Patna H.C : The material facts on record and the proceedings leading upto this reference are, inter alia, that M/s S.P. Viz Construction Co., the assessee, is a registered partnership firm and is an assessee within the meaning of the IT Act, 1961.

Counsel Appeared

K.K. Vidyarthi & S.K. Sharan, for the Revenue : None, for the Assessee

D.K. SEN, C.J.:

The material facts on record and the proceedings leading upto this reference are, inter alia, that M/s S.P. Viz Construction Co., the assessee, is a registered partnership firm and is an assessee within the meaning of the IT Act, 1961.

For the asst. yr. 1968-69, the relevant previous year being the calender year 1967, the assessee filed return of its income initially on the 1st Aug., 1968, disclosing a taxable income of Rs. 1,05,525. Subsequently, on the 9th Feb., 1972, the assessee filed a revised return with audited balance sheet and profit and loss account, where its taxable income was declared to be Rs. 79,025.

At the material time the assessee carried on business as a building contractor. In making assessment the ITO found that the assessee had declared its net profit at 7% of the total receipts, which he considered to be too low. He rejected the explanation of the assessee that the buildings works were being carried on at Assam where the assessee had no previous experience and had to transport labour and materials from Calcutta as also there was increase in the prices of building materials and labour rates after commencement of the work under contract and as such the rate of net profit was not high. The ITO estimated the rate of net profit to be 10%, computed the income accordingly and made an ex parte order of assessment on the 21st March, 1973.

It was recorded in the order of assessment that penalty proceedings under ss. 271(1)(a), 271 (1)(c) and 140A(3) of the IT Act, 1961, had already been initiated.

Being aggrieved by the aforesaid the assessee preferred an appeal before the AAC contending, inter alia, that the assessment was barred by the limitation as the same had not been completed within one year from the date of filing of the revised return, that is, before the 8th Feb., 1973. It was contended further that the limitation was not saved by s. 153(1)(b) of the IT Act, 1961, which did not apply and in any event there was no material on record on the basis of which s. 153(1)(b) of the said Act could be invoked.

The AAC held that there was a prima facie case of concealment, inasmuch as, even the revised return filed subsequentlyby the assessee was not complete nor correct. He noted that the assessee had taken a long time to file the auditor’s report and had failed to produce its books of account and did not apply under s. 146 of the IT Act, 1961, for reopening the ex parte assessment for obvious reasons. The ITO had initiated penalty proceedings under s. 271(1)(c) of the Act. The AAC noted further that there had been change in incumbent in the office of the ITO and the successor ITO in accordance with the principle of natural justice was required to hear the assessee afresh before completing the assessment. Therefore, the time taken by the successor ITO to reopen the whole or any part of the proceeding or to give an opportunity to the assessee to be heard had to be excluded as required under Expln. 1 of s. 153(3) of the Act. He held that the assessment was not barred by limitation nor illegal and ab initio void.

Being aggrieved by the aforesaid the assessee preferred a further appeal before the Tribunal. The Tribunal accepted the preliminary objection of the assessee that the assessment was time-barred. The Tribunal held that as a revised return had been filed on the 9th Feb., 1972, the assessment should have been made by the 8th Feb., 1973, under s. 153(1)(c) of the Act. The Tribunal rejected the contention of the Revenue that time for completion of the assessment was extended under s. 153(1)(b) of the Act as in the facts s. 271(1)(b) of the Act was attracted.

The Tribunal noted the findings of the AAC that : (a) the returns filed by the assessee were not accompanied by complete and correct statements of accounts; (b) the assessee had taken a long time to file its audit report and had withheld production of its books of account; and (c) the assessee did not file an application under s. 146 of the Act for reopening of the ex parte assessment.

The Tribunal held that the aforesaid did not constitute valid reasons for holding that the assessee had concealed its income within the meaning of s. 271(1)(c) of the Act, or that the records led to a reasonable conclusion that there was even a prima facie case of concealment. The Tribunal held that there was nothing on record to indicate that the assessee was guilty of concealment of income. On the other hand, the assessee had returned its income on estimate basis and the ITO had adopted the same basis for determining the income of the assessee. The Tribunal noted that the estimates made by different persons were bound to differ and it could not be presumed therefrom that the assessee had concealed its income.

