1. The assessee has preferred this appeal, against the order dt. 26th November, 1984, of Shri G. S. Kahlon, AAC, Range-I, Jalandhar, who dismissed the appeal against the order of ITO, dt. 27th March, 1984.
2. The relevant facts, in brief, are that on 18th May, 1973, the assessee filed the return of income declaring therein total income at Rs. 64,117 for the asst. yr. 1973-74, the previous year of which ended on 31st March, 1973.
2.1 The assessee filed the return in the status of an individual, showing therein as non-resident. The assessee filed the return as the agent of his younger brother, Shri Prem Kumar Bhagat, non-resident, who lives in England.
3. The ITO completed the original assessment on 23rd June, 1976, under s. 144 of the IT Act, 1961 (hereinafter referred to as 'the Act'). The assessee did not make any appeal against the order under s. 146 of the Act, but he made an appeal, against the order passed by the ITO under s. 144 of the Act to the AAC. The AAC set aside the assessment order with the direction that the ITO should first of all give a finding whether Shri Prem Kumar is a non-resident and after deciding it he should consider whether Shri Sudarshan Kumar has got no objection to being appointed as an agent of Shri Prem Kumar Bhagat, that thereafter, to frame assessment order after giving due opportunity to Shri Sudarshan Kumar of being heard in accordance with law.
4. The ITO, however, issued notice under s. 143(2) and fixed the case for hearing. The assessee did not comply with the notice issued by him under s. 143(2) of the Act to carry out the directions of the AAC mentioned above. The ITO, therefore, framed the best judgment assessment under s. 144 of the Act at a net income of Rs. 67,420 vide order dt. 30th March, 1981. The ITO reopened this assessment under s.
146 vide order dt. 23rd July, 1981, when the case was again fixed for hearing by issuing notice under s. 143(2). The service of the notice was effected. The assessee failed to appear on the appointed date as nobody attended nor any application for adjournment was filed.
4.1 In view of the above facts, the ITO held that the assessee's attitude was totally non-cooperative, and, therefore, he had been left with no alternative but to frame the assessment ex parte as per material available on record. Subsequently, he assessed the income at Rs. 67,420 as per order dt. 30th March, 1981, keeping in view the detailed discussion made in that order.
5. In appeal before the AAC, it was contended by Shri Miglani, Advocate, that ITO was not justified in appointing Shri Sudarshan Kumar as an agent of Shri Prem Kumar Bhagat. It was also contended that according to the provisions if s. 163, no person should be treated as a non-resident unless he had given an opportunity of being heard by the ITO and in the case the ITO had not passed any order after giving due opportunity to Shri Sudarshan Kumar under s. 163. Therefore, in the circumstances and facts of the case, the order of the ITO observed to be struck down on the grounds.
6. The AAC did not accept the aforesaid contentions of the learned counsel for the assessee and rejected these on the grounds that from the perusal of the record, it was seen that Shri Sudarshan Kumar himself filed the return of income on 18th May, 1973, wherein declaration had been made that he was the agent of Shri Prem Kumar Bhagat; that this fact was again confirmed by subsequent letters dt.
20th February, 1976, and 27th February, 1976. The AAC on these circumstances held that it was clear that it was not a case where the question of appointing of agent was in dispute, because it was an admitted fact by the appellant himself, that there is no justification on the part of the appellant to urge that proper opportunity to be given by the ITO before an agent was appointed under s. 163(2).
Accordingly, he further held that the order of the ITO appointing the assessee as an agent to Shri Sudarshan Kumar was fully justified and his order on the point, therefore, was confirmed by him.
7. Regarding the issue of additions of Rs. 6,000 and Rs. 55,000 the AAC in para 5 of his order stated that the relevant facts on record show that the assessee should not succeed. As discussed by the ITO in order dt. 23rd March, 1976, it was clear that the assessee was not having enough funds for investment of Rs. 55,000 and Rs. 6,000 respectively; that from the pass book it was very much clear that the appellant first deposited Rs. 55,000 on 7th April, 1972, and then withdrawn Rs. 90,000 on 7th April, 1972. Thus, the AAC on the facts mentioned above held that the assessee had no valid explanation for the investment of Rs. 50,000 and the addition made by the ITO, therefore, was fully justified. Accordingly, he confirmed the order of the ITO and dismissed the appeal of the assessee.
8. The assessee being further aggrieved has preferred this appeal. Shri D. R. Miglani learned counsel for the assessee, contends, taking us through the grounds of appeal and pointing out to each ground that the authorities below were not justified in passing their respective orders and these are wrong on law and facts of the case. Shri Miglani, admitted that ground No. 1 is general. However, regarding ground No. 2, which is as under, he contends that it is for the ITO to appoint the assessee as an agent and the ITO has failed to do so. Therefore, his order is illegal : "2. The appellant has been assessed as an agent of the non-resident and the status is taken as resident and ordinary resident. This is without the restraint of law and facts of the case on the file.
Firstly, Shri Sudarshan Kumar has never been held to be an agent of the non-resident Shri Prem Kumar Bhagat and secondly, the status under no circumstances can be resident and ordinary resident." Reliance is placed on the decisions in the cases in CIT vs. Express Newspapers(P) Ltd. (1978) 111 ITR 347 (Mad), CIT vs. Kanhaya Lal Gurmukh Singh (1973) 87 ITR 476 (P&H) and H. L. Sud, ITO vs. Tata Engg.
