COMMISSIONER OF INCOME TAX vs. KUBER TOBACCO PRODUCTS PVT LTD

h c) % * IN TIIE HIGH COURT OF DELI{I AT NEW DELHI -r. ITA No.1l59/2010 CIT ..... APPellant 'I'hrough: Mr.Sanjeev Sabharu'al, Sr. Stancling Counscl. versus KIJI]l-ilt'I-OIIACCO PRODUCTS P. LTD. ..... Itcspondent 'fhrough: Mr. Ajay Vohra. and Ms. Kavita Jha, Advocates. l)atc oI l)ecision : October 06. 2010 CORAM: tr.ION'I}I,E MR. JUSTICE A.K. SIKRI IIC)N'BLE MS. J{JS'tr'ICtr] REyA KIIETRAPAL 1. Whethcr reporters ot local papers ma1'be allowcd to sce the judgment? 2.'['<t bc rcfcrred to the ltcporter or not? 3. Whcthcr.jurdgment shoulcl be reported in Digcsti' JUpGMENT(ORAL) : REVA KHE'IRAPAL, J. A search operation under Scction I321r of the Incomc'.fax Act, 1961 n'as conducted on 25th Januarl'- 1999 by the Invcstigation Wing ol' the l'ncome Jlax Dcpartment in pursuance to the excise raid conductod by thc Anti l:vasion Wing of the Central Excisc, Delhi-I, in lrA Na,!b22U!- l'ase I of 17 Digitally Signed By:AMULYA Certify that the digital file and physical file have been compared and the digital data is as per the physical file and no page is missing. Signature Not Verified

t ") the course of which { 1,80,000/- r,vas seized in some of the business premiscs of the asscssee-company. A notice datcd 12tl' September, 2000 undcr Section 1588C(a) of the Income Tax Act'uvas issued by the Assessing Officer and was Seryed on the aSSeSSee. In response to the said notice the authorized representatives of the assessee furnished thc details asked for and filed its return of income on 29tl' September, 2000 declaring 'NIL' undisclosed income. 'fhereafter, assessment rvas framed by the Assessing Officer under Section 1588C of the Act on 29tr'January, 2007 at undisclosed income of < 2,07,87,I7I1-. The assessee being dissatisfied with the order of the Assessing Officer filed an appeal before the CIT(A). 'Ihe CIT(A) partly allowed the appcal of the assessee and deleted the addition of 7 37,26,867/-. Aggrieved by the aforesaid order of CIT(A), the assessee as well as the Revcnue filed cross-appeals beforc the Income tax Appcllate 'fribunal. 2. 'I'hc assessee before"the Income'fax Appellatc Tribunal raised an additional grouqd: - "That under the facts and circumstances, the block assessment proceedings and consequential ITA No. Il59/2010 Paee 2 of 17

t block assessment order is without jurisdiction in the absence of issuance of rnandatory legal notice under Section 143(2) of the I.T. Act." 3. The stand of the Department was that in vier,v of the insertion of Section 292-BB, which was inserted by the Finance Act, 2008 with effect from l tt April, 2008, the assessee could not take the plea that the assessment should be held invalid merely on account of the fact that no notice under Section 143(2) was issued and that, in fact, the assesscc was barred from taking such a plea. 4. In the aforesaid circumstances, the following question was referred by the Income Tax Appellate Tribunal to a Special Bench: "Whether thc Assessee who has participated in the block assessment proccedings is precltrded from taking any objection that notice under Section 143(2) was not served upon him or was not seryed upon hirn in time in view of the provisions of Section 292-BB inserted by the Finance Act, 2008 with effect from 01.04.2008 and if so, since when he can be said to be so precluded?" 5. ISefore the Tribunal it was contended on behalf of the assessee that Section292-BB had no application to the facts of the present case ITA No. 1159/2010 Page 3 of 17

