TMI Blog1971 (9) TMI 45X X X X Extracts X X X X X X X X Extracts X X X X ..... as completed by the Income-tax Officer on 16th December, 1960. It seems that at that time only one of the four firms had been assessed, and, therefore, the share income of the assessee from that firm as determined by the Income-tax Officer assessing that firm was included in the assessment of the assessee. So far as other three firms were concerned, their assessments were pending and the Income-tax Officer assessing the assessee, therefore, accepted the share income of the assessee in those firms as declared in the return filed by the assessee and completed the assessment on the basis of the share income so disclosed by the assessee. It was expressly stated by the Income-tax Officer in the order of assessment that the share of the assessee in these firms was being "taken as declared subject to rectification under section 35 of the Act", The assessment of the three firms was thereafter completed by the respective Income-tax Officers having jurisdiction over them and the Income-tax Officer dealing with the case of the assessee received allocation reports from these Income-tax Officers stating the share income of the assessee as determined in the assessment of those firms. On receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. Both these contentions were negative by the Appellate Assistant Commissioner, who took the view that section 35(5) and section 147(b) were not mutually exclusive and action could be taken under either section provided the conditions of that section were satisfied and since the conditions prescribed in section 147(b) were satisfied, the Income-tax Officer was entitled to initiate action under that section despite the fact that action could also be taken under section 35(5) and such action was barred by lapse of time limited by that section. The assessee thereupon preferred an appeal to the Tribunal. In that appeal the assessee was successful in persuading the Tribunal to hold that sections 35(5) And 147(b) were mutually exclusive ; and if a case falls within section 35(5), action can be taken only under that section and if the time-limit prescribed by that section for taking action has expired, the Income-tax Officer cannot circumvent the bar of limitation by taking resort to section 147(b). The Tribunal observed : "Section 155 (that being the section of the new Act corresponding to section 35(5) of the old Act) is a special provision and has been enacted only to facilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommissioner of Income-tax v. Khemchand Ramdas. There are in the new Act several provisions which permit interference with the finality of an assessment. They are to be found in sections 146, 147, 154 and 155 of the new Act. Section 146 provides that where a best judgment assessment is made under section 144, an assessee may apply to the Income-tax Officer to cancel the best judgment assessment and to make a fresh assessment on any one of the three grounds specified in the section. There is a time-limit prescribed in the section for making this application and it is one month from the date of service of the notice of demand issued in consequence of the assessment. Section 147, which is an oft-quoted section, permits the Income-tax Officer to reopen an assessment, if the conditions specified in clause (a) or clause (b) are satisfied. Where the Income-tax Officer seeks to reopen the assessment under-clause (a), he must issue a notice within 8 years or 16 years from the end of the relevant assessment year, according as the case falls within sub-clause (i) or (ii) of section 149(1)(a) ; and where he seeks to reopen the assessment under clause (b) he is required to issue a notice within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the time-limit specified in that section, such entry should not be permissible. Take for example, a case where a best judgment assessment is made by the Income-tax Officer under section 144 and the assessee fails to make an application for cancelling it within one month from the date of service of the notice of demand as contemplated under section 146. Can it suggested for a moment that in such a case, if there is a mistake apparent from the record of the assessment, the Income-tax Officer cannot rectify the assessment under section 154 merely because the time-limit specified in section 146 having expired, no action can be taken to disturb the finality of the assessment under that section ? Similarly, can it be urged in such a case that even if the Income-tax Officer finds that income of the assessee has escaped assessment while making the best judgment assessment, he cannot reopen the assessment under section 147, clause (a) or (b)? If action under a particular section is not taken within the time-limit prescribed by that section, it would not be possible to disturb the finality of the assessment by action under that section but if the conditions of another section are sati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made in regard to the inter-relation between sections 34 and 35 must apply equally when we consider the impact of section 35(5) on the scope and ambit of section 147(b), which is equivalent to section 34(b) of the old Act. The same view has been taken by the Madras High Court in two decisions, namely, Salem Provident Fund Society v. Commissioner of Income-tax and V. S. Arulanandam v. Income-tax Officer as also by the Allahabad High Court in A. H. Wheeler and Co. P. Ltd. v. Income-tax Officer. There is also a later decision of the Allahabad High Court in Hira Lal Sutwala v. Commissioner of Income-tax, which