1. The assessee, a private limited company, is in appeal for the assessment year 1975-76 against the ITO's penalty order under Section 273(c) of the Income-tax Act, 1961 ('the Act'). The ITO imposed a penalty of Rs. 25,150. The Commissioner (Appeals) has confirmed the penalty and, hence, this appeal.
2. The assessee's counsel, Shri Vimal Gandhi, invited attention to certain undisputed facts to raise a legal objection to the validity of notice under Section 210 of the Act issued to the assessee-company. It was pointed out that notice under Section 210 dated 6-6-1974 was served on the assessee on 10-6-1974, asking for payment of advance tax of Rs. 45,340 on an income of Rs. 66,420. This was the income assessed for the assessment year 1971-72, which was the latest previous year in respect of which it had been assessed by way of regular assessment as per Section 209 of the Act. It was also stated that Section 209A of the Act was introduced in the Act only from 1-6-1978 and the assessee's case, therefore, was covered by the position prior to insertion of that section and that position was that if an existing assessee was not served with a notice under Section 210 to pay advance tax, he was not under any legal obligation to file an estimate of advance tax payable and to pay the same as envisaged under Section 212(3A) of the Act. The assessee's counsel then put forward his legal objection that the advance tax notice under Section 210 dated 6-6-1974 was not a valid notice as in accordance with the decision of the AAC dated 27-5-1974, the assessee will be having a loss of Rs. 7,253 instead of the income of Rs 66,420 It was pointed out by Shri Gandhi that the order of the AAC was to have effect on the income of the three assessment years 1969-70 to 1971-72 and in support of his submission that after giving effect to the order of the AAC, the income of the assessment year 1971-72 will get converted to a loss, he relied on the appeal effect orders subsequently passed by the ITO himself and these orders are dated 2-7-1975. Copies of these orders were included in the assessee's paper book and it is found that in consequence of the AAC's orders dated 21-5-1974, as per the ITO's own working for the assessment year 1971-72, a carried forward loss of Rs. 73,669 will have to be adjusted against the income already assessed of Rs. 66,416, leaving a balance or loss of Rs. 7,253. It was the contention of the assessee's counsel that the order of the ITO merges into the order of the AAC and no sooner the AAC had passed his order dated 27-5-1974, the assessee's income would be converted into the loss and the reduction in the income as a result of the order of the AAC will not have to wait in the eye of law till the clerical work of computing the same has taken place and the ITO has signed the orders giving appeal effect. In support of this submission, certain authorities were cited and relied upon. These are Chitra Cinema v. ITO [1968] 68 ITR 877 (All.), Smt. Dayawantiv. CWT [1981] 128 ITR 504 (Punj. & Har.), CIT v. Dashmesh Transport Co. (P.) Ltd. [1981] 128 ITR 270 (Punj. & Har.) and CIT v. Rajalakshmi Mills Ltd. [1980] 125 ITR 141 (Mad.). These decisions were cited to show the importance of effect of rectification on a regular assessment and the importance of a valid order to be passed by the ITO.2.1 On behalf of the revenue, it was submitted that the order of the AAC was dated 27-5-1974 and it would not have been even served on the ITO by the time he issued the advance tax notice dated 6-6-1974 and, hence, it was not physically possible for the ITO to give effect to the order of the AAC before the issue of advance tax notice. The departmental representative even made an attempt to ascertain the date of actual service of the order of the AAC on the ITO but the best he could point out was that the order would not have been received by the ITO prior to 28-6-1974. Proceeding on this line of reasoning, it was submitted that when the advance tax notice was issued, the only order available in the assessment records was the assessment order for the year 1971-72 computing the income of Rs. 66,420 and the notice issued on this basis was claimed to be valid in the eye of law. It was also submitted that the assessee having complied with the notice under Section 210 and paid advance tax cannot now object to it. Reliance was placed on two authorities. One was the case of Dashmesh Transport Co.
(P.) Ltd. (supra). It was contended that according to this ruling, the High Court has held that once a notice under Section 210 was issued by the ITO demanding advance tax from an assessee on the basis of income assessed of a particular year, the same cannot be amended if the income of that year underwent any change subsequently. It was also stated that amended notice in that case was held to be invalid and not the first notice. The second authority was cited as it was contended that wrong taking of the figure of quantum of income on which advance tax demand was made was a mere case of irregularity. This authority was a decision of the Tribunal, Amritsar Bench dated 6-2-1982 in the case of IAC v.Ganesh Das Bhoj Raj IT Appeal No. 705 (Asr.) of 1980].
