Hindustan Candle Mfg. Co. P. Ltd, Mumbai vs Department Of Income Tax

IN THE INCOME TAX APPELLATE TRIBUNAL "H" BENCH, MUMBAI

BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ITA NO.4020/Mum/2009 Assessment year: - 2006-07 ACIT, Cir.- 6(3) Mumbai, Vs.` M/s Hindustan Candle Mfg. Room No. 522, 5th Floor, Co. Ltd, Aayakar Bhavan, Khatau Terace, Dr. S.S. M.K. Road, Road, Mumbai - 400 020. Lalbaug, Mumbai - 400 012.

Appellant Respondent Cross Objection No. 08/Mum/2010 Arising out of ITA NO.4020/Mum/2009 Assessment year: - 2006-07 M/s Hindustan Candle Mfg. Vs.` ACIT, Cir.- 6(3) Mumbai, Co. Ltd, Room No. 522, 5th Floor, Khatau Terace, Dr. S.S. Aayakar Bhavan, Road, M.K. Road, Lalbaug, Mumbai - 400 020. Mumbai - 400 012

Appellant Respondent

Revenue By Shri Surinder Jeet Singh Assessee By Shri J.D. Mistry

Date of hearing 03.03.2015 Date of pronouncement 25.03.2015

ORDER

Per Vijay Pal Rao, JM

This appeal by the revenue and cross objection by the assessee are directed against the order dated 21.04.2009 of CIT|(A) for A.Y. 2006-07. The revenue has raised following grounds in its appeal:-

"1. "On the facts and in the circumstances of the case, Ld. CIT(A) erred in admitting the evidence in respect of FMV as on 01/04/1981 and allowing indexation thereof in contrary to Rule 46A(2) & (3) of the I.T. Rules .. "

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2. "On the facts and in the circumstances of the case, Ld. CIT(A) erred in taking contrary decision that the assessee has incurred a long term capital loss in respect of the impugned transaction and yet holding that the subsequent transfer of stock-in-trade for consideration of Rs. 35,00,96,000/- did not amount to transfer or sale of stock-in-trade. "

3. "The appellant prays that the order of Ld. CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored."

In the Cross Objection, the assessee has raised following grounds:-

"1. Preliminary objections:

(a) The appeal has been filed by the Assistant Commissioner of Income Tax, Circle - 6 (3), Mumbai [hereafter the ACIT] , whereas the assessment was made by the Income Tax Officer, Ward - 6(3)(2), Mumbai [hereafter the ITO], and even to-day the ITO is having jurisdiction over the case of the assessee; therefore, the appeal filed by the ACIT is not maintainable.

(b) The main grounds of appeal starts with "on the facts and circumstances of the case" which means the facts found by the ld. Commissioner of Income Tax (Appeals) [hereafter the CIT (A)] are admitted and undisputed and therefore in view of the CBDT's Instruction No. 1493 dated 18-11-1982 and reiterated vide Instruction No. 1894 dated 16-06-1992, the appeal is not maintainable.

"2. The assessment made is without jurisdiction, particularly because:

(a) Any valid notice u/s 143 (2) of the Income Tax Act, 1961 [hereafter the Act] was not issued within the statutory mandatory time prescribed by the proviso to section 143 (2) of the Act,

(b) Any notice u/s 143 (2) of the Act was not served upon the assessee within the statutory mandatory time prescribed by the proviso to section 143 (2) of the Act,

(c) The proceedings were initiated by the ACIT, but were completed by the ITO, without there being any order transferring the jurisdiction to the ITO.

3. The Id. CIT (A) erred in sustaining disallowance of Rs. 2,78,310 U/S 14A of the Act.

3.1 The ld. CIT (A) failed to appreciate that there is no finding by the ld. AO that expenditure incurred has any nexus with Exempted income.

3.2 Without prejudice the addition is highly excessive.

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4.. The ld. CIT (A) erred in sustaining the addition of Rs. 3,36,000 being income from house property.