as the language thereof pre-supposes the issuance of notice under Section 143(2). According to the facts of the present case, there is no dispute that notice under Section 143(2) was never issued and if this bc so, the question frarned did not covcr the controversy existing in the case of the assessec. Iteliance was placed on the decision of the Gauhati High Court in the case of Bortdorto Gogoi vs. CIf [2007J 289 ITR 28 wherein it was held that the defect of non-issuance of notice under Section 143(2) in thc casc of block asscssmcnt cannot be cured and such assessmcnt suffers from both procedural as r,r'ell as jurisdictional error. It was also contended that in any cvent Section 2g2-IlB of the Act which was introduced r,vith effcct from l't April, 2008 cannot bc relicd upon to uphold the validity of the block assessment for the reason that the said provisi.rn is not applicable to thc assesstnent year in question. By the introduction of Section 292- BI], the assessce is precluded from taking a plea which is the right of the asscssee and, therefore, in lalv, this provision cannot be held to be retrospective, more so aS in the present case the assessment proccedings were completed prior to l't April, 2008. Refercnce was ITANo. tl59n0l0 Puse 4 of 17

? made to a large number of judicial pronouncements to support this contention. 6. 'I'he contention of the Revenue, on the other hand, r,vas that the lraming of assessment under the provisions of Chapter XIV-B on cornpletion of the scarch operation partakes the charactcr of procedural or machinery provisions and default in complying with any proccdural provisions or irregularity in respect thereof rvould not be fatat to the assessmcnt per se so as to render the charging Section otiosc. In this context and with a view to illustratc the distinction bctr,vccn the interpretation of the charging provision of a statute and thc interpretation of a machinery provision, a large number of judgmcnts \,verc cited, including the following: - D CIf vs. Shruwon l(umtr, 210 ITR 886 (SC); 2) Associatecl Cement Co.. Ltd. vs. CTO, 48 STC 466 (SC); 3) Vishwansth Prsssd Bltugwati Prostd, 202 ITR 469 (AII); Sant Bobo Mohon Singh vs. CIT, 90ITR 197 (All); Kopwrchond Shrimal vs. CIT' 131 ITR 451 (SC); 4) s) ITA No. lI59/2010 Page 5 of 17

6) Rasikkomani vs. CIT, 203 ITR 848 (Bom); 7) Jai Prakash Singh vs. CIT' 219 IfR !37 (SC); and S) CWT vs. Mtur Bahsdur Singh, 208 ITR 658 (Roi.). 7. The Tribunal after considering the rival submissions of the parties by its order dated 14.01 .2009 rendered the following findings, rclying upon the dicta laid down by the Supreme Court in the case of I{srimthar:wi Tes Estute Ltd. vs. Stute of Keralu U966J 60 ITR 262 (which is a decision rendered by five Judges of the Hon'ble Supreme Court), that the Income Tax Act, as it,,tands amended on the First day of April of any financial year, must apply to the assessment of that year: "44. If the present issue is considered in the light of the ubove decision of flon'ble Suprente Court then it has to be held that Section 292 BB is applicable to assessnrcnt year 2008-09 and subsequent years. Therefore, answer to the second aspect of the question is that assessee is precluded from taking such obiection for and fi'om assessment years 2008-09. 45. Sumnmrising our, findings Y'e hold as follows:-, Section 292 BB even if it ,s procedr'tral it is creating a new ITA No. 1159/2010 Puee 6 of 17

\0 the assesstnent, suclt an orrrrrrrr,rt ordertvould not be a n?ere irregular (sic. irregularity) but would be invalid. It was further held in the said case that requirentent of ntaking an assessment order pwsuant to the grant of hearing and an opportunity to tlte assessee to produce material in support of his return is not an empty formality, and if such right is denied to the assessee, it would arnount to a travesty of justice. apart front being violative of the statutory prescription of Section 143(2) and 143(3) read with Section ISSBC(b). It was, thus, held that vthere that A.O. is not inclined to aciept the return of undisclosed income filed fut the assessee, issuance of a notice under Section 143(2) is pre-requisite for framing the bloclc assessmettt under Chapter XIVB of the AcL The I'Ion'ble Delhi High Cot'trt was in agreenxent with the clecision of the Hon'ble Gutvahati High Court in the case of Bandana Gogoi vs. CIT, (2007) 289 ITR 28 (Gmvahati) on this aspect of the nmtter. In the light of the aforesaid decision of Special Bench in the present case, and in the light of the decision of the I{on'ble Jurisdictional l-Iigh Court of Delhi in the case of CIT vs. Pawan Gupta and Ors. (ntpra), we hold that since no notice uhder Section 143(2) tvas serned upon the assessee before nruking the block assessnrcnt ancl before tinlcering with the block return filed by the assessee showing 'Nil' undisclosed inconte, the assessment so nwde by the A.O. under Section I58BC is invalid and illegal and not nzerely irregular. We, therefore, quash the assessment ntade under Section l|BBC by tlrc A.O. ITA No. 1159/2010 Paee I of 17

