TMI Blog1982 (8) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... anent account numbers. This was replied by the assessee on30-1-1976when required details were furnished to the ITO. However, on9-2-1976, the assessee suo motu wrote a letter to the ITO by which it surrendered the peak of the various loan accounts, being Rs. 2,66,700, for inclusion in its total income. It was stated in this letter that the assessee was facing difficulty in producing the necessary evidence to prove the genuineness of the credits in its books of account and had, therefore, decided to offer the above amount for inclusion in its total income. The letter, inter alia, also stated as under : "It is also with a sincere desire to settle and compromise the matter with the department that the peak amount is being voluntarily surrendered for assessment and we trust that you would be kind enough not to levy any penalty in this respect. The taxation of the peak amount which is being offered voluntarily for the purpose of assessment is to avoid litigation and also to save time both of the assessee and the department...." It is not necessary to quote further from the above letter of the assessee. Suffice it to say, that the assessee while offering the amount did not accept that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 3 of the draft order. The assessee objected to the various defects as pointed out by the ITO in para 3 of the said order on the ground that they caused prejudice to the assessee's case and, therefore, deserved to be deleted. The assessee vide above letter dated23-2-1976, took various other objections to the other proposed additions by the ITO. It is not known when the ITO forwarded the draft order together with the objections to the IAC. However, there is no dispute that the directions of the IAC were received by him on15-3-1976. There is also no dispute that the said directions related only to the proposed additions of Rs. 68,931 and were issued after allowing the assessee an opportunity of being heard. In these directions, the IAC also observed that the remarks of the ITO as contained in para 3 of the draft order were passed on facts and might stay in the assessment order also. The ITO finally passed the assessment order on15-3-1976, i.e., the date on which he had received the directions of the IAC relating thereto. The assessment was made on an income of Rs. 8,09,430. This amount, inter alia, included the surrendered amount of Rs. 2,66,700 also as it was also included in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant during the course of assessment proceedings merely surrendered the amount of Rs. 2,66,700 but did not file any revised return. The surrender offer does not amount to filing a revised return in view of the ratio laid down in the two judgments relied upon by the learned departmental representative and referred to above. Section 144B has to be read conjectively and if so read the only conclusion possible is that there was a variation in the income returned and income assessed to the extent of more than Rs. 1 lakh and hence the provisions of section 144B were clearly attracted. The ITO was well within his jurisdiction to refer the case to the learned IAC and the learned IAC was well within his jurisdiction to issue instructions to the ITO. The additional ground raised by the appellant, therefore, fails and is accordingly dismissed." 6. The above finding of the AAC has been challenged before us by the counsel for the assessee. It was reiterated before us that the provisions of section 144B did not apply to the case and, therefore, the ITO could not take advantage of the extended time limit laid down in clause (iv) of Explanation 1 to section 153 and that the assessment had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment: "Though in this case no prejudice was caused to the assessee by the omission to determine the tax in the assessment order because the notice of demand was issued to him on the same date on which the assessment order was made, physical statutes have to be strictly construed and wherever there is a lacuna or non-observance of the statutory provisions, the benefit should go to the assessee." He supported his submissions by referring to the judgment of the Bombay High Court in CIT v. Godavaridevi Saraf [1978] 113 ITR 589. His submissions in nutshell were that there was no proposal in the draft assessment order by the ITO regarding the addition of Rs. 2,66,700, that the above addition did not cause any prejudice to the assessee, that the IAC had not commented upon the above amount and finally the assessee could not suo motu revise the return by including the above amount as that would amount to admission of an omission of income which was not the case as the amount had been surrendered in the circumstances stated in the assessee's letter dated 9-2-1976 only. He finally referred to a number of authorities for the propositions that the question of jurisdiction could b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and that it had to be looked into with reference to the returned income. If this was done, then there was clearly a variation of more than Rs. 1 lakh, namely, that the variation amounted to Rs. 2,66,700 plus Rs. 68,931. He also submitted that there could not be the denial of the fact that the variation to the above extent was not favourable to the assessee which in other words meant that it was prejudicial to the assessee. He further submitted that the mere fact that the ITO had proposed in the draft order acceptance of the amount of Rs. 2,66,700 or the fact that the IAC had not made any comments thereon did not mean that it did not amount to variation as contemplated in section 144B. He also pointed out as a fact that even while surrendering the above amount, the assessee had not straightaway accepted that the credits were not genuine or that they form part of its total income and that such a surrender was not legally binding on the assessee which could be challenged even before the AAC. He also submitted that the assessee had in fact objected to the various observations relating to the said addition in its letter dated23-2-1976referred to above. His alternative submission was tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... returned by the assessee. The contention of the assessee is that such variation amounted to Rs. 68,931 only. The contention of the department on the other hand is that the variation was of the above amount as enhanced by Rs. 2,66,700. The first condition as stated above is that the variation