Income Tax Appellate Tribunal - Amritsar
Income-Tax Officer vs Mukand Lal And Sons on 31 March, 2006
Equivalent citations: [2006]103ITD41(ASR), (2006)105TTJ(ASR)752
ORDER
Bhavnesh Saini, Judicial Member
1. This order shall dispose of all the above five appeals filed by the Revenue and the assessee against the common order of the CIT(A), Bhatinda dated 7-11-2000 for the assessment years 1993-94 to 1996-97.
2. I have heard the learned representatives of both the parties and gone through the observations of the authorities below and material available on record.
3. The learned representatives of both the parties stated that the facts are common in all the appeals. The learned representatives mainly argued the appeal of the assessment year 1993-94. The facts of the case are that the Assessing Officer framed the reassessments in the name of M/s. Mukand Lal & Sons, Petrol Pump, G.T. Road, Ferozepur through Shri Lakhwinder Singh S/o Shri Gurdev Singh in the status of A.O.P. under Section 144 of the Income-tax Act. The assessee is stated to running a petrol pump. No return was furnished under Section 139. Notice under Section 148 was issued after recording the reasons which was served upon the assessee on 25-3-1998. Later on, vide letter dated 22-11-1998 Shri Karaj Singh S/o Shri Iqbal Singh, partner of M/s. Mukand Lal & Sons on enquiry intimated the Assessing Officer that they had purchased petrol pump on 17-12-1997 from Shri Lakhwinder Singh S/o Shri Gurdev Singh and the tax matter may be negotiated with Shri Lakhwinder Singh S/o Shri Gurdev Singh for the assessment years in question. Therefore, on 9/14-12-1998, letter No. 3384 was sent to Shri Lakhwinder Singh S/o Shri Gurdev Singh by registered post intimating therein that the notices under Section 148 were issued in the name of M/s. Mukand Lal & Sons for all the assessment years under appeal which was served on 25-3-1998 and that the income-tax returns in response to these notices had not been received. He was requested to intimate if the said notices have been received by him or by the firm or its representative etc. It was also stated that failing to furnish intimation, it would be presumed that notices have been received by the firm as constituted during the period relevant to the assessment years for which notices under Section 148 had been issued. It is stated that on 22-3-1999, Shri Lakhwinder Singh happened to attend the office of the Assessing Officer and the same letter was delivered to him but Shri Lakhwinder Singh did not furnish his reply. Earlier owners of the firm M/s. Mukand Lal & Sons were also contacted for this purpose, who intimated the Assessing Officer on 9-4-1999 that they have sold the petrol pump etc. to Shri Lakhwinder Singh on dated 25-10-1991. The statement of earlier owner Shri Ved Parkash was also recorded to that effect. The Assessing Officer therefore, observed from the above facts that petrol pump in question was sold to Shri Lakhwinder Singh on 25-10-1991 and as such for all the assessment years in question Shri Lakhwinder Singh shall be responsible for all the tax matters after the sale of the petrol pump to him.
4. In response to the notice under Section 142(1), Shri Lakhwinder Singh furnished a letter dated 29-2-2000 claiming therein that he had purchased the land for Rs. 1,60,000 on 25-10-1991 from Shri Ved Parkash etc. and that he had no concern whatsoever with the petrol pump being attorney and is not liable to account for the profits. However, Shri Lakhwinder Singh did not furnish copy of power of attorney. The Assessing Officer, therefore, observed that Shri Lakhwinder Singh maintained bank accounts and was responsible for the aforesaid business of the petrol pump and from the sale deed dated 9-12-1997 Shri Lakhwinder Singh has mentioned the ownership and running petrol pump but the name of other shareholder is not mentioned. The Assessing Officer was, therefore, satisfied that Shri Lakhwinder Singh S/o Shri Gurdev Singh was owner of the petrol pump and he ran the business in collaboration with some other persons, therefore, the status of the business of petrol pump was taken as AOP through Shri Lakhwinder Singh S/o Shri Gurdev Singh. The Assessing Officer further issued notice under Section 142(1) in reply thereto. Shri Lakhwinder Singh stated that he was not the owner of the petrol pump. The Assessing Officer in the absence of any material on record from the side of Shri Lakhwinder Singh had proceeded to make the assessment under Section 144 of the Income-tax Act ex parte and estimated the working capital of Rs. 2,50,000 which was required to run the petrol pump and made the addition in the assessment year 1993-94. Similarly undisclosed income from sale of petrol pump was worked out at Rs. 84,485. In the remaining assessment years, the Assessing Officer estimated the undisclosed income at Rs. 1,03,657, Rs. 1,24,430 and Rs. 1,22,520 for the assessment years 1994-95, 1995-96 and 1996-97 respectively.
