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Income Tax Appellate Tribunal, “D” BENCH, AHMEDABAD
Before: JUSTICE P.P. BHATT & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Revenue against the order of the Commissioner of Income Tax (Appeals)–XVIII, New Delhi [CIT(A) in short] vide appeal no.101/08-09 dated 12/06/2009 arising in the assessment order passed under s.143(3)/ 148 of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 26/12/2008 relevant to Assessment Year (AY) 2002-03.
The Revenue has raised the following grounds of appeal:
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
- 2 -
1. 1. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in holding the notice u/s.148 as invalid and quashing the assessment order without proper appreciation of the facts of the case and against the spirit of the decision of the Hon’ble Supreme Court in the case of CIT Vs. PVS Beedies Limited – 237 ITR 13.
2. On the facts and circumstances of the case as well as in law, the Ld. CIT(A) has erred in holding that the reference made by the AO to the TPO was incorrect and that the assessment order was barred by limitation without proper appreciation of the provisions of section 147 as amended by the Finance Act, 2009 w.e.f. 1.4.1989.
3. The appellant craves to be allowed to amend, delete or add any other grounds of appeal during the course of hearing of this appeal.
The assessee has invoked the rule 27 of ITAT rules vide letter dated 13-3-2019 challenging the validity of the reopening on the basis that the notice under section 143(2) was not issued within the prescribed time. The extract of the application is reproduced as under:
“To March 13, 2019 The Asstt.Registrar Income Tax Appellate Tribunal Ahmedabad Respected Sir, This is in respect of following appeal filed: In the matter of : Ranbaxy Laboratories Ltd. ITA No. : 3799/Del/2009 Assessment Year : 2002-03 Bench : D Date of Hearing : 19/-03/2019 In captioned departmental appeal, ld.CIT(A) has given relief by quashing the reassessment proceedings. However, CIT(A) has not given his findings on contention of issuance of notice u/s.143(2) of the Act after the limitation period. The assessee submits that the CIT(A) ought to have quashed the reassessment for issuance of notice u/s.143(2) of the Act after the limitation period. The appellant declares its intention to rely on Rule 27 of the Income Tax Appellate Tribunal Rules, 1963 which Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 3 - allows the respondent to support the order appealed against as to ground of the revenue appeal decided against it. This letter has been filed with abundant caution and there is no requirement mandated in Rule 27 for filing of such letter. Thanking you, Yours faithfully, Sd/- (Urvashi Shodhan) Advocate”
First, we take up the objection filed by the assessee under rule 27 of ITAT rules.
The issue raised by the assessee is that the ld. CIT(A) erred in not adjudicating the issue that the notice under section 143(2) of the Act was issued beyond the prescribed time.
Brief facts of the case are that the assessee is a limited company and engaged in the business of manufacturing and trading of pharmaceuticals products, bulks drugs, and treasury activity. The case of the assessee was selected under scrutiny, and the AO had completed the assessment under section 143(3) of the Income Tax Act, 1961 vide order dated 31-03-2003 at an income of Rs. 2,53,28,10,455/-u/s 115JB and at Rs. 1,12,36,60,248/-under the normal provision as against the returned income of Rs.2,55,35,87,745/- under section 115JB and 1,08,23,39,368/- under normal provision for the year under consideration. Subsequently, the proceedings under section 147 of the Act were initiated for the income escaping assessment.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 4 - 6. At the outset, the Ld. AR for the assessee challenged the reassessment proceedings initiated under section 147 of the Act on the ground that the notice under section 143(2) of the Act was not issued upon the assessee within the time as prescribed under the provisions of law.
At the time of the hearing, the Ld. AR before us submitted under rule 27 ITAT rule 1963 that the original assessment for the year under consideration was completed under section 143(3) of the Act vide order dated 31-03-2003. The AO subsequently issued a notice under section 148 read with section 147 of the Act, for income escaping assessment dated 30-3-2007. The assessee in response to such notice filed the return of income dated 26-4-2007. After that, the AO issued a notice under section 143(2) of the Act vide dated 26-11-2008.
As per the Ld. AR for the assessee, the mandatory notice under section 143(2) of the Act was issued after the due date as specified under the Act. Accordingly, the Ld. AR submitted that the assessment framed under section 147/143(3) of the Act is not sustainable and liable to be quashed.
9. On the contrary, the Ld. DR before us submitted that the assessee cannot make any submission under rule 27 of ITAT rule without making any formal application in writing.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 5 - 9.1. The Ld.DR further submitted that if the assessee wants to make the application under rule 27 of ITAT rules, then it has to make the application when the appeal was filed. In the case on hand, the appeal has been listed for hearing on several occasions, and at one occasion the appeal was treated as part heard, and another occasion the appeal was treated as heard but the same were subsequently released and fixed for the fresh hearing. But there was no application filed by the assessee under rule 27 of ITAT rules till the date of the present hearing. Accordingly, the Ld. DR vehemently objected on the admission of the application under rule 27 of ITAT rules.
