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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SRI G. S. PANNU & SRI SANJAY GARG
Per Sanjay Garg, Judicial Member: The present appeal has been preferred by the assessee against the order of the learned Commissioner of Income Tax (Appeals)-41, Mumbai dated 23-01-2013 for assessment year 2002-03. The assessee has taken the following grounds of appeal:- “1. The Ld. CIT (A) erred in confirming the order as passed by the Ld. Assessing Officer u/s 143(3) without properly appreciating the fact that order is being set aside by Ld. Commissioner of Income Tax u/s as in the original assessment proceedings notice issued u/s 148 and issues arising therein were not considered. The Ld. CIT (A) erred in holding that validity of notice u/s 148 cannot be considered in appeal.
Ld. CIT (A) erred in not considering the fact that notice issued u/s 148 being issued after lapse of four years from assessment year while the original assessment was completed u/s 143(3) notice being invalid, no issue arising out of such notice can be considered under assessment order under appeal.
Appellant pray that order as passed by Ld. Assessing Officer be cancelled.
ITA No.1612/Mum/2013 2 4. Appellant crave your honour’s leave to add, alter or amend any ground of appeal at the time of hearing or before.” 2. Apart from that, the assessee has taken the following additional legal grounds of appeal:- “1. No incremental material being found during the course of search; there was no abetment of assessment order originally passed u/s 143(2) dtd. 28.2.05; hence order passed u/s. 153A r. w. sec. 143(3) dtd. 22.12.09 is without jurisdiction. Hence, order passed by Ld. CIT u/s. 263 dtd.2.11.10 is without jurisdiction. The consequential order passed u/s. 1433) r. w. Sec. 263 dtd. 30.12.11 is bad in law and void. 2. Appellant pray that order passed u/s. 143(3) r. w. Sec. 263 dtd. 30.12.11 be cancelled. 3. The brief facts of the case as derived from the order of the learned CIT (A) are as under:- The appellant filed its return of income on 31-10-2002 declaring income of Rs.85,30,400/- after claiming deduction under the following sections:- (i) 80 HHC - Rs.1,90,61,155/- (ii) 80 IB - Rs.1,18,24,950/-
Assessment order u/s 143(3) was passed by the Assessing Officer on 28-02-2005. In this assessment order, claim of deduction under section 80IB was allowed without any variation. However, deduction u/s. 80 HHC was modified and recomputed by excluding from business income deduction claimed u/s 80IB of the Income- tax Act. Thereafter, Assessing Officer passed rectification u/s. 154 of the Income-tax Act on 02-05-2005. In this order, Assessing Officer re-computed the deduction u/s. 80HHC of the Income-tax Act holding that DEPB receipts were covered by provisions of section 28(iv) of the Income-tax Act and the same would not qualify for proportionate amount of 90% to be allowed as deduction. In the
ITA No.1612/Mum/2013 3 said rectification order, the claim of the assessee for deduction u/s. 80HHC was reduced to Rs.588/-. However, while allowing the claim of assessee for deduction u/s. 80IB of the Income-tax Act, the Assessing Officer considered the DEPB receipts as profit derived from industrial undertaking and, therefore, he did not exclude these receipts while computing deduction u/s. 80IB of the Income-tax Act. Later on, Assessing Officer formed the opinion that deduction u/s. 80IB is not to be allowed on the DEPB receipts. Since assessee was allowed excess deduction u/s. 80IB of the Income-tax Act, he issued notice u/s 148 of the Income-tax Act on 14-02-2007 on this issue, after obtaining approval of Additional CIT. While re-assessment proceedings were in progress, search was carried out at the business premises of the assessee on 10-10- 2007. As per proviso to section 153A of the Income-tax Act, the re-assessment proceedings, pending on the date of search stood abated. The Assessing Officer also noted this fact of abatement of reassessment proceedings vide order sheet entry dated 22-11-2007. Consequent to search u/s. 132 of the Income-tax Act, notice u/s. 153A was issued to the assessee on 11-03-2008 requiring it to file the return of income within 15 days. The appellant filed the return of income on 17-11-2008 declaring income of Rs.85,30,400/- which was the same income declared by it in the return of income filed on 31-10-2002. The Assessing Officer passed the order u/s. 143(3) r. w. s. 153A on 22-12-2009 assessing the total income at Rs.2,67,38,960/- after allowing the deduction u/s. 80HHC of Rs.9,27,588/- and u/s. 80IB of Rs.1,18,24,950/-. The Ld. CIT (A) vide order dated 06-12-2010 partly allowed the appeal of the assessee.
