C I T KOTA vs. SHRI NARENDRA KUMAR KHURANA

1 DB Income Tax Appeal No.347/2011 with one connected matter IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR :ORDER: (1) D.B.INCOME TAX APPEAL NO.347/2011 Commissioner of Income Tax, Kota Vs. Narendra Kumar Khurana ::: (2) D.B.INCOME TAX APPEAL NO.576/2011 Commissioner of Income Tax, Kota Vs. Narendra Kumar Khurana Date of Order: 5th July 2013 HON'BLE MR. JUSTICE DINESH MAHESHWARI HON'BLE MR. JUSTICE NARENDRA KUMAR JAIN-II Ms. Parinitoo Jain for the appellant. <><><> BY THE COURT: These two inter-related appeals, preferred by the revenue under Section 260A of the Income Tax Act, 1961 [‘the Act’], have been considered together; and are taken up for disposal by this common order. In D.B.Income Tax Appeal No.347/2011, the revenue seeks to question the order dated 12.10.2010, passed by the Income Tax Appellate Tribunal, Jaipur Bench, Jaipur [‘the ITAT’] in MA No.17/JP/2010, arising out of ITSSA No.106/JP/2002, for the block period 1990-91 to 2000-01. In the other appeal (D.B.Income Tax Appeal No.576/2011), the revenue seeks to question the order dated 10.03.2011 passed by the ITAT in ITSSA No.20/JP/2009 and related Cross-Objections. This order dated

2 DB Income Tax Appeal No.347/2011 with one connected matter 10.03.2011 has been passed by the ITAT essentially as a consequence of the previously-mentioned order dated 12.10.2010. By the impugned order dated 12.10.2010, the ITAT has allowed the rectification application filed by the assessee under Section 254(2) of the Act against the order passed earlier on 28.04.2006 and has held, with reference to dictum of the Hon'ble Supreme Court in the case of ACIT & Anr. Vs. Hotel Blue Moon: 321 ITR 362, that completion of assessment under Section 158BC of the Act without issuance of notice under Section 143(2) of the Act within prescribed time was wholly without jurisdiction and void ab-initio. In brief, the relevant background aspects of the matter are that search and seizure operations took place at the residential premises of respondent-assessee on 07.04.1999 which, as per assessee were concluded on 09.04.1999 whereas the Assessing Officer [‘the AO’] observed that last panchnama was drawn on 26.07.1999. In response to the notice issued under Section 158BC of the Act on 18.10.1999, the assessee filed the return for the block period on 09.12.1999. The AO issued notice under Section 142(1) on 08.12.2000 and then, the notice under Section 143(2) of the Act on 15.02.2001. The assessment was completed by the AO on 25.10.2001. In the appeal before the Commissioner of Income Tax (Appeals), Kota [‘CIT(A)’], the assessee, inter alia, contended that the AO had failed to issue the statutory notice under Section 143(2) of the Act within one year of the last date of the month in which the return was filed in form No.2B in compliance of the notice issued under Section 158BC; and

3 DB Income Tax Appeal No.347/2011 with one connected matter hence, the block assessment made in furtherance thereto was invalid. The CIT(A) accepted this contention of the assessee and annulled the block assessment by his order dated 15.07.2002. In the appeal preferred by the revenue against the aforesaid order dated 15.07.2002, the ITAT, in its earlier order dated 28.04.2006, relied upon a decision of this Court in the case of Gyan Prakash Gupta: 165 ITR 501 and held that as per the language of sub-section (b) of Section 158BC, issuance of notice under Section 143(2) was not mandatory. The ITAT, inter alia, observed that: ‘non issuance of notice under s. 143(2) would only be a case of deviation from a rule of law resulting in irregularity which is curable, and cannot render the block assessment a nullity.’ The ITAT proceeded to set aside the first appellate order while holding in favour of the validity of the order passed by the AO. The ITAT also accepted the other contention of the revenue that the assessee was not justified in contending before the CIT (A) for the first time about want of opportunity of hearing by the AO. In the result, the ITAT allowed the appeal and directed the CIT(A) to decide the first appeal on merits after affording adequate opportunity of hearing to the assessee. It may be noticed that pursuant to the aforesaid order of the ITAT dated 28.04.2006, the CIT(A) passed an order on 22.05.2009, partly accepting the appeal of the assessee. The order so passed on 22.05.2009 was challenged by the revenue in ITSSA No.20/JP/2009 wherein, the assessee filed the Cross- objections No.152/JP/2009. However, while the aforesaid appeal and cross-objections remained pending with ITAT, the Hon'ble Supreme Court

