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Peeru Lal, Mohan Lal v. Commissioner Of Income-Tax
Factual and Procedural Background
The assessee filed a return declaring income of Rs. 43,820 for the assessment year 1975–76. An assessment order was initially passed on August 16, 1977. The Appellate Assistant Commissioner set that order aside and directed a fresh assessment, and a fresh assessment under section 144 was passed on May 25, 1978. That assessment was recalled under section 146 on November 20, 1978. A draft assessment order was prepared and sent to the Inspecting Assistant Commissioner on November 28, 1979. The Inspecting Assistant Commissioner later held that the draft order could not be passed under section 144B. Subsequently, a fresh order under section 144 was passed on April 19, 1984. The Income-tax Officer issued a notice of demand and prepared a challan on April 23, 1984.
The assessee contended before the Commissioner of Income-tax (Appeals) that the demand notice of April 23, 1984 was time barred because the assessment had been completed on November 28, 1979; the Commissioner of Income-tax (Appeals) dismissed the assessee's appeal. The Tribunal considered whether the assessment was time barred and, invoking section 292B, held that delay caused by the Inspecting Assistant Commissioner (due to a mistaken reference to section 144B) was a curable mistake. The Tribunal referred the following question to the Court under section 256(1) of the Income-tax Act, 1961: “Whether, on the facts and in the circumstances of the case, the present assessment proceedings should be considered to be barred by law because of the intervening irregularities and the consequent delay?”
Legal Issues Presented
- Whether, on the facts and in the circumstances of the case, the present assessment proceedings should be considered to be barred by law because of the intervening irregularities and the consequent delay? (Question referred under section 256(1)).
- Whether, in the absence of determination of tax (i.e., where tax was determined after a time gap following assessment of income), the assessment can be said to be complete for limitation purposes, and whether any resulting delay can be cured under section 292B of the Income-tax Act, 1961?
Arguments of the Parties
Assessee's Arguments (Mr. Ranka)
- The assessment is not completed until the tax payable is determined; in this case the tax was determined only on April 23, 1984 (or April 19, 1984 as the date of the order calculating tax), which is after the permissible period.
- The delay in issuing the demand notice cannot be condoned under section 292B because the assessment was not completed in time.
- Reliance was placed on decisions including Commissioner of Income Tax, West Bengal v. Balkrishan Malhotra; Kalyankumar Ray v. Commissioner of Income Tax, West Bengal-IV; and Kilasho Devi Burman v. CIT.
Revenue's Arguments (Mr. Singhi)
- If tax is determined separately after completion of assessment, that is an irregularity (procedural) which can be cured under section 292B of the Income-tax Act, 1961.
- Reliance was placed on Kalyankumar Ray v. Commissioner of Income Tax, West Bengal-IV.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Commissioner Of Income Tax, West Bengal v. Balkrishan Malhotra, [1971] 81 ITR 759 (SC) | The opinion records that this decision supports the view that the word "assessment" (in certain provisions) means not merely computation of income but also the determination of the tax payable by the assessee; it also cites Viswanathan Chettiar's case to that effect. | The Court relied on this authority to show that assessment includes both assessment of income and determination of the sum payable, supporting the proposition that an assessment is incomplete until tax is determined. |
| Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-IV, Calcutta, [1991] 191 ITR 634 (SC) | The decision is cited for the proposition that computation of the tax forms part of the assessment order but that the statute does not require both computations (income and sum payable) to be on the same sheet; separate sheets are permissible provided they are signed/initialled by the Income-tax Officer. | The Court noted the principle that separate computation sheets signed by the assessing officer complete the assessment. It distinguished this case because, here, tax was not determined within the limiting period and thus signing/completion did not occur in time. |
| Kilasho Devi Burman (Smt.) v. CIT, [1996] 219 ITR 214 (SC) | This information was not available in the provided opinion. | This information was not available in the provided opinion. |
| Viswanathan Chettiar's case, [1954] 25 ITR 79 (Madras High Court) (as cited in Balkrishan Malhotra) | The opinion records that this earlier decision concluded that the word "assessment" in the proviso to section 34(3) includes the determination of the tax payable by the assessee (i.e., not merely computation of income). | The Court referred to this authority (via Balkrishan Malhotra) to underline the long-standing view that "assessment" entails both computation and determination of liability. |
Court's Reasoning and Analysis
The Court began by emphasizing the statutory timing rule: when a fresh assessment is made after orders under sections such as 146, 250, 254, 263 or 264, the fresh assessment must be completed before the expiry of two years from the end of the financial year in which the relevant cancelling or appellate order is passed or received (sub-section (2A) of section 153). The admitted fact in the record was that the last day for completion of the assessment was March 31, 1981, while the demand notice was received by the assessee on April 23, 1984 — beyond the two-year period.
