| SooperKanoon Citation | sooperkanoon.com/68392 |
| Court | Income Tax Appellate Tribunal ITAT Delhi |
| Decided On | Mar-01-1996 |
| Reported in | (1982)2ITD312(Delhi) |
| Appellant | income-tax Officer |
| Respondent | Smt. Adarsh Kaur |
2. The assessee is a resident of Panama, she was married in 1954 when she was in India and had a child in 1955. The assessment in the assessment year 1957-58 was reopened as the assess had not disclosed any income. The assessee, however, did not file a return. The ITO accordingly made and ex parte assessment under Section 144 of the Income-tax Act, 1961 ('the Act') on a total income of Rs. 2,17,138.
3. In the assessment year 1958-59 a similar ex parte assessment was made on a total income of Rs. 1,11,867. In the assessment year 1959-60, the ex parte assessment was made on a total income of Rs. 1,78,225 and in 1960-61 at Rs. 35,983.
4. The assessee's application under Section 146 of the Act was dismissed by the ITO but when the matter came in appeal before the AAC it was urged that the notice was never served either on the assessee or on her power of attorney holder. The AAC, accordingly, restored the matter under Section 146 of the Act before the ITO for fresh consideration of the application under Section 146. By order dated 14-8-1973 the ITO reopened the assessment under Section 146 holding that : "I am satisfied that the notice under Section 148 was not served on the right person, i.e., assessee's general attorney Shri Ajit Singh or even on her sister".
5. After these assessments were reopened for all the four year on the ground that the notice was not served, the ITO did not take any steps to serve the notice on the assessee's power of attorney holder. On the other hand, on 12-12-1973, the ITO submitted the proposal to the CBDT for permission to reopen the assessments for the assessment year 1957-58 to 1959-60 on the ground that the income exceeding Rs. 50,000 had escaped the assessment in each of these years. The Board recorded its satisfaction and the assessments were reopened by issue of notice under section 148 for all the three years. For the assessment year 1960-61, the proposal was not submitted to the Board because admittedly the income alleged to have escaped assessment was below Rs. 50,000.
6. After the satisfaction of the Board was received, the assessment for the first three years were reopened and the assessee filed returns under protest. The ITO, however, rejected the protest and made the impugned assessments under Section 143(3) of the Act.
7. The assessee came in appeal before the AAC who by separate order for the assessment years 1957-58 to 1960-61 annulled the reassessments. The reason why the reassessments were annulled is that after the ITO passed the order under Section 146, the assessment could not be reopened again under Section 148 of the Act, since the assessment proceedings were thenpending. He also held on merits that the ITO could not have reopened the assessment for the assessment year 1957-58 since there was no material to hold that income liable to tax had escaped assessment. I n the assessment year 1960-61, the AAC canceled the reassessment since the notice had never been served on the assessee under Section 148.
8. The department is aggrieved and has come up in appeal. We have heard the learned departmental representative and the Counsel for the assessee. The departmental portion so far as the assessment years 1957-58 to 1959-60 on the one hand, and 1960-61 on the other hand, is clearly contradictory. Admittedly, the first notice under Section 148 was never served on the assessee or her power of attorney holder.
