COMMISSIONER OF INCOME-TAX VS INDIAN LEAF SPRING MANUFACTURING (P.) LTD., 2001 PTD-SUPREME-COURT-INDIA 3389 (2001)

(Civil Appeal No.6517 of 1997 is by special leave from the judgment and order, dated May 9, 1997 of the Delhi High Court; in I.T.R. No. 106 of 1991).

Income‑tax‑‑‑

‑‑‑‑Income‑tax proceedings‑‑‑Opportunity of being heard ‑‑‑Assessment‑‑ Appellate Tribunal finding that assessee was not given proper opportunity of being heard‑‑‑Appellate Tribunal holding assessee had opportunity before Commissioner (Appeals)‑‑‑Deciding claim of assessee as not having merit and not remanding matter to Assessing Officer‑‑‑High Court‑‑‑On reference confirming order of Tribunal‑‑‑Supreme Court‑‑‑Appeal‑‑‑Orders of High Court, Tribunal and Commissioner (Appeals) set aside and matter remanded to Assessing Officer for fresh consideration after giving assessee proper opportunity of being heard.

In an appeal by the assessee the Appellate Tribunal found that the Income‑tax Officer had not given to the assessee proper opportunity of being heard, but held that the assessee had opportunity before the Commissioner (Appeals) and went into the claim of the assessee on the merits and held that there was no merit. On a reference, the High Court held that there was no reason why the Tribunal should set aside the order of the Income‑tax Officer merely because that officer did not grant all reasonable opportunities to the assessee. On appeal to the Supreme Court:

Held, reversing the decision of the High Court, that once the Tribunal found that the Income‑tax Officer had not given to the assessee proper opportunity of being heard, that the assessee could have placed the evidence before the Appellate Authority or before the Tribunal was really of no consequence for it was the assessment to order that counted: that order had to be made after the assessee had been given a reasonable opportunity of being heard.

The Supreme Court accordingly set aside the orders of the High Court, the Tribunal and the Commissioner (Appeals) and remanded the matter to the Income‑tax Officer for fresh consideration.

The assessee is a partnership firm and during the relevant accounting period that ended on November 6, 1983, it carried on the business of manufacturing and printing of tin containers, show boards and pilfer proof caps: The return of income for the aforesaid period was filed by the assessee on September 19, 1984. However, almost after about a year and a half from the end of the aforesaid accounting year on November 6, 1983, a search under section 132 was carried out at the premises of the assessee during the course of which many books of account including those for the accounting period under consideration were seized by the Income‑tax Department. A scrutiny of the said seized books showed that the assessee‑had earned a larger profit than the one shown in the income‑tax return. Consequently, a notice under section 143(2) was issued to the assessee. The assessee requested before the Income‑tax Officer that in the absence of documents which were lying seized with the Department, it might not be possible for it to place its evidence. Accordingly on March 18, 1987, photocopies of the seized books relevant to the assessment year 1984‑85 were supplied to the asses see and on that very date, the Income‑tax Officer requested the assessee to file details in support of the return. The hearing was adjourned to March 20, 1987.

On March 20, 1987, when none attended on behalf of the assessee, the income‑tax Officer examined the books on his own and found glaring discrepancies and, therefore, issued a show‑cause notice to the assessee on March 25, 1987. On March 26, 1987, the matter was discussed with the assessee's representative, Shri M.R. Gupta, who explained that many of the discrepancies as indicated in the show‑cause notice were on account of omission to take into account the figures relating to the branch office at Rajpura. The assessee was asked by the Income‑tax Officer to clarify/comply with certain requirements and the case was adjourned to March 27, 1987. The Income‑tax Officer on that day examined the accounts pertaining, to sundry debtors, sundry creditors and partners accounts with reference to the seized books of account having found discrepancies in the balance profit and loss account, the assessee was asked to reconcile the discrepancies with reference to the seized papers. The hearing was thereafter adjourned to March 30, 1987. The assessee sought adjournment on the ground that the assessee's accountant had fallen ill and so necessary compliance could not be made. Since limitation for the completion of the assessment proceedings was alternative, completed the assessment proceeding after making the additions to the assessee s income to the extent of Rs. 1585197.

Being aggrieved, the assessee filed an appeal to the Commissioner of Income‑tax (Appeals) pleading, inter alia, that the assessment had been completed by the Income‑tax Officer without giving the assessee a id been reasonable opportunity of furnishing an explanation with regard air and alleged discrepancy and that the additions were not justified on the me to the merits.

The Commissioner of Income‑tax (Appeals) dismissed the holding that the Income‑tax Officer had given a proper opportunity appeal hearing to the assessee. Being situated thus, the assessee preferred a further appeal before the Tribunal. The Tribunal after hearing the parties p further detailed order wherein it was held that the Income‑tax Officer had not been given the assessee a proper opportunity of being heard but the Commissioner given Income‑tax (Appeals) had given a proper opportunity of hearing to the assessee and if the assessee desired to adduce any evidence, it could to the exercised its option in terms of the provisions of rule 46A of the Income tax Rules. Since, according to the Tribunal, the assessee did not make any such attempt, the assessee was not entitled to make any grievance alleging denial such of opportunity. The Tribunal indicated in their order that the Tribunal also required the assessee, to indicate to the Tribunal as to what the assessee wanted to say by way of its explanation as to the discrepancies pointed out by the Income‑tax Officer to which the reply of the assessee was that the finances outside the books were not utilised for financing the purchases at the admittedly outside the books. The Tribunal on the aforesaid appreciation came to the finding that no positive evidence in support of the above averments was available with the assessee, nor any application under rule 29 above of the Income‑tax (Appellate Tribunal) Rules Was filed before the Tribunal to permit the assessee to lead additional evidence: The Tribunal found that except for a bald plea no other evidence was available on record that Tribunal further held that on examination of the seized materials, includingthe books of account, the contention of the assessee was found to be without any merit.

M.L. Verma, Senior Advocate (Kevin Gulati and Nandini Gore., Advocates with him) for Appellant.

S. Ganesh, Ashok K. Srivastava, B.V. Balaram Das and, Ms. Sushma Suri, Advocates for Respondent.

ORDER

It is unnecessary to go into great detail in these matters for there is a statement in the order of the Tribunal, the fact‑finding authority, that reads thus:

"We will straightaway agree with the assessee's submission that the Income‑tax Officer had not given to the assessee proper opportunity of being heard. "

That the assessee could have placed evidence before the First Appellate Authority or before the Tribunal is really of no consequence for it is the assessment order that counts. That order must be made after the assessee had been given a reasonable opportunity of setting out his case. We, therefore, do not agree with the Tribunal and the High Court that it was not necessary to set aside the order of assessment and remand the matter to the Assessing Authority for fresh assessment after giving to the assessee a., proper opportunity of being heard.

Two questions were placed before the High Court, of which the second question is not pressed. The first question reads thus:

"(1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order in spite of a finding arrived at by it that the Income‑tax Officer had not given a proper opportunity of hearing to the assessee?"

In our opinion, there can only be one answer to this question which is inherent in the question itself: in the negative and in favour of the assessee.

The appeals are allowed. The order under challenge is set aside. The assessment order, that of the Commissioner (Appeals) and of the Tribunal are also set aside. The matter shall now be remanded to the Assessing Authority for fresh consideration, as aforestated. No order as to costs.

M.B.A./1031/FC Appeals allowed.