1980-VIL-727-P&H-DT

Equivalent Citation: [1981] 127 ITR 816, 18 CTR 89, 4 TAXMANN 452

PUNJAB AND HARYANA HIGH COURT

Date: 28.04.1980

COMMISSIONER OF INCOME-TAX, PATIALA II

Vs

SHAM LAL

BENCH

Judge(s)  : G. C. MITTAL., B. S. DHILLON 

JUDGMENT

B. S. DHILLON J.-The assessee is an individual. The previous years relevant to the assessment years under consideration ended on 31st March, 1958, and 31st March, 1959, respectively. The assessee bad not been assessed before the back assessment proceedings for the said two years were initiated against him. In response to the notices regarding income having escaped assessment, the assessee filed returns showing salary income of Rs. 1,880 in each return. Further, amounts of Rs. 24,999 and Rs. 28,503, respectively, had been shown by the assessee in the two returns, but the same were claimed as not taxable. The ITO disallowed the assessee's claim regarding non-taxability of the said share incomes and completed the assessments on 20th March, 1971, and 30th April, 1971, respectively.

The assessee went in appeal to the AAC. The learned AAC by his common order dated 17th May, 1972, annulled the said two assessments. The learned AAC took the view that the assessee was not a partner in the said firm and that he was only an employee thereof. He also noticed that the ITO had, for coming to the conclusion that the assessee was a partner in the firm, M/s. Bhim Singh Sham Lal, relied on certain pieces of evidence, which had not been put to the assessee.

The revenue felt aggrieved by the AAC's order and went in appeal to the Income-tax Appellate Tribunal, Chandigarh Bench (hereinafter referred to as " the Tribunal "). The revenue pleaded that, on the facts and in the circumstances of the case, the AAC was not justified in cancelling the assessments. The assessee also filed cross-objections before the Tribunal contending that the assessee had no share income from the firm in question and that the initiation of back assessment proceedings for the year under consideration was illegal. The Tribunal dismissed the revenue's appeal as also the assessee's cross-objections. The Tribunal observed that if the ITO did not place the material relied upon by him before the assessee to enable him to meet the said material and that the ITO's order being one against the principles of natural justice, the same could not be sustained. On facts, the Tribunal affirmed the findings recorded by the AAC that there was no material on record to indicate or establish that Shri Sham Lal was partner in the firm in question.

The following question of law has been referred to this court for its opinion at the instance of the revenue:

" Whether, on the facts and in the circumstances of the case and particularly in view of the findings that the Income-tax Officer had violated the principles of natural justice in not having communicated to the assessee the materials relied on by the Income-tax Officer, the Tribunal was right in law in sustaining the annulment of the assessments and in not substituting the annulment order by an order setting aside the assessments ?

After hearing the learned counsel for the parties and going through the orders of the AAC and the Tribunal, we are of the opinion that the question referred to us has to be answered in the affirmative, i.e., against the revenue and in favour of the assessee. The AAC, after examining the whole material on the record and adjudging the merits of the case, recorded a categorical finding that Shri Sham Lal was never the partner in the firm and that Shri Bhim Singh and Dwaraka Dass had implicated him and had shown him as a partner in order to reduce their tax liability during the settlement. The AAC, therefore, came to the conclusion on merits that Shri Sham Lal could not be treated as a partner in the firm. This finding of fact was affirmed by the Tribunal. The Tribunal held that, apart from the fact that these assessments are against the principles of natural justice, at the same time they are based on no facts and material. It would thus be seen that, in view of the facts and circumstances of this case, the Tribunal did not think it proper to set aside the assessments and to order reassessment on remand. The finding of the Tribunal that the revenue could not place reliance on the material which was brought on the record at the back of the assessee is also unexceptional. The assessee is, in law, entitled to rebut the material placed before him if he so chooses and any material placed on the record without notice to the assessee cannot be relied upon by the revenue. It would thus be seen that the finding of the Tribunal that the material placed on the record in violation of the principles of natural justice could not be relied upon and that in fact there was no material to come to the conclusion that the assessee was a partner in the firm, the only correct course open to the Tribunal was to annul the assessment order passed by the ITO.

For the reasons recorded above, the question of law referred to us is answered in the affirmative, i.e., against the revenue and in favour of the assessee, with costs.

G. C. MITTAL J.-I agree.

 

 

 

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