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Mrs. Meeraben P. Desai v. Union Of India And Others
Factual and Procedural Background
The petitioner challenged the handling of a draft of a proposed assessment order that the Income-tax Officer (ITO) forwarded under section 144B(1) on March 26, 1980. The petitioner's principal complaint was that the draft of the proposed order itself was neither dated nor signed, while the forwarding letter accompanying the draft was dated and signed. The learned Advocate-General for the petitioner argued that, because the draft was not authenticated (not signed or dated), it was non est and any final assessment subsequently passed by reliance on that draft was null and void. The petition sought relief on that basis. The matter came before the court at the admission stage as a special civil application; the court considered statutory provisions (s. 144B and related subsections) and precedent authorities in resolving the dispute.
Legal Issues Presented
- Whether a draft of a proposed assessment order forwarded under section 144B(1) must be dated and signed in order to be valid, and whether the absence of date/signature on the draft renders subsequent final assessment orders a nullity.
- Whether the legal principles governing the requirement of a valid notice for reopening assessments under section 34 of the 1922 Act (including decisions that treat an unsigned notice as invalid) are applicable by analogy to a draft forwarded under section 144B.
- Whether the forwarding letter (accompanying the draft) must itself be authenticated (dated/signed) for the forwarding requirement under section 144B to be satisfied.
Arguments of the Parties
Learned Advocate-General (for the Petitioner)
- The draft of the proposed order forwarded under s. 144B(1) was neither dated nor signed; that lack of authentication meant the draft was non est.
- Because the forwarded draft was not properly authenticated, any subsequent final assessment passed by the third respondent based on that draft was a nullity and therefore liable to be set aside.
- Relied on Calcutta High Court decisions (B. K. Gooyee v. CIT and Bibhuti Bhusan Roy v. ITO) that held a notice under s. 34 of the 1922 Act, if not signed by the ITO, would be invalid; and on the Supreme Court decision in Y. Narayana Chetty v. ITO that held service of the prescribed notice under s. 34 is a condition precedent to reassessment.
Other Parties / Respondent
The opinion does not contain a detailed account of opposing party legal arguments. The record notes that Mr. R. P. Bhatt appeared and informed the court that the assessee participated before the Inspecting Assistant Commissioner (IAC), objections were argued, the variation was reduced by Rs. 7 lakhs, and an appeal against the final order was pending.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| B. K. Gooyee v. CIT [1966] 62 ITR 109 (Cal) | Principle relied upon: that a notice under s. 34 of the Income-tax Act, 1922, if not signed by the ITO, would be an invalid notice (as applied by the Calcutta High Court). | The court noted the Advocate‑General relied on this decision but rejected the analogy: the requirement for signature/dating on a s. 34 notice cannot be imported into s. 144B to require the draft itself to be signed or dated. |
| Bibhuti Bhusan Roy v. ITO [1978] 111 ITR 84 (Cal) | Principle relied upon: similar to B. K. Gooyee, treating an unsigned s. 34 notice as invalid. | The court treated this decision as part of the Advocate‑General's analogy but declined to apply that reasoning to s. 144B drafts, distinguishing the statutory schemes. |
| Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC) | Headnote principle: service of the prescribed notice under s. 34 is a condition precedent to the validity of any reassessment; absence or invalidity of the notice renders reassessment void. | The court accepted the principle for s. 34 matters but distinguished s. 144B: the court held that while a s. 34 notice must be valid, the draft under s. 144B need not itself be signed or dated—the forwarding letter's authenticity is the critical element. |
| Century Spinning & Manufacturing Co. Ltd. v. Ulhasnagar Municipal Council, AIR 1971 SC 1021 | Principle: where allegations and material show entitlement to have a grievance tried, dismissal in limine without reasons is improper; a party claiming aggrievement is entitled to a hearing on the merits. | The court acknowledged this authority but distinguished it because the present court gave reasons; therefore that headnote did not require a different outcome at the admission stage here. |
Court's Reasoning and Analysis
The court proceeded by examining the statutory scheme of section 144B in the context of section 143(3) and related subsections. It set out the text and purpose of s. 144B and its subsections (1) through (5), emphasizing that the provision was introduced to ensure an opportunity for an assessee to object at an earlier stage where the proposed variation exceeds an amount fixed by the Board (in practice exceeding Rs. 1 lakh in this case).
