Income Tax Appellate Tribunal - Jodhpur
Hari Singh And Associates vs Income Tax Officer on 14 September, 2007
Equivalent citations: (2008)117TTJ(JODH)101
ORDER
R.S. Syal, A.M.
1. This appeal by the assessee emanates from the order passed by the CIT(A) on 27th Oct., 2006 in relation to asst. yr. 1996-97.
2. The assessee moved an application for admission of two additional grounds. The first ground challenging the issuance of notice by the AO under Section 148 as violative of Section 151 was not pressed by the learned Authorised Representative at the time of hearing.
3. The second additional ground raised is as under:
The order of assessment passed under Section 143(3) is invalid and, therefore, the same deserves to be quashed.
4. In support of admission of this additional ground, the learned Authorised Representative, contended that it being a legal ground can be taken up at any point of time. He relied on the judgment of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT . The learned Departmental Representative did not object to the admission of additional ground. In view of the rival but concurring submissions, we admit this additional ground for disposal on merits.
5. Briefly stated, the facts of the case are that the assessee filed a return declaring loss of Rs. 64,298 on 26th June, 2003 in response to notice under Section 148 served on the assessee on 17th March, 2003. It is borne out from the assessment order that notice under Section 142(1) was issued on 5th/6th Jan., 2004. After series of adjournments, the assessment order was passed on 31st March, 2004 by computing total income at Rs. 42,78,790. The first appeal was dismissed.
6. Before us, the learned Counsel for the assessee contended in support of his additional ground that the AO had not issued notice under Section 143(2). The only notice referred to in the assessment order was issued under Section 142(1) and the mandatory condition for issuance of notice under Section 143(2) was not complied with. It was submitted that in the absence of such notice, assessment order was null and void and deserved to be quashed. He relied on several decisions of this Bench and other Benches in which issuance of notice under Section 143(2) after expiry of time-limit of 12 months under Section 148 was held to be improper and the assessment orders so passed were quashed. He also referred to the Special Bench decision in the case of Raj Kumar Chawla v. ITO (2005) 92 TTJ (Del) (SB) 1245 : (2005) 94 1TD 1 (Del) (SB) in which it was held that notice under Section 143(2) must be served within the period stipulated in its proviso. He further invited our attention towards various orders of the Benches of the Tribunal holding on the same lines. As no notice under Section 143(2) was issued or served on the assessee, the learned Authorised Representative contended that the assessment so made was liable to be quashed. In the opposition, the learned Departmental Representative by admitting that no notice under Section 143(2) was served, relied on the judgment of the Hon'ble Madras High Court in the case of Areva T&D India Ltd. v. Asstt. CIT (2007) 207 CTR (Mad) 497 and that of the Hon'ble Punjab & Haryana High Court in the case of Punjab Tractors Ltd v. Jt. CIT in which notice under Section 143(2) was not issued and the order was set aside with the direction to the AO to consider the matter afresh after issuing proper notice under Section 143(2). It was, therefore, contended that since the assessee has attended the proceedings before the AO and at no stage this objection was raised, hence it was too late in the day to claim that assessment proceedings were invalid. In the rejoinder, the learned Authorised Representative submitted that if the contention of the learned Departmental Representative is accepted and the non-issuance of notice under Section 143(2) is held to be a procedural irregularity, even then the time-limit for service of notice under Section 143(2) being the period of one year from the end of the month in which return was filed, having expired, no such notice can now be issued and the Tribunal is incompetent to give any direction for issuance of any notice which is contrary to the provisions of law.
7. We have heard both the sides and perused the relevant material on record. The learned Departmental Representative has admitted that notice under Section 143(2) was not issued by the AO in this case and only notice under Section 142(1) was issued. In such a situation, the question, which deserves to be decided is as to whether the proceedings flowing out of non-issuance of such notice would be invalid and hence quashed or it would be a mere procedural irregularity warranting correction. Here, we would like to mention that it is a case in which notice under Section 148 was properly issued by the AO. The learned Authorised Representative has not pressed the additional ground on the question of validity of notice under Section 148., which brings us to the stage that such notice under Section 148 was validly issued. The learned Authorised Representative has relied on several orders passed by the different Benches of the Tribunal holding that if the notice under Section 143(2) is served after the prescribed period of 12 months from the end of the month in which return is filed then the resultant assessment made is invalid. In support of this proposition, he has relied on series of orders headed by the case of Raj Kumar Chawla (supra). We observe that the view taken by the Jodhpur Bench of the Tribunal and several other Benches by following the decision of the Special Bench in the case of Raj Kumar Chawla (supra) is in consonance with the ratio laid down in the Special Bench case. The benefit given by way of these decisions is sought to be withdrawn by the legislature through the insertion of proviso to Section 148 by the Finance Act, 2006 w.r.e.f. 1st Oct., 1991 by laying down that if a notice under Section 143(2) is served after the expiry of 12 months but before the expiry of time-limit for making assessment/reassessment, then such a notice shall be deemed to be a valid notice. The learned Authorised Representative has contended before us that the alteration made by the Finance Act, 2006 has not changed the earlier legal position qua the assessment to be invalid for the reason that no notice under Section 143(2) was issued in the assessee's case. We are not convinced with the contention put forth on behalf of the assessee in this regard for the reason that notice under Section 148 was validly issued in this case. The only defect occurred when notice under Section 143(2) was not issued. Here, it would be relevant to point out that the notice under Section 148 is of jurisdiction whereas the notice under Section 143(2) is a procedural one. The jurisdiction of the AO depends on issuance of a valid notice. If notice under Section 148 is invalid for any reason, the entire proceedings become void. The Hon'ble apex Court in the celebrated judgment CIT v. Kurban Hussain Ibrahimji Mithiborwala has held so, which decision is being consistently followed. Coming back to the facts of our case, we observe that if there had been some material illegality in the issuance of jurisdictional notice under Section 148, we would not have taken even a single minute to quash the proceedings, as it is a trite law that the defect in the notice under Section 148 renders the proceedings null and void. However, the defect, which has occurred in the instant case is qua the service of notice issued under Section 143(2).
