Suhas Y. Chogle Vs. Sixth Income-tax Officer - Court Judgment

Excerpt:
1. the assessee has filed this appeal against the order of the commissioner of income-tax (appeals) on the ground that the cit(a), having accepted the assessee's contention that the order passed by the income-tax officer on 28-5-1980 was in reality an order under section 144 of the it act, erred in holding that the income-tax officer was competent to pass an order under section 143(3) read with section 144b of the it act. the revenue has objected in the cross-objection to the order of the oit(a) setting aside the assessment order.2. the facts of the case are that the assessee filed a return of income on 2-6-1979 declaring an income of rs. 6,260. the ito issued a notice under section 143(2) read with section 142(1) on 25-9-1979 for appearance by the assessee on 9-10-1979. the assessee did.....

Judgment:
1. The assessee has filed this appeal against the order of the Commissioner of Income-tax (Appeals) on the ground that the CIT(A), having accepted the assessee's contention that the order passed by the Income-tax Officer on 28-5-1980 was in reality an order under Section 144 of the IT Act, erred in holding that the Income-tax Officer was competent to pass an order under Section 143(3) read with Section 144B of the IT Act. The Revenue has objected in the cross-objection to the order of the OIT(A) setting aside the assessment order.

2. The facts of the case are that the assessee filed a return of income on 2-6-1979 declaring an income of Rs. 6,260. The ITO issued a notice under Section 143(2) read with Section 142(1) on 25-9-1979 for appearance by the assessee on 9-10-1979. The assessee did not appear before the Income-tax Officer in response to this notice. A further similar notice was issued by the Income-tax Officer on 15-11-1979 for appearance on 21-11-1979. As in respect of the first notice, this notice was also ignored by the assessee. One more set of notices was issued by the Income-tax Officer on 20-12-1979 for appearance on 8-1-1980. On 8-1-1980, Shri P.B. Bihani, Chartered Accountant, appeared on behalf of the assessee. He filed confirmation letters for loans received by the assessee. During the accounting period, the assessee had purchased shares for Rs. 75,000 in certain limited companies and two shops for Rs. 1,20,000. The Income-tax Officer called upon Shri Bihani to file a copy of the purchase deed of the property and to furnish the dates of loans, as well as to explain as to how no rent was received from M/s. Atlantic Pacific Travel Co. (P.) Ltd. which was stated to be using these shops. The hearing was adjourned to 19-1-1980.

But on the adjourned date no appearance was put in on behalf of the assessee. The Income-tax Officer issued one more notice under Section 143(2) read with Section 142(1) on 14-5-1980 for appearance on 23-5-1980. But the assessee completely ignored this notice just as the first two notices.

Thereupon the Income-tax Officer drew up a draft assessment order, which he had signed on 26-5-1980 wherein he enumerated the total non-compliance of notices by the assessee and proposed to make the assessment on a total income of Rs. 1,87,325 as against the disclosed income of Rs. 6,260, In the draft assessment order, the Income-tax Officer took adverse note of the non-compliance of notices under Section s 142(1) and 143(2) issued by him, by the assessee and proposed to levy penalty under Section 271(1)(b) in the concluding portion of the assessment order. In fact he mentioned that penalty proceedings under Section 274 read with Section 271(1)(&) were separately initiated. A copy of the draft assessment order was served on the assessee and the assessee filed his objections before the Income-tax Officer. The Income-tax Officer forwarded the draft assessment order and the assessee's objections to the Inspecting Assistant Commissioner of Income-tax for his directions. Having heard the assessee's representative, the IAC issued instructions under Section 144 on 20-11-1980. In pursuance of these instructions, the Income-tax Officer made an assessment under Section 143(3) read with Section 144B on 24-11-1980 wherein again he made a mention of the non-compliance of the notices by the assessee. Further, he mentioned about the proceedings for the levy of penalty under Section 271(1)(b) of the IT Act initiated separately.

3. The assessee appealed before the CIT(A) on various grounds. Apart from the objections to the merits of the various additions made by the Income-tax Officer in the assessment, in the appeal before the CIT(A), the assessee objected to the assessment on the ground that the assessment, which was completed under Section 143(3) read with Section 144B, was invalid because the assessment should have been completed under Section 144 and that under Section 144B the Income-tax Officer does not have the power to carry out any investigations. Hence, the investigations conducted by the Income-tax Officer should not be considered. Relying on the Supreme Court decision in the case of CIT v.Segu Buchiah Setty [1970] 77 ITR 539, the CIT(A) held that the Income-tax Officer was bound to complete the assessment under Section 144 and not under Section 143(3), but he had proceeded to observe that that did not make the assessment completed by the Income-tax Officer either illegal or void. On a perusal of record, he found that even though the assessment was purported to have been completed under Section 143(3), it was in reality an assessment made in the manner prescribed under Section 144. Having held so, he proceeded to set aside the assessment and directed the Income-tax Officer to make a fresh assessment in accordance with law after permitting the assessee to furnish whatever evidence he may have to prove the source of the amounts credited or invested by him during the previous year.

4. The assessee has filed the present appeal before the Tribunal mainly on the ground that the Income-tax Officer having taken an adverse note of non-compliance of the various notices issued by the Income-tax Officer under Section s 142(1) and 143(2) in the assessment order and also having proceeded to initiate proceedings for the levy of penalty under Section 271(2)(6), the only course open to the Income-tax Officer was to make an ex parte assessment under Section 144. The CIT(A) was justified in holding that the assessment was properly made under Section 144 of the IT Act. Having held that the assessment was in fact made under Section 144 of the IT Act, the assessee's grievance is that the CIT(A) could not have proceeded to direct the Income-tax Officer to ask further evidence and make a fresh assessment in accordance with law. In the cross-objection, the revenue has objected to the order of the CIT(A) setting aside the assessment and directing the Income-tax Officer to make a fresh assessment.

5. The arguments on behalf of the assessee have proceeded on the lines to the effect that as observed by the Income-tax Officer, the assessee has not complied with any of the notices issued under Section s 142(1) and 143(2). In the circumstances, the only assessment which could have been made was an ex parte assessment under Section 144. The CIT(A) has rightly held the assessment to be an assessment under Section 144 of the IT Act. Once the assessment is held to be an assessment under Section 144 of the Act, the proceedings under Section 144B were not competent. In the ordinary course the assessment should have been completed before 31-3-1980. In support of his plea that an ex parte assessment is mandatory where notices under Section s 142(1) and 143(2) are not complied with, the learned counsel for the assessee has relied on the Supreme Court decision in the case of Segu Buchiah Setty (supra). Further, it is the submission of the learned counsel that if the words of a statute were precise and unambiguous they must be accepted as declaring an express intention of the Legislature. In this connection, reference is made to the classic observation of Justice Rowlatt in the case of Cape Brandy Syndicate v. IRC [1921] 1 K.B. 84 at page 71 to the effect that in a taxing enactment, one has to look merely at what is clearly said. There was no room for any intendment.

There was no equity about a tax. There was no presumption as to a tax.

There was nothing to be read in, nothing to be implied. One can only look fairly at the language used. The learned counsel proceeded to point out that while enunciating the principles of interpretation of a taxing statute, the learned Judges of the Supreme Court had in the case of CIT v. Shahzada Nand & Sons [1986] 60 ITR 392 referred to the aforesaid dictum of Justice Rowlatt and reproduced it in their decision. The learned counsel has proceeded to argue that it might perhaps be argued that the observations of the learned Judges of the Supreme Court in the case of Segu Buchiah Setty (supra) were obiter.

According to him, the observations of the Supreme Court might be classified in three categories, viz., the ratio of the decision on an issue ; secondly an obiter dictum which may have some relevance to an issue and thirdly some observations which may be called casual observations. The learned counsel has proceeded to invite our attention to the Bombay High Court decision in the case of Tata Iron & Steel Co.