Key steps in the court's analysis:
- The court observed that s. 144B contemplates the ITO forwarding a draft of the proposed order to the assessee when the proposed variation exceeds the Board's amount; in the present case the variation exceeded Rs. 1 lakh, so s. 144B applied.
- The court explained the statutory purpose: to give the assessee an early opportunity to be heard and to enable the Inspecting Assistant Commissioner (IAC) to consider objections and give binding directions to the ITO before a final assessment is passed.
- The court considered the limitation period under sub-section (2), concluding that limitation for filing objections runs from the date of receipt of the draft; logically, the draft is an intimation and the date of receipt triggers the time limit for objections.
- On the specific issue of dating and signing the draft, the court reasoned that a "proposed" order cannot sensibly bear a final date because the final order will be made later (after objections, possible directions by the IAC, etc.). Thus dating the draft is unnecessary and inappropriate.
- Regarding signature, the court held that the proposed order is a draft and there is no statutory requirement that the draft itself be signed; only the final assessment order is signed. What the statute requires in practice is that the ITO forward the draft to the assessee, and that forwarding must be properly authenticated by the forwarding letter.
- The court distinguished the law on s. 34 notices (and the Calcutta High Court decisions) because a s. 34 notice is a prescribed notice whose validity is a condition precedent for reopening assessments under the 1922 Act; that principle could not simply be analogised to the draft requirement under s. 144B.
- The court furthermore noted facts material to the exercise of discretion at the admission stage: the forwarding letter in this case was dated and signed; before the IAC the assessee participated, objections were argued, and the variation was materially reduced (by Rs. 7 lakhs); an appeal against the final assessment was pending. Given these circumstances, the court saw no reason to admit the special civil application.
- Finally, when the learned Advocate‑General sought a certificate under Article 133(1) for leave to appeal to the Supreme Court, the court found no substantial question of law of general importance requiring determination by the Supreme Court because the provisions of s. 144B were clear; therefore the oral application for a certificate was rejected.
Holding and Implications
Core Ruling: The special civil application was rejected at the admission stage; notice was discharged; there will be no order as to costs. The oral application for a certificate under Article 133(1) for leave to appeal to the Supreme Court was also rejected.
Implications and direct effects:
- The court held that a draft of a proposed assessment order forwarded under s. 144B(1) need not itself be dated or signed; the existence and proper authentication of the forwarding letter that accompanies the draft is the material requirement for satisfying the forwarding obligation under s. 144B.
- The court distinguished authorities about the necessity of signature on a s. 34 notice: while a s. 34 notice must be validly issued (and an invalid s. 34 notice will vitiate reassessment), that requirement does not translate into a requirement to sign or date the draft under s. 144B.
- The direct practical effect on the parties: the petition is dismissed at the admission stage, the final assessment remains subject to appeal (an appeal was pending), and there is no further relief from this court in this special civil application. No new binding precedent beyond the decision in this case was proclaimed; the court treated s. 144B's text and purpose as dispositive.
1. The main grievance of the petitioner in this case is that the draft of the proposed order which the ITO sent under the provisions of s. 144B, sub-s. (1), on March 26, 1980, was not dated or signed so far as the proposed draft order was concerned. The forwarding letter was dated and signed and in the petition itself the prayer which has been made brings out the grievance clearly by mentioning that the draft of the proposed order under s. 144B(1) was neither signed nor dated. The learned Advocate-General who appears for the petitioner contended that since this was not properly authenticated and there was no authenticity about the order which was at this stage the draft of the proposed order, the order itself was non est and, therefore, the subsequent proceedings by the third respondent herein, of passing the final assessment order in terms of that draft order is a nullity and, therefore, the final assessment orders based on the strength of the draft of the proposed order were a nullity.
