Punjab-Haryana High Court
Des Raj Kul Bhushan vs Commissioner Of Income-Tax on 19 April, 1989
Equivalent citations: [1989]180ITR297(P&H)
JUDGMENT Gokal Ghand Mital, J.
1. For the assessment year 1973-74, the assessee filed a return declaring an income of Rs. 2,77,264. The Income-tax Officer considered the matter under Section 143(3) of the Income-tax Act, 1961 (for short "the Act"), in great detail and computed the income at Rs. 3,96,168. Since the assessee was a registered firm, the share allocation amongst partners was also made. Finally, the following words were added in the assessment order dated March 29, 1976.
"Penalty notice under Sections 271(1)(c) and 273 have already been issued. Assessed. Issue documents."
2. The assessment order was duly signed by the Income-tax Officer and below the assessment order there was added a depreciation chart and certain annexures. This was also signed by the Income-tax Officer. A copy of the assessment order is annexure "A" in the paper book. However, at the top of the order "draft order" is written. The Income-tax Officer communicated the order dated April 7, 1976, passed under Section 144B(3) of the Act to the assessee. It is in the following terms :
"The draft assessment order served on March 30, 1976, on you should be treated as final as the statutory period of one week has already lapsed and no objection has been filed. Demand notice, challan and penalty notices have already been issued and served. However, copies of the same are again enclosed for necessary action."
3. The aforesaid order shows that the Income-tax Officer considered the order dated March 29, 1976, as a draft order under Section 144B, although a reading of the order dated March 29, 1976, shows that it was a complete order duly signed by the Income-tax Officer and that was served on the assessee on March 30, 1976 together with the demand notice and challan, although notice for imposition of penalty was yet to be issued.
4. The assessee filed appeals against both the orders dated March 29, 1976 and April 7, 1976, and the Commissioner of Income-tax (Appeals) consolidated both the appeals and came to the conclusion that the order dated March 29, 1976, was a final order and since the Income-tax Officer had not followed the procedure laid down in Section 144B of the Act, the same was illegal, and the matter was thus set aside and was remanded to the Income-tax Officer for passing a fresh order after following the procedure laid down by law. In view of the above, the order dated April 7, 1976, passed by the Income-tax Officer was cancelled. The assessee's effort to challenge the remand order remained unsuccessful before the Income-tax Appellate Tribunal, Amritsar, and at the instance of the assessee, it has referred the following questions for opinion :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessment framed is not null and void ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the provisions of Section 144B of the Income-tax Act, 1961, are not mandatory but are only advisory and that the Income-tax Officer is not bound to conform to the provisions of Section 144B in case the addition to be made to the declared income of the assessee exceeds the prescribed amount and further that he is not bound by the directions of the Inspecting Assistant Commissioner, if given under Section 144B ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the jurisdiction of the Income-tax Officer to frame assessment does not cease when he finds that the addition to be made to the declared income of the assessee exceeds the prescribed amount ?
(4) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the failure of the Income-tax Officer to follow the procedure laid down in Section 144B does not violate the principles of statutory and of natural justice and is not fatal to the assessment order's validity ?
(5) Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the appellate orders of the Commissioner of Income-tax (Appeals) setting aside the assessment for framing the same afresh was correct and did not amount to circumventing the time limit prescribed for completion of assessment ?"
5. After going through the order dated March 29, 1976, passed by the Income-tax Officer, we are of the opinion that the Tribunal and the Commissioner of Income-tax (Appeals) were right in coming to the conclusion that it was not a draft order under Section 144B of the Act, but was a final order under Section 143(3) of the Act, and since the Income-tax Officer had made additions of more than a lakh of rupees, although he had the jurisdiction to add more than a lakh of rupees, this he could do only by following the procedure laid down in Section 144B of the Act and not in the manner he has done in this case. Once the order dated March 29, 1976, was not a draft order but was a final order, the assessee was not obliged to file objections within seven days of the receipt of the order and thus the order dated April 7, 1976, passed by the Income-tax Officer also could not be allowed to stand. Whether the provisions contained in Section 144B of the Act are called mandatory or statutory, the result is the same, namely, that if the Income-tax Officer wants to add more than a lakh of rupees to the returned income, he has to follow the procedure contained in Section 144B of the Act before doing so.
6. The next question is, what is the power of the Commissioner of Income-tax (Appeals) in such a situation. Section 251(1)(a) of the Act authorises the Commissioner of Income-tax (Appeals) to annul or set aside the assessment order and refer the case back to the Income-tax Officer for making a fresh assessment in accordance with the directions and if necessary, to make further enquiry, and thereupon the Income-tax Officer shall proceed to make fresh assessment and determine the amount of tax payable on the basis of such fresh assessment. The Commissioner of Income-tax (Appeals) exercised his power under the aforesaid provision for setting aside the illegal order of the Income-tax Officer and rightly remanded the case to the Income-tax Officer for fresh determination in accordance with law.
