Income Tax Appellate Tribunal - Delhi
Ramakant P. Patel , Rewari vs Department Of Income Tax on 16 February, 2009
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH : F : NEW DELHI
BEFORE SHRI G.E. VEERABHADRAPPA, HON'BLE VICE PRESIDENT
AND
SHRI I.P. BANSAL, JUDICIAL MEMBER
ITA No.1759/Del/2009
Assessment Year : 2005-06
Income Tax Officer, Vs. Shri Ramakant P. Patel,
Ward-2, Labour Contractor,
Rewari. Mohalla Jatwara,
Bawal,
Distt. Rewari.
PAN : AKLPP5736H
(Appellant) (Respondent)
Assessee by : None
Revenue by : Shri H.K. Lal, Sr. DR
ORDER
PER I.P. BANSAL, JUDICIAL MEMBER
This is an appeal filed by the revenue. It is directed against the order of the CIT (A) dated 16th February, 2009 for assessment year 2005-06. Grounds of appeal read as under:-
1. On the facts and circumstances of the case the Ld. CIT (A) has erred in holding that the order passed by the A.O. u/s 144 of the Income Tax Act, 1961 is not valid.
2. That the appellant craves for the permission to add, delete or amend the ground of appeal before or at the time of hearing of appeal.
2. The impugned assessment has been framed u/s 143 (3)/144 of IT Act, 1961. Before the CIT (A) it was claimed by the assessee that assessment which 2 ITA No.1759/Del/2009 is completed u/s 144 of the IT Act is invalid as the Assessing Officer did not issue show cause notice u/s 144 which is a mandatory requirement. It was submitted that no notice u/s 142(1) was issued prior to making assessment u/s 144 and to claim that assessment is invalid the assessee had relied upon the following decisions:-
i) Malik Packaging vs. CIT 284 ITR 374 (All)
ii) CIT vs. Agro Engineers 266 ITR 637 (Raj)
3. The statements of the assessee were forwarded to the Assessing Officer who has submitted his reply to the office of CIT (A) on 12th February, 2008. It was submitted by the Assessing Officer that on 7th September, 2007 it was made clear to Shri V.M. Sharma, that the case is adjourned to 20th September, 2007 and no further date was given. He also submitted that the AR of the assessee was taking adjournment on the one pretext or the other and has never submitted the reply of questionnaire dated 24th August, 2007.
4. On these comments the Ld. CIT (A) has observed that on the contention of the assessee that no notice u/s 142(1) was issued, the Assessing Officer did not deliberately given any comment. It is in these circumstances Ld. CIT (A) referring to the aforementioned two decisions and the decision of Hon'ble Delhi High Court in the case of CIT vs. Dr. K.C. Verma 266 ITR 476 has held that order made by the Assessing Officer u/s 144 was not valid as the conditions laid down in the proviso to Section 144 (1) were not fulfilled before making such order. It is against these findings of CIT (A) the revenue has preferred the present appeal raising the aforementioned grounds.
5. The assessee was not present during the course of hearing and preferred to send written submissions through his counsel Shri Man Mohan Sharma which are placed on record and which were considered while deciding the present appeal.
6. Relying upon the assessment order and the report of the Assessing Officer submitted during the course of first appellate proceedings, it was 3 ITA No.1759/Del/2009 submitted by Ld. DR that the CIT (A) has wrongly held that the order passed by the Assessing Officer u/s 144 was invalid and, thus, he pleaded that order of the Assessing Officer should be restored and that of CIT (A) should be set aside.
7. In the written submissions it has been submitted that the first proviso to Section 144 (1) states that before completing the assessment u/s 144, the Assessing Officer was required to serve notices calling upon the assessee to show cause on a date and time to be specified in the notice that why assessment should not be completed to the best of his judgement.
8. It is further submitted that second proviso states that such a notice shall not be necessary in a case where notice under sub-section (1) of Section 142 has been issued prior to the making of an assessment under this section. It was submitted that a conjoint reading of these two provisos to Section 144 (1) will make it clear that unless the conditions laid down in Section 144 are not followed, then, the assessment shall not withstand the test of law. It was submitted that the assessee has taken a specific plea before the CIT (A) that neither notice u/s 144 was issued as has been described in the first proviso nor the notice u/s 142 (1) was issued as has been stated in the second proviso to Section 144 (1) and, thus, it was submitted that there is a gross violation of principles of natural justice.