Therefore, the assessment for 1960-61 could not be made by the ITO again after he passed the order under Section 146 on the ground that notice had not been served on the assessee or her agent without effecting a fresh service on the agent, the assessee being abroad. The Full Bench of the Punjab and Haryana High Court has held in Jai Hanuman trading Co. (1977) 110 ITR 36 that the limitation under Section 148 is only to the issuance of a notice and there is no limitation as to the service of the notice. Therefore, the ITO could have proceeded to serve the notice afresh under section 148 for the four years on the assessee's agent and to have made the reassessments. That the ITO failed to do so. Reassessment made for the assessment year 1960-61 without service of notice on the assessee or on her agent is, therefore, totally invalid and unsubstainable in law. The order of the AAC annulling that order of the assessment is, therefore, upheld.9. So far as the assessment years 1957-58 to 1959-60 are concerned, the position is more or less similar. The proceedings were pending before the ITO after he reopened the ex parte assessments under Section 146 and it was incumbent on the ITO to have served the notice on the assessee to make the reassessment. The ITO failed to do so. While those proceedings were pending he submitted a proposal to the Board the proposal the assessments. Strangle enough, even in the Board the proposal does not seem to have been scrutinised and the approval to reopen the assessment was mechanically given because if the proposal had been scrutinised properly, it would have been noticed that the proceedings on the basis of an earlier notice under Section 148 were still pending. When proceedings legally and validly started for reassessment were pending, fresh notice under Section 148 cannot be issued because it cannot be issued because it cannot be said that income liable to tax had escaped assessment. Therefore, on this basis alone the reopening of the assessment under Section 148 under the authority of the approval granted by the CBDT had to be annulled because proceedings on the basis of an earlier notice under section 148 issued by the ITO were then pending. We, accordingly, uphold the orders of the AAC in all the three years. In view of this finding it is not necessary to go into the merits and to consider whether or not there was a material for reopening the assessments and whether or not the income escaped assessments exceeded Rs. 50,000 in each of these years to justify the Board to exercise its power. The order of the AAC for all the four year are, accordingly, upheld.1. Having the advantage of reading the order of my learned brother and after careful considerations of the reasoning given therein, I respectfully did agree with the conclusions arrived at by him for the appeals in IT Appeal Nos. 4779, 5015 and 5217 (Delhi) of 1976-77 relating to the assessment years 1957-58 to 1959-60. The question for our consideration in these cases is whether valid reassessment proceedings exist in a case where notice under Section 148 was not served. It would be worthwhile to briefly recapitulate the facts of the cases.
2. The original assessments for the assessment years 1957-58 to 1960-61 were made under Section 23(4) of the 1922 Act. The ITO reopened the above assessments and made reassessments under Section 144 on 28-2-1970 due to non-compliance of the assessee to the notice under Section 148.
The assessee applied for reopening of the assessments under Section 146 which was refused for all the above years. On appeal, the AAC set aside the orders of the ITO under Section 146 and directed the ITO to consider the application under Section 146 after going in the facts in full details. The ITO, accordingly, reconsidered the application under Section 146. After hearing the learned advocate of the assessee and perusal of the records he was satisfied that the notices under Section 148 were not served. The assessments made under Section 144 were reopened accordingly vide order dated 14-8-1973.
3. Thereafter, the ITO moved the CBDT under Section 151 of the Act for sanction for issue of notice under Section 148 for the assessment years 1957-58 to 1959-60. After obtaining such sanction, the ITO issued notices under Section 148 and then completed the reassessments for the assessment years 1957-58 to 1959-60. For the assessment year 1960-61, the ITO, however, did not obtain the sanction of CBDT. He simply made the reassessment on the basis that the assessment under Section 144 was reopened on 14-8-1973. No fresh notice under Section 148 also appears to have been issued in this case.
4. The assessee went in appeal before the AAC for all the above years.
The AAC looked into the matter and after considering the full facts of the case held that the reassessments made in pursuance of fresh notices under Section 148 were invalid as the earlier proceedings for the years had been reopened under Section 146 vide order dated 14-8-1973. Since the assessment itself was pending before the ITO for each of the above assessment years, the question of income having escaped assessment would not arise. He, accordingly, annulled the assessments for the assessment years 1957-58 to 1960-61.
5. The revenue is aggrieved and came up in appeal before us. The ground of appeal taken before us is : "On the facts and in the circumstances of the case, the Appellate Assistant Commissioner of Income-tax has earred in annulling the assessments for the assessment years 1957-58, 1958-59, 1959-60 and 1960-61 by holding that the proceedings started under Section 148 by notice served on 29-3-1974 were invalid." 6. My learned brother while approving the orders of the AAC observed that fresh notice under Section 148 cannot be issued when the proceedings legally and validly started for reassessment, were pending.