& Locomotive Co. Ltd. (1969) 71 ITR 457 (SC). He further contends that the assessee is the agent of his younger brother Shri Prem Kumar Bhagat, who resides in England and, therefore, under the law the status of the agent cannot be taken as resident and ordinary resident. He further contends that the AAC set aside the original assessment with specific directions to the ITO, which had not been complied with and, therefore, the order in pursuance of the order of the AAC, (again) passed by the ITO under s. 144 is illegal. Therefore, the AAC in confirming it has erred in law and facts of the case. He further contends that the AAC has also not determined the issue of addition of Rs. 6,000 while in determining the addition of Rs. 55,000 he has committed error in law and facts of the case. Reliance is placed on the paper-book pp. 1 to 10. On the other hand, Shri Matharu, the learned Departmental Representative contends that the ITO has complied with the directions of the AAC as the ITO has issued notice on the assessee under s. 143(2) of the Act, it was not complied with and, therefore, the ITO was within his powers to pass an order under s. 144 again in pursuance of the order of the AAC, dt. 25th August, 1978. He further contends that the assessee has filed the return as the agent of his younger brother, Shri Prem Kumar Bhagat and further the order of the AAC shows that this fact was confirmed by subsequent letters dt. 20th February, 1976, and 27th February, 1976. Therefore, in this view of the matter, the ITO has accepted the assessee as the agent of his brother Shri Prem Kumar Bhagat. Hence, the requirement of law has been met by him. Reliance is placed on the decision in the case Harak Chand Makanji & Co. vs. CIT (1948) 16 ITR 119 (Bom). He further contends that regarding the issue that whether the assessee is resident and ordinary resident or non-resident, the ITO treated him as resident and ordinary resident, but it was not challenged before the AAC and, therefore, the contention of the learned counsel for the assessee that the assessee is to be taken as non-resident cannot be accepted, in view of the fact that the same is not arising out of the impugned order. He further contends that before the AAC, the contention of the learned counsel for the assessee was that proper opportunity of being heard was not given to the assessee, which has been proved (sic-and is) evident from the record, that the assessee was given proper opportunity of being heard and it is the assessee who has not availed it leaving no alternative to the ITO, than to make best judgment assessment under s. 144 of the Act.
He further contends that the assessment made under s. 144 of the Act can be challenged if the same is proved capricious or arbitrary. In the case of the assessee, it is not proved so. On merits, he contends that the apparent is the real and paper-book of the assessee at p. 10 proves that on 7th April, 1972, the assessee first deposited the amount of Rs. 55,000 making the available cash in the bank amounting to Rs. 1,40,000.
Out of it, thereafter on 7th April, 1972, Rs. 90,000 have been withdrawn. Therefore, onus is upon the assessee to prove the source of deposit of Rs. 55,000 which the assessee has failed to prove and as such, the addition of Rs. 55,000 is justified. He further contends that the addition of Rs. 6,000 has also been upheld by the AAC on the ground that the investment of Rs. 6,000 is also not proved though in his order finally, he has stated that the addition of Rs. 55,000 made by the ITO was justified. Reliance is placed on the order of the authorities below and on the decision of the Hon'ble Supreme Court in the case CIT vs.
Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) and Addl. CIT vs.
Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC) 9. We have heard the rival contentions and gone through the record. In this case, no doubt, the original assessment, which was made by the ITO under s. 144 of the Act was set aside by the AAC vide his order dt.
25th August, 1978, wherein he gave specific directions to the ITO, which we have mentioned above. The ITO issued notice on the assessee under s. 143(2), which was not complied with by the assessee. The plea of the learned counsel for the assessee is that the ITO should have issued notice on the assessee mentioning therein to show cause that why he should not be appointed the agent of Shri Prem Kumar Bhagat, who is the brother of the assessee and is living in U.K. as well as to show therein that why he should not be taken as resident and ordinary resident, because the directions of the AAC are clear and these say that first the assessee to be appointed as the agent of Shri Prem Kumar Bhagat and, thereafter he should be given opportunity of being heard.
As the ITO has not carried out the specific directions of the AAC, and, therefore, his order is illegal. This contention of the assessee's counsel has no force, in view of the fact that the ITO has issued notice to the assessee under s. 143(2) of the Act, which the assessee has failed to comply with. It is the compliance of the notice under s.
143(2) that will let the ITO to determine the issue of appointment of an agent as well as that of resident and ordinary resident or non-resident. This notice is not complied with by the assessee and, therefore, ITO is within his powers to make the best judgment assessment under s. 144 of the Act. Reliance can be placed on the decision of the Hon'ble Privy Council in the case of CIT vs.
Laxminarain Badri Das (1937) 5 ITR 170 (PC) where their Lordships held that the fact of failure to comply with notice under s. 143(2) makes it compulsory on the ITO to make an assessment. Thus, the non-compliance of notice under s. 143(2) on the part of the assessee gives power to the ITO under law to make best judgment assessment under s. 144 of the Act. However, the ITO has complied with the directions of the AAC, firstly that the assessee himself has filed the return, as the agent of Shri Prem Kumar Bhagat, non-resident, who lives in England. Therefore, the conduct of the assessee himself proves that he is the agent of the non-resident Shri Prem Kumar Bhagat. Therefore, there is no need for the ITO to issue notice as to show cause that why the assessee should not be appointed as the agent of Shri Prem Kumar Bhagat. It is also not essential for the ITO to pass the order of appointment of an agent (on the assessee) Shri Prem Kumar Bhagat (non-resident) in view of the fact that the assessee himself is admitting himself to be the agent of Shri Prem Kumar Bhagat. Therefore, if the ITO has made the best judgment assessment on him as agent of Shri Prem Kumar Bhagat, then it cannot be held invalid on the ground that the ITO has not passed the order treating the assessee as the agent of Shri Prem Kumar Bhagat on the facts of the case. Reliance can be placed in the decision of their Lordships of Bombay High Court in the case of Harak Chand Makhanji & Co. vs. CIT (supra), where their Lordships held that no notice need to be served, where it is made unnecessary and superfluous by the submission of a return admitting the position and status of an agent of a non-resident.
