Income Tax Appellate Tribunal - Mumbai
Jayendra P. Agarwal, Mumbai vs Department Of Income Tax on 7 November, 2003
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "B": MUMBAI
BEFORE SHRI PRAMOD KUMAR (AM) AND
SHRI R.S. PADVEKAR (JM)
IT (SS) A No.68/Mum/2004
(Block Period: 1/4/1987 to 14/9/1998)
Income Tax Officer, 16(3)(1), ... Appellant
Matrumandir, Mumbai-400007
V/s.
Mr. Jayendra P Jhaveri, ... Respondent
29, Nidhi Kotachi Wadi,
V.P. Road, Mumbai-400004
PAN :
C.O. No.166/Mum/2007
(Arising out of IT(SS) 68/Mum/2004)
(Block Period: 1/4/1987 to 14/9/1998)
Mr. Jayendra P Jhaveri, ... Cross Objector
29, Nidhi Kotachi Wadi,
V.P. Road, Mumbai-400004
PAN :
V/s.
Income Tax Officer, 16(3)(3), ... Appellant
ITO, Wd. 16(3)(1),
Matrumandir, Mumbai-400007
Department by :S/Shri S.S. Rana/Vikram Gaur/ Khare
Assessee by : Shri Dharmesh Shah
:ORDER:
PER R.S. PADVEKAR, J.M
This appeal is filed by the Revenue challenging the impugned order of the Ld CIT(A) XVII, dated 7.11.2003 and this appeal arises from the block assessment framed against the assessee u/s. 158 BD of the Act. The assessee has also filed the Cross Objection raising grievance against the 2 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 impugned order of the Ld CIT(A). In the Cross Objection, the assessee has challenged the legality and validity of the assessment framed by the A.O u/s. 158 BD of the Act vide order dt. 31.1.2000. So far as the Cross Objection is concerned, the issues arising from the same go to the roots of the matter as the assessee has raised issue on jurisdiction of the A.O to make present assessment on the reason that the A.O failed to issue the notice u/s. 143(2) for selecting the assessee's return for scrutiny. We, therefore, consider fit to decide the Cross Objection first as the basic legal issues are arising.
2. In the Cross Objection, the assessee has taken the following effective Grounds :
1. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the proceedings u/s. 158BD of the Act are invalid and void ab initio.
2. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that the notices issued by the Assessing Officer during the proceedings are invalid and illegal.
3. The learned Commissioner of Income-tax (Appeals) has erred in law and in facts in not appreciating that no surcharge can be levied in block assessment in the appellant's case
3. Before proceeding to decide the issues arising from the Cross Objection, it is necessary to put on record some facts pertaining to this case. The Revenue's appeal as well as the Cross Objection were disposed of by the Tribunal vide common order dt. 25.9.2008. Subsequently, the assessee moved the Miscellaneous Application pleading that the said order may be re- called as there were mistakes in the order of the Tribunal within the meaning of Section 254(2) of the Act. The Tribunal was pleased to re-call the order accepting the plea of the assessee vide order passed u/s. 254(2) in M.A. No. 814/M/2008 dt. 2.4.2009. When the Cross Objection was originally heard and decided the plea of the assessee on the legality and validity of the assessment proceedings on the reason of non-issue of the notice u/s. 143(2) was not accepted and the Tribunal was of the view that non-issue of the notice u/s.
3 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007143(2) was only a procedural lapse which is curable and the Tribunal restored the entire matter to the A.O to complete the same after observance of procedural law relating to the issue of various notices under the Act. Except said issue, no other issues were decided by the Tribunal. The Tribunal accepted the plea of the assessee that in respect of the said issue, the decisions cited at bar were not considered and hence, now this appeal is again fixed for hearing and heard by this Bench.