9.2. The Ld. DR further submitted that the assessee could take the shelter of rule 27 of ITAT rule if the order were decided against him. However, in the case on hand, the issue of issuance of notice under section 143 (2) of the Act was not decided by the Ld. CIT (A). Therefore, it is inferred that the issue was not decided against the assessee, consequently, assessee cannot make an application under rule 27 of ITAT rules. The Ld. DR in support of his contention relied on the following judgments: Name of the S.No. case Court/tribunal Appeal No/ citation
Self knitting P& H High court 51 taxmann.com137 1 works Vs. CIT New India life Bombay High 2 insurance Co 31 ITR 844 court Ltd Vs. CIT
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 6 - Pratap properties Ltd. ITAT Kolkata 1386,1387,1388/KOL/201 Vs. DIT 0 4 Gupta overseas ITAT Agra 153 ITD 357 Ime International 5 ITAT Delhi ITA No 1873/DEL/2012 Pvt. Ltd, New Vs. DIT 9.3. The Ld. DR also submitted that case law relied upon by the Ld. AR, in the case of PCIT vs. Sun Pharmaceuticals Industries Ltd in tax appeal no. 654 & 655 of 2017 (Gujarat HC) is distinguishable from the facts of the present case.
9.4. The Ld. DR further submitted that the assessee had not raised any objection on the issuance of notice under section 143(2) of the Act during the assessment proceeding. The submission of the Ld. DR on this issue is reproduced as under: “F.No.VAD/Cir.2(1)(1)/RLL-2002-03/Appeal to ITAT/2019-20 Date : 01.05.2019 To The Commissioner of Income-tax (DR) ‘D’ Bench on rotational duty & Commissioner of Income-tax (IT&TP) 2nd Floor, Navjivan Trust Building Off. Ashram Road, Ahmedabad-38 014 Respected Sir, Sub : Appeal in the case of Ranbaxy Laboratories Limited for AY 2002-03 for AY 2002-03 – reg.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
Kindly refere to the above. 2. In this regard, kindly find enclosed herewith the factual report on the issue as under:
1. 1. As per the records available, the notice u/s.143(2) has been issued on 26.11.2008 for reassessment proceedings u/s.147 of the I.T. Act. In this regard, the AO has mentioned in para 9 of the assesemnt order as under: “In response to the notice u/s.143(2), on behalf of the assessee company, the assessment proceedings have been attended by Mr.S.C.Agrawal, Vice President (Global Taxation), and the case was discussed.”
2. Regarding evidence of service of notice u/s.143(2), the same is not available on file. The notice was issued by the Addl.CIT, Range 15, New Delhi through Speed Post dated 27.11.2008.
3. Regarding issue whether the assessee has objected to the issue of notice u/s.143(2) during the assessment proceedings, the assessment records with the undersigned have been thoroughly verified. However, the letter dated 3.12.2008 of the assessee is not found on record. Only order sheet entry dated 4.12.2008 is there in the records which states that “SRI S.C. Agrawal, A.R. appeared before me & file written submission dated 3.12.08. Case discussed.” Therefore, the undersigned is not in a position to confirm whether the assessee has objected to the delayed issuance of notice u/s.143(2) during the assessment proceedings.
4. A reference is made in the assessment order with respect to the assessee’s objection towards validity of reassessment proceedings u/s.147 of the I.T.Act. In the assessment order, in para 10 of the order, the Assessing Officer has concluded as under:
“….. During the course of reassessment proceedings, the assessee company has filed its detailed submissions vide letter dated 03.12.2008 enclsoing therewith documents, details and other information. In the said letter, the assessee has submitted that the original assessment dated 27.03.2003was compelted u/s.143(3) based upon the details/information/documents filed by the assessee company along with its return of income as well as during the course of assessment proceedings. It has further submitted that the assessee has disclosed
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 8 - fully and truly all material facts in relation to the isues raised in the reassessment proceedings and the revenue audit party has nto brought any fresh material to the records of AO and hence there is no escapement of income. In the said letter, the assessee has also raised objections against the validity of the reassessment proceedings as well as reference of the case to the TPO for determination fo ‘arms length price’. The assessee has also submitted that, the AO has already made additions u/s.154 on account of some of the issues, which have also been recorded as reaons for reopening the assessment and therefore on these issues no further addition can be made u/s.148 of the Act. I have gone through the assessment records, submissions as well as details and documents filed by the assessee. The AO has rightly iniitated reassessment proceedings based upon the material brought out by the revenue audit and hence keeping in view the decision of the Hon’ble Supreme Court of India in the case of CIT Vs. P V S Beedies Ltd 237 ITR 13, the material brought by the audit party can be the valid basis for reopening the assessment. Moreover, the assessment pertains to the assessment year 2002-03(post amendment of section 147 of the Act) and hence on the reassessment proceedings can be validly initiated. In its submissions, the assessee has also objected to the validity of service of the notice u/s.148. The notice u/s.147 was issued by the AO on 30.03.2007 and was also served on the assessee on its Head Office located at 12th Floor, Devika Tower, Nehru Place, New Delhi on 31.03.2007. The essence for time limit for notice provided case not only the notice was issued within a period fo 4 years from the end of the relevant assessment year, but the same was also served within the aforesaid time limit. Therefore, the objections raised by the assessee are not tenable…..”
5. From the above, it is observed that the AO has mentioned about the assessee’s objection for reassessment proceedings and has nto mentioned about the assessee’s objection to the issue of notice u/s.143(2). Further in this case, non-availability of relevant records from the original AO & CIT(A) at Delhi till date has already been reported. Therefore, a copy of the assessee’s submission dated 3.12.2008 has been obtained from the assessee. In the above impugned submission, the assessee has objected to the issue of notice u/s.143(2) as well in addition to the validity of reassessment proceedings. The same cannot be verified from the Department records.
