K. Venkata Ramana and Budha Appa Rao Vs. Commissioner of Income-tax - Court Judgment

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direct taxation - assessment - sections 129, 143 (3), 144b and 144b (1) of income tax act, 1961 - whether in case where reference was made to income tax officer under section 144b provisions of section 129 do not come into operation - held, section 129 has no application where matter is governed by section 144b. - b.p. jeevan reddy, j.1. the questions referred in this referred case under section 256(1) of the income-tax act, 1961, are the following : '(1) whether, on the facts and in the circumstances of the case, the assessments made by the income-tax officer for the assessment years 1973-74 and 1974-75 are valid in law (2) whether, on the facts and in the circumstances of the case, the tribunal was correct in law in holding that in a case where a reference is made to the inspecting assistant commissioner of income-tax under section 144b(1) of the income-tax act, the provisions of section 129 of the income-tax act do not come into operation (3) whether, on the facts and in the circumstances of the case, the reference made by the income-tax officer to the inspecting assistant commissioner under section 144b(1) prior to the receipt of objections from the assessee was valid ?' 2. the relevant facts are : the assessee is a registered firm carrying on business as auctioneers and commission agents for sale of jaggery. for the assessment years 1973-74 and 1974-75, the firm filed returns declaring incomes of rs. 50,640 and rs. 37,640, respectively. after making appropriate enquiries, the income-tax officer proposed additions of rs. 1,99,992 and rs. 1,25,152, respectively, for the said assessment years. inasmuch as the variation proposed by the income-tax officer exceeded rs. 1,00,000 in each case, he forwarded the draft assessment orders to the assessee and the inspecting assistant commissioner as contemplated by section 144b(1) of the act through his letter dated march 31, 1977. on april 5, 1977, the assessee filed objections against the additions proposed which were forwarded to the inspecting assistant commissioner. the inspecting assistant commissioner, after hearing the assessee's representative, issued appropriate orders and directions to the income-tax officer to complete the assessment for both the years by including the amounts as proposed in the draft assessment. 3. when the matter was pending before the inspecting assistant commissioner, there was a change in the incumbent of the office of the income-tax officer. sri v. hanumantha rao, who had taken the earlier proceedings, was transferred and one sri d. v. sastry assumed office on june 19, 1977. the inspecting assistant commissioner communicated his directions and orders as required by section 144b, after june 19, 1977. in accordance therewith, the income-tax officer, sri d. v. sastry, completed the assessments for both the years on september 2, 1977. 4. in the appeals preferred against the assessment orders, the assessee raised a preliminary objection that the orders of assessment made by sri d. v. sastry are void ab initio for the reason that he did not afford an opportunity to him as contemplated by section 129 of the act. reliance was placed upon a decision of this court in anantha naganna chetty v. cit : [1970]78itr743(ap) . this objection was upheld by the first appellate authority. the matter was then carried in further appeal to the income-tax appellate tribunal. the appellate tribunal allowed the department's appeal holding that in the circumstances of the case, section 129 has no application. the tribunal observed that once the matter is referred to the inspecting assistant commissioner, the change in the incumbent of the office of the income-tax officer has no relevance because the income-tax officer has no power to make any change in the draft assessment order as communicated by the inspecting assistant commissioner. since the income-tax officer is bound by the orders and instructions of the inspecting assistant commissioner, there is no purpose in his hearing the assessee, it held. thereupon, the assessee applied for and obtained this reference. 5. section 129 of the income-tax act reads as follows : 'change of incumbent of an office. - whenever in respect of any proceeding under this act, an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor : provided that the assessee concerned may demand that before the proceeding is so continued, the previous proceeding or any part thereof he reopened or that before any order of assessment is passed against him, he be re-heard.' 6. the principle of this section is that where one income-tax authority succeeds another, the succeeding officer may continue the proceedings from the stage at which they were left by his predecessor. the proviso, however, say that it is open to the assessee to demand that before the proceedings are so continued or reopened, as the case may be, he should be reheard by the successor in office. it would immediately be evident that rehearing is not obligatory in every case where there is a change in the incumbent. such a course may have to be followed when there is a demand from the assessee. the section does not even say that when such a demand is made, it is obligatory upon the officer to afford such hearing. it is true that a bench of this court has held in anantha naganna chetty v. cit : [1970]78itr743(ap) , that even though section 5(7c) of the indian income-tax act, 1922 - corresponding to section 129 of the present act - does not in terms or expressly provide for a notice by the succeeding officer, yet such a notice must be inferred from the principles of natural justice. this was premised on the reasoning that the assessee may not know the change in the incumbent and that, therefore, the succeeding officer must tell the assessee and give him an opportunity. though we have certain reservations about the correctness of the said decision, in the facts and circumstances of this case, for the reason that this is a case governed by section 144b of the act. section 144b says that in an assessment to be made under section 143(3), if the income-tax officer proposes to make, before october 1, 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the board under sub-section (6), the income-tax officer shall, in the first instance, forward a draft of the proposed order of assessment to the assesee. on receipt of such a draft order, it is open to the assessee to forward his objections. unless the assessee accepts the proposed variation, the matter has to be referred to the inspecting assistant commissioner to whom the matter is to be forwarded. the inspecting assistant commissioner has to consider the objections submitted by the assessee and on a consideration of the relevant facts, he is expected to issue appropriate directions for the guidance of the income-tax officer to enable him to complete the assessment. the proviso to sub-section (4) says that no directions which are prejudicial to the assessee shall be issued by the inspecting assistant commissioner unless an opportunity of hearing is given to the assessee. sub-section (5) says that every direction issued by the inspecting assistant commissioner under sub-section (4) shall be binding on the income-tax officer. now in this case the assessee filed his objections. the matter was referred to the inspecting assistant commissioner along with his objections. the inspecting assistant commissioner heard the assessee and then issued the directions. it is during the pendency of the matter before the inspecting assistant commissioner that there was a change in the incumbent of the office of the income-tax officer (assessing authority). this, in our opinion, in immaterial inasmuch as under section 144b, the income-tax officer is not expected to take any fresh initiative or pass any order other than one in accordance with the directions issued by the inspecting assistant commissioner. in such a situation, we are of the opinion that section 129 has no application. we see no purpose or object being served in importing section 129 to a case governed by section 144b and more particularly where the change took place while the matter was pending before the inspecting assistant commissioner. 7. we are, therefore, of the opinion that in this case, there was no necessity for issuing a notice under section 129 as contended by the assessee. 8. for the above reasons, our answer to the questions referred are as follows : 1. question no. (1) is answered in the affirmative, i.e., in favour of the revenue and against the assessee. 2. the answer to the second question is that the tribunal was right in the view it has taken that section 129 has no application where the matter is governed by section 144b, more particularly where the change in the incumbent of the office of the assessing authority takes place while the matter is pending before the inspecting assistant commissioner. 3. question no. (3) has not been really canvassed before us by learned counsel for the assessee. accordingly, we do not think it necessary to express any opinion thereon. 9. the reference is answered accordingly. no costs.