C B SURATWALA & SONS vs. INCOME TAX OFFICER

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TAXAP/1388/2007HC GujaratGJHC24041257200704 February 2015Author: HONOURABLE MR. JUSTICE JAYANT PATEL,HONOURABLE MR. JUSTICE S.H.VORA8 pages
AI SummaryAllowed

What did the High Court hold?

The High Court held that the assessment proceedings could not be maintained. The Court answered Question (A) in favour of the assessee and against the revenue. The reasoning was based on the mandatory requirement of issuing a notice under Section 143(2) of the Act. The Court referred to its earlier decision in Tax Appeal No. 1385 of 2007, which in turn relied on the Supreme Court's judgment in Assistant Commissioner of Income-tax vs. Hotel Blue Moon ([2010] 321 ITR 362). The Supreme Court had held that the AO must necessarily follow the provisions of Section 142 and sub-sections (2) and (3) of Section 143, and that the requirement of notice under Section 143(2) cannot be dispensed with as a mere procedural irregularity. Since Question (A) was answered in favour of the assessee, Question (B) regarding the assessment being under Section 144 did not survive and was not required to be answered. The impugned judgment and order of the ITAT were modified to the extent that the assessment was not sustainable. The appeal was allowed to this extent.

What were the facts?

The assessee, C B Suratwala & Sons, filed an appeal before the Gujarat High Court challenging an order of the Income Tax Appellate Tribunal (ITAT). The assessment year in question is 1998-1999. The Assessing Officer (AO) had assessed the income under Section 143(3) read with Section 147 of the Income Tax Act, 1961, at Rs. 14,96,750/-. The CIT(Appeals) maintained the assessment, with a partial allowance on the issue of interest. The ITAT had passed a common order for assessment years 1997-1998 and 1998-1999. The ITAT held that the proviso to Section 143(2) of the Act applies only to a valid return, not an invalid one, and therefore, the AO was not required to issue a notice under Section 143(2), allowing the assessment to be made under Section 144. The High Court noted that a similar appeal for AY 1997-1998 (Tax Appeal No. 1385 of 2007) had already been decided by it.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the assessment, even though the return of income for AY 1998-1999 was treated as invalid and no notice was issued under Section 143(2) of the IT Act during the course of assessment proceedings? (Question of law) 2. Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the assessment order passed by the Assessing Officer for AY 1998-99 as, in sum and substance, under Section 144 of the IT Act, 1961? (Question of law) Assessee's contentions: The assessee argued that the assessment was invalid because no notice under Section 143(2) was issued, and the return was treated as invalid. The assessment should not have been upheld. The assessee relied on the decision of the High Court in Tax Appeal No. 1385 of 2007 and the Supreme Court in Assistant Commissioner of Income-tax vs. Hotel Blue Moon ([2010] 321 ITR 362). Revenue's contentions: The revenue contended that the proviso to Section 143(2) would apply only to a valid return and not an invalid return, implying that the AO was not required to issue a notice under Section 143(2) and the assessment could be made under Section 144. The revenue's arguments were not explicitly detailed but were implicitly addressed by the court's reliance on previous judgments.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 147,Section 144,Section 142,Section 143(3)

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
O/TAXAP/1388/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1388 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE S.H.VORA =========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ C B SURATWALA & SONS....Appellant(s) Versus INCOME TAX OFFICER....Opponent(s) ================================================================ Appearance: MR SN DIVATIA, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE JAYANT PATEL and HONOURABLE MR.JUSTICE S.H.VORA Date : 04/02/2015 Page 1 of 8 O/TAXAP/1388/2007 JUDGMENT

ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE JAYANT PATEL)

1.

Leave to substitute the relevant orders of the A.O. as well as C.I.T. (Appeals) in respect of A.Y.1998-1999. 2. With the consent of the learned counsel appearing for both the sides, the appeal is finally heard.

3.

The present appeal has been preferred by the Assessee against the order of the Tribunal on the following questions of law:- “(A) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in upholding the assessment, even though return of income for A.Y. 1998-1999 was treated as invalid and no notice was issued under Section 143(2) of the I.T. Act during the course of assessment proceedings? (B) Whether on the facts and in the circumstances of the case, the Income tax Appellate Tribunal was right in law in upholding the assessment order passed by the Assessing Officer for A.Y. 1998-99 as in sum and substances u/s.144 of the IT Act, 1961?”

4.

We may record that question (A) has been added as per the order passed by this Court today in OJMCA No.1 of 2015. Under the circumstances, both the aforesaid questions may be required to be considered in the present appeal.

5.

Learned counsel appearing for both the sides are on agreement on the point that in respect of very Assessee – appellant herein for the A.Y.1997-1998, on similar aforesaid two questions, Tax Appeal No.1385 of 2007 was admitted. As such, both the appeals had to be simultaneously heard, but, Tax Appeal No.1385 of 2007 is already decided vide order dated 05.12.2014. Learned counsel submits that question arise for consideration in the present appeal stands covered by the earlier decision of this Court dated 05.12.2014 in Tax Appeal No.1385 of 2007 since, not only the questions were similar but the appellant – Assessee was also common except there was change in the A.Y. which, in the present matter, is of 1998-1999. 6. We may record that in Tax Appeal No.1385 of 2007, this Court observed from paragraph Nos.2 to 5 as under:- “2. This appeal was admitted on 09.04.2008 for consideration of the following substantial questions of law: “A. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the assessment, even though the return of income for A.Y. 1997-98 was treated as invalid and no notice was issued u/s.143(2) of the IT Act during the course of assessment proceedings? B. Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal was right in law in upholding the assessment order passed by the Assessing Officer for A.Y. 1997-98 as in sum and substance u/s.144 of the IT Act, 1961?”

