R.B. Shreeram Durgaprasad (Mining Firm) vs Commissioner of Income Tax

Bharucha, J.—This reference u/s 256(1) of the Income Tax Act, 1961, is made at the instance of the assessee. It arises in peculiar circumstances and the answer that we give is limited to those circumstances.

The relevant assessment year is the assessment year 1966-67. The assessee filed a return on September 3, 1970. It was not accompanied by a balance-sheet or a trial balance. On January 11, 1971, the Income Tax Officer issued a notice to the assessee u/s 142(1) calling for a balance-sheet or a trial balance. The assessee did not comply with the notice. On March 22, 1971, the Income Tax Officer made a best judgment assessment u/s 144. The assessee appealed to the Appellate Assistant Commissioner there against .The Appellate Assistant Commissioner confirmed the assessment on July 24, 1971.

In the meantime, on April 26, 1971, the assessee made an application to the Income Tax Officer to reopen the assessment. It was the assessee''s plea that it had been a physical impossibility to have prepared a trial balance or balance-sheet as required by the Income Tax Officer. The Income Tax Officer rejected the application u/s 146 on July 20, 1971. The assessee preferred an appeal to the Appellate Assistant Commissioner. On February 24, 1972, the Appellate Assistant Commissioner allowed the appeal.

The Revenue appealed to the Income Tax Appellate Tribunal. The Tribunal disposed of the appeal by the Revenue against the Appellate Assistant Commissioner''s order u/s 146 and the assessee''s quantum appeal by a common judgment and order. In regard to the Revenue''s appeal u/s 146, the Tribunal noted that the order of the Income Tax Officer making a best judgment assessment merged in the order of the Appellate Assistant Commissioner in the quantum appeal. Therefore, the order of the Appellate Assistant Commissioner in the section 146 appeal was, it held, misconceived. The chartered accountant of the assessee urged upon the Tribunal that to so hold would result in a serious miscarriage of justice, but the Tribunal Said :

"That may be so. But that cannot be helped. If we hold other-wise, we are permitting the Appellate Assistant Commissioner to stultify in effect his earlier order. To resolve this stalemate, the normal practice of the Department is, and that practice we can take judicial notice of, that the Appellate Assistant Commissioner has to defer the hearing of the quantum appeal till the fate of the application filed u/s 146 is decided by the Income Tax Officer. The Appellate Assistant Commissioner is also at liberty to hear the quantum appeal along with appeal, if filed, against the order of the Income Tax Officer passed u/s 146 of the Act refusing to reopen the assessment. In a given case, where the Income Tax Officer seeks to reopen the assessment, the quantum appeal will automatically become infructuous. Herein, the Appellate Assistant Commissioner has exhibited an unseemly haste in disposing of the quantum appeal before the fate of the application filed u/s 146 of the Act to reopen the assessment was decided one way or the other. We cannot refrain from observing that the Appellate Assistant Commissioner was evidently aware of the departmental practice but he failed to follow the practice in the case on hand. We, therefore, reverse the order of the Appellate Assistant Commissioner in I.T. A. No. 114/Nag/1972-73. The departmental appeal succeeds and the same is allowed."

It is remarkable that after having observed that the Appellate Assistant Commissioner exhibited unseemly haste in disposing of the quantum appeal and that he did so though he was aware of the departmental practice to defer the hearing of the quantum appeal till the fate of the application u/s 146 was known, the Tribunal rejected the assessee''s appeal. The Appellate Assistant Commissioner having so acted as to cause injustice to the assessee, it was necessary to give justice to the assessee and not to put the seal of approval upon the injustice. The doctrine of merger upon which the Tribunal based its decision could not, in the circumstances of the case, impede the granting of justice to the assessee. What merged with the Appellate Assistant Commissioner''s order in the quantum appeal was the Income Tax Officer''s order making a best judgment assessment. If the circumstances were such that the assessee was entitled to succeed on his application to have the best judgment assessment set aside and have an assessment made in the ordinary course, there was no reason why this application should not have been allowed by the Tribunal, as it was allowed by the Appellate Assistant Commissioner. In the circumstances, it is unnecessary to answer the first question. The second question is answered in the negative and in favour of the assessee.

No order as to costs.