1991-VIL-616-KAR-DT

Equivalent Citation: [1992] 195 ITR 786, 100 CTR 174, 60 TAXMANN 513

KARNATAKA HIGH COURT

Date: 01.08.1991

ASHOK AND CO.

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : K. SHIVASHANKAR BHAT., N. VENKATACHALA 

JUDGMENT

The judgment of the court was delivered by

K. SHIVASHANKAR BHAT J.-The questions referred under section 256(2) of the Income-tax Act, 1961 ("the Act" for short), read thus :

"1. Whether, on the facts and in the circumstances of the case, even if the power to redo the assessment did not revive in the Incometax Officer, after the annulment of his first order of assessment, he having become functus officio on passing such an order, he was competent to proceed upon the three returns filed by the surviving partners subsequently and to complete the assessment on the firm ?

2. Whether the power to redo the assessment revived in the Income-tax Officer who had become functus officio on making the original assessment, on the Appellate Assistant Commissioner annulling the assessment order even though the Appellate Assistant Commissioner had annulled the assessment without a direction to redo the assessment ?"

The assessee is a firm ; it was dissolved on June 30, 1972. One of its partners died in January, 1975. In the meanwhile, no return was filed by the assessee and there was no order of assessment for the assessment years 1972-73 and 1973-74. Hence, on February 6, 1975, the Income-tax Officer issued a notice under section 148 read with section 147(a) to the living partners and the legal representative of the deceased partner ; the response was only by the legal representative who filed a return of income, purporting to be of the erstwhile firm. On March 21, 1975, an order of assessment was made. In the appeal, the Appellate Assistant Commissioner held that the notice was issued to the erstwhile firm, but the return was filed by a non-partner (i.e., the legal representative of the deceased partner), which was not binding on the firm (or the other partners) and that the return was not in the form prescribed under section 139 ; further, the return was not properly signed and verified as per section 140 on behalf of the firm ; consequently, the orders of assessment were cancelled. This was on February 7, 1977. Thereafter, it seems that the Income-tax Officer wrote letters to the partners who filed fresh returns without any protest ; consequently, assessment orders were made afresh. These orders were challenged by the assessee contending that the Appellate Assistant Commissioner, while cancelling the earlier order of assessment, had not remanded the matter to the Income-tax Officer enabling the latter to make a fresh order and, consequently, the Income-tax Officer had no jurisdiction to make a fresh order of assessment for the period covered by the earlier order. The Appellate Assistant Commissioner accepted this contention. The Revenue approached the Appellate Tribunal which held that the earlier order of the Income-tax Officer was vitiated by an irregularity in entertaining the return filed by a non-partner and hence the consequential assessment order was void ; when the said order was cancelled, it was not necessary for the appellate authority to remand the proceedings ; even otherwise, the Income-tax Officer can revive the proceedings and proceed to make a fresh order. The Appellate Tribunal further held that every notice to, each of the living partners is an independent proceeding and such a proceeding was still pending without culminating in an order of assessment.

Hence, these references.

Sri K. R. Prasad, learned counsel for the assessee, contended that the Income-tax Officer became functus officio on the making of an order of assessment In response to the return filed by the legal representative of the erstwhile partner and, for the same period, the Income-tax Officer cannot make another order of assessment without the proceedings being remanded to the Income-tax Officer by the Appellate Assistant Commissioner under section 251(1)(a) of the Act. Learned counsel referred to section 251(1)(a) wherein alternative powers are given to the Appellate Assistant Commissioner either to annul an order of assessment simpliciter or to annul an order of assessment and then refer the case back to the Income-tax Officer for making a fresh assessment ; since the Appellate Assistant Commissioner has not issued any such direction and did not refer the case back to the Income-tax Officer, after cancelling the order of assessment, proceedings for the years in question concluded finally. Learned counsel further urged that the earlier order of the Income-tax Officer was not a void order, but an illegal order and hence, when the illegal order was set aside, a specific direction to make a legal order was necessary. The decision of the Supreme Court in CIT v. Bidhu Bhusan Sarkar [1967] 63 ITR 278 was relied on.