9. The Tribunal noted further that the ITO in making the assessment did not invoke or apply s. 153 (1)(b) of the Act which was noted for the first time by AAC. Before the assessment became time-barred on the 8th Feb., 1973, there was no prima facie finding by the ITO that the assessee had concealed its income within the meaning of s. 271(1)(c) of the Act. Even thereafter there was no such specific finding. Only on 21st March, 1973, the ITO initiated penalty proceedings in a routine manner when the assessment had already become time-barred. The Tribunal also noted that the said penalty proceeding against the assessee was ultimately dropped and this concluded the issue against the Revenue.

10. The Tribunal also rejected the conclusion of the AAC that the period from 6th Sept., 1972 to 31st March, 1973 should be excluded in computing the period of limitation as there was change in the incumbent of office. The Tribunal considered s. 129 of the Act and held that the successor ITO could legally continue the proceedings at the stage at which the same was left by his predecessor and he was under no obligation to reopen the previous assessment or to rehear the assessee unless it was so demanded by the assessee. In the instant case there was no such demand from the assessee and if the successor ITO gave an opportunity to the assessee of his own accord, the proceeding cannot be considered to have been reopened under s. 129 so as to extend the period of limitation. The Tribunal followed the decisions in CIT vs. Suraj Pal Singh 1975 CTR (All) 295 : (1977) 108 ITR 746 (All) : TC11R.700 and Ram Bilas Kedar Nath & Ors. vs. ITO & Anr. (1964) 54 ITR 11 (All) : TC11R.639.

11. The Tribunal, while accepting the assessment on merits, allowed the appeal on the preliminary objection.

12. On an application of the Revenue under s. 256(1) of the IT Act, 1961, the following question stated to be a question of law arising from the order of the Tribunal has been referred to this Court for its opinion. “Whether, on the facts and in the circumstances of the case, the Tribunal has rightly cancelled the assessment order passed by the ITO on 21st March, 1973, for the asst. yr. 1968-69 as time barred ?”

13. To appreciate the controversy involved in the reference the relevant provisions of the IT Act, 1961, as they stood at the material time, may be noted as set out hereunder: Sec. 129: “Whenever in respect of any proceeding under this Act an IT authority ceases to exercise jurisdiction and is succeeded by another who has and exercises jurisdiction, 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 the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard.” Sec. 153: “(1) No order of assessment shall be made under s. 143 or s. 144 at any time after— (a) the expiry of— xxxxxxxxxxxxxxx (iii) two years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or after the 1st April, 1969; or xxxxxxxxxxxxxxx (c) the expiry of one year from the date of the filing of a return or a revised return under sub-s. (4) or sub-s. (5) of s. 139, whichever is latest. xxxxxxxxxxxxxxx Explanation 1.—In computing the period of limitation for the purposes of this section the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to s. 129 or any period during which the assessment proceeding is stayed by an order or injunction of any Court, shall be excluded”. Sec. 271: “(1) If the ITO or the AAC, in the course of any proceedings under this Act, is satisfied that any person— xxxxxxxxxxxxxxx (c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty— xxxxxxxxxxxxxxx (iii) In the cases referred to in cl. (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished. Explanation.—Where the total income returned by any person is less than eighty per cent of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under s. 143 or s. 144 or s. 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income for the purposes of cl. (c) of this sub-section.”

Before us learned advocate for the Revenue reiterated the contentions on behalf of the Revenue before the Tribunal and submitted further that on a proper interpretation of s. 129 of the Act the successor ITO in the instant case was required to hear the assessee afresh before completing the assessment and, therefore, the time taken by him to give such an opportunity to the assessee had to be excluded as required under Expln. 1 of s. 153(3) of the Act. He submitted further that, in any event, the ITO having found that the assessee had concealed its income or had furnished inaccurate particulars of its income within the meaning of s. 271(1)(c) of the Act, had initiated penalty proceeding against the assessee prior to the completion of the assessment and as such limitation in the instant case did not expire till the expiry of eight years from the end of the assessment year in question.