Ltd. v. D.V. Bapat, ITO [1975] 101 ITR 292 wherein the learned Judges have proceeded to explain that even casual observations made by the Supreme Court are binding on all Courts functioning in India. The learned counsel has further proceeded to explain that the relevant portion of the Supreme Court decision in the case of Segu Buchiah Setty (supra) cannot be held to be merely casual observations. Actually it is a part and parcel of the reasoning and, therefore, it is a part and parcel of the ratio laid down by the learned Judges of the Supreme Court in that case. In fact, in this decision, the learned Judges have proceeded to approve the Bombay High Court decision in the case of Chiranjilal Tibrewala v. CIT [1966] 59 ITR 42 wherein the learned Judges of the Bombay High Court have held that merely because the assessee could explain only one of the defaults, when several notices were not complied with, the assessee could not claim to have the assessment reopened under Section 27 of the Indian Income-tax Act, 1922. This decision clearly indicated that non-compliance with any one of the notices exposed the assessee to an ex parte assessment. In the instant case, according to the learned counsel for the assessee, the assessee had not complied with any one of the notices. He further pointed out that in the case of Chiranjilal Tibrewala (supra), the Bombay High Court have in fact followed the Privy Council decision in the case of CIT v. Laxminarain Badridas [1937] 5 ITR 170. In this decision, the learned Judges of the Privy Council had held that under Section 23(4) of the Indian Income-tax Act the fact of failure to comply with the notice under Section 22(4) made it compulsory on the Income-tax Officer to make an assessment ex parte under Section 23(4) of the old Act.

6. The learned counsel has further proceeded to argue that once it is held that the assessment was ex parte under Section 144 of the IT Act, 1961, the provisions of Section 144B could not be invoked. Since the provisions of Section 144B were not applicable to the facts of the case, the benefit of extended time limit was not available to the Income-tax Officer for making the assessment after the normal date for completing the assessment, vis., 31-3-1980. Having made the assessment in November 1980, the assessment was time barred. In the circumstances, it is the plea on behalf of the assessee that the directions of the CIT(A) for making further investigations as ordered by him in his order were incompetent and his order to that extent should be vacated.

7. On behalf of the Revenue, the learned Departmental Representative has invited our attention to the objections filed on behalf of the assessee on 29-5-1980 to the proposed assessment under Section 143(3) read with Section 144B. It is submitted that in these objections the assessee has not objected to the assessment being made under Section 144B. On the contrary, the assessee has proceeded to avail of the further opportunity given by the Income-tax Officer under Section 144B to explain the source of some of the investments. According to the learned Departmental Representative, the Income-tax Officer might have taken the assessee's illness into account in not making the ex parte assessment. The Income-tax Officer had. acted on principles of natural justice by giving the assessee a further opportunity under Section 144B. Reference, in this connection, is made to the Bombay High Court decision in the case of A.A. Ansari v. CIT [1953] 23 ITR 260. In particular reference is made to the observations made at page 269 of the Report. Further, the learned Departmental Representative has proceeded to argue that the assessee could not have been aggrieved by the order of the Income-tax Officer giving him a further opportunity to explain the investments and he had no right of appeal. In this connection, reference is made to the commentary on Income-tax Act in Volume III of V.S. Sundaram 2339, 2371 and 2377. Further, the learned Departmental Respesentative has proceeded to argue that it was for the Income-tax Officer to decide the provision under which he proposes to make the assessment. All that the appellate authorities were entitled was to ascertain whether the conditions precedent for the invocation of the provision existed or not. In the instant case, the assessee had no objection to the Income-tax Officer resorting to the provisions of Section 143(3) of the Income-tax Act. The last notice for the hearing was issued by the Income-tax Officer on 23-5-1980. The Income-tax Officer was aware that the time was expiring shortly. Hence, with a view to giving a further opportunity to the assessee to present his case properly, the Income-tax Officer proceeded to invoke the provisions of Section 144B which gave a further six months' time to the assessee. Reference was made to the Kerala High Court decision in the case of T.C.N. Menon v. ITO [1974] 96 ITR 148 wherein it was laid down that the Section under which the assessment was to be made was left to the discretion of the Income-tax Officer. Further reference was also made to the Supreme Court decision in the case of L. Hazari Mal Kuthiala v. ITO [1961] 41 ITR 12 in support of the plea that the assessment could not be declared to be a nullity merely because the Income-tax Officer misquoted the relevant provision of law. Reference was also made to the Supreme Court decision in the case of Turner Morrison & Co. Ltd. v. Hungerford Investment Trust Ltd. [1972] 85 ITR 607 on the point of promissory estoppel. It was submitted that the assessee having replied to the Income-tax Officer's notice under Section 144B and not having objected to the proposed action under Section 144B, he gave the impression that he was acquiescing in the action under Section 144B. Reference was also made to the Supreme Court decision in the case of Motilal Padampat Sugar Mills Co. Ltd. v. State of UP [1979] 118 ITR 326 and finally reference was made to the Calcutta High Court decision in the case of Narayan Chandra Chakraborty v. Union of India [1980] 126 ITR 831.

8. The learned counsel for the assessee has objected to the plea of promissory estoppel taken on behalf of the Revenue. It was submitted that the assessee had done nothing or suffered nothing whereby the Income-tax Officer did or did not do something which he was under an obligation to do, in consequence of the assessee's action.

9. As to the cross-objection filed on behalf of the Revenue, it was the plea on behalf of the Revenue that since the Income-tax Officer has placed all the relevant material on record, there was no further material which was required for deciding the issues one way or other.

The CIT(A) should not have restored the matter to the Income-tax Officer for a fresh investigation as directed by him in his appellate order.

10. We have carefully considered the facts and circumstances of the case and the submissions on either side. The Income-tax Officer has issued notices under Section 142(1) read with Section 143(2) on four occasions on 25-9-1979, 15-11-1979, 20-12-1979 and finally on 14-5-1980. The first, second and the fourth notices are completely ignored by the assessee, not even an appearance has been put in. In response to the notice dated 20-12-1979 an appearance has been put in, but apparently the terms of the notice have not fully been complied with. Some material has been produced and some other material necessary to explain the return and to make the assessment was not produced for which the Income-tax Officer adjourned the hearing to 19-1-1980. Again on 19-1-1980, the assessee failed to appear. The Income-tax Officer has proceeded to hold that the assessee had not complied with the notices under Section 143(2) read with Section 142(1). The assessee does not deny that he has not complied with the notices. Even the Income-tax Officer has proceeded to initiate penal proceedings for non-compliance with these notices. In fact, even in the course of the hearing before us, it is nobody's case that the assessee has complied with any of the notices. Therefore, we have to proceed on the basis that the assessee has not complied with any of the notices. If this be the position, did the Income-tax Officer have the option to make an assessment either under Section 143(3) or under Section 144 of the IT Act The letter of the law is clear on the subject. under Section 144 of the IT Act, the Income-tax Officer has to make an ex parte assessment. The provisions of the present Section 144 are in pari materia with the provisions of Section 23(4) of the Indian Income-tax Act, 1922. As far back as in 1937, the Privy Council held in the case of Laxminarain Badridas (supra) that failure to comply with the notice under Section 22(4) of the IT Act made it compulsory for the Income-tax Officer to make an assessment under Section 23(4) of the IT Act. This decision has been followed by the learned Judges of the Bombay High Court in the case of Chiranjilal Tibrewala (supra). The Bombay High Court decision has been approved by the learned Judges of the Supreme Court in the case of Segu Buchiah Setty (supra). In our opinion, the decision of the Supreme Court on this issue is a direct ratio of that case and is not a mere obiter dictum as it would appear on a superficial reading. Even assuming for a while that it was an obiter dictum, the explanation given by the learned Judges of the Bombay High Court in the case of Tata Iron & Steel Co. Ltd. (supra) is that even a casual observation of the Supreme Court was binding on this Tribunal. A careful perusal of the decision of the Supreme Court in the case of Segu Buchiah Setty (supra) would show that the decision to that effect is a part and parcel of the ratio and not a mere obiter dictum. Even if we were not to follow the decision in the case of Segu Buchiah Setty (supra), how can we get away from the Privy Council decision in the case of Laxminarain Badridas (supra) as followed by the Bombay High Court in the case of Chiranjilal Tibrewala (supra). All these decisions are binding on this Tribunal.

11. Once it is held that the Income-tax Officer was bound to make an ex parte assessment under Section 144 of the IT Act, it follows automatically that the order of the CIT(A) holding that the assessment was in fact made under Section 144, though misdescribed as an order under Section 143(3), has to be upheld. In fact, neither the assessee nor the Revenue has challenged the CIT(A)'s finding in this respect that the assessment is an ex parte assessment under Section 144. In any case, we have undertaken the present exercise to examine whether the Income-tax Officer was bound to make an ex parte assessment under Section 144 and whether the CIT(A) was justified in holding that the assessment was in fact made under Section 144 to ascertain the validity of the CIT's finding that the assessment is under Section 144. In respect of both the issues we are with the CIT(A).

