Income Tax Appellate Tribunal - Mumbai
Ito vs Pericles Foods (P.) Ltd. on 31 July, 2007
JUDGMENT
K.P.T. Thangal, Vice President.
1. This appeal by the revenue is directed against the order of the Commissioner (Appeals) in quashing the order under Section 143(3)(t) passed by the assessing officer and holding that the same as null and void ab initio.
2. Assessee filed the return on 10-10-2001 declaring income at Rs. 69,120. Subsequently ref und of Rs. 1,19,998 was given to the assessee. Thereafter the case was selected for scrutiny. Notice was issued under Section 143(2)(i) on 30-10-2002. Assessing Officer found that assessee claimed expenses against rent income of Rs. 6 lakhs. This should have been disallowed. Assessee is engaged in the business of investment and trading as per the return. It was claimed that the income derived by the assessee was not rent because assessee was not the owner of the premises. Assessee has taken the premises on sub-tenancy from a Trust. In support of the above, assessee filed a copy of the agreement entered into with Shree Basant Kumar Somani Memorial Trust. Assessee also produced copy of Leave & License Agreement. It was further submitted that assessee provided certain amenities in the form of furniture, fixtures, air conditioners, EPABX Telephone systems, etc. against which assessee received some compensation. To claim that assessee's receipts were business income, assessee relied upon the following decisions:
(i) CIT v. Associated Building Co. Ltd.
(ii) CIT v. National Storage (P.) Ltd.
(iii) Karnani Properties Ltd. v. CIT
(iv) CIT v. Russel Properties (P.) Ltd. (1982) 137 ITR 3582 (Cal).
3. Assessee's claim that its receipts should be treated as business income was rejected by the Assessing Officer and held this income from subletting is to be taxed under the head "Income from other sources". Assessee's claim that whatever assessee received for providing amenities should be treated as business income was also rejected by the assessing officer. He further found that the administrative expenses, financial charges and depreciation to the tune of Rs. 3,53,999 claimed by the assessee was not deductible under income from other sources. He held that what is allowable under Section 57(iii) is only to be allowed. Aggrieved by the above order assessee approached the first appellate authority.
4. It was submitted before the: Commissioner (Appeals) that the assessee had not claimed loss, exemption, deduction, allowance or relief in the return, which was not admissible at all. It was contended that if the assessing officer has reason to believe that any inadmissible deductions have been claimed, then for limited scrutiny to disallow these items, he can issue notice under Clause (z) of Sub-Section (2) of Section 143 and for that purpose, the assessment order is to be passed under Section 143(3)(z) of the Act. It was further contended that if the assessing officer wants to make detailed scrutiny then notice is to be issued under Clause (it) of Sub-Section (2) of Section 143 of the Income Tax Act. It was contended that in the instant case the assessing officer passed this order after making detailed scrutiny. As a result of the scrutiny assessing officer has changed the head 'Income from business' to 'Income from other Sources' which was never intended by the assessing officer in the notice issued under Section 143(2)(z) of the Income Tax Act. In the notice he intended to treat business income as income from house property, which is also not the requirement of Section 143(2)(z).
5. Assessee's representative submitted that the assessment order has not been passed as per the provisions of Section 143(3)(z) but it has been passed as per the provisions of Section 143(3)(ii) of the Act. assessing officer issued notice under Section 143(2)(z) to change the head of income from business to property and later on it was changed from property to other sources. Hence, assessee's representative submitted that assessing officer failed to follow provisions of limited scrutiny but has done a detailed scrutiny and disallowed the expenses. Hence, he contended, the order is to be annulled. Claim of the assessee was allowed by the Commissioner (Appeals) observing as under:
I have considered the facts as stated by the assessing officer in the assessment order and the provisions of law relating to limited and detailed scrutiny as per the new procedure. On consideration of the same, it is held that the assessing officer is not justified in changing the head of income under limited scrutiny and he has transgressed the powers vested in him under Section 143(2)(i) read with Section 143(3)(i) of the Act. Therefore, assessment order passed in violation of specific provisions of limited scrutiny cannot be held as legally valid order. Hence, this assessment order is held void ah initio and it is, therefore, annulled. Once the assessment is annulled/quashed, no judgment is required to be given on merits. This view gets support from the following decisions of various High Courts as cited below:
(1) The Hon'ble Madhya Pradesh High Court in the case of CIT v. AghaAbdulJabbar Khan 187ITR 587 has held that in the appeal preferred bythe assessee before the Appellate Asstt. Commissioner, only question thatrequired justification was where any facts and circumstances of the casethe Income Tax Officer had jurisdiction to reopen the assessment under Section 147(a) ofthe Act and whether the order of reassessment was liable to be quashed. Once the appellate Asstt. Commissioner came to the conclusion that the Income Tax Officer had no jurisdiction to reopen the case under Section 147(a) and that the assessment order should be quashed, he had no jurisdiction to make any further direction for recomputation of the amount of capital gains.
