SHIV SHANKER STTA RAM VS COMMISSIONER OF INCOME TAX, 1993 PTD-ALLAHABAD-HIGH-COURT-INDIA 819 (1991)

Income-tax---

----Penalty---Concealment of income---Limitation for penalty proceeding--Commencement of--- Draft assessment order submitted to CIT---Assessee filing objection before CIT---Limitation period did not start on date of draft assessment order--- Indian Income Tax Act, 1961, Ss.271(1)(c) & 275.

There was a search under section 132 of the income Tax Act, 1961, in the premises of the assessee in September, 1964, and groceedin85 for reopening the assessments for the years 1959-60 to 1962-63 under section 147 were initiated. The assessee filed revised returns for the assessment years 1959-60 to 1962-63. On February 20,1965, the income Tax Officer submitted a draft assessment order to the Commissioner of Income-tax. The Commissioner of Income-tax did not approve of it. The Income Tax Officer submitted another set of draft assessment orders in May, 1965, and assessments were finalised at higher figures of income. Penalty was imposed under section 271(1)(c) but the assessee contended that it was barred by limitation inasmuch as limitation commenced on February 20,1965. This contention was rejected by the Tribunal. On a reference:

Held, that the Commissioner of Income-tax had not agreed with the draft orders and had directed the Income Tax Officer to make further enquiries, as a result of which the assessee was, in fact, assessed on higher figures of income in all the six years in dispute. The assessee was also treating the said orders as draft orders and, therefore, was filing an objection against the same before the Commissioner of Income-tax. Hence, the assessment orders drafted by the Income Tax officer on February 20, 1.965, m law were not final orders so that limitation for drawing up penalty proceeding would commence from that date.

CIT v. Mahabir Prasad Poddar (1974)93 ITR 215 (Cal.) ref.

JUDGMENT

DR. R.R. MISRA, J.---A search under section 132 of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), had taken place at the premises of the assessee on September 21, 1964, and proceedings for reopening the assessments under section 147 of the Act were initiated for the assessment years 1959-60 to 1962-63. The partners of the assessee-firm held discussions with the Income Tax Officer and the Inspecting Assistant Commissioner of Income-tax, as a result of which a tentative understanding was reached that the amount of Rs.2,02,407 found written on the seized paper contained an element of unaccounted profit of Rs.1,20,730. Pursuant to the said discussions, the assessee filed revised returns on February 17, 1965, and the Income Tax Officer, accordingly on February 20, 1965, submitted draft assessment orders for the approval of the Commissioner of Income-tax on the basis of the said revised returns. The Income Tax Appellate Tribunal has, in its statement of the case, observed that these draft assessment orders were not signed by the Income Tax Officer and the Commissioner of Income-tax did not approve of the said draft assessment orders and directed for framing up detailed assessment orders. A copy of the letter of the Commissioner of Income-tax addressed to the Income Tax Officer has been filed as Annexure `8' which forms part of the statement of the case. Thereupon, the Income Tax Officer made further enquiries and submitted another set of draft assessment orders to the Commissioner of Income-tax on May 5, 1965. After this, the assessee gave a petition tri the Commissioner on March 17, 1966 and also wrote a letter dated January 31, 1967. The statement of the case further states that on August 7,1967, the Income Tax Officer concerned wrote to the Commissioner of Income-tax that assessments should be framed on higher income than indicated by him in his draft orders dated May 5,1965. Ultimately, the assessment orders were finalised on higher income but simultaneously, the Income Tax Officer initiated penalty proceedings in terms of section 271(1)(c) of the Act for the assessment years 1959-60 to 1964-65, which are the assessment years in question in this reference. While initiating the said proceedings, the Income Tax Officer referred the cases to the Inspecting Assistant Commissioner under section 274(2) of the Act who after giving an opportunity to the assessee of being heard passed the impugned penalty orders for the assessment years and the amounts given below:

The assessee, unsuccessfully, appealed before both appellate authorities below. The Income Tax Appellate Tribunal confirmed the said penalty levied by the Income Tax Officer for the assessment years in question. One of the points raised by the assessee before the Income. Tax Appellate Tribunal was regarding the limitation for drawing up penalty proceedings fur the said six years. Accordingly, at the direction of the High Court, the Income Tax Appellate, Tribunal referred the following question of law for the opinion of this Court:

"Whether, on the facts and in the circumstances of the case the assessment orders drafted by the Income Tax Officer on February 20, 1965, were in law final orders so that the limitation for drawing up penalty proceedings would commence from that date?"

