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Income Tax Appellate Tribunal, MUMBAI BENCH “A”, MUMBAI
Before: SHRI G.S. PANNU & SHRI JOGINDER SINGH
The captioned appeal by the Revenue is directed against the order of CIT(A)-29, Mumbai dated 28.06.2010, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order passed by the Assessing Officer, Mumbai dated 29.12.2009 under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’).
2. In this appeal, Revenue has raised the following Grounds in its Memo of appeal :-
i) On the facts and circumstances of the case and in law, the Id.CIT(A) erred in deleting an addition of Rs. 81,23,481/- under section 2(22)(e) of the Act without appreciating the fact that the assessee has incorrectly claimed that the assessee has paid the sums out of his credit balance as on 31.03.2006. ii) On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in not appreciating the fact that the balance sheet of M/s Champalal Motilal Steel Co. Pvt. Ltd. For 2005-06 does not reflect the name of the assessee as creditor. iii) On the facts and circumstances of the case and in law, the Id CIT (A) has erred in not appreciating the fact that the bank statement of M/s Navmi Steel Traders Pvt. Ltd. Indicates that the cheques in respect of amounts were given to M/s Champalal Motilal Steel Co. Pvt. Ltd. and not to the assessee.
Subsequently, Revenue has also raised Additional Grounds of appeal, which read as under :-
“I](i) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in admitting additional evidence in the form of audited balance- sheet of Navami Steel Traders Pvt. Ltd., a letter from assessee requesting loan from Navami Steel Traders Pvt. Ltd., in contravention of conditions mentioned in Rule 46A of I.T. Rules, 1962.
(ii) On the facts and circumstances of the case and in law, the Ld. CIT(A) erred in passing the order without remanding the matter to the AO.
(iii) For this and other reasons it is submitted that the order of the CIT(A) may be set aside and that of the AO restored.”
3. In brief, the relevant facts are that the respondent-assessee is an individual and he filed his return of income for Assessment Year 2007- 08 on 27.7.2007 declaring total income of Rs.11,76,955/-, which was duly processed u/s 143(1) of the Act. Subsequently, the return of income filed by the assessee was picked up for scrutiny assessment by issuance of notice u/s 143(2) of the Act on 5.8.2008, which was served on the assessee on 12.8.2008. In the subsequent assessment, the Assessing Officer noted that assessee had acquired an immoveable property for a sum of Rs.1,75,00,000/- and on being show caused to explain the source, assessee, inter-alia, submitted that a sum of Rs.1,24,00,000/- was paid by a concern, M/s. Champalal Motilal Steel Co. Pvt. Ltd. on his behalf. According to the assessee, the said sum was withdrawn by him from M/s. Champalal Motilal Steel Co. Pvt. Ltd. out of the credit balance lying with the said concern. The Assessing Officer has referred to the copy of account of the assessee appearing in the books of account of M/s. Champalal Motilal Steel Co. Pvt. Ltd. which was submitted by the assessee before him. The Assessing Officer noted that as per the said Statement of Account there was an opening credit balance of Rs.2,33,00,000/- in the account of the assessee as on 1.4.2006, but after perusing the Balance-sheet of the said concern for the year ending 31.3.2006, name of assessee was not appearing in the list of creditors. On being confronted, assessee pointed out that there was a mistake committed by the accountant of M/s. Champalal Motilal Steel Co. Pvt. Ltd. inasmuch as a sum of Rs.2,33,00,000/- was received from M/s. Navmi Steel Traders Co. Pvt. Ltd. with instructions to credit the account of the assessee in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. Instead, the accountant had credited the account of M/s. Navmi Steel Traders Co. Pvt. Ltd. in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. In support of his explanation, assessee also furnished a letter of confirmation from M/s. Navmi Steel Traders Co. Pvt. Ltd. along with copy of bank statement showing the relevant entries. In this manner, assessee pointed out that the withdrawal of Rs.1,24,00,000/- made by the assessee from M/s. Champalal Motilal Steel Co. Pvt. Ltd. was in effect not loans or advances, but mere withdrawal of money lying to his credit. The Assessing Officer, however, was not satisfied with the explanation of the assessee as according to him it was an afterthought, and that in such a situation the provisions of Sec. 2(22)(e) of the Act were fully attracted inasmuch as the assessee was a shareholder in M/s. Champalal Motilal Steel Co. Pvt. Ltd. According to the Assessing Officer, the amount of Rs.1,24,00,000/- advanced by M/s. Champalal Motilal Steel Co. Pvt. Ltd. to the assessee fell within the purview of Sec. 2(22)(e) of the Act and, therefore, considering the accumulated profit of the said concern, he brought to tax a sum of Rs.81,23,481/- in the hands of the assessee as ‘deemed dividend’ within the meaning of Sec. 2(22)(e) of the Act. In appeal, assessee reiterated the explanation furnished in the course of assessment proceedings and also referred to the audited Balance-sheet of M/s. Navmi Steel Traders Co. Pvt. Ltd. and a request letter of the assessee requesting for loan from M/s. Navmi Steel Traders Co. Pvt. Ltd. to justify that it was a case where assessee was making withdrawal of the credit balance already lying in the account books of M/s. Champalal Motilal Steel Co. Pvt. Ltd. The CIT(A) has since accepted the plea of the assessee and deleted the addition of Rs.81,23,481/- made by the Assessing Officer by invoking Sec. 2(22)(e) of the Act. Against such a decision of CIT(A), Revenue is in appeal before us on the basis of the aforesaid Grounds of appeal.
