Atul Traders v. Income-Tax Officer

1. M/s. Atul Traders, the petitioner, in the abovenoted three writ petitions, is a registered partnership firm engaged in the business of sale of dhan bhoosi and filed returns for the assessment years 1978-79, 1979-80 and 1982-83 under the Income-tax Act. The books of account, maintained in the normal course of business were also produced showing certain loan taken from one J.P Bajpayee, (karta HUF) and also payment of interest accrued thereon. Assessment orders were passed by the concerned Assessing Officer.

2. M/s. Atul Traders, being aggrieved, challenged the above assessment orders by means of Appeal No. CIT(A)/6.Etawah/89-90 pertaining to the assessment year 1978-79, (decided by the Commissioner of Income-tax (Appeals) on March 3, 1992, (annexure 5 to the Writ Petition No. 812 of 1993). Against the assessment order of year 1982-83, M/s. Atul Industrial Corporation filed Appeal No. CIT(A)/5.Ward I/Etawah/89-90 before the Commissioner of Income-tax (Appeals), Agra, which has been decided by means of the impugned order dated March 3, 1991 (annexure 5 to the Writ Petition No. 820 of 1993). Another order of the Assessing Officer pertaining to the assessment year 1982-83 was challenged by M/s. Atul Industrial Corporation by filing Appeal No. CIT(A)/5.Ward-I/Etawah/89-90, which had been decided by means of the impugned order dated March 3, 1992 (annexure 5 to the writ petition No. 811 of 1993). The Commissioner of Income-tax (Appeals), Agra, in the aforesaid impugned orders noted that both “M/s. Atul Traders” and “M/s. Atul Industrial Corporation” were sister concerns and there were cross entries in their account books, including the entries referable to above-mentioned J.P Bajpayee (HUF), Etawah.

3. It is borne out from the perusal of the impugned orders dated March 3, 1992, passed by the Commissioner of Income-tax (Appeals), that while assessing the material on record, the appellate authority found cross entries relating to M/s. Atul Traders, M/s. Atul Industrial Corporation Private Limited, Etawah, and J.P Bajpayee (HUF) which, in his opinion, attracted the provisions of section 150/251 of the Income-tax Act (called “the Act”) and directed the Assessing Officer to initiate proceedings for reassessment under section 148 read with section 149 of the Act.

4. In the appellate order relating to the assessment year 1978-79 challenged in Writ Petition No. 812 of 1993, the Commissioner of Income-tax (Appeals) observed “…Assessing Officer would be free to take appropriate action in the case of the appellant in 1977-78…” However, in para. 10 of the said impugned order the Commissioner of Income-tax (Appeals) had while concluding his order observed : “… Reduction allowed… with directions for action under section 150/251 as per this order as well as order of even date in the assessment year 1982-83…”

5. In para. 31 of the impugned order dated March 3, 1992, pertaining to the assessment year 1982-83, the Commissioner of Income-tax (Appeals) had given categorical direction for taking action under section 150/251 of the Act to the Assessing Officer. While discussing the account books/entries the Commissioner of Income-tax (Appeals) observed : “… Assessing Officer is directed to take action by resorting to section 150…” Similar is the position with regard to the impugned order dated March 3, 1992, pertaining to the assessment year 1979-80.

6. From the perusal of the impugned orders dated March 3, 1992, in all the three writ petitions, it is evident that the expression “free”, in the penultimate paragraph has been used only in the order pertaining to the assessment year 1979-80, but in the concluding paragraph the Commissioner of Income-tax (Appeals) has given a direction in unequivocal terms requiring the Assessing Officer to initiate proceedings for reassessment.

7. Learned counsel for the petitioner relies upon the observations made by the apex court in the case of Rajinder Nath v. CIT, [1979] 120 ITR 14, which reads (page 20):

“It is also not possible to say that the order of the Appellate Assistant Commissioner contains a direction that the excess should be assessed in the hands of the co-owners. What is a ‘direction’ for the purposes of section 153(3)(ii) of the Act has already been discussed. In any event, whatever else it may amount to, on its very terms the observation that the Income-tax Officer ‘is free to take action’ to assess the excess in the hands of co-owners cannot be described as a ‘direction’. A direction by a statutory authority is in the nature of an order requiring positive compliance. When it is left to the option and discretion of the Income-tax Officer whether or not to take action, it cannot, in our opinion, be described as a direction.”

8. On the basis of the abovequoted passage an attempt is being made to argue that the word “free” in one of the impugned orders (referred to above), shows that there is no concluded direction as such under section 153(3)(iii), read with Explanation 3 of the Act.

