P.K. Mehta, Accountant Member - (1.) THE assessee, a private limited company, is in appeal for the assessment year 1975-76 against the ITO's penalty order under Section 273(c) of the Income-tax Act, 1961 ('the Act'). THE ITO imposed a penalty of Rs. 25,150. THE Commissioner (Appeals) has confirmed the penalty and, hence, this appeal.
(2.) The assessee's counsel, Shri Vimal Gandhi, invited attention to certain undisputed facts to raise a legal objection to the validity of notice under Section 210 of the Act issued to the assessee-company. It was pointed out that notice under Section 210 dated 6-6-1974 was served on the assessee on 10-6-1974, asking for payment of advance tax of Rs. 45,340 on an income of Rs. 66,420. This was the income assessed for the assessment year 1971-72, which was the latest previous year in respect of which it had been assessed by way of regular assessment as per Section 209 of the Act. It was also stated that Section 209A of the Act was introduced in the Act only from 1-6-1978 and the assessee's case, therefore, was covered by the position prior to insertion of that section and that position was that if an existing assessee was not served with a notice under Section 210 to pay advance tax, he was not under any legal obligation to file an estimate of advance tax payable and to pay the same as envisaged under Section 212(3A) of the Act. The assessee's counsel then put forward his legal objection that the advance tax notice under Section 210 dated 6-6-1974 was not a valid notice as in accordance with the decision of the AAC dated 27-5-1974, the assessee will be having a loss of Rs. 7,253 instead of the income of Rs 66,420 It was pointed out by Shri Gandhi that the order of the AAC was to have effect on the income of the three assessment years 1969-70 to 1971-72 and in support of his submission that after giving effect to the order of the AAC, the income of the assessment year 1971-72 will get converted to a loss, he relied on the appeal effect orders subsequently passed by the ITO himself and these orders are dated 2-7-1975. Copies of these orders were included in the assessee's paper book and it is found that in consequence of the AAC's orders dated 21-5-1974, as per the ITO's own working for the assessment year 1971-72, a carried forward loss of Rs. 73,669 will have to be adjusted against the income already assessed of Rs. 66,416, leaving a balance or loss of Rs. 7,253. It was the contention of the assessee's counsel that the order of the ITO merges into the order of the AAC and no sooner the AAC had passed his order dated 27-5-1974, the assessee's income would be converted into the loss and the reduction in the income as a result of the order of the AAC will not have to wait in the eye of law till the clerical work of computing the same has taken place and the ITO has signed the orders giving appeal effect. In support of this submission, certain authorities were cited and relied upon. These are Chitra Cinema v. ITO [1968] 68 ITR 877 (All.), Smt. Dayawantiv. CWT [1981] 128 ITR 504 (Punj. & Har.), CIT v. Dashmesh Transport Co. (P.) Ltd. [1981] 128 ITR 270 (Punj. & Har.) and CIT v. Rajalakshmi Mills Ltd. [1980] 125 ITR 141 (Mad.). These decisions were cited to show the importance of effect of rectification on a regular assessment and the importance of a valid order to be passed by the ITO. 2.1 On behalf of the revenue, it was submitted that the order of the AAC was dated 27-5-1974 and it would not have been even served on the ITO by the time he issued the advance tax notice dated 6-6-1974 and, hence, it was not physically possible for the ITO to give effect to the order of the AAC before the issue of advance tax notice. The departmental representative even made an attempt to ascertain the date of actual service of the order of the AAC on the ITO but the best he could point out was that the order would not have been received by the ITO prior to 28-6-1974. Proceeding on this line of reasoning, it was submitted that when the advance tax notice was issued, the only order available in the assessment records was the assessment order for the year 1971-72 computing the income of Rs. 66,420 and the notice issued on this basis was claimed to be valid in the eye of law. It was also submitted that the assessee having complied with the notice under Section 210 and paid advance tax cannot now object to it. Reliance was placed on two authorities. One was the case of Dashmesh Transport Co. (P.) Ltd. (supra). It was contended that according to this ruling, the High Court has held that once a notice under Section 210 was issued by the ITO demanding advance tax from an assessee on the basis of income assessed of a particular year, the same cannot be amended if the income of that year underwent any change subsequently. It was also stated that amended notice in that case was held to be invalid and not the first notice. The second authority was cited as it was contended that wrong taking of the figure of quantum of income on which advance tax demand was made was a mere case of irregularity. This authority was a decision of the Tribunal, Amritsar Bench dated 6-2-1982 in the case of IAC v. Ganesh Das Bhoj Raj IT Appeal No. 705 (Asr.) of 1980]. On a careful consideration of the rival submissions, we find that the arguments of the assessee's counsel have force on the facts and in the circumstances of the case. It is an undisputed position that the order of the ITO merges into the order of the AAC. The AAC appears to have decided the appeals of the assessee for the assessment years 1969-70 and 1970-71 by his order dated 21-5-1974. This had the effect of increasing the assessed loss of the assessment year 1969-70 to Rs. 19,425 as against the previous figure of Rs. 9,310 and the corresponding figures for the assessment year 1970-71 were Rs. 1,19,035 and Rs. 78,960. On account of these increases in loss, the total loss computed for the two years amounted to Rs. 1, (sic), and this had to be adjusted for the assessment year 1971-72 where the loss adjusted previously amounted to Rs. 63,294 only. The ITO in his order giving appeal effect found that further loss of Rs. 73,669 (which is a correct figure and not Rs. 73,416 as given in the copy of order filed before us) had to be adjusted against the income assessed of Rs. 66,416, leaving a balance assessed loss of Rs. 7,253. In our opinion, the operation of law cannot be halted by the mere fact that the ITO received the order of the AAC later and chose to give appeal effect still later. The position in law has to prevail. The ITO, in fact was bound to cancel (sic) 29-1-1970 the notice under Section 210 issued on 6-6-1974 at the earliest after the