COMMISSIONER OF INCOME TAX vs. NAVIN VERMA

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ITA/558/2006HC Punjab & HaryanaPHHC01075293200601 February 2011Author: MR. JUSTICE AJAY KUMAR MITTAL,MR. JUSTICE ADARSH KUMAR GOEL13 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Tribunal erred in concluding that the failure to give a notice of 15 days would vitiate the assessment itself without considering prejudice to the assessee. The Court reasoned that while a total absence of notice might be different, if a notice is duly served, the assessee can either avail of the statutory time for filing the return irrespective of the shorter period mentioned in the notice, or be given a fresh opportunity if prejudice is established. The Court stated that it is not permissible to quash assessment proceedings merely on the ground that the period mentioned in the notice was less than the statutory period specified under Section 158BC(a). The Court referred to the principle that procedural violations should be examined from the point of view of prejudice, citing State Bank of Patiala v. S.K. Sharma. The Court answered the questions in favour of the Revenue. The appeals were allowed, the Tribunal's order was set aside, and the matter was remanded to the Tribunal for a fresh decision on merits.

What were the facts?

The appeals by the Revenue (Commissioner of Income Tax, Faridabad) were against an order of the Income Tax Appellate Tribunal (ITAT) concerning assessment for a Block Period from 01.04.88 to 16.04.99. The ITAT had allowed the assessee's appeal, holding that the assessment proceedings were vitiated because the assessee was not given a clear period of 15 days for filing a return after a notice under Section 158BD was issued. This notice was issued based on material found during a search and seizure operation at the residences of Sh. Subhash Verma and Krishna Verma. The Assessing Officer had assessed undisclosed income at Rs. 1,20,14,405/-. The High Court was considering two appeals: one on the quantum of assessment and another on penalty.

What were the issues?

1. Whether the Hon'ble ITAT was right in holding that a notice under Section 158BD becomes defective merely because the Assessing Officer (AO) allowed less than 15 days for filing the return? (Question of law) 2. Whether the Hon'ble ITAT, having held the notice under Section 158BD to be defective, erred in holding that the defect was not curable under Section 292B of the Act? (Question of law) Assessee's Contention (as per Tribunal's finding): The Tribunal held that the provision of Section 158BC(a) requiring a notice to be served upon the assessee, requiring him to furnish a return within a time not being less than 15 days, is unambiguous. It concluded that a notice providing less than 15 days is equivalent to no notice, and therefore, any assessment made thereafter is invalid. The Tribunal rejected the Revenue's contention that a shorter period is a curable irregularity. Revenue's Contention: The Revenue argued that even if the period specified in the notice was less than 15 days, no prejudice was caused to the assessee as he did not file a return even beyond the specified period. The Revenue contended that the defect in the notice is curable under Section 292B of the Act and that the Tribunal could have at best granted further opportunity to file the return instead of vitiating the entire assessment proceedings. The Revenue relied on the principle of prejudice and curability under Section 292B.

Which sections of the Income-tax Act were involved?

Section 158BD,Section 158BC,Section 144,Section 292B,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH (1) ITA No. 558 of 2006 Date of Decision: 1.2.2011 The Commissioner of Income Tax, Faridabad ....Appellant. Versus Sh. Naveen Verma ...Respondent. (2) ITA No. 342 of 2009 Date of Decision: 1.2.2011

The Commissioner of Income Tax, Faridabad ....Appellant. Versus Sh. Naveen Verma ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Ms. Urvashi Dhugga, Advocate for the revenue. ADARSH KUMAR GOEL, J.

1.

Since the Registry has not been able to send the files on account of fire in the Court premises, learned counsel for the revenue has furnished paper books which are taken on record. We proceed to decide the matter after hearing learned counsel for the revenue.

2.

Both the above appeals are inter-connected as ITA No. 558 of 2006 is on the issue of quantum while ITA No. 342 of 2009 is on the issue of penalty.

3.

