High Court Of Rajasthan : Jaipur Bench
CIT vs. Girdhari Lal
Section 263
Asst. Year 1976-77, 1977-78, 1978-79, 1979-80, 1980-81, 1981-82
Y.R. Meena & A.C. Goyal, JJ.
IT Ref. No. 3 of 1987
15th February, 2002
Counsel Appeared
J.K. Singhi, for the Applicant
JUDGMENT
BY THE COURT :
On an application filed under s. 256(1) of the IT Act, 1961, the Tribunal has referred the following question for the opinion of this Court :
“Whether, on the facts and in the circumstances of the case, the Tribunal was correct in cancelling the orders under s. 263 of the IT Act for the asst. yrs. 1977-78, 1979-80 to 1981-82 ?”
2. The assessee derives income from the business of contract and construction of roads and bridges. The assessment years involved are 1976-77 to 1981-82. The assessments were completed under s. 143(3) r/w s. 148. Thereafter a notice under s. 263 of the Act was issued by the CIT on 24th Dec., 1982, to revise the assessment orders made by the AO. For revising the assessment order, the CIT was of the view that : (a) the assessment for asst. yr. 1976-77 should be made by the ITO Special Survey Circle and not by ITO B-Ward, and (b) the assessment orders were made in haste and stereotype fashion. In reply, the assessee submitted that when ITO B- Ward has issued a notice for registration (sic) of the proceedings to assess the income of the assessee in the abovesaid years and since the assessee has not objected the jurisdiction, therefore, it was not the fault of the assessee as assessee is not supposed to know who has the jurisdiction, whether it is ITO Special Survey Circle or ITO B-Ward. It has been further noticed that the assessment has not been made in haste and that after making the necessary enquiries for assessing the income of the assessee, some additions were made, therefore, it cannot be said that the order of the AO was erroneous and prejudicial to the interest of the Revenue.
The Tribunal has considered the submissions and has taken the view that merely the low profit shown by the assessee in itself does not render the order erroneous. The Tribunal further observed that ITO had duly considered the explanation furnished during the course of assessment proceedings and also considered the heavy losses in contract work due to competition in the line of business and held that if low G.P. or N.P. has been shown in the business, that does not mean, the order of the AO is erroneous. None appeared for the assessee. Heard learned counsel for the Revenue Mr. Singhi. Whether the AO has committed an error in making the assessment for asst. yr. 1976-77 in this case, on this aspect, the Tribunal has concluded its findings in para 5 of the order, which reads as under : “We have heard the rival submissions and considered the various materials that have been placed on record. The ITO B-Ward started with assessment for 1979-80 onwards later on did not (sic) assessments 1976-77 onwards as the returns contained the GIR No. and, therefore, he was justified in assuming that assessee was an existing assessee in his ward. The ITO B-Ward had the jurisdiction to assess contractors’ cases whose names being with alphabet ‘G’. He could have possibly sent the first year i.e., 1976-77 to be Special Survey Circle had the GIR Nos were not mentioned on the returns. Having assumed the jurisdiction, he proceeded to make the assessments. He conducted such enquiries as he felt necessary considering the fact of the case. From the manner in which he has passed the assessment order, it gives an indication that he had applied his mind to the facts of the case and found the various submissions for low g.p. plausible. The only mistake which the ITO committed for 1976-77 was that he did not seek the sanction of the CIT prior to issue of notice under s. 147. The Supreme Court in the case of CIT vs. Kurban Hussain Ibrahimji 1973 CTR (SC) 463 : (1971) 82 ITR 821 (SC) : TC 51R.595 observed that the requirement of assumption of jurisdiction by the CIT pertain to reason of natural justice. Breach of principles of natural justice affect the legality of the order made but does not affect the jurisdiction of the CIT. The Federal Court in the case of Chatturam vs. CIT (1947) 15 ITR 302 (FC) : TC 9R.119 has observed that the assessment on a person who submits his return would be valid notwithstanding that no valid notice or no notice at all might have been issued. They have further observed that the income-tax assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the ITO to make the assessment of the liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under s. 22(1) or (2) of the Act of 1922 may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are notconditional on the validity of the notice. In the case of Seth Kanhiyalal vs. CIT (1937) 5 ITR 739 (All) : TC 69R.549 the ITO designated himself wrongly and in the following cases the