receipt of the order of the AAC and even if he has not chosen to do so, the law has to prevail and the benefits, which had become available to the assessee as a result of the order of the AAC, would stand accrued. Viewing in this light, it is immaterial to ascertain when the ITO, in fact, received the order of the AAC. It may be that at the time he issued the advance tax notice he was not aware of the order of the AAC and of its implications and made a demand under Section 210 but under law he was bound to cancel the advance tax notice in this case as soon as the order of the AAC had physically come to him. But this is not to say that the effect of the order of the AAC has to be a deferred until the ITO chooses to give appeal effect. The order is effective on the date it is passed and its implications will accrue on the same date. On this reasoning, we find no difficulty in holding that the advance tax notice issued under Section 210 was an invalid notice, which was based on an assessed income become nonexistent in the eye of law on the passing of the order of the AAC dated 27-5-1974. The authorities cited by the assessee's counsel certainly support him. The Punjab and Haryana High Court has dealt with the importance of rectification in the context of the Wealth-tax Act, 1957, in its judgment in Smt. Dayawanti's case (supra) and again the Punjab and Haryana High Court in Dashmesh Transport Co. (P.) Ltd.'s case (supra) has emphasised that an order passed by the ITO under Section 210(3), which was contrary to law, had to be struck down. The Madras High Court in Rajlakshmi Mills Ltd.'s case (supra) has clearly laid down that the rectification of the assessment order under Section 154 of the Act had the effect of making the original assessment order passed on 29-1-1970 the regular assessment order or the correct assessment order. It was further held that in other words, the original assessment was made regular in truth and in fact as a result of the rectification. These observations will perhaps have the effect of taking the rectification even back to the date of original assessment and in the instant case whereas the ITO has given appeal effect to the order of the AAC for the first two assessment years acting under Section 250/143(3) of the Act, for the assessment year 1971-72, he has referred to Section 154/155 of the Act. For the purpose of deciding the question in hand, even this will be sufficient that the assessment order was modified on the date the order of the AAC was passed for the earlier two assessment years. We may point out that the revenue's reading of the Punjab and Haryana High Court authority in Dashmesh Transport Co. (P.) Ltd.'s case (supra) is not correct. What that decision emphasises is that what was not open to the ITO to do in accordance with law, it could not be done by him and the Court will not uphold it. The departmental representative was merely trying to rely on the effect of that principle on the facts and in the circumstances of that case. The decision of the Tribunal relied upon by the revenue is clearly distinguishable on facts and secondly, it is clearly mentioned in para 4 of the order of the Tribunal that 'This is not a case where the demand has been raised on the basis of income which had already been reduced or modified at the time of the issue of such notice.' The Tribunal in that case was dealing with a notice under Section 210, which was issued on the basis of a wrong figure of income assessed, and its effect in the context of the assessee's duty to act under Section 212(3A). 3.1 Having held the notice under Section 210 to be invalid, it is an undisputed position that the assessee for the assessment year 1975-76 had no duty to file an estimate and pay advance tax as provided under Section 212(3A). The penalty imposed under Section 273(c), thus, is unsustainable and it has to be cancelled. We order accordingly.
(3.) THE assessee's counsel also argued the case on merits and pointed out with the help of a chart that the assessee was not clear about the position of brought forward losses to which it will be entitled after the assessments become final. It was pointed out that as per order under Section 154, dated 16-4-1982 as a consequence of the assessee's application to allow the benefit to carry forward of losses suffered during the earlier assessment year, a loss of Rs. 27,252 was computed for the assessment year 1974-75 ultimately which was set off against the income of Rs. 5.81 lakhs determined on 30-9-1980. Another chart was furnished to show the dates of decisions of the AAC or the Commissioner (Appeals), dates of the orders of the Tribunal and relief allowed by the Tribunal relating to the assessment years 1969-70 to 1973-74, which was referred to indicate that the position about the losses was uncertain. THE assessee's advocate also explained the position referred to in para 4 of the order of the Commissioner (Appeals) about the assessee anticipating in the return filed for the assessment year 1974-75 benefit of carry forward loss of Rs. 50,000 only. It was submitted that the appeals were pending for the earlier years and the position was not clear about the ultimate figure of loss and the assessee having paid advance tax already of certain amount estimated the loss at Rs. 50,000 without any particular basis but keeping in mind the fact that it may not be called upon to pay any further advance tax. 4.1 THE second circumstance to which Shri Gandhi invited attention with the help of a chart was that goods booking receipts for the assessment year 1975-76 become unduly high in the last two months of the accounting year, viz., November 1974 and December 1974. THE figures for those two months were Rs. 4,77 lakhs and Rs. 10.34 lakhs. It was pointed out with the help of comparative figures of earlier year that goods booking per month averaged between Rs. 2 to 3 lakhs. It was submitted that increases in the months of November and December could not be visualised and further the figures were received from 36 booking offices after passage of much time after the due date for filing of the estimate which was 15-12-1974. It was emphasised that in December alone the final figure of goods booking was as high as Rs. 10 lakhs and that figure was not available by 15-12-1974. Finally, reliance was placed on the two rulings--CIT v. Pratap Chand Maheshwari [1980] 124 ITR 653 (Punj. & Har.) and Southern Publications (P.) Ltd. v. CIT [1982] 137 ITR 822 (Mad.) to say that the default on the part of the assessee was not contumacious in nature and, hence, no penalty should be levied. On behalf of the revenue, reliance was placed on the order of the Commissioner (Appeals).;