ITA No. 558 of 2006 has been filed by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against order dated 28.2.2006 passed by the Income Tax Appellate Tribunal, Delhi Bench “B”, New Delhi, in ITA No. 8/DEL/2005 for the Block Period from 01.04.88 to 16.04. 99. Learned counsel for the revenue fairly states that even though three questions were initially claimed, this Court admitted the appeal only on the following two questions declining the third question at the time of admission on 2.3.2007:- “(i) Whether the Hon'ble ITAT was right in holding that the notice u/s 158BD becomes defective merely because the AO has allowed less than 15 days time to file the return?

(ii) Whether the Hon'ble ITAT, having held the notice u/s 158BD to be defective, erred in holding that the defect was not curable u/s 292B of the Act?”

4.

A search and seizure operation was carried on at the residence of Sh. Subhash Verma and Krishna Verma and on the basis of the material found, notice under Section 158BD was issued to the assessee. The assessee did not file any return. The Assessing Officer on the basis of material found, made assessment under Section 158BD read with Section 158BC(c)/144 assessing undisclosed income to be Rs.1,20,14,405/-. The addition was partly upheld by the CIT(A) against which cross appeals were filed before the Tribunal by the assessee as well as the revenue. The Tribunal allowed

the appeal of the assessee holding that the assessment proceedings are vitiated for the assessee having not been given clear period of 15 days for filing the return.

5.

We have heard learned counsel for the appellant.

6.

Learned counsel for the appellant submits that even if the period specified in the notice was less than 15 days, there was no prejudice as the assessee never filed the return even beyond the specified in the notice and in the period legally allowed to him. In any case, the Tribunal could, at best give

further opportunity to the assessee to file return instead of holding the assessment proceedings to be vitiated and thereafter closing the matter. The defect in the notice pointed out by the Tribunal is curable under Section 292B of the Act.

7.

In order to appreciate the submissions, the relevant provisions of the Act are reproduced below:- “158BC(c). The Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment.”

“158BD. Where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having juri iction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly.” “292B. No return of income, assessment, notice, summons or other proceeding, furnished or made or issued or taken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall be invalid or shall be deemed to be invalid merely by reason of any mistake, defect or omission in such return of income, assessment, notice, summons or other proceeding if such return of income, assessment, notice, summons or other proceeding is in substance and effect in conformity with or according to the intent and purpose of this Act.”

8.

The above provisions are statutory recognition of principles of natural justice which are applicable to assessment proceedings under the Act. The effective party is entitled to the fair opportunity and the assessment being made by a fair procedure, minimum period of 15 days has been specified statutorily. At the same time, the effect of violation of principles of natural justice is not to always nullify the exercise of juri iction but to ensure that the compliance of such principles is made unless prejudice is caused. Where period specified in the notice is less than the statutory period, no prejudice is caused unless the assessee takes steps within the statutory time. The notice specifying lessor period can be read as specifying the statutory period, this principle is duly recognized under Section 292B of the Act. Reference in this regard is being made to the judgments of the Hon'ble Supreme Court in .....1992 (4) SCT 727. The matter has also been recently considered by this Court in ______________________ wherein it was held that 9. In view of the legal position, the questions raised have to be answered in favour of the revenue. Accordingly, the appeals are allowed. The order of the Tribunal is set aside and the matter is remanded to the Tribunal for fresh decision on merits in accordance with law.

10.

A photo copy of this order be placed on the file of the connected case. (ADARSH KUMAR GOEL) JUDGE February 1, 2011 (AJAY KUMAR MITTAL) gbs JUDGE

connected case. (ADARSH KUMAR GOEL) JUDGE February 1, 2011 (AJAY KUMAR MITTAL) gbs JUDGE In State Bank of Patiala v. S.K.Sharma, (1996) 3 SCC 364, after considering the case law on the point, it was concluded:- Para 33(3) In the present case, the tribunal held as under:- “In view of the above provisions contained under section 158BC(a), the notice is to be served upon the assessee, requiring him to furnish the return within such time not being less than 15 days. The provision is unambiguous and clear. The intention of the legislature in using the words ‘not less than 15 days’ is clear. The rule of literal construct followed for ascertaining the plain meaning of the terms used. There being

nothing in the language adopted, no other construction except that a clear notice of more days is to be given, is possible.