4 DB Income Tax Appeal No.347/2011 with one connected matter delivered its judgment in the case of Hotel Blue Moon (surpa) holding that if the assessing officer, for any reason, repudiates the return filed by the assessee in response to the notice under Section 158BC relating to a block assessment, he must necessarily issue a notice under Section 143(2) of the Act within the time prescribed in the proviso to Section 143(2). The assessee, relying on this decision of the Hon'ble Apex Court, moved an application per Section 254(2) of the Act for modification of the order dated 28.04.2006. The ITAT proceeded to allow the application so moved by the assessee in its impugned order dated 12.10.2010 while observing as under: - “5. After considering the submissions, we find that at the time of disposing of the appeal of the department, the decision of Hon'ble Apex Court was not available and, therefore, the same could not be taken into consideration. Now the decision of Hon'ble Apex Court has come by which it has been held that before completion of the assessment under section 158BC issuance of notice under section 143(2) within the prescribed time is mandatory. Therefore, we recall the order of the Tribunal in ITSSA No.106/JP/2002. 6. Now the appeal of the department is disposed off accordingly. The following ground has been taken by the department before the Tribunal:- “The ld. CIT (A) has erred in annulling the assessment order made by the Assessing Officer u/s 158BC/143(3) on 25.10.2001 on legal ground of not issuing the notice u/s 143(2) within 12 months from the end of the month in which the return of income was filed.” 7. The issue is squarely covered by the decision of Hon'ble Apex Court in the case of ACIT vs. Hotel Blue Moon (supra) wherein it has been held as under: - “If the Assessing Officer, for any reason, repudiates the return filed by an assessee in response to notice under section 158BC(a) of the IT Act, 1961 relating to a block assessment, the Assessing Officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2).” While holding so, the Hon'ble Apex Court has affirmed the decision in the case of CIT vs. Pawan Gupta, 318 ITR 322 wherein similar view has been expressed. The Hon'ble Apex Court has also observed that by making the issue of notice mandatory, section 158BC, dealing with block

5 DB Income Tax Appeal No.347/2011 with one connected matter assessment, makes such notice the very foundation for jurisdiction. Such notice is required to be served on the person who is found to have undisclosed income. Lastly, the Hon'ble Apex Court has observed that omission on the part of the Assessing Authority to issue notice under section 143(2) cannot be a procedural irregularity and is not curable. Therefore, the requirement of notice under section 143(2) cannot be dispensed with. Accordingly, the departmental appeal in the above case i.e. Hotel Blue Moon was dismissed by the Hon'ble Apex Court.// Since no such notice under section 143(2) was served on the assessee and, therefore, we have no hesitation in holding that without serving notice under section 143(2) the completion of the assessment was without jurisdiction and, therefore, void abinitio. Accordingly, the assessment so completed by the AO is quashed. Accordingly ground raised in the appeal of the department is rejected. 8. In the result, Miscellaneous Application is allowed and the appeal of the department is disposed off as above.” As an obvious consequence of the aforesaid order dated 12.10.2010, the order passed by the CIT(A) on 22.05.2009 pursuant to ITAT's earlier order dated 28.04.2006 was rendered non est. Hence, ITSSA No.20/JP/2009 and the related Cross Objections were dismissed by the ITAT on 10.03.2011. Seeking to question the order dated 12.10.2010, the learned counsel for the appellant-revenue has strenuously argued that the scope of rectification of mistake under Section 254(2) is a limited one and does not extend to upset the finality of the orders. It is submitted with reference to the decision in ACIT Vs. Saurashtra Kutch Stock Exchange Ltd.: 305 ITR 227 that only when an issue has been settled by the Apex Court or jurisdictional High Court, failure to apply the same could be treated as a mistake apparent from the record. The contention of the learned counsel for the appellant is that when ITAT allowed the appeal of the revenue on 28.04.2006, there was no such law as propounded in the case of Hotel Blue Moon (supra), which was decided on 02.02.2010 and, therefore, the application for