4.1 The ld. CIT (A) failed to appreciate the fact that the assessee is in the business of real estate.

4.2 The ld. CIT (A) failed to appreciate that the result of local enquiry conducted by the ld. AO was never confronted to the assessee.

4.3 The ld. CIT (A) failed to appreciate the municipal valuation.

4.4' Without prejudice the addition is highly excessive.

2. Since the assessee has raised an issue of validity of assessment in the cross objection which goes to the root of the matter, therefore, we first take up the cross objection filed by the assessee and the issue of validity of assessment for want of notice u/s 143(2). At the outset, we note that this ground of validity of assessment for want of jurisdiction due to no service of notice u/s 143(2), was not taken by the assessee before the CIT(A). On this point, the Ld. Senior Counsel of the assessee has submitted that this objection was very well taken by the assessee during the course of assessment proceedings. He has referred the letter dated 8.08.2008 and submitted that the assessee has specifically raised the objection that any notice u/s 143(2) of the Act has not been received till date. Thus the Ld. Senior Counsel has submitted that this is not a new plea or ground raised by the assessee before the Tribunal but the objection was raised by the assessee before the Assessing Officer. Since the notice u/s 143(2) gives the jurisdiction to Assessing Officer to frame the scrutiny assessment and it is not a procedural irregularity, therefore, the same is not curable. Failure on the part of Assessing Officer to issue notice u/s 143(2) within the stipulated time period renders the assessment void and invalid. He has relied upon the Judgment of Hon'ble Supreme Court in the case of ACIT Vs. Hotel Blue Moon 321 ITR 362 as well as decision of Hon'ble Jurisdictional

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High Court in the case of Commissioner of Wealth-Tax Vs. HUF of H.H. Late J.M. Scindia 300 ITR 193. He has further submitted that as per the directions of the Tribunal, the Assessing Officer has filed the affidavit in support of the case of the revenue that the notice u/s 143(2) was duly issued and served upon the assessee on 23.10.2007. The Ld. Counsel has submitted that the assessee has denied the service of the alleged notice. Even there is no mention on the alleged service of the notice as to whom the notice was served by the Assessing Officer. He has pointed out that the Assessing Officer has claimed to have served the notice in person through Inspector but there is nothing on record as to whom the notice was served. Event the affidavit filed by the revenue is not of the person concerned who has issued the notice or served the same allegedly on the assessee. Thus, the Ld. Counsel has submitted that the order passed by the Assessing Officer without jurisdiction renders the order void ab initio. To counter the affidavit filed by the revenue, the assessee has also filed an affidavit of one Shri Sunil K. Gupta, Managing Director of the assessee company and denied the service of alleged notice u/s 143(2) on the assessee. The Ld. Senior Counsel has also relied upon the following decisions:-

(i) ACIT & ANR Vs. Hotel Blue Moon 321 ITR 362 (ii) Commissioner of Wealth-Tax Vs. HUF of H.H. Late J.M. Scindia 300 ITR 193. (iii) Income Tax Officer Vs. Bedi Enterprises 114 TTJ (Lucknow) 706 (iv) Harsingar Gutkha (P) Ltd. Vs. Deputy Commissioner of Income Tax 138 TTJ(Lucknow) 318 (v) Dr. Y.D. Singh Vs. Deputy Commissioner of Income Tax 143 TTJ (All) 467 (vi) Assistant Commissioner of Income Tax Vs. Vision Inc. 130 TTJ (Del) 696. (vii) Anil Kumar Goel Vs. Income Tax Officer 116 TTJ (Lucknow) 239. (viii) Deputy Commissioner of Income Tax Vs. Mahi Vailey Hotels and Resorts 287 ITR 360 (Guj.)