5. The additions were challenged before the CIT(A) and it was submitted that no notice is validly served on Shri Lakhwinder Singh and in the absence of any service of the notice under Section 148 of the Income-tax Act, the reassessment proceedings are bad in law and the Assessing Officer has not assumed the jurisdiction validly in accordance with law. On merits, it was submitted that Shri Lakhwinder Singh has subsequently filed the return of income in the status of individual on 18-7-2000 declaring income below the taxable limit and that Shri Lakhwinder Singh has income from agriculture, therefore, the additions are unwarranted and the assessment order so framed under Section 148 of the Income-tax Act is bad in law. The CIT(A) however dismissed the appeal of the assessee as regards taking status of AOP. The CIT(A) also upheld the issue of notice under Section 148 as well as resultant proceedings. However, the addition on account of unexplained investment in purchase of the petrol pump in a sum of Rs. 2,50,000 was modified and the addition was confirmed in a sum of Rs. 1,50,000 and remaining addition of Rs. 1,00,000 was deleted out of the addition. As far as the undisclosed income from sale of petrol and diesel is concerned, the CIT(A) gave relief to the assessee in a sum of Rs. 10,000 in each assessment year. The appeals of the assessee were accordingly partly allowed.
6. The Revenue is in appeal challenging the deletion of the additions of Rs. 1,00,000 and Rs. 10,000 on account of undisclosed sale of petrol and diesel in the assessment year 1993-94. However, the assessee is in appeals for all the assessment years challenging the validity of the reassessment under Section 148 of the Income-tax Act as well as challenging the additions on merits.
7. The learned Counsel for the assessee at the outset submitted that the notice under Section 148 of the Income- tax Act was never served upon Shri Lakhwinder Singh. He has further submitted that since Shri Lakhwinder Singh sold the petrol pump on 17-12-1997, therefore, there was no question of service upon Shri Lakhwinder Singh of the notice under Section 148 on 25-3-1998. He has submitted that since no notice under Section 148 is served upon Shri Lakhwinder Singh. Therefore, the Assessing Officer has not validly assumed the jurisdiction for the purpose of framing the assessment under Section 148 of the Income-tax Act. He has submitted that the service of notice is a condition precedent before proceeding to make the reassessment under Section 148 of the Income-tax Act and in support of his contention, he has relied upon the following decisions:
1. P.N. Sasikumar v. CIT .
2. ITO v. Chandi Prasad Modi .
3. Jayanthi Talkies Distributors v. CIT .
4. Shri Sidh & Co. v. ITAT .
5. P.V. Doshi v. CIT [1978] 113 ITR 22 (Guj.).
He has also referred to other decisions, which are not directly applicable to the present case. The learned Counsel for the assessee also argued on merits and submitted that Shri Lakhwinder Singh earned agricultural income for which proper details were filed before the CIT(A) but no proper reliance has been placed. He has further submitted that copies of Jamabandi of the land holding of Shri Lakhwinder Singh was also filed which is not properly considered by the CIT(A). He has submitted that subsequently Shri Lakhwinder Singh filed belated return on 18-7-200G showing profit margin which was below taxable limit and, therefore, the authorities below were not justified in making the additions. He has further submitted that the petrol pump was controlled by Indian Oil Corporation and the profit margin should have been verified by the Assessing Officer before making the addition in the matter. He has submitted that the profit margin as declared by Indian Oil Corporation is very meagre and as such huge addition is unwarranted in the matter and the same is excessive and unreasonable.
