MALAIYA BROTHERS Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) THE Tribunal, Jabalpur Bench, Jabalpur, has referred the following question to this Court for its opinion under S. 256(2) of the INCOME TAX ACT, 1961 (hereinafter referred to as " the Act ") :

(2.) THE proceedings relate to the asst. yrs. 1971 -72 and 1972 -73. The assessee had claimed certain deductions in respect of loss pertaining to its Satna Branch styled as Shrenik Oil Mills. The amount of loss claimed by the assessee was disallowed by the ITO. On appeal, however, the AAC set aside the order of the ITO on this point and directed him to record a fresh finding with regard to the amount of loss claimed by the assessee. It appears that the order of remand was somehow misconstrued by the ITO and in place of determining the quantum of loss actually incurred by the assessee, the ITO proceeded to allow the entire amount of loss claimed by the assessee. On the mistake being discovered, the ITO issued a notice to the assessee requiring the assessee that he liked to have further information and for this purpose the assessee was required to attend his office and produce such documents and other evidence on which reliance was sought to be placed. A copy of this notice has been attached as Annexure " E " to the statement of the case. In pursuance of the notice so issued, a representative of the assessee appeared with the account books and the matter was discussed by the ITO with the said representative. Thereafter, he determined the actual amount of loss incurred by the assessee for the two assessment years pertaining to its Satna Branch styled as Shrenik Oil Mills. The determination so made was challenged by the assessee in appeal before the AAC and thereafter before the Tribunal in appeal and in second appeal, respectively. This challenge, however, failed on the finding that what the ITO had done by the subsequent order was just to comply with the requirement of the order of remand passed by the AAC earlier. At the instance of the assessee, however, the aforesaid question was referred to this Court.

(3.) WHILE dealing with a case under S. 35(2) of the Indian IT Act, 1922, it was held by the Supreme Court in Maharana Mills (P) Ltd. vs. ITO (1959) 36 ITR 350 (SC), that the object of the provision as to notice in the second sub -section of S. 35 is that no order should be passed to the detriment of an assessee without affording him an opportunity but it cannot be said that the rule is so rigid that if, as a matter of fact, the assessee knows of the proceedings and the matter has been discussed with him then, an adverse order would be invalid merely because no notice under S. 63 was given. In the instant case, as seen above, reasonable opportunity was afforded to the assessee by the ITO and the subsequent order was passed only after discussing the matter with the representative of the assessee.