Gauhati High Court
Smt. Kamala Devi Todi (Legal ... vs Commissioner Of Income-Tax. on 16 June, 1988
Equivalent citations: (1988)78CTR(GAU)128, [1988]174ITR414(GAUHATI)
JUDGMENT
ASSESSMENT--Notice under s. 143(2)--Necessity of HELD:
Where the assessee, in pursuance of s. 142(1) notice, informed that account books were burnt in arson and riots, the assessing authority was still required to issue s. 143(2) notice before making a best judgment assessment.
Income Tax Act 1961 s.144 JUDGMENT A. RAGHUVIR C.J. - The reference relates to the assessment years 1962-63 and 1963-64. Lalchand Todi is the assessee. He was a partner of a firm called Tinsukia Flour Mill.
The assessee was served with a notice on August 11, 1966, under section 142(1) for production of books of account. The assessee represented that on August 10, 1986, a mob broke into the office of the firm at 11 a.m., ransacked the books of account for five hours and burnt the books of account, other records and properties worth Rs. 5,000. The assessee, therefore, was unable to submit the books of account at the inquiry by the Income-tax Officer. The assessment orders for the years 1962-63 and 1963-64 were finalised without books of account under section 144 of the Act. The assessee filed, unsuccessfully, appeals before the Appellate Assistant Commissioner and before the Appellate Tribunal. Later, under sub-section (2) of section 256 of the Income-tax Act, the following two questions are referred to this court :
"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the best judgment assessments under section 144(b) of the Income-tax Act, 1961, for the assessment years 1962-63 and 1963-64 could be legally made without issuance of a notice under section 143(2), although the failure to comply with the terms of the notice under section 142(1) was stated to be due to reasons beyond the assessees control ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the best judgment assessment for the years 1962-63 and 1963-64 could not be challenged except for the quantum of assessment since no applications under section 146 of the Income-tax Act, 1961, were made ?"
Learned counsel for the assessee in support of the first question argued that notice under section 143(2) of the Income-tax Act was not served on the assessee before the assessment order was finalised and, therefore, the procedure prescribed under the Act was not followed. What is urged more is that if the assessment order is finalised without notice to the assessee, in such a case the principles of natural justice stand violated. The contention that the procedure prescribed is not followed is well founded. Furthermore, we also see that the principle of audi alteram partem stands violated.
We have earlier referred to the fact that when the assessee was served with a notice to cause production of account books, he stated that the books were not available for they were burnt in arson and riots which occurred on August 10, 1966. The issue, in such circumstances, is whether the assessee was entitled to further notice under section 143(2). The Revenue in this case argued that the assessment is not made under clause (c) of section 144 of the Income-tax Act and that, therefore, no notice need be served on the assessee. Speaking of procedure under the Act, the assessee filed the return and the return was not accepted by the Income-tax Officer. He held an inquiry and passed an assessment order. The assessee contends that clause (c) of section 144 applies as the return filed by the assessee is varied or concluded to the detriment of the assessee and that, therefore, he is entitled to a notice under section 143(2) of the Act. At the relevant time section 143 of the Act, sub-section (2), was in the following terms :
"(2) Where a return has been made under section 139 but the Income-tax Officer is not satisfied without requiring the presence of the assessee or the production of evidence that the return is correct and complete, he shall serve on the assessee a notice requiring him, on a date to be therein specified, either to attend at the Income-tax Officers office or to produce, or to cause to be there produced, any evidence on which the assessee may rely in support of the return."
If the Income-tax Officer is not satisfied with the return he can serve notice, is expressly stated in sub-section (2). The issue is whether the Income-tax Officer can pass an assessment order in the circumstances of the case, without notice to the assessee. It is in this grey area that the language of sub-section (2) of section 143 is silent and we, however, hold, including in such a grey area, the principle of audi alteram partem operates and no order can be passed without hearing the assessee.
In an analogous situation, in one of the decisions of this court, Jai Prakash Singh v. CIT [1978] 111 ITR 507, at page 513, the application of the principles of natural justice in this regard was highlighted. In that case, the legal representatives were not heard and this court, interpreting section 143(2), held that the principles of natural justice were applicable. "The finding of the Tribunal that non-service of notice under section 143(2) of the Act against nine out of the ten legal representatives of the deceased, B. N. Singh, did not invalidate the assessment orders of the Income-tax Officer, is not sustainable in law. Violation of the principles of natural justice, and, more particularly, violation of statutory principles of natural justice, as in the instant case, takes away the jurisdiction of the authority concerned to proceed with the proceedings and make the assessment orders and necessarily invalidates the proceedings and the orders passed therein. If you want to assess the estate of the deceased assessee, the estate must be fully represented by impleading all the legal representatives and serving of notices on all of them who represent the entire estate. If you do not do that, assessment proceedings and assessment orders passed therein will cease to be valid proceedings and valid orders in the eye of law. Thus, it was the legal duty of the Appellate Assistant Commissioner and also of the Tribunal to annul the assessments in the instant case. After annulment of the assessment orders, if law permits and there is no bar under the limitation prescribed by law, fresh assessment proceedings may be drawn up in appropriate cases but instead of passing an annulment order, by passing an order setting aside the assessments and directing completion of the assessments by issuing notices on the remaining legal representatives, as has been done in the instant case, the authority may not be allowed to nullify the provisions of law as laid down in section 153 of the Act". The facts in that decision were a fortiori similar to the facts of the present case.
In the instant case, it is argued on behalf of the Revenue that once the account books were not available there was nothing further which the assessee could have represented and therefore, the assessment was completed without notice under sub-section (2) of section 143 and in doing so the order suffered from no vice whatever. In arguing in that strain what is missed is that the assessee could show that his return was correct and that he could show only if he was heard. He would have or might have adduced evidence to support the return and, therefore, the contention that the Income-tax Officer could have concluded the assessment without notice under section 143 cannot be countenanced.
For all the aforesaid reasons, the first question referred is answered in the negative, in favour of the assessee and against the Revenue. In view of our finding on the first question, the second question does not call for an answer.
The questions are answered as indicated with costs of Rs. 250 to the assessee.