1998 (7) TMI 123 - AT - Income Tax

Tribunal invalidates assessment order for lacking tax liability determination, deems omission incurable.

BP. Singh. Versus Deputy Commissioner Of Income-Tax

BP. Singh. Versus Deputy Commissioner Of Income-Tax - ITD 068, 492, TTJ 062, 652, Issues Involved:1. Validity of the assessment order due to non-determination of tax liability.2. Applicability of Section 292B to cure defects in the assessment order.3. Disallowance of interest paid on packing credit borrowed for export business.Detailed Analysis:1. Validity of the Assessment Order Due to Non-Determination of Tax Liability:The primary issue raised by the assessee was the validity of the assessment order dated 27-3-1989, which determined the total income but failed to specify the tax liability. The assessee argued that this omission rendered the assessment order invalid. It was contended that the determination of tax liability is a mandatory requirement under Section 143(3) of the Income Tax Act, 1961, and the absence of such determination results in the nullity of the order. The assessee supported this argument by citing judgments from various courts, including the Supreme Court's decision in Kalyankumar Ray v. CIT, which emphasized that the determination of tax payable is essential for a valid assessment order. The Tribunal agreed with the assessee's contention, noting that no document indicating the tax liability was served along with the assessment order, making the assessment incomplete and invalid.2. Applicability of Section 292B to Cure Defects in the Assessment Order:The department argued that the omission of the tax liability could be cured under Section 292B of the Income Tax Act, which was inserted to address technical defects or omissions in assessments, notices, or other documents. The department relied on the Karnataka High Court's decision in R. Giridhar and the Supreme Court's decision in Kalyankumar Ray, which held that minor defects or omissions could be cured if the assessment was in substance and effect in conformity with the intent and purpose of the Act. However, the Tribunal distinguished these cases, noting that in the present case, no document indicating the tax liability was ever served on the assessee, making the omission substantial rather than technical. Therefore, Section 292B could not be applied to cure the defect in the assessment order.3. Disallowance of Interest Paid on Packing Credit Borrowed for Export Business:The assessee also challenged the disallowance of interest paid on packing credit borrowed for export business, amounting to Rs. 36,137. The assessee argued that the borrowings were specific and monitored by banks for the purpose of export production, and there were no advances to sister concerns from the Textile Division. The CIT(A) allowed interest on term loans and export bills but upheld the disallowance of interest on packing credit. The Tribunal did not provide a detailed analysis on this issue, as the primary focus was on the validity of the assessment order. However, it implied that the disallowance was not sustainable in view of the facts and circumstances presented by the assessee.Conclusion:The Tribunal concluded that the assessment order was invalid due to the non-determination of tax liability and could not be cured under Section 292B. As a result, the assessment order was annulled, and the appeal of the assessee was accepted.