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Thereafter, Ld. CIT, Central-III, Mumbai examined the records and found that the Assessing Officer should have considered the issues which were arising in the re-assessment proceedings but he failed to consider these issues in the order passed u/s. 153A of the I. T. Act, 1961. For this reason, the ld. CIT was of the opinion that the order passed by the Assessing Officer u/s. 153A of the I. T. Act, 1961 was erroneous and prejudicial to the interest of the Revenue. After considering the submissions of the assessee, Ld. CIT observed as follows in para 3 of his order u/s. 263 of the Act dated 02-11-2010:- “I have considered the facts of the case. From the perusal of the facts it is seen that Assessing Officer has issued notice under Section 148 of the Income-tax Act to the assessee on 11-10-2007. From the reasons recorded by the Assessing Officer at the time of issue of notice, it is noticed that reassessment proceedings were initiated for withdrawing excess deduction allowed u/s. 80IB of the Income-tax Act as according to Assessing Officer DEPB receipts are not profits derived from the eligible undertaking and deduction u/s. 80IB is to be worked out after excluding DEPB receipts amounting to Rs.2,19,47,989/- from the business income. The Assessing Officer has also issued questionnaire dated 06.07.2007 in the course of re- assessment proceedings requiring assessee to explain why deduction allowed on DEPB receipts should not be withdrawn. However, as already explained these proceedings were abated in view of proviso to section 153A of the Income-tax Act. Thus while passing order u/s. 153A of the Income-tax Act dated 22.12.2009, Assessing Officer should have taken into consideration issues which were pending before him in the abated reassessment proceedings and should have adjudicated these issues in the order passed u/s. 153A of the Income- tax Act. However, in the 153A order, Assessing Officer has failed to consider these issues. Therefore, in the 153A order, Assessing Officer has failed to consider these issues. Therefore, the order passed by the Assessing Officer u/s. 153A of t he Income-tax Act is erroneous as Assessing Officer has not decided whether DEPB receipts can be considered as profit derived from industrial undertaking. Similar issue has now been decided by the Supreme Court in the case of Liberty India 317 ITR 218 wherein it was held that DEPB receipts are not derived from industrial undertaking and hence, these receipts are not to be taken into consideration in computing deduction u/s. 80 IB of the Income-tax Act. Thus, the order of Assessing Officer is not only erroneous, but it is also prejudicial to the interest of revenue as the
ITA No.1612/Mum/2013 5 assessee has been allowed excess claim of Rs.87,14,396/- under section 80IB of the Income-tax Act.” 5. In view of the above, the ld. CIT set-aside the order passed by the AO u/s. 143(3) r. w. s. 153A of the I. T. Act, 1961 and directed the Assessing Officer to pass fresh order after taking into consideration the issues raised in the re-assessment proceedings which were abated by him on 22-11-2007. He, further directed that the AO will pass fresh order and will decide as to whether the assessee is entitled to deduction u/s. 80IB on the DEPB receipts and will take into consideration the ratio laid down by the Hon’ble Supreme Court in the case of Liberty India 317 ITR 218 and apply the same to the facts of the case. Giving effect to the directions issued by ld. CIT u/s. 263 of the I. T. Act, 1961, the Assessing Officer proceeded to pass the fresh assessment order. During these proceedings, the ld. AR of the assessee raised objections that the original very reassessment proceedings initiated by notice under section 148 dated 14.02.2007 were bad in law being without jurisdiction, hence, is to be treated as non-est, therefore the original assessment proceedings will be deemed to be completed and not pending on the date of search. He therefore, pleaded that his objections as to the validity of the reopening of the assessment be considered and decided. The assessing officer, however dismissed the objections of the assessee and passed the fresh assessment order dated 30.12.2011 re- computing the deduction u/s. 80IB at Rs.31,10,554/- excluding the deduction earlier allowed on the DEPB receipts.