Respectfully disagreeing with the above conclusions, it may be pointed out that the learned AAC committed a manifest error of law. The reassessments made under Section 144 in this cases were reopened on 14-8-1973 on the specific finding that the notices under Section 148 were not served. Proceedings for reassessment commences only with the services of the notice under Section 148. In Dr. Onkar Dutt Sharma v.CIT [1967] 65 ITR 359 the Hon'ble Allahabad High Court held that intimation for reassessment proceedings commences with the issue of notice. The expression 'issue' was defined by the Hon'ble Supreme Court in Banarsi Debi v. ITO [1964] 53 ITR 100 and their lordships held that the words 'issue' and 'serve' were interchangeable and the word 'issue' had been used in section 148 in the same sense in which the word 'serve' had been used. This definition was re-affirmed by the Supreme Court in the case of CWT v. Kundan Lal Behari Lal [1975] 99 ITR 581.
So, when the ITO passed his order under Section 146 on 14-8-1973, no proceedings survived. The reassessments made under Section 144 and the proceedings initiated by the ITO, but in which the notices were not served, are non est in the eyes of law. The original assessments made under Section 23(4) of the 1922 Act remain intact.
7. To reopen these original assessments made under Section 23(4) of the 1922 Act, and assume proper jurisdiction for reassessments, the ITO has to initiate the reassessment proceedings by issue of notice under Section 148. Even applying the ratio of the decision of the Hon'ble Punjab and Haryana High Court in the case of Jai Hanuman Trading Co.
(supra) and giving the limited meaning of 'sent' for the expression 'issued' used in Section 148, the ITO is bound to issue the notices under Section 148 without which service of the notices cannot be effected. And before sending such notices, the ITO has to comply with the requirements of the conditions precedent to issue of such notices under Section 148. In the above cases, a period of seven years has already expired by the time notices under Section 148 were unused and served on the assessee on 29-3-1974. As such, it is incumbent upon the ITO to commonly with the conditions precedent to such issue of valid notice vide Sections 149 and 151. Otherwise the notice issued will be invalid. In this view of the matter, the ITO is quite justified in issuing the notice under Section 148 after obtaining the approval of the CBDT for the assessment years 1957-58 to 1959-60. The reassessments made in pursuance of such notices under Section 148 read with Section 147 for the above assessment years are valid and deserved to be sustained.
8. With regard to the assessment year 1960-61 vide appeal in IT Appeal No. 5209 (Delhi) of 1976-77, I fully agree with the order of my learned brother in confirming the order of the AAC. In this case, the ITO had not validly reopened the original assessment made under Section 23(4) of the 1922 Act. When the assessment made under Section 144 was reopened under section 146 on 14-8-1973, no valid proceedings under Section 147 survives. It was, therefore, incumbent upon the ITO to issue the notice under Section 148 to the assessee so as to assume proper jurisdiction for reassessment. The same was not done. As such, the assessment made without proper assumption of jurisdiction was rightly annulled.
