Punjab & Haryana H.C : Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessment framed is not null and void ?

Sections 144B, 251(1)(a)

Asst. Year 1973-74

Counsel Appeared

Sanjiv Walia & Inder Pal Bansal, for the Assessee : L.K. Sood, for the Revenue

GOKAL CHAND MITAL, J.:

For the asst. yr. 1973-74, the assessee filed return declaring income of Rs. 2,77,264. The ITO considered the matter under s. 143(3) of the IT Act, 1961 (for short ‘the Act’) in great detail and computed the income at Rs. 3,96,168. Since the assessee was a registered firm, the share allocation amongst partners was also made. Finally, the following words were added in the assessment order dt. 29th March, 1976 : “Penalty notices under ss. 271(1)(c) and 273 have already been issued. Assessed. Issue documents.”

The assessment order was duly signed by the ITO, and below the assessment order there was added a depreciation chart and certain annexures. This was also signed by the ITO. A copy of the assessment order is Annexure ‘A’ in the paper book. However, at the top of the order ‘draft order’ is written. The ITO communicated the order dt. 7th April, 1976 passed under s. 144B(3) of the Act, to the assessee. It is in the following terms: “The draft assessment order served on 30th March, 1976 on you should be treated as final as statutory period of one week has already lapsed and no objection has been filed. Demand notice, challan and penalty notices have already been issued and served. However, copies of the same are again enclosed for necessary action.”

The aforesaid order shows that the ITO considered order dt. 29th March, 1976 as a draft order under s. 144B, although a reading of the order dt. 29th March, 1976 shows that it was a complete order duly signed by the ITO and that was served on the assessee on 30th March, 1976 together with the demand notice and challan, although notice for imposition of penalty was yet to be issued.

2. The assessee filed appeal against both the orders dt. 29th March, 1976 and 7th April, 1976 and the CIT(A) consolidated both the appeals and came to the conclusion that order dt. 29th March, 1976 was final order and since he (ITO) had not followed the procedure laid down in s. 144B of the Act, the same was illegal, the matter was thus set aside and was remanded to the ITO for passing a fresh order after following the procedure laid down by law. In view of the above, order dt. 7th April, 1976 passed by the ITO was cancelled. The assessee’s effort to challenge the remand order remained unsuccessful before the Tribunal, Amritsar, and at the instance of the assessee, it has referred the following questions for opinion:

“1. Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the assessment framed is not null and void ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the provisions of s. 144B of the IT Act, 1961 are not mandatory but are only advisory and that the ITO is not bound to conform to the provisions of s. 144B in case the addition to be made to the declared income of the assessee exceeds prescribed amount and further that he is not bound by the directions of the IAC, if given under s. 144B ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the jurisdiction of the ITO to frame assessment does not cease when he finds that the addition to be made to the declared income of the assessee exceeds prescribed amount ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the failure of the ITO to follow the procedure laid down in s. 144B does not violate the principles of statutory and of natural justice and is not fatal to assessment order’s validity ?

Whether, on the facts and in the circumstances of the case, the Tribunal is correct in law in holding that the appellate order of the CIT(A) setting aside the assessment for framing the same afresh was correct and did not amount to circumventing the time limit prescribed for completion of assessment ?

3. After going through the order dt. 29th March, 1976 passed by the ITO we are of the opinion that the Tribunal and CIT(A) were right in coming to the conclusion that it was not a draft order under s. 144B of the Act, but was a final order under s. 143(3) of the Act and since the ITO had made additions of more than a lac of rupees, although he had the jurisdiction to add more than a lac of rupees, this he could do by following the procedure laid down in s. 144B of the Act and not in the manner he has done in this case. Once order dt. 29th March, 1976 was not a draft order and was a final order, the assessee was not obliged to file objections within 7 days of the receipt of the order and thus the order dt. 7th April, 1976 passed by the ITO also could not be allowed to stand. Whether provisions contained in s. 144B of the Act, are called mandatory or statutory, the result is the same, namely, that if the ITO wants to add more than a lac of rupees in the returned income, he has to follow the procedure contained in s. 144B of the Act, before doing so.

4. The next question is what is the power of the CIT(A) in such a situation. Sec. 251(1)(a) of the Act authorises the CIT(A) to annul or set aside the assessment order and refer the case back to the ITO for making a fresh assessment in accordance with the directions and if necessary to make further enquiry, and thereupon the ITO shall proceed to make fresh assessment. The CIT(A) exercised his power under the aforesaid provision for setting aside the illegal order of the ITO and rightly remanded the case to the ITO for fresh determination in accordance with law.