The Court analyzed when an assessment is "completed" by examining sub-section (3) of section 143 (and by analogy section 144). It noted that clause (b) of section 143(3) requires that when a fresh assessment is made (where a prior assessment has been objected to or is considered incorrect), the Income-tax Officer must both assess the total income and determine the sum payable or refundable. The Court concluded from the statutory language and the cited authority that for an assessment order to be complete both the assessment of income and the determination of the tax (sum payable) are necessary.
The Court reviewed precedent: in Balkrishan Malhotra and the cited Viswanathan Chettiar case it was held that "assessment" includes determination of tax payable; in Kalyankumar Ray the Supreme Court held that computation sheets for income and tax may be on separate papers but the assessment is only complete when both sheets are signed or initialled by the Income-tax Officer. The Court accepted that separate computation and tax-calculation sheets are permissible in law, but stressed that signature/approval by the officer is required to complete the assessment process.
Applying these principles to the factual chronology, the Court observed that although the income may have been assessed or a draft was prepared on November 28, 1979 (and sent to the Inspecting Assistant Commissioner), the tax was not determined by that date. The tax was first calculated on April 19, 1984 and the demand served on April 23, 1984 — both dates falling after the statutory two-year limit. The Court found that the delay occasioned by the reference to the Inspecting Assistant Commissioner and consequent time taken did not render the late demand a curable "mistake" under section 292B. The Court reasoned that time-barring of assessment is not merely a procedural defect or mistake of the sort envisaged by section 292B, and thus section 292B could not cure an assessment that had become time-barred because the tax had not been determined within the statutory period.
On that basis the Court concluded that the Tribunal's reliance on section 292B to validate the late demand was erroneous.
Holding and Implications
The Court answered the referred question in the negative — in favour of the assessee and against the Revenue.
Consequences and direct effects:
- The Court held that an assessment is not complete until both the assessment of income and the determination of the tax payable have been made (and effectively signified by the assessing officer).
- Because the tax was determined only on April 19, 1984 and the demand issued on April 23, 1984 — after the statutory period — the assessment was time-barred.
- Section 292B could not be used to cure the time-barring of the assessment, because time-barring is not a procedural mistake of the type curable under that provision.
- The Tribunal's order holding the proceedings valid by treating the delay as a curable mistake under section 292B was held to be erroneous.
Broader implications:
- The opinion confines its conclusion to the facts before the Court and addresses the limited question referred; it does not state any broader precedent beyond applying established principles that an assessment includes determination of the tax payable and that section 292B cannot cure assessments that are time-barred due to nondetermination of tax within the statutory period.
The reference was accordingly disposed of in favour of the assessee.
1. On an application filed under section 256(1) of the Income-tax Act, 1961, the Tribunal has referred the following question for our opinion:
“Whether, on the facts and in the circumstances of the case, the present assessment proceedings should be considered to be barred by law because of the intervening irregularities and the consequent delay?”
