Geo Sea Foods v. The Commissioner Of Income Tax — 1990 DIGILAW 395 (KER)

JUDGMENT 1. The Income Tax Appellate Tribunal has referred the following questions of law arising out of its common appellate order dated 6-3-1986 and rendered in LT. A No. 758 (Coch)/1983 and I.T.A.No.778 (Coch)/1983, for the assessment year 1978-79. In I.T.A.No.758(Coch)/19S3, the assessee was the applicant. In I.T.A. No. 778(Coch)/1983, the Revenue was the applicant. The following questions of law have been referred, at the instance of the assessee and at the instance of the Revenue, for the decision of this Court, by the Income Tax Appellate Tribunal: I.T.R. 83 of 1987: "Questions referred on behalf of the assessee: (1) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the assessment is not time-barred? (2) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the word "forward" used in S.144B(2) is equivalent to the word "received" used in S.144B(3) of the I.T.Act, 1961? I.T.R. 84 of 1987 Questions referred on behalf of the Revenue: (1) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is entitled to claim deduction of the bonus paid in excess of 20% of the salary? (2) Whether, on the facts and in the circumstances of the case, the Tribunal is justified in holding that the assessee is entitled to weighted deduction under S.35B in respect of E.C.G.C. premium?" 2. It may not be necessary to answer all the questions referred by the Appellate Tribunal, since question No.2 in I.T.R.No.83 of 1987, is a fundamental or vital one which has its impact on the validity of the assessment itself. The other questions arise in disposing of the assessment finally. In the light of our answer to question No.2, referred to this Court, at the instance of the assessee, in I.T.R.No. 83 of 1987, it may not be necessary to deal with the other questions, at this stage. 3. Question No.2, referred to this Court, at the instance of the assessee in I.T.R. No.83 of 1987, has not been drafted precisely or with care. It is indeed a matter of regret. 3. Question No.2, referred to this Court, at the instance of the assessee in I.T.R. No.83 of 1987, has not been drafted precisely or with care. It is indeed a matter of regret. In Para.2 of the statement of the case, dated 6-5-1987, the Appellate Tribunal has stated the relevant plea as follows: "It was the contention of the learned counsel for the assessee before the Tribunal that the word "forward" used in S.144B(2) should be construed as despatched and the same meaning should be given for the word "received" used in sub-section (3)." So, question No.2, referred at the instance of the assessee, will be verbally recast as follows:- "Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the word "received" used in S.144B(3) of the Income Tax Act should not bear the same meaning, as the word "forward" used in S.144B(2) of the Income Tax Act, 1961?" Counsel, appearing on both sides, argued the above real question that arose for consideration before the Appellate Tribunal, as reflected in the question re-cast by us. 4. We are concerned with the assessment year 1978-79. The accounting period ended on 31-3-1978. The assessee filed the return, for the assessment year 1978-79, showing a loss of Rs. 82,15,220/-. The Income Tax Officer issued a draft assessment order on 27-3-1981 and the same was served on the assessee on 31-3-1981. Under S.144B of the Income Tax Act, the assessee had seven days time for filing its objections. The objection should have been filed on or before 6-4-1981. The assessee was staying away at Ernakulam. The authorised representative of the assessee, by his letter dated 3-4-1981, forwarded the objections of the assessee to the draft assessment order, by registered post, on 4-4-1981 to the Income Tax Officer. The objections were received by the Income Tax Officer on 7-4-1981. The Income Tax Officer took the view that the objections were received by him one day beyond time and so declined to comply with the requirements of S.144B(4)of the Act. He did not forward the draft order together with the objections of the assessee to the Inspecting Assistant Commissioner. On the other hand, the Income Tax Officer completed the assessment on 15-4-1981. He did not forward the draft order together with the objections of the assessee to the Inspecting Assistant Commissioner. On the other hand, the Income Tax Officer completed the assessment on 15-4-1981. It was contended that the failure to forward the draft assessment order together with the objections of the assessee to the Inspecting Assistant Commissioner, under S.144B(4) of the Act, was grossly irregular and unjustified and the subsequent completion of the assessment on 15-4-1981, without following the procedure indicated in S.144B(4) of the Act, is illegal and improper. This plea as such does not appear to have been passed nor considered by the Commissioner of Income Tax (Appeals). Though the Appellate