Being aggrieved by the said order of the AO, the assessee preferred appeal before the learned CIT(A) and reiterated its submissions as were made before the AO and requested for consideration of the objections regarding the validity of the
ITA No.1612/Mum/2013 6 reopening of the assessment u/s 147 of the Act. The learned CIT (A), however, after considering the submissions of the assessee dismissed the appeal of the assessee by observing as under:- “I have considered the facts of the case and the submissions made by the assessee. It is an undisputed fact that the order appealed against is an order passed by the Assessing Officer giving effect to the order u/s. 263 of ld. CIT. As per the provisions of the Act, the Assessing Officer is required to follow the directions of ld. CIT. This is what the Assessing Officer has done. The order under appeal is not an order passed u/s 147 of the I. T. Act, 1961. The proceedings initiated by the Assessing Officer by the issue of notice u/s. 148 had already abated on the initiation of search u/s. 132 in the case of the assessee in view of the provisions of section 153A of the I. T. Act, 1961. Hence, the assessment order passed by the Assessing Officer which has been appealed against by the assessee is not in relation to the proceedings initiated u/s. 148. The ld. AR of the assessee has also informed during the course of the appellate proceedings that no appeal had been filed before the Hon’ble ITAT by the appellant against the order u/s. 263 passed by the ld. CIT. Once, the order appealed against is not an order passed u/s 147, the question of examining the jurisdiction of the Assessing Officer under the proviso the section 147 does not arise. The legal validity of the notice u/s. 148 also cannot be questioned at this stage since the proceedings inflated as a result of t he issuance of notice has long since abated and the present order has been passed u/s. 153A r. w. s. 263. In the order u/s. 263, ld. CIT had, while setting aside the order u/s. 153A specifically directed the Assessing Officer to pass fresh order in which he will decide as to whether the assessee is entitled to deduction u/s. 80IB on DEPB receipts after taking into consideration the ratio laid down by t he Hon’ble Supreme Court in the case of Liberty India 317 ITR 218. This is what the Assessing Officer has done. Hence, no fault can be found with his action of passing the order which is as per law. The action of the Assessing Officer of rejecting the appellant’s submissions that notice u/s. 148 dated 10.11.2007 was invalid and without any authority of law is, therefore, correct. The ground of appeal filed by the assessee is dismissed.
Being aggrieved by the above order of the learned CIT(A), the assessee has come in appeal before us.
We have heard the rival submissions and have also gone through the records. The ld. AR for the assessee submitted before us that while giving effect to the order of the learned CIT passed u/s 263 of the Act, the AO had failed to consider the objections of
ITA No.1612/Mum/2013 7 the assessee regarding validity of the reopening of the assessment proceedings u/s 147 of the Act. The submission of the assessee was that it was not the original assessment proceedings which were abated but only the reopened assessment proceedings. If, the AO had to consider and make the additions which were the subject matter of consideration in the reopened assessment proceedings, the AO was also legally duty bound to consider the objections of the assessee in relation to the very validity of the initiation of such reassessment proceedings u/s 147 of the Act. In case, the said reopened assessment proceedings were held to be invalid, then the AO was precluded from going into the merits and in such circumstances, such proceedings being void and ab initio could not be considered to be pending or abated for the purpose of assessment proceedings u/s 153A of the Act. Thus, the original assessment proceedings would be deemed to be completed and not abated as on the date of search operation. The assessee also further pleaded that the notice issued u/s 148 of the Act in those proceedings was hit by the proviso to Section 147 of the Act. The assessee had duly disclosed all the material facts relevant for completing the assessment and the notice was issued after a lapse of four years and there was no failure on the part of the assessee to truly and fully disclose all the relevant material facts before the AO for completing the assessment. Secondly, at the time of reopening assessment proceedings, the AO had no reason to believe that any income of the assessee had escaped assessment. It was further submitted that since no incriminating material was found during the search action, hence, in the light of the decisions of various Courts including that of the Hon’ble Bombay High Court in the cases of ‘All Cargo Logistics’ ITA No.1969 of 2013 and in the case of ‘Continental Warehousing Corporation’ ITA