In this regard, it is also brought to your kind notice that the assessee during 2nd appellate proceedings before the hon’ble ITAT did not file any cross objections. Instead, the assessee has taken recourse to the provisions of Rule 27 of the ITAT Rules. It is observed that the recourse to Rule 27 can only be taken where any ground is decided by the CIT(A)
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 9 - against the assessee. The recourse to Rule 27 taken by the assessee is not based on the prescribed procedure. The assessee is satisfied with the outcome of the appeal decided by the CIT(A). Since the CIT(A) has not decided against the assessee on the issue of notice u/s.143(2) been barred by limitation in his wisdom, Rule 27 would not apply on this fact. Submitted for kind consideration. Yours faithfully, Sd/- (R.M. Vasavada) Dy.Commissioner of Income-tax Circle 2(1)(1), Vadodara”
10. The Ld. AR, in his rejoinder, submitted that the provision of rule 27 of ITAT rules, does not require to make an application in writing. Similarly, rule 27 of ITAT rules, does not prescribe any time limit to make the application on the issue decided against the assessee. As such, the assessee is authorized to make a submission under rule 27 of ITAT Rules at any stage of hearing but before the conclusion. Indeed the case has been listed for hearing on several occasions, but the application needs to be made when the hearing commences/begins. Otherwise, there is no other occasion to make such application.
10.1. The Ld. AR further submitted that the assessee has made an application under rule 27 of ITAT rules vide letter dated 13-03-2019 which has been placed on record.
10.2. The Ld. AR, further submitted that once the appeal is released for a fresh hearing after the conclusion of the hearing, then the appeal shall be heard afresh and therefore the assessee is entitled to take the shelter of Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 10 - rule 27 of ITAT rules, during the fresh hearing. It is because, during the fresh hearing, no reference can be made to the old hearing until and unless some material facts were recorded in the order sheet. As the present case was listed for the fresh hearing, therefore there was no need to refer to the earlier hearings.
11. There is no dispute to the fact that the assessee among other things has submitted before the Ld.CIT (A) regarding the non-issuance of notice under section 143(2) of the Act within the prescribed time. But the Ld. CIT (A) has not adjudicated the issue raised before him. Therefore, the non-adjudication of the issue by the Ld. CIT(A) is deemed as if decided against the assessee. Therefore, the assessee is entitled to make an application under rule 27 of ITAT rules.
12. Regarding the case laws referred by the Ld. DR, the Ld. AR for the assessee submitted that the facts in those case laws do not apply to the facts of the present case.
12.1. The Ld. AR further submitted that the issue regarding the validity of the notice issued under section 143(2) of the Act was also raised before the AO vide letter dated 3-12-2008. Therefore, even the provisions of section 292BB of the Act will not be applied to the instant case.
12.2. Both the Ld. DR and AR vehemently supported the orders of the authorities below as favorable to them.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 11 -
We have heard the rival contentions of both the parties and perused the materials available on record. The controversy in the present case relates to the issuance of the statutory notice under section 143(2) of the Act in the context of the applicability of the provisions of rule 27 of ITAT rules. The following issues emerge for our adjudication.
Issue 1 Whether it is compulsory to make an application in writing to invoke the provisions of rule 27 of ITAT rules.
Issue 2 Whether the non-adjudication of the issue raised by the assessee before the Ld. CIT (A) is deemed as decided against the assessee.
Issue 3 Whether the provisions of section 292BB of the Act would be applied in the given facts and circumstances of the case.
Now we proceed to adjudicate the issues as discussed above individually and one by one as follows:
Issue 1 14. First of all, we find pertinent to refer the provisions of rule 27 of ITAT rules which reads as under: “The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him"
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 12 - 15. A plain reading of the above rule reveals that there is no requirement to make an application in writing for invoking the provisions of rule 27 of ITAT rules. But the question arises if the respondent is allowed to raise the issue without any prior intimation to the other party, then the other party on the date of hearing might not have been prepared on the relevant issue. Therefore in our considered view, the respondent before invoking the provisions of rule 27 should bring to the notice of the other party by way of writing the application, so that the other party on the date of hearing should not take the argument/submission of the Ld. Counsel for the party as a surprise. In this regard, we further note that the proviso to rule 11 of ITAT rules provides as under: "provided that the Tribunal shall not rest its decision on any other ground unless the party who is affected thereby has had a sufficient opportunity of being heard on that ground."
It is, therefore, necessary that the affected party should be properly put to notice in respect of the issues which are sought to be raised under rule 27 of ITAT Rules. In our considered view, therefore, the respondent may indeed raise any of the issues as per the rule but by way of a written intimation to that effect which should be duly served on the other party well in advance. The idea is that the affected party should be well prepared.
However, we note that the dispute regarding the non-issuance of notice under section 143(2) of the Act was very much in the notice of the Ld. DR as evident from the order sheet entries maintained by the registry office of the ITAT who sought times to revert on the issue raised under Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 13 - rule 27 of ITAT Rules on the reasoning that he will take the report from the office of the AO. Therefore, in the given facts and circumstances, there remains no ambiguity that the affected party was duly given the opportunity. Accordingly, we are of the view the issue raised under rule 27 of ITAT rules was very much in the knowledge of the Ld. DR. As such the case was fixed for hearing on several occasions as part heard, meaning thereby the Ld. DR was very familiar with the issue as discussed above.
18. Besides the above, we also note that the assessee has also made an application under rule 27 of ITAT rules vide letter dated 13-03-2019. The relevant extract of the application has already been extracted in the preceding paragraph.