4. In this background, the respondent-assessee has invoked the provisions of Rule 27 of the Income Tax (Appellate Tribunal) Rules, 1963 (in short ‘the Rules’) and has raised the following Grounds in order to support the ultimate decision of CIT(A), and has contended that the appeal of the Revenue be dismissed :-
“1. Notice u/s 143(2) is legally invalid On the facts and circumstances and in law, notice u/s 143(2) served by the assessing officer on August 12, 2008 was legally invalid since the same had been served after the expiry of statutory limit of twelve months from the end of the month in which the return of income was furnished by the assessee on 27.7.2007; and though as per Proviso to section 143(2)(ii), the assessing officer could have served the notice u/s 143(2) on or before 31.7.2008.
Assessment order passed u/s 143(3) is also legally invalid On the facts and circumstances and in law, since the notice u/s 143(2) was legally invalid as the same had been served after expiry of statutory time limit, the consequential assessment order u/s 143(3) dated 29.12.2009 is also legally invalid ab initio.
Fact of belated service of notice u/s 143(2) is obvious The fact of belated services of notice u/s 143(2) is obvious from assessment order itself; and it does not involve any examination of record or investigation into facts not already on record.”
According to the learned representative for the assessee, notice u/s 143(2) of the Act has been served on the assessee on 12.8.2008, which is after the expiry of the stipulated time limit of 12 months from the end of the month in which return of income was furnished by the assessee, i.e., from 27.7.2007 and, therefore, the consequential assessment finalised u/s 143(3) of the Act was invalid. In this regard, he has referred to the discussion in the assessment order itself to justify the existence of relevant facts that are required for the purpose of adjudicating the said plea. The learned representative placed reliance on the judgments of the Hon'ble Bombay High Court in the case of B.R. Bamasi vs. Commissioner of Income-Tax, 83 ITR 223 (Bom.) and Commissioner of Income-tax vs. Gilbert & Barker, 111 ITR 529 (Bom) to contend that in an appeal filed by the Revenue, the respondent is entitled to raise a plea challenging the legal validity of the Assessing Officer’s assessment order in order to seek dismissal of the appeal of Revenue.
On this aspect of the matter, the ld. DR has not seriously opposed assessee’s plea for admission of the aforesaid Ground for adjudication, but has pointed out that there was no merit in the plea raised by the assessee because of the amendment made by the Finance Act, 2008 whereby clause (ii) of Sub-section (2) of Sec. 143 of the Act has been amended to provide that notice u/s 143(2) of the Act shall be served on the assessee within a period of 6 months from the end of the financial year in which the return is furnished. It was, therefore, contended that the return of income filed by the assessee on 27.7.2007 would be governed by the amended provisions of Sec. 143(2) of the Act and such a return could have been picked up for scrutiny assessment on or before 30.9.2008, whereas in the present case notice u/s 143(2) of the Act has been served on the assessee on 12.8.2008 itself, thereby implying that there is no infirmity in the assessment proceedings.