12. Once it is accepted that the assessment is made under Section 144 of the IT Act, the provisions of Section 144B made it absolutely clear that provisions of that Section have no application to the facts of the present case. The extended time limit available to the Income-tax Officer under that Section read with Section 143(3) of the IT Act would also not be applicable. Therefore, in our opinion, the assessee is justified in his plea that the assessment as made by the Income-tax Officer in September 1980 was time barred. The CIT(A) by his direction in his order could not revive an action which had already been time barred and give further directions to improve upon it. In the circumstances, the asses-see's appeal is allowed.

13. No doubt, as a result of this decision, the assessee would be appeared to have benefited by Ms own wrong doing. In the first place, the assessee did not comply with any of the four notices issued by the Income-tax Officer. On the top of it, in consequence of the non-compliance of these notices, the assessee seeks to have the assessment held to be null and void as having been time barred.

But in this connection, all that we can do is to reproduce the classic dictum of Justice Rowlatt in the case of Cape Brandy Syndicate (supra) referred to above and rightly approved by the learned Judges of the Supreme Court while deciding cases in India : ...In a taxing Act one has to look merely at what is clearly said.

There is no room for any intendment. There is no equity about a tax.

There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used.

14. The cross-objection filed by the Revenue is on the ground that the CIT(A) had erred in setting aside the assessment. Of course the Revenue is entitled to take such a plea and we shall uphold the same though for different reasons. We accept the plea on behalf of the Revenue that the CIT(A) was not justified in setting aside the assessment, not because there was adequate material on record which would justify the assessment, but because the assessment as made by the Income-tax Officer was time barred and it cannot be revived by the CIT(A) through this devious procedure.

1. I regret that I am unable to subscribe to the view taken by my learned brother that the assessment in the present case could have been made only under Section 144 of the Income-tax Act, 1961.

2. The Income-tax Officer completed the assessment under Section 143(3) read with Section 144B. The Commissioner (Appeals) held that the assessment should be deemed to be under Section 144, but in doing so, he did not advert to the fact that if the assessment is treated as one under Section 144, it will be time barred. After holding that the assessment should be treated as one under Section 144, he set aside the same and directed the Income-tax Officer to make a fresh assessment in accordance with law after permitting the assessee to furnish whatever evidence he may have, to prove the source of the amounts credited or invested by him during the previous year. The assessee now accepts the finding of the Commissioner (Appeals) that the assessment was one under Section 144 and on that basis contends that it will then be time barred as Section 144B is not attracted to an assessment under Section 144 and there will be no extension of time for completing the assessment under Section 153.

3. In this case, the return was filed by the assessee on 2-6-1979. He did not appear in response to two notices issued under Section 143(2)/142(1) for the appearance of the assessee on 9-10-1979 and 21-11-1979 respectively. But in response to a third notice issued on 20-12-1979, the Chartered Accountant of the assessee appeared on 8-1-1980. He filed confirmation letters for certain loans taken by the assessee. The Income-tax Officer asked the Chartered Accountant to file a copy of the deed of purchase of a house property purchased by the assessee and also to furnish the dates of certain loans taken by the assessee. The assessee was also asked to explain as to how no rent was received with regard to two shops purchased by the assessee. The matter was adjourned for the purpose to 19-1-1980. On that day, there was no appearance for the assessee. He did not also respond to a notice sent on 15-5-1980 requesting him to appear on 25-5-1980 with requisite particulars. Thereafter, the Income-tax Officer framed the draft assessment order and forwarded the same to the assessee under Section 144B. The assessee filed objections to the same within the extended time allowed. The draft order and the objections were then forwarded to the Inspecting Assistant Commissioner. The son of the assessee appeared before the IAC and asked for time to produce evidence in support of the various points raised in the objection letter filed by the assessee.

The IAC directed the Income-tax Officer to make further enquiries with regard to the genuineness of the source of certain investments.

Accordingly, further enquiries were made by the Income-tax Officer, after bringing on record the legal representative of the assessee, who died in the meanwhile. After necessary enquiries and examination of witnesses, the Income-tax Officer submitted his report to the IAC. The final hearing before the IAC was adjourned at the request of the assessee and on the adjourned day he was heard. It was after this that the IAC issued necessary directions under Section 144B on 2-11-1980, on the basis of which the Income-tax Officer framed the final assessment on 24-11-1980.

4. As the assessee had filed a return on 2-6-1979, the normal period of completing the assessment was up to 2-6-1980 in view of Section 153(1)(c), This stood further extended by the operation of Clause (iv) of Explanation 1 to Section 153, in view of the proceedings under Section 144B. It was not disputed by the learned counsel for the assessee that if the assessment is to be treated as one under Section 143(3) read with Section 144B, then it was well within time. It is also beyond dispute that if Section 144B is not attracted to the assessment, the assessment will be time barred as there would have been no extension of time. It is also beyond dispute that Section 144B will be attracted only in the case of an assessment under Section 143 and not in the case of an assessment under Section 144.

5. The main dispute, therefore, is whether the assessment was one under Section 143(3) read with Section 144B, as it was apparently made by the Income-tax Officer, or whether the assessment should be treated as one under Section 144. The sequence of events as set out earlier will show that the assessee filed a return, appeared in pursuance to one of the notices issued under Section 143(2)/142(1) and fully participated in the proceedings under Section 144B. He, however, did not respond to three of the notices issued under Section 143(2)/142(1). The view taken by my learned brother is that as there has been failure to respond to three of the notices issued, the assessment should have been made only under Section 144.

6. At the outset, I may point out that if the position, as set out by my learned brother, is accepted, if there has been failure to respond to the first notice issued under Section 143(2)/142(1), thereafter there can be no assessment at all under Section 143(3), even if the assessee complied with all the subsequent notices and furnished all the particulars required by the Income-tax Officer. This, in my opinion, would show that the question whether an assessment is to be under Section 143(3) or 144, depends not on the technical aspect as to whether there was a failure to submit the return or failure to comply with any of the notices issued, but on the practical aspect, namely, whether the Income-tax Officer had enough materials to make an assessment under Section 143(3). Section 144 is an enabling provision.

Its purpose is only to see that the assessment is not defeated by the lack of response or the non-cooperation of the assessee. In such cases, Section 144 enables the Income-tax Officer to complete the assessment to the best of his judgment. It is, therefore, essential for the Income-tax Officer to come to a decision as to whether he can make an assessment under Section 143(3) or whether the circumstances leave him no option but to make a best judgment assessment under Section 144. In this context, it has also to be borne in mind that it is always more advantageous to an assessee to have an assessment under Section 143(3).

It can be safely said that but for a plea of limitation which could possibly be advanced if Section 144B is eased out of the proceedings, no assessee in his senses would plead or claim that he should be assessed not under Section 143 but under Section 144. This aspect is pointed out not to shut out a technical plea, if it is really available to the assessee, but only to stress that if an Income-tax Officer bona fide forms the opinion that he can make the assessment under Section 143(3) and. that he need not resort to Section 144, no assessee can possibly complain against the decision taken by the Income-tax Officer.

7. The next aspect for consideration is whether, merely because all the materials required by the Income-tax Officer have not been made available and it may result in the Income-tax Officer making certain estimates with regard to certain aspects of the income, the assessment should be deemed to be one under Section 144. The question, in my opinion, is answered by the observations of the Bombay High Court in the case of A.A. Ansari (supra). Dealing with the scope of Sub-sections (3) and (4) of Section 23 of the Indian Income-tax Act, 1922 which correspond to Sections 143(3) and 144 of the present Act, it was observed by the Bombay High Court : Now, when we look at the scheme of the Income-tax Act and consider the provisions of Sections 23(3) and 23(4), the authorities make it clear that both when assessment is made under Section 23(3) and when the assessment is made under Section 23(4), it is competent to the Income-tax Officer to estimate the income of the assessee. Under Sub-section (3) the assessment is made when evidence is produced before the Officer. When that is the case the Officer may act in one of the two ways. He may accept the evidence, he may accept the books of account and he may base his assessment solely upon the evidence produced by the assessee ; or the Income-tax Officer may not accept the books of account on the evidence of the assessee as genuine or" reliable and he may collect other evidence besides that evidence and he may act not on the figures so found in the books of account of the assessee, but on his own estimate of the assessee's income. In that sense the assessment of the Income-tax Officer would be a best judgment assessment, but still it would be an assessment, under Section 23(3). under Section 23(4) the Income-tax Officer acts when there is no evidence before him, when there is "a default on the part of the assessee and in the absence of any evidence he has got to exercise his best judgment to arrive at the assessment of the income of the assessee. But whether it is under Sub-section (3) or under Sub-section (4) that the Income-tax Officer proceeds, Ms estimate of the assessee's income cannot be either arbitrary or capricious. Therefore, the line that divides Sub-sections (3) and (4) of Section 23 is a very thin line. It would not be true to say that it is only in the case of subSection (4) of Section 23 that the Income-tax Officer estimates the income by using his best judgment and under subSection (3) there is no question of estimate and no question of best judgment It, therefore, appears to me that merely because some estimation is involved, the Income-tax Officer is not debarred from making an assessment under Section 143(3). In the present case, due to the failure of the assessee to furnish certain particulars, the Income-tax Officer held that certain investments are unexplained and certain additions were made on account of this. But at no stage of the proceeding's did the Income-tax Officer switch over from Section 143(3) to Section 144. The assessment was, therefore, in my opinion, completed under Section 143(3) and there is no justification for treating it as one under Section 144.