19. The above application was also supplied to the Ld. DR as well and the matter was heard up to 30th April 2019. Therefore it is clear that the other party was well-informed about the invocation of the issue under the rule 27 of ITAT Rules. Therefore we conclude that the Ld. AR has rightly invoked the provisions of rule 27 of ITAT rules.
Issue 2
20. There is no issue to the fact that the assessee has raised the contention before the Ld. CIT (A) that the notice issued under section 143(2) was time-barred. But the contention of the assessee was not decided by the Ld. CIT(A) for the reason best known to him. The issue
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 14 - arises whether the non-adjudication of the issue raised by the assessee before the Ld. CIT (A) amounts to deemed rejection the ground of appeal of the assessee.
Rule 27 states that the respondent may support the order of the Ld. CIT (A) on any of the ground decided against him. The assessee before the Ld. CIT (A) has challenged the reassessment proceedings initiated under section 147 of the Act on various reasons/ grounds. Thus there was an only a single technical issue before the Ld.CIT (A) which was challenged/ argued by the assessee but from different angles/propositions. The Ld. CIT (A) decided the technical issue in favor of the assessee on other reasons except for the issue on hand, i.e., non- issuance of the statutory notice. Thus the question arises whether the assessee was aggrieved because of non-adjudication of the ground of appeal by the Ld. CIT(A). The answer is certainly in affirmative. But the assessee chose not to appeal as it succeeded on other reasons/ contentions raised before the ld. CIT(A). Accordingly, the Revenue filed an appeal before us on those points which were decided by the Ld. CIT (A) in favor of the assessee. Now the controversy arises whether the assessee can raise the issue not decided by the Ld.CIT (A) under rule 27 of ITAT rules before us. In our considered view, the assessee was very much entitled to raise the issue under rule 27 of ITAT Rules which was not decided by the Ld. CIT (A) as the point of contention of the assessee relates to the same issue raised by the Revenue. In this regard, we find support and guidance from the judgment of Hon’ble Gujarat High Court in the case of PCIT vs.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
- 15 - Sun Pharmaceuticals Industries Ltd in tax appeal no. 654 & 655 of 2017, wherein it was held as under:
“11. To put the controversy beyond doubt, Rule 27 of the Rules makes it clear that the respondent in appeal before the Tribunal even without filing an appeal can support the order appealed against on any of the grounds decided against him. It can be easily appreciated that all prayers in the appeal may be allowed by the Commissioner (Appeals), however, some of the contentions of the appellant may not have appealed to the Commissioner. When such an order of the Commissioner is at large before the Tribunal, the respondent before the Tribunal would be entitled to defend the order of the Commissioner on all grounds including on grounds held against him by the Commissioner without filing an independent appeal or cross- objection.
12. Rule 27 of the Rules is akin to Rule 22 Order XLI of the Civil Procedure Code. Sub-rule (1) provides that any respondent, though he may not have appealed from any part of the decree, may not only support the decree but may also state that the finding against him in the Court below in respect of any issue ought to have been decided in his favour; and may also take any cross-objection to the decree which he could have taken by way of an appeal. In case of Virdhachalam Pillai vs. Chaldean Syrian Bank Ltd, Trichur and anr reported in AIR 1964 SC 1425 in context of the said Rule the Supreme Court observed as under: "32. Learned Counsel for the appellant raised a short preliminary objection that the learned Judges of the High Court having categorically found that there was an antecedent debt which was discharged by the suit-mortgage loan only to the extent of Rs. 59,000/- and odd and there being no appeal by the Bank against the finding that the balance of the Rs. 80,000/- had not gone in discharge of an antecedent debt, the respondent was precluded from putting forward a contention that the entire sum of Rs. 80,000/- covered by Exs. A and B went for the discharge of antecedent debts. We do not see any substance in this objection, because the respondent is entitled to canvass the correctness of findings against it in order to support the decree that has been passed against the appellant."
13. Likewise, in case of S.Nazeer Ahmed vs. State Bank of Mysore and ors reported in 2007 AlR SCW 766 it was held and observed as under: "7. The High Court, in our view, was clearly in error in holding that the appellant not having filed a memorandum of cross-objections in terms of Order XLI Rule 22 of the Code, could not challenge the finding of the trial court that the suit was not barred by Order II Rule 2 of the Code. The Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 16 - respondent in an appeal is entitled to support the decree of the trial court even by challenging any of the findings that might have been rendered by the trial court against himself. For supporting the decree passed by the trial court, it is not necessary for a respondent in the appeal, to file a memorandum of cross-objections challenging a particular finding that is rendered by against him when the ultimate decree itself is in his favour. A memorandum of cross-objections is needed only if the respondent claims any relief which had been negatived to him by the trial court and in addition to what he has already been given by the decree under challenge. We have therefore no hesitation in accepting the submission of the learned counsel for the appellant that the High Court was in error in proceeding on the basis that the appellant not having filed a memorandum of cross-objections, was not entitled to canvass the correctness of the finding on the bar of Order II Rule 2 rendered by the trial court."