10. The second direction of the AAC is that the objection of Shri Sudarshan Kumar to be appointed as an agent of Shri Prem Kumar Bhagat is to be obtained and has been carried out in view of the fact that the notice under s. 143(2) has been issued and the same is not responded.
Moreover, in passing the assessment under s. 144 there is material on record, which is the return, filed by the assessee wherein he himself has admitted to be an agent of Shri Prem Kumar Bhagat, (non-resident) who is younger brother of the assessee and is living in England.
Furthermore, had there been any grievance to the assessee, then he should have raised the plea before the AAC, which he has failed to do as before the AAC the plea taken is that opportunity of being heard was not given by the ITO, which was rejected by the AAC on the reasons supported by the material on record, which we have mentioned above.
Furthermore, there is material on the record that the assessee furnished two letters dt. 20th February, 1976, and 27th February, 1976, wherein the assessee further showed that he was the agent of Shri Prem Kumar Bhagat. There is declaration of the assessee and also verification, which is an evidence to prove that the assessee has accepted himself to be the agent of his brother Shri Prem Kumar Bhagat, non-resident, who is living in U.K. Shri Matharu is also justified in saying that before the AAC, the issue of treating the assessee as resident and ordinary resident has not been raised and, therefore, it cannot be allowed to be raised before the Tribunal. Reliance is placed on the decision in the case Addl. CIT vs. Gurjargravures (P) Ltd. (1978) 111 ITR 1 (SC), where their Lordships of the Hon'ble Supreme Court held reversing the decision of the Hon'ble High Court that as neither was any claim made before the ITO regarding the relief under s.
84 nor was there any material on record in support thereof and from the mere fact that such a claim had been allowed in subsequent years, it could not be assumed that the prescribed condition justifying the claim for exemption under s. 84 were also fulfilled, the Tribunal was not competent to hold that the AAC should have entertained the question of relief under s. 84 or to direct the ITO to allow the relief merely because the ITO brings an item to tax, he cannot be deemed to have considered its non-taxability though no such claim was made before him by the assessee. The cases relied upon by the learned counsel for the assessee, (1978) 111 ITR 347 (Mad); (1973) 87 ITR 476 (P&H) and (1969) 71 ITR 457 (Mad) (supra) are not relevant and are distinguishable, in view of the fact that in those cases the return was not filed voluntarily as the agent of the non-resident. In this case, the assessee, who is the elder brother of the non-resident Shri Prem Kumar Bhagat, living in U.K. has voluntarily filed the return, showing therein and making declaration thereto that he is the agent of his brother Shri Prem Kumar Bhagat, besides claiming to be so in two letters dt. 20th/27th February, 1976, addressed to the ITO.11. In view of our above discussion, we hold that the legal issues raised by the learned counsel for the assessee at this stage have no substance. However, looking to the facts of the case and the settled law that the Tribunal is there to do substantial justice, we are of the opinion that in this case, the status of the assessee is to be taken as non-resident to meet the ends of justice as well as to comply with the provisions of s. 163 of the Act. Moreover, the assessee has filed the return as the agent of Shri Prem Kumar Bhagat and showing therein as non-resident, which is justified for, by the provisions of law (s. 163) as in the case, the assessee is to be taken as non-resident on account of his principal, Shri Prem Kumar Bhagat, who is the non-resident living in U.K. Moreover, s. 163 so demands. Therefore, we take the assessee as non-resident in view of the facts and circumstances of the case.
12. Now we decide the issue of additions of Rs. 6,000 and Rs. 55,000 made and sustained by the authorities below, as referred to above. The learned counsel for the assessee contends that the AAC has not determined the issue of addition of Rs. 6,000 though it was contended before him, has no substance, in view of the fact that he has held in his order that it was clear that the appellant was not having individual funds for investment of Rs. 55,000 and Rs. 6,000. No doubt, at the end he has merely held that no explanation for the investment of Rs. 55,000 and the addition by the ITO was fully justified, and he missed to hold that the addition of Rs. 6,000 was also justified, but he has held therein that accordingly, the ITO's order was confirmed.
This shows that the AAC has confirmed both the additions of Rs. 6,000 and Rs. 55,000 and as such, it cannot be held that he has not determined the issue of Rs. 6,000 and he has only determined the issue of addition of Rs. 55,000. Moreover, the learned counsel for the assessee has not brought any material on record to show that the assessee has proved the investment of Rs. 6,000 and, therefore, the addition made and sustained by the authorities below representing the amount of Rs. 6,000 is erroneous in law and facts. Looking to the totality of the facts of the case, we hold that the addition made and sustained by the authorities below vis-a-vis, a sum of Rs. 6,000 is justified.
