a substantive one. Section 144B, on the other hand, is only a procedural one. It only prescribes a step before completing the normal assessment. Clause (iv) of Explanation 1 to section 153 of the Act does not prescribe a starting point of limitation and it only excludes the period taken to comply with the procedure prescribed by section 144B. It is in this background that the provisions in section 144B have to be examined. Sub-section (1) says that the draft should be forwarded to the assessee. Sub-section (2) says that on receipt of the draft the assessee may forward his objections within seven days. In view of this the assessee is fully protected as he can file the objections within seven days after the receipt of the order. No liability is, therefore, imposed on the assessee on the basis of the date of dispatch of the draft order. It is important that sub-section (2) also uses the word "forward" with regard to the submission of the objections by the assessee. There is no reason for giving the word "forward" a different meaning in sub-section (2). If the word is treated as equivalent to "receipt", the assessee will be required to see that his objections reach the department within seven days. On the other hand, if the word is treated as equivalent to "despatch", it will be sufficient if the assessee despatches the objections within seven days. This will definitely be more fare to the assessee. The difficulty in the case of sections 148 and 149 arose because section 148 mentioned about service of notice and when it came to the prescribing of limitation, section 149 spoke of issuing the notice. This difficulty does not arise in the case of section 144B because the very word "forward" occurs in clause (iv) of Explanation 1 to section 153. The word "issued" has been used in section 149 in passive voice and it was, therefore, possible to construe the word as "received". But the word "forward" has been used in sub-sections (1) and (2) of section 144B in the active form and they say that the ITO shall forward the draft and that the assessee may forward his objections. On a plain grammatical construction, the word "forward" is used with regard to the draft and the word "received" is used with regard to directions from the IAC and the objections. This also indicates that the word "forward" has not been used to mean the receipt of the draft order or the receipt of the objections. The same pattern is found in sub-s ections (2) and (3) of section 144B. With regard to the assessee, the word "receipt" is used when referring to the draft order and word "forward" is used when referring to objections. Similarly, in sub-section (3) the word "received" is used with reference to objections when it comes to the ITO. We, therefore, hold that the word "forward" occurring in sub-sections (1) and (2) of section 144B and in clause (iv) of Explanation 1 to section 153 has been used to mean "send" or "despatch" and not to mean "receive".
16. We may now deal with the alternative contention of the assessee that the ITO is bound to forward to the IAC the objections received by him even though they have been received beyond the prescribed period of seven days, provided they have been received before completing the assessment. In support of this argument, it was pointed out by the learned counsel for the assessee that while sub-section (3) of section 144B mentions about the objections being received within the period or the extended period, sub-section (4) only says that if objections are received, the ITO shall forward the draft and the objections to the IAC. It is pointed out that sub-section (4) does not require that the objections are received within the period or the extended period. Similarly, it was also claimed that the closing portion of clause (iv) to Explanation 1 to section 153 prescribes the period of 30 days to a case where no objections to the draft order are received, that it applies only to cases where no objections are received at all and that where objections are received but out of time, the matter will be governed only by the earlier portion of the clause and that in that case the objections have to be forwarded to the IAC. We are unable to accept this contention. Sub-sections (3) and (4) of section 144B have to be read together. Sub-section (3) prescribes the procedure where objections are received within the period or the extended period. Sub-section (4) prescribes the procedure where no objections are received and this can obviously mean only a situation where objections are not received within time. Reading sub-section (2) which prescribes a period during which objections can be submitted along with sub-section (4), it is clear that procedure in sub-section (4) is to be followed only when objections are received within time. It is significant that sub-section (4) does not use the expression "if any objections are received before completion of the assessment". To hold that sub-section (4) will apply even when objection are received out to time, will amount to rendering sub-section (3) ineffective in some cases. Further, it will also result in uncertainty because objections which are submitted late will have to be considered in cases where assessments have not been completed but they can be ignored in cases where assessments have be en completed. This will leave the matter to chance and will work out a discrimination between the assessees who have filed their objections out of time. Clause (iv) of Explanation 1 to section 153 has to be read along with section 144B and if so done, it will be clear that the last portion of the clause obviously refers to cases where no objections have been received within time or within extended time. We, therefore, reject the alternative contention of the assessee that in the present case, the ITO should have forwarded the draft and the objections to the IAC and that he should have treated the case as one in which no objections have been filed. In view of the findings above, the order of the Commissioner (Appeals) cannot be sustained and has to be set aside.
17. The order of the Commissioner (Appeals) shows that he has dealt with only the grounds relating to the validity of the assessment order. It is not indicated that there were no other grounds in the appeal before him. The matter will, therefore, be restored to the Commissioner (Appeals) for the limited purpose of disposing of the remaining grounds, if any. Ordered accordingly.
18. The appeal will be treated as allowed for statistical purposes.