2. The learned Advocate-General has relied on two decisions of the Calcutta High Court which go to show that a notice under s. 34 of the Indian I. T. Act, 1922, if it was not signed by the ITO, would be an invalid notice and since a valid notice was the basis of jurisdiction for reopening assessment under s. 34, the reassessment would be a nullity. Those decisions are in B. K. Gooyee v. CIT [1966] 62 ITR 109 (Cal) and Bibhuti Bhusan Roy v. ITO [1978] 111 ITR 84 (Cal). The learned Advocate-General also relied upon the decision of the Supreme Court in Y. Narayana Chetty v. ITO [1959] 35 ITR 388. The Supreme Court in that case laid down (headnote) :
"The notice prescribed by section 34 of the Income-tax Act for the purpose of initiating reassessment proceedings is not a mere procedural requirement; the service of the prescribed notice on the assessee is a condition precedent to the validity of any reassessment made under section 34. If no notice is issued or if the notice issued is shown to be invalid then the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void."
3. The learned Advocate-General drew our attention to the decision of the Supreme Court in Century Spinning & Manufacturing Co. Ltd. v. Ulhasnagar Municipal Council, AIR 1971 SC 1021, where the Supreme Court has pointed out that where the allegations in the petition and the material placed before the court show that the petitioner is entitled to have his grievance against the imposition of octroi duty tried, the dismissal of the writ petition in limine without giving any reasons is improper. In the instant case since we are giving reasons, that part of the decision of the Supreme Court would not be applicable. The Supreme Court there held that a party claiming to be aggrieved by the action of a public body or authority on the plea that the action is unlawful, highhanded, arbitrary or unjust is entitled to a hearing of the petition on the merits.
4. Before we proceed further to decide upon the question urged by the learned Advocate-General, we must point out the scheme of s. 144B of the I. T. Act. Under s. 143(3) of the I. T. Act, hearing has to be given by the ITO before an assessment order is passed. However, a new procedure has been evolved under s. 144B which was inserted by the Taxation Laws (Amendment) Act, 1975, with effect from January 1, 1976, to the effect that :
"144B. (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make any variation in the income or loss returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board under sub-section (6), the Income-tax Officer shall, in the first instance, forward a draft of the proposed order of assessment (hereafter in this section referred to as the draft order) to the assessee."
Under sub-s. (2) of s. 144B :
"(2) On receipt of the draft order, the assessee may forward his objections, if any, to such variation to the Income-tax Officer within seven days of the receipt by him of the draft order or within such further period not exceeding fifteen days as the Income-tax Officer may allow on an application made to him in this behalf."
Under sub-s. (3) of s. 144B :
"(3) If no objections are received within the period or the extended period aforesaid, or the assessee intimates to the Income-tax Officer the acceptance of the variation, the Income-tax Officer shall complete the assessment on the basis of the draft order."
Under sub-s. (4) of s. 144B :
"(4) If any objections are received, the Income-tax Officer shall forward the draft order together with the objections to the Inspecting Assistant Commissioner and the Inspecting Assistant Commissioner shall, after considering the draft order and the objections and after going through (wherever necessary) the records relating to the draft order, issue, in respect of the matters covered by the objections, such directions as he thinks fit for the guidance of the Income-tax Officer to enable him to complete the assessment :
Provided that no directions which are prejudicial to the assessee shall be issued under this sub-section before an opportunity is given to the assessee to be heard."
Under sub-s. (5) :
"(5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income-tax Officer."
5. And it is after the directions are received by the ITO from the IAC that he completes the assessment and then passes the final order of assessment in the particular case.
6. The learned Advocate-General has very fairly stated that the amount fixed by the Board under sub-s. (6) exceeds rupees one lakh. In the instant case, the amount of variation exceeds Rs. one lakh and thereafter the provisions of s. 144B are attracted to the present case.
