I. T. A. NO. 3363/KB OF 1977/78 DECIDED ON 14TH SEPTEMBER, 1985. Versus I. T. A. NO. 3363/KB OF 1977/78 DECIDED ON 14TH SEPTEMBER, 1985.
ORDER
This appeal for the assessment year 1973‑74 was originally fixed before the Division Bench of this Tribunal. But the case was referred to the President of the Income‑tax Appellate Tribunal to constitute a larger Bench to consider an important issue in regard to the powers of the Appellate Assistant Commissioner under section 31 (6) of the repealed Income‑tax Act and in particular to consider the reported judgment of the Tribunal in (1979) 39‑Taxation p. 30.
2. Brief facts of the case are that the assessee filed a return declaring a loss of Rs. 69,134 for the assessment year 1973‑74. The assessee derives income from dealing in cotton yarn on wholesale basis and also in starch and cement etc. It appears from the order of the officers below that the assessee appeared before the assessing officer in compliance with certain notices on various dates and filed certain details, which were duly scrutinised by the Income‑tax Officer from trine to time. However, subsequently, when the assessing officer issued a notice to the assessee he failed to appear before him. Some other notices were also issued which, according to the assess ing officer, were served but remained un-compiled with. Consequently the assessing officer passed an ex parte order tinder section 23(4) of the repealed Income‑tax Act on 2‑9‑1975.
3. Before the learned Appellate Assistant Commissioner, in appeal, the assessee contested the service of notice and it was contended before him that no legal service of notice had been effected on him. The learned Appellate Assistant Commissioner accepting the plea of the assessee held that there was interpolation to the order‑sheet entries. Consequently, the learned Appellate Assistant Commissioner set aside the order of the Income tax officer with the following observations:‑
"Such an order cannot be sustained in appeal and is set aside for de novo assessment as per law after the proper service of statutory notices. Consequently, the impugned order under‑section 26‑A is also set aside for fresh determination of the appellant's claim of renewal of registration."
4. The assessee felt aggrieved even against this order of the learned Appellate Assistant Commissioner oil the ground that the learned Appellate Assistant Commissioner `should have annulled the assessment order instead of setting it aside for fresh decision as it was not valid in the eye of law.
5. It was contend by the learned counsel for the assessee that once an order is held to be illegal and not to accordance with law, it is the duty of the appellate authority to annul the same, as setting aside the assessment order and remanding it back to the Income‑tax Officer, would give another opportunity to the assessing officer to make re-assessment which otherwise he could not do. It was submitted that the department should not be allowed to benefit of its own wrong. It was further submitted by the learned counsel that under section 31 (6) of the repealed Income‑tax Act the Appellate Assistant Commissioner has power to set aside the orders of the Income‑tax Officer where he feels that a further enquiry is necessary and for that purpose he has to give a direction. Since there was neither any further enquiry needed nor such a direction has been given by the Appellate Assistant Commissioner, the learned Appellate Assistant Commissioner was wrong in setting aside the order of the Income‑tax officer, which should have been annulled.
6. The learned counsel for the assessee, in support of his contention, relied upon reported case (1979) 39‑Taxation p. 30, I. T. A. No. 1130 of 1979‑80 heard on 17‑4‑1982, I. T. A. No. 2776/1978/79 heard on 24‑2‑1980 and I. T. A. No. 1084 of. 1983-84, decided on 10‑5‑1983. These cases, except the last one, were decided by the Division Benches of the Tribunal.