8. It may now be examined whether the ruling of the Supreme Court in the case of Segu Buchiah Setty (supra) lays down the proposition that if the assessee had failed to comply with all the terms of the notice issued under Section 142(1), the assessment can only be under Section 144, In that case, the Supreme Court was not considering the question whether in the case of failure by the assessee to comply with any one of the notices Issued under Sub-sections (2) and (4) of Section 22 of the Indian Income-tax Act, 1922, the Income-tax Officer could still have completed the assessment under Section 23(3) or whether he could have completed the assessment only under Section 23(4). The question that was referred in that case was whether the Income-tax Officer, having recorded a finding that there was sufficient cause for non-compliance of the notice issued tinder Section 22(4), was not bound to cancel the assessment under Section 23(4) and to make a fresh assessment even though there was no sufficient cause for non-compliance with the notice issued under Section 22(2). In that case, the High Court had held that the provisions of Section 27 of the 1922 Act, which correspond to the provisions of Section 146 of the present Act are not cumulative but distinctive and that the assessee can claim cancellation of the assessment on one of the grounds on which the cancellation can be sought under the Section. The Supreme Court-held that it is inconceivable that the Legislature could have ever intended that in case of multiple defaults, for each one of which an ex parte best judgment assessment has to be made, the asseasee can ask for cancellation of the assessment by merely showing-cause for one of such defaults. It was in this connection that the Supreme Court observed that under Section 23(4) of the old Act, a best judgment assessment has to be made in the case of any one of the defaults mentioned in Section 23(4). The ruling does not seem to be an authority for the position that the moment any one of the defaults occurred, the Income-tax Officer should switch over to Section 23(4) of the old Act, corresponding to Section 144 of the present Act. The ruling of the Bombay High Court in the case of Chiranjilal Tibrewala (supra), is to the same effect only. My attention was not drawn to any ruling in which it has been held that an assessment completed under Section 143(3) will be bad, merely because the assessee had not responded to some of the notices issued to Mm and had not furnished all the particulars which he was asked to furnish.

9. I am, therefore, of the view that the assessment in the present case, which was actually made under Section 143(3), was validly made and that it cannot be treated as one under Section 144.

10. The fact that a notice was issued by the Income-tax Officer for levying penalty for not complying with the notice issued under Section 142(1), does not also, in my opinion, affect the issue. There can be a case where the assessee had not complied with one of the notices issued under Section 142(1), but had complied with all the other notices a,nd where the assessment had been completed under Section 143(3) and accepted by the assessee. Even this will not. erase the default of the assessee for not complying with the notice, to which he did not respond and it will be open to the Income-tax Officer to levy a penalty for the particular default in spite of the subsequent completion of the assessment under Section 143(3). Therefore, the issue of a notice or even the levy of a penalty for failure to comply with the notices, to which the assessee did not respond, cannot convert an assessment under Section 143(3) to one under Section 144.

11. In view of the finding above, it is not necessary to go into the contention of the department based on promissory estoppel. However, for the completeness of the record, I may record my finding on the issue.

The contention of the department is that as the assessee participated in the proceedings under Section 144B, which would have been available only in the case of an assessment under Section 143(3), the assessee cannot now turn round and say that the assessment could have been completed only under Section 144. The case of Turner Morrison & Co.

Ltd. (supra) relied upon by the department, was not one between an assessee and the department. It arose out of a suit filed by a resident-company to recover from a non-resident company, the tax paid by the resident-company. The decision of the case rested upon an estoppel worked out from the conduct of the resident-company. The case of Motilal Padampat Sugar Mills Co. Ltd. (supra), which was also relied upon by the department, related to the doctrine of promissory estoppel arising out of the offer made by the U.P. Government to exempt certain industrial units from sales tax. It was held that the U.P. Government cannot turn round and collect sales tax. The case in Narayan Chandra Chakraborty (supra) which was also relied upon by the department, was a dispute between a Tax Informer and the Union of India. These cases are not applicable to the facts of the present case, where the question is whether the Income-tax Officer had jurisdiction to proceed under Section 143(3). It is settled law that consent cannot confer jurisdiction, when there was none. I need refer only to the case of Swaran Yash v. CIT [1982] 138 ITR 734 (Delhi). The only ruling, which can lend some support to the contention of the department is the case of the Supreme Court in Pannalal Binjraj v. Union of India [1957] 31 ITR 565. In that case, the assessee had acquiesced in the jurisdiction of a particular Income-tax Officer, to whom the assessment was transferred, but later questioned the same. The validity of the orders transferring the case was questioned on various grounds by the assessee before the Supreme Court by petitions under Article 32 of the Constitution. These grounds failed. Thereafter, the Supreme Court also observed that the assessee, who had acquiesced in the jurisdiction of the Income-tax Officer, is not entitled to invoke the jurisdiction of the Court under Article 32 of the Constitution. This ruling cannot apply to the facts of the present case where the assessee is contending that the assessment is under a wrong provision of law and that the assessment under the correct provision is barred by limitation. The department cannot, therefore, succeed by the application of the doctrine of promissory estoppel.

12. With great respect, I beg to differ on another aspect of the order of my learned brother. Consistent with the findings recorded by him, my learned brother, in my humble opinion, could not have allowed the cross-objection. The assessment by the Income-tax Officer was under Section 143(3). The Commissioner (Appeals) held that the assessment should be deemed to be under Section 144. The cross-objection of the department is that the Commissioner (Appeals) erred in setting aside the assessment and that he should have upheld the assessment under Section 143(3). It appears to me that my learned Brother, after having held that the assessment should be treated as one under Section 144, which was what the Commissioner (Appeals) had held, could not have allowed the cross-objection. He could only have dismissed the same. The cross-objection could not also have been allowed for the reason that my learned brother was quashing the assessment of the Income-tax Officer as time barred, while the department was seeking the restoration of that assessment.

In the light of the findings above, I hold that the assessment in the present case was actually under Section 143(3), that it was validly made under Section 143(3) and that the Commissioner (Appeals) erred in holding that the assessment should be treated as one under Section 144.

I, therefore, allow the cross-objection by the department and dismiss the appeal by the assessee. But in allowing the cross-objection and holding that the assessment was under Section 143(3), I uphold the order of the Commissioner (Appeals), setting aside the assessment and directing the Income-tax Officer to make a fresh assessment in accordance with law after permitting the assessee to furnish whatever evidence he may have to prove the source of the amounts credited or invested by him during the previous year.

REFERENCE UNDER Section 255(4) OP THE INCOME-TAX ACT, 1961 IN IT APPEAL NO. 1327 (BOM.) OF 1981 AND CROSS-OBJECTION NO. 155 (BOM.) OF 1981 IN THE CASE OF SHRI SUHAS Y. CHOGLE V. ITO The above appeal and cross-objection came up for hearing before the ITAT, Bombay Bench 'C, consisting of Shri D.V. Junnarkar, Accountant Member and Shri K.B. Menon, Judicial Member. Whereas there is a difference of opinion between the Members of the Bench as to the disposal of the appeal and the cross-objection, the matter is referred to the President, ITAT, Bombay, for reference to a Third Member/Members, the following two questions, which summarise the difference between the two Members : (1) Whether, on the facts and in the circumstances of the case, the appeal filed by the assessee is entitled to succeed for the reasons stated by the Accountant Member in his order, it is liable to dismissal for the reasons stated by the Judicial Member (2) Whether, on the facts and in the circumstances of the case, the cross-objection filed by the revenue is entitled to succeed for the reasons stated by the Accountant Member, it. is entitled to succeed for the reasons given by the Judicial Member 2. The orders passed by the two Members are submitted herewith, with the record of the appeal.