13. Now we decide the issue of addition of Rs. 55,000 on merits. P. 10 of the paper-book shows that on 7th April, 1972, the assessee deposited a sum of Rs. 55,000 raising the balance amounting to Rs. 1,45,000 on 7th April, 1972. After the entry of deposit, the assessee had withdrawn the amount of Rs. 90,000 leaving behind a sum of Rs. 55,000 as credit of the assessee. Thus, the learned Departmental Representative contends that the assessee has deposited the amount of Rs. 55,000 first and thereafter on the same day he has withdrawn Rs. 90,000 out of his total amount of deposit (Rs. 90,000 + Rs. 55,000) Rs. 1,45,000 which is apparent from the paper-book at p. 10. He further contends that apparent is the real and, therefore, it is for the assessee to disprove. Reliance is placed on the decision in the case CIT vs.
Kanhaya Lal Gurmukh Singh (supra), Habib & Sons vs. CIT (1963) 49 ITR 792 (Bom). While Shri Migalani rebuts in saying that out the amount of Rs. 90,000 which was drawn on 7th April, 1972 (Bom), a sum of Rs. 55,000 had been deposited and, therefore, the deposit of Rs. 55,000 is explained. In rebuttal, Shri Matharu, says that onus is upon the assessee to prove it and the assessee has not even filed an affidavit at this stage to prove his stand, though the onus is upon the assessee to prove the source of the deposit of Rs. 55,000 and from the entries which are on p. 10 and is an extract 7th April, 1972, by cash, credit Rs. 55,000, balance Rs. 1,45,000 out of the pass-book of the assessee (7th April, 1972 to Sudarshan Cheque No. 504, debit 90,000 balance Rs. 55,000), prima facie shows that the amount of Rs. 55,000 is deposited first on 7th April, 1972, and thereafter a sum of Rs. 90,000 is withdrawn on the same date.
14. On hearing the parties and going through the record, we are satisfied that the contentions of the learned counsel for the assessee are well-founded and must prevail. The reason is that p. 10 of the paper-book shows that the entry of deposit of Rs. 55,000 is first, while that of the withdrawal of Rs. 90,000 on 7th April, 1972, is thereafter. Therefore, it is proved that the sum of Rs. 55,000 is deposited by the assessee prior to the withdrawal of Rs. 90,000. When this is so, then the onus is upon the assessee to prove its source. The explanation of the assessee is that the assessee had deposited it out of Rs. 90,000 drawn on 7th April, 1972, for which there is no proof because it is merely contention of the assessee but not substantiated which can be easily substantiated, had the assessee atleast filed the affidavit, stating these facts as he is contending. Therefore, we reject the contention of the assessee and in particular for the decision of the Hon'ble Supreme Court that the apparent is real. In this case, it is apparent from p. 10 of the paper-book that the amount of Rs. 55,000 has been deposited first and thereafter a sum of Rs. 90,000 has been withdrawn. Reliance is placed on the case CIT vs.
Daulat Ram Rawat Mull (supra), where their Lordships observed, "the onus to prove that the apparent is not the real is on the party, who claims it to be so". Therefore, the onus is upon the assessee to prove that it is the bank, who has made the wrong entry in the pass-book and in its own books. Thus the apparent is the real till is proved that it is merely a mirage and it is in this case to be proved by the assessee, who has failed to do so. Therefore, following the aforesaid decision of the Hon'ble Supreme Court with respect and looking to the totality of the facts and circumstances of the case, we hold that the addition of Rs. 55,000 made and sustained by the authorities below is justified.
15. In view of our above discussion and reason thereto, we hold that the additions of Rs. 6,000 and Rs. 55,000 (supra) made and sustained by the authorities below are justified. Hence, we confirm the impugned order on these issues.
1. I am unable to agree with my learned brother. In my view, the assessee deserves to succeed on the short ground of the assessment being invalid on account of the ITO not appointing Shri Sudarshan Kumar to be an agent of the non-resident, Shri Prem Kumar Bhagat by passing an order unders 163 of the IT Act, 1961, treating him to be so prior to the making of the assessment under appeal. The assessee's counsel, Shri D. R. Miglani, submitted that passing of such an order was a must and the ITO despite the AAC setting aside the assessment on two earlier occasions for that purpose did not pass such an order. He referred to the two earlier orders of the AAC setting aside the assessment framed (i.e., prior to the order of the AAC now under appeal dt. 26th November, 1984) which were included in the paper-book filed. The first order of the AAC was dt. 25th August, 1978, and the second dt. 10th November, 1982. He further stated that his argument all along was that a separate order was required to be passed appointing Shri Sudarshan Kumar to be the agent of the non-resident after giving him due opportunity of being heard prior to the making of the assessment but this aspect was not appreciated fully and the AAC, whose order now is in appeal, has altogether failed to understand the position. In support of his proposition about passing a separate order, he relied upon the Punjab & Haryana High Court decision in the case of CIT vs. Kanhaya Lal Gurmukh Singh (1973) 87 ITR 476 (P&H), Madras High Court decision in CIT vs. Express Newspapers (P) Ltd. (1978) 111 ITR 347 (Mad) and Supreme Court decision in the case of H. L. Sud, ITO vs. Tata Engg. & Locomotive Co. Ltd. 2. On a consideration of our own High Court authority in (1973) 87 ITR 476 (P&H) (supra) and Madras High Court authority (1978) 111 ITR 347 (Mad) (supra), in which that High Court has followed the aforementioned Punjab & Haryana High Court decision, the stand of the assessee's counsel is apparently correct. The Madras High Court in (1978) 111 ITR 347 (Mad) (supra) distinguished the decision of the Bombay High Court in the case of Jadavji Narshidas & Co. vs. CIT (1957) 31 ITR 1 (Bom), on the ground that case arose under the IT Act of 1922, "which did not provide for a right of appeal against such treatment orders" at p. 352.
