S. R. Mazda v. Income-Tax Officer — 1989 DIGILAW 317 (MAD)

ORDER Per Shri George Cheriyan, Senior Vice-President - This appeal by the assessee relates to the assessment year 1978-79. For this year, the assessment was made by the ITO u/s 144 of the Income-tax Act, 1961 on 7- 1-1982 computing a loss of Rs. 4,20,127. According to the assessee, he had filed an application u/s 146 on 20-2-1982 which remained to be undisposed of when the CIT (A) took up the appeal for hearing. The assessee has filed before us a copy of the letter written on 15-11-1984 to the CIT (A) regarding the filing of this application. The date of filing of the application was given as 20-2-1982. Apparently with reference to this application, which reads as under- "Sir, Sub : IT Appeal - Sri S. R. Mazda - ITA 63/81-82 -Assessment year 1978-79 - Reg. * * * * * Further to the discussion the undersigned had in respect of the above case we would like to submit the following : The appeal is against the ex-parte order passed under section 144. The assessee has filed a petition under section 146 for reopening of the assessment on 20-2-1982 and to the best of our knowledge and belief the said petition has not been disposed of as yet. Inasmuch as the petition has not been disposed of as yet, we would like to submit that as per the decision of the Income-tax Appellate Tribunal, Madras Bench D in the case of Third ITO v. Mohammedbhai Hasanally [1984] 9 ITD 57, the petition filed by the assessee under section 146 is deemed to have been allowed. Under the circumstances we would request you to kindly set aside the ex-parte order passed by the Income-tax Officer. Thanking you Yours faithfully. Sd/-", the CIT (A) issued a letter dt. 18-2-1986 to the ITO, City Circle-VII (6), Madras, reads as under : "Please refer to the assessment made by your predecessor for A. Y. 1978-79 in the above mentioned case. The assessment has been made ex-parte under the provisions of section 144. The assessee claimed that he had filed a petition u/s 146 for re-opening of the assessment, on 20-2- 1982. You are requested to let me know whether the assessee has actually filed any petition u/s 146 and if so, whether any action has been taken thereon. The assessment has been made ex-parte under the provisions of section 144. The assessee claimed that he had filed a petition u/s 146 for re-opening of the assessment, on 20-2- 1982. You are requested to let me know whether the assessee has actually filed any petition u/s 146 and if so, whether any action has been taken thereon. Your reply should reach me on or before 25-2-1986." The ITO, City Circle-VII (6), Madras, sent a reply on 8-3-1986, to the CIT (A), which reads as under :- "Sir, I am to submit that there is no indication on records as to either the receipt of an application u/s 146 or its disposal." The CIT (A) thereafter disposed of the appeal on 9-4-1986. The operative part of his order reads as under : "The Income-tax Officer himself has admitted in the assessment order that the appellant was allowed opportunity to produce the accounts only on one occasion that is on 7-1-1982. According to the Income-tax Officer this notice was received by the appellant on 5-1-1982. The appellant however claims that the notice was received only on the date of hearing. Since the relevant records are not made available to me it is not possible to exactly determine the date on which the appellant received the notice. However, it is obvious that the time given by the Income-tax Officer for complying with the notice u/s 143(2) was very short. For this default the Income-tax Officer should not have completed the assessment ex-parte. I will therefore set aside the assessment and direct the Income-tax Officer to make a fresh assessment after affording a reasonable opportunity to the appellant to produce the account books." The assessee in the appeal before us has submitted that the CIT (A) has not mentioned about the filling of the application u/s 146 and that the same was not disposed of by the ITO and the CIT (A) should have held that the application u/s 146 was deemed to have been disposed of following the decision of the Tribunal in the case of Third ITO v. Mohammedbhai Hasanally [1984] 9 ITD 57 (Mad.) and further the CIT (A) ought to have considered that fact that the time limit for redoing the assessment had expired in view of the limitation placed by the provisions of section 153(2A) and the question of making a fresh assessment did not arise. 2. 2. Amplifying on the aforesaid argument, the learned counsel for the assessee drew our specific attention to the acknowledgement obtained by the assessee dt. 20-2-1982 about the filing of the application u/s 146. Therefore, he submitted that the petition u/s 146 having been filed on 20-2-1982, it should have been disposed of in terms of the provisions of section 146 by 20-5-1982, and this not having been done, according to the decision of the Tribunal already referred to, the petition u/s 146 should be deemed to have been allowed on 20-5-1982. This being the position, the reassessment should have been completed within two years from the last day of the financial year, i.e., two years from 31-3-1983 and, therefore, the reassessment should have been completed by 31-3- 1985. Since the order of the CIT (A) itself was passed only on 9-4-1986 the learned counsel submitted that the CIT (A) erred in directing the ITO to make a fresh assessment after affording the assessee a reasonable opportunity. Such a direction he submitted could not have been given since limitation had already set in and the ITO was, therefore, barred from making a fresh assessment. He, therefore, submitted that we should pass an order expressly stating that the application filed u/s 146 on 20- 2-1982 should be deemed to have been allowed in the assessees favour on 20-5-1982 and since a fresh assessment had not been made by 31-3-1985, we should give a finding that no further assessment could be made in view of the provisions of section 153(2A). 3. The first submission of the learned departmental representative was that the acknowledgment slip and the application u/s 146, being on plain paper without any serial number, could not be accepted as authentic. We have already set out the contents of the petition which the assessee had filed before the CIT (A). The assessee had categorically stated that the petition u/s 146 had been filed on 20-2-1982 which is the date given in the acknowledgement slip. The CIT (A) had called for a specific report from the ITO, the contents of which also we have reproduced. We have also set out the reply of the ITO. The assessee had categorically stated that the petition u/s 146 had been filed on 20-2-1982 which is the date given in the acknowledgement slip. The CIT (A) had called for a specific report from the ITO, the contents of which also we have reproduced. We have also set out the reply of the ITO. If the ITO wanted any clarifications, he could have sought the same from the CIT (A) and could have probed the matter further with reference to any evidence which the assessee may have sought to rely in support of the assertion that the petition u/s 146 has been filed on 20-2-1982. No investigations having been made at that stage, we are unable to hold that this is a case where we should direct any further investigations to be made. We would take it as proved that the petition u/s 146 was filed on 20-2-1982. According to the provisions of section 146, which are applicable to the present assessment, which was made on 7-1-1982 before the section ceased to apply, the petition should have been disposed of within 90 days i.e. by 20-5-1982. This has not been done. The Tribunal has considered the effect of non-disposal in the decision in Mohammedbhai Hasanallys case (supra). According to the ratio of this decision, the application filed by the assessee should be deemed to have been allowed in the assessees favour. The learned departmental representative contests the correctness of the Tribunals finding in this regard, but the Bench of this Tribunal having taken this view for which they have given elaborate reasons we are unable to differ from the same. 4. The next point that arises is whether the making of assessment afresh had become barred by the application of the provisions of section 153(2A) on 31-3-1985. According to the learned departmental representative, the correct provisions which are applicable are the provisions of section 153(3) (i), which are to the effect that when an application u/s 146 is allowed, the re-assessment can be made at any time without limitation. The learned counsel for the assessee, on the other hand, submits that the present case falls squarely within the provisions of section 153(2A) and where a case falls under the provisions of section 153(2A), the same is taken outside the purview of section 153(3). The learned counsel for the assessee, on the other hand, submits that the present case falls squarely within the provisions of section 153(2A) and where a case falls under the provisions of section 153(2A), the same is taken outside the purview of section 153(3). His submission is that by a fiction the application u/s 146 is deemed to have been allowed and, therefore, the consequences of such fiction have to be taken to its logical conclusion, following the observations of Lord Asquith in East End Dwellings Co. Ltd. v. Finsbury Borough Counsel [1952] AC 109, which were quoted with approval by the Supreme Court in CIT v. S. Teja Singh [1959] 35 ITR 408 and which are as under :- "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, it the purative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. One of these in this case is emancipation from the 1939 level of affairs : it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." According to the learned counsel for the assessee, the fact that there was no written order allowing the assessees application u/s 146 makes no difference and the limitation was that prescribed u/s 153(2A). 