Insofar as the plea of assessee for admitting the aforesaid Grounds of appeal for adjudication are concerned, in our view, the same is admissible considering the judgment of Hon'ble Bombay High Court in the case of B.R. Bamasi (supra). Notably, the Hon'ble High Court, inter-alia, considered the following questions of law :-
“1. Whether, on the facts and in the circumstances of the case, the refusal of the Tribunal to allow the assessee to challenge for the first time before it the validity of notice and assessment under section 34 while considering the appeal filed by the department against the order of the Appellate Assistant Commissioner for the assessment year 1947-48 was in accordance with law ?
Further, the Hon'ble High Court answered the aforesaid controversy in the following words :-
“The only question is whether the Tribunal was entitled in law to refuse to allow the assessee to urge that ground in the appeal before it. Now a Division Bench of this High Court in Commissioner of Income-tax v. Hazarimal Nagji & Co., after considering the relevant sections of the Income-tax Act and the relevant Rules made thereunder, held that the powers of the Appellate Tribunal are similar to the powers of an appellate court under the Civil Procedure Code. It has further held that the respondent in an appeal is undoubtedly entitled to support the decree which is in his favour on any grounds which are available to him, even though the decision of the lower court in his favour may not have been based on those grounds. It has further held that if the appellant in his challenge to the decree of the lower court is entitled to take a new ground not agitated in the court below by leave of the court, there appears to be no reason why a respondent in support of the decree in his favour passed by the lower court should not be entitled to agitate a new ground and subject to the same limitation. A Division Bench of the Allahabad High Court has taken a similar view in Kanpur Industrial Works v. Commissioner of Income-tax. That judgment has considered the position of an appeal under section 33 of the Income-tax Act along with the relevant Rules and that of an appeal under the Code of Civil Procedure and the provisions of Order XLI, rule 22. The judgment holds that when the department files an appeal for an increase in the assessed income, the subject-matter of the appeal is the increase claimed by the department and the assessee can urge any ground of defence even though it might have been rejected by the Appellate Assistant Commissioner for showing that there should be no increase. It has further held that that the assessee is not liable to be assessed at all is a ground for showing that there should be no further assessment and the department's appeal can therefore be resisted on that ground and that there is no incongruity in maintaining the assessment order passed against the assessee and yet refusing to increase it on the ground that he was not liable to be assessed at all. The judgment points out however that if the Tribunal accepts the ground of defence that the assessee was not liable to be assessed, it can only refuse to increase the assessed income as only such an order would be within the scope of the appeal filed by the department and any other order such as annulling the assessment would be outside the scope of the appeal. That judgment holds that the position of an appeal under section 33 of the Income-tax Act and an appeal under the Code of Civil Procedure is identical...................................................
If the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal has been filed. The ground would serve only as a weapon of defence against the appeal. If the respondent has not himself taken any proceedings to challenge the order in appeal, the Tribunal cannot set aside the order appealed against. That order would stand and would have full effect in so far as it is against the respondent. The Tribunal refused to allow the assessee to take up this ground under an incorrect impression of law that if the point was allowed to be urged and succeeded, the Tribunal would have not only to dismiss the appeal, but also to set aside the entire assessment. The point would have served as a weapon of defence against the appeal, but it could not be made into a weapon of attack against the order in so far as it was against the assessee.”
As per the aforesaid decision of the Hon'ble High Court, assessee is entitled to raise the aforesaid Grounds only as a weapon of defence against the appeal of the Revenue. Moreover, it is also evident that the facts relevant to decide the controversy in the aforesaid Grounds of appeal raised by the assessee are emerging from the discussion in the assessment order itself on which there is no dispute. Therefore, since the Grounds raise a point of law and the relevant facts being available on record, we deem it fit and proper to admit the aforesaid Grounds of appeal raised by the respondent-assessee so far as it is to act as a weapon of defence with the respondent-assessee against the appeal of the Revenue.
Pertinently, in the instant case, assessee had filed his return of income on 27.7.2007 and the notice issued u/s 143(2) of the Act on 5.8.2008 has been served on the assessee on 12.8.2008. The aforesaid fact-position is emerging from the assessment order passed by the Assessing Officer. The case made out by the assessee is that the proviso to Sec. 143(2)(ii) of the Act, as applicable during the Assessment Year 2007-08, stipulated that no notice u/s 143(2) could be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. As per the assessee, in this view of the matter, the return of income having been filed on 27.7.2007, notice u/s 143(2) of the Act could have been served on the assessee on or before 31.7.2008, i.e., before expiry of 12 months from the end of the month in which the return of income has been furnished. On this basis, it is sought to be pointed out that the notice served on 12.8.2008 was belated and, therefore, the consequential assessment order passed u/s 143(3) of the Act was legally invalid.