10.3.

The contention of learned DR that if a notice does not provide a period clear 15 days, that is merely an irregularity, which is curable is not acceptable in view of specific provision of law referred to above which casts a specific obligation upon Assessing Officer. When the law requires a particular act to be done in a particular manner and within a particular time, then on addition, subtraction or modification of such requirement is permissible. If the requirement of law is clear, the authorities cannot be allowed to subvert the provision by curing such an irregularity. The requirement of giving notice under section 158BC is a precondition for making assessment. No assessment under section 158BC or 158BD can be made without issuing a statutory notice as provided in section 158BC. The notice of less than 15 days is equal to no notice. As no assessment can be made under section 158BC in absence of notice, the assessment made by issuance of notice otherwise than in accordance wqith the provsiosn fo law, has to be treated on the same footing i.e. without notice. If the Assessing Officer cannot cure the irregularity in relation to non issuance of notice, he equally cannot cure the irregularity in relation to a notice which is ot in accordance with the provisiosn fo law i.e. notice providing a lesser period than the prescribed clear period of 15 days. Thus, the argument of the leqarned DR fails on this count also.” We are of the view that the Tribunal erred in concluding that failure to give notice of 15 days will vitiate the assessment itself without

considering the prejudice to the assessee. Total absence of notice may be on different footing but if notice is duly serviced, the assessee can either avail of the statutory time for filing of the return irrespective of shorter period mentioned in the notice or can be given fresh opportunity if it is held that the assessee suffered prejudice on account of shorter period mentioned in the notice. In any situation,it is not permissible to quash the assessment proceedings merely on the ground that period mentioned in the notice was lesser than the statutory period specified under Section 158BC(a).

This extract is taken from State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364, at page 390 : (3) In the case of violation of a procedural provision, the position is this: procedural provisions are generally meant for affording a reasonable and adequate opportunity to the delinquent officer/employee. They are, generally speaking, conceived in his interest. Violation of any and every procedural provision cannot be said to automatically vitiate the enquiry held or order passed. Except cases falling under — “no notice”, “no opportunity” and “no hearing” categories, the complaint of violation of procedural provision should be examined from the point of view of prejudice, viz., whether such violation has prejudiced the delinquent officer/employee in defending himself properly and effectively. If it is found that he has been so prejudiced, appropriate orders have to be made to repair and remedy the prejudice including setting aside the enquiry and/or the order of punishment. If no prejudice is established to have resulted therefrom, it is obvious, no interference is called for. In this connection, it may be remembered that there may be certain procedural provisions which are of a fundamental character, whose violation is by itself proof of prejudice. The Court may not insist on proof of prejudice in such cases. As explained in the body of the judgment, take a case where there is a provision expressly providing that after the evidence of the employer/government is over, the employee shall be given an opportunity to lead defence in his evidence, and in a given case, the enquiry officer does not give that opportunity in spite of the delinquent officer/employee asking for it. The prejudice is self- evident. No proof of prejudice as such need be called for in such a case. To repeat, the test is one of prejudice, i.e., whether the person has received a fair hearing considering all things. Now, this very aspect can also be looked at from the point of view of directory and mandatory provisions, if one is so inclined. The principle stated under (4) hereinbelow is only another way of looking at the same aspect as is dealt with herein and not a different or distinct principle. Disclaimer: The text is computer generated. The user must verify the authenticity of the extracted portion with the original in Supreme Court Cases. This extract is taken from State Bank of Patiala v. S.K. Sharma, (1996) 3 SCC 364, at page 389 :

33.

We may summarise the principles emerging from the above discussion. (These are by no means intended to be exhaustive and are evolved keeping in view the context of disciplinary enquiries and orders of punishment imposed by an employer upon the employee):

Disclaimer: The text is computer generated. The user must verify the authenticity of the extracted portion with the original in Supreme Court Cases.

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