notices contained a small error and it was held that such small error would not invalid the notice or the assessment. Tarak Nath Bagchi vs. CIT (1946) 14 ITR 319, 323-4 (Cal) : TC 9R.180 and Singha vs. Secretary of State 2 ITC 462 [s. 139(2)] Lachhmamdass Baburam vs. CIT 4 ITC 61 [s. 142(1)], Rajmanidevi vs. CIT (1937) 5 ITR 631, 639-40 (All) [s. 143(2)], Mangal Sen vs. ITO (1964) 52 ITR 621 (All) : TC 51R.1903 and Sewlal Daga vs. CIT (1965) 55 ITR 406 (Cal) : TC 51R.1810 (s. 148) and CIT vs. Swaminathan Chettiar (1947) 15 ITR 430 (Mad) : TC 51R.551 (s. 148)”. Sec. 292B has come into the statute book w.e.f. 1st Oct., 1976 provides that if there are certain mistakes, defects or omissions in the notice etc. But otherwise the notice, summons or other proceedings are in the substance and effect in conformity with or according to the instate (intent) and purpose of this Act, such mistake are capable of correction and would not lead to the conclusion that they are invalid. If we read the s. 148 along with s. 292B, we are of the view that the requirement of the section which was not complied with by the ITO is only a mistake capable of correction. The section though not obtained prior to the issue of the notice would not lead to the conclusion that the notice was invalid in view of the provisions contained in s. 292B especially when the assessee is an existing person and carrying on the business of construction. Since the sanction of CIT under s. 151(2) is a mandatory requirement, no following of such mandatory requirement, by the ITO is bad in law.
It has been repeatedly held that a procedure provided under the Act if not adhered to by the authorities, it would only be justified to remit the matter back to that authority to comply with the procedure for the asst. yr. 1976-77, the ITO had not completed (complied) with the requirement under s. 151(2) prior to the issue of the notice and, therefore, it was proper for the CIT to set aside the order of that year to be redone. We, therefore, uphold the order of the CIT(A) for the sole reason that mandatory requirement of obtaining sanction of CIT prior to issue of notice by placing reliance on the Supreme Court decision in the case of Johrilal vs. CIT 1973 CTR (SC) 383 : (1973) 88 ITR 439 (SC) : TC 51R.591 where it had been held that if ITO fails to obtain the sanction of CIT, the assessment would be vitiated.”
6. The profit rate shown by the assessee further had been accepted by the ITO, whether that renders the order of the AO (sic-erroneous) and prejudicial to the interest of the Revenue on this aspect, Tribunal has concluded its decision in para 6, which reads as under : “As far as the other ground that proper enquiry was not done by the ITO is only a surmise based on the acceptance of a low profit of 4 per cent as against the generally accepted results of about 10 per cent to 12-1/2 per cent. The ITO’s order which has been reproduced earlier goes to establish that he had in fact carried out such enquiries as he felt necessary and the reading of the order also indicates that he had carried out the examination of the evidence for low tendering which are at pp. 70-83 as also extension for carrying out the work granted by the contractors which has resulted in additional expenditure thus leading to low profits. Each assessee’s case is distinct and separate from another assessee and merely for the reason that contractors not maintaining the accounts, the profit is assessed at 10 to 12-1/2 per cent of the receipts, is no ground for invoking s. 263 as we are sure that CIT is not unaware of cases where even losses have also been assessed and accepted by the Department. Thus we find ourselves unable to sustain the order of the CIT on this ground. Although we do not endorse any of his other remarks at all, we uphold his order for asst. yr. 1976-77 for non-compliance of the requirement of s. 151(2) only and for the other years, we quash his order as in our opinion CIT had not pointed out any error in the order of the ITO which could be said to be prejudicial to the Revenue.”
7. When the AO after going through the material on record and after considering the explanation of the assessee, made some additions and rejected the books of accounts, it cannot be said that he has not applied his mind. In our view it is not always necessary that every assessee in the line of business should have the same rate of profit and whether the AO has considered all relevant material on record, is basically a question of fact and it cannot be interfered unless the finding of the Tribunal is found perverse. Considering the material on record, it cannot be said that finding of Tribunal is perverse. In the result, we answer the question in affirmative i.e., in favour of the assessee and against the Revenue. Reference so made stands disposed of accordingly.
[Citation : 258 ITR 331]
