Where the assessment order under section 143(3) was passed without determining tax payable and without communicating tax payable by assessee, assessment order was not valid in the eyes of law.
Nothing was placed on record to rebut the contention of the assessee that any other document was ever served upon the assessee to show that tax payable has been determined on the date of determining income or a little later before the expiry of period of limitation prescribed. In the order under section 143(3) passed by the assessing officer, tax payable has not been determined nor it was otherwise communicated to the assessee in any separate sheet or otherwise along with the order of assessment. Therefore, assessment order cannot be held to be an order under section 143(3), as such assessment framed was invalid.
CIT v. R. Girdhar (1984) 145 ITR 246 (Karn); R. Kalyan Kumar Ray v. CIT (1992) 191 ITR 634 (SC); Swaran Kanta v. CIT (1991) 176 ITR 291 (P&H) distinguished. S. Mubarik Shah Naqshbandi v. CIT (1977) 110 ITR 217 (J & K); Mohender J. Thacker & Co. v. CIT (1983) 139 ITR 793 (Cal) relied.
This is assessee's appeal against the order of Commissioner (Appeals)-H, New Delhi, dated 27-2-1992, relating to assessment year 1986-87 and following grounds have been raised: " 1. The learned Commissioner (Appeals) erred in not quashing the assessment in which tax liability was not determined in any document served with assessment order.
2. The learned Commissioner (Appeals) erred in holding that non-determination of tax liability is curable defect under section 292B.3. The learned Commissioner (Appeals) erred in upholding the disallowance of interest paid of Rs. 36,137 on packing credit borrowed for exports business." The facts which are relevant for the present case are like this that assessee is an individual carrying on two businesses as sole proprietor of the following concerns : The assessee had claimed interest payment of Rs. 1,64,774.04 in Singh Export Corporation and Rs. 2,15,386.77 in Textile Division and the detail of interest was furnished but learned assessing officer disallowed the interest of Textile Division amounting to Rs. 2,13,383 and of Rs. 1,38,919 of Singh Export Corporation out of the total amounts of respective interest claimed by both the concerns as detailed above. The assessee preferred appeal against this order of assessing officer and it was submitted that details of interest paid to the bank for specific borrowings such as term loan, interest on export bill, interest on packing credit for production of garments for export was filed. It was submitted that these borrowings were specific from banks which does strict monitoring of utilisation of such borrowings that these are used only for the purpose for which borrowings were made as for purchase of machinery, purchase of fabric, etc., the question of disallowance of interest does not arise. Moreover, there were no advances to sister concerns from the Textile Division and, therefore, no disallowance of interest is called for out of interest paid to banks amounting to Rs. 2,15,386. It was, thus, pleaded that disallowance of interest made by the assessing officer needs to be deleted. Learned Commissioner (Appeals) allowed the interest to the staff of Singh Export Corporation and also allowed following interest to Singh Export Corporation Textile Division:(a) interest on term loan of Rs. 1,37,347 (b) interest on export bill-Rs. 340. But he did not allow deduction of interest of Rs. 36,137 paid on export packing credit loan.
Assessee had also taken another legal plea before first appellate authority that assessment order passed under section 143(3) of Income Tax Act, 1961 (hereinafter called as the Act), inasmuch as, for the year under consideration, the assessee was served with assessment order, dated 27-3-1989, in which total income was though determined at Rs. 17,02,027, however, the income-tax chargeable thereon was not determined either in the assessment order or in any other document as, in fact, no other document was issued along with the assessment order wherein tax payable was determined. It was also submitted that in notice of demand issued under section 156 of the Income Tax Act as prescribed in rule 15 in Form No. 7, column for tax liability was also kept blank and the challan sent with the assessment order and notice of demand was also not filled up with the amount of tax to be paid. Thus, at the time of assessment, tax liability was not determined which makes the order invalid and further to this, following submissions were made before Commissioner (Appeals): "(a) Assessment has been made under section 143(3) which requires the determination of total income and amount of tax payable on the basis of assessment. It has been judiciously upheld by various courts that an assessment is not complete without determination of tax liability.
Determination of tax liability is a mandatory provision and non-compliance of a provision which is mandatory would result in nullity.