7. Another point that has specifically come up for consideration is whether the order of the Income-tax Officer, without following the procedure laid down in Section 144B of the Act, is null and void and the appellate court, on noticing the infirmity, could set aside and remand the case to the Income-tax Officer to frame a fresh assessment after following the due procedure. To highlight, the argument of counsel for the assessee was that a null and void order is either no order in the eye of law or can be said to be non-existent and, if that is so, the question of filing an appeal against such an order does not arise. Similarly, even if an appeal is filed, the appellate court has no jurisdiction to set it aside and remand the matter except declaring that the order of the Income-tax Officer was null and void.
8. It cannot be disputed that an appellate authority has jurisdiction to notice any error in the order of the lower authority and to grant appropriate relief. Where the mistake can be corrected at the appellate stage after due opportunity, a decision can be rendered. Where it becomes necessary to remand the matter to the original authority, that course can be followed. All illegal and erroneous orders are not null and void but all null and void orders also partake of the character of being illegal and erroneous and can be rectified in appeal. Illegal and erroneous orders, if not appealed against, bind the parties, but if a null and void order is not appealed against, it may not bind the party against whom it is passed and it will be open to the aggrieved party either to challenge it by filing an appeal or, in collateral proceedings, when the order is sought to be enforced against it. In the present case, the assessment order made by the Income-tax Officer without following the procedure laid down in Section 144B of the Act was challenged in appeal by the assessee. The Commissioner of Income-tax (Appeals), after setting aside that order, remanded the case to the Income-tax Officer for making a fresh assessment after following the due procedure. The Commissioner of Income-tax (Appeals) had power/ jurisdiction to do so and it cannot be said that he had only to declare the order of the Income-tax Officer to be null and void and was in error in remanding the case to the Income-tax Officer.
9. Another point raised was that by passing the remand order, the time limit for making the assessment was sought to be circumvented. Since law permits enlargement of limitation on remand, there is no question of circumventing the time limit for framing the assessment. Section 153(1) of the Act provides for a time limit for completion of assessment under Section 143 or 144 of the Act. Section 153(2) of the Act provides for the time limit for framing an assessment, reassessment and recomputation under Section 147 of the Act. Section 153(2A) is a non obstante clause in relation to the assessment years commencing on the 1st day of April, 1971, and subsequent years. Notwithstanding Sub-sections (1) and (2), in relation to such assessment years, a fresh assessment can be framed before the expiry of two years from the end of the financial year in which the order under Section 146 of the Act cancelling the assessment is passed by the Income-tax Officer or in pursuance of an order passed under sections 250, 254, 263 and 264 of the Act. Section 250 of the Act pertains to the first appellate order and Section 254 of the Act pertains to the orders of the Appellate Tribunal. Since the order of remand is passed for framing a fresh assessment, the limit would stand enlarged as indicated by Sub-section (2A) of Section 153 of the Act.
10. There is yet another non obstante clause in Section 153(3) of.the Act. It provides that the provisions of Sub-sections (1) and (2) shall not apply to the classes of assessments, reassessments and recomputations which may be completed at any time as mentioned in Clauses (i) to (iii), subject to the provision of Sub-section (2A) of Section 153 of the Act, An Explanation added to Section 153 of the Act further provides for excluding certain time and periods in computing the period of limitation provided by the section. Therefore, when, pursuant to the remand order passed by the Commissioner of Income-tax (Appeals) which was upheld by the Tribunal, fresh assessment is made, it will not be open to the assessee to raise the question of limitation as the point of limitation does not arise at this stage.
11. In view of the aforesaid decision of ours, we proceed to give our answers to the referred questions.
Question No. 1 : This question is decided in favour of the Revenue that the assessment framed could be set aside by the Tribunal and the Commissioner of Income-tax (Appeals) with a direction to the Income-tax Officer to frame a fresh assessment and on the peculiar facts of this case, the Tribunal was right in law in holding that the assessment framed was not null and void so as to take away the jurisdiction to remand the matter to the Income-tax Officer for fresh assessment.
Question No. 2 : Our answer to question No. 2 is that the provisions of Section 144B of the Act are mandatory-cum-statutory and if the facts of the case fall within the ambit of that provision, the Income-tax Officer is bound to conform to those provisions in case he wants to make additions which exceed the prescribed amount. The directions issued by the Inspecting Assistant Commissioner given under Section 144B of the Act are no doubt for the guidance of the Income-tax Officer but are binding upon him by virtue of Section 144B(5) of the Act.
Question No. 3 : This question is answered in favour of the Revenue, that is, in the affirmative, that the Income-tax Officer has jurisdiction to add over a lakh of rupees but before doing so, he has to follow the procedure given in Section 144B of the Act.
Question No. 4 : Under this question, it is answered that if the Income-tax Officer does not follow the procedure laid down in Section 144B of the Act, it is not fatal to the framing of a fresh assessment after following the procedure within the period of limitation.
Question No. 5 ; This question is answered in favour of the Revenue, that is, in the affirmative, that the Tribunal was right in upholding the order of the Commissioner of Income-tax (Appeals) provided a fresh assessment is made within the period of limitation.
12. The parties are left to bear their own costs.