Calcutta High Court
National Standard Duncan Limited vs Commissioner Of Income-Tax on 22 January, 1991
Equivalent citations: [1992]196ITR776(CAL)
JUDGMENT Ajit K. Sengupta, J.
1. In this reference under Section 256(1) of the Income-tax Act, 1961, for the assessment year 1978-79, the following questions have been referred to this court :
"(1) Whether, under the facts and in the circumstances of the case, the Tribunal was justified in holding that the assessment order under Section 143(3) read with Section 144B of the Income-tax Act, 1961, was not rendered invalid for the reason that the successor-Income-tax Officer (coming only at the stage of finalisation of the assessment) having not given an opportunity to the assessee asked for under the proviso to Section 129 of the Income-tax Act, 1961?
(2) Whether, under the facts and in the circumstances of the case, the Tribunal was justified in holding that the time taken in the proceedings under Section 144B of the Income-tax Act, 1961, was required to be excluded and, as such, the assessment was not barred by limitation ? "
2. Shortly stated, the facts are that the assessee-company submitted a return for the assessment year 1978-79 declaring a total income of Rs. 18,67,075. The Income-tax Officer, J-Ward, Comp. II, in making the assessment under Section 143(3), prepared a draft assessment order as the variation in the income returned by the assessee and the income to be assessed exceeded Rs. 1,00,000. He, accordingly, forwarded a draft assessment order in terms of Section 144B to the assessee on March 28, 1981. The assessee filed objections to the draft assessment proposals of the Income-tax Officer by its letter dated April 2, 1981. Subsequently, the draft assessment order together with the assessee's objections were forwarded to the Inspecting Assistant Commissioner, Range-VII, Calcutta. Some time later, the Commissioner of Income-tax, West Bengal IV, Calcutta, by his order dated June 1, 1981, transferred the jurisdiction of the assessee's case from the Income-tax Officer, J-Ward, Comp. Distt. II, to the Income-tax Officer, B-Ward, Special Circle III, Calcutta. At the time the order pertaining to the change in the jurisdiction of the Income-tax Officers was passed by the Commissioner, proceedings under Section 144B for the assessment year under reference were pending before the Inspecting Assistant Commissioner, Range VII, Calcutta. The assessee, by its letter dated August 3, 1981, desired a rehearing of the case in terms of Section 129 read with the proviso to the said section. The Income-tax Officer having jurisdiction over the assessee's case informed the assessee by letter dated August 6, 1981, that since the assessment at the material time was pending before the Inspecting Assistant Commissioner, Special Range, Calcutta, the question of rehearing of the case by him did not arise. The Income-tax Officer, on receipt of the Inspecting Assistant Comissioner's instructions under Section 144B(4), completed the assessment under Section 143(3)/144B on August 31, 1981.
3. Before the Commissioner of Income-tax (Appeals), the assessee challenged the said order of the Income-tax Officer on the ground that the assessee was not allowed proper opportunity in terms of the proviso to Section 129 of the Act. The Commissioner of Income-tax (Appeals) rejected the assessee's contention. He was of the view that the Income-tax Officer had the power to give an opportunity of the hearing to the assessee only before passing the draft order and not thereafter. The Commissioner of Income-tax (Appeals) further observed that the assessee was allowed sufficient opportunity by the Inspecting Assistant Commissioner before he passed his order under Section 144B(4) of the Act ; but the assessee did not avail of the opportunity so given during the pendency of the proceedings under Section 144B before the Inspecting Assistant Commissioner.
4. The assessee, being aggrieved with the said order of the Commis-sioner of Income-tax (Appeals), filed a cross-appeal raising five grounds of which the first three grounds were as follows :
" 1. The Commissioner of Income-tax (Appeals) erred in upholding the validity of the assessment made by the Income-tax Officer without giving an opportunity to your respondent as required by the proviso to Section 129.
2. For that, the opportunity given by the Inspecting Assistant Commissioner of Income-tax under Section 144B does not satisfy the requirements of the proviso to Section 129.
3. For that, the transfer of jurisdiction having been made after March 31, 1981, when the assessment is pending, the matter is barred by limitation in view of the requirements of the proviso to Section 129. "
5. The Tribunal held that the Inspecting Assistant Commissioner had given effective and substantive opportunity to the assessee not only under Section 144B but also under Section 129. Accordingly, the Tribunal held that the objections raised by the assessee are not tenable.
6. On these facts, the questions set out hereinbefore have been referred to this court.
7. At the hearing, it has been submitted by Dr. Debi Pal, learned counsel for the assessee, that the authorities below erred in ignoring the clear provision of Section 129 and the Commissioner of Income-tax (Appeals), on the facts of the case, should have cancelled the assessment being barred by limitation, and even otherwise the assessment was void, as no opportunity as demanded by the assessee under Section 129 was given before the completion of the assessment. It is reiterated before us that the assessee demanded under Section 129 that the previous proceedings should be reopened and that the assessee should be reheard by the Income-tax Officer before making the assessment. According to learned counsel of the assessee, the right of the assessee under Section 129 is a substantive right which cannot be tampered with ; opportunity should be given by the Income-tax Officer who had to complete the assessment and not by the Inspecting Assistant Commissioner as it was done in the present case. It is, therefore, urged that the opportunity given by the Inspecting Assistant Commissioner in the present case was not proper and valid. He further contended that Section 144B does not take away the substantive right of the assessee available under Section 129. It was also contended that the assessment was bad in law since no opportunity was allowed under Section 129 by the Income-tax Officer and even otherwise the assessment was barred by limitation, and that the Tribunal should have cancelled the assessment order.