On the contrary, the ld. DR appearing for the Revenue has pointed out that the Finance Act, 2008 has amended Sec. 143(2)(ii) of the Act to provide that the notice u/s 143(2) of the Act could be served within a period of 6 months from the end of the financial year in which the return of income is furnished. The ld. DR has also referred to the Explanatory Notes to the provisions of Finance Act, 2008 issued by CBDT to submit that such amended provisions would be applicable to all the returns, irrespective of the assessment year to which the returns pertained, where the notice u/s 143(2) of the Act could still be issued on 1.4.2008 under the pre-amended provisions. In nutshell, the case set-up by the ld. DR is that as on 1.4.2008, even under the pre-amended provisions, the return of income filed by assessee on 27.7.2007 could have been subject to issuance of notice u/s 143(2) of the Act and, therefore, in terms of the amendment carried out by the Finance Act, 2008, the period to issue notice u/s 143(2) of the Act stood extended upto 6 months from the end of the financial year in which the return is furnished, i.e., upto 30.9.2008. In this manner, the limitation to issue and serve notice u/s 143(2) of the Act in the instant case is sought to be defended as the notice has been served on 12.8.2008.
We have carefully considered the rival submissions. The short point for our consideration is the period within which notice u/s 143(2) of the Act could have been issued and served in the instant case having regard to the fact that assessee had filed the return of income for the instant assessment year on 27.7.2007. The provisions of Sec. 143(2)(ii) of the Act, as existing prior to 1.4.2008, read as under :-
“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”
Later, the said proviso to Sec.143(2)(ii) of the Act was amended by the Finance Act, 2008 w.e.f. 1.4.2008, which read as under :-
“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished.”
In the instant case, the return of income was filed on 27.7.2007. Quite clearly, as per the law prevailing prior to amendment made by the Finance Act, 2008, the period for issuing notice u/s 143(2) of the Act was 12 months from the end of the month in which the return is furnished, which would imply limitation of 31.7.2008 in the present case. On the contrary, if one is to go by the amended provision, the time available with the Assessing Officer to issue notice u/s 143(2) of the Act was upto 30.9.2008. Ostensibly, the notice u/s 143(2) of the Act has been served on the assessee on 12.8.2008. Therefore, the limited controversy is as to which of the two provisos would apply, i.e., the proviso amended by the Finance Act, 2008 w.e.f. 1.4.2008 or the pre- amended proviso. The aforesaid precise controversy has been addressed by the Hon'ble Allahabad High Court in the case of Tulsi Food Products, 380 ITR 192 (All). The Hon'ble High Court was dealing with the period permissible to issue notice u/s 143(2) of the Act in a case where return of income was filed on 24.7.2007 in relation to Assessment Year 2007-08. According to the Hon'ble High Court, such a fact-situation was not to be governed by the amended proviso and that the pre-amended proviso of Sec. 143(2)(ii) of the Act would prevail and the notice u/s 143(2) of the Act had to be issued within 12 months from the end of the month in which the return is furnished. In view of the aforesaid categorical judgment of the Hon'ble Allahabad High Court, we find enough weight in the plea of assessee that notice u/s 143(2) of the Act served on the assessee on 12.8.2008 was belated and in contravention of the then prevailing proviso to 143(2)(ii). No doubt, the ld. DR has referred to the Explanatory Notes issued by CBDT, which ostensibly is contrary to the interpretation placed by the Hon'ble Allahabad High Court in the case of Tulsi Food Products (supra). A perusal of the judgment of Hon'ble Allahabad High Court reveals that the CBDT circular sought to be relied upon by the ld. DR before us has also been considered. Therefore, under these circumstances, the interpretation placed by the Hon'ble Allahabad High Court on the inapplicability of the amended provisions of Sec. 143(2)(ii) of the Act to the instant situation has to be followed, having regard to the judicial discipline. Considered in this manner, the plea of assessee deserves to be upheld. We hold so and accordingly the assessment is held to be barred by limitation. Having upheld the stand of assessee, the natural corollary is that the appeal of Revenue is liable to be dismissed, albeit on a ground different than that decided by the CIT(A). We hold so.
Resultantly, appeal of Revenue is dismissed, as above.
Order pronounced in the open court on 23rd December, 2016.