3. On a careful consideration of the rival submissions, we find that the arguments of the assessee's counsel have force on the facts and in the circumstances of the case. It is an undisputed position that the order of the ITO merges into the order of the AAC. The AAC appears to have decided the appeals of the assessee for the assessment years 1969-70 and 1970-71 by his order dated 21-5-1974. This had the effect of increasing the assessed loss of the assessment year 1969-70 to Rs. 19,425 as against the previous figure of Rs. 9,310 and the corresponding figures for the assessment year 1970-71 were Rs. 1,19,035 and Rs. 78,960. On account of these increases in loss, the total loss computed for the two years amounted to Rs. 1, (sic), and this had to be adjusted for the assessment year 1971-72 where the loss adjusted previously amounted to Rs. 63,294 only. The ITO in his order giving appeal effect found that further loss of Rs. 73,669 (which is a correct figure and not Rs. 73,416 as given in the copy of order filed before us) had to be adjusted against the income assessed of Rs. 66,416, leaving a balance assessed loss of Rs. 7,253. In our opinion, the operation of law cannot be halted by the mere fact that the ITO received the order of the AAC later and chose to give appeal effect still later. The position in law has to prevail. The ITO, in fact was bound to cancel (sic) 29-1-1970 the notice under Section 210 issued on 6-6-1974 at the earliest after the receipt of the order of the AAC and even if he has not chosen to do so, the law has to prevail and the benefits, which had become available to the assessee as a result of the order of the AAC, would stand accrued. Viewing in this light, it is immaterial to ascertain when the ITO, in fact, received the order of the AAC. It may be that at the time he issued the advance tax notice he was not aware of the order of the AAC and of its implications and made a demand under Section 210 but under law he was bound to cancel the advance tax notice in this case as soon as the order of the AAC had physically come to him. But this is not to say that the effect of the order of the AAC has to be a deferred until the ITO chooses to give appeal effect. The order is effective on the date it is passed and its implications will accrue on the same date. On this reasoning, we find no difficulty in holding that the advance tax notice issued under Section 210 was an invalid notice, which was based on an assessed income become nonexistent in the eye of law on the passing of the order of the AAC dated 27-5-1974. The authorities cited by the assessee's counsel certainly support him. The Punjab and Haryana High Court has dealt with the importance of rectification in the context of the Wealth-tax Act, 1957, in its judgment in Smt. Dayawanti's case (supra) and again the Punjab and Haryana High Court in Dashmesh Transport Co.
(P.) Ltd.'s case (supra) has emphasised that an order passed by the ITO under Section 210(3), which was contrary to law, had to be struck down.
The Madras High Court in Rajlakshmi Mills Ltd.'s case (supra) has clearly laid down that the rectification of the assessment order under Section 154 of the Act had the effect of making the original assessment order passed on 29-1-1970 the regular assessment order or the correct assessment order. It was further held that in other words, the original assessment was made regular in truth and in fact as a result of the rectification. These observations will perhaps have the effect of taking the rectification even back to the date of original assessment and in the instant case whereas the ITO has given appeal effect to the order of the AAC for the first two assessment years acting under Section 250/143(3) of the Act, for the assessment year 1971-72, he has referred to Section 154/155 of the Act. For the purpose of deciding the question in hand, even this will be sufficient that the assessment order was modified on the date the order of the AAC was passed for the earlier two assessment years. We may point out that the revenue's reading of the Punjab and Haryana High Court authority in Dashmesh Transport Co. (P.) Ltd.'s case (supra) is not correct. What that decision emphasises is that what was not open to the ITO to do in accordance with law, it could not be done by him and the Court will not uphold it. The departmental representative was merely trying to rely on the effect of that principle on the facts and in the circumstances of that case. The decision of the Tribunal relied upon by the revenue is clearly distinguishable on facts and secondly, it is clearly mentioned in para 4 of the order of the Tribunal that 'This is not a case where the demand has been raised on the basis of income which had already been reduced or modified at the time of the issue of such notice.' The Tribunal in that case was dealing with a notice under Section 210, which was issued on the basis of a wrong figure of income assessed, and its effect in the context of the assessee's duty to act under Section 212(3A).
3.1 Having held the notice under Section 210 to be invalid, it is an undisputed position that the assessee for the assessment year 1975-76 had no duty to file an estimate and pay advance tax as provided under Section 212(3A). The penalty imposed under Section 273(c), thus, is unsustainable and it has to be cancelled. We order accordingly.