In support of his contentions the learned advocate for the Revenue cited the following decisions: (a) T.B. Hanumantharaj vs. CIT (1978) 111 ITR 414 (Mad) : TC11R.665. In this case the assessee as a Karta of an HUF filed a voluntary return for the asst. yr. 1951-52 on the 28th May, 1952, disclosing a net income of Rs. 7,073. The ITO completed the assessment on the 31st March, 1960. In the assessment the ITO added a sum of Rs. 10,000 as income from undisclosed source on the basis of unexplained cash credits, as also another sum of Rs. 17,767 being the share of the income of the assessee from another firm which had not been disclosed in the return or at any time prior to the completion of the assessment. The assessee contended that under s. 34(3) of the Indian IT Act, 1922, the assessment was barred by limitation as the same had to be completed during a period of four years from the end of the year in which the income became first assessable.

The ITO rejected the contention on the ground that this is the case where the provisions of s. 28(1) (c) of the said Act of 1922 applied and as such a longer period of limitation was available. Appeals by the assessee to the AAC and the Tribunal were unsuccessful. On a reference a Division Bench of the Madras High Court held that in view of non-disclosure of assessee’s income from the said firm in the return of the assessee and the addition to the income returned on account of cash credit, which remained unexplained in spite of opportunity given to the assessee to explain the same by the AAC, who remanded the matter to the ITO for the said purpose, the provisions of s. 28(1)(c) of the IT Act, 1922 would apply. It was held further that it was immaterial that the penalty was ultimately not levied or could not be levied on the assessee under s.28(1)(c) of the said Act of 1922, and the only question to be considered was whether the provisions of s. 28(1)(c) would apply in the facts for the purpose of s. 34(3) of the Act. The High Court held that the assessment was not barred by limitation. (b) Jyoti Prakash Mitter vs. Union of India & Ors. (1978) 112 ITR 378 (Cal) : TC11R.664. This decision of a learned single Judge of the Calcutta High Court was cited for the proposition that there was a difference between the initiation of a penalty proceeding under s. 271 and the imposition of penalty thereunder. Under s. 271(1) of the Act of 1961 penalty proceedings could be initiated during the pendency of any proceeding under the Act and the same did not require any notice to be served on the assessee before the initiation of such proceedings as the same depended on the prima facie subjective satisfaction arrived at by the ITO in course of any proceeding under the Act. It was held in the facts of the case that the assessment proceedings involved were not barred under s. 153(1)(c) of the Act of 1961 and the allegation of the Revenue that the petitioner had concealed particulars of his income or had furnished inaccurate particulars of such income in the said assessment year brought the case within the mischief of s. 271(1)(c) of the Act. The extended period of limitation under s. 153(1)(b) would be available for completion of the assessment. (c) CIT vs. Smt. Chitra Mukherjee (1981) 21 CTR (Cal) 254 : (1981) 127 ITR 252 (Cal). In this case the ITO had initiated a penalty proceeding under s. 271(1)(a) of the IT Act, 1961 against the assessee for failing to file her return under s. 139(1) of the said Act within time. A notice was issued to the assessee to show cause why penalty should not be imposed. This notice was not complied with. Thereafter the ITO concerned was succeeded by another. The successor officer continued the penalty proceeding from the stage at which his predecessor had left it and without issuing a fresh notice either under s. 129 or under s. 274 of the IT Act, 1961, he imposed a penalty on the assessee. The order of penalty was set aside by the AAC on the ground that the same had been imposed without hearing the assessee as required under s. 274 of the Act of 1961. On an appeal by the Revenue the Tribunal affirmed the order of the AAC. On a reference a Division Bench of the Calcutta High Court held, inter alia, that under s. 129 of the Act of 1961 it was open to an assessee to demand a rehearing before a successor ITO before he continued previous proceeding or any part thereof. It was held further that there was nothing on record to show that the assessee had knowledge that the successor ITO before he continued the previous proceeding or any part thereof. It was held further that there was nothing on record to show that the assessee had knowledge that the successor ITO intended to proceed with the matter from the stage at which his predecessor had left it. It was also held that though no reply had been filed to the notice under s. 274 of the Act of
1961 issued by the predecessor ITO, the successor ITO has no authority to pass an order of penalty without giving the assessee afresh an opportunity of being heard as penalty proceedings were not only quasi-judicial but quasi- criminal in nature and the requirement of reasonable opportunity had to be followed strictly unlike the requirement of assessment proceeding. No one appeared on behalf of the assessee.