must be in the income or loss returned. If the assessee returned an income of Rs. 4,73,125 only and the ITO suggested in the draft order that the assessment be made on an income of Rs. 8,13,542, we fail to understand how it could be said that the variation in the income returned and the income proposed was not the difference of the two amounts, i.e., Rs. 8,13,542 and Rs. 4,73,125. In our opinion, the variation clearly amounted to the difference of the above two amounts. We may also state that the section lays down that the ITO should alone propose to make such a variation in the total income returned. Merely because the assessee had surrendered a particular amount it could not be said that the ITO was prohibited from making any proposal for its addition. The section does not give any right to the assessee to propose any addition. That right vests only in the ITO in terms of sub-section (1) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in terms of the extended period of time laid down in clause (iv) of Explanation I to section 153. We, therefore, reject this part of the assessee's contention. 10. The assessee has taken another ground in the appeal requesting for the expunging of the observations made by the ITO in para 4 of the assessment order. We may recall here that these observations are the same which were contained in para 3 of the draft assessment order and to which the assessee had objected even before the IAC. These observations merely give the history of the addition of Rs. 2,66,700 and the circumstances leading to the surrender of that amount. We do not agree with the submission of the counsel for the assessee that the observations should be expunged by us. We have already stated above that the assessee had not filed a revised return nor had amended its earlier return submitted on17-2-1975. It was, therefore, absolutely necessary for the ITO to make those observations in his order. This contention of the assessee, therefore, fails. 11. In the view, we have taken, we do not think that it is necessary to consider the alternate contention of the learned departmental representative that in any case the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances, required the presence of Sh. Ram Parshad which was not complied with. He, therefore, held that the amount represented the assessee's own income from other sources. There was no improvement in the situation before the AAC also. He, therefore, confirmed the addition. 15. After hearing the parties, we agree with the finding of the lower authorities. This is also a case where the explanation offered by the assessee is not, in the opinion of the ITO, satisfactory. It is no doubt correct that by furnishing the confirmatory letter, the assessee discharged its initial burden. However, it again shifted to the assessee when the ITO noticed the alterations in the day book particularly when original credit appeared in the name of Devi Prasad and which he voluntarily surrendered for inclusion in the total income. The burden after it was shifted to the assessee had not been discharged. We, therefore, hold that the credit of Rs. 5,000 has also been rightly assessed as the assessee's income from other sources. 16. The ITO noticed another credit of Rs. 5,000 on17-7-1970in the name of Sh. Nand Lal Bhalla. This credit also originally stood in the name of Sh. Devi Prasad but was subseq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , felt suspicious. He also found that Sh. Mohinder Pratap was a relation of Sh. M.R. Bhalla, the managing director of the company, and that his father had been paid a similar amount by the assessee-company about a month back. He, therefore, held that the amount represented the assessee's own income from undisclosed sources. The addition was, however, deleted by the AAC as he found that Sh. Mohinder Pratap had been examined by the ITO and that he had also explained the source of the amount. 22. The department has challenged the above deletion. We find that Sh. Mohinder Pratap was examined by the ITO on2-2-1976. In his statement, he had stated that his father had also made a deposit of Rs. 10,000 with the assessee which was returned to him on20-11-1970. According to him, it was this amount which was re-deposited with the assessee on31-1-1971. In the face of this evidence, it cannot be said that the assessee has not discharged its burden in terms of section 68. The mere fact that the entry originally stood in the name of Sh. Prem Chand, by itself is not sufficient to discard the evidence of the assessee. We, therefore, confirm the deletion of the said amount by the AAC. 23. The ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scope. As the facts obtaining on the issue are undisputed, I will not advert to them in details again but confine myself to the legal issues involved. The original return was filed on31-7-1972 at Rs. 4,76,654. A revised return was filed on17-2-1975 declaring an income of Rs. 4,73,125. On an enquiry from the ITO on23-1-1976, regarding the details of unsecured loans with a separate list of fresh loans (including squared up loans) and confirmations of the parties with their permanent account numbers the assessee sent his reply giving the required particulars. However, on9-2-1976, the assessee, on his own, wrote a letter to the ITO in which he surrendered the peak of the various loan accounts aggregating to Rs. 2,66,700 for the inclusion in the total income. 2. The ITO accepted the offer finding the same to be reasonable. However, on11-2-1976the ITO made a draft assessment order on a total income of Rs. 8,13,542. In that order, the ITO adverted to the circumstances under which the sum of Rs. 2,66,700 came to be surrendered. After so observing, the ITO proposed the additions aggregating to Rs. 68,931. Keeping in view the provisions of section 144B, he forwarded the copy of the propose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In any case these are distinguishable on facts, no reliance could be placed on the said judgments. The order of the ITO has been upheld on erroneous and insufficient grounds. The assessment order under the facts and circumstances of the case deserves to be annulled." 