Income Tax Appellate Tribunal - Delhi
Sudev Industries Ltd. vs Income Tax Officer on 30 March, 2005
Equivalent citations: (2005)98TTJ(DELHI)97
ORDER
P.N. Parashar, J.M.
1. This appeal has been filed by the assessee against the order of learned CIT(A), dt. 22nd March, 2002, for asst. yr. 1995-96.
2. Shri Rakesh Gupta, FCA, appeared for the assessee whereas Shri R.P. Meena, senior Departmental Representative, represented the Revenue.
3. In this appeal the assessee has taken as many as five grounds out of which ground No. 1 is a legal ground which assails the validity of the notice issued under Section 148 as well as the validity of the assessment order which is as under:
"Learned CIT(A)-XII, New Delhi, is not justified in law and on the facts while confirming the action of AO for issuing notice under Section 148 as :
(a) The AO did not have any jurisdiction over the case to issue notice.
(b) The AO did not have any reason to belief that the income chargeable to tax has escaped assessment due to omission or failure on the part of the assessee.
(c) As no notice under Section 148 has ever been served upon the assessee."
4. At the time of hearing of the appeal, the learned Counsel for the assessee submitted that ground No. 1 being a preliminary ground, should be adjudicated first. In the alternative, he also made submissions on the remaining ground on merit.
5. The learned Departmental Representative justified the order of the learned CIT(A) for his findings on the issue involved in ground No. 1 and also on merits.
6. After hearing the parties and after going through the entire material on record, including the case law, to which reference was made by the learned representatives of the parties, we consider it proper to adjudicate ground No. 1 which has been reproduced above.
7. The facts concerning this ground, as found from the assessment order and the order of learned CIT(A), are as under.
8. The assessee was a public limited company, having its registered office at Delhi. Return for asst. yr. 1993-94 was filed by it before the Asstt. CIT, Company Circle 3(2), New Delhi, showing "Nil" income. The company started setting up a factory at Sikendrabad (UP) for the manufacture of plastic molded items. The construction/installation of the company was completed in March, 1996. The company commenced trading w.e.f. 1st Oct., 1994, the return for asst. yr. 1994-95 was filed by the company with ITO, Ward 1, Bulandshahar, on 30th Nov., 1994. The ITO, Bulandshahar, enquired from the assessee about the filing of the return with him, as according to him, jurisdiction did not lie with him. In reply to the query of the ITO, it was submitted on behalf of the assessee that at the extraordinary meeting held on 21st Aug., 1993, the company had passed a resolution to shift its registered office from Delhi to its plant at Sikandrabad to manage the affairs of the company and, therefore, the company was in the processing of completing other required formalities of the Companies Act to shift its office from Delhi to Sikendrabad and due to this reason the company had filed return for asst. yr. 1994-95 with ITO, Bulandshahar. The ITO, Bulandshahar, after being satisfied with the reply of the assessee processed the return for asst. yr. 1994-95 on 31st March, 1997, under Section 143(l)(a).
9. For asst. yr. 1995-96, the assessee-company filed its return with Asstt. CIT, Company Cir. 3(1), New Delhi. The said return was processed vide intimation dt. 27th March, 1996, under Section 143(l)(a).
10. For asst. yr. 1995-96 the assessee also filed a belated return on 15th May, 1997, with ITO Ward 1, Bulandshahar. The said return was treated as non est. The AO subsequently noticed that the assessee-company had made sale of Rs. 3,02,61,16,705 during the asst. yr. 1994-95, but had not filed audit report under Section 44AB of the IT Act. Thus, the ITO was of the view that income for asst. yr. 1995-96 had escaped assessment as per provisions of Section 147 of the IT Act. Hence, he issued a notice under Section 148 of the IT Act on 11th Sept., 1998.
11. For asst. yr. 1996-97, the assessee-company filed return with the ITO, Company Ward 3(2), New Delhi. This assessment was completed under Section 143(3) on 30th March, 1999.