7. After hearing the learned counsel and the Departmental Represen tative we could not persuade ourselves to agree with the proposition laid down by the learned counsel in the circumstances if the present case. The learned counsel has not differentiated between the assessment order and assessment proceeding, which are not synonymous. By setting aside the assessment order the proceedings still remain legal but in case the entire assessment is annulled that would mean that the entire assessment proceedings are held to be illegal. Now in the present case it is not the case o the assessee that the order of the assessing officer was without jurisdiction. It is also not his case that the assessment proceedings started by the assessing officer were devoid of any legal authority. As a matter of fact, the assessee filed return before the Income‑tax Officer and appeared before him on various occasions and as such had no grievance till then which in other words means, that till then the assessment proceedings were legal. According to the assessee a notice was not served on him at a certain stage .of the assessment proceedings and therefore the ex parse proceeding were illegal. This means that the attack is on the ex parte assessment order because of improper service of notice and not on the commencement of the assessment proceedings. The assessment proceedings are commenced from the filing o the return, which is not disputed in this case. The learned counsel for the assessee wants us to hold that notwithstanding that a part of the assessment proceedings was legal the entire proceedings should be declared null and void only because of the consequential order of assessment being illegal for lack of proper service of notice. We are not aware of any principle of law where even though the legal and illegal proceedings are separable still the entire proceedings can be declared illegal merely because of a part of the proceedings being illegal. Coming to the case law relied upon by the learned counsel for the assessee, in all those cases a correct law was laid down in the facts and circumstances of those cases. In all those cases, the proceedings were started under section 34 of the repealed Income‑tax Act for re‑assessment and since the notice was no served under section 34, which was a sine qua non for initiating the assessment proceedings under that section, the entire proceedings were held to be illegal. Therefore, in those circumstances the Tribunal held that the learned Appellate Assistant Commissioner should not have merely set aside the assessment order but should have annulled the assessment order. As stated above in all those three cases the very assumption of jurisdiction was in dispute because the Income‑tax, Officer's very jurisdiction to commence the assessment proceedings for lack of legal service of notice was missing. In the, present case the assessment proceedings were lawfully started and at no stage the assessee challenged the commencement of the assessment proceedings. Therefore, the illegality started only when the notice was not validly,' served on the assessee. Obviously a proper order by an Appellate Authority would be to direct the Income‑tax Officer to restart the proceedings from the stage from where the illegality started and this is exactly what the learned Appellate Assistant Commissioner has done. The learned counsel has argued that if the assessment order is annulled the Income‑tax Officer can not restart the proceedings because of limitation. By setting aside the assessment order the learned Appellate Assistant Commissioner has enlarged the limitation, which was otherwise not available to the Income‑tax Officer and this extention of time is because of department's own fault. I am afraid this contention a well has no force. Subsection (2) of section 34 prescribes the limit for the assessment under section 23. However, in the proviso (ii) of subsection (2) exceptions have been given. One such exception is contained in clause (iii) which reads as under:‑ "nothing contained in this section limiting the time within which any action may be taken or any order, assessment or re‑assessment may be made, shall apply to an assessment or re‑assessment, as the erase may be made on the assessee or any person in consequence of, or to give effect to, any finding or direction contained in alt order tinder section 31, section 13, section 33‑A, section 34‑A, section 66 or section 66‑A or in the case of a firm, to an assessment trade on a partner of the firm id consequence of an assessment made on the firth under this section."
It may be noted that this is not the case of the assessee that the assessment order was passed by the assessing officer beyond the limitation prescribed for it and because of the learned Appellate Assistant Commissioner's orders a fresh time has been made from that on 2nd September, 1975 was which within the limitation prescribed for the assessment: The assessee went in appeal against that order and now the assessee can not claim that because he had filed an appeal and by this time the period of limitation has expired, therefore, the assessment cannot be framed afresh. The clause reproduce above takes care of such a situation.
8. Here section 34 (2‑D) may tie reproduced which also supports the view which we have taken above.
"Where an assessment or re‑assessment or any order has been annulled, set aside, cancelled or modified, the competent authority may start proceedings from the stage next proceeding re‑assessment the stage at which such annulment, setting aside, cancellation or modification took place and nothing contained in this Act shall render necessary the re‑issue of any notice which has already been issued or the re furnishing or re‑filing of gay return, statement, or other particulars which had already been furnished or filed, as the case may be."
It is to be noted that this subsection is applicable even if an. assessment is annulled, set aside, cancelled, or modified. Therefore, even if the learned Appellate Assistant Commissioner has annulled the assessment that would not make any difference because under this subsection the Income‑tax Officer could re‑start the proceedings from the stage at which such annulment, setting aside cancellation or modification took place. Obviously this subsection visualizes the situation where there are legal or illegal parts of the assessment proceedings.
9. Looking from any angle the assessee has no case and the learned Appellate Assistant Commissioner rightly set aside the assessment and Income tax Officer is entitled to re‑start the proceedings for re‑assessment after providing a reasonable opportunity of being heard to the assessee.
10. As for the argument of the learned counsel that the learned Appellate Assistant Commissioner should have given a direction while setting aide the order has also no force. The learned Appellate Assistant Commissioner has‑.set aside the order of the Income‑tax Officer in the following words:‑
"Such an order cannot be sustained in appeal and is set aside for de novo assessment as per law after the proper service‑of the Statutory notices."
It is clear that the learned Appellate Assistant Commissioner has given directions for re‑assessment. In any case the final order of the assessment having been set aside and we have already held that the assessment proceedings were not effected by setting aside the order of the Income‑tax Officer by giving effect to the order of the learned Appellate Assistant Commis sioner, the proceedings or assessment would re‑start from the point when illegality had started. In other words the assessing officer would issue a fresh notice to the assessee, which had not been earlier served and on the basis of which ex pane order had been passed and complete the assessment proceedings after providing reasonable opportunity of being heard to the assessee.
M. Y. H. Case remanded.