9. We are unable to accept the aforesaid contention made on behalf of learned counsel for the petitioner for more than one reason. The word “free” has been used only in one of the three orders. And that too the passage where such expression is used is followed by another concluding paragraph where no such expression has been used. The order is to be read as a whole and we cannot ignore a clear cut direction for initiating the assessment proceedings as contemplated under section 150 of the Act. The word “free” is not to be found in the other impugned orders challenged in Writ Petitions Nos. 820 of 1993 and 811 of 1993. The argument of the petitioner on this score is thus not available to the petitioner with respect to the order of the Commissioner of Income-tax (Appeals) dated March 3, 1992, pertaining to the assessment years 1982-83 and 1979-80 and challenged in Writ Petitions Nos. 820 of 1993 and 811 of 1993.

10. The second submission made by learned counsel for the petitioner is that the impugned orders dated March 3, 1992, are bad and per se illegal in view of the fact that M/s. Atul Traders in the appeals relating to the assessment years 1979-80 and 1982-83 were not provided an opportunity of being heard by the Commissioner of Income-tax (Appeals). The argument is that the appeals with regard to those assessment years were filed by and on behalf of M/s. Atul Industrial Corporation, which happened to be a distinct/separate entity vis-a-vis M/s. Atul Traders. In support of his contention he has relied upon the decision reported in the case of Rani Rajendra Kumar Ba v. ITO, [1981] 130 ITR 708 (All) and another decision of this court reported in Gupta Traders v. CIT, [1982] 135 ITR 504.

11. There is no dispute over the ratio laid down in the aforesaid decisions of this court. We also do not propose to hold that M/s. Atul Traders and M/s. Atul Industrial Corporation are one entity/juristic person. No such submission has either been raised on behalf of the respondents. The contention of the respondent on this point is that M/s. Atul Traders was not required to be given separate notice for affording opportunity of hearing under section 153(3), Explanation 3, as that would have been a mere empty formality.

12. Explanation 3 of section 153 reads : “… provided such other person was given an opportunity of being heard before the said order was passed”. Obviously, the words “before the said order was passed” refers to the order proposed to be passed by the appellate authority.

13. Record of the three writ petitions shows that it was M/s. Atul Industries Corporation, Etawah, which was the appellant before the appellate authority in the proceedings relating to the assessment years 1979-80 and 1982-83 (giving rise to Writ Petition Nos. 820 of 1993 and 811 of 1993). Those appellate orders have not been challenged by M/s. Atul Industries Corporation. It is M/s. Atul Traders, which has filed these writ petitions. Explanation 3 to section 153 of the Act contemplates that before passing orders directing the Assessing Officer to initiate reassessment proceedings the aggrieved/affected party should be given an opportunity of hearing. That expression does not mean that such person/party should be formally impleaded or formal notice must be given. The object is that the concerned person be given an opportunity to show why such order be not passed. In the present case, M/s. Atul Traders was present before the Commissioner of Income-tax (Appeals) and the account books/record and other material were all common which were being considered by the said Commissioner of Income-tax (Appeals) in the proceedings relating to three appeals. We are satisfied that the petitioner had notice and opportunity of being heard.

14. Learned counsel for the petitioner in support of his contention referred to the case of A.B Parikh v. ITO, [1993] 203 ITR 186 (Guj). In the aforesaid decision the learned judge has taken the view that when the entity in question are independent legal/juristic person, then notice should be given under Explanation 3 of section 153 of the Act. The relevant portion of the judgment reads (page 191):

“The intendment of the Explanation 3 to section 153 when it says ‘such other person was given an opportunity of being heard before the said order was passed’ is apparent. The person concerned must be put on notice that the consequence of the income being held as his is likely to follow in the proceedings prosecuted. Further more, he must be given an opportunity of being heard on that question….”

15. The object of giving notice is to inform a “person” concerned with the matter. If a person receives information/notice by any source and thus had opportunity of defending him, then the mere fact that notice as per statutory provision, or in a particular mode prescribed under law, has not been given, will not vitiate the action/decision for the reason that the purpose of giving notice was achieved and no prejudice is caused to the concerned on this score. In this connection reference may be made to a Full Bench decision of this court reported in Gyan Singh v. District Magistrate, AIR 1975 All 315 para. 9.

16. In the instant case, however, the question of sending notice or its mode is not relevant since M/s. Atul Traders was also the appellant in one of the connected appeals, which was being heard with other appeals by M/s. Atul Industries Corporation.

17. The submission of learned counsel for the petitioner on this score can not be sustained and fails. The writ petitions have no merit and deserve to be dismissed.

18. In the result, the writ petitions fail and are accordingly dismissed. There shall be no order as to costs: