JYOTHI TIN AND ALLIED INDUSTRIES Vs. INCOME TAX OFFICER
LAWS(IT)-1992-11-18
INCOME TAX APPELLATE TRIBUNAL
Decided on November 30,1992

Appellant
VERSUS
Respondents

JUDGEMENT

T.V. Rajagopala Rao, Judicial Member - (1.) THESE are appeals filed by the assessee relating to assessment years 1966-67, 1967-68, 1970-71 and 1971-72 and they are directed against the common order of the Dy. Commissioner (Appeals), B-Range, Hyderabad dated 22-9-1988. The appeals were purported to have been filed for and on behalf of a partnership firm called M/s. Jyothi Tin & Allied Industries, Shamsheergunj, Hyderabad.
(2.) The assessee is an unregistered firm in all these years. It comprised of three major partners and two minor partners, namely Suraj Prakash and Budhi Prakash. The two minor partners who are the sons of Shri Poonamchand Toshniwal were admitted to the benefits of partnership. The only point involved was that since the assessment orders for these four years were passed long ago and since they were served on the assessee after long periods of 14 to 17 years after the assessment orders were passed and since there was inordinate delay in communicating the assessment orders passed, the assessment orders became bad in law and unenforceable. The assessment year, the date of the assessment order, the total income determined, the tax determined and the date of the receipt of the assessment order are furnished in the table below for the sake of convenience: JUDGEMENT_5290_TLIT0_19920.htm In support of his contention that the inordinate and unreasonable delay in communicating the assessment orders make the demands invalid and make the assessment orders unenforceable was sought to be substantiated by the assessee's counsel by Citing the following decisions: (1) Khetmal Parekh & Co. v. State of A.P. [1976] 38 STC 531 (AP) (2) M. Ramakrishnaiah & Co. v. State of A.P. [1976] 38 STC 537 (AP) Photostat copies of one of the above decisions are furnished before us. In the second case as per the headnote, the following is what is held by the Andhra Pradesh High Court: Where, in exercise of the revisional powers under Section 20 of the Andhra Pradesh General Sales Tax Act, 1957, the Deputy Commissioner passed an order of revision within the time prescribed therein but served the order on the assessee only after the lapse of about l0 1/2 months: Held that the order would not bind the assessee inasmuch as the delay in serving the order of revision on the assessee was unreasonable and inordinate. Though two decisions were cited, photostat copy of the second decision only was given out of which the headnote is already extracted above. It is well to remember that this decision is rendered in connection with the A.P. General Sales-tax Act and the ratio of the decision that inordinate delay in communicating the orders of the authorities is specifically held to relate to executive authorities. Now in this case, the Income-tax Officer while making the assessments was acting as quasi judicial authority and not merely as executive authority, and therefore, the ratio of the A.P. High Court's decision that due to inordinate delay in communicating the order, the assessment order does not itself bind the assessee should be confined only to the orders of the executive authorities but in our humble opinion it should not be meant applicable to quasi judicial authorities. There are decisions rendered under the Indian Income-tax Act, 1922 as well as the Income-tax Act, 1961 taking the position that delay in serving the assessment order does not affect the validity of the assessment order itself. The learned Departmental Representative cited before us the decision of the Mysore High Court in N. Subba Rao v. Third ITO [1963] 48 1TR 808. In that case, the business of the firm against which the order of assessment has already been passed had been discontinued. The Income-tax Officer wanted to take proceedings against a former partner of the firm for recovery of tax assessed on the firm. The Income-tax Officer took proceedings without issuing a notice of demand under Section 29 of the Income-tax Act and also without passing a fresh assessment order before issuing the demand notice against the erstwhile partner. When the matter came up in writ petition before the Mysore High Court one of the contentions raised against the notice of demand was that it was issued about 4 years after the assessment order was passed and, therefore, that notice of demand cannot be considered to be a valid notice. However, this contention was rejected by the Mysore High Court holding that the petitioner was asked to pay arrears of tax due not because there was an order of assessment against him as such. His liability to pay the arrears of tax arises as a consequence of Section 44 of the Indian Income-tax Act, 1922. Under Section 44 of the Indian Income-tax Act, 1922 the partners are made liable for the payment of tax due from the firm which has discontinued its business. In such a case there need not be vicarious liability cast specifically on the partners. What is being collected is the tax