9. Reference is made to the decision in the case of Dhanalakshmi Pictures vs. CIT (1983) 144 ITR 452 (Mad) and TCN Menon vs. ITO (1974) 96 ITR 148 (Ker) to contend that it is necessary that the assessee should be given an opportunity of being heard and a right to question the correctness or relevancy of the material on the basis of which the Assessing Officer proposed to make the best judgement assessment.
10. Reference is also made to the decision in the case of Malik Packaging vs. CIT (supra) wherein it has been held that the Assessing Officer could not have taken recourse to best judgement assessment without affording an opportunity of 4 ITA No.1759/Del/2009 hearing to the assessee on the ground that the assessee did not comply with the notices u/s 143 (2) where no notice u/s 142 (1) was issued.
11. It is further pleaded that the assessee is a supplier of labour for rice shelling activity to his client M/s REI Agro Ltd. and such fact is well known to the Assessing Officer as the same was submitted in the replies given by the assessee during the course of assessment proceedings and despite that fact the Assessing Officer has adopted 8% net profit rate. It was submitted that the Assessing Officer has mistook the nature of business of the assessee with the nature of civil construction contractor where deeming provisions u/s 44AD were applicable. It is submitted that Section 44AD has no application to the case of the assessee as the activity of the assessee is entirely different from civil construction and, thus, the assessee has objected to the application of rate of profit applied by the Assessing Officer. Reference is made to the decision in the case of Brij Bhushan Lal Parduman Kumar v. CIT (1978) 115 ITR 524 (SC) to contend that best judgement should be passed on an honest and fair estimate and though arbitrariness cannot be avoided, the same must not be capricious but should have a reasonable nexus to the available material and the circumstances of the case and, thus, it was submitted that the application of rate by the Assessing Officer itself is not justifiable.
12. It is further submitted that the tax calculation has been wrongly made. According to the assessee the gross receipts are Rs.1,14,15,073/- and if 8% rate is applied, the income would be Rs.9,13,206/- as against the income determined by the Assessing Officer at Rs.14,26,884/- and, thus, it was submitted that tax calculated by the Assessing Officer is much higher htan the actual calculation and, thus, it is submitted that the appeal of the revenue should be rejected and the order of the CIT (A) should be upheld.
13. We have carefully considered the rival contentions in the light of the material placed before us. We have carefully gone through the assessment order. The case was taken for scrutiny as per CBDT instructions as the gross 5 ITA No.1759/Del/2009 receipts of the assessee were exceeding Rs.1 crore. Accordingly, the Assessing Officer had issued notice u/s 143 (2) of the IT Act, 1961 dated 26th February, 2007 fixing the case for 5th March, 2007 which has been stated to be duly served on the assessee on 28th February, 2007. The assessee did not respond to that notice.
14. Again, notice u/s 143 (2) was issued on 3rd August, 2007 for 24th August, 2007 which was also served on 3rd August, 2007. In response to that notice Shri V.M. Sharma attended the proceedings to whom the questionnaire was given for 7th September, 2007 and the case was adjourned to 7th September, 2007. On 7th September, 2007 the assessee's counsel filed an application for adjournment which was granted for 20th September, 2007. As the Assessing Officer was on tour on 20th September, 2007 the case could not be taken up. Accordingly, again notice u/s 143 (2) was issued on 20th September, 2007 for 5th October, 2007 which was also duly served on 27th September, 2007 and on 5th October, 2007 nobody attended from the side of the assessee and no adjournment application was filed. It is in these circumstances the Assessing Officer has observed that he had no option but to pass ex parte order u/s 144 of the Act on the basis of material available on record. In the grounds raised before the CIT (A) it was submitted that the ex parte order passed by the Assessing Officer was bad both in law and facts as it was made without giving proper and sufficient opportunity to the assessee and is against the principles of natural justice. In the grounds it was stated that the Assessing Officer could not pass ex parte order arbitrarily without issuing a specific notice to the assessee by giving him a warning that if he does not appear on the next date, then, the case will be decided ex parte which is against the principles of natural justice and the ground was also taken against the application of the net profit rate.
15. It is observed that during the course of first appellate proceedings the assessee had relied upon the Hon'ble Allahabad High Court decision in the case of Malik Packaging vs. CIT (supra) and also the decision of Hon'ble Rajasthan High Court in the case of CIT vs. Agro Engineers (supra).