5. Another point, that has specifically come up for consideration is whether the order of the ITO without following the procedure laid down in s. 144B of the Act is null and void and the appellate Court on noticing the infirmity, could set aside and remand the case to the ITO to frame fresh assessment after following the due procedure. To highlight, the argument of the counsel for the assessee was that a null and void order is either no order in the eye of law or can be said to be non-existent and if that is so, question of filing an appeal against such an order does not arise. Similarly, even if appeal is filed, the appellate Court has no jurisdiction to set it aside and remand the matter except declaring that the order of the ITO was null and void. It cannot be disputed that an appellate authority has jurisdiction to notice the error in the order of the lower authority and to grant appropriate relief. Where the mistake can be corrected at the appellate stage after due opportunity decision can be rendered. Where it becomes necessary to remand the matter to the original authority, that course can be followed. All illegal and erroneous orders are not null and void but all null and void orders also partake the character of being illegal and erroneous and can be rectified in appeal. Illegal and erroneous orders if not appealed against bind the parties, but if null and void order is not appealed against, it may not bind the party, against whom it is passed, and it will be open to the aggrieved party either to challenge it by filing appeal or in collateral proceedings when the order is sought to be enforced against it. In the present case, the assessment order made by the ITO without following the procedure laid down in s. 144B of the Act was challenged in appeal by the assessee and the CIT(A) after setting aside that order remanded the case to the ITO for making fresh assessment after following the due procedure. The CIT(A) had power/jurisdiction to do so and it cannot be said that he had only to declare the order of the ITO to be null and void and was in error in remanding the case to the ITO.

6. Another point raised was that by passing the remand order the time limit for making the assessment was sought to be circumvented. Since, law permits enlargement of limitation on remand, there is no question of circumventing the time limit for framing the assessment. Sec. 153 (1) of the Act provides for time limit for completion of assessment under s. 143 or 144 of the Act. Sec. 153(2) of the Act provides for time limit for framing assessment, reassessment and recomputation under s. 147 of the Act. Sec. 153(2A) is non obstante clause in relation to the assessment year commencing on the 1st day of April, 1971 and consequent years. Notwithstanding sub-ss. (1) and (2), in relation to such assessment years, a fresh assessment can be framed before the expiry of two years from the end of the financial year in which order under s. 145(sic) of the Act cancelling the assessment is passed by the ITO or in pursuance to an order passed under ss. 250, 254, 263 and 264 of the Act. Sec. 250 of the Act pertains to the first appellate order and s. 254 of the Act pertains to orders of the Tribunal. Since the order of remand is passed for framing fresh assessment, the limit would stand enlarged as indicated by sub-s. (2A) of s. 153 of the

Act. There is yet another non obstante clause in s. 153(3) of the Act. It provides that provisions of sub-ss. (1) and (2) shall not apply to the classes of assessments, reassessments and recomputation, which may be completed at any time as mentioned in cls. (i) to (iii), subject to the provision of sub-s. (2A) to s. 153 of the Act. Explanation added to s. 153 of the Act, further provides for excluding certain time and periods in computing the period of limitation provided by the section. Therefore, when pursuant to the remand order passed by the CIT(A), which was upheld by the Tribunal, fresh assessment is made, it will be open to the assessee to raise the question of limitation as point of limitation does not arise at this stage.

In view of the aforesaid decisions of ours, we proceed to give our answer to the referred questions.

Question 1— This question is decided in favour of the Revenue that the assessment framed could be set aside by the Tribunal and CIT(A) with a direction to the ITO to frame fresh assessment and on peculiar facts of this case, the Tribunal was right in law that the assessment framed was not null and void so as to take away the jurisdiction to remand the matter to the ITO for fresh assessment.

Question 2—Our answer to question No. 2 is that provisions of s. 144B of the Act are mandatorycum-statutory and if facts of the case fall within the ambit of that provision, the ITO is bound to conform to those provisions in case he wants to make additions, which exceed the prescribed amount. The directions issued by the IAC under s. 144B of the Act are no doubt for the guidance of the ITO but are binding upon him by virtue of s. 144B(5) of the Act.

Question 3—This question is answered in favour of the Revenue, that is, in the affirmative. The ITO has the jurisdiction to add over a lac of rupees but before doing so he has to follow the procedure given in s. 144B of the Act.

Question 4—Under this question, it is answered that if the ITO does not follow the procedure laid down in s. 144B of the Act, it is not fatal to the framing of fresh assessment after following the procedure within the period of limitation.

Question 5—This question is answered in favour of the Revenue, that is, in the affirmative that the Tribunal was right in upholding the order of the CIT(A) provided fresh assessment is made within the period of limitation.

The parties are left to bear their own costs.

[Citation :180 ITR 297]