COMMISSIONER OF INCOME TAX Vs. BADRI PRASAD BIANWALLA

JUDGEMENT

(1.) The present reference relates to the assessment year 1959-60 for which the corresponding accounting period is 2015 R.N. The assessee had filed the original return on the 12th June, 1961, declaring a loss of Rs. 41,935. The ITO issued a notice under Section 23(2) of the Indian I.T. Act, 1922, in response to which the assessee's authorised representative appeared and produced the books of account, which were examined by the ITO on 20th August, 1963. On 11th September, 1963, the ITO passed an order fixing the date of hearing on 13th September, 1963, but there was no entry in the order sheet of that date. But the ITO passed an entry in the order sheet to the effect "assessed at loss of Rs. 8,851". Subsequently, the ITO had reason to believe that the assessee had not disclosed the true and correct facts at the time of original assessment and as such income had escaped assessment. Hence, he reopened the assessment under Section 1.47 of the I.T. Act, 1961. He issued the notice under Section 148 of the I.T. Act, 1961, in response to which the assessee filed a return of income under protest. The assessee challenged the authority of the notice issued under Section 148 contending that the return for the assessment year 1959-60 which was filed by him on 12th June, 1961, was pending and no assessment had been made on that return. Hence, the notice under Section 148 was said to be invalid. The ITO held that the assessment of the assessee for the assessment year 1959-60 was completed on 31st October, 1963, assessing the total loss at Rs. 8,851. Hence, he computed the reassessment by adding the cash credit of Rs. 53,000 as the assessee's income and also disallowing the interest thereon and thus determined the total income at Rs. 50,980.

(2.) The assessee preferred an appeal to the AAC. It was contended before him that the assessment alleged to have been completed on 31st October, 1963, was not validly made and, in fact, no assessment had been made at all, and no copy of the assessment order nor the demand notice was ever served on the assessee. Thus, it was urged that there was no such assessment order or demand notice on record. Since the original return filed on 12th June, 1961, was pending, the ITO was not justified in issuing the notice under Section 148. It was contended by the ITO before the appellate authority that the case had been duly entered in Register IV for the month of October, 1963, along with other cases which had been completed in the same month and the assessment was completed on 31st October, 1963, determining the loss at Rs. 8,851.

(3.) The AAC found that the total income had been computed in a separate sheet of paper, but it was not signed by the ITO. It was also noticed that the order of assessment was not in the traditional form in which the assessment orders were generally passed. Accordingly, it was held by him that the entry in the order sheet dated 31st October, 1963, computing the total income at a loss of Rs. 8,851 could not be accepted as the assessment order. It was further held that the computation of income made had to be followed by the determination of the tax payable as required by Section 23(3) of the Indian I.T. Act, 1922, and even if the income resulted in a loss the ITO had to determine the tax payable at "nil'' and without such determination the assessment proceedings could not be considered as concluded. It was also held that where the assessment results in a loss it was incumbent on the ITO under Section 24(3) of the Indian I.T. Act, 1922, to notify to the assessee by an order in writing the amount of loss as computed by him for the purpose of this section. But the ITO did not notify the computation of loss to the assessee. Accordingly, it was held by him that the computation of loss made on 31st October, 1963, could not be treated as a valid assessment and it had to be held that no assessment was made on the return furnished by the assessee on the 12th June, 1961. The notice issued on 28th March, 1968 was, accordingly, held as incompetent and invalid and the assessment made in pursuance of such illegal notice was a nullity.