\\ disability as it preclt'tded the assessee from tqking a plea which could be taken as a right, cannot be construed retrospectively as the same tr made applicable bY the statr,fte w. e.f. 0 1. 04. 08. iil Section 29288 is applicable to the assessment year 2008-09 and sub s eqt ten t as s e s s ntent Ye ars. 46. Now the ntatter will be placed before the regular Bench to decide the appeals in regular nlanner. " 8. 'l'hcreafter, the matter was once again taken up by the learned I1AT on 24't' July, 2009 (in regular hearing), rvhich quashed the asscssment made under Section 158BC by following the decision of Jurisdictional IJigh Court of Dclhi in the casc of CIT vs. Pnwsn Gupta (2009) 223 CTR (De\ 487 and held that: "9. The question whether the service of notice u/s 143(2) is nmndatory both in the case of a regular assessment and a block assessnlent"made under Chapter XIV B of the Act has been considered by the iurisdictional High Cou't of Delhi in the case of CIT vs. Pswan Gupta and Ors., reported in (2009) 223 CTP 487, vthere it has been held that where the A.O. is not inclined to accept the return of undisclosed inconte filed by the assessee, the procedure prescribed in Section 143(2) has to be followed, and if he does not issue a notice under Section 143(2) and ITA No. 11592010 Page 7 of 17

\7 10. The additional ground raised by the assessee is thus, decided infavour of the assessee and against the department." 9. The assessee having emerged successful it was now the tum of the Department to feel aggrieved. Consequently, the present appeal under Scction 260A of the Act is filed against the aforesaid order of the ITAT dated 24n July,20Og, whereby the appeal of the Assessee was allowed and the cross appeal filed by the Revenue was dismissed. The findings of the Tribunal, that in the absence of notice under Section 143(2), the assessment framed by the Assessing Officer under Section 1588C was rendered invalid, have been sought to be challenged as contrary to lar,v. 10. The question of law rvhich thus arises for our consideration is as follows: "Whether the I1AT erred in cancelling the block assessment made by the Assessing Officer under Section 1588C by holding that the provisions of Section 2928H* inserted by the Finance Act, 2008 with effect from 01.04.2008 were not retrospective in nature and did not preclude the assessee from taking an objection that notice under Section 143(2) not having been served upon him, the block assessment made by the ITA No. 11592010 Pase 9 of 17

$ 11. We upon the expedient Assessing Officer under Section 1588C \ Ias illegal and invalid?" have heard the leamed counsel for the parties and drvelt prccedents cited at the bar. At the outset, wc deern it to refer to the provisions of Section 2928r= of the Act, wl-rich read as under: "NOTICE DEEMED TO BE VALID IN CERTAIN CIRCUMSTANCES &g!tU--Zm- nn Where an assessee has appeared in any proceeding or co-operated in ary) inquiry' relating to an assessnrcnt or re- assessnrcnt, it shall be deented that any notice uncler any provision of this Act, vhich is required to be sented upon him, has been duly served upon hint in time in accordance with the provisions of this Act and such assessee shall be precluded fronz taking any objection. in any proceedings or inquiry under this Act that the notice v'QS'- (") not served upon him; or (b) not served upot't hint in tinte; or @ sented upon him in an hnProPer nlanner: Provided that nothing contained in this sectiort shall apply where qssessee has raised st'rch objection before the contpletion of such assess ntenl or reassessn'tenL " 'fhe Notes on Clauscs explaining the afr'"resaid Section, which arc apposite, are as follows: ITANo. lI59/2010 12. Puee l0 of 17