2.

1 The assessee Company declared its total income/loss for the assessment year in question by filing its return of income. The Assessing Officer held that huge transactions of sales and purchase were carried out by the assessee outside its books of accounts and as such there was escapement of income. A notice u/s 148 of the Act was accordingly issued. The assessment proceedings were completed by the AO by estimating sales and G.P at 18.62% as declared for the assessment year 1996-97. On appeal before the CIT(A), the CIT(A) dismissed the appeal.

2.

2 Being aggrieved by the order of the first appellate authority, the assessee preferred appeal before the ITAT and the ITAT confirmed the validity of the assessment framed by the revenue. Being aggrieved by the said order, the present appeal is filed.

3.

Question no. A raised for consideration in the present Tax Appeal is now not res integra in view of the decision of this Court dated 10.03.2014 rendered in Tax Appeal No. 1357 of 2007 which involved identical issue. This Court in the said decision has held as under:

“6. When challenged before the Tribunal, it also and Resorts reported in [2006]287 ITR 360(Guj) considered this question at length and held such requirement absolute in all cases. Holding further that any neglect to attend such requirement would invalidate the whole proceedings.

5.

The Scheme of the Act broadly permits the assessment in three formats; (i) acceptance of the returned income; (ii) acceptance of returned income subject to permissible adjustments u/s.143(1) of the Act by issuance of intimation; and (iii) scrutiny assessment under section 143(3) of the Act. This Scheme was originally introduced by Direct Tax Laws (Amendment) Act,1989 with effect from 1.4.1989. The issuance of notice under section 143(2) of the Act is in the course of assessment in the third mode, namely, scrutiny assessment. 6 Section 143(2) of the Act requires that where 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 under- paid 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 Assessing Officer to prima facie arrive at satisfaction of existence of any one of the three conditions. Proviso under the said sub-section states :ýýprovided 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 ýý. On a plain reading of the Commissioner of Income-tax vs. Hotel Blue Moon reported in [2010]321 ITR 362 has considered the very issue. The Apex Court held that the Assessing Officer has to necessarily follow the provisions of section 142 and sub-sections (2) and (3) of section 143. It did not accept the submission of the Revenue that the requirement of the notice under section 143 can be dispensed with and the same is mere procedural irregularity. In the words of the Apex Court, it is held as under:

16.

The case of the revenue is that the expression so far as may be apply indicates that it is not expected to follow the provisions of section 142, sub-sections(2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression so far as may be apply. In our view, where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143. 9. In the instant case, we notice that both CIT(Appeals) and the Tribunal have held that the procedure prescribed for issuance of notice under section 143(2) has not been followed at all. This realm of fact has not been disputed by the Revenue. In view of this decision of the Apex Court, the assumption of the jurisdiction of issuance of notice of reopening itself would not be sustainable, and therefore, this Court does not require to indulge into the concurrent findings of both the authorities. In absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) both the authorities rightly and validly held against the Revenue and in favour of the assessee. Resultantly, Tax Appeals deserve no further consideration and are dismissed with no order as to cost.”

4.

Having heard learned advocates for the revenue and the questions posed for consideration for us reproduced hereinabove and considering the decision cited, question no. A which is raised in the present appeal is required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as this Court in similar case has answered the very same question in favour of assessee. Therefore, question no. A is answered in favour of assessee and against the revenue. In view of answer of question no. A in favour of assessee, question no. B raised in this appeal shall not survive and therefore is not required to be answered.

5.

In view of the above, the impugned judgment and order passed by the ITAT is modified accordingly. Hence, the present Tax Appeal is allowed to the aforesaid extent.”

7.

Similar is the fact situation. The facts of the present case show that the A.O. in respect of A.Y.1998-1999 of the Assessee – appellant, assessed income under Section 143(3) read with Section 147 of the Act at Rs.14,96,750/-. In appeal, the C.I.T. (Appeals) maintained the assessment but on the point of interest, the appeal was partly allowed. The Tribunal passed the common order in respect of A.Y.1997-1998 as well as 1998-1999. The Tribunal found that proviso to Section 143(2) of the Act would apply only to a valid return and not to invalid return and hence, the A.O. was not required to issue notice under Section 143(2) of the Act and the assessment was to be made under Section 144 of the Act and, therefore, could be said as upheld. In our view, as the fact situations in the present case are the same, similar view, as was taken in Tax Appeal No.1385 of 2007 deserves to be taken in the present matter.

8.

In view of the aforesaid observations and discussion, the question raised in the appeal is answered in favour of the Assessee against the Revenue. As question ‘A’ is answered in favour of the Assessee, the assessment proceedings cannot be maintained and question ‘B’ raised in the appeal shall not survive and, therefore, the same is not required to be decided or answered.

9.

Under the circumstances, the impugned judgment and order of the Tribunal is modified to the aforesaid extent. The appeal is allowed to the aforesaid extent. No order as to costs. (JAYANT PATEL, J.) (S.H.VORA, J.) Hitesh

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