12. The ITO, Bulandshahar, later on dropped the proceedings under Section 148 for asst. yr. 1996-97 and also transferred the assessment record for asst. yr. 1995-96 to the AO at Delhi. Against the issuance of notice under Section 148 for asst. yr. 1995-96 the assessee raised several objections that notice under Section 148 was not served upon the assessee. In this regard specific objections were also taken during assessment proceedings. The Asstt. CIT, Company Ward 3(2), New Delhi, completed the assessment under Section 143(3) on 22nd March, 2001, for asst. yr. 1995-96. So far as the validity of issuance of notice under Section 148 by the ITO, Bulandshahar, is concerned, the AO justified the same by assigning following reasons :
"1. That the assessee-company has filed the return for asst. yrs. 1994-95 and 1995-96 with the ITO Ward-1, Bulandshahar.
2. That the assessee-company vide its letter dt. 7th April, 1995, has stated that since the company has passed the resolution for shifting the registered office of the company from Delhi to Sikandrabad, hence it has filed the return for asst. yr. 1994-95 (details of that letter were discussed above).
3. That the assessee-company has filed an application for a certificate under Section 230A(1) of the IT Act, 1961 on 12th May, 1997, with the ITO Ward-1, Bulandshahar, and the same was given to the assessee-company on 28th May, 1997."
13. Thus, the AO rejected the plea of the assessee by observing as under:
"On the one hand the assessee-company has challenged the jurisdiction of the AO, Bulandshahar, for issuing notice under Section 148 and, on the other hand, in contradiction of its challenging the jurisdiction of the AO Bulandshahar, the assessee-company has applied to the company that the AO, Bulandshahar, has no jurisdiction to issue notice under Section 148 of the IT Act, 1961, is not correct. Under these circumstances and keeping in view the fact that the assessment is going to be time-bared on 31st March, 2001, the undersigned has no option but to make the assessment to the best of his judgment under s. 144."
14. The findings of the AO were challenged by the assessee before the learned CIT(A). In this regard the assessee had submitted a detailed reply before the learned CIT(A) which is dt. 12th Nov., 2001, and the copy of which is available at pp. 28 to 39 of the paper book. In this written reply the assessee had challenged the validity of the notice issued under Section 148 by taking the following specific pleas :
"8. Thereafter, ITO, Bulandshahar, has alleged to have issued notices under Section 148 for the asst. yrs. 1995-96 and 1996-97 on 11th Sept., 1998 and 15th Dec., 1998, respectively. The aforesaid notices allegedly issued were never served on any of the directors of the assessee-company nor any other persons authorized to receive such notices. Therefore, the appellant did not file any returns in response to the abovementioned notices. However, the ITO, Bulandshahar, issued notice under Section 143(2)/142(1) dt. 8th Feb., 2001, for the asst. yr. 1995-96 as per copy placed at pp. 63-64 as a result whereof the appellant-company came to know about the reassessment proceedings under Section 148. The appellant filed a letter dt. 16th Feb., 2001, copy placed at p. 65 with which the appellant filed copies of the income-tax assessment orders for the asst. yrs. 1995-96 and 1996-97, copies placed at p. 65. The learned ITO, Bulandshahar, dropped the proceedings for the asst. yr. 1996-97 presumably because the assessment order for that year was passed under Section 143(3) of the IT Act by AO, Delhi. The ITO, Bulandshahar, however, transferred the proceedings under Section 148/147 pertaining to asst. yr. 1995-96 to Asstt. CIT, Company Cir. 3(2), New Delhi, on 28th Feb., 2001."
15. In this regard, affidavit of Shri Rajiv Aggarwal was also filed. The affidavit is dt. 12th Nov., 2001, and is available at p. 136 of the paper book.
16. The assessee raised objections regarding validity of the notice issued under Section 148. In its letter dt. 13th Nov., 2001, the assessee took specific plea that the notice issued under Section 148 for asst. yr. 1995-96 was never served upon any directors of the assessee-company nor any person authorized to receive such notice and, therefore, the assessee did not file any return in response to notice under Section 148. It was also mentioned in para 8 of the aforesaid letter that the ITO, Bulandshahar, also issued notice under Section 143(2)/142(1) on 8th Feb., 2001, for asst. yr. 1995-96 and as a result of this notice the assessee-company came to know about the reassessment proceedings under Section 148. It was further mentioned that the assessee filed letter dt. 16th Feb., 2001, with which it had also filed copy of the IT returns filed by it before the AO, Delhi, along with the assessment order for asst. yrs. 1995-96 and 1996-97 and on that basis the ITO, Bulandshahar, dropped the proceedings for asst. yr. 1996-97.