Tribunal was also inclined to take the view that the assessee did not press the above point before the C.I.T. (Appeals), it proceeded to consider the matter on the merits and held that since the objections of the assessee reached the Income Tax Officer only on 7-4-1981, which is beyond the seven days period, the assessment made by the Income Tax Officer, without referring the matter to the Inspecting Assistant Commissioner under S.144B(4) of the Act, is valid and proper. The assessment was also held to be within time. The other matters were also considered on the merits by the Income Tax Appellate Tribunal. The appeal filed by the Revenue was regarding the entitlement of the assessee to deduction for payment of purchase tax, the deduction for payment on account of bonus and weighted deduction under S.35B in respect of E.C.G.C. premium. 5. As stated, in view of our answer to question No.2, in I.T.R.No.83 of 1987, it is unnecessary to answer the other questions referred by the Appellate Tribunal for the decision of this Court, at the instance of the assessee and at the instance of the Revenue. S.144B of the Income Tax Act provides as follows: "144B. 5. As stated, in view of our answer to question No.2, in I.T.R.No.83 of 1987, it is unnecessary to answer the other questions referred by the Appellate Tribunal for the decision of this Court, at the instance of the assessee and at the instance of the Revenue. S.144B of the Income Tax Act provides as follows: "144B. Reference to Inspecting Assistant Commissioner in certain cases -- (1) Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of S.143, the Income Tax Officer proposes to make, before the Ist day of October, 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. (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. (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. (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. (5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income Tax Officer. (5) Every direction issued by the Inspecting Assistant Commissioner under sub-section (4) shall be binding on the Income Tax Officer. (6) For the purposes of sub-section (1), the Board may, having regard to the proper and efficient management of the work of assessment, by order, fix, from time to time, such amount as it deems fit: Provided that different amounts may be fixed for different areas: Provided further that the amount fixed under this sub-section shall, in no case, be less than twenty-five thousand rupees. (7) Nothing in this section shall apply to a case where an Inspecting Assistant Commissioner exercises the powers or performs the functions of an Income Tax Officer in pursuance of an order made under S.125 or S.125A." In cases where the Income Tax Officer proposes to make-any variation in the income returned which is prejudicial to the assessee and the amount of such variation exceeds the amount fixed by the Board, he should, in the first instance, "forward" a draft of the proposed order of assessment to the assessee. On receipt of the same, under S.144B(2) of the Act, 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 the time extended by the Income Tax Officer. It is true that under S.144B(3) of the Act, the objections of the assessee should be "received" within seven days from the receipt of the draft order, and if not so received, the Income Tax Officer shall complete the assessment on the basis of the draft order. On a plain reading of S.144B(2) of the Act, it is clear that the assessee is obliged only to "forward" his objections within seven days of the receipt of the draft order. It only means that the objections should be transmitted or despatched. If that is done, there is literal compliance of S.144B(2) of the Act. The assessee is not obliged to see that the order is served on or received by the Income Tax Officer within the said period. If the assessee has, forwarded his objections or transmitted his objections, it cannot be stated that he has failed to comply with S.144B(2) of the Act. The assessee is not obliged to see that the order is served on or received by the Income Tax Officer within the said period. If the assessee has, forwarded his objections or transmitted his objections, it cannot be stated that he has failed to comply with S.144B(2) of the Act. All that he is expected to do, is to send or despatch or transmit the objections within seven days of the receipt of the draft order. If, due to any reason beyond his control, the objections so despatched by him is not received by the Income Tax Officer, he cannot be blamed. Once the objections are put in the course of transmission, the receipt thereof or the date of receipt, by the addressee cannot in any manner be subject to the control of the assessee. The assessee is expected to do only what is practicable and reasonable in the circumstances. He should send or despatch or transmit the objections within seven days of