6 DB Income Tax Appeal No.347/2011 with one connected matter rectification of mistake was not maintainable on the basis of this subsequent decision rendered by the Hon'ble Apex Court. It is also submitted that though in the impugned order, the ITAT has given a categorical finding that the decision of the Hon'ble Apex Court in the case of Hotel Blue Moon was not available at the time of disposing of the appeal of the department and the cross- objections of the assessee yet, the rectification application was allowed and thereby, under the garb of rectification, a review has been carried which is not permissible in law. The learned counsel also submitted that the Hon'ble Apex Court in Hotel Blue Moon (surpa) has held that notice under Section 143(2) is required to be issued for framing of the assessment under Section 158BC and if no notice has been issued then the assessment so framed deserves to be quashed but the assessee cannot take any advantage of this decision because the notice under Section 143 (2) was indeed issued to the assessee in the present case. The learned counsel submitted that even if there was a little bit of delay in issuance of the notice under Section 143(2) of the Act, when the return was filed on 09.12.1999 and the notice was issued on 15.02.2001, the fact of the matter had been that the assessee himself did not file the return within time stipulated by the notice under Section 158BC of the Act. It is submitted that in any event, it was not a case where no notice had at all been issued, as assumed by the ITAT in its order impugned. The learned counsel, thus, submitted that the substantial questions of law as proposed do arise for consideration in this case. Having given a thoughtful consideration to the submissions made, we are clearly of the view that no substantial question of

7 DB Income Tax Appeal No.347/2011 with one connected matter law is involved in the appeal against the order dated 12.10.2010 (Appeal No.347/2011) and this appeal does not merit admission. It had not been a case that the return filed by the assessee, pursuant to the notice under Section 158BC and after declining his prayer for enlargement of time, was sought to be revoked on account of alleged delay in filing. It remains indisputable, as per the own showing of the revenue, that the first notice under Section 143(2)of the Act was issued only on 15.02.2001. As per the requirements of the proviso to Section 143(2) of the Act, such a notice was required to be issued within one year from the last date of the month in which return was filed by the assessee. The CIT(A) in his earlier order dated 15.07.2002 observed that on the facts of the case, it was obligatory on the AO that such a notice under Section 143(2) of the Act was issued prior to 31.12.2000 as the return had been filed on 09.12.1999. The CIT(A), accordingly, allowed the appeal while making other observations, which need not be dilated upon herein. The ITAT, in its earlier order dated 28.04.2006, however, was of opinion that non-issuance of notice under Section 143(2) “would only be a case of deviation from a rule of law resulting in irregularity which is curable, and cannot render the block assessment a nullity”. These observation of the ITAT led to the restoration of matter to the file of CIT(A) who, consequently, passed the order on 22.05.2009. However, the matter remained sub-judice before the ITAT with the revenue having filed an appeal (ITSSA No.20/JP/2009); and the assessee having filed cross-objections therein (CO No.152/JP/2009) against this order dated 22.05.2009. In the meantime, the law came to be declared by the Hon'ble Supreme Court in no

8 DB Income Tax Appeal No.347/2011 with one connected matter uncertain terms in Hotel Blue Moon’s case (surpa) that if the AO repudiates the return filed under Section 158BC(a), a notice, within prescribed time, under Section 143(2) must be issued; and omission to do so was not a mere procedural irregularity. In Hotel Blue Moon, the Hon'ble Supreme Court, inter alia, held as under:- “……….However, if an assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with……………… ............ A reading of the provision would clearly indicate, in our opinion, if the Assessing Officer, if for any reason, repudiates the return filed by the assessee in response to notice under section 158BC(a), the Assessing Officer must necessarily issue notice under section 143(2) of the Act within the time prescribed in the proviso to section 143(2) of the Act.” (underlining supplied for emphasis) As the edifice of the order dated 28.04.2006 was knocked out with the authoritative pronouncement of the Hon'ble Supreme Court in Hotel Blue Moon’s case (surpa), in our view, the ITAT could not have ignored the law so declared nor could have persisted with its earlier order dated 28.04.2006. In the ultimate analysis, the order passed by the ITAT on 12.10.2010 stands squarely in conformity with the law declared by the Hon'ble Supreme Court and in our view, the revenue cannot seek any decision contrary to the binding declaration of law by the Hon'ble Supreme Court. As regards the submissions that it had not been a case where no notice was served under Section 143(2) of the Act, a comprehension of the impugned order dated 12.10.2010 makes it

9 DB Income Tax Appeal No.347/2011 with one connected matter clear that ITAT took note of the fact that notice under Section 143 (2) was not issued within the prescribed time and held it to be the contravention of the mandatory requirement as per the dictum of the Hon'ble Supreme Court. Mere want of repetition of expression in the later part of the order impugned about notice being not within prescribed time, in our opinion, does not take away the substance of the matter. The fact remains that the required notice under Section 143(2) of the Act was not issued within the prescribed time and hence, the proceedings are directly hit by the mandate of law. The submissions that the case of Hotel Blue Moon (surpa) was not available at the time of disposal of the appeal of the department on 28.04.2006 and that rectification has been allowed as if of review, do not make out a case for interference. As noticed, any interference in the present case, would be practically to countenance such a submission of the revenue that stands at contradiction to the principles of law explained by the Hon'ble Supreme Court. Then, it remains trite that a judicial decision acts retrospectively because a decision only discovers the correct principle which has to be applied. The doctrine of prospective over-ruling has always been considered to be an exception to this general rule. Moreover, the very jurisdiction for rectification is for the purpose of securing justice. These aspects have been highlighted in the very decision referred on behalf of the appellant-revenue in Saurashtra Kutch Stock Exchange Ltd. (supra) wherein, the Hon'ble Supreme Court has observed and held as under: - “42. In our judgment, it is also well settled that a judicial decision acts retrospectively. According to Blackstonian