5. The learned departmental representative, on the other hand, submits that the period of limitation prescribed u/s 153(2A) applies only to orders passed u/s 143 in respect of assessment year 1971-72 and later years and further only where a written order had been passed u/s 146 cancelling the earlier assessment. According to the learned departmental representative, we cannot read anything more than what the statute has expressly stated. 6. We have considered that rival submissions. According to the learned departmental representative, we cannot read anything more than what the statute has expressly stated. 6. We have considered that rival submissions. In deciding the case of Mohammebhai Hasanally (supra), the Tribunal has observed as under :- "On the other hand, since the claim in the application under section 146 is itself that the assessee was denied an adequate opportunity of being heard and should be afforded a fresh opportunity before making an assessment, the silence of the ITO beyond the period of limitation prescribed must be considered to be consent for the claim of the assessee and that it is agreed that the assessee was denied an adequate opportunity of being heard. This assumption is in consonance with the spirit and object of the amendment for it would not only be required that application under section 146 is filed within the period of limitation but also ensure that whether the limitation prescribed is not complied with the assessments got automatically reopened so that the ITO may make fresh assessment in accordance with the law after giving opportunity of being heard to the assessee. It follows that if an appeal has been filed against the assessment itself, the AAC can on the expiry of the limitation for the ITO to pass an order under section 146 and without waiting for another appeal against an order under section 146 declare that the assessment is cancelled and direct the ITO to make a fresh assessment. From this point of view also, it appears to us that the only reasonable implication of this section is that where the ITO does not pass an order within the period of limitation prescribed under section 146(2), the assessment order is deemed to be cancelled and the ITO will be required to make a fresh assessment. We may notice that in a similar situation in section 220 of the Tamil Nadu District Municipalities Act it has been provided that where a statutory authority does not grant the approval for which an application has been made within the time prescribed, such an approval is deemed to be granted. If we do not assume such a result, the section itself would become meaningless and remain a pious wish on the part of the Parliament that the ITO should dispose of the application within the period prescribed. If we do not assume such a result, the section itself would become meaningless and remain a pious wish on the part of the Parliament that the ITO should dispose of the application within the period prescribed. In order to make it effective, we have to make the necessary direction that where the ITO does not pass the orders within the period of limitation prescribed, the ex-parte assessment made under section 144 stands cancelled. In this view of the matter also, we deem it fit to declare that the assessment made by the ITO has been cancelled and, therefore, we direct the ITO to make a fresh assessment in accordance with law after giving the assessee a reasonable opportunity of being heard." In that case, the assessment was made on 15-2-1977 and the application u/s 146 was filed on 9-9-1977 and the Tribunal passed its order on October 28, 1983. If the submission of the learned counsel for the assessee were to be accepted, the question of the Tribunal directing the ITO to make a fresh assessment in accordance with law could not arise, because the fresh assessment in that case should have been completed within two years from the end of the financial year in which the order u/s 146 ought to have been passed i.e. within two years from the end of the financial year in which the date 9-12-1977 fell, viz., within two years from 31-3-1978 or by 31-3-1980. The Tribunal, however, had given the directions on October 28, 1983. In the aforesaid decision of the Tribunal the question did not come up for discussion with specific reference to section 153(2A) and 153(3). We have, therefore, to examine the rival submissions with reference to these provisions which are now pressed into service by either party before us in support of their respective stands. 7. In the aforesaid decision of the Tribunal the question did not come up for discussion with specific reference to section 153(2A) and 153(3). We have, therefore, to examine the rival submissions with reference to these provisions which are now pressed into service by either party before us in support of their respective stands. 