It will be relevant to point out that the Bombay High Court decision in (1957) 31 ITR 1 (Bom) (supra), followed the earlier decision of that High Court in the case of Harakchand Makanji & Co. vs. CIT (1948) 16 ITR 119 (Bom).
3. The Punjab & Haryana High Court by a majority in the case of Kanhaya Lal Gurmukh Singh has held as under and I quote from the headnote : "(i) sub-s. (2) of s. 163 of the 1961 Act provides that no person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the ITO as to his liability to be treated as agent. It is, therefore, necessary under this sub-section not only to issue a notice of his intention to treat the person as the agent of a non-resident, but to pass an order treating him as an agent of the non-resident after hearing him. This result also follows from the language of sub-s. (3) of s. 149 of the 1961 Act wherein it is mentioned that "if the person on whom a notice under s. 148 is to be served is a person treated as the agent of a non-resident under s. 163". This means that his status as an agent of the non-resident must have been determined before the issue of a notice under s. 148. Sec. 34(1) and s. 43 of the old Act used the words "deemed to be the agent". What is implied by the word "deemed" is that whether a person is or is not the agent of a non-resident in actual fact, he will be treated as such.
Under the old Act, no appeal lay against the order of the ITO by which a person was deemed to be an agent under s. 43 of the old Act.
The contention that a person was wrongly deemed to be an agent could only be taken as one of the grounds of attack against the assessment order. Sec. 246(g) of the 1961 Act provides for an appeal from an order under s. 163 treating an assessee as the agent of a non-resident. Sec. 249(2) provides that the appeal should be presented within 30 days from the date on which intimation of the order treating him as agent is served. Secs. 246 and 249 leave no manner of doubt that the ITO has to pass an order under s. 163 before initiating proceedings by issuing a notice under s. 148 of the Act.
CIT vs. Nawal Kishore Khairatilal's case (1938) 6 ITR 61 (PC) is not applicable to a notice issued under s. 148 of the 1961 Act to a person as an agent of a non-resident." It may be pointed out here that whereas in the case in hand the ITO has passed no order under s. 163 of the Act in the case of Kanhaya Lal Gurmukh Singh (supra) an order under s. 163 of the Act was passed by the ITO but that was passed after the issuing of notice under s. 148 of the Act and the High Court held that the order under s. 163 should have been passed prior to the issuing of notice under s. 148 of the Act.
4. In the Madras case CIT vs. Express Newspapers (P) Ltd. (supra), the assessee-company had, in fact, filed a return as an agent of the non-resident in compliance with a notice issued by the ITO under s. 148 of the IT Act but the levy of penalty under s. 271(1)(a) of the Act for belated filing of the IT return was challenged on the ground that a written order treating the company to be representative assessee as the agent of the non-resident was not passed by the ITO. It will be appropriate to quote two passages from that decision in which the Madras High Court has agreed with the view of the Punjab & Haryana High Court in the case of Kanhaya Lal Gurmukh Singh (supra). The first passage is at pp. 351-352 and the High Court was considering the decision of Privy Council cited by the Revenue being CIT vs. Nawal Kishore Khairatilal (1938) 6 ITR 61 (PC).
"In our view, the ratio of this case cannot support the Revenue for the reason that the Privy Council propounded the principle that the final determination of the question of agency has to be done, but it could be postponed till the final assessment order is made under the Act. Incidentally the principle in CIT vs. Nawal Kishore Kharairati Lal (1938) 6 ITR 61 (PC) also contemplates an opportunity being given to the representative assessee to make his representations not only against the proposed assessment but also against his treatment as a representative-assessee as such. Equally there is a fallacy in the contention that no order recognising an assessee as an agent is necessary, as it is not expressly provided. By way of a comparison it is seen that the ITO has the power, on sufficient cause being shown, to cancel an ex parte order of assessment made under s. 144.
There are no express words in s. 146 which compel the ITO to pass any order. Sec. 246(d) provides for a right of appeal against it.
Thus, it is seen that there are provisions in the Act which obligate the IT authorities to act in a particular situation and pass an order but there is no specific literature in those sections compelling them to make a written order as such. But, such orders are made appealable. It is this provision as to right of appeal which creates the necessity to pass an order for a right of appeal cannot be lightly treated and dealt with. A right of appeal is one of the modes by which a decision which could otherwise be final can be challenged. It is not a procedural right but a substantive right.
Indeed, it is a vested right. And such a right to enter the superior Court accrues to the litigant and exists as on and from the date the lis commences, and although it may be actually exercised when the adverse situation comes into play, the record must disclose that such an order has been passed so that the aggrieved person may exercise his vested right of appeal and obtain redress. In our view, therefore, a written order treating the representative-assessee as the agent of the non-resident is necessary. Even if a person without being called upon to submit a return voluntarily submits a return as agent of a non-resident, the necessity to pass an order recognising him as such agent cannot be dispensed with. The case in Jadavji Narshidas & Co. vs. CIT (1957) 31 ITR 1 (Bom) is distinguishable on the ground that it arose under the Act of 1922 which did not provide for a right of appeal against such treatment orders. In CIT vs.