(b) The department has in its letter, dated 11-12-1991, accepted clearly that there was a mistake/defect/omission of non-determination of the tax liability. The department has however, relied upon provision of section 292B for curing the omission in the assessment. In said reply the department has quoted the provision of section 292B and decision of Karnataka High Court in the case of CIT v. R. Girdhar (1984) 145 ITR 246 (Karn). The department has, however, overlooked the main condition of section 292B which can cure an assessment only if the same is in substance and effect in conformity with or according to the intent and purpose of the Income Tax Act. The language of section 143(3) and judicial pronouncement on the subject leaves no ambiguity that determination of tax liability is essential for making a valid assessment under section 143(3). In fact, the whole purpose of the Income Tax Act will be lost if the tax liability remains undetermined in scrutiny assessment made by an assessing officer.
(c) The assessment without determination of tax liability is not procedural omission which could be protected under section 292B. The assessment is null and void and the same should be annulled." The learned Commissioner (Appeals), however, upheld the validity of the assessment order as per paras 3, 4 and 5 of his order. The assessee preferred second appeal against this order of learned Commissioner (Appeals), wherein he has challenged the legal aspect as raised before and decided by him against the assessee as well as decision on merits whereby disallowance of interest paid of Rs. 36,137 on packing credit borrowed for export business was upheld.The assessee's counsel first took up legal issue and reiterated the submissions as made before the learned first appellate authority and while relying upon the judgments in the case of S. Mubarik Shah Naqashbandi v. CIT (1977) 110 ITR 217 (J&K), Mohinder J. Thacker & Co.
v. CIT (1983) 139 ITR 793 (Cal) and CIT v. R. Girdhar (1984) 145 ITR 246 (Karn) to substantiate the contention as raised before first appellate authority as well before us, it was further submitted that judgment of Hon'ble Supreme Court in the case of Kalyan Kumar Ray v.CIT (1992) 191 ITR 634 (SC) rather supports the case of assessee and while highlighting the defect in the demand notice and not serving any paper showing determination of tax which, according to the appellants' learned counsel, justified the assessee's request for quashing the order under appeal. It was further pleaded that the order of assessment, dated 27-3-1989, in which total income was determined at Rs. 17,02,027, which was accompanied by demand notice in Form No. 7 under section 156 of the Act in terms of rule 15 too was blank so far as demand was concerned and a blank challan form was also received by the assessee but there was no other document, from where it could be inferred that any tax liability has been determined, was ever served upon the assessee. Therefore, it was strongly pleaded that order of assessment cannot be held to be valid and legal order in view of specific provisions as contained in section 143(3) of the Act. As one part of the provision has been complied with whereas there is no compliance of other part of the provision in order to make it a perfect and valid order under section 143(3), so, in view of authorities as stated above, the assessment order needs to be quashed. It was also submitted that since no paper or document, either signed or unsigned, was ever served with the copy of assessment order which would indicate determination of tax liability, so observation made is not applicable and rather the ratio as laid down and point as decided by Hon'ble Supreme Court in the case of Kalyan Kumar Ray, as referred to supra, supports the view point of assessee and is applicable to the facts of the case in hand and case of the assessee is fully covered by the judgment of J&K High Court in the case of S. Mubarik Shah Naqashbandi referred to supra, and also by the cases of Mohinder J Thacker & Co. v.CIT and R. Girdhar v. CIT as referred to supra. Therefore, it was pleaded for quashing of the assessment order. On merits it was also submitted that addition sustained is without basis and needs to be deleted as same is not sustainable in view of facts and circumstances of the case.