3. Referring the issue discussed in the above said decisions, the Ld. Senior Counsel has submitted that the Assessing Officer has not brought

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any material on record to show that the notice was served on the assessee within the stipulated period and accordingly the revenue has failed to prove that the service has been affected on the assessee or its agent. He has pointed out that in the series of decisions, the Tribunal has time and again reiterated that the service of notice should be on the assessee or its authorized person. The onus is on the Assessing Officer to establish that there was a valid service on the assessee within the stipulated time. He has referred the alleged notice u/s 143(2) and submitted that there is no identification to whom the notice was served and in the absence of identification, there is no valid service on the assessee.

4. On the other hand, the Ld. DR has submitted that a notice u/s 143(2) along with notice u/s 115WE(2)were served on the assessee on 23.10.2007 at 1.20 P.M. He has referred the copy of the notice on which the acknowledgement of the receipt of the notice along with telephone no. is mentioned. The Ld. DR has submitted that the assessee, thereafter, appeared before the Assessing Officer and even notice u/s 142(1) dated 20.06.2008 was issued to the assessee through Speed Post was served upon the assessee. Once the assessee has appeared and participated in the assessment proceedings, then the case falls u/s 292 BB of the Income Tax Act and it shall be deemed as the notice u/s 143(2) was duly served upon the assessee in accordance with the provisions of the Act. He has further submitted that the assessee has not raised any objection for non receipt of notice u/s 115WE(2) which was served along with notice u/s 143(2), therefore, there was a valid service of the notice u/s 143(2) on the assessee. He has referred the affidavit filed by the Assessing Officer, Anil Kumar Gupta, DCIT, Cir- 6(3) and submitted that since 27.06.2008, the assessee had been regularly attending the assessment proceedings up to

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19.12.2008. Therefore, the facts and circumstances of the case proves that the notice u/s 143(2) was duly served upon the assessee.

5. In rejoinder, the Ld. Senior Counsel has submitted that the assessee has filed the affidavit in which he denied any service of notice u/s 115WE(2). He has also referred the fringe benefit tax assessment and submitted that since the Assessing Officer has accepted the return, therefore, there was no question of any objection or any proceedings under the fringe benefit assessment.

6. We have considered the rival submissions as well as relevant material on record. The revenue has not denied the fact that vide letter dated 08.08.2008, the assessee has raised the objection regarding non receipt of notice u/s 143(2). The relevant part of the letter dated 08.08.2008 is as under:-

"Other details requested by you in the letter are under preparation and will be submitted to you in due course.

The above submissions are without prejudice to our Legal rights. It is pertinent to mention that any notice u/s 143(2) of the Act has not been received by us till date. "

7. The above said letter was part of the assessment record and, therefore, the objection raised by the assessee was not denied. Further the Assessing Officer has not adjudicated the objection raised by the assessee and proceeded to complete the assessment. Though the assessee has not raised this objection before the CIT(A), however, it is not a fresh plea as it is manifest from the assessment record that the assessee raised this objection during the course of assessment proceedings. We further note that in the proceedings recorded on 08.08.2008, the Assessing Officer has duly

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recorded the presence of representative of the assessee and filing of various details in response to the letter dated 28.07.2008. This letter dated 08.08.2008 is in response to letter dated 28.07.2008. Therefore this issue/plea was taken by the assessee before the Assessing Officer in the assessment proceedings. Even, otherwise, this is a legal objection raised by the assessee and as per the Judgment of Hon'ble Jurisdictional High Court in the case of Prashant S. Joshi Vs. ITO 324 ITR 154. A fresh plea can be raised before the appellate authority. Therefore, we do not find any legal hurdle in considering the objections raised by the assessee in Cross Objection regarding validity of assessment for want of service of notice u/s 143(2).