In view of the fact that the Members comprising the Bench have differed in their decision in the above case, under Section 255(4) of the Act the case is referred to the President for hearing on the following questions on which there is difference of opinion : 1. Whether, the approval given by the CBDT is invalid as having been given mechanically and without proper scrutiny, that the earlier proceedings for reopening the assessments were then pending 2. Whether the proceedings for reassessment have to be annulled on that account 3. Whether, the proceedings started by the ITO in pursuance to the notice under Section 148 issued with the approval of the Commissioner were pending on 12-12-1973, when the ITO sought approval of the CBDT for reopening the assessment under Section 148 1. On a difference of opinion between the learned Members who heard these appeals along with IT Appeal No. 5209 (Delhi) of 1976-77 relating to the assessee's assessment for the assessment year 1960-61 originally, the President assigned the case to himself for decision under Section 255(4) of the Act. The points of difference are stated to be : 1. Whether the approval given by the CBDT is invalid as having been given mechanically and without proper scrutiny, that the earlier proceedings for reopening the assessments were then pending 2. Whether the proceedings for reassessment have to be annulled on that account 3. Whether the proceedings started by the ITO in pursuance to the notice under Section 148 of the Income-tax Act. 1961 issued with the approval of the Commissioner were pending on 12-12-1973, when file ITO sought approval of the CBDT for reopening the assessment under Section 148 2. However, on hearing the parties and after discussion with them, I, find that the real point of difference between the learned Members is only one, namely, whether or not the assessment proceedings for the years under appeal were or could be said to be pending on 12-12-1973 when the ITO initiated the impugned proceedings under Section 148 by recording the reasons for doing so and sought the approval of the CBDT It is common ground that a decision on this point of difference will automatically resolve the other points of difference.
3. The facts have been correctly stated by the learned Judicial Member.
However, I would like to refer to them in my own way. The assessee is a resident of Panama. The proceedings for assessing her for the assessment years 1957-58 to 1960-61 were originally initiated under Section 148 and section 147(a), with the prior approval of the Commissioner and the assessments bad been completed under Section 144 of the Act on 28-2-1970 computing her total income at Rs. 2,17,138, Rs. 1,11,867, 1,78,225 and Rs. 35,983 for the respective yarns. The applications filed by her under Section 146 requesting the ITO for cancelling the assessment orders made under Section 144 were rejected by the ITO vide his order dated who 21-12-1971. However, the appeals there against were allowed by the AAC who directed the ITO to consider the assessee's contention that the notices under Section 148 were not served on her or her general power of attorney, etc., and to decide the applications under Section 146 afresh.
4. By his orders dated 14-8-1973 the ITO has, after going through the facts on record, accepted the assessee's contention that the notices under Section 148 had not been served on the assessee or on her general attorney, Sri Ajit Singh, and has observed that the assessments made under Section 144 have been reopened. Subsequent thereto, the ITO has on 12-12-1973 recorded reasons for initiating the proceedings under Section 148 and sought the approval of the CBDT for the assessment years 1957-58 to 1959-60. He has stated all these facts faithfully under the caption 'Reasons for the belief that income has escaped assessments'. The satisfaction of the Board has been obtained; whereafter the ITO issued fresh notices under Section 148 which were served on the assessee. The impugned proceedings have culminated into assessments for all the three years, wherein the total income had been computed at Rs. 1,85,138, Rs. 86,867 and Rs. 1,43,225 respectively. For the assessment year 1960-61, however, the ITO did not issue any fresh notice under Section 148 and has completed the assessment on the basis of his order under Section 148 and has completed the reassessments on the basis of his order under Section 146 dated 14-8-1973 on a total income of Rs. 35,983. On appeal, the AAC has annulled the reassessments for all these years. The reason given by him for doing so for the assessment years 1957-58 to 1959-60 is that after the ITO has passed his orders under section 146, the assessment proceedings were pending and the ITO was not justified in reopening them again under Section 148. For the assessment year 1960-61, the reason given by him is that the notice under Section 148 had never been served on the assessee and, therefore, no valid assessment could be completed.
5. As already stated, there has been a difference of opinion between the learned members as regards the proceedings for the assessment year 1960-61. Both the learned members have agreed that the first notice under Section 148 was, admittedly, never served in the assessee or on her general attorney and, therefore, the assessment for 1960-61 could not be made by the ITO in pursuance of this order under Section 146.
6. I have heard the parties and considered their rival contentions very carefully. I have also gone through the facts and material on record.