8. On the other hand, the learned D.R. relied upon the orders of the authorities below and submitted that the status of the assessee was correctly taken as AOP and that the notice under Section 148 were validly served and that Shri Lakhwinder Singh has not shown agricultural income in the belated returns. Therefore, no further benefit can be given to the assessee. The learned D.R. was directed to file copies of the notices under Section 148 of the Income-tax Act dated 9-3-1998 along with the letter of the Assessing Officer dated 14-12-1998 addressed to Shri Lakhwinder Singh. The learned D.R. was also directed to file copy of the order sheet entry dated 22-3-1999 showing if Shri Lakhwinder Singh appeared before the Assessing Officer. The learned D.R. filed the copies of the notices under Section 148 dated 9-3-1998 for all the years along with reply of the ITO (TDS), Ferozepur dated 3-2-2006 and also filed copy of the letter of the Assessing Officer dated 14-12-1998. The learned D.R. also filed a copy of the reasons recorded for reopening the assessment in the matter. However, the learned D.R. submitted that there is no order sheet entry available on record showing that Shri Lakhwinder Singh appeared before the Assessing Officer on 22-3-1999. The learned D.R. went on to say that Shri Lakhwinder Singh never appeared before the Assessing Officer on 22-3-1999.
9. I have considered the rival submissions and material available on record. The facts are not in dispute as regards Shri Lakhwinder Singh purchased the petrol pump in question from Shri Ved Parkash etc. on 25-10-1991. The name and style of the business remains the same as M/s. Mukand Lal & Sons. It is also not in dispute that Shri Lakhwinder Singh sold the same petrol pump to Shri Karaj Singh and others on 17-12-1997. Therefore, Shri Lakhwinder Singh was responsible for the affairs of the business of M/s. Mukand Lal & Sons during the assessment years under appeal i.e., 1993-94 to 1996-97. Section 148 of the Income-tax Act provides:
148. (1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.
10. Section 282(2)(c) provides service of notice in the case of any other association or body of individuals, to the principal officer or any member thereof. The combined reading of the aforesaid provisions would clearly prove that before making the reassessment under Section 147, the Assessing Officer shall serve on an assessee notice requiring him to furnish within such period as may specify in the notice, return of his income assessable under the Act. Therefore, it is condition precedent that before making reassessment under Section 147/148, the Assessing Officer shall have to serve the notice under Section 148 of the Income-tax Act upon the assessee. In case of A.O.P. or other association such notice shall have to be served upon the principal officer or any other member thereof. In this case, nothing is specified as to who else were the Members of the A.O.P. M/s. Mukand Lal & Sons. Therefore, at the most the Assessing Officer should have served the notices under Section 148 upon Shri Lakhwinder Singh. Copies of the notices under Section 148 have been filed on record along with the report of the I.T.O., T.D.S., Ferozepur dated 3-2-2006 in which it is stated that the signatures on the notice under Section 148 are of Notice Server Shri Palla Singh. Adjacent to his sign there is another signature but no name or designation or any other information is available. This report of the Revenue clearly shows that even it is not clarified as to upon whom the notices under Section 148 have been served. I find from the copies of the notices as well as from the assessment records produced by the learned D.R. that only some initial is there on notice without giving any detail therein as to upon whom such notices have been served by the Assessing Officer. No service report is available on the record to show that upon whom the notices under Section 148 have been served. The notices under Section 148 do not contain the status of the assessee whether he is Individual, HUF, Firm or an AOP. The notices are addressed to M/s. Mukand Lal & Sons, G.T. Road, Ferozepur. Even in the reasons recorded for initiating the proceedings under Section 148 of the Income-tax Act, the Assessing Officer has nowhere mentioned the status of the assessee. Shri Lakh winder Singh is stated to have sold the petrol pump on 17-12-1997 and as per the record the notice under Section 148 dated 9-3-1998 is stated to be served upon somebody on 25-3-1998. The address contained in the notice is of petrol pump at G.T. Road, Ferozepur Cantt. where the presence of Shri Lakhwinder Singh cannot be presumed by any stretch of imagination on the day of service of notice. Therefore, it is clear from the above facts that the notice under Section 148 was not served upon Shri Lakhwinder Singh on 25-3-1998. The Revenue has also failed to prove as to upon whom such notice has been served. This fact is also strengthened by issue of letter by the Assessing Officer on 14-12-1998 to Shri Lakhwinder Singh in which the Assessing Officer himself asked Shri Lakhwinder Singh to intimate whether in fact notice under Section 148 is served upon him or not and in case no reply is given then he would presume that notices have already been received. Such language in the letter dated 14-12-1998 would clearly prove that despite the Assessing Officer was aware of the fact from the statement of Shri Ved Parkash and intimation of Shri Karaj Singh that Shri Lakhwinder Singh is responsible for the affairs of petrol pump in question for the years under appeal but the Assessing Officer did not make any effort to issue any notice under Section 148 of the Income-tax Act for the purpose of service upon Shri Lakhwinder Singh S/o Shri Gurdev Singh. The learned D.R. admitted that only one notice dated 9-3-1998 under Section 148 has been issued and it is not known as to upon whom it is served. The Assessing Officer observed that on 22-3-1999 Shri Lakhwinder Singh attended the office but the learned D.R. admitted before me that there is no order sheet available for 22-3-1999 to confirm the above fact. Therefore, it is clear that Shri Lakhwinder Singh did not appear before the Assessing Officer in connection with the reassessment proceedings. No return is filed in response to notice under Section 148 of the Income-tax Act. The Assessing Officer never tried to issue or serve any notice under Section 148 of the Income-tax Act upon Shri Lakhwinder Singh through whom the assessment is now framed.