We find that the first entry in the assessment proceedings is dated 08.08.2008 and prior to that date there is nothing on the assessment records to show that any notice u/s 143(2) was issued by the Assessing Officer except the copy of notice dated 20.10.2007 purported to be served on the assessee on 23.10.2007. From the alleged notice, we find that this notice was not sent through the process of registered post or postal authorities but the revenue has claimed that it was served personally on the assessee. This notice does not bear any name of the person or identification of the person to whom it was served. Only one signature appears on it with date 23.10.2007and time 1.20 P.M. therefore, from the copy of the alleged notice, it can not be ascertained as to whom the notice was served. Even, otherwise the assessee is a company and the notice served on the assessee must bear the signature of the authorized person of the assessee along with seal and at least the name and designation of the person who received the notice. In the case in hand there is nothing on record to show that to whom the notice was served and whether the

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recipient of the notice was authorized person of the assessee or at least belonging to the assessee. The affidavits filed by the revenue of one Mr. Anil K. Gupta is neither the then Assessing Officer who issued the notice nor having personal knowledge about the fact of service of notice. In the affidavit, the officer has made the claims on the basis of the assessment record. Even from the affidavits, it can be seen that the deponent has not claimed to have served the notice u/s 143(2) and given the details of issuance of notice. As regards the alleged notice u/s 115WE(2), there is nothing on record to show that any such notice was issued to the assessee. Further when the return filed by the assessee was accepted by the Assessing Officer then there was no question of any proceedings or raising the objection by the assessee against the service of notice u/s 115WE(2). Therefore, the affidavit filed by the revenue as well as assessment u/s 115WE(2) would not help the case of the revenue. As regards the plea that the case of the assessee is covered u/s 292 BB, it is pertinent to note that that this provision has been inserted in the statute by the Finance Act, 2008, w.e.f 01.04.2008 and, therefore, the provisions of section 292 BB are not applicable for the A.Y. under consideration.

When the assessee has raised the objection regarding non receipt of notice u/s 143(2) during the assessment proceedings, then it was incumbent upon the Assessing Officer to bring on record the fact and material to show that the alleged notice dated 20.10.2007 was duly served upon the assessee. The silence on the part of the Assessing Officer to adjudicate the objection raised by the assessee clearly raise the presumption against the revenue that no such notice was served upon the assessee. Further when there is nothing on record to show that the alleged notice was served upon the assessee or the authorized person of the assessee then, we find that the

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objection raised by the assessee vide letter dated 08.08.2008 remained uncontroverted. Once the notice u/s 143(2) remained unserved on the assessee within the stipulated period then it is not a mere procedural irregularity but there is a lack of jurisdiction which enable the Assessing Officer to complete the assessment. The Hon'ble Supreme Court in the case of ACIT & ANR Vs. Hotel Blue Moon (supra) while dealing with issue of notice u/s 143(2) has observed in para 15 as under:-

"15. We may now revert back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b) provides for enquiry and assessment. The said provision reads "that the assessing officer shall proceed to determine the undisclosed income of the Block period in the manner laid down in Section 158 BB and the provisions of Section 142, sub- section (2) and (3) of Section 143, Section 144 and Section 145 shall, so far as may be, apply." An analysis of this sub section indicates that, after the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142 and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a). The assessing officer has to complete the assessment under Section 143(3) only. In case of default in not filing the return or not complying with the notice under Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex- parte under Section 144. Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the provisions of Section 143(1) are excluded.

But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under Section 143(2). However, if an assessment is to be completed under Section 143(3) read with Section 158-BC, notice under Section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with. The other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the assessing officer while completing the block assessments under Chapter XIV-B of the Act. This legislation is by incorporation. This Section even speaks of subsections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the legislature would have or could have indicated that also.

A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by

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the assessee in response to notice under Section 158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2) of the Act. Where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically. Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. We may also notice here itself that the clarification given by CBDT in its circular No.717 dated 14th August, 1995, has a binding effect on the department, but not on the Court. This circular clarifies the requirement of law in respect of service of notice under sub-section (2) of Section 143 of the Act. Accordingly, we conclude even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act.

However, it is contended by Sri Shekhar, learned counsel for the department that in view of the expression "So far as may be" in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable. In support of that contention, the learned counsel has relied on the observation made by this Court in Dr. Pratap Singh's case [1985] 155 ITR 166(SC). In this case, the Court has observed that Section 37(2) provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as may be" has always been construed to mean that those provisions may be generally followed to the extent possible. The learned counsel for the respondent has brought to our notice the observations made by this Court in the case of Maganlal Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression `as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied."