4. We have heard the rival submission of the parties. In this case, there was a search and seizure operation against the brother of the assessee namely Shri Yogin P. Javeri on 14th & 15th September, 1998, and in consequence of the said search operations, proceedings u/s. 158 BD were initiated against the assessee. The A.O. issued the notice to the assessee u/s. 158BD of the Act on 9.2.99 requiring him to file the block return within 15 days from the service of the notice. In response to the notice issued to him u/s. 158BD, the assessee filed the return for the block period on 21.5.99 declaring the undisclosed income at 'Nil'. The return filed by the assessee was selected for scrutiny and the assessment for the block period was completed u/s. 158BD vide order dt. 31.1.2000. There is no dispute about the facts in this case that the A.O did not issue the notice u/s. 143(2) when he decided to verify the correctness of the return for Block Period filed by the assessee in response of the notice issued to him. The Ld Counsel for the assessee submitted that the issue in respect of fate of the assessment proceedings were the assessee filed the return of income for the block period and the A.O decides to verify the correctness of the said return but did not issue the notice u/s. 143(2) of the Act, now stands covered in favour of the assessee by the decision of Hon'ble Jurisdictional High Court in the case of CIT v/s. Mrs. Mudra G. Nanavati, 227 CTR 387 (Bom). The Ld Counsel also filed the copy of the judgment which is placed on record. It is also argued that the consistent view has been taken by the different co-ordinate benches including the decision of ITAT in the case of Zeus Air Services Pvt. Ltd., v/s. ACIT- ITA No. 660 and 753/Mum/2003 dt. 13.10.2008( to which one of us i.e. Judicial Member, is a party) . In a detailed decision rendered by the Tribunal, it has been held that non-issue of the notice u/s. 143(2) will vitiate the assessment proceedings. It 4 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 is also argued in that case that the Tribunal has followed the decision of the another Co-ordinate Bench in the case of Mrs. Mudra G. Nanavati v/s. DCIT, (ITA No. 80/Mum/2004 dt. 23.5.2008 and the said decision has been affirmed by the Hon'ble High Court of Bombay. He, therefore, pleaded that the assessment framed by the A.O u/s. 158 BD may be quashed.
5. Per contra, the Ld D.R. vehemently submitted that the issue of notice u/s. 143(2) is a part of procedural law. He also made the following written submissions :
5.1 Chapter XIVB consists of section 158BA to 158BH was inserted by the Finance Act 1995 w.e.f 1.7.1995. While computing the undisclosed income for the block period, the proceedings are set rolling by issue of notice u/s. 158BC and non issue of notice u/s. 143(2) or 142(1) would not vitiate the proceedings in any manner. The A.O. may at his discretion, if it feels necessary and to the extent possible may resort to invoking provision of section 143(2) as an added tool for the determination of the undisclosed income u/s. 158BC. It is not mandatory on the A.O. to issue the notice u/s.
143(2).
5.2 That the provisions of section 158BC requires the return to be compulsory scrutinized vis-à-vis the documents seized during the course of search and the evidences collected thereon during the course of search, the issue of notice u/s. 143(2) will only help to the extent that an opportunity of being heard is given to the assessee. The representation made by the assessee and furnishing of the evidences and relevant record by the assessee is a prerequisite of the compulsory scrutiny, as is envisaged in the scheme of Chapter XIVB. It is for this purpose that the legislature in their wisdom has used the word 'in so far as may be' while prescribing manner of determining the undisclosed income which as can be seen is different than the normal assessment proceedings.
5.3 Reliance is placed on the Hon'ble Bombay High Court's decision in the case of Shirish Madhukar Dalvi - ACIT & Others 287 ITR 242 wherein the Hon'ble High Court has held as under:
"A reading of this provision suggests that this section 158BA is provision which provides for jurisdiction in favour of the A.O. to assess undisclosed income in accordance with Chapter XIVB. Whereas section 158BA(2) is a charging section; section 158BB provides for computation of undisclosed income for the block period; whereas section 158BC provides procedure for block assessment. Section 158BA bestows jurisdiction on the Assessing Officer and not section 158BC as submitted by Mr. Sathe. Thus, notice u/s.5 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007
158BC (a) cannot be equated with that of notice u/s. 148. That notice u/s. 158BC(a) only provides for procedure to be adopted for block assessment. It does not confer jurisdiction to assessee in favour of the Assessing Officer. In these circumstances, submission made by Mr. Sathe is devoid of any substance."
5.4 Moreover, the technicality of the procedures as illustrated by the appellant i.e. issue of notice u/s. 143(2) within a period of one year is a part and parcel of the proviso to section 143(2). It is a settled principle of statutory interpretation that proviso is added to an enactment to qualify or create an exception to what is in the enactment and ordinarily a proviso is not interpreted as stating a general rule ( Shah Bhojraj Kuvarjii Oil Mills and Ginning Factory Vs. Subhash Chandra Yogiraj AIR 1961 SC 596 Pg. 1690 ). It is also an equally settled proposition of law that the proper functioning of proviso is that it qualifies the generality of an enactment by providing an exception and picking out as it were, from the main enactment, a portion which what for the proviso would fall within the main enactment. This proviso does not refer to a return of income filed in response to notices u/s. 158BC, but only impliedly make reference to return filed u/s. 139 or in response to notice under subsection (1) of section 142. Therefore the proviso cannot be strictly construed as applicable to the return of income filed u/s. 158BC.