ITA No.1612/Mum/2013 8 NO. 523 of 2013 reported in (2015) 279 CTR 0389 (Bombay), in relation to the assessments which have already been concluded, the AO was precluded from making additions on any other issue except relating or concerning to the incriminating material found during the search action . He therefore, has submitted that since no incriminating material was found during the search action, hence any additions made by the AO in assessment proceedings on other issues including the DEPB receipts were illegal and beyond his jurisdiction. In support of his contentions, the learned AR relied upon the decision of the Tribunal in the assessee’s own case for assessment years 2004-05 and 2005-06 passed in ITA No.5077 and 6123/Mum/2010 vide order dated 11-12-2015 wherein, the Tribunal while relying upon the above stated decisions of the Hon’ble Bombay High Court(supra) has held that since there was no incriminating material found during the course of search action in the case of the assessee and further no addition was made by the Revenue on the basis of any material found during the time of search and since the assessment for the above said assessment years had attained finality; hence, in view of the ratio laid down by the Hon’ble Bombay High Court in the case of All Cargo Global Logistics (supra) the additions made by the AO were not sustainable. The Ld. AR has further contended that since the very reopening of the assessment u/s 147 of the Act was invalid hence, the order passed by the learned CIT u/s 263 of the Act was also illegal and further that the order passed by the AO in complying with the directions given by the learned CIT(A) was also invalid. The original assessment proceedings for the year under consideration had thus, already attained finality. He has further submitted that even otherwise in the first round of the assessment proceedings carried out u/s 153A of the Act, the AO had not
ITA No.1612/Mum/2013 9 considered any issue relating to the allowance or disallowance of deduction u/s 80IB and hence, there was no reason for the assessee to agitate the validity of the abated proceedings u/s 147 of the Act. However, since the learned CIT had directed while passing revision order u/s 263 of the Act to consider the assessment relating to the proceedings u/s 147 of the Act, under circumstances the assessee was also entitled to raise the question of the very validity of initiation of such proceedings u/s 147 of the Act and that the AO was duty bound to consider the objections of the assessee in this regard. If, the very validity of the proceedings u/s 147 of the Act is held to be illegal, then there was no question of making any addition relating to the issue under consideration during the proceedings u/s 147 of the Act. He has further submitted that the AO could not have made the addition relating to the issue of deduction of DEPB license u/s 80 IB of the Act because that issue had already been closed and attained finality during the original assessment proceedings.
On the other hand the learned DR relied upon the orders of the Revenue authorities. He has further contended that the issue relating to the validity of the proceedings u/s 147 of the Act would have been agitated in those proceedings only. He has further contended that once the proceedings u/s 147 of the Act have been abated in view of the search action carried out u/s 132 of the Act in the case of the assessee, the assessee has got no right to raise objection regarding validity of the proceedings u/s 147 during the assessment proceedings u/s 153A of the Act and it was open to the AO to assess the income of the assessee afresh considering the deduction if any wrongly allowed to the assessee earlier. There was information available before the AO during the assessment proceedings u/s 153A of the Act that the assessee had been
ITA No.1612/Mum/2013 10 originally wrongly allowed deduction in respect of DEPB licenses which was also the subject matter in the reopened assessment proceedings u/s 147 of the Act, hence, the AO had rightly disallowed the claim of the assessee in this respect. He further contended that even otherwise, the assessee has not filed any appeal against the order of the learned CIT passed u/s 263 of the Act, hence, the order of the learned CIT has become final vide which he has directed the AO to revise the assessment order considering the issue of grant of 80 IB deduction to the assessee in respect of DEPB receipts. Now, the assessee has been estopped from agitating this issue during the proceedings of order giving effect to the order of the learned CIT. Therefore, it has been submitted that the learned CIT(A) has rightly dismissed the appeal of the assessee.