7. The provisions of section 153(2A) read as under :- "Notwithstanding anything contained in sub-sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, in order of fresh assessment under section 146 or in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years fro the end of the financial year in which the order under section 146 cancelling the assessment is passed by the Income-tax Officer or the order under section 250 or section 254 is received by the Commissioner or, as the case may be, the order under section 263 or section 264 passed by the Commissioner." The relevant provisions of section 153(3) (i) read as under :- "153(3). The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at an time- (i) where a fresh assessment is made under section 146." On reading these two provisions it is clear that in respect of applications u/s 146, which have been allowed in respect of assessment years 1970-71 and earlier, the provisions of section 153(2A) do not apply and a re-assessment can be made at any time under the provisions of section 153(3) (i). See 153(2A) prescribes a period of limitation for making a fresh assessment as being "any time before the expiry of two years from the end of the financial year in which the order u/s146 cancelling the assessment is passed by the ITO." This provision, as already stated, applies only to orders passed u/s 146 relating to the assessment year 1971-72 and subsequent years. The statute expressly prescribes the time limit with reference to the period from the end of the financial year in which the order cancelling the assessment is passed by the ITO. The statute expressly prescribes the time limit with reference to the period from the end of the financial year in which the order cancelling the assessment is passed by the ITO. The question that arises is whether it could be deemed, in view of an order u/s 146 not having been passed within a period of 90 days as contemplated u/s 146(2) which reads as under, that the application has been allowed in the manner stipulated under section 153(2A) :- "146(2) Every application made under sub-section (1) shall be disposed of within ninety days from the date of receipt thereof by the Income-tax Officer." It has to be construed that the deemed allowing of the application consequent to the non-passing of an order u/s 146 is equivalent to allowing the application by the specific act of passing an order u/s 146 if the assessees contention is to be accepted. In our view, it is not possible to equate both. One contemplates as consequence which flows out of not taking an action by the ITO and the other contemplates the same consequence, but it flows out of a positive action being taken by the ITO. In our view, the provisions of section 153(2A) apply only to that class of case where an application u/s 146 is allowed consequent to the ITO taking the positive action allowing the application by passing an order and the provisions of section 153(2A) will not apply to that class of cases where the assessees application succeeds by the inaction on the part of the ITO within the stipulated time limit. In the view that we have taken, we are unable to agree with the learned counsel for the assessee that we have refrained from taking any fiction of law o tits logical conclusion. Our finding that the provisions of section 153(2A) do not apply is based on an interpretation of the said provisions read with the provisions of section 146 and considered in the light of the ratio of the Tribunals decision aforesaid. 8. Once the provisions of section 153(2A) do not apply, the period of limitation in the present case has to be determined with reference to the provisions of section 153(3) (i). Under those provisions, because it leaves out of consideration the cases to which section 153(2A) applies, a fresh assessment u/s 146 can be made at any time. 8. Once the provisions of section 153(2A) do not apply, the period of limitation in the present case has to be determined with reference to the provisions of section 153(3) (i). Under those provisions, because it leaves out of consideration the cases to which section 153(2A) applies, a fresh assessment u/s 146 can be made at any time. The present is a case to which the provisions of section 153(2A) do not apply and, therefore, under the provisions of section 153(3) (i), the re-assessment can be made at any time. 9. Our final finding are : (a) The application filed by the assessee u/s 146 on 20-2-1982 should be deemed to have been allowed in the assessees favour on 20-5-1982 : and (b) Since in the view that we have taken, the provisions of section 153(3) (i) apply there is no limitation for marking a re-assessment in accordance with law. We, therefore, hold that the CIT (A) has not committed any error in directing a reassessment to be made in accordance with law, since on the date when the CIT (A) passed his order, limitations had not set in. 10. In the result, the appeal is allowed in part.