4. The assessee's counsel also argued the case on merits and pointed out with the help of a chart that the assessee was not clear about the position of brought forward losses to which it will be entitled after the assessments become final. It was pointed out that as per order under Section 154, dated 16-4-1982 as a consequence of the assessee's application to allow the benefit to carry forward of losses suffered during the earlier assessment year, a loss of Rs. 27,252 was computed for the assessment year 1974-75 ultimately which was set off against the income of Rs. 5.81 lakhs determined on 30-9-1980. Another chart was furnished to show the dates of decisions of the AAC or the Commissioner (Appeals), dates of the orders of the Tribunal and relief allowed by the Tribunal relating to the assessment years 1969-70 to 1973-74, which was referred to indicate that the position about the losses was uncertain. The assessee's advocate also explained the position referred to in para 4 of the order of the Commissioner (Appeals) about the assessee anticipating in the return filed for the assessment year 1974-75 benefit of carry forward loss of Rs. 50,000 only. It was submitted that the appeals were pending for the earlier years and the position was not clear about the ultimate figure of loss and the assessee having paid advance tax already of certain amount estimated the loss at Rs. 50,000 without any particular basis but keeping in mind the fact that it may not be called upon to pay any further advance tax.
4.1 The second circumstance to which Shri Gandhi invited attention with the help of a chart was that goods booking receipts for the assessment year 1975-76 become unduly high in the last two months of the accounting year, viz., November 1974 and December 1974. The figures for those two months were Rs. 4,77 lakhs and Rs. 10.34 lakhs. It was pointed out with the help of comparative figures of earlier year that goods booking per month averaged between Rs. 2 to 3 lakhs. It was submitted that increases in the months of November and December could not be visualised and further the figures were received from 36 booking offices after passage of much time after the due date for filing of the estimate which was 15-12-1974. It was emphasised that in December alone the final figure of goods booking was as high as Rs. 10 lakhs and that figure was not available by 15-12-1974. Finally, reliance was placed on the two rulings--CIT v. Pratap Chand Maheshwari [1980] 124 ITR 653 (Punj. & Har.) and Southern Publications (P.) Ltd. v. CIT [1982] 137 ITR 822 (Mad.) to say that the default on the part of the assessee was not contumacious in nature and, hence, no penalty should be levied. On behalf of the revenue, reliance was placed on the order of the Commissioner (Appeals).
5. On a consideration of rival stands, we find that the submissions made on behalf of the assessee are quite correct and deserve to be accepted. The assessee in the circumstances enumerated could not anticipate the increase in its income. This factor was in addition to the vagueness about the quantum of brought forward loss. Taking an overall view of all these factors, we find no justification for penalising the assessee under Section 273(c). On this score also, the penalty has to be struck down and we order accordingly.
7. I have perused the finding of the learned Accountant Member very carefully but it is not possible for me to accept the finding and agree to the cancellation of the penalty levied under Section 273(c).
8. Two pleas had been raised by the learned counsel for the assessee.
On facts he submitted that it was not possible for the assessee to make the estimate. He gave out two reasons. One relating to the claim of the assessee in respect of the previous year's losses and the other was in respect of the current year's receipts which did not allow the assessee to give a fair picture of the income which the assessee was likely to earn during the year. In para 4 of the order of the learned Accountant Member the uncertainty arising from the previous years losses is noted as under: It was submitted that the appeals were pending for the earlier years and the position was not clear about the ultimate figure of loss and the assessee having paid the advance tax already of certain amount estimated the loss of Rs. 50,000 without any particular basis but keeping in mind the fact that it may not be called upon to pay any further advance tax.
9. This plea does not get supported by a close consideration of facts, if the assessee could file a return of the assessment year 1974-75 showing an income of Rs. 1,47,350 after adjustment of losses on 27-9-1974, one cannot appreciate how he could derive any support from a consideration of previous year's losses for which appeals were pending.
The plea was raised no doubt before the Commissioner (Appeals) and he had recorded a finding in para 4 of his order, which is stated as under: From the records I find that for the assessment year 1974-75, a return of income was submitted on 21-1-1974 declaring an income of Rs. 1,47,350. This income was arrived at by adjusting a sum of Rs. 50,000 estimated to be brought forward losses of earlier years. This fact is clear from the Note No. 2 which is at the bottom of the statement of the assessable income filed along with return. Thus, on the date on which this return was submitted, i.e., towards the end of September 1974 the benefit of carried forward losses that the assessee anticipated in respect of the earlier years was Rs. 50,000 and this amount was taken into account in arriving at the returned income of Rs. 1,47,350.