2. The assessee filed a return declaring an income of Rs. 43,820. The relevant assessment year is 1975–76. Initially the assessment order was passed on August 16, 1977. In appeal, the Appellate Assistant Commissioner set aside that assessment order and directed to make fresh assessment. Fresh assessment order was passed under section 144 on May 25, 1978. That assessment order was recalled under section 146 on November 20, 1978. Thereafter a draft assessment order was prepared and that draft order was sent to the Inspecting Assistant Commissioner on November 28, 1979. The Inspecting Assistant Commissioner later on found that draft assessment order cannot be passed under section 144B of the Act. A fresh order thereafter was passed again under section 144 of the Income-tax Act, 1961, on April 19, 1984. The Income-tax Officer sent the notice of demand after calculating the tax on the income assessed and challan was prepared on April 23, 1984. The assessee before the Commissioner of Income-tax (Appeals) raised an issue that notice of demand was sent on April 23, 1984, while the assessment had been completed on November 28, 1979, therefore, the same is time barred and no demand can be raised on the basis of time barred assessment, but the same was not accepted by the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) dismissed the appeal of the assessee.
3. In appeal before the Tribunal, the Tribunal also considered the issue as to whether the assessment in question is time barred or not. The Tribunal considered the provision of section 292B of the Income-tax Act, 1961, and held that by mistake the Income-tax Officer sent the draft assessment order for assessment under section 144B and time has been taken by the Inspecting Assistant Commissioner, therefore, the Income-tax Officer could not issue the demand of tax in time and that is a mistake, which can be cured under section 292B of the Income-tax Act, 1961.
4. Mr. Ranka, learned counsel for the assessee, submits that the assessment is not completed unless tax is determined and admittedly tax was determined on April 23, 1984, i.e, after two years from the date of the order passed in appeal by the Inspecting Assistant Commissioner (Assessment). He further submits that the delay cannot be condoned under section 292B of the Income-tax Act, 1961, particularly when the assessment has not been completed in time. In support of his contentions, he placed reliance on the decisions reported in Commissioner Of Income Tax, West Bengal v. Balkrishan Malhotra, [1971] 81 ITR 759 (SC); Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-Iv, Calcutta, [1991] 191 ITR 634 (SC) and Kilasho Devi Burman (Smt.) v. CIT, [1996] 219 ITR 214 (SC).
5. Mr. Singhi, learned counsel for the Revenue, submits that if the tax is determined separately after completion of the assessment, that is an irregularity and which can be cured under section 292B of the Income-tax Act, 1961. In support of his contentions, he placed reliance on the decision reported in Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-Iv, Calcutta, [1991] 191 ITR 634 (SC).
6. When the fresh assessment is made under section 146 or under section 250 or under section 254 or under section 263 or under section 264, that should be made before the expiry of two years from the end of the financial year in which the order under section 146 cancelling the assessment is passed by the Income-tax Officer or order under section 250 or under section 254 is received by the Commissioner or, as the case may be, the order under section 263 or under section 264 is passed by the Commissioner. This has been provided in sub-section (2A) of section 153 of the Act. Before we go for the limitation, we would like to discuss the issue as to when the assessment is completed.
7. Sub-section (3) of section 143 reads as under:
“On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Income-tax Officer may require on specified points, and after taking into account all relevant material which he has gathered,—
(a) in a case where no assessment has been made under sub-section (1), the Income-tax Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment;
(b) in a case where an assessment has been made under sub-section (1), if either such assessment has been objected to by the assessee by an application under clause (a) of sub-section (2) or the Income-tax Officer is of opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the Income-tax Officer shall, by an order in writing, make a fresh assessment of the total income or loss of the assessee, and determine the sum payable by him or refundable to him on the basis of such assessment.”
8. Clause (b) of sub-section (3) of section 143 provides that in case where the assessment has been made under sub-section (1) and if the assessment has been objected to either by the assessee or by the Income-tax Officer, being of the opinion that such assessment is incorrect, inadequate or incomplete in any material respect, the Income-tax Officer shall, by an order in writing, make a fresh assessment of the total income of the assessee or loss of the assessee and determine the sum payable by him or refundable to him on the basis of such assessment. Therefore, for the purpose of assessment, assessment of income as well as determination of the tax both are necessary for completion of the assessment order. Similar provision has been made in section 144, which requires assessment of income as well as determination of sum, payable by the assessee on that income.