(2) The Hon'ble Calcutta High Court in the case of Rawatmal Harakchand v. CIT129 ITR 346 had held that deletion of one of the items had beenmade on the sole ground that the initiation of reassessment proceedingswas invalid. In that view of the matter, it was open to the assessee to contend within the frame work of the question referred that the addition of Rs. 45,711 was incorrect. This was not a new question. The assessee had preferred the appeals before the Tribunal and there was no question of any waiver of invalidity of initiation of proceedings. As the initiation of proceedings was invalid, the addition of Rs. 45,711 could not be sustained.
(3) The Hon'ble Rajasthan High Court in the case of Deepchand Kothari v. CIT 171 ITR 3 81 has held that an order passed by an authority without jurisdiction is a nullity and it is invalid can be challenged whenever and wherever it is sought to be enforced or relied upon. It has also been further held that the objection regarding the lack of jurisdiction is to be decided first. Only after its decision holding that the court or the Tribunal has jurisdiction, other questions relating to the merits of the case arise for decision, otherwise not.
In view of the above, the appeal is allowed and order passed by the assessing officer is quashed.
Revenue is in appeal before the Tribunal.
6. The learned DR supported the order of the assessing officer whereas the learned representative of the assessee submitted that apparently the assessing officer issued notice dated 28-10-2002 under Section 143(2 )(i) as he desired to verify the claim of loss, exemption, deduction, allowance or relief claimed by the assessee against rent income of Rs. 6 lakhs. However, instead of restricting himself to the limited notice issued under Section 143 (2)(i) assessing officer not only enquired into the nature of the receipts but also classified the receipts under the head "Income from other sources" as against the head of "Business income" under which the return was filed by the assessee.
7. While hearing the matter, a question was put to the assessee why the order of the assessing officer should be annulled since he has erred to frame the assessment under Section 143(3)(ii) as well. Further the Bench sought clarification from the assessee why the order should not be set aside and send back to the assessing officer to decide the issue after giving a reasonable opportunity to the assessee. How the assessee can contend that the proviso to Section 143(2) prevent the assessing officer from making an assessment under Section 143(3)(i) even if the notice issued is under Section 143(2)(ü). Assessee made a written submission dated17-4-2007 briefly as under:
A reading together of the relevant provisions of Sections 143(2), 143(3) and 153 reveals that firstly the assessment under Section 143(3)(z) could be made only if a notice under Section 143(2) is issued and served upon the assessee within 12 months from the end of the month in which the return was filed. It is further submitted that such notice can be issued only for conducting enquiry into assessee's claim of loss, exemption, deduction, allowance or relief. Hence it is submitted that assessing officer's jurisdic-tion is limited and he could only allow or reject such claim of loss, exemption, deduction, allowance or relief contemplated under the notice and that too within two years from the end of the assessment year. Assessee's representative submitted that notice under Section 143(2)(iz) is to be issued witliin 12 months from the end of the month in which the return was filed. Notice is to be issued for ensuring that the assessee has not understated his income nor has computed excessive loss or has not under paid the tax in any marmer and such assessment is to be made within two years from the end of the assessment year. It was submitted the proviso to Section 143(2), including the proviso thereto, are mandatory. For this proposition assessee relied upon the following decisions:
(2004) 88ITD 37 (Chennai) (1986) 19 ITD 474 (Indore) Hence, assessee's representative submitted that the order of the Commissioner (Appeals) annulling the assessing officer's order is correct for the following reasons • As the Assessing Officier had not served a notice under Section 143(2)(), he did not have the necessary jurisdiction to pass the order, being devoid of jurisdiction, and therefore the learned Commissioner (Appeals) was justified in annulling the assessing officer's order.