We have heard learned counsel for the parties. In case it is found that the assessment orders drafted by the Income Tax Officer on February 20, 1965, were in law final orders, limitation for initiation of penalty proceedings had in law run out. The Income Tax Appellate Tribunal has, after hearing learned counsel for the assessee, however, held otherwise. The Income Tax Appellate Tribunal has, in its appellate order, agreed with the contention of the Department that, on February 20, 1965, the Income Tax Officer did not make any assessment and that it was only a draft computation of the income which was not signed by the Income Tax Officer, The Income Tax Appellate Tribunal has also recorded the following finding of facts:

"...The Income Tax Officer had not made up his mind about the total income of the assessee on that date and that is why he had forwarded the draft to the higher authorities for eliciting their opinion..." ,

The aforesaid finding recorded by the Income Tax Appellate Tribunal has also not been challenged before us and is binding on us. Further, we find that, on the facts stated above, the Commissioner had nut agreed with the said draft orders and had directed the Income Tax Officer to make further enquiries, as a result of which the assessee was, in fact, assessed on higher figures of income in all the six years in dispute. Besides this, it has not been established that the draft orders dated February 2t1, 1965, were "final orders" in the sense that the assessee had made a representation against the aid orders before the Commissioner. Though the said orders were not communicated to the Lessee even if he had treated the said orders as "final" he had to prefer appeal before the appellate authority concerned against the said orders which was not done. It appears to us that the assessee was also treating the said orders as draft orders and, therefore, was filing objections against the sane before the Commissioner of Income-tax.

In arriving at its finding that the draft orders, dated February 20,1965, were not final orders, the Income Tax Appellate Tribunal has placed reliance on a decision of the Calcutta High Court in the case of CIT v. Mahabir Prasad Poddar (1974) 93 ITR 215. It has been observed at page 219 of the said case as follows:

"It seems to us that the contention of the counsel for the respondent that an order in order to be an effective order must be communicated to the party who is affected by the order is sound. It is now well-settled that where an order is made by an authority, competent to make the same, if by such an order a party is to be affected or prejudiced, the order must be communicated to that party in order to be an effective order and in the absence of such communication such an order cannot be said to be a valid order having the effect of prejudicing the rights of parties.".

Relying on the aforesaid observations of the Calcutta High Court on communication of the order to the party concerned, the Income Tax Appellate Tribunal has recorded a finding to the effect that there is no material on record to the effect that, on February 20,1965, when the Income Tax Officer prepared the order, the assessee had actual notice of such order. The assessee only came to know of this fact much later. In these circumstances, on the facts of this case and the finding recorded by the Income Tax Appellate Tribunal, we agree with the view taken by the Income Tax Appellate Tribunal that on February 20, 1965, the draft orders which were prepared by the Income Tax Officer were not "final" orders and were not orders as contemplated by section 275 of the Income Tax Act for the purposes of limitation. In our opinion, when an authority is said to have passed an order it become final only when the said authority makes up its mind. The facts of the present case will disclose that on February 20, 1965, the Income Tax Officer had drafted assessment orders tentatively for the approval of the Commissioner of Income-tax and he had not finally made up his mind with regard to the said assessments made against the assessee.

In view of the foregoing discussions, in our opinion, the question referred above has got to be answered in the negative by holding that the assessment orders drafted by the Income Tax Officer on February 20, 1965, in law were not final orders so that limitation for drawing up penalty proceedings would commence from that date. The assessee will pay the costs of Rs.300 to the Department.

M.BA./2265/TQuestion answered.