7. It is clear that what is contemplated is that before passing the final order of assessment when the variation exceeds rupees one lakh an opportunity has to be given to the assessee so as to enable him to put forward his objections to the proposed order of assessment, and this provision has been introduced with a view to avoid appeals to the AAC against an order of assessment where the objections to the proposed order of assessment are not considered by the competent authority. In the instant case, an officer of the level of the IAC goes through the objections to the proposed order of assessment and he gives directions to the ITO and in the light of those directions the ITO has to pass the order of assessment. Therefore, what is material is the furnishing of the draft of the proposed order of assessment to the assessee concerned when the variations between the income or loss returned and the amount at which the ITO proposes to assess the assessee in that case exceeds rupees one lakh. The whole purpose of the exercise which is enacted in s. 144B is to give an opportunity to the assessee concerned at the earlier stage to be heard against the line of action which the ITO proposes to take. From the very nature of things, therefore, what is material for the purpose of limitation under sub-s. (2) of s. 144B is the date when intimation is given to the assessee and it is from the date of the receipt of the draft of the proposed order that the limitation would start so far as the filing of the objections is concerned. The proposed order of assessment cannot bear any date because it is only the proposed order and the final order will have to be passed in case no objections are raised at a subsequent future date and if any objections are filed, the order of assessment will be passed after directions are issued by the IAC. Again, the signing of the proposed order itself, in our opinion, is of no significance whatsoever because what is required to be signed is the forwarding letter which authenticates that the accompaniment to the forwarding letter is the draft of the proposed order of assessment. It is true, as the learned Advocate-General has pointed out from the affidavit of P. G. Desai dated November, 29, 1980, that in Delhi, in two cases, the ITO concerned has signed the draft of the proposed order but so far as Bombay is concerned, in one case the officer has signed the draft of the proposed order though not dated, and in another case from Ahmedabad, J. M. J. Shah, the ITO concerned, had neither signed or dating the draft of the proposed order. Ultimately, the whole thing requires to be considered in the light of the provisions of s. 144B, sub-s. (1), and not in the light of the practice which prevails in different Commission rates in the country.
8. In our opinion, the draft of the proposed order cannot be dated because it is only the proposed order which will be passed in future at a date which will depend upon whether any objections are filed or not and if filed, what directions are given by the IAC. So far as the signing of the order is concerned, only the order of assessment is signed. The proposed order of assessment is only the draft of an order which is proposed to be made by the ITO and, therefore, there is no necessity to sign the draft of a proposed order of assessment. Under the circumstances, the contention urged by the learned Advocate-General based on the analogy of the notice under s. 34 following the two decisions of the Calcutta High Court cannot be accepted. The notice under s. 34 must be a valid notice as pointed out by the Supreme Court in Narayana Chetty's case [1959] 35 ITR 388 and if it is not a valid notice because it is not signed as pointed out by the Calcutta High Court, it cannot be the basis of the reopening of the assessment because a valid notice is the condition precedent to the reopening of an assessment under s. 34 of the 1922 Act.
9. What is required to be done under s. 144B, on the other hand, is the forwarding of the draft of the proposed order of assessment and that is the obligation of the ITO. Of course, if while forwarding the draft of the proposed order there is no proper authenticity to the forwarding letter in the shape of lack of date or lack of signature, then it can be said that the condition precedent, namely, forwarding of the draft of the proposed order of assessment was not in accordance with law, was not satisfied, but if the forwarding letter is proper and in accordance with law, the mere fact that the draft of the proposed order of assessment which is forwarded is neither signed nor dated makes no difference whatsoever. Hence, the only contention urged before us by the learned Advocate-General fails. We may also point out that, in the instant case, the order of assessment, after the draft of the proposed order of assessment was sent to the assessee, has been passed. Against the final order of assessment an appeal has also been filed. We are informed by Mr. R. P. Bhatt who at this stage appears in pursuance of a notice issued on October 30, 1980, that in the proceedings before the IAC the assessee, the petitioners before us, participated and because of the objections raised and arguments urged before the IAC the variation was reduced by rupees seven lakhs and against the final order of assessment an appeal is pending. Under these circumstances, we see no reason to admit this special civil application. The special civil application is, therefore, rejected at the admission stage and notice is discharged. There will be no order as to costs.
10. At this stage, there is an oral application by the learned Advocate-General for certificates under art. 133(1) of the Constitution for leave to appeal to the Supreme Court. In our opinion, there is no substantial question of law of general importance which is needed to be decided by the Supreme Court in this case, since the provisions of s. 144B are very clear. The oral application is, therefore, rejected.
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