Similar issue came-up before Division Bench of this Court in case of Dahod Sahakari Kharid Vechan Sangh Ltd. vs. Commissioner of Income Tax reported in 282 ITR 321 in which the Court observed as under:
"17. Taking up the second issue first, the Tribunal has committed an error in law in holding that the assessee having not filed cross-objection against findings adverse to the assessee in the order of Commissioner (Appeals), the said findings had become final and remained unchallenged. The Tribunal apparently lost sight of the fact that the assessee had succeeded before the Commissioner (Appeals). The appeal had been allowed and the penalty levied by the assessing officer deleted in entirety. In fact, there was no occasion for the assessee to feel aggrieved and hence, it was not necessary for the assessee to prefer an appeal. The position in law is well settled that a cross objection, for all intents and purposes, would amount to an appeal and the cross objector would have the same rights which an appellant has before before the Tribunal.
18. Section 253 of the Act provides for appeal to the Tribunal. Under sub- section (1), an assessee is granted right to file an appeal; under sub-section (2), the Commissioner is granted a right to file appeal by issuing necessary direction to the assessing officer; sub-section (3) prescribes the period of limitation within which an appeal could be preferred. Section 253(4) of the Act lays down that either the assessing officer or the assessee, on receipt of notice that an appeal against the order of Commissioner (Appeals) has been preferred under subsection (1) or subsection (2) by the other party, may, notwithstanding that no appeal had been filed against such an order or any part thereof, within 30 days of the notice, file a memorandum of cross objections verified in the prescribed manner and such memorandum shall be Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
- 17 - disposed of by the Tribunal as if it were an appeal presented within the period of limitation prescribed under sub-section (3). Therefore, on a plain reading of the provision, it transpires that a party has been granted an option or a discretion to file cross objection.
In case a party having succeeded before Commissioner (Appeals) opts not to file cross objection even when an appeal has been preferred by the other party, from that it is not possible to infer that the said party has accepted the order or the part thereof which was against the respondent. The Tribunal has, in the present case, unfortunately drawn such an inference which is not supported by the plain language employed by the provision.
If the inference drawn by the Tribunal is accepted as a correct proposition, it would render Rule 27 of the Tribunal Rules redundant and nugatory. It is not possible to interpret the provision in such manner. Any interpretation placed on a provision has to be in harmony with the other provisions under the Act or the connected Rules and an interpretation which makes other connected provisions otiose has to be to avoided. Rule 27 of the Tribunal Rules is clear and unambiguous. The right granted to the respondent by the said Rule cannot be taken away by the Tribunal by referring to provisions of Section 253(4) of the Act. The Tribunal was, therefore, in error in holding that the finding recorded by the Commissioner (Appeals) remained unchallenged since the assessee had not filed cross objections." 15. The first question is, therefore, answered against the Revenue and in favour of the assessee. “
The ratio laid down in the judgment above is squarely applicable to the facts of the case.
The judgments referred by the Ld. DR in the course of hearing are distinguishable from the present facts of the case. Therefore we find that the said judgements are not relevant for the purpose of adjudication of issue before us.
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 18 - 23. In view of the above, we concur the argument of the ld. AR for the assessee.
Issue 3
We also note that the assessee has objected before the AO regarding the validity of the notice issued under section 143(2) of the Act vide letter dated 3-12-2008 which is placed on page 529 of the paper book. The relevant extract of the letter is reproduced as under: “3rd December 2008 The Additional Commissioner of Income-tax Range-15 Central Revenue Building New Delhi Dear Sir, Sub : Notice dated 26th November 08 issued under section 143(2) of the Income-tax Act, 1961 (‘the Act’) for reassessment proceedings for AY 2002- 03 Permanent Account Number : AAACR 0127 N This refers to the captioned notice under section 143(2) of the Act dated 26th November 08 received by the assessee on 1st December 08 in connection with the reassessment proceedings initiated against the assessee vide notice dated 30 March 2007 issued under section 148 of the Act. At the outset it is submitted that the captioned notice under section 143(2) of the Act is issued beyond the statutory period of limitation provided under the proviso to section 143(2) of the Act read with section 148 of the Act, and hence the same is time barred. Accordingly, the present reassessment proceedings initiated against the assessee company under section 147 of the Act do not have the sanction of law and should be dropped. Without prejudice to the assessee’s contention that the present proceedings are illegal, being based on the notice issued under section 143(2) of the Act beyond the limitation period, the assessee submits as under:”
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 19 - XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX “VI. Notice under section 143(2) was not served: In any case, the reassessment proceedings are invalid since the notice issued to the assessee under section 143(2) of the Act is after the limitation period.”
The Ld. DR has not controverted the content of the letter as discussed above with cogent reasons despite sufficient time and opportunities were provided to him.
Accordingly, we hold that even the provisions of section 292BB are not applicable in the case on hand.
Now coming to the facts of the case regarding the non-issuance of notice u/s 143(2) of the Act:
The provisions of section 143(2) of the Act as applicable at that relevant time required to issue the notice within 12 months from the end of the month in which the return is furnished. The relevant provisions read as under: 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.
At this juncture, it is important to refer the different relevant dates as detailed under:
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 20 - a. The date of the notice under section 148 of the Act: 30/03/2007 b. The date of filing the return under section 148 of the Act: 26/04/2007 c. The time limit to issue a notice under section 143(2) of the Act: 30/04/2008 d. The actual date for the notice issued u/s 143(2) of the Act: 26/11/2008
From the above facts, there remains no doubt that the notice mandated under section 143(2) of the Act was not issued within the time prescribed under the provisions of law.