Learned Departmental Representative while supporting the order of authorities below in respect of ground Nos. 1 and 2 of the grounds of appeal, submitted that so far as defect in demand notice is concerned, section 292B of the Act, which was inserted by Taxation Laws (Amendment) Act, 1975 with effect from 1-10-1975, takes case of such defects and said provision was, in fact, inserted with a view to overcome the situation on technical grounds declaring an order to be invalid merely by reasons of some mistake, defect or omission in the return of income, assessment, notice and summons, etc. So far as judgments in the case of S. Mubarik Shah Naqashbandi and Mohinder J.Thacker & Co. referred to supra are concerned, the same cannot be applied to the case of the assessee as these were delivered before insertion of section 292B of the Act and as regards judgment in the case of R. Girdhar v. CIT as referred to supra, is concerned, it was submitted that it holds the view that an order passed after insertion of section 292B of the Income Tax Act, if in substance and effect is in conformity and according to the intent and purpose of the Act, the same cannot be deemed to be invalid merely by reasons of some mistake, defect or omission in a particular notice, summons or order, etc. It was further pointed out that another judgment of Punjab & Haryana High Court in the case of Swaran Kanta v. CIT (1991) 176 ITR 291 (P&H) also supports the view and above all, Hon'ble Supreme Court of India in the case of Kalyan Kumar Ray v. CIT (supra), has further fortified the stand of the department wherein it was held that ITNS-150 is also a form for determination of tax payable. When it is signed or initialled by the Income Tax Officer, it is certainly an order in writing by the officer determining the tax payable within the meaning of section 143(3). It may be only a tax calculation form for departmental purpose as it also contains columns and code numbers facilitating the computerisation of the particulars contained therein for statistical purposes. But this does not detract from its being considered as an order in writing determining the tax payable by the assessee. It was strongly pleaded that from the findings and observations of the Hon'ble Supreme Court in the case of Kalyan Kumar Ray (supra) it is ascertainable that once tax payable has been determined in ITNS-150, an order cannot be treated as invalid, if, because of certain clerical mistake, the amount of tax paid could not be mentioned in the notice of demand. It was emphasised that in view of judgment of Hon'ble Supreme Court in the case of Kalyan Kumar Ray (supra), judgment in the case of R. Girdhar (supra) and also in the case of Swaran Kanta v. CIT referred to supra and in view of insertion of section 292B in the Act, the assessment order cannot be held to be invalid and it was strongly pleaded that order of Commissioner (Appeals) confirming the order of assessing officer, on this legal aspect is perfectly a valid order which needs further confirmation.
We have heard the rival submissions, perused, the record, carefully gone through all the judgments as referred to above and looked into the relevant provisions of law. The provisions of section 143(3) and 144, so far as it relates to determination of income and tax payable are identical in both these provisions, so we reproduce sections 143(3) and 144 as applicable at relevant time (relevant paras) : "(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 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".
fails to make the return required by any notice given under sub-section (2) of section 139 and has not made a return or a revised return under sub-section (4) or sub-section (5) of that section, or fails to comply with all the terms of a notice issued under sub-section (1) of sections 142, (or fails to comply with a direction issued under sub-section (2A) of that section), or 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." It is an admitted position of fact that tax has not been determined in the body of assessment order, dated 27-3-1989, passed by Deputy Commissioner, Special Range-12, New Delhi, though income of assessee stood determined in the said order at Rs. 17,02,027 with the stipulation of agriculture income for rate purpose at Rs. 44,530, it is also an admitted fact that demand notice and challan accompanying the said assessment order was duly signed, dated 27-3-1989, and stamped but columns for amounts of tax liability were kept blank. It is also an admitted fact that no document other than order of assessment, blank demand notice in Form ITS-7 and challan No. 12 (wherein nothing was filed in at the space specified for showing liability of tax) was ever served upon the assessee and this fact finds further corroboration with the letter of Deputy Commissioner, Spl. Range-12, New Delhi No. Deputy Commissioner, Spl. Range 12/89-90/267, dated 28-6-1989 (photocopy of which was placed before us as part of paper-book) in response to assessee's reply in connection with notice under section 221(1) and department has not come out with any plea or evidence to rebut this and learned Commissioner (Appeals) has also recorded categorical finding in this regard supporting the fact as stated by assessee.
Now, we will examine as to whether such order of assessment which determines the income but fails to determine the tax payable is a valid order or not in the light of case law relied upon and cited.
This type of situation arose before the High Court of Jammu and Kashmir in the case of S. Mubarak Shah Naqashbandi (supra) where while making assessment under section 144 of the income-tax the income was determined but in the order of assessment, tax payable was not determined. The Division Bench of Jammu and Kashmir High Court vide its order, dated 20-10-1976, has held as under: "In the present case, the assessment order has not been made in terms of section 144 inasmuch as tax payable by the assessee has not been determined. Under section 246(c) the assessee has a right to appeal against an order of assessment not only where he objects to the amount of income assessed but also to the amount of tax determined. In the present case, the amount of tax not having been determined in the assessment order, the assessee is deprived of right of appeal. It is no doubt true that tax payable by the assessee has been shown in the demand notice but there is no right of appeal against the notice of demand.