1. The assessee is an individual. The relevant; accounting year ended on 31-3-1977.

2. An assessment was made on the assessee for this year which was described by the ITO as one under Section 143(3)/144B. This assessment was completed on 24-11-1980. The assessee took the assessment in appeal.

3. A major contention raised in the appeal was that there having been failure on the part of the assessee in complying with the statutory notices issued in connection with the aforesaid assessment, the ITO ought to have completed the assessment under Section 144 ; that for an assessment under Section 144 the provisions of Section 143(3) were not applicable, the investigations carried out in the proceedings under Section 144B had to be ignored for the purpose of completion of the assessment for this year ; and that finally the assessment completed under Section 143(3) read with Section 144B was, therefore, invalid and the assessment itself should be annulled.

(i) The ITO was bound to complete the assessment under Section 144, on the facts of the case. He erred in completing the assessment under Section 143(3).

(ii) However, the fact that he completed the assessment under Section 143(3) did not make the assessment illegal or void. This is because, on the material on record, it is seen that the assessment though described as one under Section 143(3) was in reality an assessment made under Section 144. The assessment order was finalised well within the time prescribed by law and a copy was served on the assessee even though it was referred to by the ITO as a draft order.

(iii) Mere reference to a wrong Section by the ITO would not make the order itself void or illegal.

(iv) The assessee omitted to file certain details and information in the course of the assessment proceedings. He, however, filed the same before the IAC. Certain farther information by way of two affidavits also were filed in the proceedings in first appeal. The ITO would have the right to cross-examine the deponents of these affidavits before such evidence could be admitted, Specially so, because one of the deponents was a person who confirmed a loan transaction initially but then stated before the ITO that it was only a name-lending transaction and again has gone back to the original statement of confirmation. In fairness to the assessee it is necessary to investigate further facts and permit the assessee to produce all relevant evidence in this case.

In the above view the Commissioner (Appeals) set aside the assessment and directed the ITO to make a fresh assessment in accordance with law after permitting the assessee to furnish such evidence as he had. The assessee filed a further appeal to the Tribunal. The department also filed a cross-objection.

5. The objections taken before the Tribunal by the assessee were, inter alia, as under : (i) The assessee had not complied with the notices issued under Section 142(1)/143(2). Hence, the ITO was bound to complete the assessment under Section 144. The Commissioner (Appeals) also rightly held so. Once Section 144 had to be invoked Section 143 became inapplicable.

(ii) In the ordinary course such an assessment under Section 144 should have been completed by or before 31-3-1980. On the other hand, the assessment for this year was actually completed on 24-11-1980 with the benefit of the extended time available in terms of Section 144B, i.e., the assessment was clearly time-barred.

(iii) Since the assessment itself was time-barred, the Commissioner (Appeals) was wrong in setting aside the assessment and directing further investigations. To that extent his order should be vacated.

6. For the department the plea taken in the cross-objections was that the ITO had brought on record all relevant material before completion of the assessment. There was no further material that was needed for deciding the issues before the Commissioner (Appeals) one way or the other. The Commissioner (Appeals) should not have, therefore, restored the matter to the ITO for a fresh investigation.

7. The learned Accountant Member wrote the leading order. He accepted the assessee's appeal and also the cross-objection of the department.

In doing so he recorded the following : (i) The ITO had issued notices under Section 142(1)/143(2) on four occasions, viz., on 25-9-1979, 15-11-1979, 20-12-1979 and finally on 14-5-1980. The first, second and the fourth notices were completely ignored by the assessee. Not even an appearance was put in. In response to the notice dated 20-12-1979 an apearance was put in, but apparently the terms of the Notice were not fully complied with.

Some material had been produced and some other material necessary to explain the return and to make the assessment was not produced.

Hence, the ITO had to adjourn the hearing to 19-1-1980, tout on that date the assessee failed to appear. The ITO went on to hold that the assessee had not complied with the notices under Section 143(2)/142(1), nor did the assessee deny that he failed to comply with the statutory notices. In fact the ITO had even initiated penal proceedings for non-compliance with such statutory notices.

(ii) In fact even in the course of the hearing before the Tribunal it was nobody's case that the assessee had complied with any of the notices. The Tribunal, therefore, had to proceed on the basis that the assessee had not complied with any of the Notices.

(iii) In the light of the above position, the law was clear as to what the ITO had to do. A failure to comply with the above statutory notices made it obligatory for the ITO to complete the assessment under Section 144 (see Laxminarayana Badridas' case (supra), Chiranjilal Tibrewala's case (supra) and Segu Buchiah Setty's case (supra).

(iv) The [above decision of the Supreme Court, in particular, provided a direct ratio. The relevant observations there did not represent mere obiter dicta, as a superficial reading of the judgment might suggest. Even assuming that they were merely obiter dicta, as held in 'Tata Iron & Steel Co. Ltd.'s case (supra) even a casual observation of the Supreme Court was binding on the Tribunal.

But a careful perusal of the decision of the Supreme Court in the case of Segu Buchiah Setty (supra) showed that the relevant observations there were a part and parcel of the ratio and not mere obiter dicta.

(v) Even if Segu Buchiah Setty's case (supra) had to be ignored, there was no getting away from Laxminarayana Badridas' case (supra) and Chiranjilal Tibrewala's case (supra). These decisions were binding on the Tribunal.

(vi) Once it is seen that the ITO was bound to make the assessment under Section 144, it follows automatically that the Commissioner (Appeals)'s finding that the assessment was in fact made under Section 144 though described as one under Section 143(3) had to be upheld as correct. In fact neither the assessee nor the Revenue challenged the Commissioner (Appeals)'s finding in this regard viz., that the assessment was an assessment under Section 144. All the same, the legal position in relation to this was gone into suo motu to find out whether the ITO was bound to make an assessment under Section 144 and whether the Commissioner (Appeals) was justified in holding that the assessment was in fact made under that Section though described otherwise.

(vii) It followed from the position that the assessment was indeed in law one under Section 144 and that the provisions of Section 144B had no application. The extended time-limit available in such a context [143(3)/144B] was not available to the ITO here. The assessee was, therefore, justified in his plea that the assessment made by the ITO in November 1980 was time-barred. The Commissioner (Appeals), hence, could not by a direction in his order revive an action which had already become time-barred and give further directions to keep it alive. In other words, the assessment had to be annulled as null and void and the assessee's appeal allowed.

(viii) As regards the department's cross-objection, the plea of the department that the Commissioner (Appeals) was wrong in sending it back for a de novo consideration, had to be accepted, not because the material on record was not sufficient for the completion of the de novo assessment, but because the assessment as completed by the ITO was itself time-barred and could not be redone through the devious procedure of a direction from the first appellate authority.

8. The learned Judicial Member disagreed with the above findings of the learned Accountant Member. In his view the assessee's appeal had to be dismissed. As regards the cross-objection of the department, he held that it had to be allowed insofar as the assessment made by the ITO was wrongly declared by the Commissioner (Appeals) to be one under Section 144. He, however, approved the order of the Commissioner (Appeals) insofar as it related to setting aside the assessment and directing the ITO to make a fresh assessment in accordance with law after permitting the assessee to furnish whatever evidence he may have on the Issues in dispute. In this context he recorded the following : (i) The assessee had filed the return for this year on 2-6-1979. The normal period of completion of the assessment, therefore, was up to 2-6-1980 in terms of Section 153(1)(c). Since Section 144B was invoked, this time limit stood further extended in the light of Clause (iv) of Explanation 1 to Section 153. There was no dispute that if the assessment was to be held as one under Section 143(3)/144B, the assessment had been completed well within time. On the other hand, if Section 144B was not attracted, i.e., if the assessment was to be declared as one under Section 144, the assessment would be clearly time-barred.

(ii) The sequence of events showed that the assessee filed a return, appeared in compliance with one of the notices issued under Section 143(2)/142(1) and fully participated in the proceedings under Section 144B. He, however, did not respond to three of the notices issued under Section 143(2)/142(1).

