1998-VIL-346-DEL-DT

Equivalent Citation: [1998] 234 ITR 641

DELHI HIGH COURT

Date: 14.07.1998

SARABJIT SINGH

Vs

COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : B. N. KIRPAL., MAHINDER NARAIN 

JUDGMENT

D. K. JAIN J.---At the instance of the assessee, the Income-tax Appellate Tribunal (hereinafter referred to as "the Tribunal"), Delhi Bench "E", referred to this court the following question of law pertaining to the assessment year 1976-77, under section 256(1) of the Income-tax Act, 1961 (for short "the Act") for its opinion :

"On the facts and in the circumstances of the case, whether the Tribunal was correct in upholding the order of the Commissioner (Appeals) setting aside the assessment with the directions to the Income-tax Officer to make the assessment afresh by complying with the provisions of section 144B?"

The reference was heard by a Division Bench, but the two learned judges differed with each other. B. N. Kirpal J. (as his Lordship then was) took the view that section 144B of the Act being procedural in nature, its non-compliance would result in procedural irregularity, which could be cured from the stage it intervened and, therefore, the order which is passed while ignoring the said provision, could not be regarded as a nullity. Thus, his Lordship answered the question in the affirmative. However, Mahinder Narain J. held that the assessment order being contrary to the provisions of section 144B of the Act was a nullity as having been passed without jurisdiction; the Commissioner of Income-tax (Appeals) could not extend the period of limitation which had already expired and direct the passing of a fresh draft assessment order and in view of the fact that section 144B did not confer power in the Commissioner of Income-tax (Appeals) to set aside the assessment, he could not reconfer the jurisdiction on the Income-tax Officer to make a fresh assessment. His Lordship, therefore, answered the question in the negative.

The two learned judges having answered the question differently, the papers of the reference were laid before the Chief Justice for referring the matter to a third judge in accordance with clause 26 of the Letters Patent of the Lahore High Court, as applicable to this court. Hence, the matter has come up before me as the third judge.

Briefly stated, the material facts are that the assessee filed his return of income for the relevant assessment year declaring a total income of Rs. 47,798. The Income-tax Officer, however, completed the assessment on a total income of Rs. 1,49,710. Since the difference between the income returned and the income assessed was more than Rs. 1 lakh, the provisions of section 144B of the Act were attracted and the Income-tax Officer was required to send a draft assessment order to the assessee and on receipt of the objections, to refer the matter to the Deputy Commissioner. The Income-tax Officer, however, failed to do so and completed the assessment on March 30, 1979, a day prior to the last date of limitation to complete assessment for the relevant assessment year.

Aggrieved, the assessee took the matter in appeal before the Commissioner of Income-tax (Appeals) and contended that the assessment order was a nullity as approval of the Deputy Commissioner had not been obtained under section 144B of the Act. However, the Commissioner (Appeals) took the view that non-compliance with section 144B was merely a procedural irregularity, which was a curable defect and not fatal to the validity of the assessment. He accordingly set aside the assessment and directed the Income-tax Officer to make a fresh assessment in accordance with law.

Not satisfied with the decision of the appellate authority, the assessee filed a second appeal before the Tribunal, inter alia, contending that the assessment made by the Income-tax Officer being without jurisdiction, the Commissioner (Appeals) should have annulled the same instead of setting it aside. Before the Tribunal also the assessee met with no success. It was thereafter that the aforementioned question of law was referred.

The short question for consideration is whether the assessment order passed by the Income-tax Officer without resorting to the provisions of section 144B of the Act suffers from an irregularity or is a nullity.

I have heard Mr. M. S. Syali, learned counsel for the assessee, and Mr. B. Gupta, senior standing counsel for the Revenue, at considerable length.

Mr. Syali, analysing the provisions of section 144B, has submitted that the order made in the first instance is only a draft of the order of assessment and not an order of assessment per se, which, whether the assessee objects or does not, has later to be transformed into an order of assessment; and that two separate situations are contemplated; one, when no objections are filed and the other when these are filed. His contention is when these are not filed, there is no question of waiver of the right to object. But when filed, neither the assessee nor the Income-tax Officer can waive the mandatory procedure prescribed by law. According to him : (i) the said provisions are substantive and not procedural, as section 144B envisages change of forum which cannot be a question of procedure, as having passed and forwarded the draft assessment order with objections to the Deputy Commissioner of Income-tax, the Assessing Officer ceases to have jurisdiction in the matter, and (ii) even if section 144B is treated to be procedural, the procedure laid down therein being mandatory, its non-compliance makes the order without or in excess of jurisdiction, which is a nullity. In support reliance is mainly placed on three decisions : (i) by the Supreme Court in CIT v. Dhadi Sahu [1993] 199 ITR 610, (ii) of the Punjab and Haryana High Court in CIT v. Mohinder Lal [1987] 168 ITR 101 [FB] and (iii) of this court in Sudhir Sareen v. ITO [1981] 128 ITR 445.

