The Armed Forces Officers Cooperative ... vs Department Of Income Tax

Income-tax Officer, Ward - vs. The Armed Forces Officers 10(3), Hyderabad. Cooperative Housing Society,Secunderabad.

PAN - AAATT39274 (Appellant) (Respondent)

Revenue by : Shri Rajat Mitra Assessee by : Shri B. Shanti Kumar

Date of hearing 11-02-2015 Date of pronouncement 18-02-2015

OR D ER

PER SAKTIJIT DEY, J.M.:

This appeal by the department is directed against order dated 28/02/2014 passed by ld. CIT(A)-VI, Hyderabad for A.Y. 2001-02.

2. As can be seen from the grounds raised, department is basically aggrieved with the decision of ld. CIT(A) in holding that issuance of notice u/s 147 of the Act is barred by limitation in absence of approval by appropriate authority u/s 151(1) of the Act.

3. Briefly, the facts are, assessee is a cooperative society created with the objects to cater for the benefit of its members in the trade of building and of buying, acquiring, selling, hiring, letting and developing land for the construction of new buildings by its 2 ITA No. 987/Hyd/2014 The Armed Forces Officers' Cooperative Housing Society

members. It is also engaged in carrying on various other activities for the benefit of its members. For the AY under consideration, assessee filed its return of income on 05/11/2011 declaring total loss of Rs. 94,940. A notice u/s 148 of the Act was issued to assessee on 01/10/2004, pursuant to which assessment for the impugned assessment year was completed u/s 147 vide order dated 28/02/2006 determining total income at Rs. 33,350. When the matter stood like this, AO again on 05/06/2007 issued another notice u/s 148 on the reason that assessee has claimed exemption of interest received on fixed deposits amounting to Rs. 11,81,361 on the ground of mutuality, which otherwise, is taxable. In response to the notice issued u/s 148, assessee filed its return of income again claiming exemption on the ground of mutuality. Along with return of income, assessee filed a letter dated 22/08/2007 wherein it was stated that assessment in case of assessee was completed under section 147 of the Act vide assessment order dated 28/02/06 determining total income at Rs. 33,350. Therefore, as notice issued u/s 148 on 05/06/07 is beyond the period of four years from the relevant assessment year, it could not have been issued without prior approval of the Chief Commissioner of Income-tax or Commissioner of Income-tax (CCIT/CIT) as per the provisions of section 151(1) of the Act. Accordingly, assessee requested to drop the proceeding. AO, however, did not accept the contention of assessee by observing that as earlier assessment order was passed u/s 143(3) read with section 147 without issuing a notice u/s 143(2), it is to be treated that there is no order passed u/s 143(3) read with section 147 in consequence to the notice issued u/s 148 on 01/10/04. Therefore, according to AO, notice issued u/s 148 on 05/06/07 is in accordance with the provisions of section 151(1) of the Act. Having held so, AO proceeded to complete the assessment by making disallowances/additions including the bank interest of Rs. 11,81,361, which resulted in determination of total 3 ITA No. 987/Hyd/2014 The Armed Forces Officers' Cooperative Housing Society

income at Rs. 12,14,710 as per the assessment order dated 19/12/08 passed u/s 143(3) read with section 147 of the Act. Being aggrieved of the assessment order, so passed, assessee preferred appeal before ld. CIT(A) challenging the assessment order both on the validity of notice issued u/s 148 as well as on the merits of the additions.

4. In course of hearing of appeal before ld. CIT(A), it was argued on behalf of assessee that as in the impugned AY there is already an assessment u/s 143(3) read with section 147 of the Act, as per the proviso to section 151(1) of the Act, notice u/s 148 of the Act could not have been issued beyond the period of four years from the end of the relevant AY without prior approval of the CCIT/CIT. It was submitted by assessee that as in the present case approval was by Additional CIT only and not either by CCIT/CIT, the notice issued is barred by limitation, hence, assessment order passed in consequence thereupon is also invalid.

5. Ld. CIT(A) after considering the submissions of assessee in the context of relevant statutory provision as well as facts and materials on record, held that as in assessee's case assessment was originally completed u/s 143(3) read with section 147 of the Act, second notice u/s 148 could have been issued after expiry of four years from the end of the relevant AY only if prior approval was obtained from CCIT/CIT. Since AO has not followed this mandatory requirement by obtaining approval of CCIT/CIT prior to issuance of notice u/s 148 of the Act, the notice so issued is barred by limitation and affects the validity of the assessment order itself. Accordingly, he held the impugned assessment order to be invalid and void. Being aggrieved, department is in appeal before us.