8. It is important to draw a line of distinction between jurisdictional and procedural irregularities. If there is a fault in assuming jurisdiction by the AO, the later correction cannot make good the deficiency. On the other hand, if there is some procedural irregularity after acquiring a valid jurisdiction that cannot make the assessment null and void. In the case of such a procedural irregularity, the proceedings would go back to the place where at such irregularity occurred. From that stage, such irregularity has to be cured and the assessment has to be finalized thereafter. The Special Bench of the Tribunal at Delhi in the case of Smt. Krishna Verma v. Asstt. CIT (2007) 109 TTJ (Del) (SB) 193 : (2007) 107 ITD 1 (Del) (SB) considered this distinction in procedural and jurisdictional notice. In this case, notice under Section 158BC was issued directing the assessee to file return within 10 days as against the prescribed period of 15 days for filing return as per mandate of Section 158BC(a). The assessee assailed the grant of time for 10 days and contended that the resultant assessment so made be quashed. The Special Bench was constituted to decide that in such a case where notice for less than 15 days was given to the assessee, whether such assessment should be quashed or whether it is a mere procedural irregularity, which can be cured with the result that the assessment may only be set aside to be reframed after curing the defect. After considering the detailed submissions .and numerous judgments/orders passed by the Hon'ble High Courts and Benches of the Tribunal, the Special Bench came to conclude that the defect of giving 10 days time instead of required 15 days was a procedural error as notice under Section 158BC is a procedural notice and hence assessment so framed cannot be quashed. Accordingly, the assessment order was set aside and the matter was restored to the file of the AO for passing order de novo after issuing valid notice under Section 158BC in accordance with law.
9. Almost to the same extent is another Special Bench decision in the case of Smt Mahesh Kumari Batra v. Jt CIT . In this case also, the validity of notice under Section 158BC was challenged. The Bench, by an elaborate order, came to hold that the provisions of Section 158BC are procedural in nature and any defect in the notice or with regard to its issuance cannot render block assessment order to be null and void.
10. The decision in the case of Areva T&D India Ltd. (supra) is clearly applicable to the facts of our case inasmuch as notice under Section 143(2) was not given in that case also and the assessee challenged the assessment with the prayer to quash it. Their Lordships of the Hon'ble Madras High Court noted that the assessee had continuously appeared and participated in all the reassessment proceedings. It was further observed that it was not the case of the assessee that no proper opportunity was given to him. The only contention was that there was no notice under Section 143(2) before completing assessment. In that case also, reassessment proceedings were initiated by way of notice under Section 148. After considering the assessee's objections, the Hon'ble High Court came to hold that the non-issuance of notice under Section 143(2) before completing assessment was only a procedural irregularity, which occurred while completing reassessment. The view point of the assessee for quashing the assessment was repelled. A direction was given to the AO to consider the matter afresh after issuing notice under Section 143(2).
11. We find that the issue raised in the present appeal is squarely covered against the assessee by the decision of the Hon'ble jurisdictional High Court in the case of CIT v. Gyan Prakash Gupta . In that case also the assessment order was passed without serving notice under Section 143(2). The assessee argued for declaring such assessment as void ab initio. The Hon'ble High Court came to hold that the failure to serve the notice under Section 143(2) was merely an irregularity. The assessment order completed without service of notice cannot be said to be void ab initio and hence cannot be annulled. It was, therefore, set aside .to be made afresh.
12. In the light of the various judgments/orders, it becomes palpable that the mere non-issuance of notice under Section 143(2) after having issued a valid notice under Section 148, cannot come in the way of making the assessment void ab initio. It is true that the issuance of notice under Section 143(2) is mandatory and if it is not issued, there would be an irregularity, but such an irregularity cannot go to the root of the proceedings. The fact remains that the AO was within his jurisdiction to initiate reassessment proceedings, which he rightly did by issuing a valid notice under Section 148. The non-issuance of notice thereafter under Section 143(2), in our considered opinion, cannot make the order null and void. By following the judgment of the Hon'ble jurisdictional High Court and other cases discussed above, we set aside the impugned order and restore the matter to the file of the AO with the direction to issue a valid notice under Section 143(2) before embarking upon the assessment. Needless to say that the assessee would be allowed a reasonable opportunity of being heard in such de novo proceedings.
