Kishan Chand vs Commissioner of Income Tax

Jai Singh Sekhon, J.—The Amritsar Bench of the Income Tax Appellate Tribunal, Amritsar, had made this reference u/s 256(1) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), at the instance of the assessee. The following question is referred for the consideration of this court :

"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that it is only u/s 146 of the Income Tax Act, 1961, that the assessee could urge that he had complied with the notice u/s 142(1) of the Act and, therefore, the assessment was rightly made u/s 144 of the Act ?"

The factual matrix relevant for the disposal of this reference may be stated thus:

The assessee is an individual who was carrying on business as a broker. The controversy pertains to the assessment year 1977-78. The relevant accounting year ended on March 31, 1977. On the basis of some information, the residential premises of the assessee as well as the business premises of the firm in which the assessee was interested were raided u/s 132 of the Act on August 31, 1976. Some books of account and documents found therein were seized. During the assessment proceedings, the Income Tax Officer issued notice to the assessee u/s 142(1) of the Act for production of the assessee''s bank pass books and account books. The assessee did not produce the bank pass books but furnished copies of his bank pass books. The Income Tax Officer observed that the assessee intentionally omitted to produce the bank pass books and account books in response to the notice issued u/s 142(1) of the Act. Accordingly, the Income Tax Officer completed the best judgment assessment u/s 144 of the Act and estimated the income of the assessee from different sources at Rs. 2,60,990 after examining the assessee u/s 131 of the Act. The assessee did not file any application u/s 146 of the Act before the Income Tax Officer for reopening his assessment. On the other hand, he riled an appeal u/s 246(1)(c) of the Act against the above, referred assessment order before the Commissioner of Income Tax (Appeals). The Commissioner felt that there was non-compliance with the notice u/s 142(1) of the Act, and, therefore, the assessment u/s 144 of the Act was justified. The Commissioner, however, treated the ex parte assessment u/s 144 as one made u/s 143(3) of the Act and held that, as the addition to the income returned of Rs. 7,442 was more than Rs. 1 lakh when the income was determined at Rs. 2,52,940, the case should have been referred to the Inspecting Assistant Commissioner u/s 144B of the Act. Accordingly, the assessment was set aside. Both the Revenue and the assessee appealed to the Tribunal against the said order of the Commissioner of Income Tax (Appeals). The Tribunal accepted the Revenue''s contentions that the assessment was rightly made by the Income Tax Officer u/s 144 of the Act on the failure of the assessee to produce the bank pass books and bank accounts and that the order of the Commissioner that the assessment falls u/s 143(3) of the Act was not justifiable. The Tribunal also held that the assessee not having filed any application for reopening the assessment u/s 146 of the Act, the Commissioner could not go into the validity of the notice served u/s 142(1) of the Act and that he could only determine the quantum of income involved and the quantum of Income Tax leviable. The contention of the assessee in the appeal filed by him to the effect that he can challenge the validity of the notice and the merits of the assessment order was rejected. On an application of the assessee, the above-referred question was referred for the decision of this court.

We have heard learned counsel for the parties, besides perusing the record.

The real controversy in this case is the scope of the appeal filed u/s 246 of the Act on the basis of the best judgment assessment passed by the Income Tax Officer u/s 144 of the Act, without the assessee having resorted to the provisions of Section 146 of the Act for reopening the above-referred assessment. The relevant provisions of Section 146(1) of the Act read as under :

"146. Reopening of assessment at the instance of the assessee.--(1) Where an assessee assessed u/s 144 makes an application to the Income Tax officer, within one month from the date of service of a notice of demand issued in consequence of the assessment, for the cancellation of the assessment on the ground-

(i) that he was prevented by sufficient cause from making the return required under Sub-section (2) of Section 129, or

(ii) that he did not receive the notice issued under Sub-section (1) of Section 142 or Sub-section (2) of Section 143, or

(iii) that he had not a reasonable opportunity to comply, or was prevented by sufficient cause from complying, with the terms of any notice referred to in Clause (ii),

the Income Tax Officer shall, if satisfied about the existence of such ground, cancel the assessment and proceed to make a fresh assessment in accordance with the provisions of Section 143 or Section 144.

(2) Every application made under Sub-section (1) shall be disposed of within ninety days from the date of receipt thereof by the Income Tax Officer :

Provided that in computing the period of ninety days aforesaid, any delay in disposing of the application which is attributable to the assessee shall be excluded."