(iii) The question whether an assessment is to be under Section 143(8) or 144 does not depend upon the technical aspect as to whether there was a failure to submit the return or failure to comply with any of the notices issued but on the practical aspect, vis., whether the ITO had enough material to make an assessment under Section 143(3). Section 144 is an enabling provision. Its purpose is to ensure that the assessment is not defeated by lack of response from or non-cooperation of the assessee. In such a case Section 144 enables the ITO to complete the assessment to the best of his judgment. It is, therefore, essential for the ITO to come to a decision as to whether he can make an assessment under Section 143(3) or the circumstances leave him no option but to make a best judgment assessment under Section 144.

(iv) It is always advantageous to an assessee to have an assessment made under Section 148(3). No assessee in his senses would claim that he should be assessed under Section 144 and not under Section 143(3), unless of course he could derive some advantage out of such a technical plea. No doubt, such a technical plea cannot be shut out if it is available to the assessee. On the other hand, if the ITO bona fide forms the opinion that he can make the assessment under Section 143(3) and he need not resort to Section 144, no assessee could possibly complain against such a decision.

(v) Merely because the material required by the ITO has not been made available and hence the ITO may have to resort to an estimate with regard to some aspect of the income, i.e., a best judgment assessment, it need not be deemed to be one under Section 144.-see A.A. Ansari's case (supra). The following passage in particular from the judgment (at p. 268) was relevant : Now when we look at the scheme of the Income-tax Act and consider the provisions of Section 23(3) and 23(4), the authorities make it clear that both when assessment is made under Section 23(3) and when the assessment is made under Section 23(4), it is competent to the Income-tax Officer to estimate the income of the assesses. Under Sub-section (3) the assessment is made when evidence is produced before the Officer. When that is the case the Officer may act in one of two ways. He may accept the evidence, he may accept the books of account and he may base his assessment solely upon the evidence produced by the assessee ; or the Income-tax Officer may not accept the books of account or the evidence of the assessee as genuine or reliable and he may collect other evidence besides that evidence and he may act not on the figures to be found in the books of account of the assessee, but on his own estimate of the assessee's income. In that sense the assessment of the Income-tax Officer would be a best judgment assessment, but still it would be an assessment under Section 23(3). under Section 23(4) the Income-tax Officer acts when there is no evidence before him, when there is a default on the part of the assessee and in the absence of any evidence he has got to exercise his best judgment to arrive at the assessment of the income of the assessee. But whether it is under Sub-section (3) or under Sub-section (4) that the Income-tax Officer proceeds, his estimate of the assessee's income cannot be either arbitrary or capricious.

Therefore, the line that divides Sub-sections (3) and (4) of Section 23 is a very thin line. It would not be true to say that it is only in the case of Sub-section (4) of Section 23 that the Income-tax Officer estimates the income by using his best judgment and under Sub-section (3) there is no question of estimate and no question of best judgment.

(vi) Merely because some estimation was involved, the ITO's assessment could not be described as one under Section 144. In the present case due to the failure of the assessee to furnish certain particulars, the ITO held that certain investments were unexplained and certain additions were made on account, of it. But at no stage of the proceedings did the ITO consider Section 144. The assessment was, therefore, one completed under Section 143(3). There was no justification for holding it to be one under Section 144.

(vii) Segu Buchiah Setty (supra) did not help the assessee. The question for decision of the Supreme Court was totally different there. It was not an authority for the position canvassed for the assessee in the instant appeal. So was the case with Chiranjilal Tibrewala (supra). In fact there was no direct authority cited for holding that an assessment completed under Section 143(3) will be bad merely because the assessee had not responded to some of the notices issued to him and had not furnished all the particulars which he was asked to furnish.

(viii) No doubt penal proceedings were initiated by the Income-tax Officer for non-compliance with a notice under Section 142(1). This really does not affect the issue here. The default is independent and for which the assessee can be penalised even in a case where the assessee does not comply with only one of the notices issued under Section 142(1) but complies with all the other notices and the assessment itself is completed under Section 143(3). Hence, the issue of a penalty notice will not convert an assessment under Section 143(3) to one under Section 144.

(ix) No doubt it was argued for the Revenue that the assessee was estopped from claiming that the assessment was one under Section 144 after having participated in the proceedings under Section 144B without raising any objection thereto. But this objection had no substance. The doctrine of promissory estoppel did not apply here.

Consent cannot confer jurisdiction where there was none. (See Swaran Yash's case (supra).] 9. On the cross-objection of the department the findings of the learned Judicial Member were as under : The assessment in question was one under Section 143(3). This was the position in law. On the other hand, the Commissioner (Appeals) wrongly held it to be one under Section 144. The cross-objection of the department was that the Commissioner (Appeals) erred in Betting aside the assessment and that he should have upheld the assessment under Section 143(3). Hence the department's cross-objection had to be allowed by holding that the assessment was one under Section 143(3). The Commissioner (Appeals) was also correct in setting aside the assessment and in directing the ITO to make a fresh assessment in accordance with law.

10. In view of the above difference of opinion, the matter was referred to a Third Member by the President, the points on which there was a difference of opinion being formulated as under : (1) Whether, on the facts and In the circumstances of the case, the appeal filed by the assessee is entitled to succeed for the reasons stated by the Accountant Member in his order, it is liable to dismissal for the reasons stated by the Judicial Member (2) Whether, on the facts and in the circumstances of the case, the cross-objection filed by the revenue is entitled to succeed for the reasons stated by the Accountant Member, it is entitled to succeed for the reasons given by the Judicial Member 11. Shri M.B. Tikekar, the learned counsel for the assessee, reiterated the submissions made for the assessee before the authorities below and before the Tribunal when the Division Bench heard the appeal. He further contended that on the language of Section 144 itself it would be quite clear that what the learned Accountant Member has recorded was the clear position in law. The Section reads as under : (b) fails to comply with all the terms of a notice issued under subSection (1) of Section 142 (or fails to comply with a direction issued under Sub-section (2A) of that section), or (c) having made a return, fails to comply with all the terms of a notice issued under Sub-section (2) of Section 143, the Income-tax Officer, after taking into account all relevant material which the Income-tax Officer has gathered, shall make the assessment of the total income or loss to the best of his judgment and determine the sum payable by the assessee or refundable to the assessee on the basis of such assessment.

Emphasis is laid on the word "shall" in the above provision. Counsel points out that in this case it was common ground that there was failure to comply with the statutory notices. Hence the ITO was obliged to make the assessment under Section 144. It followed that the extended time-limit arising out of Section 144B was not available here.

Assessment ought to have been closed by 31-3-1980.

It was closed only in November 1980. Strong reliance was placed in particular on Segu Buchiah Setty's case (supra), specially the observations at page 542 of the Report which were as under : The clear import of Section 23(4) is that on committing any one of the defaults mentioned therein the Income-tax Officer is bound to make the assessment to the best of his judgment. In other words, if a person fails to make the return required by a notice under Section 22(2) and he has further not made a return or a revised return under Sub-section (3) of the same section, the Income-tax Officer must make an assessment under this provision. Similarly, if that person fails to comply with all the terms of the notice issued under Section 22(4) or if he fails to comply with all the terms of the notice issued under Section 23(2), the Income-tax Officer must proceed to make an assessment to the best of his judgment.

12. Shri Jetly, the learned standing counsel for the department, opposed the above submissions. He relied on the reasoning and findings of the learned Judicial Member. He pointed out in particular that the above observations in the case of Segu Buchiah Setty (supra) had been torn out of context and have been given an unduly wide application. The issue before the Supreme Court in that case had no kind of connection with the issue in dispute here. Those observations of the Supreme Court did not form part of the ratio of Segu Buchiah Setty (supra) at all.

They were more in the nature of casual observations. No doubt even casual observations of the Supreme Court compelled respect, but it is quite a different thing to say that they were applicable to issues wholly unrelated to the issue in connection with which the said observations came to be made. Such observations could never constitute a binding precedent as regards issues which are quite different. Shri Jetly further placed strong reliance on the decision of the Bombay High Court in the case of A.A. Ansari (supra). He also referred to the language of Section 143(3) which is as under : 143. (3) On the day specified in the notice issued under Sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points and after taking into account all relevant material which he has gathered,- (a) in a case where no assessment has been made under Sub-section (1), the Income-tax Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such assessment ; He refers to the word "shall" in the above provision a,nd submits that the conditions laid down in the above provision stand satisfied here and, hence, it could be argued that it was obligatory on the part of the ITO to complete the assessment under Section 143(3). No doubt Section 144 also uses the word "shall" in a different context, but then these two provisions have to be construed harmoniously. According to the learned counsel, this is exactly what the learned. Judicial Member has attempted in his order. He has interpreted Section 144 as an enabling provision to be used when there is a recalcitrant assesses who seeks to defeat the very process of assessment. On the other hand, we have here the strange case of an assessee who contends that he should have been assessed under Section 144 instead of under Section 143(3).