In my opinion, the short point in these appeals has been whether the notices issued under Section 148 for initiating the impugned assessment proceedings are valid or not The answer to this question, in turn, would depend upon whether income could be said to have escaped assessment when the impugned proceedings for assessment were initiated, it being a common ground that income cannot be said to have escape assessment when the proceedings for assessment are pending. The controversy thus gets further narrowed down in the sense that I am only to examine and decide whether the assessment proceedings are or can be said to have been pending in view of the orders passed by the ITO under Section 146 on 14-8-1973, ostensible to reopen the assessment proceedings.
7. It is well settled that service of notice under Section 148 for the purpose of commencing proceedings for assessment or reassessment is not a mere procedural requirement. It is a condition precedent to the initiation of proceedings for assessment under that Section. If no notice is issued or if the notice issued is invalid, or if the notice has not been served, the proceedings started would be illegal and void.
In the present case, the ITO has given a categorical finding in his orders under Section 146, that the notices issued under Section 148 earlier had not been served on the assessee. For this very reason he has canceled the assessments made in pursuance of those notices. No doubt, he has observed in his orders that the assessments were being reopened. The pertinent question, however, is, and remains, whether the assessment proceedings are or can be said to have been pending in view of the categorical finding that the notices under Section 148 had not been served on the assessee.
8. It is pertinent that both the learned brothers have held, and rightly so, that the assessments made for the assessment year 1960-61 in pursuance of the aforesaid order under Section 146 is invalid as no notice under Section 148 had at all been served on the assessee for that year. That apart, this question, to my mind, requires to be examined in the light of the further action take by the ITO. He passed his aforesaid orders under Section 146 on 14-8-1973. Immediately thereafter, i.e., on 12-12-1973, he has recorded the reasons afresh for reopening the assessment proceedings and has sought and obtained the satisfaction of the CBDT. Eventually, he has issued a fresh notice under Section 148 for the assessment years 1957-58 to 1959-60. He could not do so for the assessment years 1960-61 perhaps because the income that escaped assessment according to his own finding in the original assessment, was less than Rs. 50,000 and eight years had already elapsed. Such a conduct on the part of the ITO, in my view amounts to termination of the earlier proceedings and in this view I am supported by the decision of the Supreme Court in the case of CIT v. Bidhu Bhusan Sarkar [1967] 63 ITR 278, the decision of the Madras High Court in the case of Aruppukottai Chandra Bus Lines v. CIT [1973] 87 ITR 154, and the decision of the Punjab and Haryana High Court in the case of CIT v.Damyanti Mehta & Yash Raj Mehta [1972] 83 ITR 502.
9. The proper service of notice under Section 148 is the foundation of the assumption of jurisdiction under Section 148 and, therefore, it cannot perhaps be disputed that a valid assessment could not have been made on the basis of the earlier proceedings even though in his orders under Section 146, the ITO had ostensibly observed that the proceedings for the assessment were reopened. In fact, that is the reason given by both the learned members for annulling the assessment made by the ITO for the assessment made by the ITO for the assessment year 1960-61.
10. I do not agree with the learned counsel for the assessee that the earlier proceedings could not be treated as void, illegal or non est without adjudication by an authority competent to do so. The test for considering whether the proceedings for assessment are pending or not, to my mind, is to ascertain whether the ITO had assumed valid jurisdiction to make the assessment in pursuance of such proceedings.
In view of the learned members' orders annulling the assessment for the assessment year 1960-61, I do not think that there is any room for doubt about the proposition that so far as the Bench was concerned, valid assessments could not have been made for the assessment years 1957-58 to 1959-60, in pursuance of the orders passed under Section 146. In my above view, I am supported by the ratio of the Kerala High Court decision in the case of Ponkunnam Traders v. Addl. ITO [1972] 83 ITR 508 where it was held that a void decision will always remain void, and the affected party is at liberty to treat it as void. It may be stated that this is a decision by a Single Judge in writ proceedings, but the decision has been confirm by a Division Bench of the Kerala High Court in Addl. ITO v. Ponkunnam Traders [1976] 102 ITR 366. Having regard to the above discussion, I am inclined to agree with the learned Accountant Member that valid proceedings for assessment were not pending on 12-12-1973 when the ITO initiated the impugned proceedings under Section 148 in the manner stated above. Therefore, the AAC was not justified in annulling the assessments made under these proceedings.