10. Therefore, I am unable to appreciate how a consideration of the losses could stand in the way of the assessee making an estimate of income when he had already filed a return for the assessment year 1974-75 showing an income of Rs. 1,47,350 after making suitable adjustments of losses for the previous year.
11. In para 4.1 of the order of the learned Accountant Member the contention of the assessee regarding current year's receipt is given. I reproduce the same as below: The goods booking receipts for the assessment year 1975-76 become unduly high in the last two months of the accounting year, viz., November 1974 and December 1974. The figures for those two months were Rs. 4.77 lakhs and Rs. 10.34 lakhs, it was pointed out with the help of comparative figures of earlier year that goods booking per month averaged to between Rs. 2 to 3 lakhs. It was submitted that increases in the months of November and December could not be visualised and further the figures were received from 36 booking offices after passage of much time after the due date for filing of the estimate which was 15-12-1974. It was emphasised that in December alone the final figure of goods booking was as high as Rs. 10 lakhs and that figure was not available by 15-12-1974.
In this respect I would refer to the finding of the Commissioner (Appeals) contained in para 5 of his order: In this connection I notice that even if this be so, the assessee had the immediately preceding year's earnings as a fair guide of the income that it was likely to enjoy during the current year. If for that year while the returned income as per return filed on 27-9-1974 was Rs. 1,47,350 and the goods booking for the first entire year was Rs. 27,69,462, the goods booking for the first 10 months of the year under consideration was as much as Rs. 27,11,666. This was ample indication to the assessee that its income for the current year was likely to be much more than the income for the immediately preceding year itself and, therefore, it was in a position to file at least by 15-12-1974 an estimate of advance tax under Section 212(3A).
12. It is evident that the assessee had no adequate reply to the finding of the Commissioner (Appeals). On 27-9-1974 he had filed a return for the assessment year 1974-75 showing income of Rs. 1,47,350.
The goods booking for the entire year was Rs. 27,64,462. The goods of booking for the 10 months ending October 1974 in the current year was Rs. 27,11,666. The assessee himself contended that for November the receipt was Rs. 4.77 lakhs. That means that for the 11 months total receipts stood at Rs. 32 lakhs. Could not the assessee on these facts proceed to make a rough estimate for the month of December and file an estimate by the date of last instalment which fell on 15-12-1977. That the assessee had 35 branches cannot be a reason for not making an estimate. In years to come he may have more branches. Accepting his plea would mean that the provisions contained in Section 212 which obliges a taxpayer to file an estimate would not be made applicable to the assessee not only in this year but also in subsequent years when he may be having the same number of branches or more. It has not been realised by the learned Accountant Member that the management of big organisations always kept themselves regularly posted with the day to day affairs by obtaining, if not daily statements but weekly and fortnightly statements of receipts and expenditure. They always know the receipt and expenses position. They have to know it in order to keep a close watch on the running of their business. Therefore, it is not possible for me to accept the plea that the assessee could not make an estimate of his income because he had to collect particulars from 35 branches. He had to. There was no escape possible from this statutory obligation. If he felt he had any particular difficulty, he could approach the Commissioner and seek the extension for another 30 days as laid out in proviso to Sub-section (3A) of Section 212 which is reproduced below: Provided that in a case where the Commissioner is satisfied that, having regard to the nature of the business carried on by the assessee and the date of expiry of the previous year in respect of such business, it will be difficult for the assessee to furnish the estimate required to be furnished by him in accordance with the provisions of this sub-section on or before the date on which the last instalment of advance tax is due in his case, he may, if the assessee pays the advance tax demanded from him under Section 210 before such date, extend the date for furnishing such estimate up to a period of thirty days ...
13. Having not taken such a recourse, I am unable to appreciate how the assessee could be permitted to raise such a plea which has found acceptance by my learned brother. I am, therefore, unable to appreciate the following finding contained in para 5 of the learned Accountant Member's order: On a consideration of rival stands, we find that the submissions made on behalf of the assessee are quite correct and deserve to be accepted. The assessee in the circumstances enumerated could not anticipate the increase in its income. This factor was in addition to the vagueness about the quantum of brought forward loss.
14. Apart from the facts that the above finding does not disclose a critical assessment of the plea, it is not in accordance with the facts brought on record and the provision relating to Section 212 in making an estimate.