17. In para 9 of the said letter it was further pleaded that the learned Asstt. CIT, New Delhi, was not justified in relying upon the proceedings initiated by the ITO, Bulandshahar, for asst. yr. 1995-96 under Section 148.
18. For challenging the jurisdiction of ITO, Bulandshahar, in issuing notice under Section 148 following specific plea was also taken :
"(b) The ITO, Bulandshahar, did not have any jurisdiction over the case. Further, the ITO, Bulandshahar, did not have any jurisdiction over the case. The conduct of ITO itself proves the case of the appellant. The ITO, Bulandshahar issued notice under Section 148 for asst. yrs. 1995-96 and 1996-97. The appellant appeared before the AO and filed letter dt. 16th Feb., 2001, at page No. 65 along with assessment order for asst. yr. 1996-97 passed by Asstt. CIT, Company Circle 3(2), New Delhi, under Section 143(3) of the Act. After going through the assessment proceeding for asst. yr. 1996-97, the AO himself dropped the proceedings for asst. yr. 1996-97 and transferred the reassessment proceedings pertaining to asst. yr. 1995-96 to Asstt. CIT, New Delhi, suo motu as he was fully satisfied about the jurisdiction over the case. Had the ITO, Bulandshahar, jurisdiction over the case, he should have decided the case himself. Since, he did not have jurisdiction over the case that is why he transferred the case to Asstt. CIT, New Delhi.
Here issuance of income-tax clearance certificate under Section 230A(1) of the Act does not empower any ITO to initiate reassessment proceeding and issue notice under Section 148.
It is settled law that once the appellate authority comes to the conclusion that the AO has no jurisdiction to reopen, the case under Section 147(a), the order of the assessment is liable to be quashed. In such circumstances, the appellate authority has no jurisdiction to make any further direction for recomputing the disputed income-- CIT v. Agha Abdul Jabbar Khan ."
19. Before the learned CIT(A), detailed objections were taken in support of the above pleas. However, the learned CIT(A) rejected the pleas taken by the assessee by observing as under :
"2.2 I have considered the submissions made by the appellant and find no force in them. The facts of the case narrated in the assessment order clearly showed that the assessee is trying to mislead the Department and had conducted himself in a most irresponsible manner. The assessee had admitted that though it had been filing its return in Delhi, it decided to file its return for asst. yr. 1994-95 in Bulandshahar even though the permission from the Company Law Board came later. The next year it filed its return in Delhi even though it had informed ITO about shifting of regd. office to Sikandrabad and approval of Company Law Board had come through. In both years neither did it bother to inform any of the offices where it had filed its return for the relevant assessment year nor had it put in any application for transfer of records. In a situation like this it is difficult for an AO to know where the return has been filed. The AO in Bulandshahar issued notices under Section 148 for asst. yrs. 1995-96 and 1996-97. The assessee claims that the notices under Section 148 were not served upon it. The AO has confirmed that the notice dt. 11th Sept., 1998, was served upon Shri Ajay Pratap Singh at the factory premise of the assessee on 18th Feb., 1998. The notices issued by the AO at Bulandshahar under Section 143(2) and 142(1) were served upon Sh. Rajiv Aggarwal on 10th Feb., 2001. The assessee then contended that since its returns were being filed in Delhi, the proceedings should be transferred there. It is evident that the assessee never informed the ITO, Bulandshahar, regarding filing of returns in Delhi and ITO, Bulandshahar, noticed that income had escaped assessment only in response to return filed under Section 148, the assessee itself filed the return for the asst. yr. 1995-96 with ITO, Bulandshahar. Moreover, it continued to file other documents such as application for certificate under Section 230A(1) and it was informed to the ITO, Bulandshahar, about the resolution of the company vide letter dt. 7th April, 1995, regarding shifting the registered office at Delhi. It has been held by the Supreme Court in S. Narayanappa and Ors. v. CIT that the reasons to believe must be in good faith and must be based on rational consideration. As pointed out by the Supreme Court in ITO v. Ramnarayan Bhojnagarwala , the existence of reasonable belief is