5. Before I proceed to deal with the contentions, it will be useful to reproduce the provisions of section 144B(1), 153(1)(c) and Explanation 1(iv) to section 153 as they stood at the relevant point of time : "144B(1). Notwithstanding anything contained in this Act, where, in an assessment to be made under sub-section (3) of section 143, the Income-tax Officer proposes to make 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." "153(1). No order of assessment shall be made under section 143 or section 144 at any time after--- (a) (b) (c) the expiry of one year from the date of the filing of a return or a r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee surrendered the amount and the ITO accepted the surrender, the proposal in the draft assessment order came from the ITO but this fact cannot bear scrutiny. The fact is that the assessee surrendered the amount and the ITO accepted. He communicated that acceptance to the IAC and proposed other variations to the extent of Rs. 68,931. The IAC approved the action of the ITO accepting the surrender but issued directions only to the proposed addition of Rs. 68,931 as mentioned by my learned brother in his order at page 3, line 13 from the bottom. Therefore, the ITO did not propose. 8.2 In respect of variation it appears that as the draft order of the ITO mentioned a figure much higher than the revised return even there was a variation between the income or the loss returned, and the assessment proposed. But it is also not so. When the ITO took recourse to section 144B, the amount had already been surrendered and accepted by the ITO. Though, therefore, the return or the revised return did not indicate the surrendered amount but when the ITO was on the verge of exercising his power under section 144B, the amount already stood surrendered as the income of the assessee. Suppos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ready there on record by the factum of surrender of the amount by the assessee much earlier than the stage when the ITO took recourse to section 144B even that variation did not exist. As the assessee had himself surrendered the amount for purposes of the assessment even that variation, if it could be taken to be so, for argument sake for purposes of section 144B, was not prejudicial to the interest of the assessee. As all the three conditions are not satisfied under which the ITO could assume jurisdiction under section 144B for extending the time of limitation, I am of the view that the limitation for the framing of the assessment was governed by the provisions of section 153(1)(c) and the Explanation 1(iv) to that section did not save the limitation. As the assessment was framed clearly beyond the period of limitation as provided for under section 153(1)(c), the same was non est. The assessment being non est has no existence in law and, therefore, has to be annulled. I annul the assessment. 10. As I have annulled the assessment on the three issues discussed above, I need not go into the other issues raised by both the parties. Perhaps it could be said that the revenue has a goo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rward and surrendered all the squared up loans and some of the fresh loans appearing in the balance sheet on the basis of peak amount and made an offer vide its letter dated 9-2-1976 that an amount of Rs. 2,66,700, representing the peak of credits, the nature and source of which the assessee was not able to explain, might be included in its total income. It is pertinent that the assessee had, inter alia, mentioned in its aforesaid letter that it was voluntarily surrendering the sum of Rs. 2,66,700 with a sincere desire to settle and compromise the matter with the department and the ITO was requested not to levy any penalty in this respect. The ITO, it may be stated, has accepted the assessee's computation of peak amount of such loans regarding which satisfactory explanation was not forthcoming, as reasonable and has made the addition of Rs. 2,66,700 as offered by the assessee. As regards the request for not levying the penalty, however, the ITO has observed that the matter would be considered on merits. The ITO has also felt that a further addition/disallowance of Rs. 68,931 was called for in the case of the assessee. Thus, according to the ITO, the total income of the assessee was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat penalty proceedings under section 271(1)(c) were being separately initiated. This draft assessment order, it was stated, was served on the assessee on12-2-1976within one year of the filing of the revised return. The learned counsel for the assessee, on the other hand, vehemently opposed the consideration of the new plea raised by Sri Kapila for the first time before me as a Third Member. On merits, it was stated that the fact of penalty proceedings was still not known and, therefore, just because the ITO had indicated his mind to start penalty proceedings under section 271(1)(c), it cannot and should not be held that the case fell within the mischief of section 153(1)(b). In this connection, the counsel submitted that the Supreme Court decision in the case of Guduthur Bros. v. ITO [1960] 40 ITR 298 and the Allahabad High Court decision in the case of Ram Bilas Kedar Nath v. ITO [1964] 54 ITR 11, relied upon by Sri Kapila, were not applicable to the facts of the case. 6. I have heard the parties at length. I have also gone through the order of assessment, the order of the AAC and other material on record carefully. To my mind, the question before me is very short and an intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the second condition also, I am of the view that the variation in the total income is one lump and is not capable of being broken into the additions and disallowances on agreement and the additions and disallowances objected to by the assessee. The variations will have to be held to be prejudicial to the assessee even if only a small portion of it is objected to by the assessee. In this context, I would like to make clear that I am not expressing myself on the question whether in a case where the total amount of additions/disallowances are agreed upon by the assessee, the condition number (2) would be or would not be satisfied, In view of what I have stated regarding condition numbers (1) and (2), the third condition stands automatically satisfied. 8. It may be stated that the assessee's counsel tried to lay great emphasis on the adjectives used before the word 'variation' in section 144B, such as, 'such' and 'the', which according to him indicated that the variation contemplated in the section refers to only such variation which has not been agreed upon by the assessee and which alone can be said to be prejudicial to the assessee. Since, however, in my view these adjectives used ..... X X X X Extracts X X X X X X X X Extracts X X X X
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