Mr. Gupta, on the contrary, refuting Mr. Syali's contentions, has submitted that section 144B, falling in Chapter XIV of the Act, only prescribes the procedure for assessment; the provisions of the said section are not mandatory but only procedural being only stipulations for administrative guidance by the Deputy Commissioner/Inspecting Assistant Commissioner to the Assessing Officer and the directions so given cannot be said to be an assessment order and thus there is no question of change in forum for passing of the final assessment order. In support of the contention that section 144B is procedural, he has placed reliance on a number of decisions rendered by various High Courts.

The prime question falling for consideration, thus, is whether section 144B is procedural or substantive in nature.

Before examining the rival contentions, it will be appropriate to notice some of the relevant provisions of the Act.

Chapter XIV of the Act (sections 139 to 158) bears the caption "Procedure for assessment". Section 143, falling in the said Chapter, deals with procedure of assessment. Sub-sections (1) and (3) of the said section, provide for computation of total income of an assessee, respectively, without and by issuing notice under sub-section (2) requiring the assessee to produce or cause to be produced any evidence on which he may rely in support of his return. It is obvious that section 143 is procedural because it does not deal with any charge of tax, which falls in Chapter II of the Act. Section 143 is not a charging section and thus cannot be said to be substantive. It is a procedural section.

Section 144B was inserted by the Taxation Laws (Amendment) Act, 1975, and was brought into force from January 1, 1976. It thus, applied to all assessments completed after January 1, 1976. The relevant portion of the section, as it existed at the relevant time, reads :

"(1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Assessing Officer proposes to make, before the 1st day of October, 1984, any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Assessing Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee.

(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Assessing Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Assessing Officer may allow on an application made to him in this behalf.

(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Assessing Officer the acceptance of the variation, the Assessing Officer shall complete the assessment on the basis of the draft order.

(4) If any objections are received, the Assessing Officer shall forward the draft order together with the objections to the Deputy Commissioner and the Deputy Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment :

Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard.

(5) Every direction issued by the Deputy Commissioner under sub-section (4) shall be binding on the Assessing Officer..."

The section was amended by the Taxation Laws (Amendment) Act, 1984, with effect from October 1, 1984, and for the words "the Income-tax Officer proposes to make any variation", the words "the Income-tax Officer proposes to make, before the 1st day of October, 1984, any variation" were substituted. The section was, thus, rendered nugatory with effect from October 1, 1984, and ceased to apply in relation to assessments made after September 30, 1984. The section was finally omitted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989.

The section provides that where, in making an assessment under section 143(3) of the Act, the Income-tax Officer proposes to make any variation in the income or loss returned, which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, he shall forward a draft of the proposed order of assessment to the assessee who may forward his objections, if any, to such variation to the Assessing Officer, who in turn shall forward the draft order together with the objections to the Deputy Commissioner and the Deputy Commissioner, after considering the draft order and the objections and going through the record in respect of the matters covered by the objections, may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment after giving an opportunity of hearing to the assessee and the Income-tax Officer shall make his assessment accordingly.

It is clear from the language of section 144B of the Act that the section applies to an assessment to be made under sub-section (3) of section 143 of the Act, where the Income-tax Officer proposes to make any variation adverse to an assessee in the income or loss returned and such variation exceeds the amount fixed by the Board, which for the relevant assessment year was Rs. 1 lakh. Though the section mandates the Income-tax Officer to follow the procedure laid down therein in all cases wherein an assessment is proposed to be made under sub-section (3) of section 143 and the proposed variation exceeds the prescribed amount, like section 143, section 144B is also procedural in nature (see Smt. Mohinder Jaspal Singh v. CIT [1992] 194 ITR 186 (Delhi) and R. Dalmia v. CIT [1992] 194 ITR 700 (Delhi). Section 144B has to be construed and understood in the context of the entire enactment. It must derive its colour from the setting it is placed. It merely sets out the procedure to be followed in certain situations. The rationale behind section 144B(1) inserted in the Act on the recommendations of the Wanchoo Committee was that where the income returned by an assessee is sought to be varied by more than Rs. 1 lakh, then greater precaution ought to be taken and the senior officer's guidance should be sought to prevent arbitrariness or unreasonableness on the part of the assessing authority and multiplicity of proceedings and unnecessary appeals avoided. Thus, there can be no quarrel with the proposition urged by learned counsel for the assessee that the Assessing Officer was bound to follow the procedure laid down in section 144B where variation in the income/loss declared and to be assessed exceeded Rs. 1 lakh. However, the Deputy Commissioner could by way of guidance, only issue directions to the Assessing Officer to pass the assessment order in a particular way but the jurisdiction to pass the assessment order none the less continued to vest in the Assessing Officer only. The assessment order in any case was to be passed by the Assessing Officer, and it could, in no sense of the term, be of the Deputy Commissioner. There is, thus, no change in the forum for assessment and by reference to the Deputy Commissioner for guidance, the Assessing Officer does not lose jurisdictional seisin of the case.