4 ITA No. 987/Hyd/2014 The Armed Forces Officers' Cooperative Housing Society

6. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. Undisputedly, assessment in case of assessee was originally completed u/s 143(3) read with section 147 of the Act vide assessment order dated 28/02/06. It is also not disputed that notice u/s 148 in pursuance to which impugned assessment order has been passed by AO was issued on 05/06/07 i.e. after expiry of four years from the end of the relevant AY. It is also a fact on record that assessee after receiving the notice u/s 148 of the Act has objected to the initiation of proceeding before AO by contending that the provisions of section 151(1) have not been complied. Therefore, before deciding the issue of validity of the notice u/s 148 of the Act, it is relevant to look into the provisions of section 151(1) of the Act, which are extracted herein for ready reference:

"151. (1) In a case where an assessment under sub-section (3) of section 143 or section 147 has been made for the relevant assessment year, no notice shall be issued under section 148 [by an Assessing Officer, who is below the rank of Assistant Commissioner [or Deputy Commissioner], unless the [Joint] Commissioner is satisfied on the reasons recorded by such Assessing Officer that it is a fit case for the issue of such notice] :

Provided that, after the expiry of four years from the end of the relevant assessment year, no such notice shall be issued unless the [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner is satisfied, on the reasons recorded by the Assessing Officer aforesaid, that it is a fit case for the issue of such notice."

On plain reading of the aforesaid provision, it is patent and obvious that in case of an assessee where assessment has earlier been completed u/s 143(3) or 147 of the Act, notice u/s 148 cannot be issued after expiry of four years from the end of the relevant AY without obtaining prior approval of CCIT/CIT. If we examine the facts of the present case vis-à-vis the aforesaid statutory provision, two clear facts emerge. Firstly, in assessee's case assessment 5 ITA No. 987/Hyd/2014 The Armed Forces Officers' Cooperative Housing Society

order u/s 143(3) r.w.s. 148 has already been passed and secondly second notice u/s 148 was issued after expiry of four years from the relevant AY without obtaining prior approval from CCIT/CIT. CIT. Therefore, the mandatory conditions of section 151(1) has not been satisfied. The AO has tried to overcome the objection of assessee as well as the statutory requirement by observing that earlier assessment order cannot be held to be a valid assessment order as no notice u/s 143(2) was issued to assessee. Even assuming for the sake of argument that the earlier assessment order was not valid as observed by AO, but, certainly he is not the authority to decide the validity of the assessment order, so passed. When the existence of the assessment order is not disputed and the validity of such assessment order has not been decided by the appellate authority, AO has no jurisdiction to review the validity of the assessment order passed earlier. In case of CIT Vs. SPL's Siddhartha Ltd. 345 ITR 223, the Hon'ble Delhi High Court has held that a notice u/s 148 in violation of section 151(1) is without jurisdiction affecting the validity of the assessment order itself, hence, cannot be considered to be an irregularity curable u/s 292B. The Hon'ble High Court observed, if powers conferred on a particular authority are arrogated by other authority without mandate of law, it will create chaos in the administration of law and hierarchy of administration will mean nothing. Further, the Hon'ble Court held, satisfaction of one authority cannot be substituted by satisfaction of another authority. When a statute requires a thing to be done in a certain manner, it shall be done in that manner alone.

7. Therefore, considering the fact that in the present case there is clear violation of the proviso to section 151(1) while issuing the notice u/s 148 on 05/06/2207, we do not find any infirmity in the order of ld. CIT(A) in holding the assessment order to be void and 6 ITA No. 987/Hyd/2014 The Armed Forces Officers' Cooperative Housing Society

invalid. Accordingly, we uphold the decision of ld. CIT(A) by dismissing the grounds raised by revenue.

8. In the result, department's appeal is dismissed.

Pronounced in the open court on 18/02/2015.

Sd/- Sd/- (P.M. JAGTAP) (SAKTIJIT DEY) ACCOUNTANT MEMBER JUDICIAL MEMBER

Hyderabad, Dated: 18 th February, 2015 kv

Copy to:-

1) ITO, Ward - 10(3), Room No. 627, AC Guards, IT Towers, Hyderabad .

2) The Armed Forces Officers' Cooperative Housing Society Ltd., Sainikpuri, Secunderabad - 500 094.

3) CIT(A)-VI, Hyderabad

4) CIT-V, Hyderabad

5) The Departmental Representative, I.T.A.T., Hyderabad.