8. On the other hand, learned counsel for the Revenue supported the findings and conclusions of the authorities below. According to learned counsel, ample opportunity was given by the Inspecting Assistant Commissioner while dealing with the objections raised by the assessee under Section 144B. According to him, effective opportunity was afforded, but the assessee had chosen not to avail of the opportunity. It is emphasised that the policy behind the introduction of Section 144B is to give the assessee an opportunity at the first instance to raise any objection to any proposed addition which brings about variation in such income by more than Rs. 1 lakh. Learned counsel for the Revenue submitted that adequate opportunity was given to the assessee by the authorities concerned at every stage.
9. It is also contended that the assessment is not barred by limitation. The draft assessment order was forwarded on March 28, 1981, and the assessment was completed on August 31, 1981, and, as such, there is no question of the assessment being barred in view of the provisions of Section 153(3).
10. We have considered the rival contentions. The facts, as stated briefly above, are not disputed. The assessee claimed that opportunity was not given as demanded by it under Section 129 to be reheard and that the previous proceedings should be reopened by the Income-tax Officer before completing the assessment. The Income-tax Officer, B-Ward, Special Circle HI, at the first instance, intimated the assessee by his letter dated August 6, 1981, that the draft assessment order was forwarded by his predecessor-in-office on March 28, 1981, and the matter was pending before the Inspecting Assistant Commissioner, Range VII, who held jurisdiction over the case under Section 144B and that, in the circumstances, no proceeding was pending before the Income-tax Officer, B-Ward, Special Circle III, at that stage relating to the assessment year 1978-79. The Income-tax Officer after sending the draft assessment order along with the objections of the assessee to the Inspecting Assistant Commissioner concerned, has no other power to rehear the assessee in view of the provisions of Section 144B. The provisions of Section 144B are quite clear and unambiguous. The Income-tax Officer, in case he was of the opinion that there would be a variation of the assessed income vis-a-vis the returned income exceeding more than Rs. 1 lakh, has to conform to the requirements of Section 144B. He has to prepare, in the first instance, a draft of the proposed order of assessment and forward it to the assessee. On receipt of the draft order, the assessee may forward his objections, if any, to such variation. If no objections are received within the period or extended period as stipulated, the Income-tax Officer has to complete the assessment on the basis of the draft order. If, however, any objections are received, the Income-tax Officer has to forward the draft order together with the objections to the Inspecting Assistant Commissioner, who shall, after considering the draft order and the objections and after going through the records relating to the draft order, issue, in respect of the matter covered by the objections, such directions to the Income-tax Officer as he thinks fit to enable the Income-tax Officer to complete the assessment. Such directions are binding on the Income-tax Officer as enjoined by Section 144B(5). No directions which are prejudicial to the assessee can be issued before an opportunity is given to the assessee to be heard.
11. The assessee wanted a fresh draft order to be prepared as there was a change of jurisdiction of the Income-tax Officer over the case of the assessee. There is no such provision which enjoins that once the jurisdiction of the Assessing Officer is changed, the new Assessing Officer will have to start de novo in making the assessment, The assessee cannot demand that a draft should be made as and when the incumbent changes. We cannot import into the statute words which are not there. Once the Assessing Officer sends a draft order along with the objections of the assessee to the Inspecting Assistant Commissioner, the new incumbent cannot recall such draft order already forwarded in compliance with the provisions of the Act. When the Income-tax Officer forwards a draft assessment order to the Inspecting Assistant Commissioner concerned, he has for the time being no other function to perform regarding the assessment except to await the Inspecting Assistant Commissioner's instruction which would be binding on the Income-tax Officer and he cannot alter, change or modify the draft except to the extent as directed by the Inspecting Assistant Commissioner. It is no doubt true that the assessee has the right to be heard under Section 129 but such right can only be exercised by the assessee so long as the draft of the proposed order of assessment is not forwarded to the Inspecting Assistant Commissioner. An assessee cannot ask for a further opportunity to be heard after the concerned Income-tax Officer referred the matter to the Inspecting Assistant Commissioner under Section 144B. At that stage, it is the Inspecting Assistant Commissioner who is seized of the matter and he could only hear the assessee on the objections raised by it on the draft order of assessment. The Inspecting Assistant Commissioner concerned, in the present case, did take into account the provisions of Section 129. In our opinion, the opportunity extended by the Inspecting Assistant Commissioner in the present case was effective and substantial. The assessee has, however, chosen not to avail of the opportunity in order to assail any point in the draft assessment order or any portion of it apart from what was raised or agitated in its written objections dated April 2, 1981, sent to the Income-tax Officer, J-Ward. Apparently, the assessee was satisfied with its written objections sent to the Income-tax Officer earlier and there was no indication in its objections dated April 2, 1981, that the assessee would produce further evidence or materials, etc., afterwards. We are of the view that the contentions raised by the assessee have no merit. The assessee has the right to be heard under the proviso to Section 129 and such right does not subsist after the concerned Income-tax Officer refers the matter to the Inspecting Assistant Commissioner who is then duly seized of the matter. The procedure laid down by Section 144B is such that the successor-Income-tax Officer cannot send a second draft order. If the assessee's contention is accepted, the draft forwarded by the Income-tax Officer to the Inspecting Assistant Commissioner will be non est and inoperative as soon as a new incumbent takes over as the Assessing Officer. This cannot be the intention of the Legislature.