the sine qua non for the initiation of reassessment proceedings-- ITO v. Ramnarayana Bhojnagarwala (supra). What is necessary is that the AO should have formed an honest belief upon the materials to reasonably support such belief. [A.N. Lakshman Shenoy v. ITO ; Birds Investment Ltd v. CIT ]. The belief must be based on reasons which are relevant and material. [Ganga Saran & Sons (P) Ltd. v. ITO ]. Such a belief may not be based on mere suspicion; it must be founded upon material. [Calcutta Discount Co. Ltd. v. ITO ; Y. Rajan v. ITO ; Union Carbide (India) Ltd. v. ITO ]. In the instant case, it is clear that the ITO, Bulandshahar, had reasoned to believe that income had escaped assessment. The AO had some information that income has escaped assessment. Since the appellant itself had filed the return with ITO, Bulandshahar, it cannot question the jurisdiction. Under these circumstances, the action of the ITO, Bulandshahar, in issuing notice under Section 148 is upheld and this ground of appeal regarding challenging jurisdiction of ITO, Bulandshahar, is dismissed."
20. The assessee has challenged the findings of learned CIT(A) reproduced above by taking the following pleas :
(i) That no notice under Section 148 was served upon the assessee;
(ii) That the AO did not have any jurisdiction over the case to issue the notices; and
(iii) That the AO did not have any reason to believe that the income chargeable to tax has escaped assessment due to the omission or failure on the part of the assessee.
21. So far as the first plea is concerned, we find sufficient force in the arguments of the assessee. The assessee is a public limited company. As required under Section 282 of the IT Act, in the case of the assessee, the notice is to be addressed to the principal office of the company. The provisions of Section 282 are as under:
282. "Service of notice generally-- (1) A notice or requisition under this Act may be served on the person under the Code of Civil Procedure, 1908 (5 of 1908).
(2) Any such notice or requisition may be addressed--
(a)...
(b) In the case of a local authority or company, to the principal officer thereof;
(c)...
(d)...."
22. As the provision contained under Sub-section (2) of Section 282 is specific provision, the mode of service has to be adhered to in accordance with this provision. In the case of the present assessee, the notice was addressed at the following address :
"M/s Sudev Industries Ltd., A-74/142, UPSIDC Industrial Area, Sikandrabad, District Bulandshahar"
23. The principal office of the company was at, "150, Sarai Julena, Okhla Road, Opposite Hotel Sofital Surya, New Delhi". Various notices have been issued at this address by the AO of New Delhi as well as by the AO of Bulandshahar. A notice dt. 8th Feb., 2001, which is issued under Section 143(2) of the IT Act and a copy of which is available at p. 33 and which is for asst. yr. 1996-97, was issued by the Dy. CIT, Circle Bulandshahar. Similarly, notice was also issued by the AO of Bulandshahar for asst. yr. 1995-96 on 19th Feb., 2001. A copy of this notice is available at p. 14H of the paper book. On going through the paper book it is found that various notices, copies of which are available at pp. 14A to 14H of the paper book, were sent at New Delhi address and not at Bulandshahar address. It may also be pointed out that no dispute has been raised by the assessee against notice issued at Delhi address of the assessee-company. According to the assessee, the notice was not sent to the head office of the company but to the factory which was closed and, therefore, it cannot be said that the notice was addressed to the principal officer of the company at its head office. The other contention of the learned Counsel was that the notice was not served upon any director of the company or any person authorized by the company to receive the same. These arguments of the assessee also find force. On perusal of the notice it is found that the notice was received by Shri Ajay Pratap Singh on 18th Dec., 1998. The service was effected by the Income-tax Inspector. Below the signatures of the recipient, 'SISUP' is also mentioned. On the notice itself it is written that the factory was not working and only security guards were present. Thus, service had been effected upon the security guard who was not authorized to receive notice on behalf of the assessee-company. Neither the process serving officer nor the concerned ITO has recorded any satisfaction about the service of this notice.