v 13. "Clause 52 seeks to insert a new sec.292 BB in the Incorne Tax Act, laying down certain circumstances in which notice shall be deemed to be valid. It is proposed to provide that where an assessee has appeared in any prdceeding or co- operated in any inquiry relating to an assessnrent or reassessnrcnt, ii shall be deented that any notice under any provision of this Act, which is required to be served upon hint, has been duly served upon him in tinte in accordance with the provisions of the Act and such assessee shall be precluded front taking any obiection in any proceeding or inqttiry under this Act that the notice was, (a) not served upon him; or (b) not served Ltpon hint in tinte; or (c) served upon hint in an intproper nwnnen I'his amendntent will take effect from l'' April, 2008." It rvould also be relevant if the Memorandum explaining the provisions warranting the insertion of the above Section is reproduced, which reads as under:- "Serryice of notice and the tinrc-lintit for issuance of notice u/s 143(2) of the IT Act. Sub-section (2) of sec.143 of the Inconte Tax Act provides that the notice under this sub- section shall be served on the assessee vithin a period of 12 months fi'om the end of the ntonth in v,hich the return is furnished. I\'rther, the service of such notice must be effected in a nxqnner laid down in Sections 282, 283 and 284 of the Income Tax Act, readwith General Clauses Act. Instances have come to the notice of the ITA No. 1159/2010 Poge 1l of17

{ \ Departnrcnt, where notice under st'tb section (2) of sec.I43, though issued by registered post within 12 months front the end of the month in which the return was ftrnished, have been held "invalid" on the ground that the notice vtas actually received by the assessee after the limitation date and there was no 'setnice' as postulated under the section. This ,s nohvithstanding the fact that the assessee has attended the assessntent proceedings in response to the notice set'ved on him. Instances have also conte to notice where the orders of the AO are being quoshed on the consideration that there is no evidence of issue or service of notice, even though the assessee and his AR have attended the hearing before the AO during the assessment proceedings. Further, the design of the limitation period 'with reference to the end of the ntonth leads to adndnistrative inconvenience in as ntuch as the last day of every nrcnth becontes a tinte- barring date. In order to address these issues and to reduce litigation, it is proposed to insert a nelu sec.292 BB in the Inconte Tax Act to provide that where an assessee has appeared in arty proceeding or co-operated in any inquity related to an assessnxent or reassessntent, it shall be deented that any notice under any provision of this Act has been duly served upon him in time in accordance with the relevant provision of the Act. Further, such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was:- (") not served ttPon him; or (b) not served u7on hint in time; or ITA No. I 159/2010 Page 12 of 17

\b @ serued upon him in an intproper manner. Similar antendntent is also proposed in the Wealth Tax Act. Furtlter, it rs also proposed to antend clause (ii) of sub-section (2) of sec.I4j to provide that the notice under sttb-section (2) of section 143 shall be served on the assessee within a period of 6 ntonths from the end of the financial year in v,hich the return is furnished. This amendrnent v,ill take effect front 1." April, 2008. " 14. Significantly, in the instant case, as noted by the ITAT in the impugned order, the block assessment is for the period from 01.04.1988 to 25.01.1999 and the said block assessment under Section 1588C was made by the Assessing Officer on 29.01 .200I, i.e., prior to the insertion of Section 2928F., inrerted with effect from 01.04.2008. Thus, it is submitted by the assessee that the provisions of Section 2928P are not applicable to the present assessment made under Section 1588C by the Assessing Officer on 29.01.2001. The plea of the Department, on the other hand, is that in the light of the fact that the assessee had participated in the assessment proceedings, thc assessment order made under Section 1588C cannot be rendered ITA No. 1159/2010 Poge 13 of 17