10 DB Income Tax Appeal No.347/2011 with one connected matter theory, it is not the function of the court to pronounce a ‘new rule’ but to maintain and expound the ‘old one’. In other words, Judges do not make law, they only discover or find the correct law. The law has always been the same. If a subsequent decision alters the earlier one, it (the later decision) does not make new law. It only discovers the correct principle of law which has to be applied retrospectively. To put it differently, even where an earlier decision of the court operated for quite some time, the decision rendered later on would have retrospective effect clarifying the legal position which was earlier not correctly understood. 44. Salmond in his well-known work states; “the theory of case law is that a judge does not make law; he merely declares it; and the overruling of a previous decision is a declaration that the supposed rule never was law. Hence any intermediate transactions made on the strength of the supposed rule are governed by the law established in the overruling decision. The overruling is retrospective, except as regards matters that are res judicatae or accounts that have been settled in the meantime”. (emphasis supplied) 44. It is no doubt true that after the historic decision in GolakNath v. Union of India, [1967] 2 SCR 762, this court has accepted the doctrine of ‘prospective overruling’. It is based on the philosophy: “The past cannot always be erased by a new judicial declaration”. It may, however, be stated that this is an exception to the general rule of the doctrine of precedent. 45. Rectification of an order stems from the fundamental principle that justice is above all. It is exercised to remove the error and to disturb the finality.” We may also observe that in the order dated 28.04.2006, the ITAT referred to a decision of this Court in Gyan Prakash Gupta (supra). Noticeable it is that even in Gyan Prakash Gupta, this Court did not hold that omission to serve within time was merely a procedural irregularity. In the said decision, this Court observed that assessment so made without notice under Section 143(2) could only be set aside and not annulled. Be that as it may, now the law declared by the Hon'ble Supreme Court in Hotel Blue Moon (supra) puts it beyond a pale of doubt that the requirement of issuance of notice within prescribed time under

11 DB Income Tax Appeal No.347/2011 with one connected matter Section 143(2) of the Act for the purpose of assessment in case of the AO repudiating the return filed by the assessee in response to the notice under Section 158BC is a mandatory requirement and omission to serve such a notice within time is not a curable irregularity of procedure, as assumed by the ITAT in its earlier order dated 28.04.2006. Going by the principles on the applicability of case law, as explained by the Hon'ble Supreme Court in Saurashtra Kutch Stock Exchange Ltd. (supra), we have no hesitation in observing that in the demand of justice, only the principles in Hotel Blue Moon can be considered applicable to the present case. Moreover, in the present case, the proceedings had even otherwise not attained finality because of the pendency of the appeal against the order dated 22.05.2009. Viewed from any angle, the ITAT appears to have acted just and proper in modifying its earlier order standing at contradiction to the dictum of the Hon'ble Supreme Court. The order dated 12.10.2012 being squarely in consonance with the requirements of justice, and on the admitted fact situation that the notice under Section 143(2) of the Act was not given in this case within prescribed time, no case for interference is made out. The appeal filed by the revenue (Appeal No.347/2011) is, therefore, required to be dismissed. When the appeal against the order dated 12.10.2012 is dismissed and this order is confirmed, as a necessary corollary, the proceedings undertaken by virtue of the earlier order dated 28.04.2006 could only be considered non est. Therefore, the order passed by the ITAT on 10.03.2011 in ITSSA No.20/JP/2009

12 DB Income Tax Appeal No.347/2011 with one connected matter cannot be faulted with either. Accordingly and in view of the above, both these appeals (Nos.347/2011 and 576/2011) stand dismissed.

(NARENDRA KUMAR JAIN-II),J. (DINESH MAHESHWARI),J. cpgoyal/- CERTIFIED THAT ALL CORRECTIONS MADE IN THE JUDGMENT / ORDER HAVE BEEN INCORPORATED IN THE JUDGMENT / ORDER BEING EMAILED

C.P.Goyal PA