Kerala H.C : Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessment order was not time-barred under s. 153 of the IT Act, 1961 ?

Counsel Appeared

M. Pathros Mathai, Advocate, for the Assessee : P.K.R. Menon & N.R.K. Nair, Advocate for the Revenue

K. A. NAYAR, J.:

At the instance of the assessee, the Tribunal, Cochin Bench, has referred the following question of law for our opinion :

“Whether, on the facts and circumstances of the case, the Tribunal was right in holding that the assessment order was not time-barred under s. 153 of the IT Act, 1961 ?”

We are concerned with the assessment of the assessee for the year 1978-79. The assessee had filed his return for the assessment year on July 30, 1978, and in the normal course, the assessment ought to have been completed on or before March 31, 1981, as provided under s. 153 of the IT Act. Since the variation between the income returned and the income proposed to be assessed was more than Rs. 1,00,000, the ITO forwarded a draft assessment order as required under s. 144B of the Act to the assessee on May 3, 1979, which was received by the assessee on May 8, 1979, who, thereupon, filed objections on May 29, 1979. The ITO, thereafter referred the matter to the IAC.

The IAC granted a personal hearing to the assessee on November 16, 1979. Thereafter, the IAC issued a letter to the assessee on December 17, 1980, informing the assessee that there was a change in the incumbent of the ITO and further if the assessee wants fresh hearing before the ITO, the same can be obtained. The IAC also pointed out in that letter that the time taken for giving a rehearing to the assessee would be excluded in computing the period of limitation under s. 153 of the Act. The assessee, in his reply, disputed the point made by the IAC about the exclusion of time but wanted a fresh hearing to be given subject to his objection. A fresh hearing was actually given on October 15, 1981, and the time taken for this was nine months and twentyone days. If the time taken for rehearing and the time allowed to the IAC for considering the draft assessment order and the objections under s. 144B of the Act to the maximum of 180 days are taken into account, then the assessment made by the ITO is within time. The assessment was actually made after hearing the assessee under s. 143(3) r/w s. 144B by the ITO on May 13, 1982.

The assessee preferred an appeal before the CIT (A) contending among other things that the assessment is barred by limitation. We are not concerned here with the other grounds raised in the appeal. The CIT (A) found that the assessee had asked an opportunity for rehearing consequent upon the change in the incumbent of the office of the ITO. On excluding that period, the CIT (A) held that the assessment order has been passed within the time permitted under s. 153 of the Act. He, therefore, found no substance in the grievance of the assessee. Aggrieved by the order of the CIT (A), the assessee went in appeal to the Tribunal contending that the assessee was not entitled to a rehearing when there was change in the incumbent of the office of the ITO, because s. 129 contemplates a rehearing only when such a rehearing would be effective. The ITO had already sent a draft assessment order to the assessee and then to the IAC, on receipt of the objection from the assessee to the draft assessment order. The ITO had nothing to do with the assessment and, therefore, there could be no question of any assessment proceedings pending with him. According to the assessee, the proviso to s. 129 has no application to the case in question. The assessee also contended that under Explanation 1 to s. 153 different periods are specified for being excluded in the computation of the time limit under s. 153 of the Act and the ITO can avail of one of the periods specified in the Explanation but not all. The Tribunal did not accept the contention of the assessee that the assessment had not been completed within the time specified under s. 153 of the Act. The Tribunal followed its earlier decision in I. T. A. No. 300 (Cochin) of 1981 dated February 18, 1983. The Tribunal was also of the view that the various periods enumerated in Explanation I to s. 153 are not mutually exclusive but are independent of each other and in any given case, each of them may act or may have to be considered in reckoning the time within which the assessment has to be completed. It is thereafter at the instance of the assessee the question of law aforementioned was referred to this Court under section 256(1) of the Act.