Kanhaya Lal Gurmukh Singh (1973) 87 ITR 476 (Punj) a similar question arose which was in fact decided by a majority of judges as there was a difference of opinion." "Having regard to the express provisions which create a vicarious liability on the representative-assessee to be liable to tax, as it is popularly understood, the necessity to provide him with an order treating him as agent of the non-resident becomes all the more important. This would enable him to place his difficulties in the matter of the delays in submission of his return even in the appeal under s. 246(g) of the Act and secure a limited relief. He could have by initiating and participating in such an appeal relieve himself of the liability to pay penalty for no fault of his." 5. I will also like to point out one more aspect. The fact of the filing of the return by Shri Sudarshan Kumar voluntarily on behalf of non-resident Shri Prem Kumar Bhagat cannot be read as obliterating the necessity of passing an order under s. 163 of the IT Act treating him to be the agent of the non-resident, which is an appealable order under the IT Act. All that perhaps can be said is that while appointing him as an agent in accordance with the provisions of law the concession implied can be availed of by the Revenue to pass an order under s. 163 of the Act. The order itself in such circumstances cannot be given a go-by. The point can be illustrated. It is well-known that when an assessee agrees to be assessed on a particular income with the ITO, the necessity of passing an assessment order is not dispensed with. The law has to take its own course and the assessment order in such a case has to be passed and is, in fact, invariably passed by the IT Department.
6. In view of the above discussion, I feel the assessment framed is to be cancelled on account of ITO's failure to pass an order under s. 163 of the Act appointing Shri Sudarshan Kumar to be the agent of his non-resident younger brother Shri Prem Kumar Bhagat prior to the making of the assessment and, therefore, the appeal of the assessee is to be allowed. I order accordingly. It is unnecessary at this stage to go into the merits of additions made in the assessment order which are challenged by the assessee in his appeal.
1. In this case, there is a difference of opinion, and, therefore, we refer it to the President of the Tribunal for its settlement under s.
255(4) of the IT Act, 1961. We frame the following questions for this purpose.
"1. Whether the AAC has erred in law and facts of the case in confirming the best judgment assessment made by the ITO under s. 144 of the Act 2. Whether on the facts and in the circumstances of the case, it can be held that the ITO has treated the assessee (Shri Sudarshan Kumar) as an agent of the non-resident (Shri Prem Kumar Bhagat, younger brother) without giving an opportunity of being heard by him, as to his liabilities to be treated as such, which is the requirement of s. 163(2) of the Act and if it is so, then whether the best judgment assessment made by the ITO is void or voidable ?" 1. In my opinion, the controversy that arises is brought out by the following two questions : "(1) Whether in the facts and the circumstances of the case, it was incumbent on the ITO to pass an order under s. 163(2) of the IT Act, 1961, treating Shri Sudarshan Kumar to be an agent of non-resident Shri Prem Kumar Bhagat before completing the assessment (2) When such an order is not passed by the ITO whether the assessment framed is invalid and is to be cancelled ?" 1. The Hon'ble President has referred this matter to me under s. 255(4) of the IT Act, on account of difference between the learned Members of Amritsar Bench, who heard the appeal relating to the failure of the ITO to pass an order under s. 163(2) of the IT Act and its consequence on assessment orders.
2. The facts of the case are fully narrated in the respective orders of the learned Members, but in order to resolve the legal controversy, it is necessary to have a brief resume of facts which is given below.
3. The assessee, Shri Sudershan Kumar as agent of his non-resident brother, Shri Prem Kumar Bhagat, filed a return of income for asst. yr.
1973-74 on 18th August, 1973, disclosing income of Rs. 6,417. The ITO on scrutinising of assessee's bank account found that there were credits in the account which were unexplained. The assessee was further found to have made investment in purchase of house property which is treated as explained except for the stamp duty. Thus, for unexplained bank deposits and unexplained investment on stamp duty, the ITO added Rs. 55,000 and Rs. 6,000 respectively in an ex parte assessment made under s. 144 of the IT Act. The ITO did not pass any order under s.
163(2) treating Shri Sudershan Kumar, as agent of his non-resident brother, Shri Prem Kumar.
4. The assessee impugned above assessment in appeal before the AAC who vide his order dt. 25th August, 1978, set aside the assessment and asked the ITO to frame a fresh assessment in accordance with law. On remand from the AAC, the ITO again completed assessment under s. 144 of IT Act vide order dt. 30th March, 1991. The income assessed in the second assessment order was the same. In fact, the second assessment was merely a repeat performance. The assessee again impugned this assessment in appeal before the AAC who once again restored the matter to the file of the ITO with direction that the ITO should give a clear finding as to the basis on which Sudershan Kumar was being treated as an agent of Shri Prem Kumar Bhagat. In the proceeding taken in connection with the third assessment on remand, the assessee again defaulted by not complying with notice under s. 143(2) and an ex parte assessment under s. 144 was followed and income earlier assessed was repeated. No order in terms of s. 163(2) was passed.
5. The assessee impugned this third assessment order in appeal before AAC and raised several issues including treatment of the assessee as an agent without formal order under s. 163. On this question of appointment of Shri Sudershan Kumar, as an agent, the AAC held that Shri Sudershan Kumar had filed return of income on 10th May, 1973, declaring himself to be an agent of Shri Prem Kumar. This fact was confirmed by him in his subsequent letters dt. 20th February, 1976, and 27th February, 1976. In these circumstances, the question of appointment of agent was not in dispute and the plea raised by the assessee that a proper opportunity was not granted was unjustified.
After rejecting all the claim of the assessee, the learned AAC confirmed the assessment.