the receipt of the draft order by him. Admittedly, it was so done in this case. The draft order of assessment was received by the assessee on 31-3-1981. His authorised representative forwarded the objections by "registered post" on 4-4-1981, well within the time allowed by law. Normally, it would have reached the Income Tax Officer on 6-4-1981. The presumption available, for the despatch of the article by registered post, cannot be lost sight of. The fact that it was received by the Income Tax Officer only on 7-4-1981, one day beyond time, for which the assessee is not responsible, cannot visit the assessee with any penal or adverse consequences. It is true that S.144B(3) of the Act provides that the objections should be "received" within the period of seven days of the receipt of the draft order by the assessee. But, S.144B should be understood in a practical and meaningful way. The word "received" occurring in S.144B(3)of the Act should receive a meaning which will not render S.144B(2) of the Act otiose or meaningless and so viewed, it is only proper to understand the word "received" in S.144B(3) of the Act, as one "forward" within the period provided in S.144B(2) of the Act. The dictionary meaning of the word "forward" occurring in S.144B(1) of the Act, is only "to send"; "despatch" and "transmit". The dictionary meaning of the word "forward" occurring in S.144B(1) of the Act, is only "to send"; "despatch" and "transmit". It was so understood by the Madhya Pradesh High Court and by the Madras High Court in Chandan Wood Products v. C.I.T. [(1988) 173 I.T.R. 585 - M.P.] and C.I.T. v. Subramanian and Co. [(1989) 180 I.T.R. 149- Mad.]. The word "forward" occurring in S.144B(1) of the Act was understood as requiring the officer only to send a draft order of assessment, as could be seen from the Circular of the Central Board of Direct Taxes (Circular No.197 dated 17-4-1976 -110 ITR Statutes p. 18). In this case, it is admitted that the objections were "forwarded" by the assessee on 4-4-1981 by registered post, well within the period of seven days from the date of receipt of the draft order - S.144B(2) of the Act. If it was received one day beyond the period provided, by S.144B(2) of the Act, due to reasons beyond the control of the assessee, the assessee cannot be visited with any adverse consequences. We hold that for the purpose of S.144B(3) of the Act, it is enough, if the objections are "forwarded" by the assessee within the period, and on receipt of the objections the Income Tax Officer is bound to take steps under S.144B(4) of the Act to forward the draft order together with the objections received from the assessee to the Inspecting Assistant Commissioner for necessary action. Admittedly, it has not been done in this case. S.144B of the Act is a machinery provision inserted for the protection of the assessees. In this case, the Income Tax Officer received the objections on 7-4-1981, but did not comply with S.144B(4)of the Act and what is more completed the assessment on 15-4-1981. We hold that the assessment order passed by the Income Tax Officer dated 15-4-1981 without complying with the provisions contained in S.144B(4) of the Act, is unjustified and unreasonable, on facts. 6. On a fair and proper interpretation of the various sub-sections of S.144B of the Act, we hold that the word "received" occurring in S.144B(3) of the Act should be understood, only as "forwarded", as specified in S.144B(2) of the Act. We hold accordingly. 6. On a fair and proper interpretation of the various sub-sections of S.144B of the Act, we hold that the word "received" occurring in S.144B(3) of the Act should be understood, only as "forwarded", as specified in S.144B(2) of the Act. We hold accordingly. In the circumstances, the Income Tax Appellate Tribunal should have set aside the order passed by the Income Tax Officer and ordered a remit to the Income Tax Officer directing him to forward the draft order of assessment together with the objections received from the assessee to the Inspecting Assistant Commissioner and then complete the assessment again'. 7. We answer question No.2, as recast by us, in the negative -- in favour of the assessee and against the Revenue. 8. Since the result of our answer to question No.2 in I.T.R.No.83 of 1987 is to result in a remit of the matter to the Income Tax Officer for redoing the assessment after complying with the formalities enjoined by S.144B(4) of the Act, it is unnecessary and improper to pronounce on the merits, on the other questions. So, we decline to answer question No.1 in I.T.R.No.83 of 1987 and also both the questions, referred at the instance of the Revenue, in I.T.R.No.84 of 1987. The References are disposed of as above. A copy of this judgment under the seal of this Court and the signature of the Registrar shall be forwarded to the Income Tax Appellate Tribunal, Cochin Bench. Dated this the 3rd day of October, 1990.