1978 (2) TMI 93 - HC - Income Tax

Court validates demand notice despite errors, no need for prior order, subsequent notice valid.

Commissioner Of Income-Tax, West Bengal I, Calcutta Versus Karnani Industrial Bank Limited

Commissioner Of Income-Tax, West Bengal I, Calcutta Versus Karnani Industrial Bank Limited - [1978] 113 ITR 380 Issues Involved:1. Validity of the demand notice dated 11th December 1964.2. Necessity of an order under section 35(1) of the Indian Income-tax Act, 1922, before issuing the demand notice.Analysis:Issue 1: Validity of the Demand Notice Dated 11th December 1964The primary question was whether the demand notice issued on 11th December 1964, for the sum of Rs. 12,573.03, was validly issued. The facts established that the assessee was assessed to income-tax for the assessment year 1956-57, and the interest under section 18A(6) of the Indian Income-tax Act, 1922, was calculated but not included in the initial demand notice sent on 20th August 1960. The Income-tax Officer issued a subsequent notice on 11th December 1964, including the previously omitted interest.The Tribunal found that the revised notice affected the assessee's financial liability and, therefore, the assessee should have been given an opportunity to be heard. The Tribunal held that the Income-tax Officer should have issued a notice under section 35(1) to rectify the mistake of non-inclusion of interest in the initial notice. Since proceedings under section 35 had become time-barred, the Tribunal deemed the subsequent notice invalid.The revenue contended that there was no statutory bar on issuing a supplementary notice to correct the omission and that section 29 of the Act mandated the Income-tax Officer to serve a notice of demand specifying the sum payable. The Tribunal's decision was challenged on the grounds that there was no mistake in the record requiring rectification under section 35, and no time limit was prescribed for issuing a demand notice.Issue 2: Necessity of an Order Under Section 35(1) Before Issuing the Demand NoticeThe assessee argued that the mistake in the initial notice could not be rectified without invoking section 35, which required a notice to the assessee and an opportunity to be heard. The Tribunal supported this view, stating that the non-inclusion of interest was a mistake on record that could only be corrected under section 35(1). However, since the period for rectification had lapsed, the Tribunal found the subsequent demand notice invalid.The revenue countered that the issue was not about correcting a mistake but about fulfilling the statutory duty under section 29 to issue a proper demand notice. Several cases were cited to support the contention that a correct notice could be issued even if an earlier notice was incorrect, and there was no statutory time limit for issuing such notices.Judgment:The court examined various precedents and found that the issuance of a correct notice of demand was permissible even if an earlier notice contained errors. The court referenced the case of Protap Chandra Ganguly, where it was held that a proper notice could be issued when a mistake was discovered. The court also cited other cases, including Viswanathan Chettiar, N. Subba Rao, and Badri Prosad Bajoria, which supported the view that a demand notice could be issued even after the statutory period for completing the assessment.The court concluded that the purpose of a notice under section 29 was to inform the assessee of the tax due, and there was no bar to issuing a correct notice if an earlier one was incorrect. The court rejected the assessee's contention that the second notice was invalid and held that the right to appeal against the demand arose from the date of service of the second notice, thus not prejudicing the assessee's rights.Conclusion:- Question 1: The court answered in the affirmative, validating the demand notice dated 11th December 1964.- Question 2: The court answered in the negative, stating that an order under section 35(1) was not necessary before issuing the demand notice.There was no order as to costs, and the judgment was agreed upon by both judges.