5.5 Non-issue of notice u/s. 143(2) while completing block assessment is only an irregularity and not a nullity, this is the view taken by the Special Bench ITAT Lucknow in the case of M/s. Naval Kishore and Sons Jewellers Vs. DCIT 87 ITD 407. That the appellant heavily relied on the judgment delivered by the Hon'ble Gauhati High Court in the case of Smt. Bandana Gogoi vs. C.I.T. & Others reported in 289 ITR 28 which highlights as under :
"Hence in the case of block assessment under chapter XIV-B, where the Assessing Officer does not proceed to make assessment and determine the tax payable on the basis of the return filed in response to a notice u/s. 158BC(a), he has to follow the provisions of sub-section (2) of section 143. The requirement of a notice under sub-section (2) of section 143 cannot be dispensed with in a case where the Assessing Officer proceeds to make an inquiry for the purpose of assessment, and determination of taxes payable after issuing notice u/s. 142(1) as well."
5.6 During the course of appellate proceedings, the learned counsel of the appellant submitted a decision of Hon'ble Mumbai High Court in the case of CIT-12 vs. Ms. Mudra G. Nanavathi, wherein he stated that the decision in the case of CWT vs. HUF of H.H. Late Shri J.M. Scindia reported in 300 ITR 193(Bom) has been approved. A perusal of the order, which is a one page order, revealed that our counsel in the High Court has accepted the position that the case is covered against the revenue by the Judicial decision as referred to above. It is respectfully submitted that the decision of the Hon'ble 6 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 Mumbai High Court in the case of CWT vs. HUF of Late Shri J.M. Scindia deals with the issue of notices u/s. 16(2) in relation to re-assessment of Wealth Tax proceedings u/s. 16(3) r.w.s. 17. The Hon'ble Bombay High Court while delivering the said judgment placed reliance on the order of Madras High Court in the case of CIT vs. M. Chellappan (281 ITR 444) and also in the case of Smt. Bandana Gogoi, a judgment delivered by the Gauhati High Court. A plain perusal of the aforesaid judgment revealed that the case of Bandana Gogoi relates to block assessment, while the case of M. Chellappan relates to re- assesment proceedings u/s. 147.
5.7 The law laid down by the Hon'ble HC of Gauhati is per incuriam as it fails to discuss the important decisions of the Supreme Court which goes to the very root of the interpretation of the provisions of section 158BC.
(i) The decision of Hon'ble SC in the case of Dr. Pratap Singh reported in 155 ITR 166 SC was not considered by the Hon'ble HC of Guwhati which clearly define and interpret the meaning of the word 'so far as may be' to construe it to mean 'to the extent possible'. It is because of this the Hon'ble Gauhati HC construe that the issue in notice u/s. 143(2) is mandatory and not directory. The Special Bench of ITAT at Lucknow had the occasion of discussing the law laid down by the SC in this regard and after fully appreciating the facts, they came to a right conclusion. The decision of the Hon'ble Guwhati HC has rendered itself as per incurrium as it has not followed the law laid down by the Hon'ble Supreme Court .The Hon'ble Supreme Court in the case of S. Shanmugavil Nadar(supra) has observed that article 141 of the Constitution of India speaks of declaration of law by the Supreme Court. The law so declared by the Supreme Court is binding on all Courts within the territory of India. The doctrine of precedents i.e. being bound by the previous decisions is limited to the decision itself and not as to what is involved in it. By not following the decision of Hon'ble Supreme Court ,the law laid down by the Hon'ble High court of Gauhati is bad in law and does not set a precedence.
(ii) Similarly the decision of Supreme Court in the case of Jayprakash Singh 219 ITR 737 (SC) has also not been considered by Gauhati HC in the case of Smt. Bandana Gogoi, which held that an omission to serve or any defect in the service of notice provided by the procedure provision does not effase or erase the liability to pay tax where such liability is created by disctinct substantive provision (charging section). Any such omission of defect may render the order made irregular, depending upon the nature of the provisions not complied with, but certainly not void or illegal. The decision of the Hon'ble HC of Guwhati has failed to take into cognizance the ratio decidendi of this important judgment of the Hon'ble SC and therefore came to a wrong conclusion. The Hon'ble 7 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 Special Bench Lucknow did take this important decision into account and came to the right conclusion.