15. There remains another plea raised by the learned counsel for the assessee. It was that the notice under Section 210 issued by the ITO on 6-6-1974 was invalid. According to the assessee, this notice was based on a total income of Rs. 66,420 assessed for the year 1971-72, the total income of Rs. 66,420 assessed for the year was claimed to be not correct. This was because the appeals against the assessments for 1969-70 and 1970-71 had been disposed of by the AAC on 27-5-1974 resulting in large amounts of loss being allowed for these years. This naturally called for adjustment in the assessment for the year 1971-72 on which advance tax assessment was made for the year in issue in spite of total income of Rs. 66,420 assessed by the ITO and adopted for the advance tax assessment of the year in issue. The result was a loss of Rs. 7,253. According to the assessee, this made the basis adopted by the ITO for advance tax assessment an erroneous basis. According to his submission, adoption of this income invalidated the notice so that the assessee was not obliged to file an estimate even when he was served with a notice under Section 210. No doubt he was obliged to file an estimate but that was only when the notice issued under Section 210 was valid. To the objection of the departmental representative that the appellate orders for the assessment years 1969-70 and 1970-71 were received on 2-7-1974 only when the advance tax assessment had been made on 6-6-1974 was, in his view, to be considered as of no consequence.
According to him, as soon as the order was passed by the AAC on 27-5-1974, the assessments made by the ITO for 1969-70 and 1970-71 had got merged in his appellate order and had ceased to exist so that the advance tax assessment having been made on an erroneous basis caused the notice issued under Section 210 to be surcharged with invalidity.
The learned Accountant Member as indicated in para 3 made the following finding: It may be that at the time he issued the advance tax notice he was not aware of the order of the AAC and of its implications and made a demand under Section 210 but under law he was bound to cancel the advance tax notice in this case as soon as the order of the AAC had physically come to him. But this is not to say that the effect of the order of the AAC has to be deferred until the ITO chooses to give appeal effect. The order is effective on the date it is passed and its implications will accrue on the same date. On this reasoning, we find no difficulty in holding that the advance tax notice issued under Section 210 was an invalid notice, which was based on an assessed income become non-existent in the eye of law on the passing of the order of the AAC dated 27-5-1974.
16. I have not been able to appreciate the plea of merger advanced by the learned counsel and relied on by the learned Accountant Member. The consideration of merger was entirely uncalled for in the matter. No one can deny that in the appellate order passed, the order of the ITO appealed against get merged. But what was to be considered in this connection was when the orders passed by the AAC became effective. It is for this reason the learned Accountant Member abstained from the expression merger and used the word 'effective' in respect of the order. Unless the appellate order became effective, the question of merger cannot arise. According to my brother, the order was effective on the date it was passed and its implications will accrue on the same date. Before I deal with the provision, I pose a query that when the order passed in appeal by the AAC or the Commissioner becomes effective. Does it become effective when the AAC has conceived of the order in his mind or when he orally pronounces it in hearing before the parties or when he writes and signs the order. In this connection I reproduce Sub-section (6) and Sub-section (7) of Section 250 which deal with the procedure to be followed in appeal: (6) The order of the Appellate Assistant Commissioner disposing of the appeal shall be in writing and shall state the points for determination, the decision thereon and the reason for the decision.
(7) On the disposal of the appeal, the Appellate Assistant Commissioner shall communicate the order passed by him to the assessee and to the Commissioner.
Sub-section (6) provides that the order of the AAC shall be in writing while Sub-section (7) provides that the AAC shall communicate the order to the assessee and the Commissioner. Both the steps are to be taken by the AAC or the Commissioner (Appeals), according to the procedure laid down to dispose the appeal. No effect, therefore, can be attributed to any order which is not communicated to the parties and remains the secret preserve of the AAC's record. Therefore, an appeal is not disposed of when the AAC or the Commissioner (Appeals) conceives of the order in his mind nor when he pronounces the order before the parties in course of hearing nor when he dictates the order and signs it. He has to communicate the order in writing to the assessee and the ITO to dispose of the appeal. Only then the appellate order can be claimed to take effect. I may refer to the disposal of the appeal by the Tribunal.
Sub-section (3) of Section 254 of the Act provides that the Tribunal shall send a copy of any orders passed under this section to the assessee and to the Commissioner. Similarly the provision is laid out for the High Court and also for the Supreme Court in Section 260, Sub-section (1) of the Act where it is enjoined upon that a copy of the judgment shall be sent under the seal of the Court and the signature of the Registrar to the Tribunal which shall pass such orders as are necessary to dispose of the case conformably to such judgment.
Therefore, it is evident that the authority passing the order must communicate to the parties, to the assessee and to the ITO before the order passed can be said to be effective. It is from communication of the order that several consequences follow. The parties not only get a determination of their rights and liabilities but also acquire a right of appeal against the order. Therefore, one may take that until the communication of the order is not done, the appeal is not disposed of.