11. The Hon'ble Kerala High Court in the case of P.N. Sasikumar (supra) held:
...that the assessments were made on an association of persons, an entity distinct and different from the various persons who were members of the association of persons. There was no material to show that the notices were sent to any association of persons or to S as representing the association of persons. Therefore, the notices under Section 148 were not served in accordance with law and S who was assessed was not called upon to file the returns. The notice was addressed only to an individual, S. The Income-tax Officer did not make it plain or clear that the notice was to assess the association of persons consisting of S and others and hence the Income-tax Officer had no competence to assess the association of persons consisting of S and others. Therefore, the entire proceedings were illegal and without jurisdiction.
12. The Hon'ble Allahabad High Court in the case of Shri Sidh & Co. (supra) held:
Notice to a firm served on an individual not connected or concerned in any manner with the firm is no service; service will be valid only when the said order is handed over to a partner of the firm.
13. The Hon'ble Madras High Court in the case of Jayanthi Talkies Distributors (supra) held:
Held, (1) that the ITO will have no jurisdiction to make an assessment under Section 147 unless the notice under Section 148 is validly issued to and served on the assessee.
(2) As the notice in the instant case was by the notice-server of the department and not by post, the procedure contemplated by the Code of Civil Procedure should have been followed as per Section 282(1). The provisions in the Civil Procedure Code make it clear that the service of notice on a person can be effected by serving the notice on his agent who has been specifically empowered or authorised to receive the notice in writing by that person. The manager on whom the notice had been served in this case had no written authority from the partners to receive the notices on behalf of the firm.
Consequently, the notice under Section 148 had not been validly served on the assessee and the reassessment made under Section 147 cannot be held to be valid.
13.1 The Hon'ble Calcutta High Court in the case of Chandi Prasad Modi (supra) considered the validity of reassessment and considered the fact in which there was no indication in notice of status of assessee, file No. or whether notice was intended for HUF or partnership, both of whom carried on business under same name and style and at same premises - ITO aware of existence and separate identity of two concerns and no denial of this fact in affidavit filed by department - notice is vague and invalid. It was further held:
It is well-settled that the ITO's jurisdiction to reopen an assessment under Section 147(Section 34 of the 1922 Act) would depend upon the issuance of a valid notice. If the notice issued by him is invalid for any reason then the entire proceedings that would be taken by him pursuant to such notice would be void for want of jurisdiction. The service of a valid notice is a condition precedent to the jurisdiction of the ITO to take further proceedings under Section 147 of the 1961 Act or Section 34 of the 1922 Act.
13.2 It is settled law that issue of notice under Section 148 of the Income-tax Act is a condition precedent to the validity of any assessment order to be passed under Section 147 of the Income-tax Act. It is also settled law if no such notice is issued or if the notice issued is invalid or not in accordance with law or is not served on the proper person in accordance with law, the assessment would be illegal and without jurisdiction.
14. Considering the above discussion, it is clear that the Revenue has failed to prove that notice under Section 147/148 dated 9-3-1998 was served upon Shri Lakhwinder Singh. Therefore, the Assessing Officer did not validly assume jurisdiction under Section 148 of the Income-tax Act. As a result, the entire reassessment proceedings are invalid and bad in law. I accordingly set aside and quash the reassessment proceedings under Section 147/148 of the Income-tax Act in all the assessment years. Resultant reassessment proceedings are also quashed.
15. As far as question of additions on merits is concerned in the departmental appeal as well as in the assessee's appeals, the point has now become academic in nature because of the fact that reassessment proceedings have been set aside and quashed.
16. As a result, all the appeals of the assessee are allowed and the appeal of the Revenue is dismissed.