At this juncture, we find important to refer the judgment of of Hon’ble Gujarat High Court in the case of CIT Vs. Panorama Builders Pvt. Ltd. reported in 45 taxmann.com 159 wherein it was held as under: “14. Therefore, we are of the considered opinion that section 292BB does not apply to issuance of notice, neither it cures the defect or enlarges statutory period where a mandatory notice under section 143(2) of the Act is required to be issued within limitation fixed under the Act. In absence of issuance of the notice under the proviso to section 143(2) of the Act within a period of 12 months from the end of the month in which return was furnished by the assessee, the proceedings initiated by the Assessing Officer with regard to block assessment period 1.4.1997 to 25.7.2002 on the basis of notice issued on 6.7.2006 under section 143(2), after about 20 months, was time barred and the entire proceedings in pursuance of such notice is null and void.”
In view of the above, we conclude that there was not issued the statutory notice under section 143(2) of the Act within the prescribed time. Thus in the absence of the statutory notice, the assessment framed
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 21 - under section 143(3)/147 of the Act is not sustainable. Hence the ground raised by the assessee in the application under rule 27 is allowed.
Now coming to the appeal filed by the Revenue:
As we have held the order passed by the AO as infructuous in the preceding paragraphs, the appeal filed by the Revenue does not require any separate adjudication. However, for the sake of completeness of the issue raised by the Revenue, we deem it appropriate to adjudicate the same in the manner as detailed below.
The interconnected issue raised by the Revenue is that the ld. CIT-A erred in quashing the assessment order framed by the AO under section 143(3)/147 of the Act.
At this juncture, we find it important to refer to the relevant findings of the ld. CIT(A) on the above issue which stands as under: “8. I have carefully considered the submissions made by the appellant company and has also gone through the copies of documents placed on record. Particularly, I have looked into the statement submitted by the appellant company in its paper book on pages 90-91 wherein the appellant company has provided the information regarding examination of issues mentioned in the reasons recorded by the AO during the course of earlier assessment proceedings. In the statement submitted by the appellant company, it has specifically referred to the disclosures made by it in respect of each of the issues in the return of income and in the annexure enclosed therewith. It has also referred to the queries raised by the AO during the course of assessment proceedings and replies given by the appellant. The appellant company has also referred to the issues discussed in the order of assessment passed by the AO u/s 143(3) of the Act. In the last column of this statement, the appellant company has also given past history in respect of each of the issues and it has been shown that in earlier years also all these claims had Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
- 22 - been duly allowed in assessments/ appeals. In support of the facts given in the statement, the appellant has submitted in its paper book copies of all the documents referred to in above statements. A copy of above referred statement is made part of this order and is annexed herewith as annexure A.
On the basis of above statement, it is quite evident that each of the issues had been duly examined during the course of assessment proceedings u/s 143(3) of the Act. The appellant company had made full disclosure in regard to each of the issues vide its return of income and annexures thereto and vide its submissions made during the course of assessment proceedings. Further, each of these issues had also been subject matter of assessment/appeal proceedings of earlier years and claims had been duly allowed in earlier years. Therefore, in the facts of the case of the appellant, it cannot be said that the issues under reference had not been earlier considered by the AO. Since the claims had been allowed after consideration, it would amount to change of opinion. Accordingly, provisions of Section 147 of the Act are not attracted. It is a well settled legal AO is not empowered to issue notice under Section 148 of the basis of change of opinion to reconsider the issue which had already been considered and allowed. To this effect there are large number of direct decisions, including the decisions of Supreme Court commencing from the decision in the case of Calcutta Discount Co. Ltd. v. ITO 41 ITR 191. It is also stated in this regard that though in the case of the appellant most of the issues mentioned in the reasons recorded by the AO have been discussed in the order of assessment but as per the legal position it is also immaterial whether the issue has been discussed by the AO in the order of assessment or not. Once the material is there before the AO while passing the original order of assessment, it will be presumed that same had been considered by AO and claim has been allowed after due consideration. In this regard reference can be made to the following observations of Delhi High Court in the case of CIT v. Eicher Ltd., 294 ITR 310 on page 315. "In so far as the present appeal is concerned, we find that the assessee had placed all the material before the Assessing Officer and where there was a doubt, even that was clarified by the assessee in its letter dated November 8, 1995. If the Assessing Officer, while passing the original assessment order, chose not to give any finding in this regard, that cannot give him or his successor in office a reason to reopen the assessment of the assessee or to contend that because the facts were not considered in the assessment order, a full and true disclosure was not made. Since the facts were before the Assessing Officer at the time of framing the original assessment, and later a different view was taken by him or his successor on the same facts, it clearly amounts to a change of opinion. This cannot form the basis for permitting the Assessing Officer or his successor to reopen the assessment of the assessee."
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 23 - In view of above position, in my view it is a clear case of change of opinion.