due from the partners of the firm. The notice of demand is based on the order of assessment made against the firm. Before issuing a notice under Section 29 there need not be necessarily an order of assessment on the partner against whom the notice is later issued. Section 29 of Indian Income-tax Act, 1922, as well as the definition of 'assessee' under Section 2(2) of the Indian Income-tax Act, 1922 after having been extracted in their judgment their Lordships held that a person against whom proceedings are taken in pursuance of Section 44 is also an 'assessee' within the meaning of the definition of that word found in Section 2(2). Adverting to the delay in serving the notice under Section 29 of the Indian Income-tax Act, 1922 and its effect against the validity of the assessment order, their Lordships observed at page 813 of the reported decision as follows: He strenuously urged that notice of demand issued four years after the assessment was made is clearly illegal. Section 29 does not prescribe any period of limitation for issuing a notice. Wherever the Legislature thought it necessary, it has prescribed period of limitation in the Act. No support for the contention of Sri Srinivasan can be gathered from the language of Section 29. They relied upon an earlier decision of the Patna High Court in Rajendra Narayan Bhanja Deo of Kanika, in re AIR1925Pat 581, in which case also while considering Section 29 of the Indian Income-tax Act, 1922 it was held as follows : If it had been the intention of the Legislature to prescribe a period of limitation for such notices, I think that such an important provision would have found place in the body of the Act itself indicating that intention. In other sections of the Act we do find that where certain notices have to be given the period within which they have to be given is prescribed. But so far as Section 29 is concerned no period at all is prescribed in the Act. Then at page 814 adverting to the observation of the learned Chief Justice in Rajendra Narayan Bhanja Deo of Kanika's case (supra) page 581 that although no time is prescribed for issuing the notice, notice must be issued within reasonable time which would depend upon the facts and circumstances of each case, the Mysore High Court made the following observations: This observation of the learned Chief Justice is clearly obiter. If the Legislature did not choose to prescribe any period of limitation, we very much doubt whether the court could step in and prescribe its own period of limitation by bringing in the idea of 'reasonable time'. It would not be correct to assume that every claim to be valid must be made within some period and that if no period of limitation is prescribed by the statute, then it should be done within a reasonable time. Unless a period of limitation is prescribed, Courts are not justified in prescribing any period in the nature of limitation. Again our attention is drawn to the decision of the Calcutta High Court in CIT v. Karnani Industrial Bank Ltd. [1978] 113 ITR 380. In the above case also, the delay caused while issuing notice under Section 29 of the IIT Act, 1922 came to be considered by the Calcutta High Court. It held the following as per head note: The purpose of a notice of demand under Section 29 of the Act is to bring to the attention of and demand from the assessee the order of assessment and the amount of tax including interest and other items due from the assessee. It is a statutory duty of the Income-tax Officer concerned to issue this notice and there is no bar to the issue of such a notice if a proper or correct notice has not been issued earlier. Though an assessment has to be completed within four years from the completion of the assessment year, a notice of demand under Section 29 of the Indian Income-tax Act, 1922, can be validly issued even after that period as there is no statutory limit for the issue of the notice of demand. The right to appeal against the demand arises from the date of service of the correct notice of demand and the assessee's right is not prejudiced in any way. In that case for assessment year 1956-57, the assessment was completed and it was recorded in the assessment order that interest would be charged under Section 18A(6) of the Income-tax Act, 1922. However, under the notice sent to the assessee on 20-8-1960, the interest charged under Section 18A(6) was not included. In the second notice of demand dated 11-12-1964, the Income-tax Officer included a sum of Rs. 12,573.03 being interest not included in the earlier notice and this second notice was served against the assessee on 14-12-1964. One of the contentions was that the second notice of demand issued after expiry of 4 years is bad in law. While providing an answer, the Calcutta High Court held that there is no time limit prescribed for the issue of demand notice and there was no bar in the Indian Income-tax Act, 1922 for serving more than one notice or withdrawing an earlier notice and issuing a fresh notice and there was no time limit prescribed for service of such notice. The Calcutta High