• On the above propositions the Respondent relied upon the following:
(1998) 230 ITR 495 (Bom.) (See Paras 9 & 10) (2004) 88 ITD 37 (Chennai) (See Para 7) (1986) 19 ITD 488 (Indore) (See Para 5)(ii) Secondly, • The learned Commissioner (Appeals) disposed off the Respondent's appeal by passing anorder on 16-2-2004.
• On that date the period of 12 months specified in the proviso toSection 143(2) had already expired.
• The learned Commissioner (Appeals) had not power to remove the bar of limitationprescribed under the proviso to Section 143(2).
• He, therefore, could not confer jurisdiction upon the Assessing Officer to serve notice under Section 143(2)(it) upon the Respondent and if at all such a direction was issued it would be neither lawful nor valid.
• On this proposition the respondent relies upon (1996) 60 ITR 647 (Madras) (See Paras 4, 15 & 16) (1963) 49 ITR 13 (Madras) (See Para 13)
(c) Re: Query in para 6(b) The setting aside of the assessing officer's order would be improper for the following reasons:
(i) assessing officer cannot be invested with a power to frameassessment under Section 143(3)(ii) after the period of limitation2 years prescribed under Section 153. On this proposition theRespondent relied upon (1938) 6 ITR 370 (Lahore) where it is heldthat power to set aside cannot be exercised to override limitation (See Para 12).
(ii) If the assessment is set aside at this stage it would empower theassessing officer to issue notice under Section 143(2)(n) therebymaking proviso to Section 143(3)(ii) redundant. It is not open to theauthorities working under the provisions of the statute to state thatthe proviso to Section 143(2) is redundant. On this proposition the Respondent relies upon (2002) 74 TTJ (Ahd.) 836 (See Para 8.1).
8. Hearing the rival submissions, we are of the view that appeal by the revenue is liable to be dismissed. Section 143(2)(i) introduced with effect from 1-6-2002 by Finance Act, 2002 reads as under:
where he has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible, serve on the assessee a notice specifyingparticulars of such claim of loss, exemption, deduction, allowance or relief and require him, on a date to be specified therein to produce, or cause to be produced any eviderice or particulars specified therein or on which the assessee may rely, in support of such claim.
9. Reading of the above makes it clear that if the assessing officer has reason to believe that any claim of loss, exemption, deduction, allowance or relief made in the return is inadmissible then the assessing officer may serve on the assessee a notice specifying the particulars of such claim of loss, exemption, deduction, allowance or relief and require it to produce evidence or particulars specified therein or on which the assessee may rely in support of the claim. Further, if the assessing officer considers that it is necessary or expedient to ensure that the assessee had not understated the income or has not computed excessive loss, etc. then he may issue notice under Section 143(n). The scope of Section 143(2)(i) is very limited. It could operate only against the loss, exemption, and allowance or relief claimed which is inadmissible. According to revenue the change of head with regard to income from business to other sources falls within the scope of this limited scrutiny assessment and not within the scope of Section 143(2) on which we are unable to subscribe to.
10. Further, a reading of Section 143(3)(z) makes it clear that as per Section143(2)(i) the power of the assessing officer is limited. The Section 143(3)(i) says that the assessing officer shall by an order in writing, allow or reject the claim or claims specified in such notice and make an assessment determining the total income or loss accordingly.... The wording allow or reject the claim specified in such notice makes it clear that the Assessing Officer can allow or reject the claim or claims specified in such notices and make assessment determining the total income or loss accordingly. This means that his power does not go beyond the claim or claims specified in the notice. If he wants to go further for full scrutiny then he has to issue notice under Section 143(3)(ii) wherein there is no such restriction has been put.
11. In view of the above, we are of the view that his going beyond the scope of the notice is improper and therefore the Commissioner (Appeals) rightly decided the issue in favour of the assessee.
12. In the result, appeal by the revenue fails and dismissed.