6. Being aggrieved, the assessee then challenged the assessment in appeal before the Tribunal, Amritsar Bench, which were heard by learned Members. The learned Judicial Member, Shri P. S. Dhillon, rejected the claim regarding appointment of Shri Sudershan Kumar, as agent of Shri Prem Kumar under s. 163(2) of the IT Act. The reasoning of learned Judicial Member can be summarised as under : (i) that the assessee himself filed the return as agent of Shri Prem Kumar, a non-resident living in England. Therefore, the conduct of the assessee himself proves that he is an agent of the non-resident.
Therefore, there was no need for the ITO to issue notice of show cause why the assessee should not be appointed as agent of Shri Prem Kumar. Learned Member relied upon the decision of their Lordship of Bombay High Court in the case of Harak Chand Makhanji & Co. vs. CIT (1948) 16 ITR 19 (Bom), wherein their Lordship held that no notice need to be served where it is made unnecessary and superfluous because of the submission of a return admitting the position and status of as an agent of a non-resident.
(ii) that status of non-resident was admitted by the assessee in the return accompanied by declaration and clarification. It was again admitted by letters dt. 20th February, 1976, and 27th February, 1976.
(iii) that the ITO complied with direction of the AAC by issuing notices under s. 143(2) of IT Act, which the assessee failed to comply. Further, the assessee did not raise any grievance that he was wrongly appointed agent of his brother. Such a plea could not be permitted to be raised for the first time before Tribunal. Learned Judicial Member, in this case relied upon decision of Hon'ble Supreme Court in the case of Addl. CIT vs. Gurjargravures Ltd. (1978) 111 ITR 1 (SC).
"It is the compliance of notice under s. 143(2) that will let the ITO to determine the issue of appointment of an agent." Learned Judicial Member relied upon decision of Hon'ble Privy Council in the case of CIT vs. Laxminarayan Das (1937) 5 ITR 170 (PC).
6.1 In the light of above facts and discussion, the learned Judicial Member upheld action of first appellate authority regarding s. 163 of IT Act. The addition was also confirmed on merit by the learned Judicial Member.
7. Learned Accountant Member did not agree with the learned Judicial Member and held that assessment made by the ITO was invalid on account of non-appointment of Shri Sudershan Kumar, as an agent of non-resident, Shri Prem Kumar under s. 163 of IT Act prior to making of the assessment. In this view, this was necessary on account of orders of the AAC dt. 25th August, 1978, and 10th November, 1982. Learned Accountant Member also considered the changes made in the relevant provision relating to appointment of agent and held that Bombay High Court decision in the case of Harak Chand Makhanji & Co. vs. CIT (supra) was not applicable in this case as that was rendered under the old 1922 Act. The learned Accountant Member held that the issue was fully covered in favour of the assessee as per decision of jurisdictional High Court in the case of CIT vs. Kanhaya Lal Gurmukh Singh (1973) 87 ITR 476 (P&H) and of Madras High Court in the case of CIT vs. Express Newspaper (P) Ltd. (1978) 111 ITR 347 (Mad). The learned Accountant Member extensively quoted from above decisions.
Following above decisions, the learned Accountant Member held that failure of the ITO to pass order under s. 163, appointing Shri Prem Kumar as agent of his non-resident brother before making of the assessment, vitiated the assessment. He cancelled the assessment order and allowed the appeal of the assessee.
8. Learned Members did not agree even on the point of difference to be referred under s. 254 of the IT Act. Learned Judicial Member referred the following questions : "1. Whether the AAC has erred in law and facts of the case in confirming the best judgment made assessment by the ITO under s. 144 of the IT Act 2. Whether, on the facts and circumstances of the case, it can be held that the ITO has treated the assessee (Shri Sudershan Kumar) as an agent of the non-resident (Shri Prem Kumar Bhagat, younger brother) without giving an opportunity of being heard by him, as to his liabilities to be treated as such, which is the requirement of s. 163(2) of the Act and if it is so, then whether the best judgment made assessment by the ITO is void or voidable ?" 9. As against the above, the learned Accountant Member proposed the following questions : "1. Whether in the facts and the circumstances of the case, it was incumbent on the ITO to pass an order under s. 163(2) of the IT Act, 1961, treating Shri Sudershan Kumar to be an agent of non-resident Shri Prem Kumar Bhagat before completing the assessment 2. When such an order is not passed by the ITO whether the assessment framed is invalid and is to be cancelled ?" 10. I have heard both the parties at great length on points of difference between the learned Members. Each of the parties supported the order in its favour. It is not in dispute that Shri Sudershan Kumar filed the return on behalf of his non-resident brother. He failed to comply with notices and an ex parte assessment under s. 144 was made on 23rd March, 1976. The AAC's order dt. 25th August, 1978 made the following observations on the issue involved : "Validity of appointing Shri Sudershan Kumar as Agent of Shri Prem Kumar Bhagat - The ITO had held that Shri Sudershan Kumar was an agent of Shri Prem Kumar Bhagat in terms of s. 163 of IT Act. In this connection, it is provided in s. 163(2) that no person shall be treated as the agent of a non-resident unless he had an opportunity of being heard by the ITO as to his liability be treated as such.
Besides that it is pertinent to note that under s. 246 and an order under s. 163 treating the assessee as agent of a non-resident can be challenged before the AAC. In the instant case, the ITO has not passed any order after giving due opportunity to Shri Sudershan Kumar under s. 163, therefore, the appointment of Shri Sudershan Kumar as an agent of non-resident could not be considered in accordance with law." 11. The AAC vide order dt. 25th August, 1978, accepted above contention and directed the ITO "to give a finding whether Shri Prem Kumar is a non-resident" and further "consider whether Shri Sudershan Kumar has no objection to being appointed as an agent". The assessment was set aside to carry out above directions. But the ITO except for issuing notice under s. 143(2) did not do anything. He held that there was a failure on the part of the assessee and reassessment on old figures was justified. Thus, even in the third assessment order dt. 27th March, 1984, the directions regarding passing of order under s. 163 were not complied with in spite of a second remand by the AAC.12. It is more than clear from above facts that no order under s.