Court appears to have relied upon the earlier decision of the same High Court in Badri Prosad Bajoria v. CIT[1967] 64 ITR 362 (Cal.). In that case, the argument of the assessee was that the assessment order passed under Section 23(3) of the Indian Income-tax Act, 1922 not having been communicated to the assessee within 4 years after the end of the assessment year as provided under Section 34(3) was barred by limitation and invalid in law. This contention was negatived. The observation obtaining at page 364 was extracted by the Calcutta High Court which is as follows : An assessee's statutory obligation to move a higher Court or Tribunal against an order cannot be set in motion until the order is communicated to him. It cannot be denied that an order, before it is made effective, must be served on the person against whom the order is made. Thus, from the point of view of the person who is affected by the order, the order is made when it is communicated to him. But this does not mean that, until an order is communicated, the order is not made at all. Notice under Section 29 of the Income-tax Act pre-supposes an order of assessment under Section 23(1) or 23(3). Notice under Section 29 can only be served after an order of assessment is made. Thus, the making or passing of an assessment order, the issue of notice under Section 29, and service of notice or communication of the assessment order are different stages or steps before an assessee pays the assessed tax. In other words, the date of making the order, the date of issue of notice and the date when the order is communicated need not necessarily be the same date. Admittedly, in the instant case, the order of assessment was made on 26-3-1959 which is a date within 4 years after the end of the assessment year. The Calcutta High Court relied upon the Madras High Court's decision in Rm. P.R. Viswanathan Chettiar v. CIT [1954] 25 ITR 79, the decision of the Mysore High Court in N. Subba Rao's case (supra) as well as the decision in Badri Prosad Bajoria's case (supra), for the proposition that though the assessment has to be completed within four years from the completion of the assessment year, a notice of demand can be validly issued even after that period. In Sampath Iyengar's 'Law of Income-tax' 8th Edn. Vol. 4 page 4525, the following is stated to be the law: Since the demand notice arises in consequence of an order passed under the Act, which must have been passed before the issue of the notice of demand and its service gives a right of appeal to the assessee, though there is no statutory provision to that effect, it is desirable that the order on the basis of which the demand is raised is also served simultaneously on the assessee; however, the failure to do so will not render the assessment invalid. Therefore, since we accept the contention of the learned Departmental Representative, which is based upon the authority stated above and which was cited by him, we are of the opinion that since the A.P. High Court's decision relied upon by the assessee is distinguishable and, in our opinion, does not apply to quash judicial orders and since the authority cited by the learned Departmental Representative are directly on the point, we hold that the delay if any caused in sending demand notice to the assessee does not invalidate the assessment order. For appreciation of facts on this matter, the learned Departmental Representative filed a paper book containing 20 pages. The copy of the assessment order maintained in the ITO's original records for assessment year 1966-67 is furnished at page 7. The demand notice in Form No. 7 for assessment year 1966-67 is furnished at page 9 of the paper compilation. The letter written by the assessee firm to Income-tax Officer, C-Ward. Circle III, Hyderabad dated 19-2-1971 was furnished at page 11 of the paper book. Extract of order sheet entries for assessment year 1967-68 were furnished at pages 13 to 15 of the paper compilation filed by the Departmental Representative. The assessment order kept in the files of the Income-tax Officer for 1970-71 dated 25-3-1972 is furnished at page 17 of the paper compilation. Similarly office copy of the assessment order for 1971-72 dated 29-3-1973 was furnished at page 19 of the paper compilation. Letter dated 16-11-1983 addressed by Shri Poonamchand Toshniwal to the Income-tax Officer is furnished at page 20 of the paper compilation filed on behalf of the Department. As per the office copy of the assessment order for 1967-68 dated 25-10-1971, it can be seen that it bears a despatch seal which was duly initialled by the officer concerned noting the date on which it was despatched. From the despatch seal it is easy to be seen that the said assessment order was despatched to the assessee on 6-12-1971. The income-tax which was assessed against the assessee firm was duly furnished in the assessment order. Again a notice of demand for 1966-67 was sent on 17-12-1971 and it was served at least against two partners of the assessee. On 19-2-1971 the assessee firm addressed a letter to the Income-tax officer