The variation of income in the instant case being more than Rs. 1 lakh, it was incumbent upon the Income-tax Officer to comply with the requirements of section 144B and after inviting objections from the assessee, forward the proposed assessment with the objections to the Deputy Commissioner for guidance. This was not done and the question is whether the assessment order passed without following the procedure prescribed in section 144B renders the order void or a nullity.

It is well settled that a proceeding is a nullity when an authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case (see Sant Baba Mohan Singh v. CIT [1973] 90 ITR 197 (All)).

In the present case, it is not the stand of the assessee nor can it be said that the Income-tax Officer lacked pecuniary or territorial jurisdiction or was not competent to have seisin over the assessee's case. The assessee's only grievance is that the Income-tax Officer having not complied with the provisions of section 144B, the assessment order passed by him was rendered void and, therefore, should have been annulled by the appellate authorities. Having come to the conclusion that section 144B is procedural in nature, I am unable to persuade myself to agree with learned counsel for the assessee that failure on the part of the Income-tax Officer to follow the procedure laid down therein renders the order passed by him void. There is no dispute with the proposition that an assessment order passed without complying with the provisions of section 144B cannot be regarded as a valid order but it cannot follow as a necessary corollary that such an order passed without following the procedural requirements must be regarded as a nullity. Non-compliance with the procedural law is merely a procedural irregularity, which can be cured unlike the defect of inherent lack of jurisdiction in an authority to pass an order which of course will be a nullity. Support for this view is lent by a catena of decisions of various High Courts. It would, however, suffice to refer to Banarsidas Bhanot and Sons v. CIT [1981] 129 ITR 488 (MP), G. R. Steel and Alloys P. Ltd. v. CIT [1985] 152 ITR 220 (Kar), Ashok Kumar (K.) v. CIT [1986] 162 ITR 543 (Kar), Joseph Kuruvila v. CIT [1989] 179 ITR 139 (Ker), Des Raj Kul Bhushan v. CIT [1989] 180 ITR 297 (P & H) and Vishwanath Prasad v. Bhagwati Prasad v. CIT [1993] 202 ITR 469 (All).

As for the decisions relied on by learned counsel for the assessee, the decision of the Supreme Court in the case of Dhadi Sahu [1993] 199 ITR 610 is clearly distinguishable in that it deals with altogether a different situation and does not advance the case of the assessee. The observations of the court that no litigant has any vested right in the matter of procedural law in fact support the stand of the Revenue. In that case the issue involved was whether on account of amendment in section 274(2) of the Act, with effect from April 1, 1971, the Inspecting Assistant Commissioner was divested of the jurisdiction to levy penalty because the amount of concealed income did not exceed Rs. 25,000 as stipulated in the amended section 274(2) as against the unamended condition of minimum imposable penalty exceeding Rs. 1,000, which he had validly acquired on a reference made by the Income-tax Officer prior to April 1, 1971. The apex court observed that where the question is of change of forum, it ceases to be a question of procedure only. The forum of appeal or proceedings is a vested right as opposed to pure procedure to be followed before a particular forum. The right becomes vested when the proceedings are initiated in the Tribunal or the court of first instance and, unless the Legislature has, by express words or by necessary implication, clearly so indicated, that vested right will continue in spite of the change of jurisdiction of the Tribunals or forums. It was, therefore, held that since a valid reference had been made to the Inspecting Assistant Commissioner before the amendment took effect, he continued to have jurisdiction to impose the penalty. As noticed above, the procedure prescribed under section 144B (forwarding of the draft assessment order with objections by the assessee to the Inspecting Assistant Commissioner), does not change the forum of assessment. Jurisdiction to pass the assessment order under section 143(3) of the Act continues to vest in the Income-tax Officer. Thus, the ratio of the decision in Dhadi Sahu's case [1993] 199 ITR 610 (SC) does not apply to the issue in hand. The decisions of the Punjab and Haryana High Court in Mohinder Lal's case [1987] 168 ITR 101 [FB] and this court in Sudhir Sareen's case [1981] 128 ITR 445 merely say that the provisions of section 144B are mandatory, with which proposition there is no quarrel.

I am, therefore, of the considered opinion that section 144B of the Act is only a procedural provision and the assessment order passed by ignoring the said provisions cannot be regarded as null and void.

For the foregoing reasons, I would answer the question referred in the affirmative, i.e., in favour of the Revenue and against the assessee.

The matter may now be listed before the Division Bench for recording a final answer in the reference in accordance with the majority opinion.

 

 

 

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