(iii) The decision of the Hon'ble SC in the case Bhavnagar University Vs. Palitana Sugar Mills Ltd. [2003] 2 SCC III clearly illustrates the position of law that when a public functionary is directed to follow certain procedure without any consequence being spelt out as to its non compliance, it is only directory and only when consequences for its failure / non compliances splet out only then it is imperative failure that affects the entire proceedings and not otherwise. This important judgement of the Hon;ble SC was also not taken in account while deciding the nature of the procedural provisions of section 143 of the I.T.Act, 1961. Therefore, the decision of the Hon'ble Guwhati HC rendered itself as per inquriam.
5.7 In order to examine the extent of persuasive effect of the Gauhati High Court decision in the case of Smt. Bandana Gogoi (supra) it is necessary to examine the case laws followed by the Hon'ble Gauhati High Court in arriving at the said decision. After careful perusal of the Hon'ble Gauhati High Court's order in the above mentioned case, it is seen that the Hon'ble Court has mainly relied on the following High Court decisions :-
1. C.I.T. Vs. M. Chellappan & Another 281 ITR 444 (Mad)
2. Vipan Khanna Vs. C.I.T. & Others - 255 ITR 220 ( P & H) 5.8 The Hon'ble Supreme Court in the case of A.C.I.T. Vs. Rajesh Jhaveri Stock Brokers P. Ltd. reported in 291 ITR 500 (SC) held that :-
"Taxing income escaping assessment in the case of an intimation u/s. 143(1)(a) is covered by the main provision of section 147 as substituted w.e.f. April 1, 1989, and initiating reassessment proceedings in the case of intimation would be covered by the main provision of section 147 and not the proviso thereto. Only one condition has to be satisfied. Failure to take steps u/s. 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings when intimation u/s. 143(1) has been issued."
0.9 Thus, it may be seen that the decision of Madras High Court and Punjab & Haryana High Court in the cases of C.I.T. Vs. M. Chellappan 281 ITR 444 and Vipan Khanna Vs. C.I.T. 255 ITR 220 followed by the Hon'ble Gauhati High Court in the case of Bandana Gogoi Vs. C.I.T. & Another 289 ITR 28 are contrary to the decision of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500. Thus, in view of the Hon'ble Supreme Court decision in the above mentioned case, the ratio of the decisions in the case of C.I.T. Vs. M. Chellappan and Vipan Khanna Vs. C.I.T. are no more good law. Consequently, the decision of the Hon'ble Gauhati High Court in the case of Bandana Gogoi relied upon by the assessee is not the correct law. Order is passed on material partly relevant and partly irrelevant, 8 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 then entire order is vitiated because it is difficult to predicate to what extent the extraneous and irrelevant materials has influenced the authority in arriving at his finding. Kindly refer to Dhirajlal Girdharilal 26 ITR 736 (SC), Bhagat Construction Co. Ltd. 250 ITR 291 (Del), Choithram Begraj Lalvaney 197 ITR 302 (Bom), Sagar Entrprises 257 ITR 335 (Guj), CWT Vs. Gnanagiri Ganeshan 260 ITR 161 (Mad). On the same analogy, Gauhati High Court order passed after consideration of two High Courts order which have not been approved by Supreme Court in Rajesh Jhaveri's case, it is submitted with utmost respect that Gauhati High Court's decision may not be followed. Accordingly, the said decision of the Gauhati High Court in the case of Smt. Bandana Gogoi (supra) has no persuasive value since it is against the judgement of the Hon'ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500.
5.9 From the above finding of the Hon'ble Jurisdictional High Court, it is crystal clear that section 158BC provides procedure for block assessment and therefore, non-issuance of notice u/s. 143(2) of the I.T. Act or belated service of notice u/s. 143(2) does not vitiate the assessment proceedings u/s. 158BC. In this connection, it is further mentioned here that the Hon'ble Gauhati High Court while deciding the case of Smt. Bandana Gogoi Vs. CIT & Another relied on the decisions of the High Courts which pertain to re-assessment or reopening of assessment u/s. 147 of the I.T. Act. Whereas, the said decision of the Hon'ble Jurisdictional High Court in the case of Shirish M. Dalvi Vs. ACIT covers directly the issue of legality of block assessment u/s. 158BC which has been held to be procedural. Attention is also drawn to the recent judgment of the Supreme Court in the case of Deepak Agro Foods Vs. State of Rajasthan and Others and also of the case law of Sambhaji & Ors Vs. Gangabai & Ors wherein the Hon'ble apex court has held as under
"The procedure law so dominate in certain system as to overpower substantive rights and substantial justice. The humanist rule that procedure should be handmaid, not the mistress, of legal justice compels consideration of vesting a residuary power in judges to act ex debito justitiae where the tragic sequel otherwise would be wholly inequitable. Justice is the goal of jurisprudence, procedural, as much as substantive. No person has vested right in any course of procedure. He has only the right to prosecution or defense in the manner for the time being by or for the court in which the case is pending, and if, by an act of Parliament the mode of procedure is altered, he has no the right than to proceed accordingly to the altered mode. It procedure law should not ordinarily be construed as mandatory, the procedural law is always subservient to and is in aid to justice. Any interpretation which eludes or frustrates the recipient of justice is not to be followed.9 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007
The procedural or is not to be a tyrant but a servant, not an obstruction but an aid to justice. It procedural prescription is the handmaid and not the mistress, a lubricant, not a resistant to the administration of justice."