13. The learned Authorised Representative has raised another interconnected issue being the non-availability of time for issuance of notice under Section 143(2). According to him, no notice can be served upon the assessee after the expiry of 12 months from the end of the month in which return is furnished, which is clear from the proviso to Section 143(2). The case has been made out that if the Tribunal comes to the conclusion that a fresh notice is required under Section 143(2), then the time-limit prescribed under proviso to Section 143(2) would come in the way of the AO issuing such notice. In support of this proposition, he has relied on the judgment of the Hon'ble Supreme Court in the case of Hope Textiles Ltd. and Anr v. Union of India and Ors. . In that case the assessee filed return for asst. yr. 1971-72 on the basis of which an order of assessment was made on 27th March, 1974. On 21st Feb., 1976, a notice under Section 148 was issued in pursuance to which the assessee filed return on 27th March, 1976. No order was passed till September 1981 in the reassessment proceedings. The assessee approached the Hon'ble High Court by way of writ petition for issuance of mandamus to the ITO to pass order in pursuance to aforesaid notice. The writ petition was dismissed by observing that no mandamus can be issued compelling the ITO to make an order of assessment beyond the period of limitation prescribed under Section 143(2). We find that the facts of this case are entirely different from those under review. Primarily, the AO had not passed an order within the limitation period in that case, whereas in our case, the AO had rightly passed the order and the said time-limit is not disputed. The grievance now sought to be addressed is about the irregularity, which occurred during the course of passing of the order. Secondly, that was a case in which the petition was filed for issuance of notice by the ITO to pass order in pursuance of notice under Section 148, whereas in our case, there is no such direction from the Hon'ble High Court for permitting or prohibiting the AO from passing such order. Thus, the ratio laid down in the said decision is not applicable. If we go by the contention of the learned Authorised Representative that the AO cannot now issue notice under Section 143(2), it would create an anomaly inasmuch as the AOs would invariably be debarred from carrying out the directions of the appellate authorities by which the assessments are set aside with a direction to the AO for making them fresh or for deciding particular issue de novo. In such a situation, the hands of the AO would be tied down, which, in our considered opinion, is a misreading of the provisions of Section 143(2). What is meant by the said time-limit under the proviso is that a valid assessment order should be passed initially by the AO within the prescribed time. It does not apply to the giving effect to directions given by the appellate authorities for the removal of procedural irregularities in the assessment order already passed.
14. We are reminded of the decision of the Hon'ble Madras High Court in the case of Lakshmi Jewellery v. Dy. CIT . In this case there was search in the premises of the assessee. Assessment was framed. When the matter travelled to the Tribunal, it remanded the matter back to the AO for making a fresh assessment. The assessee contended before the Hon'ble Court that as per Section 158BE, the period of limitation was one year from the date of search and since that time had elapsed long before, the direction of the Tribunal for remanding the matter back to the file of the AO was invalid as the AO could not make assessment as per Section 158BE. The Hon'ble High Court rejected the assessee's contention on the ground that this Section only specified the period within which the AO must complete assessment. It was further held that "it does not come in the way of appellate authorities, who find the assessment order to be defective for any reason, remanding the matter to the AO for making a proper order in relation to the matters with respect to which the matter is remanded by the appellate authority. The limitation of one year is only for assessment and it is not a limitation, which fetters the discretion of the appellate forum. There can be no dispute and there is none regarding the extent of the power of the appellate authority that it has the power not only to uphold or set aside the assessment order but also has power to modify or remit". Similar view has been taken in the case of Sakthivel Bankers and Ors. v. Asstt. CIT by holding that the limitation prescribed under Section 158BE is only for the purpose of making initial order and it does not impose any fetters on the power of the appellate authorities to remand the matter and require original authority to make fresh order.
15. Adverting to the facts of the instant case, we observe that the initial assessment order in this case has been passed by serving notice under Section 148 well within time, which fact has not been rightly disputed by the learned Authorised Representative. The procedural irregularity creeping up during the said assessment is required to be set right. This case cannot be equated with the serving of notice under Section 143(2) for making the assessment for the first time and is hence outside the ambit of provisions of Section 143(2). Be that as it may, we observe that it is a case in which return was filed pursuant to notice under Section 148. As per proviso to Section 148 inserted by the Finance Act, 2006 with retrospective effect from 1st Oct., 1991, there is no requirement that notice under Section 143(2) must be served within 12 months as specified in the proviso to Section 143(2). We, therefore, set aside the impugned order and restore the matter to the file of the AO for a fresh decision as per law after issuing notice under Section 143(2) as discussed above.
16. The assessee has raised four grounds on merits of the case. In our considered opinion, there is no need to adjudicate upon such grounds as the matter is being sent back to the file of the AO for a fresh decision. The AO, in such de novo proceedings would comply with the principles of natural justice by affording a reasonable opportunity of being heard to the assessee. In the result, the appeal is allowed for statistical purposes.