After considering the rival contentions and careful perusal of the impugned order, we find that the crucial issues raised before us are:- “1. As to whether the plea that reopening of the assessment u/s 147 of the Act was invalid and bad in law, can be looked into the consequential assessment proceedings carried out as per the directions of the learned CIT in the order passed u/s 263 of the Act; 2. Whether the assessee is estopped from taking the plea of the validity of initiation of the reopening of the assessment u/s 147 of the Act because of the fact that the assessee had not challenged before the higher Court the vires of the order of the learned CIT passed u/s 263 of the Act vide which he directed the AO to consider the issues involved in reassessment proceedings which stood abated and pass fresh order u/s 153A. 3. If the initiation of the reopening of the assessment u/s 147 is held to be illegal or nullity in the eyes of law, then, whether the AO still could take into consideration the information relating to the issues which were the subject matter such proceedings u/s 147 and make additions in that respect during the fresh assessment proceedings u/s 153A of the Act in the absence of any incriminating material found in the search action. 4. Whether the AO was justified in making the addition in respect of DEPB receipts in pursuance to the direction of the learned
ITA No.1612/Mum/2013 11 CIT vide order passed u/s 263 of the Act, when there was no incriminating material found during the search action. So far as the issue as to whether the assessee could raise the plea before the AO during the fresh assessment proceedings u/s 153A of the Act pursuant to the direction of the learned CIT given in the revision order passed u/s 263 of the Act regarding the validity of initiation of the reopening proceedings u/s 147 of the Act is concerned, we find that various Courts of Law have been unanimous on the proposition that jurisdictional aspect of an order passed in a primary proceedings can be examined in the collateral proceedings also. The validity of an assessment order can be challenged during the appellate proceedings pertaining to examination of validity of the order passed u/s 263 of the Act.
In a recent decision in the case of the case of “M/s Westlife Development Ltd Vs. Principal Commissioner of Income Tax” [ITA No.688/Mum/2016 decided vide order dated 10-06-2016, the co-ordinate bench of this Tribunal has thoroughly examined the issue as to whether if the initiation of the primary proceedings is invalid without jurisdiction but, the same has not been agitated by way of any appeal or otherwise and thereafter on the basis of those primary proceedings, certain secondary proceedings such as reopening of the assessment u/s 147 of the Act or revision of the assessment u/s 263 of the Act is done, in such circumstances, whether the assessee has a right to challenge the very validity of the primary proceedings in an appeal filed against any order passed in such subsequent/collateral proceedings. The Tribunal has discussed various case laws in this respect. The relevant part of the findings of the Tribunal is reproduced hereunder:- “3. During the course of hearing, the Ld. counsel of the assessee inter-alia stated that in this case the impugned order passed u/s 263 is bad in law on the jurisdictional ground, that is to say that the
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original assessment order passed u/s 143(3) dated 2440-2013 which has been sought to be revised by the Id.CIT was a nullity in the eyes of law, and therefore an order, which was a nullity in the eyes of law had no existence in the eyes of law and, therefore, the same could not have been revised by the Ld.CIT, thereby giving fresh life to the proceedings which had no legal existence in the eyes of law. In this regard, it has been further explained by the Id. counsel that the original assessment was framed u/s 143(3) upon an erstwhile company, viz. M/s 'Westpoint Leisureparks Pvt Ltd' (hereinafter called WLPL), which had already got amalgamated into another company namely M/s 'Westlife Development Ltd' (hereinafter called WDL) and therefore, on the date of framing of the assessment order, WLPL was not in existence. It was further submitted that this fact was brought to the knowledge of the Assessing Officer; despite that, the Assessing Officer framed the assessment upon a non-existing entity. It was submitted by him that framing of an assessment upon a company