5.10 It is therefore, prayed that the assessment should not be held as null and void on the fact of non issuance of notice under section 143(2) of the Income tax Act, 1961.
6. We have heard rival submissions of the Parties. We have also given our anxious consideration to the written submissions filed by Ld. D.R.. We find that admittedly in this case, the A.O did not issue the notice u/'s. 143(2) when he decided to select the return filed by the assessee for the block period for verification. Now, this issue stands covered in favour of the assessee by the decision of the Hon'ble jurisdictional High Court in the case of Mrs. Mudra G. Nanavati (supra). So far as submissions of the Ld. D.R. are concerned, he tried to lay his emphasis on the decision of Shirish M. Dalvi (supra). So far as decision of the Hon'ble Bombay High Court in the case of Mrs. Mudra G Nanavati (supra) is concern, it is rendered after the decision of Shirish M. Dalvi(supra). Moreover, decision in the case of Mrs. Mudra G. Nanavati (supra) is directly on the issue before us. It is also pertinent to note that in the case of M/S. Zeus Air Services Ltd. (supra), Tribunal has already considered and explained the decision of Shirish M. Dalvi (supra). In our humble opinion, as per well settled judicial principles, we have to follow the decision in the case of Mrs. Mudra G. Nanavati (supra). We, accordingly, respectfully following the decision of the jurisdictional High Court in the case of Mrs. Mudra G. Nanavati (supra) answer this first issue in favour of the assessee and hold that the order passed by the A.O is void ab initio and accordingly quash the same.
7. As the basic issue is decided in favour of the assessee, we do not consider necessary to decide the another issue arising from the Cross Objections.
8. In respect of the Revenue's appeal being IT (SS)A No. 68/Mum/2004, the Revenue has taken the multiple Grounds in respect of the relief given by the Ld CIT(A). As while deciding the assessee's Cross Objection, we have 10 IT (SS)A No. 68/Mum/2004 & C.O. No. 166/Mum/2007 cancelled the assessment order itself, the Revenue's appeal also does not survive and the same has to be dismissed.
9. In the result, the Revenue's appeal is dismissed and the assessee's Cross Objection is allowed.
Order pronounced in the open court on 8th day of January , 2010.
Sd/ - Sd/-
( PRAMOD KUMAR) (R.S.PADVEK AR)
ACCOUNTANT MEMBER JUDI CIAL MEMBER
Mumbai, on this 8th day of January , 2010.
:US
Copy to:
1. Appellant
2. Respondent ,
3.The CIT(A)- XVI I, Mumbai
4.The CIT - Mumbai City -XVI, Mumbai
5.The DR, "B" be nch, Mumbai
6.Guard File
BY ORDER
True co py
Asstt..Re gistrar, ITAT, Mumbai.
11 IT (SS)A No. 68/Mum/2004 & C.O.
No. 166/Mum/2007
US
Date Initials
1. Draft dictated on 6/1/ 10 --------------- Sr.P.S.
2. Draft Placed be fore authority 6/ 1/10 -------------- Sr.P.S.
3. Draft proposed & place d ----------- ------------- JM
Before the Second Member
4. Draft discussed/ approve d ----------- ------------- JM/AM
By Second Member
5. Approved Draft comes to ----------- -------------
Sr.P.S.
the Sr. P.S./ P.S
6. Kept for pronouncement on -------- - -------------
Sr.P.S.
7. File sent to the Be nch Cle rk --------- -------------
Sr.P.S.
8. Date on which file goes to the ------- -------------
9. Date of dispatch of Order --------- -------------