The first point to be considered is as to whether by reason of proviso to s. 129 of the IT Act, 1961 the ITO was entitled to the benefit of the exclusion of any time which may have been taken by him to give an opportunity to the assessee of being heard in consonance with the principles of natural justice. No doubt under s. 129 of the Act, noted hereinbefore, an assessee has a right to demand that before the successor ITO continues any proceeding initiated by his predecessor or any part thereof, he should reopen any part of the proceeding or rehear the assessee before any final order of assessment was passed. In the instant case there was no such demand from the assessee under s. 129 of the Act. The successor ITO was entitled under the said section to continue the proceeding from the stage at which the same had been left by his predecessor. At the highest it can be contended that the successor ITO, who continued the proceeding from the stage at which the same had been left, should have issued a further notice to the assessee stating that he intended to continue the proceeding. The successor ITO did not even do so in the instant case.

In our view, the successor ITO cannot wait on his own indefinitely on the chance that the assessee might demand a reopening of the proceedings or any part thereof or a rehearing and claim that the period of his waiting should be excluded in computing the period of limitation. The principle laid down in Smt. Chitra Mukherjee (supra), in our view, does not apply in the facts of this case, inasmuch as, in the said case the proceedings involved were penalty proceedings and not assessment proceeding, as in the instant case. It was noted in the said decision that for assessment proceedings the Act had specifically provided extension of time in case of rehearing by the succeeding Officer.

Next to be considered is whether the Revenue is entitled to the benefit of the extended period of limitation under s. 153(1)(b) of the Act of 1961. On the materials on record the Tribunal has found as a fact that there was nothing to establish even prima facie that the assessee was guilty of concealment of any income within the meaning of s. 271(1)(c) of the Act nor was there any finding by the ITO to that effect at any time before or after the assessment became barred on the 8th Feb., 1973. The Tribunal noted that the assessee’s return of income was on the basis of estimate which basis was also adopted by the ITO. A difference in estimate, it was held, would not lead to the conclusion that there was prima facie a concealment. The penalty proceedings were initiated by the ITO in a routine manner on the 21st March, 1973, after the assessment became time-barred. The Tribunal also noted that the proceeding under s. 271(1)(c), initiated in the instant case, had ultimately been dropped against the assessee.

On the basis of aforesaid facts the Tribunal has come to the conclusion that the Revenue was not entitled to the benefit of the extended period of limitation under s. 153(1)(b) of the Act. Such findings of fact of the Tribunal have not been challenged by the Revenue by an appropriate question and the same must be held to have become final.

The decision in T.B.Hanumantharaj’s case (supra) will not assist the Revenue in the facts and circumstances of the instant case. In the said case it was found as a fact that cash credit of Rs. 10,000 had remained unexplained in the returns of the assessee and that another amount being the share income of the assessee from another firm had not been disclosed in the return. The cash credit remained unexplained by the assessee even when the AAC remanded the matter to the ITO. The decision of the learned single Judge of the Calcutta High Court in Jyoti Prakash Mitter (supra) has to be read in the context of the facts of the said case where the main challenge was against penalty proceedings which were initiated after search and seizure of the premises of the assessee. Except for a bare statement in the main order of assessment that penalty proceeding had been initiated against the assessee, inter alia, under s. 271(1)(c) of the Act of 1961, there is nothing on record to establish that the assessee had concealed particulars of income or furnished inaccurate particulars thereof. No specific concealment or inaccuracy was referred to. The date when the said penalty proceedings were initiated cannot also be found on the record.

The Explanation to s. 271(1)(c) of the said Act, which was in force at the relevant time, in our view, cannot also be taken advantage of by the Revenue, inasmuch as, the deemed concealment thereunder can only arise under a valid order of assessment under s. 144 of the Act and not time-barred assessment.

For the above reasons I am unable to accept the contentions of the Revenue and I answer the question referred in the affirmative and in favour of the assessee. In the circumstances of the case there will be no order as to costs.

S. ALI AHMAD, J.:

I agree.

[Citation : 176 ITR 34]