which has already been amalgamated by way of an order of the High Court is nullity in the eyes of law and in support of his arguments he placed reliance upon the following judgments: 1. Judgment of Delhi High Court in the case of Spice Infotainment Ltd. Vs. Commissioner of Service Tax in ITA 475 & 476 of 2011, dated 03.08.2011 2. CIT v. Dimension Apparels P. Ltd. [370 ITR 288 (Del)] 3. I. K. Agencies P. Ltd. v CIT [347 ITR 664 (Cal)] 4. CIT v Express Newspapers Ltd. [40 ITR 38 (Mad)] 5. Judgment of Delhi High Court in the case of CIT v Micra India P. Ltd. (2015) 57 Taxmann.com 163 (Del) 6. Order of the Tribunal Mumbai Bench, in the case of Instant Holdings Ltd. ACIT in ITA no. 4593, 4748/Mum/2011 order dated 09.03.2016. 7. Order of the Tribunal Kolkata Bench, in the case of Emerald Company Ltd in ITA no. 428/Ko1/2015 order dated 13.01.2016 8. Judgment of Karnataka High Court in the case of CIT v Intel Techno India P. Ltd. (2015) 57 Taxmann.com 159 (Kar) 9. Order of the Tribunal Kolkata Bench, in the case of Gestener (India) ACIT in 1TA no. 275/Ko1/2007 " 4. It was further argued by him that the impugned assessment order was non est in the eyes of law and, therefore, the same could not have been revised by the Id.CIT. In this regard, he relied upon the judgment of Hon'ble Delhi High in CIT vs Escorts Farms Pvt Ltd 180 ITR 80 (Del) and upon the decision of the co-ordinate bench in the case of Krishna Kumar Saraf vs CIT ITA No.4562/De1/2011 dated 24-09-32015 and Steel Strips Ltd v ACIT 53 ITD 553 (Chd). He thus requested that the impugned revision order passed by the Id.CIT is illegal on this primary jurisdictional ground itself.
Per contra, Ld. Departmental Representative for the Revenue vehemently opposed the arguments of the Id. Counsel. It was
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submitted by the Id. CIT-DR that even if the original assessment order was framed in the name of an erstwhile company, the same was only a mere irregularity and that does not make the assessment as nullity in the eyes of law. It was submitted that such lapses were protected u/s 292B of the Act.
In addition to the above, it was further submitted by him that the issue with regard to illegality in the original assessment order cannot be raised here during the proceedings challenging the order u/s 263. It was further submitted by him that in any case, the ld.CIT had proper jurisdiction to make revision of the impugned assessment order.
We have heard both the parties on this issue and also gone through the orders passed by the lower authorities as well as the judgments relied upon before us. In our view, we need to decide following issues, before we go into any other issues or merits of the impugned order: 1. Whether the assessee can challenge the validity of an assessment order during the appellate proceedings pertaining to examination of validity of order passed u/s 263? 2. Whether the impugned assessment order passed u/s 143(3) dated 24-10-2013 was valid in the eyes of law or a nullity as has been claimed by the assessee? 3. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order?
In our considered view, since these issues are jurisdictional issues and go to the root of the matter, therefore before dealing with any other issue, we shall first deal with all above three issues one by one, as under:
Challenging the jurisdictional defects of assessment order for assailing the jurisdictional validity of the revision order passed u/s 263: The first issue that arises for our consideration is - whether the assessee can challenge the jurisdictional validity of order passed u/s 143(3) in the appellate proceedings taken up for challenging the order passed u/s 263? If we analyse the nature of both of these proceedings, which are under consideration before us, we find that the original assessment proceedings can be classified in a way as 'primary proceedings'. These are, in effect, basic / foundational proceedings and akin to a platform upon which any subsequent proceedings connected therewith can rest upon. The proceedings
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initiated u/s 263 seeking to revise the original assessment order is off shoot of the primary proceedings and therefore, these may be termed as 'collateral proceedings' in the legal framework. The issue that arises here is whether any illegality/invalidity in the order passed in the 'primary proceedings' can be set up in the 'collateral proceedings' and if yes, then of what nature?