I invalid and illegal merely for r.vant of specific notice issued under Section 143(2) of the Act. 15. Dealing first with the question as to whether non-issuance of noticc under Section 143(2) or non-service of notice under Section I43(2)on the assessee in terms of the provisions of Sub-section (2) of Section 143 could render the block assessment rnade under Section l58BC invalid, it is not in dispute that in the present case the Departmcnt has not produced any evidence to show that notice under Section 143(2) was served upon the assessee. In the case of Pswun Gupto (s.upra), the question whether selice of notice under Section 143(2) is mandatory in the case of a block assessment made under Chapter XIV B of the Act was considered by a Division Bench of this Court, wherein it was laid down: "Where the assessing fficer is not inclined to accept the rehu'n oJ'undisclosed inconte filed by the assessee then the procedure prescribed in Section 143(2) would have to be follotued. If he does not issue a notice under Section 143(2) and completes the assessment all the sanre, such. an assessment order would not be a nxere irregularity but would be invalid. The requirentent of making an assessntent order pursuant to the grant of a hearing and an opportunity to the assessee to ITA No. 1159/2010 Pose 14 of 17

0 \, I produce material in support of his return is not an empty formaltty. It is a substantive right of the assessee to be presented with the fullest opportunity to support the return filed by him. If such right is denied to the assessee, it tuould amount to a travesty of justice apart frorn being in violation of the statttory prescription of Section 143(2) and 143(3) readwith Section I58 BC (b) of the said Act." 16. In the instant case, as noted hereinabove, it is not in dispute that the assessee filed block return for the block period 01.04.1988 to 25.0I.1999 on 29.09.2000 declaring undisclosed income at 'Nil' pursuant to the notice issued under Section 1588C dated 12.09.2000 by the Assessing Officer. It is also not in dispute that the assessee had participated in the block assessment proceedings and even subnritted his rcply dated 29.12.2000 to the detailed questiomaire issucd by the A.O. to the assessee on 05.12.2000. The Special Bench, however, held that Section 2928p cannot be construed to have retrospective operation and it is to be construed prospectively, meaning thereby that prior to 01.04.2008, i.e., upto 31.03.2008, the assessee is not 'precluded from taking any objection regarding invalidity of assessment/re-assessment on the ground of ITA No. 1159/2010 Page l5 of17

\l -.7 a improper/invalid issuance/service of notice and, therefore, the assessee cannot be precluded from raising the plea that notice under Section 143 was not served upon the assessee. 17. . The appellant has not been able to cite any cogent justification to enablb us to differ r,vith the aforesaid view except to state that Section 292F8 is procedural in nature and hence applicable to the present case and that in view of the participation of the assessee in the assessment procecdings, recourse by the assessee in ITAT proceedings to the provisions of Section 143(2) is not permissible. Wc are wholly unable to agree with the appellant. In our opinion, the spccial Bench rightly held that section 292F.F: does not have retrospective effect and is to be construed prospectively, inasmuch as the said Section creates a disability by precluding the assessee from taking a plea which otherwise could be taken by the assessee as a matter of right. 18. In our view the Tribunal has rightly relied upon the five- Judge llench decision of the Hon'ble Supreme Courl in the case of Ksrimtharuvi Teo Estcrte Ltd. ys. Stote of Kerala F9661 60 ITR o ITI No. 1159/2010 Paee 16 of 17

\>r .:,a 262 has clearly held that the Income Tax Act, as it stands amended on the First day of April of any financial year, must apply to the assessment of that year, the relevant portion of which is reproduced hereunder: . " 10, Now, it is well-settled that the Income-tax Act, as it stands amended on the first day of April of anyfinancialyear must apply to the assessntents of that year. Any antendments in the Act which conte into force after the first day of April of a financial year, v,ould not apply to the assessttrcnt for that year, even if the assessment is actttally nwde after the antendments come into force' " We accordingly hold that Section 29288 is applicable to the assessment year 2008-09 and Subsequent assessment years. 20. The question of law which arises in this appeal stands answered accordingly. 21. The appeal stands disposed of. lL Llt-TJ REVA KHETRAPAL October 06, 2010 sk/km ITA No. 11592010 Puee 17 of 17 19.