From the statement of facts framed by the Tribunal, there is no doubt that the Income Tax Officer had framed the best judgment assessment u/s 144 of the Act Thus, even if the assertions of learned counsel for the assessee are taken to be true that he failed to produce the bank pass books as the same were in the possession of the Income Tax Officer, he could have invoked the provisions of Section 146(1)(iii) of the Act for reopening the assessment, contending that withholding of bank pass books by the Income Tax Officer was sufficient ground but, strangely enough, he has not done so. It may be noticed for the sake of clarity that the above-referred contention of the assessee that the bank pass books were in the possession of the Income Tax Officer was not believed by the Income Tax Officer and the Tribunal. The assessee preferred to file an appeal against the best judgment assessment passed u/s 144 of the Act. A right of appeal is also provided to the assessee under Clause (d) of Sub-section (1) of Section 246 of the Act if the Income Tax Officer refuses to reopen the assessment made u/s 144 of the Act. The relevant provisions of Section 246(1) (c) and (d) of the Act read as under :

"246. Appealable orders.--(1) Subject to the provisions of Subsection (2), any assessee aggrieved by any of the following orders of an Income Tax Officer may appeal to the Appellate Assistant Commissioner against such order--...

(c) an order against the assessee, where the assessee denies his liability to be assessed under this Act or any order of assessment under Sub-section (3) of Section 143 or Section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed ;

(d) an order u/s 146 refusing to reopen an assessment made u/s 144."

A bare perusal of Clause (c) above leaves no doubt that the scope of appeal against any order passed u/s 144 of the Act is limited, as the assessee can object to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed, but there are no such limitations in an appeal filed under Clause (d) against an order passed u/s 146 of the Act if the Income Tax Officer refuses to reopen the assessment made u/s 144 of the Act. Thus, there is absolutely no doubt that an assessee who has not resorted to the provisions of Section 146 of the Act for reopening an assessment made u/s 144 of the Act, cannot challenge the merits of the impugned order passed u/s 144, including the validity of the notice u/s 142(1) of the Act in an appeal filed u/s 246(1)(c) of the Act, but can only challenge the extent of determination of the quantum of income, the quantum of tax or the status of the assessee or the amount of loss computed, as the case may be.

Similar view was taken by a Division Bench of this court in GOPAL SINGH Vs. COMMISSIONER OF Income Tax., . That case was decided under the provisions of the Indian Income Tax Act, 1922. It is not disputed that the provisions of Sections 23, 27 and 34 of the Indian Income Tax Act, 1922, are in pari materia and identical with the provisions now embodied in Sections 144, 146 and 142(1) of the Act. In that case, it was held that, in an appeal filed against an assessment made u/s 23(4) of the 1922 Act (corresponding to Section 144 of the Act), the validity of the notice u/s 34(1)(a) (i.e., 142(1) of the Act), in pursuance of which the assessment was made cannot be raised without resorting to proceedings u/s 27 of that Act, i.e., u/s 146 of the Act.

A Division Bench of the Bombay High Court in Gaurishanker Kedia Vs. Commissioner of Income Tax, Bombay City II, , had also taken a similar view under the relevant provisions of the Indian Income Tax Act, 1922. It was held that the assessee not having resorted to the provisions of Section 27 of the 1922 Aet against an order passed on the basis of the best judgment assessment made u/s 23(4) of the 1922 Act, could not challenge the validity of the notice u/s 34( 1) of that Act in appeal.

A Division Bench of the Andhra Pradesh High Court in H.S. Imam Vs. Commissioner of Income Tax, , had also taken a similar view by holding that, in an appeal against the order of assessment made u/s 144 of the Act, it is not open to an assessee to raise grounds concerning the validity of the making of the assessment ex parte u/s 144 of the Act without availing of the remedy provided u/s 146 of the Act, It was further held that Section 251 of the Act sets out; the powers of the Commissioner of Income Tax (Appeals) while disposing of an appeal, but such powers will not extend to going into the validity of the assessment made by the Income Tax Officer u/s 144 of the Act where the assessee had not availed of the remedy provided u/s 146 of the Act.

Again, a Division Bench of this court in Commissioner of Income Tax (Central) Vs. Pearl Mechanical Engineering and Foundry Works (P) Ltd., had taken a similar view, although in that case, the assessee had not filed an appeal against the order of the Income Tax Officer refusing to reopen the assessment under the provisions of Section 146 of the Act. Under these circumstances, it was held that, without filing an appeal against an order passed u/s 146 of the Act refusing to cancel a best judgment assessment, an appeal on merits against the assessment made u/s 144 of the Act is not maintainable.

For the foregoing reasons, we answer the above-referred question in the affirmative, i.e., the Tribunal was right in holding that it is only u/s 146 of the Act or in an appeal preferred against the order passed u/s 146 of the Act refusing to reopen the assessment, that the assessee can challenge the validity of the notice issued u/s 142(1) of the Act and not in an appeal filed under the provisions of Section 246(1)(c) of the Act against the order of best judgment assessment passed u/s 144 of the Act without having recourse to the provisions of Section 146 of the Act. In view ot the peculiar circumstances of the case, there is no order as to costs.