A notice of demand always contains the tax payable by the assessee but it does not follow that a notice of demand should be treated as part of the assessment order. A notice of demand is issued in consequence of an assessment order and not as part of it.
The counsel for the revenue further contends that there is a clear distinction between the two parts of section 144 namely : (1) which requires the Income Tax Officer to determine the tax payable by the assessee. According to the counsel it is the first part which requires the application of mind by the Income Tax Officer and the second part is only a mechanical application of the rates of the income-tax prescribed by the Finance Act of the relevant year. There is a distinction between the two parts of section 144 but this distinction does not in anyway affect the mandatory nature of section 144 which requires not only that the Income Tax Officer should determine the income of the assessee, but he should also determine the tax payable by the assessee.
It was concluded that an assessment order which determines the total income of an assessee should also determine the tax payable by the assessee, as the determination of tax payable is as much mandatory as the determination of total income, in passing an assessment order.
Absence of such determination will invalidate the assessment order itself, even in cases where a separate demand notice is issued for the tax payable by the assessee. " Similarly, in the case of Mahender J. Thacker & Co. (supra), Calcutta High Court has held that: "There can, therefore, be no doubt that the determination of sum payable by the assessee in the assessment order is mandatory and it is also a well- accepted principle that non-compliance with mandatory provisions would vitiate the assessment order." As regards judgment of Karnataka High Court in the case of CIT v. R.Girdhar (supra) is concerned, here the Income Tax Officer while making the assessment computed the income and signed the order but did not determine tax payable above signatures of Income Tax Officer though such computation of tax was made on separate sheet of paper which was not signed by the Income Tax Officer. Separate sheet forms part of the assessment order as demand notice showing same tax was served. So it was held that there is no non-compliance with the mandatory provisions and also in view of section 292B which came into force before assessment order was passed which provides for validation of such assessment order, assessment order is valid and cannot be annulled but with respect it is observed that this judgment does not overrule or distinguish or differentiate ratio laid down in S. Mubarik Shah Naqashbandi (supra).
Similarly, same view was upheld by the Hon'ble Supreme Court in the case of Kalyan Kumar Ray v. CIT (supra). In that case also, one loose sheet containing computation of tax payable was accompanying assessment order though not signed and Supreme Court held that "In our opinion, therefore, learned counsel for the petitioner is right in his statement that Income Tax Officer has to determine by an order in writing, not only the total income but also the net sum which will be payable by the assessee for the assessment year in question and that the demand notice under section 156 has to be issued in consequence of such an order." It is also pointed out here that in this judgment, though S. Mubarik Shah Naqashbandi's case (supra) was referred but same was, however, neither distinguished not overruled and, only differentiated it and this judgment of Hon'ble Supreme Court but rather supports the case as it was further held that, "the statute does not, however, require that both the computation (i.e. of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed "assessment order." It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income Tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or installed by the Income Tax Officer that the process described in section 143(3) will be complete." But the situation as obtaining in the case in hand is somewhat, if we say so, entirely different as calculation of tax is not there at all.
"In this context, one may take notice of the fact that, initially, rule 15(2) of the Income Tax Rules prescribed Form No. 8 a sheet containing the computation of the tax, though there was no form prescribed for the assessment of the income. This sub-rule was dropped in 1964.
Thereafter, the matter has been governed by departmental instructions.