Such an interpretation which would defeat, the very object of the Legislature in framing taxing statute is not) to be encouraged.

Interpretation should be such that the working of the Act is rendered smooth and does not lead to an absurd result or cause unintended hardship to the parties. Counsel, therefore, submits that the learned Judicial Member's order lays down the correct position in law.

13. On a consideration of the facts and the position in law, I would hold that the assessment in question is one under Section 143(3) as indeed it professes to be : and not the one under Section 144. I do not think Segu Buchiah Setty's case (supra) is of any assistance to the assessee. That case had nothing to do with the question whether in a factual context as in the present case the ITO was bound to make an assessment under Section 144. That was a case where an assessee failed to file any return in compliance with the notices issued under Section 22(2) of the old Act of 1922 [in part materia with Section 139(2) of the new Act of 1961] for the assessment years 1953-54 and 1954-55.

Later he was served with notices under Section 22(4) [Section 142(1) of the new Act] for both the assessment years and was required to produce accounts on specified dates. There was no compliance but applications for adjournment were put in. The ITO was not satisfied with the reasons given for adjournment and hence completed the assessment under Section 23(4) [Section 144 of the new Act] of the old Act. The assessee moved applications under Section 27 (146 of the new Act). The ITO was satisfied that there was sufficient cause for non-compliance with the notices issued under Section 22(4), but he was of the view that the assessee had been a habitual defaulter not having submitted returns under Section 22(2) [Section 139(2) of the new Act] for several preceding years for which assessments had to be closed under Section 23(4). He rejected the applications under Section 27. The question referred for the opinion of the Supreme Court was as follows : Whether the Income-tax Officer having recorded a finding that there was sufficient cause for non-compliance with the notice issued under Section 22(4), was not bound to cancel the assessment made under Section 23(4) and to proceed to make a fresh assessment even though there was no sufficient cause for non-compliance with the notice under Section 22(2) The Court analysed the provisions of Section 27. It was in the course of such analysis that the observations extracted by the learned Accountant Member (reproduced in para 10 above) came to be made by the Court. These observations do indeed give the impression that the law laid down by the Supreme Court is that where there is non-compliance of the nature mentioned in Section 23(4), the ITO is bound to make the assessment to the best of his judgment as contemplated by Section 23(4). But these observations were made in the course of analysing the provisions of Section 27.

14. It was argued before me, not without substance, that even without the benefit of these observations the ratio of the decision would have remained unaffected. It was not necessary for the Court to have observed that the ITO was bound to make an assessment under Section 23(4) for any of the defaults stated therein because whether he was so bound or whether Section 23(4) was only an enabling provision for the benefit of the Revenue was not an issue at all before the Court. Hence, the argument ran that the use of the word "bound" by the Court in the context of analysing Section 27 was not only not necessary but was in the nature of a mere casual observation which had no connection with the ratio of the judgment itself. I find some force in these submissions. The above observations, in my view, cannot be taken out of the context in which they came to be made, for being used as the ratio decidendi or even as obiter dicta.

15. Salmond in his Jurisprudence (10th Edition, p. 180) says that judicial dicta, that is to say, statements of law which go beyond the occasion and lay down a rule that is irrelevant to the purpose in hand, or is stated by way of analogy merely, or is regarded by a later Court as being unduly wide, may be regarded as providing a persuasive precedent. According to the learned author (ibid. p. 179), while authoritative precedents are legal sources of law, persuasive precedents are merely historical ; that while the former establish law in pursuance of a definite rule of law which confers upon them that effect, the latter, if they succeed in establishing law at all, do so indirectly, through serving as the historical ground of some later authoritative precedent and that in themselves they have no legal force or effect. Further, according to the learned author (ibid. p. 192) the only judicial principles which are authoritative are those which are thus relevant in their subject-matter and limited in their scope and all others are of merely persuasive efficacy. To quote : They are not true ratio decidendi and are distinguished from them under the name of dicta or obiter dicta, tilings said by the way.

The prerogative of judges is not to make law by formulating and declaring it-this pertains to the Legislature but to make law by applying it. Judicial declaration, unaccompanied by judicial application, is of no authority.

16. The decision in Tata Iron & Steel Co. Ltd.'s case (supra) is no doubt there. The learned Accountant Member has made a specific reference to it. I have seen this decision. The Bombay High Court did not declare in this decision that all casual observations of the Supreme Court have a binding effect as regards each and every issue that comes up before the lower Courts. The learned counsel for the Respondent (the Revenue) in that case argued that the observations of the Supreme Court in the case of Metal Box Co. of India Ltd. v. Their Workmen [1969] 73 ITR 53 pertaining to the allowability of a provision for gratuity on actuarial basis under the Income-tax Act could not be regarded as the ratio decidendi and were no more than mere casual observations not binding on the High Courts or subordinate Courts and would not constitute the law of the land within the meaning of Article 141 of the Constitution of India. The counsel for the appellant (the taxpayer), on the other hand, contended that these were not casual observations and not even obiter dicta but part of the ratio of the case and, hence, the law of the land. The Bombay High Court considered the nature of the distinction between an obiter dictum and a casual observation. It referred in this regard to the decision in the case of Mohandas Issardas v. A. N. Sattanathan AIR 1955 Bom. 113. It was laid down in that case that an obiter dictum of the Supreme Court had to be accepted in the same spirit as the High Court accepted the obiter dictum of the Privy Council (obiter dictum was defined as an expression of opinion on a point not necessary for the decision of a case). On the other hand, "the question necessary for the determination of a case" would be the ratio decidendi. It was held further by the Court that it was incorrect to say that every opinion of the Supreme Court was binding upon the High Courts in India ; that the only opinion which would be binding would be an opinion expressed on a question that arose for the determination of the Supreme Court and even though ultimately it might be found that the particular question was not necessary for the decision of the case. Even so if an opinion was expressed by the Supreme Court on that question the opinion must be regarded as binding upon the High Courts. The Bombay High Court went on to note in this context that in the case of Zoolfiqar Ali Currimbhov Ebrahim v.Official Trustee of Maharashtra [1967] 69 Bom. LR 326 it was conceded at the hearing before the High Court that the observations of the Supreme Court in a particular judgment though lending support to the argument of the counsel had to be regarded as not amounting to either ratio decidendi or obiter dicta and were in the nature of mere casual observations which were not binding.

17. The Bombay High Court went on to consider the nature of the impugned observations in Metal Box Co. of India Ltd.'s case (supra).

The Court did note that at one stage it appeared to it that perhaps it was unnecessary for the Supreme Court to have considered whether the provision in question had been or could be deducted from the computation of gross profits of the business by reason of Section 36(1)(v) of the IT Act, 1961. But it was pointed out that one of the sums, deductible from the gross profit of the employer under the provisions found in Section. 6 of the Payment of Bonus Act would be direct taxes which the employer is liable to pay for the accounting1 year in respect of his income, profits and gains during that year and that it would be open to a Court having regard to the statutory provisions to seek to reconcile its decision under the Payment of Bonus Act with the position which according to it would exist under the Income-tax Act so that the estimation or computation of gross profits would be the same for both purposes and would not be lower for the Payment of Bonus Act a,nd higher for the Income-tax Act, inasmuch as this might result in hardship to the employees concerned. The Bombay High Court took note of this and observed that the Supreme Court seemed to have followed the above approach and that in view of that it would not be open to it (Bombay High Court) to question that approach or to say that any observations made by the Supreme Court whilst following that approach would be obiter or casual observations. The Court went on to note further that the Central Board of Direct Taxes (CBDT) itself did not consider these observations to be casual observations as evident from the Circular issued by the CBDT. The Bombay High Court took note of other decisions also which strengthened its view that the above observations in Metal Box Co. of India Ltd.'s case (supra) were not at all casual observations. Its view was that these observations were in line with the previous decisions of the Supreme Court under the Income-tax Act and to that extent cannot be characterised as obiter dicta but must be properly regarded as the ratio of the case, inasmuch as the Supreme Court appeared to have followed the approach of considering the position under the Income-tax Act and applying the same position to that under the Payment of Bonus Act.