In the said case, the question pertained to the effect of an order made by an Additional Income-tax Officer, wherein he stated, in a proceeding initiated by him that "the case is, therefore, filed". Whether this resulted in the final culmination of the proceedings or kept alive the proceedings, so that it was capable of being transferred ; it was contended that the said order of the Additional Income-tax Officer was an invalid order and hence did not conclude the proceedings. The Supreme Court held, at page 286:

"Even if it be accepted that the order made by the Additional Income-tax Officer in the present case was invalid, its effect cannot be that the proceedings before the Additional Income-tax Officer must be held to have continued after that order was made by him. Even an invalid order terminating proceedings has the effect of terminating them ; and in such a case, the appropriate method for correcting the illegality committed is to have that order vacated by an appellate or other higher authorities having jurisdiction to intervene. As long as the order is not set aside, it remains in force and takes full effect. The order was not totally without jurisdiction ; at best it was an order not contemplated by law and it could not be treated as a non-existent order. In the present case also, the order of the Additional Income-tax Officer directing that the case be filed could have been set right on appeal, or by a reference to the High Court, in case the Tribunal refused to correct it. While it was not set aside, the only conclusion possible is that the proceedings before the Additional Income-tax Officer terminated and did not any longer continue to remain pending."

Sri Prasad relied on the observation that even an invalid order is an effective order, unless it is set aside and, therefore, the order of the Income-tax Officer was, at the most, an invalid order, but had all the qualities of an effective order ; this effective order was substituted by another order in appeal, which did not revive the concluded proceedings. Instead of an order of assessment levying tax as made by the Incometax Officer, the appellate order resulted in a substituted order of assessment resulting in "nil" assessment ; the resultant position is as if the Income-tax Officer had made such an order earlier giving finality to the proceedings. To complete the narration, it is to be noted that, in the aforesaid decision of the Supreme Court, ultimately, the Supreme Court held that (at p. 287):

"an order of transfer can be validly made even if there be no proceedings pending for assessment of tax and the purpose of the transfer may simply be that all future proceedings are to take place before the officer to whom the case of the assessee is transferred",

because, the word "case" included concluded proceedings also.

Even accepting Sri Prasad's contention in its totality, the resultant position cannot enure to the assessee's benefit ; no finality was attained in the proceedings by the ultimate order, which held that no effective order of assessment can be, made against the firm on the basis of an invalid return, because the return was filed by an incompetent person. In other words, as against the firm and its living partners, there was no order at all. The proceedings initiated against them by the issuance of the notices to them earlier came to be pending, as no order was made thereon.

In CIT v. Khemchand Ramdas [1938] 6 ITR 414, the Privy Council was concerned with an entirely different set of facts. As could be seen from page 424, the assessment in question was made under section 23(4) of the earlier Income-tax Act against which no appeal lay. Such a finality cannot be overcome by resort to other powers under the Act.

In the instant case, it is too obvious that the earlier order of the Income-tax Officer was without jurisdiction as against the firm and hence it cannot be held as concluding the proceedings. The order of the Appellate Assistant Commissioner, made earlier, need not preserve the right to make a fresh order by the statement such as "without prejudice" or by remanding the case. An order of assessment, on an appeal, may stand modified ; the final operative order in such a case will be the appellate order. An appellate authority may, under certain circumstances, refer the case back, so that procedural irregularities could be rectified and a proper order be made. There may be a third category of cases wherein the appellate authority may set aside the original order of assessment on the ground that the said order was void such as, when the assessing authority fails to follow the principle of natural justice or when an incompetent officer makes the assessment order ; in this category of cases, a specific order of remand is unnecessary because the competent assessing authority can always make a proper order provided further proceedings are not barred by any rule of limitation. An order of assessment may be invalid, voidable or void. Technically, all orders require to be set aside, as otherwise, the assessee always faces the threat of their enforcement. Cases do exist wherein, if the order is entirely void, its enforcement may be resisted collaterally also. But, in all these cases, uniformly, without exception, it cannot be said that the assessing authority lacks competence to make a fresh order. The competence to make a fresh order of assessment consequent upon the cancellation of an earlier order of assessment by the appellate authority depends upon the nature of the appellate authority's order. Section 251(1)(a) cannot be construed as a statutory bar against the competence of the assessing authority to make a fresh order of assessment in the absence of a remand order under all situations. The power given to the Appellate Assistant Commissioner to refer back the case to the assessing authority is only an aspect of the appellate power given to the Appellate Assistant Commissioner.

In the facts of the instant case, the assessing authority was fully within his competence to make an order of assessment in pursuance of the proceedings initiated by him earlier since his earlier order made in pursuance of the return filed by the legal representative of the deceased partner was entirely without jurisdiction. The assumption in the questions that the Income-tax Officer had became functus officio is not legally sound.

The common answer to the questions referred, therefore, is in the affirmative and against the assessee.

 

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