We heard counsel for the petitioner, Shri Mohan Vellappally, and Shri P. K. R. Menon, on behalf of the respondent. Admittedly, the return for the asst. yr. 1978-79 was filed on July 30, 1978, and, therefore, the assessment under s. 143(3) will have to be completed on or before March 31, 1981, for section 153(1)(a)(iii) says that no order of assessment shall be made under s. 143 or s. 144 at any time after two years from the end of the assessment year in which the income was first assessable. Since the income was first assessable in the asst. yr. 1978-79, the assessment in question will have to be completed before March 31, 1981. But, in the present case, the variation between the income returned and the income proposed to be assessed was more than Rs. 1,00,000 and, therefore, the ITO has to comply with the provision of s. 144B before the assessment is completed. Sec. 144B of the Act says that where, in an assessment to be made under sub-s. (3) of s. 143, the ITO proposes to make any variation in the income returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board (namely, Rs. 1,00,000), the ITO shall, in the first instance, forward a draft of the proposed order of assessment to the assessee. On receipt of the draft order, the assessee may forward his objections, if any, to such variations to the ITO within the period allowed by the ITO. If no objections are received or the assessee intimates to the ITO the acceptance of the variations, the ITO shall complete the assessment on the basis of the draft order. If any objections are received, the ITO shall forward the draft order together with the objections to the IAC and the IAC shall, after considering the draft order and the objection; and after going through the records relating to the draft order, issue, in respect of the matters covered by tile objections, such directions as he thinks fit for the guidance of the ITO to enable him to complete the assessment. No direction prejudicial to the assessee shall be issued under s. 144B before an opportunity is given to the assessee to be heard. The direction issued by the IAC shall be binding on the ITO. This would clearly show that when a reference is made to the IAC under s. 144B, the ITO will not become defunct in respect of that assessment. The directions given under s. 144B are for the guidance of the ITO for enabling him to complete the assessment which, of course, will be binding on him in respect of the matters covered by the objections. The reference to the IAC and completion of the procedure mentioned in s. 144B naturally will take time. Therefore, it may not be possible to complete the assessment within the period mentioned in s. 153 of the Act. Explanation 1 (iv) to s. 153(3) of the Act provides that a period not exceeding 180 days commencing from the date on which the ITO forwards the draft order under sub-s. (1) of s. 144B to the assessee and ending with the date on which the ITO receives the directions from the IAC under sub-s. (4) of that section shall be excluded.

In the case in question, the draft assessment order was forwarded to the assessee by the ITO on May 3, 1979, and, therefore, the maximum period of 180 days will be taken into account under the Explanation aforementioned in computing the period of limitation.

Under s. 144B, the direction issued by the IAC will have to be taken as a binding guidance to the ITO in respect of the matters covered by the objection of the assessee. Thereafter, the ITO has to pass the assessment order under s. 143(3) r/w s. 144B of the Act. This assessment order under s. 143(3) also will have to be passed by him in cases where no objections have been received from the assessee to the draft assessment order: s. 143(3) says that, on the day specified in the notice issued under sub-s. (2), or as soon afterwards as may be, after hearing such evidence as

the assessee may produce and such other evidence as the ITO may require on specified points, and after taking into account all relevant materials which he has gathered, make an assessment order. This function under s. 143(3) is a quasijudicial function to be exercised by the ITO and, therefore, the Officer has to give the assessee an opportunity to be heard. Since there was a change in the incumbent of the ITO between the reference under s. 144B and the issue of the directions, the IAC issued a letter to the assessee on December 17, 1980, to ascertain whether the assessee wanted a fresh hearing before the new ITO. This is required under s. 129 of the Act. Sec. 129 says that whenever, in respect of any proceeding under the Act an authority ceases to exercise jurisdiction and is succeeded by another, the IT authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor provided that the assessee concerned may demand that before the proceeding is so continued, he be reheard. In other words, in consonance with the rules of natural justice, the section gives an opportunity to the assessee to demand a hearing.

7. The assessee in question wanted a fresh hearing to be given and he availed of the opportunity of being heard on October 15, 1981, and the time taken on this count was 9 months and 21 days. Of course, the assessee says that he has disputed the point about the exclusion of such time and the fresh hearing was availed of subject to his objection. The said letter forming part of the record has not been produced. But there is no dispute that he has availed of the opportunity. Explanation 1 (i) to section 153(3) of the Act says that in computing the period of limitation for the purposes of completing the assessment, the time taken in giving an opportunity to the assessee to be reheard under the proviso to s. 129 of the Act has also to be excluded.

8. The Tribunal followed its earlier decision in the case of Crossfield Trades (I.T. A. No. 300 (Cochin) of 1981). That also came by way of reference before us and by the decision reported in Crossfield Traders vs. CIT (1989) 77 CTR (Ker) 26 : (1989) 179 ITR 606, 609 (ker), we held : “It is not open to the assessee to contend that the opportunity of being heard afforded to the assessee, in terms of the proviso to s. 129 of the Act, was uncalled for and that the opportunity availed of by the assessee should not be taken into account for the purpose of removing the bar of limitation. Having elected to avail of the opportunity, in terms of the proviso to s. 129 of the Act, it is not open to the assessee to contend either that he need not have been given the opportunity or that the availing of that opportunity was of no consequence. The applicant/assessee by his own conduct, cannot put forward such a plea . . . the time required for affording an opportunity of being heard to the assessee, in terms of the proviso to s. 129 of the IT Act, should be excluded in computing the time limit for the purpose of completing the assessment.”