Apart from above, it is also quite evident on the basis of reasons recorded by the AO as well as on the basis of order dated 22.05.2008 that there was no fresh material available with the AO which had come to his knowledge after the passing of the original order of assessment, on the basis of which he could form his belief that income has escaped assessment in the case of the appellant. The AO in this regard has mentioned in his order dated 22.05.2008 that fresh material in the form of audit memos from the revenue audit party was the basis for issuing notice u/s.148 of the Act. In this regard, he had also placed reliance on the decision of Supreme Court in the case of CIT Vs. PVS Beedies Ltd. 237 ITR 13 (SC). The appellant vide written submissions has correctly claimed that the Assessing Officer has wrongly relied on aforesaid decision of Supreme Court. In fact above decision supports the contention of the appellant that audit memos does not support the case of the Assessing Officer. It is well settled legal position as per the decision of Supreme Court in the above referred case as well as in the case of CIT v. Lucas T.V.S. Ltd., 249 ITR 306 wherein decision of Madras High Court had been affirmed to the effect that audit objections raised by audit party in regard to application / interpretation of legal provisions would not amount to fresh material for the purpose of reopening assessment. Further, as correctly relied upon by the appellant, the Hon'ble Delhi High Court in the case of Transworld International Inc. v. JCIT, 273 ITR 242 after a detailed discussion in this regard has observed that primary function of audit in relation to assessments and refunds is the consideration whether the internal procedures are adequate and sufficient. It is not intended that the purpose of audit should go any further. Whether the internal audit party of the Income Tax Department or an audit party of Comptroller & Auditor General, they perform essentially administrative or executive functions and cannot be attributed the powers of judicial supervision over the quasi judicial act of Income-tax authorities. Accordingly, it has been observed in the above case that audit parties whether internal audit party or audit party of Comptroller General of India, have no authority to go into the interpretation of legal provisions. In the above background, it was held that audit objections raised by the audit party will not amount to fresh information supplied to the Assessing Officer which can be the basis for reopening the assessment as relating to interpretation of law. In the above case while concluding the matter the Hon'ble jurisdictional High Court has held that if on the same material a different view is sought to be taken, may be on the basis of observations of audit party, it would be nothing but a mere change of opinion and that would not amount to escapement of income.
On the basis of above clear legal position I hold that observations of Revenue Audit party in the case of the appellant would not amount to fresh material empowering the Assessing Officer to issue notice under Section 147
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 24 - of the Act for the reason that observations are relating to interpretation of law and no such factual position has been brought to the notice of the AO by the audit party which was not already in the knowledge of the AO.
In this regard, it has also been pointed out by the appellant that in the reasons recorded by the AO, he has used the words like - "Perusal of records "reveals". "It is further noticed", "Perusal of 3CD Report annexed to the Return reveals” etc. In relation to each of issue recorded by him in the reasons for reopening the assessment. It is evident on the basis of above wordings that the AO has reopened the assessment on the basis of again going through the record / material which was available to him at the time of making the original assessment. There has been no fresh material on the basis of which the AO could form belief that the income has escaped assessment. Above notings of the AO also clearly shows that reasons were recorded by him on the basis of perusal of assessment record and not on the basis of any fresh material. As regards the issue whether the AO can reopen the assessment on the basis of perusal of record, the Hon'ble Full Bench of Delhi High Court had the occasion to consider this aspect in the case of Kelvinator of India Ltd. Vs. CIT, 256 ITR 1 (Del) (FB). The Full Bench of the jurisdictional high court was pleased to observe in this regard on page 19 of the report as under: - "We, however, may hasten to add that if "reason to believe" of the Assessing Officer is founded on an information which might have been received by the Assessing Officer after the completion of assessment, it may be a sound foundation for exercising the power under section 147 read with section 148 of the Act. We are unable to agree with the submission of Mr. Jolly to the effect that the impugned order of assessment cannot be faulted as the same was based on information derived from the tax audit report. The tax audit report had already been submitted by the assessee. It is one thing to say that the Assessing Officer had received information from an audit report which was not before the Income-tax Officer, but is another thing to say that such information can be derived by the material which had been supplied by the assessee himself." I 13. It is clear on the basis of above holding of Hon'ble Delhi high court that AO had no power to issue notice u/s 148 of the Act on perusal of material which was? already there With him. Above decision of the High court has also been subsequently followed in other decisions referred to by the appellant in its written submissions. | 14. Further, since the facts regarding issues mentioned in the reasons recorded by the AO had already been on record and the issues had been duly
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03
- 25 - considered during the course of original assessment proceedings, raising the issues in these proceedings amounts to reconsideration of the same. It amounts to change of opinion.