18. Prom the above, it would be seen that the Bombay High Court has nowhere held in Tata Iron & Steel Co. Ltd.'s case (supra) that any kind of casual observation by the Supreme Court, in whatever context it came to be made, would be binding on all the subordinate Tribunals. I am, therefore, unable to see that the observations of the Supreme Court in Segu Buchiah Setty's case (supra) relied upon by the learned Accountant Member have to be looked upon as of a binding nature. These observations, as already noted, arose in the context of the scope of Section 27, in a particular fact-situation. The Supreme Court never had the occasion to consider the question in Segu Buchiah Setty's case (supra) whether an ITO was compelled to Make an assessment under Section 144 whenever there was default of the nature mentioned in Section 144 itself. There is a difference between a judicial declaration accompanied by judicial application and judicial declaration not accompanied by judicial application.

19. Nor is the decision in Laxminarayan Badridas' case (supra) an authority in favour of the assessee here. I have seen this decision Before I discuss the facts and ratio of this decision, the point to be seen is whether decisions of the Privy Council constitute a binding precedent in India today. Salmond classifies precedents into authoritative and persuasive (op. cit., p. 199). Under the head "Persuasive" there are listed foreign decisions, decisions in other parts of the Empire, Privy Council decisions, Judicial dicta and so on.

It would appear that the decisions of the Privy Council can have, at best, only a persuasive effect and cannot bind any of the Courts or Tribunals in India as contemplated in Article 141 of the Constitution.

20. Laxminarayan Badridas' case (supra) was a case under Section 23(4) of the old Act of 1922. The questions referred to the Privy Council were regarding the validity of the assessment completed under Section 23(4), i.e., whether the ITO was justified in assuming the jurisdiction under Section 28(4) when there was no legal evidence to show that the assessee deliberately failed to comply with the notice issued under Section 22(4) ; whether the circumstances alleged and proved by the assessee could not, in law, be deemed to be sufficient cause under Section 27 ; whether the assessee could claim validly cancellation of the ex parte assessment order ; whether the procedure adopted by the ITO for service of notices under Section s 23(2) and 22(4) was Jegal and proper ; and whether under the circumstances he could validly complete the assessment under Section 23(4) ; whether there was any evidence to substantiate the ITO's reasoning to the effect that legal enquiries proved that the assessee made an income of one lakh of rupees in the accounting year ; whether the ITO's order was not vitiated by imaginary assumptions or irregular enquiry or hearsay evidence which the assessee had no chance to meet and which were not supported by the assessse's books.

21. The Privy Council in disposing of the above reference made the following points : (i) under Section 23(4) the ITO is to make an assessment to the best of his judgment against a person who is in default as regards supplying information. He must not act dishonestly, vindictively or capriciously. He must make an honest and fair estimate after due consideration of the assessee's circumstances and past record and all other relevant matters. Necessarily there would be guess-work in the matter, but it must be honest guess-work.

(ii) There was no justification for holding that an assessment made under Section 23(4) without the ITO conducting a local enquiry and without recording the details of that enquiry could not have been made to the best of his judgment.

(iii) "Under Section 23(4) the fact of failure to comply with the notice under Section 22(4) made it compulsory" on the officer to make an assessment and under Section 27 unless the ITO is satisfied that the assessee had not a reasonable opportunity to comply or was prevented by sufficient cause from complying with that notice the assessment must stand.

22. Of the above the last point made by the Privy Council is of direct relevance. The discussion relating to this is at page 179 of the Report. The following passage is of interest : This does not appear to be a case of exercising a discretion. under Section 23(4) the fact of failure to comply with the notice under Section 22(4) made it compulsory on the officer to make an assessment and under Section 27 unless the officer is satisfied (and he was not, on the facts of this case, could have been) (sic) that the respondent had not a reasonable opportunity to comply or was prevented by sufficient cause from complying with that notice, the assessment must stand. That he had sufficient cause for not complying with another notice is irrelevant. And their Lordships are unware of any rule by which the officer was bound or ought to announce beforehand how he proposes to deal with an application for an adjournment.

But these observations were made while disagreeing with the reasoning of the Judicial Commissioner which was to the effect that the ITO had wrongfully exercised the judicial discretion vested in him in completing the assessment under Section 23(4). The foundation for this allegation of wrongful conduct was : (1) No previous intimation had been given of the intention of the officer to refuse a further adjournment on 19-10-1931, which was characterised by the Judicial Commissioner as a failure to observe an elementary rule.

(2) The respondent (taxpayer) had shown sufficient cause for not complying with the notice under Section 23(2).

It was in the above context, the Privy Council's impugned observations came to be made. In fact the Privy Council itself in an earlier portion of the judgment uses a different expression. To quote (at page 179) : Their Lordships find themselves in disagreement with this decision, except insofar as it answered point (i) and (iv) in the affirmative and decided that the officer was in the events which had happened entitled to proceed to make an ex parts assessment under Section 23(4).

23. The above observations of the Privy Council on which reliance had been placed by the learned Accountant Member do not, it is evident, form part "of the ratio of the Privy Council's decision to any question on the point whether an ITO was compelled to make an assessment under Section 23(4) whenever any of the defaults mentioned therein occur or whether he was entitled to make an assessment under Section 23(4) in such a case. As noticed above, the Privy Council itself used the word 'entitled' in one part of its judgment and in another part of the judgment it says the fact of failure to comply with the notice under Section 22(4) made it compulsory on the ITO to make the assessment under Section 23(4). The context in which such observations came to be made has already been described above and it would be clear from the above context as well as the questions referred to the Privy Council that the observations of the Privy Council on which the learned Accountant Member had relied upon were not part of the ratio but merely in the nature of a casual observation.

24. The question of interpretation remains. It is true, as stressed by the learned Accountant Member, in a taxing statute what the words of the statute say reflects the intention of the Legislature and hence a literal interpretation has to be followed. But the learned counsel for the revenue had referred to the use of the word 'shall' in both Sections 143(3) and 144. As held by the Supreme Court in Karimtharuvi Tea Estates Ltd. v. State of Kerala [1963] 48 ITR 83, 90 the statutory language is to be so construed as not to make any part of the statute meaningless or ineffective. An attempt should always be made to reconcile the relevant provisions so as to advance the remedy intended by the statute. To accept the interpretation contended as correct for the assessee would certainly lead to a result that could never have been intended by the Legislature. The learned Accountant Member is in fact conscious of this aspect and says in para 13 of his order as under : 13. No doubt, as a result of this decision, the assessee would be appeared to have benefited by his own wrong doing. In the first place, the assessee did not comply with any of the four notices issued by the Income-tax Officer. On the top of it, in consequence of the non-compliance of these notices, the assessee seeks to have the assessment held to be null and void as having been time-barred.

The use of the word 'shall' found in both Sections 143(3) and 144 can only mean that it enables the ITO to exercise an option in the matter, i.e, whether in a particular case, the statutory conditions being fulfilled, he would proceed to make the assessment under Section 143(3) or under Section 144. To hold otherwise would lead to an absurdity as indeed recognised by the learned Accountant -Member. I do not favour such an interpretation. Quite apart from this, in construing a statute even where alternative constructions are equally open, that alternative is to be chosen which would be consistent with the smooth working of the system which the statute purports to be regulating and that alternative is to be rejected which will induce uncertainty, friction or confusion into the working of the system. Thus, on the ground of interpretation also I am unable to agree with the interpretation of Section 144 recorded by the learned Accountant Member.

25. On the question of promissory estoppel, I agree with the opinion recorded by the learned Judicial Member. There is no estoppel against law and if the assessment had really been one under Section 144, it would have to be declared one under that Section notwithstanding the conduct of the assessee before the ITO. The department cannot succeed on the ground of promissory estoppel alone.

26. As regards the cross-objection of the department, here again I endorse the findings of the learned Judicial Member following the discussion supra.

27. The result is : the points of difference referred to me are answered as under :(1) Whether, on the facts and in the circumstances Noof the case, the appeal filed by the assessee isit is liable to dismissal for the reasons stated Yesby the Judicial Member ?(2) Whether, on the facts and in the circumstances Noof the case, the cross-objection filed by theit is entitled to succeed for the reasons given Yesby the Judicial Member 28. The matter will now go back to the Bench which originally heard the appeal and the cross-objection, for disposal in accordance with law.