is more directly in point. The case there was very much similar to the present case before us with only this difference that the position was the reverse. There the assessment of a partner was sought to be rectified by the Income-tax Officer under section 35(1) on completion of the assessment of the firm. The argument advanced on behalf of the assessee was that action for including the correct share of the assessee could be taken by the Income-tax Officer, only under section 34(1) since the provisions of that section were applicable and that section excluded the applicability of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer must make the assessment once and for all and he cannot say that he will assess a part of the income at one time and another part, at another time. The Income-tax Officer cannot leave out an item of income from consideration on the ground that he would bring it to tax at a later date. This was precisely what happened in Chuni Lal Nayyar v. Commissioner of Income-tax, where the Income-tax Officer knew at the time when he made the assessment that the assessee had a particular share in the income of a firm and yet did not include it in the assessment and, subsequently, tried to bring it to tax by seeking to avail of the provisions of section 34 of the old Act. The Punjab High Court held on these facts that the Income-tax Officer had no jurisdiction to reopen the assessment of the assessee for the purpose of including his share in the profits of the firm under section 34 of the old Act. So also in Debi Prasad Malviya v. Commissioner of Income-tax, the Income-tax Officer, while making the assessment, knew that the assessee had a one-third share in a partnership firm and the profits from that firm had to be included in his total income and yet he completed the assessment without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been completed : See Hira Lal Sutwala v. Commissioner of Income-tax. When a partner is assessed before the assessment of the firm, the Income-tax Officer assessing the partner would not know what is precisely the share of the partner in the income of the firm. The Income-tax Officer may in such a case complete the assessment of the partner without including in it the share of the partner in the income of the firm and then proceed to rectify the assessment of the partner under section 35(5) when the assessment of the firm is completed and the correct share of the partner in the income of the firm is determined. This would be a case of piecemeal assessment but the Income-tax Officer would be competent to bring the share of the partner in the income of the firm to tax by reason of the provision enacted in section 35(5). If the Income-tax Officer fails to take action for rectifying the assessment within the time limited by section 35(5), it may be possible to say that it would not be open to the Income-tax Officer to reopen the assessment of the partner for the purpose of including the share of the partner in the income of the firm under section 147 because of the principle that s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases where the share in the income of the firm is included in the assessment of the partner before the assessment of the firm is completed, section 35(5) is an enabling provision which permits disturbance of finality of the assessment. It is not a provision which entitles the Income-tax Officer to make a deferred or piecemeal assessment which he otherwise could not have done. It is not true that but for section 35(5) the Income-tax Officer could not include in the assessment of the partner his share in the income of the firm, either as estimated by the Income-tax Officer or as declared by the partner. That is something which the Income-tax Officer could, always do as part of the process of assessment and such an assessment would not be deferred or piecemeal assessment. The principle that section 147 cannot be availed of for the purpose of completing a deferred or piecemeal assessment cannot, therefore, have any application in such a case. Some reliance was placed on behalf of the assessee on the words "subject to rectification under section 35(5)" used in the order of assessment. But, we fail to see how these words can throw any light on the nature of the power which the Income-t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... within the meaning of section 35. It does not provide that the record of the firm shall be deemed to be the record of the assessee. It is no doubt true that section 35(5) had to be enacted because a view was taken by the courts that the record of the firm being different from the record of the assessee, it cannot be said that there is a mistake apparent from the record of the assessee when it is found, as a result of the assessment of the firm, that the share of the partner in the profit of the firm included in the assessment of the partner is not correct. But the fiction created by section 35(5) is a limited fiction, the purpose of which is merely to say that what was not a mistake apparent from the record of the assessee shall be deemed to be a mistake apparent from the record of the assessee. We cannot carry the fiction further and say that the record of the firm must also, therefore, be deemed to be the record of the assessee. The information contained in the allocation reports must, in the circumstances, be regarded as information received from an extraneous source so as to justify initiation of proceedings under section 147(b). It was then contended on behalf of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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