9. In view of the aforesaid decision, this case also must share the same fate.

10. But it is contended on behalf of the assessee in this case that he availed of the opportunity subject to his objection. A denial of natural justice in the assessment proceedings will vitiate the proceedings. We feel that the objection of the assessee will not make any difference in this case. Sec. 129 is rightly applied by the authorities in this case. In Anantha Naganna Chetty vs. CIT (1970) 78 ITR 743, a Division Bench of the High Court of Andhra Pradesh rightly rejected the contention that s. 129 will have no application in a case where the ITO has acted upon the directions given by the IAC, or s. 129 will have application in cases where the matter is heard in part and there was change in the incumbent of the office. Dealing with the question, the Division Bench said (headnote) : “The view that it is only in cases where arguments were heard but order was not passed, that a notice to the assessee would be necessary and in all other cases it would be unnecessary, is not correct. If the succeeding officer is authorised to continue the proceedings from the stage where it was left as he is under s. 5(7C), then it is not proper to divide the stages with a view to hold as to in what cases he can continue without giving notice and in what cases he can continue only after notice. In all cases where the succeeding officer is empowered to continue, that power is made subject to the first proviso and no such artificial division in the stages of proceedings can be permitted to affect the right of the assessee which he has under the first proviso.”

In the decision reported in CIT vs. Smt. Chitra Mukherjee (1981) 21 CTR (Cal) 254 : (1981) 127 ITR 252, a Division Bench of the High Court of Calcutta held that the successor-ITO erred in continuing the penalty proceedings from the stage at which such proceeding was left by his predecessor, without specifically informing the assessee of his intention to do so. In the decision reported in Venkata Ramana (K.) and Budha Appa Rao vs. CIT (1987) 65 CTR (AP) 66 : (1987) 168 ITR 747 (AP), after noting the earlier decision in Anantha Naganna Chetty vs. CIT (supra) rendered on s. 5 (7C) of the Indian IT Act, 1922, corresponding to s. 129 of the IT Act, 1961, a Division Bench of the Andhra Pradesh High Court held that if there is a change of ITO when proceedings are pending before the IAC, s. 129 will not apply and, the assessee cannot demand rehearing by the succeeding ITO. But, in that case, there was no request in terms of s. 129 of the Act made by the assessee and that decision will not apply to the facts of this case.

Admittedly, the assessee availed of a rehearing under s. 129 of the Act on October 15, 1981. The assessee was asked on December 17, 1980 as to whether he would require a rehearing as contemplated under s. 129 of the Act in view of the change of the ITO. If he did not want to avail of that opportunity, he could have said so in which case the assessment would have been completed before March 31, 1981, within time. Since he has availed of this opportunity, the assessment could be completed only on May 13, 1982, that is, after 1 year and 42 days. The time to be excluded under Explanation 1 (iv) to s. 153 (3) of the Act is 180 days and under Explanation 1(i) to s. 153(3) is 9 months and 21 days which together comes to over one year and three months. Therefore, the assessment has been rightly held by all the authorities as within time.

It is contended by counsel for the petitioner that the ITO can avail of only one of the periods specified in Explanation I to s. 153(3), that is either the ITO can exclude the time taken for giving an opportunity under s. 129 or the period of 180 days allowed for considering the reference under s. 144B. We are not inclined to agree to this proposition. On a reading of several clauses in the Explanation, it will be seen that they are independent of each other and will have to be given effect to in the circumstances of each case. The period during which the assessment proceedings is stayed, by an order of injunction of any Court will have to be excluded along with the time taken for giving an opportunity to the assessee under s. 129 of the Act or period allowed under s. 144B. The same is the case with respect to other clauses in the Explanation. Therefore, there is no justification for the contention that only one of the various periods specified in the Explanation can be taken into account or the longest period therein has to be taken into account for computing the time limit for completing the assessment. Hence, we hold that the Tribunal was right in concluding that the assessment order was not time-barred under s. 153 of the IT Act, 1961.

Accordingly, we answer the question referred to us in the affirmative, that is, in favour of the Revenue and against the assessee.

A copy of this judgment under the seal of the High Court and the signature of the Registrar shall be forwarded to the Tribunal, Cochin Bench.

[Citation :181 ITR 157]