11. Before concluding, reference may usefully be made to a decision of the Allahabad High Court in the case of Rajmani Devi v. CIT [1937] 5 ITR 631 where it was held that in an application under Section 27 of the 1922 Act (corresponding to Section 146 of the 1961 Act), an assessee could seek reopening of the assessment on the ground of non-service of notice under Section 22(2) of the 1922 Act, even though such a situation is not specifically covered by the section. Having then regard to the decision of the Madhya Pradesh High Court in the case of Johilla Coalfields Co. Ltd. v. CIT [1960] 39 ITR 137, it has also to be held that Section 146, corresponding to Section 27 of the 1922 Act, does not by itself vest jurisdiction in the ITO to make an assessment. In other words, the jurisdiction to make an assessment is derived by the ITO under the provisions of sections 22 and 34 of the 1922 Act and sections 139 and 148 so much so that if an assessment is reopened under Section 146 on the ground that notice under Section 148 was not served on the assessee, the ITO would not be able to make an assessment without reopening the pr oceedings according to law unless the assessee had filed a return within time before the assessment is completed. The natural consequence of the ITO's orders under Section 146, thus, would be that the proceedings for assessment taken by him earlier were treated as non est. This is also borne out from the fact that soon after passing such orders under Section 146, the ITO has initiated fresh proceedings under Section 148, and has proceeded to obtain the satisfaction of the Board as required under the provisions of Sections 147, 148 and 149. Once this conclusion is reached, there is no difficulty in my further holding that the fresh proceedings taken by the ITO for reopening the assessments under Section 148 were valid, that the Board's satisfaction on the basis of full facts stated by the ITO while recording his reasons for reopening the assessments cannot be said to be mechanical and, therefore, the proceedings for reassessment are valid.
It may be mentioned that on behalf of the assessee it was argued that before a valid notice under Section 148 is served, the ITO has to take a number of steps, such as : a. he has to form reason to believe that income has escaped assessment, etc., for reasons mentioned in Section 147(a) or Section 147(b), as the case may be; b. he has to record the reasons for reopening the assessments and in cases where the assessments were reopened beyond four years or eight years, he has to obtain the satisfaction of the Commissioner or the CBDT, c. he has to prepare a notice under section 148 after recording to reasons or obtaining the satisfaction of the Commissioner or the CBDT, as the case may be, and sign it; and It is only after all these steps are taken that a notice under section 148 can be served on the assessee. Just because the notice has not been served, it cannot be stated that the proceedings for assessment have not commenced or that the proceedings for assessment are not pending.
Notice under Section 148 can be served according to him at any time as held by the Punjab and Haryana High Court in the case of Jai Hanuman Trading Co. (P.) Ltd. v. CIT [1977] 110 ITR 36 (FB). Here again, I do not find any merit in the arguments advanced on behalf of the assessee.
No doubt certain steps have to be taken before a notice under section 148 can be served on the assessee. All the same, however, all those steps are inter-departmental steps and the proceedings for assessment are not commenced without the service of a valid notice under section 148. If there is no dispute about the fact that the notices under section 148 issued by the ITO originally were not served on the assessee or on her attorney, there is no difficulty in holding that no proceedings for assessment were pending or could be said to be pending as a result of the orders passed by the ITO under Section 146. This being so, it follows as a natural corollary that ITO was justified in entertaining the belief the assessee's income had escaped assessment.
12. The order will now go before the Bench, which originally heard these appeals, for deciding the appeals according to the majority view.