8. A similar view was taken by the Hon'ble Jurisdictional High Court in the case of Commissioner of Wealth-Tax Vs. HUF of H.H. Late J.M. Scindia (supra) in para 10 as under:-

"16. Even independently, we have examined the scope and effect of sections 14 to 16 on the one hand and section 17 on the other. In our opinion, there is no escape from arriving at the conclusion that when the Assessing Officer invokes section 17, the provisions of sections 14 and 16 to the extent applicable, for the purpose of making an order of reassessment will have to be followed which will 10 | P a g e M/s Hindustan Candle Mfg. Co. Ltd,

include the time-limit for notice under section 16(2). Once the language of section 17 itself requires that other provisions to the extent applicable would apply considering the return as filed under section 14, it contemplates that both procedural and substantive provisions will apply. In our opinion, therefore, while invoking the powers under section 17, the Assessing Officer is bound by the mandate of the proviso to section 16(2) and on failure the order of reassessment will be without jurisdiction and consequently the order of reassessment will have to be set aside.

9. Thus it is clear that a notice u/s 143(2) gives the jurisdictional power to the Assessing Officer to frame the assessment and failure on the part of the Assessing Officer to serve the notice within the stipulated period of 12 months which renders the assessment void ab initio. The Hon'ble Gujarat High Court in the case of Deputy Commissioner of Income Tax Vs. Mahi Vailey Hotels and Resorts (supra), while dealing with the issue of notice u/s 143(2) and consequential effect on the assessment has observed in para 4 and 6 as under :-

"4. The second contention regarding there being acquiescence and/or waiver on the part of the assessee by participating in the proceedings also does not merit acceptance. It is an admitted position that the return of income was filed on March 30, 1997, for the assessment year 1997-98 and the notice under section 143(2) of the Act came to be issued for the first time only on August 20, 1998. Therefore, the notice was admittedly beyond the period of 12 months which is the statutory period of limitation prescribed under the proviso to sub- section (2) of section 143 of the Act.

6. Section 143(2) of the Act requires that where a return has been made by an assessee, if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income, or has not computed excessive loss, or has not underpaid tax in any manner, he shall serve on the assessee a notice requiring him either to attend his office, or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return. Therefore, the language of the main provision requires the Assessing Officer to prima facie arrive at satisfaction of existence of any one of the three conditions. The proviso under the said sub-section states: ''Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished". On a plain reading of the language in which the proviso is couched it is apparent that the limitation prescribed therein is mandatory, the format of the provision being in negative terms. The position in law is well-settled that if the

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requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, such requirements are, in all cases absolute and neglect to attend to such requirement will invalidate the whole proceeding."

10. Therefore, in the absence of a notice u/s 143(2), the whole proceedings become invalid.

11. In view of the above facts and circumstances of the case, we are of the opinion that the assessment in question is invalid because of lack of jurisdiction of the Assessing Officer as the revenue has failed to show that the notice u/s 143(2) was served on the assessee within the stipulated period. Accordingly, we quash/ set aside the assessment in question. Since the assessment has been quashed by us, therefore, the other grounds raised by the assessee in the Cross Objection as well as the grounds raised by the revenue in its appeal become infructuous and the same are dismissed.

12. In the result, the appeal filed by the Revenue is dismissed and the Cross Objection of the assessee is partly allowed.

Order pronoucned in the open court on this 25th day of March 2015.

Sd/- Sd/-

(N.K. Billaiya) (Vijay Pal Rao) (Accountant Member) (Judicial Member ) Mumbai dated 25.03.2015 SKS Sr. P.S,

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Copy to: 1. The Appellant 2. The Respondent 3. The concerned CIT(A) 4. The concerned CIT 5. The DR, "H" Bench, ITAT, Mumbai By Order

Assistant Registrar Income Tax Appellate Tribunal, Mumbai Benches, MUMBAI

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