It is only from the moment of communication that the order passed in appeal takes effect. If the order passed by the High Court or the Supreme Court cannot become effective unless the judgment was communicated to the Tribunal, it is not possible to hold that as soon as the AAC or the Commissioner passes an order irrespective of the fact whether any communication has taken place or not, the order becomes effective. I may also refer to Clause (ii) of Sub-section (3) of Section 153 of the Act which authorises the TTO to give effect to the order passed in appeal or reference, etc. It provides, 'where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order passed under Section 250, 254, 260, 262, 263 or 264, etc.'. This provision is similar to the provision contained in Section 260 where the judgment delivered by the High Court or the Supreme Court has to be communicated to the Tribunal which shall give effect to the aforesaid judgment. Therefore, until the communication of the order does not take place, the ITO cannot proceed to recompute, or reassess or give effect to the order passed in appeal or revision by any of the numerous authorities referred to above.
17. A careful consideration of the above provisions does not leave any doubt in my mind that appellate order does not become effective as soon as it is passed. For making it effective, it has to be communicated to the parties concerned. Therefore, the view that the appellate order became effective as soon as it was passed on 27-7-1974, irrespective of the fact that it was communicated after notice under Section 210 was issued on 6-6-1974, is based on an erroneous appreciation of the statutory provisions contained in the Act. The view relied upon by the learned Accountant Member if adopted besides not finding any support in law will make the operation of Section 210 almost impossible as was correctly pointed out by the learned departmental representative. He correctly emphasised the difficulties an ITO would be facing when he would be called upon to issue a notice under Section 210. In order to issue a notice under Section 210 in respect of a taxpayer, he must not only check his assessment records but also make an enquiry from all appellate and revisional authorities and also the Courts, if any order has been passed by them in respect of the proceeding not only for the year on which advance tax assessment is going to be based but also in respect of the earlier years. A construction of a provision which makes a provision unworkable has to be avoided in order to understand the true import of the provision.
18. To save the assessee from possible hardship and erroneous assessment made under Sections 209 and 210, the assessee has been provided unlimited opportunities to file an estimate. Having filed an estimate, he may revise the estimate as many times as he likes. If he could not make an estimate by the date of the last instalment, he can take further extension from the Commissioner as indicated earlier.
19. Looked at in this background, I cannot appreciate the finding of the learned Accountant Member that as soon as the orders were passed by the AAC not in respect of the assessment year 1971-72 on which advance tax assessment was based but for the earlier assessment years 1969-70 and 1970-71, one must hold that--that the assessment for the assessment year 1971-72 stood held (sic) out and which made the basis inoperative and the notice issued under Section 210 invalid so that the assessee was not obliged to make an estimate and file with the ITO.20. Reliance has been placed on the decision of the Allahabad High Court in the case of Chitra Cinema (supra) where a notice issued under Section 210 was held invalid. Therefore, their Lordships held that the assessee was not obliged to file an estimate under Section 212 but it was not noticed that their Lordships proceeded on the basis that the assessment which had been made the basis for advance tax assessment had already been set aside when the order under Section 210 was made. Their Lordships observed: The petitioner contends that the assessment order for the assessment year 1959-60 having been set aside, the ITO was not entitled to consider the total income assessed by that assessment order for the purpose of determining the advance tax payable by the petitioner....
21. "Inasmuch as, the assessment of the total income for the assessment year 1959-60 had already been set aside when the order under Section 210 was made, the ITO was not entitled to consider that total income for the purpose of computing the advance tax....
22. It is evident that in the case of Chitra Cinema (supra), there was no debate that appellate order had not been communicated to the ITO or was not given effect to. In the present case, on the other hand, the assessment for the assessment year 1971-72 stood intact as the order passed by the AAC for the assessment years 1969-70 and 1970-71 were not communicated to the parties and the ITO as provided in Clause (ii) of Sub-section (3) of Section 153 had not 'assessed, reassessed or recomputed the income'. Therefore, the rule of Chitra Cinema (supra) which considered the notice under Section 210 to be invalid and, therefore, inoperative did not apply to the facts of the case in hand.
In this connection, a reference is to be made to the decision in the case of Dashmesh Transport Co. (P.) Ltd. (supra) relied on by the revenue. In this case, their Lordships of the Punjab and Haryana High Court held that once a notice under Section 210 based on the total income of the last assessee was made, the ITO could not amend it except when the assessment of a subsequent year was made. To apply the rule to the facts of the case, the ITO could not, even after the communication of the appellate orders for the assessment years 1969-70 and 1970-71, amend the notice already issued by him. In my view, the plea of the assessee that the notice under Section 210 was invalid and, accordingly, the assessee was not obliged to make any estimate has to be rejected as of no substance.
