ZAINALABDEEN MUSALIAR Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THIS reference application under Section 256(1) of the Income-tax Act, 1961, is at the instance of the assessee. It arises out of the order passed by the Income-tax Appellate Tribunal, Cochin Bench, in I.T.A. No. 74/Coch. of 1985. The relevant assessment year is 1978-79. Following are the questions referred for the opinion of this court :

(2.) THE relevant facts are as follows: For the assessment year 1978-79 when the assessee returned an income of Rs. 1,02,790 and an agricultural income of Rs. 1,000, the Income-tax Officer proposed to assess him on an amount of Rs. 11,63,660. Since the difference between the returned income and the income proposed to be assessed was more than Rs. 1 lakh, as per Section 144B of the Income-tax Act, 1961, the Income-tax Officer forwarded the draft order dated March 13, 1981, to the assessee on March 17, 1981. THE assessee filed his objections on March 31, 1981. THE draft order along with the objection was then forwarded to the Inspecting Assistant Commissioner of Income-tax as contemplated by Section 144B of the Income-tax Act, 1961. Even though notice was issued to the assessee by the Inspecting Assistant Commissioner about the posting of the proceedings for enquiry on September 19, 1981, the notice was received by the assessee only on September 23, 1981. THE Inspecting Assistant Commissioner without hearing the assessee issued directions to the Income-tax Officer as contemplated under Section 144B on September 25, 1981. THE Income-tax Officer thereupon completed the assessment on the basis of such directions and assessment order dated September 26, 1981, was issued. THE assessee filed an appeal before the Commissioner of Income-tax (Appeals) contending that the assessment was barred by limitation and that no opportunity was granted by the Inspecting Assistant Commissioner before directions were issued under Section 144B. THE assessee prayed that the assessment should be annulled. THE Commissioner of Income-tax (Appeals) rejected the contention on the issue of limitation, but took the view that the Inspecting Assistant Commissioner had wrongly denied opportunity to the assessee. THE appellate authority also held that the assessment order cannot be held as null and void, since it is vitiated only due to a procedural irregularity at the instance of the Inspecting Assistant Commissioner. THE assessment order was therefore set aside and the Income-tax Officer was directed to pass a fresh order in accordance with law. Being aggrieved by the above order, the assessee went in second appeal before the Income-tax Appellate Tribunal. By order dated November 17, 1983, the Tribunal dismissed the appeal. Pursuant thereto, the Inspecting Assistant Commissioner took up the matter for hearing, heard the assessee's representative and then issued directions dated January 11, 1984, to the Income-tax Officer. In pursuance of those directions, the Income-tax Officer passed assessment order under Section 143(3) read with Section 144B of the Act on January 20, 1984, after giving a fresh opportunity of being heard to the assessee. THE assessee took up the matter again in appeal before the Commissioner of Income-tax (Appeals) contending that since the original assessment was set aside, the Income-tax Officer ought to have sent a fresh draft order and only then the Inspecting Assistant Commissioner could have assumed jurisdiction under Section 144B. THE Inspecting Assistant Commissioner has committed a grave error in issuing directions under Section 144B(4) on the earlier draft order. THE contention was repelled by the Commissioner of Income-tax (Appeals). On a second appeal, the Tribunal also took the view that the assessment order dated January 20, 1984, is not liable to be declared as null and void nor was it liable to be set aside as vitiated by any illegality. It is from the above order the four questions are referred for opinion of this court.

(3.) WE do not find any merit in the contentions raised by the assessee. The illegality which weighed with the appellate authorities while setting aside the assessment order dated September 26, 1981, was procedural irregularity committed by the Inspecting Assistant Commissioner in giving direction to the Income-tax Officer under Section 144B(4) without granting an opportunity of being heard to the assessee. The assessment order dated September 26, 1981, had to be set aside only for this reason. There is nothing wrong in continuing the proceedings from the stage where the proceedings were vitiated by an illegality of not granting sufficient opportunity to the assessee. A similar view was taken by the Supreme Court in Guduthur Bros. v. ITO, 1960 40 ITR 298 . After issuing a notice to the assessee under Section 28(1)(a) of the Indian Income-tax Act, 1922, to show cause why penalty should not be imposed for failure to file a return in time, the Income-tax Officer proceeded to impose penalty without affording a hearing. The Appellate Assistant Commissioner set aside the order imposing penalty for the reason that no opportunity was given to the assessee. There was also a direction to refund any penalty that might have been recovered. The apex court took the view that since the notice was issued in accordance with law it did not cease to be operative and it was open to the Income-tax Officer to take up the matter from the point at which the illegality supervened and to correct his proceedings. It was held that the Income-tax Officer was well within his jurisdiction to continue the proceedings from the stage after issue of notice under Section 28(1)(a). In the present case also no illegality was found by the appellate authorities that would vitiate the draft order. It was the further proceedings which were found illegal and which resulted in setting aside the final assessment order. The assessee has taken a contention that the dictum laid down in the above decision of the Supreme Court is not applicable in the present case. According to the assessee, by order dated November 17, 1983, the Tribunal had restored the matter to the Income-tax Officer with a direction to comply with the procedure under Section 144B and, therefore, the Income-tax Officer has to start afresh by issuing a draft order. WE cannot agree with the above contention. It is true that the Tribunal had restored the matter to the Income-tax Officer for complying with the procedure under Section 144B. The above direction given to the Income-tax Officer has to be understood as one to forward the proceedings to the Inspecting Assistant Commissioner afresh to enable him to rectify the irregularity committed by him. While giving the above direction the Tribunal had confirmed the order passed by the Commissioner of Income-tax (Appeals). A reference to the order of the Commissioner of Income-tax (Appeals) dated February 23, 1982, would show that the remand was only for the purpose of correcting the procedural irregularity committed by the Inspecting Assistant Commissioner. Therefore, we are of the view that the decision of the Supreme Court in Guduthur Bros. v. ITO, 1960 40 ITR 298 , would support the contention taken by the Revenue that the Income-tax Officer was not expected to issue a fresh draft order when the matter was remanded by the Tribunal under its order dated November 17, 1983.