9. The admitted facts are that the last day for completion of the assessment order, as per the provisions of the Act, is March 31, 1981, and the assessee received the demand notice on April 23, 1984, i.e, beyond two years. Now the pertinent question before us is whether in the absence of determination of tax, can it be said that the assessment has been made or assessment has been completed. We would like to refer some decisions of the apex court.
10. In the matter of Commissioner Of Income Tax, West Bengal v. Balkrishan Malhotra, [1971] 81 ITR 759 (SC) at page 762, their Lordships observed as under:
“It has been stated over and over again by this court as well as by the Judicial Committee that the words ‘assessment’ and ‘assessee’ are used in different places in the Act with different meanings. Therefore, in finding out the true meaning of those words in any provision, we have to see to the context in which the word is used and the purpose intended to be achieved. It is true that sub-sections (1), (3) and (4) of section 23 require the Income-tax Officer to ‘assess the total income of the assessee and determine the sum payable by him’. In other words, in those provisions the word ‘assess’ has been used with reference to computation of the income of the assessee and not the determination of his tax liability. But in section 34(3) the word used is not ‘assess’ but ‘assessment’. The question for decision is what is the meaning of that word? As long back as September 24, 1953, the High Court of Madras in Viswanathan Chettiar's case, [1954] 25 ITR 79 came to the conclusion that the word ‘assessment’ in the proviso to section 34(3) means not merely the computation of the income of the assessee but also the determination of the tax payable by him.”
11. In the case of Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-Iv, Calcutta, [1991] 191 ITR 634 (SC), the issue before their Lordships was whether computation of tax on the income forms part of the assessment order. At page 638, their Lordships observed as under (page 638):
“The statute does not, however, require that both the computations (i.e, of the total income as well as of the sum payable) should be done on the same sheet of paper, the sheet that is superscribed ‘assessment order’. It does not prescribe any form for the purpose. It will be appreciated that once the assessment of the total income is complete with indications of the deductions, rebates, reliefs and adjustments available to the assessee, the calculation of the net tax payable is a process which is mostly arithmetical but generally time-consuming. If, therefore, the Income-tax Officer first draws up an order assessing the total income and indicating the adjustments to be made, directs the office to compute the tax payable on that basis and then approves of it, either immediately or some time later, no fault can be found with the process, though it is only when both the computation sheets are signed or initialled by the Income-tax Officer that the process described in section 143(3) will be complete.”
12. Mr. Singhi, learned counsel for the Revenue also, placed reliance on the same decision, wherein their Lordships have made it clear that if the Asses- sing Officer has made the assessment of the income on separate papers and calculated the tax on the separate sheets, that does not make any difference, since both the sheets are signed by the Income-tax Officer and after that the assessment order is complete.
13. In the case of Kalyankumar Ray v. Commissioner Of Income Tax, West Bengal-Iv, Calcutta, [1991] 191 ITR 634 (SC) both the sheets were signed before the expiry of two years as provided under subsection (2A) of section 153 of the Income-tax Act, 1961, but in the case in hand the assessment had been made in the month of November, 1979, and it was sent to the Inspecting Assistant Commissioner, who sent it back with the direction that no order is needed under section 144B of the Act. Reference to the Inspecting Assistant Commissioner was wrong even if the income was assessed on November 28, 1979, but no tax was determined by that date. The first time the tax was determined on April 19, 1984, while the demand notice was served on the assessee on April 23, 1984, i.e, after the expiry of two-years from the last day of the financial year in which appeal order has been passed and when the tax had not been determined/assessment was not complete and that was time barred. Under section 292B time barring assessment cannot be cured as that is not a procedural mistake, which can be rectified.
14. In our view the time barring assessment does not come within the purview of mistake, defect or omission referred in section 292B of the Act, 1961, therefore, the order of the Tribunal is erroneous. In the result, we answer the question in the negative, i.e, in favour of the assessee and against the Revenue.
15. Reference so made stands disposed of accordingly.
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