23. As the assessee had failed in respect of both his pleas, there is no justification in interfering with the finding of the Commissioner (Appeals). His finding is to be upheld and the penalty maintained. I direct accordingly. The appeal filed by the assessee against the penalty fails and is dismissed.
1. The assessee is a private limited company. Based on the income assessed for the assessment year 1971-72 of Rs. 66,420 with a tax liability of Rs. 45,340, the ITO issued a notice under Section 210 on 6-6-1974 on the assessee for payment of advance tax. The above income of Rs. 66,420 was arrived at after setting off certain brought forward losses for the assessment years 1969-70 and 1970-71. On 27-5-1974 by an order of that date, the AAC had granted relief to the assessee reducing his income for the assessment year 1971-72 from Rs. 66,420 to a figure of loss. The assessee returned an income of Rs. 5,69,420 on 29-9-1975 for the assessment year 1975-76 and he was assessed on an income of Rs. 5,81,429. Since the assessee had not revised his estimate for the purpose of advance tax and paid the same under the provisions of Section 209A, the ITO started proceedings and levied a penalty under Section 273(e) of Rs. 25,150. The assessee's claim that in view of his income for the assessment year 1971-72 being negative as against the positive income based on which a notice under Section 210 was issued, the ITO had no jurisdiction to issue a notice under Section 210 was rejected by the ITO. The penalty levied was upheld by the Commissioner (Appeals). When the matter came up on appeal before the Tribunal, the learned Accountant Member accepted the assessee's claim and cancelled the penalty, whereas the learned Judicial Member rejected the claim and upheld the levy of penalty. The two members having, thus, differed on the above, the matter has been referred to me as the Third Member for resolution of the dispute as to whether the penalty under Section 273(c) is leviable or not in the case of the assessee.
2. The learned counsel for the assessee has challenged the validity of the notice under Section 210 both on legal and factual grounds. It is pointed out that in view of the decision of the first appellate authority for the assessment year 1971-72, which was available on record prior to the date of issue of notice under Section 210, the ITO had no jurisdiction to issue the notice at all. The ITO ought to have himself rectified the demand made even if it was made in ignorance of the order of the AAC. Reliance is placed on the decisions in Rajalakshmi Mills Ltd.'s case (supra) and CIT v. Premier Auto Finance (P.) Ltd. [1981] 128 ITR 540 (Delhi). The decision in Sarupchand & Hukumchand v. Union of India [1953] 23 ITR 382 (MB) (FB), specially the observations at page 410, according to the learned counsel for the assessee, supports him. On the factual basis, it is pointed out that there were large amounts of brought forward losses from the earlier years. Appeals were pending before several authorities including the Tribunal. If these had been decided, the assessee's total income for the year 1971-72 would have been negative. Referring to the business receipts of the assessee, it is pointed out that whereas the average receipts per month came to about Rs. 2 lakhs and odd, there were receipts in the last two months of nearly Rs. 15 lakhs. The income, therefore, even for the year under appeal was to a very large extent contributed by the receipts towards the end of the year. Having regard to the fact that the full information about these receipts could be received only after a month and more, which left the assessee with no information regarding the receipts on the day he had to file the estimate, it is claimed, the assessee could not have made any estimate.
It is also pointed out that a sum of Rs. 2,30,696 was claimed as bad debts of the year which would have reduced this income. In the earlier year, there was a receipt of Rs 2,88,745 on account of sale of vehicles, which was not available for the current year. On the basis of the above analysis and the monthly details of sales, etc., the learned counsel has pointed out that factually it would not have been possible for the assessee to make an estimate. It is pointed out that there was no contumacious conduct. Even in the matter of Section 273, the decision in CIT v. Anwar Ali [1967] 65 ITR 95 (Cal.) applied.
3. Referring to certain observations found in the learned Judicial Member's order, it is pointed out that the provisions of Section 250, Sub-sections (6) and (7) are not subject to the interpretation given by the learned Judicial Member. In fact according to the learned counsel, Sub-section (7) presupposes a valid order. It is the second order after the valid order has come into existence. Even the reference to Section 153 limitation or the provisions dealing with sending of a copy of the judgment by the High Courts or the Supreme Court, which is necessary for giving effect to the order does not, in the opinion of the learned counsel, help the department.
4. For the department, stress is laid on the order of the learned Judicial Member. The appellate order does not become effective immediately after it is passed. It is necessary to communicate the same to the ITO before he can take note of the same. In no circumstances, therefore, the income of the year 1971-72 could be regarded by the ITO as negative on the day he issued the notice under Section 210.