24. In the light of the abovementioned facts and the provisions of Section 282 of the IT Act, referred to above, we are of the view that notice has not been properly served upon the assessee.
25. It may be pointed out that service of valid notice is a prereguisite condition for initiating proceedings under Section 147. In the case of CIT v. Mintu Kalita (2002) 253 ITR 334 (Gau), the Hon'ble Gujarat High Court has held that service of notice prescribed by Section 148 of the IT Act for the purpose of initiating proceedings for reassessment is not a mere procedural requirement; it is a condition precedent to the initiation of the proceedings for assessment under Section 147 of the IT Act. While holding so, the Hon'ble Gujarat High Court has followed the decision of Hon'ble Supreme Court of India in the case of R.K. Upadhyaya v. Shanabhai P. Patel . It may also be pointed out that the assessee has challenged the service of notice by filing affidavit of Shri Rajiv Aggarwal, director of the assessee-company. A copy of this affidavit is available at p. 136. In this affidavit Shri Aggarwal has deposed as under :
"That neither myself nor any director or any other authorised person has received notice issued under Section 148 dt. 11th Sept., 1998, of the Act issued by ITO, Bulandshahar for asst. yr. 1995-96."
26. The above affidavit remained uncontroverted as no counter-affidavit has been filed by the Department to show that Shri Rajiv Agarwal or any other director or authorized person received the notice.
27. In the case of Venkat Naicken Trust and Anr. v. ITO and Anr. , the Hon'ble Madras High Court has held that when the assessee pleads that the assessee has not been properly served with any notice, it is for the Department to place the relevant material to substantiate their plea that the assessee was served with proper notices.
28. In view of the above, the first plea raised by the assessee deserves to be accepted.
29. On the second plea, the learned Counsel for the assessee submitted that the AO did not have jurisdiction over the case to issue notice. By taking this plea, the assessee has challenged the jurisdiction of the AO of Bulandshahar in issuing the notice under Section 148. Shri Rakesh Gupta, learned Counsel for the assessee pointed out that the assessee was filing returns at Delhi for earlier assessment years and the assessments were also completed by the concerned ITO of Delhi. In this regard he has invited our attention to the assessment order made for asst. yr. 1993-94 and also to the assessment order made for subsequent assessment years. The learned Counsel also pointed out that even the AO was not confident with his jurisdiction over the matter and, therefore, he wrote letter dt. 28th March, 1995, asking the assessee to explain why the return had been filed with the ITO Ward-1, Bulandshahar, without any application for transfer of jurisdiction and without any order under s. 127 of the IT Act for the change of jurisdiction.
30. The third plea is that the AO of Delhi did not have any jurisdiction to make assessment under Section 143(3)/148 because no notice under Section 148 was issued by such officer. On facts narrated above, it is found that the notice under Section 148 was issued by the ITO, Bulandshahar, whereas the assessment has been completed by the ITO, Company Ward 3(2), New Delhi. The assessee had raised objection regarding the validity of jurisdiction before him but he had rejected the claim of the assessee. In our considered since the AO, Delhi, had not issued any notice under Section 148, he could not have completed the assessment on the basis of notice issued by the another ITO who did not have the authority to issue notice under Section 148 as held above.
31. While discussing and deciding the first plea of the assessee contained in Clause (c) of ground No. 1, we have held that the service of notice was not sufficient upon the assessee. In view of this finding, the assessment made without effecting valid service of notice under Section 148, cannot be sustained. Consequently, the assessment so made is declared to be null and void and is quashed accordingly.
32. So far as the second and third pleas of the assessee, as narrated above, are concerned, in view of our finding on first plea, we are not required to adjudicate these pleas which also assail the legality of the jurisdiction of the AO.
33. Likewise, we are also not required to adjudicate the other grounds taken in this appeal on merit as the same have remained of academic interest only.
34. In view of above, the assessee's appeal stands allowed as indicated above.