requesting that penalty notice under Section 273(b) may be dropped. The penalty relates to assessment year 1966-67. Thus we are satisfied from the evidence on record that the assessment order for 1966-67 was despatched to the assessee even as early as on 6-12-1971. So also page 17 at which the office copy of the assessment order for 1970-71 was furnished, disclosed that whereas it was passed on 25-3-1972, it was despatched on 19-4-1972 to the assessee firm. Further the office copy of the assessment order for 1971 -72 dated 29-3-1973 discloses that it was despatched on 3-5-1973 since the initials of the concerned officer as well as the date of despatch appeared on the office copy of the assessment order. Therefore, we hold that there is tangible evidence on record to show that the assessment order for 1970-71 was despatched to the assessee firm on 9-4-1972 whereas for assessment year 1971-72, it was despatched on 3-5-1973. Notice under Section 221(1) was sent to Poonamchand Toshniwal in which tax demands due for assessment years 1967-68, 1966-67, 1970-71 and 1971-72 were demanded from him for the reason that the firm was dissolved and that as per the dissolution deed Shri Poonamchand Toshniwal undertook to pay taxes on behalf of minors and also to indemnify other partners and hence notices were put up in the name of Poonamchand Toshniwal. Copy of the said notice dated 5-12-1983 was furnished at page 1 of the paper compilation. Thus virtually there is no delay in serving notice of demand for assessment year 1966-67, 1970-71 and 1971-72. Only for assessment year 1967-68, it is not known whether the assessment order and demand notice were served. Since there is service of notice within reasonable time for assessment year 1966-67, 1970-71 and 1971-72, the argument that the demand notices were sent to the assessee long after the assessment orders were passed, has no merit and should be rejected as not correct. As regards assessment year 1967-68 we are of the view that following legal decisions in favour of the Department, we should hold that simply because there was delay in serving demand notice for assessment year 1967-68 we cannot accept the contention that the said delay would invalidate the assessment order passed. In the result, we hold that the assessee has no case with regard to merits.
(3.) NOW let us take up the objection of the learned Departmental Representative about the maintainability of the appeal itself. In Form No. 36 filed along with each of these appeals. Shri Poonamchand Toshniwal described himself as a partner of the assessee firm. The verification of Form No. 36 as well as verification provided under the grounds of appeal for each of the assessment years bear out our observation in this regard. The learned Departmental Representative contended that Shri Poonamcharid Toshniwal was not a partner at all in the firm as can be seen from the statement of allocation provided in the assessment order for each of these years and, therefore, he has no authority to file an appeal for and on behalf of the assessee firm. He invited our attention to Section 140(cc) of the Income-tax Act, Rule 45 of the Income-tax Rules as well as to Section 2(47) of the Income-tax Act. Section 140 deals with the subject as to who should sign the return. In Section 140(cc) the following is what is stated: In the case of a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign and verify the return, or where there is no managing partner as such, by any partner thereof, not being a minor. Rule 45(2)(cc) of the IT Rules as it stood prior to 18-5-1989 speak about the form of appeal to be filed before the Appellate Assistant Commissioner as well as the Commissioner (Appeals) and prescribed the procedure as to who should file the appeal for and on behalf of the firm. It states as under: In the case of a firm, by the managing partner thereof, or where for any unavoidable reason such managing partner is not able to sign and verify the return, or where there is no managing partner as such, by any partner thereof, not being a minor. Thus it is the contention of the learned Departmental Representative that if it is an income tax return as per requirement of Section 140(cc) it should be signed either by the Managing Partner or in his absence by any partner not being a minor and if it is an appeal under Rule 45(2)(cc) of the IT Rules, 1962, then also, the appeal form namely, Form No. 35 should be signed and verified, in case the firm is the appellant by the Managing Partner of the firm or in his absence by any partner not being a minor. He strongly contended that there is no scope for any third party to file the appeal on behalf of the firm and since Shri Poonamchand Toshniwal filed Form No. 36 before the Tribunal describing himself as partner of the firm which is wrong and misleading and since he has no capacity whatsoever to file the appeals, they should be dismissed in limine as not maintainable and on that ground alone the appeals should be dismissed leave alone the merits of the case.;


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