2003 (7) TMI 33 - HC - Income Tax

Determination of the status - determination of the status can be made only after the informations are furnished and the same are considered after giving opportunity to the assessee. Once these informations are furnished the same are to be considered - Section 142(3) requires giving of an opportunity before determining any question on the basis of the information gathered since this was not an assessment under section 144. Therefore the finding with regard to the status along with the issuance of the notice is in conflict with section 142(3) - the notice containing the decision arrived at about the status of the assessee can not be sustained

Summary

Issues Involved:
1. Legality of the notice under Section 154 of the Income-tax Act, 1961.
2. Validity of notices under Section 142(1) regarding the assessment years 1992-93 and 1993-94.
3. The principle of piecemeal assessment and its applicability.
4. Requirement of opportunity before determining the status of the assessee.

Detailed Analysis:

1. Legality of the Notice under Section 154:
The appellant challenged the notice issued under Section 154 of the Income-tax Act, 1961, arguing that it was issued long after the expiry of four years from the end of the assessment year 1989-90. The court held that the notice under Section 154 could not be sustained due to the uncertain situation regarding the correct interpretation of the law, referencing a similar decision in Vijay Mallya v. Asstt. CIT [2003] 263 ITR 41 (Cal). The court concluded that the notice did not conform to the ingredients of Section 154, rendering it illegal, invalid, bad in law, and without jurisdiction.

2. Validity of Notices under Section 142(1):
The appellant also contested two notices issued under Section 142(1) for the assessment years 1992-93 and 1993-94. The court noted that the notices contained a prejudgment regarding the residential status of the assessee, which should be determined only after giving the assessee an opportunity to present evidence. The court emphasized that the assessing authority has the jurisdiction to decide the question of residential status, but it must do so in the assessment proceedings after providing an opportunity to the assessee. The court found that the notices prejudged the issue and thus could not be sustained in their current form.

3. Principle of Piecemeal Assessment:
The appellant argued against piecemeal assessment, referencing several cases including CIT v. Dhampur Sugar Mills Ltd. [1988] 170 ITR 449 (All). The court distinguished the present case from those cited, noting that the current situation involved an enquiry before assessment, not a piecemeal or compartmentalized assessment. The court explained that the enquiry under Section 142(1) was necessary to establish the basis for computing the income and was a part of the assessment process.

4. Requirement of Opportunity Before Determining Status:
The court highlighted the importance of giving the assessee an opportunity to present evidence before determining their residential status. The determination of status should be based on the information furnished by the assessee during the assessment process. The court emphasized that the determination of status in the notice itself, without considering the information yet to be furnished, conflicted with Section 142(3) and the principles of natural justice. The court concluded that the determination of status should form part of the assessment order and be appealable under Section 246 of the Income-tax Act.

Conclusion:
The court quashed the notice under Section 154 for the assessment year 1989-90 and partially accepted the appellant's contention regarding the notices under Section 142(1) for the assessment years 1992-93 and 1993-94. The court directed that the determination of the assessee's status should be made in the assessment proceedings after giving the assessee an opportunity to present evidence. The appeal was disposed of with directions to proceed with the assessment in accordance with the law.