B NAGI REDDY Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE assessee is an individual and he submitted a return for the assessment year 1973-1974, admitting an income of Rs. 13, 940. On an examination of the return, the Income-tax Officer felt that a variation in the income returned in excess of Rs. 1, 00, 000 was called for and, in accordance with the procedure laid down under section 144B of the Income-tax Act, 1961 (hereinafter referred to as "the Act"), the Income-tax Officer forwarded on March 23, 1976, a draft of the proposed order of assessment to the assessee inviting his attention to section 144B(1), ( 2) an d ( 3) of the Act and calling for his objections, if any, to the proposed variation within seven days of the receipt of the draft order. In that communication, the assessee was also informed that, if no objections were received within the period of seven days or the extended period under section 144B(2) of the Act or if the assessee intimated his acceptance to the proposed variation, the assessment will be completed on the basis of the draft order. THE draft order and the notice were served on the assessee on March 24, 1976. Subsequently, on March 25, 1976, the Income-tax Officer forwarded to the assessee a supplement to the draft assessment order already sent and called upon the assessee to prefer his objections, if any, within seven days and the attention of the assessee was also invited to the provisions of section 144B(1), ( 2) an d ( 3) of the Act as in the earlier notice.

(2.) THIS supplement to the draft order was served on the assessee on March 26, 1976. The draft orders and the notices so forwarded to the assessee did not evoke any response at all from the assessee within the period of seven days from the date of receipt of the draft order and the notice. However, by a letter dated April 6/10, 1976, received by the Department on April 14, 1976, the assessee purported to raise some objections to the proposal for variation as indicated in the draft order. The Income-tax Officer took the view that, as the assessee had not filed objections within seven days and had also not sought an extension of time for preferring objections, the belated objections received beyond the time stipulated could not be countenanced and proceeded to complete the assessment. In the course of the assessment proceedings, the assessee maintained that the income received by the assessee from Vijaya and Vauhini Studios and the income received from letting out the studios should be assessed under the head "Business income".

(3.) THAT is how, at the instance of the assessee and the Revenue, under section 256(1) of the Act, the following questions of law have been referred to this court, for its opinion : "1. Whether, on the facts and circumstances of the case, the Income-tax Officer's order under section 144B is illegal and barred by limitation ?.2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in law in holding that the income received by the assessee from Vijaya and Vauhini Studios should be assessed in the hands of the assessee as 'business income' ?.3. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income derived from letting the studios is assessable under the head 'Business' ?.4. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that the income from the lease rent from Messrs. Sarada Binding Works should be assessed under the head 'Other sources' ?. 5. Whether, on the facts and in the circumstances of the case, the sum of Rs. 14, 000 is a revenue expenditure and not a capital expenditure ?. 6. Whether, on the facts and in the circumstances of the case, section 34(2)(ii) is not applicable, when the assets of a proprietary concern were converted into the assets of a partnership concern ?" * We proceed to consider the questions referred seriatim. With reference to the first question, learned counsel for the assessee contended that the Income-tax Officer, after forwarding the first draft order on March 23, 1976, became functus officio and he had no jurisdiction whatever to forward a second draft order on March 25, 1976. Reliance was placed by learned counsel in this connection upon the decision in Sudhir Sareen v. ITO 1981 (128) ITR 445, 1981 (6) TAXMAN 247(Delhi). Learned counsel for the Revenue controverted this contention stating that, in the course of the proceedings before the authorities below, no objection was raised by the assessee to the draft assessment order and that this question cannot also be said to arise out of the order of the Tribunal, as it had not been dealt with by the Tribunal or even raised before it, though not decided by it. Learned counsel further submitted that this question not having been raised before the Tribunal and not dealt with by it in its order, cannot be said to arise out of the order of the Tribunal even if, on the facts, the question may be stated to fairly arise.A careful perusal of the proceedings before the authorities shows that, at no point of time, the assessee raised any objection that the Income-tax Officer had no jurisdiction to forward a supplement to the draft assessment order. Even in the so-called objections put in belatedly by the assessee before the Income-tax Officer on April 14, 1976, such an objection had not been raised. In the course of the proceedings before the Appellate Assistant Commissioner and the Tribunal, the assessee did not put forth any such objection at all. The Tribunal, naturally, did not, therefore, go into that aspect which was never put forward before it.