In view of above factual position and the case laws in my considered opinion notice issued by the AO under Section 148 of the Act is not in terms off provisions of Section 147 of the Act as explained in various decisions. I Accordingly, the notice deserves to be quashed. Subsequent proceedings also becomes invalid and not sustainable under law. passed by the AO is also to be quashed. Hence, order of assessment 16. I have also carefully considered the contention of the appellant company regarding the time limit for passing the order of assessment under reference. The appellant has contended that the AO had made the reference to TPO on 04.04.2007 i.e. immediately after issuing the notice under Section 148 of the Income Tax Act dated 30.03.2007, even before the appellant had filed its return of income and the AO had any opportunity to further look into the material pursuant to the reassessment proceedings initiated by him As per provisions of Section 147 of the Income Tax Act the AO has the power to assess such income which has escaped assessment and also any other income chargeable to income which has escaped assessment and which comes to his notice subsequently in the course of proceedings under this Section. The appellant has contended that as there was no occasion to the AO to notice any escapement of income in regard to international transactions during the course of reassessment proceedings, which was not subject matter of reasons recorded by him, there / was no question of making reference to TPO in this regard. In my view above contention of the appellant has full force. The AO had not alleged escapement of income in regard to international transaction in the reasons recorded by him in terms of Section 148 of the Act. As per the provisions of Section 147 of the Act, AO had only the power to assessee such income which has escaped assessment in terms of his notice issued under Section 148 of the Act and such other income escapement in respect of which had been noticed during the course of reassessment proceedings. Accordingly, appellant has correctly contended that the AO had no authority to make reference to TPO even before effectively commencing the reassessment proceedings. Facts clearly suggest that reference to TPO was not in terms of provisions of Section 147 of the Act. In this regard, it is also very much relevant to note that the AO while passing the original order of assessment under Section 143(3) dated 31.03.2003 had also examined the issue regarding ALP of international transactions and had also discussed the issue in detail in the order of assessment at page 9 had given a clear holding to the effect that prices charged were at Arms Length and did not enquire any further adjustment-
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 26 - “On comparison of the transfer prices charged by the assessee from its Associated Enterprises and net margins thereon, in respect of these international transactions, it is observed that the prices charged by the assessee on international transactions with its Associated Enterprises were at Arms Length. I have also observed that the declared margins/profits as per the books in the assessee's return are higher than the profits/margins computed as per the "Most Appropriate Method" and therefore, I hold that the prices charged were at Arms Length and do not require any further adjustment. "
17. In these circumstances, I have no option but to hold that AO had exceeded his jurisdiction in making the reference to TPO as the same was not warranted at the stage it was made. In regard to time limit for completing the assessment pursuant to notice under Section 148 of the Act, it is observed that provisions of sub-section (2) of Section 153 of the Act read with 3rd proviso extend the time limit from nine months to 21 months only in the cases where reference has been made to TPO under Section 92 CA of the Act during the course of reassessment proceedings. My holdings given hereinabove in regard to validity of reference to TPO in terms of Section 147 of the Act also holds goods for the purpose of Section 153(2) of the Act as the language of Section 147 and 153 are similar in this regard. Accordingly, the AO could not take recourse to extended time limit of 21 months as reference to TPO was not during the course of reassessment proceedings. It has already been noted that issue regarding determination of ALP of international transactions was not subject matter of reasons recorded by AO and no proceedings at all had commenced before the date of making reference to TPO. Accordingly, it cannot be said that reference to TPO was made during the course of reassessment proceedings. Hence, I hold that contentions raised by the appellant to the effect that assessment pursuant to notice under Section 148 of the Act ought to have been completed before 31.12.2007 is correct and, therefore, I hold that order of assessment passed by the AO dated 26.12.2008 was time barred.
In regard to above matter decision of Delhi High Court in the case of Jai Bharat Maruti Ltd. (supra) also supports the case of the appellant. It has been held by the jurisdiction High Court vide aforesaid decision following the decision of Kerala High Court in the case of Travancore Cement Ltd. v. ACIT, (2008) 219 CTR 359 that AO had no power to make examine an issue during the course of reassessment proceedings, which was neither subject matter of reasons recorded under Section 148 of the Act or it was connected to the reasons recorded by him. It is quite clear that issue regarding reference to TPO was no subject matter of reasons recorded by AO in the case of appellant same can also not be said to be connected with any of the issue mentioned in the reasons recorded by the AO. Therefore, reference to TPO Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 27 - was not as per provisions of section 148/147 of the Act as per the aforesaid decision of jurisdictional High Court which is binding on me.
19. In conclusion, appeal of the appellant is allowed on the ground that notice issued under Section 148 of the Act dated 30.03.2007 was not legally valid in terms of section 147 of the Act. Further, the order dated 26.12.2008 passed by the Assessing Officer pursuant to aforesaid notice is also time barred. Hence, the notice issued under Section 148 of the Act is hereby quashed and order of assessment passed pursuant thereto is hereby set aside, In view of my above decision, I do not consider it necessary to go into the merits of the additions/adjustments made by the AO in the assessment order.
In the result, the appeal is allowed.”
Being aggrieved by the order of the ld. CIT(A), the Revenue is in appeal before us. Both the ld. DR and the AR before us relied on the order of the authorities below as favorable to them.
Heard the rival contentions of both the parties and perused the materials available on record. At the outset, we note that the learned DR has not brought anything on record contrary to the finding of the learned CIT (A). We also find that the ld. CIT(A) has passed a speaking order, which is self-explanatory and reproduced herein above. Thus,we are in agreement with the finding of the ld. CIT-A that the reopening of the assessment under section 147 of Act based on revenue audit objection is not permissible. Therefore we concur with the finding of the learned CIT(A) after placing the reliance on the judgment of the Hon’ble Supreme Court in the case of CIT Vs. K.Y. Pilliah And Sons reported in 63 ITR 411 wherein it was held as under:
Addl. CIT vs. Ranbaxy Laboratories Ltd. Asst.Year – 2002-03 - 28 - “The Tribunal is the final fact-finding authority and normally it should record its conclusion on every disputed question raised before it, setting out its reasons in support of its conclusion. But, in failing to record reasons, when the Tribunal fully agreed with the view expressed by the AAC and has no other ground to record in support of its conclusion, it does not act illegally or irregularly, merely because it does not repeat the ground of the AAC on which the decision was given against the assessees or the department. The criticism made by the High Court that the Tribunal had 'failed to perform its duty in merely affirming the conclusion of the AAC', was apparently unmerited. Consequently, instant appeal was to be allowed.”
In view of the above, we don’t find any infirmity in the order of the ld. CIT(A) and accordingly decline to interfere. Hence, the grounds of appeal of the Revenue are dismissed.
39. In the result, the ground raised by the assessee in the application filed under Rule 27 of ITAT Rules, 1963 is allowed, and the appeal filed by the Revenue is dismissed.