According to the learned counsel for the department, the points about bad debts and sale of vehicles were not relevant or advanced as such at the earlier stage of the hearing. The assessee's books of account were closed in the month of December and even though there are a number of branches, it was not difficult to anticipate the increased receipts. In fact a perusal of the assessee's monthly receipts from year to year indicated that the receipt in the last two months would be far higher than those of the earlier part of the year. According to the learned counsel, the ITO had jurisdiction to properly issue the notice on 6-6-1974, which he did. The brought forward loss has been adjusted in working out this -income and this adjustment has been made on the basis of the assessee's own figures.
5. The two issues requiring consideration are whether the notice under Section 210 is invalid having been issued by an ITO having no jurisdiction to issue it and secondly, whether the assessee had factually any reasons not to make an estimate. On the first point, reference has been made to the merger of the ITO's order with that of the appellate authority and similar concepts to give a thrust to the jurisdictional issue. In my opinion, without getting involved into legal technicalities as regards merger, the clear facts as to this matter renders the notice under Section 210 invalid. The ITO issued the notice on 6-6-1974. On 27-5-1974, there was an order of the AAC reducing the income for 1971-72 which formed the basis of the issue of notice to a figure of loss. Reference was made by the learned counsel for the assessee to certain decisions stating that when the High Court or the Supreme Court delivered a judgment, they could be regarded as immediately modifying the effected order appealed against. This analogy may not apply to the case of any income-tax authority or even the Tribunal. In the case of these persons, a specific order has to be passed and signed before it becomes effective unlike in the case of a Court judgment where mere pronouncement would be sufficient. Even so in the present case on 27-5-1974, the AAC passed his order and that has become effective on that date. He could not have altered the same unless according to some process well-known to law. In the records of the Income-tax Officer, therefore, it was correct to note that the income of the assessee on 27-5-1974 for the assessment year 1971-72 was negative. While the provisions of Section 250 require communication of the order, such communication is not necessary for giving effect to the order. It may be relevant for the purposes of fixing the starting point for limitation, for taking action by the subordinate authorities, etc.
The relief given by the AAC stands from the time he appends his signature to that order. The income of the assessee, therefore, for the assessment year 1971-72 on the date the ITO issued the notice under Section 210 was clearly in the negative figure. It was open to the ITO to rectify his earlier order as the basis of the Commissioner (Appeals)'s order. The ITO, therefore, had no jurisdiction to issue a notice under Section 210. Section 209A was inserted with effect from 1-6-1978. For filing an estimate for the year under appeal, the issue of a notice under Section 210 is mandatory. Since the ITO had no jurisdiction to issue a notice under Section 210, the provisions of Section 209A were not attracted at all. Legally, therefore, the assessee was not bound to file an estimate. Any penalty for non-filing of such an estimate deserves to be cancelled.
6. On the factual grounds also the assessee's case has to succeed. It is true that the assessee had brought forward losses. The estimate of income itself was pending at various stages in appeal. From the facts the assessee could reasonably have an expectation of success in appeal and the mere fact that the first appellate authority held the matter against him may not be conclusive for this purpose. The subsequent decision justified such an expectation. The business results of the year also would not have obliged the assessee at the time of making an estimate to anticipate as large an income as he returned. A study of the monthly receipts justifies this. The returned income came to Rs. 5,70,000. The abnormal extent of receipts during the last month alone came to Rs. 8 lakhs. The excess in the previous month was Rs. 2 lakhs above the average. Even in the best administered concerns, monthly receipt reports even from a few branches could be received only after a month. When the branches are as many as 36, the consolidation of receipts for all branches would certainly take more time. If the information about the receipts of the last month even if not delayed would not have in the present case enabled the assessee to anticipate the abnormal increase in the receipts for the last month, before the date for filing the estimate. Even without, therefore, taking into account the assessee's contentions about bad debts and the earlier years receipts about sale of vehicles, he could not be charged with realising his full profit position at the time of making the estimate.
Levy of penalty is justified only if there is a contumacious conduct.
If the assessee is in such a mental condition which justifies a way of thinking not leading to contumacy, he cannot be visited with penalty.
On the facts of the present case, the assessee cannot be charged with deliberately anticipating a low income or loss and not making an estimate on that score. Both on the legal and the factual points of view, therefore, I find no justification to sustain the penalty. I agree with the learned Accountant Member that the penalty be cancelled and the appeal be allowed. The matter will now go back to the original Bench for disposal according to law.