163(2) was passed in this case in spite of specific directions to this effect. The directions given in the first as well as in the second order, became final and, therefore, the AO had no option in the matter but to pass as order under s. 163(2) appointing Shri Sudershan Kumar as agent of Shri Prem Kumar. The above view is quite in line with decision of jurisdictional Court in the case of CIT vs. Kanhaya Lal Gurumukh Singh (supra). The majority view in the above case, was available as early as in February, 1971 and the AAC while passing order on 25th August, 1978, was required to follow above decision. Their Lordship of Madras High Court reconsidered the above decision of Hon'ble Punjab & Haryana High Court and agreed with the view taken by the jurisdictional High Court. Their Lordship made the following observations : "In our view, therefore, a written order treating the representative-assessee as the agent of the non-resident is necessary. Even if a person without being called upon to submit a return voluntarily submits a return as agent of a non-resident, the necessity to pass an order recognising him as such agent cannot be dispensed with. The case in Jadavji Narshidas & Co. vs. CIT (1957) 31 ITR 1 (Bom) is distinguishable on the ground that it arose under the Act of 1922 which did not provide for a right of appeal against such treatment orders. In CIT vs. Kanhaya Lal Gurmukh Singh (1973) 87 ITR 476 (P&H) a similar question arose which was in fact decided by a majority of judges as there was a difference of opinion." 13. In the light of above observations, there should be no doubt that the AO has to pass an order under s. 163(2) treating the assessee as agent of non-resident before making an assessment. In the present case, no such order was passed in spite of specific directions of appellate authorities and in spite of two remands. Without order under s. 163(2) of IT Act, the assessment made was required to be cancelled.
14. In the third order dt. 26th November, 1984, the AAC held that Shri Sudershan Kumar had himself filed return of income on 10th May, 1973, as agent of Shri Prem Kumar. He further confirmed this fact in subsequent letters and, therefore, there was no dispute regarding appointment of agent of non-resident in terms of s. 163(2) of the IT Act. This view has been upheld by the learned Judicial Member.
However, it is clear that in the impugned order the AAC gave a complete go-by to the observations made in orders of his predecessors and disregarded well established principle of finality of the order. The first order of AAC dt. 25th August, 1978, had become final as none of the parties challenged the said order although it was open to them to file appeal against the said order. Therefore, the ITO was to pass an order in compliance with the directions given by the AAC on 25th August, 1978. It was not open to the ITO to ignore specific directions given by the AAC to pass order appointing agent of Prem Kumar after giving due opportunity to Shri Sudershan Kumar. The second assessment was to be passed having regard to the directions under s. 250 of the IT Act and within the jurisdiction limited by the appellate order, but unfortunately, the ITO did not comply with final directions of the appellate authority. The sole question which was to be considered by the AAC in the third round was whether order passed by ITO confirmed to the directions given in the first appellate order. Instead of considering above question, the AAC in the third order dt. 26th November, 1984, took a total different view and held that it was not necessary to give any notice to Shri Sudershan Kumar or to appoint him as agent of Prem Kumar. He impliedly held that his predecessor in the first order had taken a wrong view of the matter and it was not necessary to serve any notice or appoint Shri Sudershan Kumar as agent under s. 163(2) of the IT Act, having regard to the facts of the case.
The AAC forgot that he had no jurisdiction to review matters which had attained finality. It is settled law that even a higher Court cannot alter or modify directions which has attained finality. Their power and jurisdiction are co-terminus with that of the ITO who is to make fresh assessment in terms of directions of appellate authority which are not further challenged. The limitation placed on power in the circumstances mentioned above cannot be extended. In the present case, therefore, the final directions of the AAC to the ITO to give opportunity to Shri Sudershan Kumar and pass an order under s. 163 as agent could not be varied or modified by the successor AAC hearing appeal against the third assessment. He could not supersede directions given by his predecessor and held that it was not necessary to pass an order under s. 163 of the IT Act. He was only to see whether order in terms of directions earlier given was passed, if not, what legal consequences should follow. In my view, the error in the third decision of the AAC dt. 26th November, 1984, is quite apparent. Unfortunately, the AAC or on appeal the learned Judicial Member did not address to this important question. In the above background, the contention that notice issued under s. 143(2) was good enough and that it was not necessary to appoint Shri Sudershan Kumar as agent of Shri Prem Kumar, has no meaning. I have already held that directions given by the AAC are quite in line with the view taken by the jurisdictional High Court. Learned Departmental Representative could not produce any authority taking a contrary view of the provision under consideration under the IT Act, 1961. If the other view that the ITO is not bound by directions of the appellate authority (which may appear or be in fact erroneous) is accepted then such an approach would spread anarchy in the hierarchy of judicial system and effect judicial discipline. In the above background it has to be held that the ITO was wrong in not passing order under s.
163 treating Shri Sudershan Kumar as agent of non-resident before making assessment in spite of specific directions and two opportunities provided to him. There is no case to allow fresh opportunity to the ITO now to pass fresh order. His assessment order passed has to be held to be vitiated and bad in law. For above reasons, I entirely agree with the approach of learned Accountant Member.
15. Now, the file should be placed before the regular Bench for passing an appropriate order.