6 ITA No.1759/Del/200916. We have carefully gone through the aforementioned decisions. In the decision in the case of Malik Packaging (supra) though it was held that assessment could not be framed by the Assessing Officer u/s 144 without adopting the procedure laid down in Section 144, but the order of the CIT (A) was set aside and the Commissioner of Income-tax (Appeals) was directed to pass a fresh order in accordance with the law. Similarly, in the case of CIT vs. Agro Engineers (supra) which has been relied upon in the decision of Malik Packaging (supra) where it was found that the opportunity to the assessee was not provided as described in Section 144. The matter was restored to the Assessing Officer for affording the assessee opportunity of hearing and fresh assessment was directed to be made u/s 144.
17. In the case of CIT vs. Dr. K.C. Verma (supra) it has simply been stated that assessment framed without giving the opportunity was not valid.
18. The reading of all the decisions will show that assessment framed without adopting the procedure prescribed in Section 144 will be invalid. But in a case where the notice u/s 143 (2) has been served and that has remained uncomplied, then the assessment itself cannot be held to be invalid void ab initio as in that case there is a simply violation of rule of natural justice. Principally the Assessing Officer has issued notice u/s 143 (2) to the assessee which was duly served and the requisite information which has been sought was not forthcoming from the assessee's side. What is lacking in the present case is only the procedural lapse, i.e., non-granting of opportunity to the assessee. But, for that reason the assessment itself cannot be held to be void ab initio. The ratio of decision of Hon'ble Rajasthan High Court in the case of CIT vs. Agro Engineers (supra) will be fully applicable to the facts of the present case where their Lordships in a case, where several notices u/s 143 (2) were issued to the assessee which were served and the assessee did not respond, have held that the Tribunal was wrong in annulling the assessment made by the Assessing Officer and it was held that if the statutory requirement was not complied with, 7 ITA No.1759/Del/2009 the direction should be given to make a fresh assessment after complying with the provisions of Section 144 before framing the fresh assessment. Thus, it was held that the CIT (A) was right in remitting the matter back to the Assessing Officer for making fresh assessment after affording the opportunity to the assessee for assessment u/s 144 of the Act and the Tribunal has committed an error in annulling the assessment made by the Assessing Officer and the matter was restored back to the file of Assessing Officer with a direction to afford opportunity to the assessee before framing fresh assessment u/s 144 of the Act. The relevant observations from the said decision are reproduced below:-
" The facts are not in dispute that ten notices under section 143(2) of the Act were issued to the assessee and they were duly served. In spite of that, the assessee did not respond to the notices, therefore, the Assessing Officer framed the assessment under section 144 of the Act.
It is true that the proviso to sub-section (1) of section 144 requires that before framing the assessment under section 144, an opportunity should be given to the assessee. As ten notices under section 143(2) were issued to the assessee in spite of service he did not respond. Though the Assessing officer has committed a mistake by not issuing the fresh notice for assessment under section 144 of the Act that does not mean that the assessee is not liable for the tax on its income. In case opportunity has not been given either as required under the statute or required under the principles of natural justice, it does not make any difference but the fact remains that when the income has not been assessed properly, the only proper course is that income should be assessed properly and in accordance with law.
We agree with the Commissioner of Income Tax (Appeals), he was justified in remitting the matter back to the Assessing Officer to make a fresh assessment after affording opportunity to the assessee for assessment under section 144 of the Act. the Tribunal has committed error in annulling the assessment made by the Assessing Officer. If the statutory requirement has not been complied with, direction can be given to make a fresh assessment after complying with the 8 ITA No.1759/Del/2009 provisions of section 144, before framing the fresh assessment.
Considering the submissions of Mr. Singhi, we set aside the impugned order of the Tribunal and restore the view taken by the Commissioner of Income Tax (Appeals). We direct the Assessing Officer to afford opportunity to the assessee before framing the fresh assessment under section 144 of the Act.
The appeal is accordingly allowed."
19. In this view of the situation, we find no justification in the order of the CIT (A) by which it has been held that assessment is invalid. We set aside the order of CIT (A) and restore the matter to the file of Assessing Officer with a direction to afford opportunity to the assessee before framing the fresh assessment u/s 144 of the Act.
20. In the result, the appeal filed by the revenue is allowed for statistical purposes in the manner aforesaid.
The order pronounced in the open court on 13.08.2010.
Sd/- Sd/-
[G.E. VEERABHADRAPPA] [I.P. BANSAL]
VICE PRESIDENT JUDICIAL MEMBER
Dated, 13.08.2010.
dk
Copy forwarded to: -
1. Appellant
2. Respondent
3. CIT
4. CIT(A)
5. DR, ITAT
TRUE COPY
By Order,
Deputy Registrar,
ITAT, Delhi Benches