Under these, two forms are in vogue. One is the form of, what is described as the "Income tax Computation Form" or "Form for assessment of tax/refund (ITNS-150). The practice is that after the "assessment order" is made by the Income Tax Officer the tax is calculated and the necessary columns of ITNS 150 are filled up showing the net amount payable in respect of the assessment year. This form is generally prepared by the staff but it is checked and signed or initialled by the Income Tax Officer and the notice of demand follows thereafter. The statute does not in terms require the service of the assessment order or the other form on the assessee and contemplates only the service of a notice of demand. It seems that while the "assessment order" used to be generally sent to the assessee, the other form was retained on file and a copy occasionally sent to the assessee. ITNS-150 is also a form for determination of tax payable and when it is signed or initialled by the Income Tax Officer, it is certainly an order in writing by the Income Tax Officer determining the tax payable within the meaning of section 143(3). It may be, as stated in CIT v. Himalaya Drug Co. (1982) 135 ITR 368 (All), only a tax calculation form for departmental purposes as it also contains columns and code numbers to facilitate computerisation of the particulars contained therein for statistical purposes but this does not detract from its being considered as an order in writing determining the sum payable by the assessee. We are unable to see why this document, which is also in writing and has received the imprimatur of the Income Tax Officer, should not be treated as part of the assessment order in the wider sense in which the expression has to be understood in the context of section 143(3). There is no dispute in the present case that the Income Tax Officer has signed the form ITNS-150. We, therefore, think that the statutory provision has been duly complied with and that the assessment order not in any manner vitiated." While distinguishing the case of petitioner from others, it was held by Hon'ble Supreme Court in Kalyan Kumar Ray's case (supra) that : "A brief reference may be made to the decisions on the issue. In Sushil Chandra Ghose v. Income Tax Officer (1959) 35 ITR 379 (Cal), the assessee was served, apart from the assessment order, with a copy of the form known as ITNS-150 which was not signed by the Income Tax Officer but the court upheld the assessment because the original thereof had been duly signed. In S. Mubarak Shah Naqashbandi v. CIT (1977) 110 ITR 217 (J&K), the "assessment order" did not determine the tax payable and there was no other paper or form containing the computation except the notice of demand. In R. Gopal Ramnarayan v.Income Tax Officer (1980) 126 ITR 369 (Karn), the Tribunal had annulled an assessment because the tax calculations had been made on a separate sheet of paper but the department could not raise this issue before the High Court because it had not challenged the Tribunal's order in appropriate proceedings. The Karnataka High Court, however, did not have occasion later to consider the question directly and upheld an assessment made in similar circumstances in CIT v. R. (1984) 145 ITR 246 (Karn), even though the separate sheet containing the tax computations had not been signed by the Income Tax Officer. The Punjab & Haryana High Court has also taken the same view in Karuna Rani Jain v. CIT (1989) 178 ITR 321 (P&H). In CIT v. Krishwanti Lal Punjabi (1983) 139 ITR 703 (Cal), Form No. IT 30 served on the assessee was not signed and the court remitted the matter back to find out if any determination of tax had been made before the expiry of the period of limitation prescribed under the Act for the completion of an assessment. All these decisions emphasise that all that is needed that there must be some writing initialled or signed by the Income Tax Officer before the period of limitation prescribed for completion of the assessment has expired in which the tax payable is determined and not that the form usually styled as the "assessment order" should itself contain the computation of tax as well".
But, in the instant case, nothing was placed on record to rebut the contention of the assessee that any other document was ever served upon the assessee to show that tax payable has been determined on the date of determining income or a little later before the expiry of period of limitation prescribed. In view of these facts, with utmost respect, we are of the view that neither case of CIT v. R. Girdhar (supra) nor case of Kalyan Kumar Ray (supra), in any way, supports the view of learned Commissioner (Appeals) as taken in the case of the assessee because in both these cases, the revenue has been able to establish with material and evidence on record that tax payable was determined at the time of determination of income and same was communicated to the assessee in any form signed or unsigned whereas facts in the case in hand are entirely different and distinguishable as nothing was communicated at all as regards determination of tax payable. Therefore, in our considered view, the case of the assessee is fully covered by the judgment of Jammu & Kashmir High Court in the case of S. Mubarik Shah Naqashbandi (supra) and of Mohinder J. Thacker & Co. (supra) and ratio laid down in these cases is found to be fully applicable and as regards Punjab & Haryana High Court judgment in Swaran Kanta v. CIT (1989) 176 ITR 291 (P&H) is also found to be on different point of clerical error in the notice and distinguishable on facts. So, while applying the ratio of judgment of S. Mubarik Shah Naqashhandi (supra) and Mohinder J. Thacker & Co. (supra), we hold that in the order under section 143(3) passed by learned assessing officer, tax payable has not been determined nor it was otherwise communicated to the assessee in any separate sheet or otherwise along with the order of assessment.
Therefore, assessment order cannot be held to be an order under section 143(3), as such assessment framed is invalid. Therefore, we, annul the same and quash the orders of authorities below.