12. The proviso to Section 129 no doubt provides that the assessee may demand that, before a proceeding is continued, the previous proceeding or any part thereof may be reopened or that before any order of assessment is passed against him, he may be reheard. In our view, Section 129 makes it evident that rehearing is not obligatory in every case where there is a change in the incumbent. It will depend in the context of the proceeding if such demand for rehearing is made by the assessee. When the draft assessment order is forwarded to the Inspecting Assistant Commissioner, the proceedings are pending before him. In such a situation, Section 129 will not apply and the assessee cannot demand rehearing by the successor-Income-tax Officer, inasmuch as the successor-Income-tax Officer has no power to make any change in the draft assessment order and affording a hearing to the assessee by the successor-Income-tax Officer would be an exercise in futility. Once the Income-tax Officer forwards the draft to the Inspecting Assistant Commissioner concerned, he cannot even review the draft, nor can he himself meet the objections of the assessee. In other words, the powers of the Income-tax Officer regarding the assessment are kept in abeyance, in suspended animation and such powers would be reactivated on receipt of the Inspecting Assistant Commissioner's instruction under Section 144B which would be binding on him in terms of Sub-section (5) of Section 144B.
13. This aspect can also be looked into from another point of view.
14. If the assessee's request for rehearing was to be accepted, then the first draft sent by the Income-tax Officer concerned would be non est to enable the successor-Officer to reprocess the entire matter. The successor-Officer can only do so, assuming that it can be done, within the normal period of limitation. As indicated earlier, assessment for the assessment year 1978-79 would have been barred by March 31, 1981, No income-tax authority, whether the Income-tax Officer or the Inspecting Assistant Commissioner, can give hearing to the assessee under Section 129 after March 31, 1981, as contended by the assessee. In such a situation, the successor-Income-tax Officer could not have restarted the exercise of hearing the assessee or preparation of a fresh draft assessment order and the rest of it, when the case would have stood time-barred earlier irrespective of the fact and time allowed under Section 129 read with the Explanation 1(i) to Sub-section (3) to Section 155. An authority can reopen the proceeding or any part thereof under Section 129 only within the normal period of limitation, and not thereafter. In our view, therefore, the successor-Income-tax Officer could not have given any hearing to the assessee as demanded by him. Opportunity in such a case has to be given only by the officer before whom proceeding is pending ; in the instant case, it is the Inspecting Assistant Commissioner before whom the proceeding regarding approval for the draft of the assessment order was pending. It is nobody's case that such opportunity was not extended by the Inspecting Assistant Commissioner to the assessee. As a matter of fact, the Tribunal found that the opportunity extended by the Inspecting Assistant Commissioner to the assessee was effective and substantial but the assessee had not chosen to avail of such opportunity.
15. There is also no merit in the contention that the assessment is barred by limitation ; since the question of reopening of the proceeding by the Income-tax Officer does not arise, the assessment cannot also be said to be barred by limitation. The assessment year involved was 1978-79. This assessment was required to be made on or before March 31, 1981. The Income-tax Officer, on March 28, 1981 "forwarded" a draft assessment order which was served on the assessee on March 28, 1981. Once this procedure was adopted, the period of limitation was extended to enable the assessee concerned to raise objections and that the period available to the Inspecting Assistant Commissioner concerned was a maximum of 180 days which commences from the day the Income-tax Officer " forwards " the draft assessment order and ends on the day when the Income-tax Officer "receives" instructions from the Inspecting Assistant Commissioner concerned. The Appellate Tribunal found that the entire exercise was completed by the Inspecting Assistant Commissioner concerned and by the Income-tax Officer who passed the assessment order within the time prescribed. We are, therefore, of the view that the assessment order was made within the time prescribed in Clause (iv) of Explanation 1 to Section 153(3),
16. The view we have taken is also supported by the decision of the Andhra Pradesh High Court in the case of K. Venkata Ramana and Buddha Appa Rao v. CIT [1987] 168 ITR 747.
17. For the foregoing reasons, we answer both the questions in this reference in the affirmative and in favour of the Revenue.
18. There will be no order as to costs.
Bhagabati Prasad Banerjee, J.
19. I agree.