8.1. We have analysed this issue carefully. There is no doubt that after passing of the original assessment order, the primary (i.e. original proceedings) had come to an end and attained finality and, therefore, outcome of the same cannot be disturbed, and therefore, the original assessment order framed to conclude the primary proceedings had also attained finality and it also cannot be disturbed at the instance of the assessee, except as permitted under the law and by following the due process of law. Under these circumstances, it can be said that effect of the original assessment order cannot be erased or modified subsequently. In other words, whatever tax liability had been determined in the original assessment order that had already become final and that cannot be sought to be disturbed by the assessee. But, the issue that arises here is that if the original assessment order is illegal in terms of its jurisdiction or if the same is null & void in the eyes of law on any jurisdictional grounds, then, whether it can give rise to initiation of further proceedings and whether such subsequent proceedings would be valid under the law as contained in Income Tax Act? It has been vehemently argued before us that the subsequent proceedings (i.e. collateral proceedings) derive strength only from the order passed in the original proceedings (i.e. primary proceedings). Thus, if order passed in the original proceedings is itself illegal, then that cannot give rise to valid revision proceedings. Therefore, as per law, the validity of the order passed in the primary (original) proceedings should be allowed to be examined even at the subsequent stages, only for the limited purpose of examining whether the collateral (subsequent) proceedings have been initiated on a valid legal platform or not and for examining the validity of assumption of jurisdiction to initiate the collateral proceedings. If it is not so allowed, then, it may so happen that though order passed in the original proceedings was illegal and thus order passed in the subsequent proceedings in turn would also be illegal, but in absence of a remedy to contest the same, it may give rise to an 'enforceable' tax liability without authority of law. Therefore, the Courts have taken this view that jurisdictional aspects of the order passed in the primary proceedings can be examined in the collateral proceedings also. This issue is not res integra. This issue has been decided in many judgments by various courts, and some of them have been discussed by us in followings paragraphs.
8.2. In a matter that came up before Hon'ble Supreme Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors., [1955] 1 5CR 117 the facts were that the appellant in that case had undervalued
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the suit at Rs.2,950 and laid it in the court of the Subordinate Judge, Monghyr for recovery of possession of the suit lands and mesne profits. The suit was dismissed and on appeal it was confirmed. In the second appeal in the High Court the Registry raised the objection as to valuation under Section 11. The value of the appeal was fixed at Rs.9,980. A contention then was raised by the plaintiff in the High Court that on account of the valuation fixed by the High Court the appeal against the decree of the court of the Subordinate Judge did not lie to the District Court, but to the High Court and on that account the decree of the District Court was a nullity. Alternatively, it was contended that it caused prejudice to the appellant. In considering that contention at page 121, a four Judge Bench of Hon'ble Supreme Court speaking through Vankatarama Ayyar, J. held that:
“it is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties."
8.3. This judgment was subsequently followed by Hon'ble Supreme Court in the landmark case of Sushil Kumar Mehta vs Gobind Ram Bohra, (1990) 1 SCC 193, wherein an issue arose whether a decree can be challenged at the stage of execution and whether a decree which remained uncontested operates as res-judicata qua the parties affected by it. Hon'ble apex court, taking support from aforesaid judgment, observed as under:
"In the light of this position in law the question for determination is whether the impugned decree of the Civil Court can be assailed by the appellant in execution. It is already held that it is the Controller under the Act that has exclusive jurisdiction to order ejectment of a tenant from a building in the urban area leased out by the landlord. Thereby the Civil Court inherently lacks jurisdiction to entertain the suit and pass a decree of ejectment. Therefore, though the decree was passed and the jurisdiction of the Court was gone into in issue Nos. 4 and 5 at the ex-parte trial, the decree there-under is a nullity, and does not bind the appellant. Therefore, it does not operate as a res judicata. The Courts below have committed grave error of law in holding that the decree in the suit operated as res judicata and the appellant cannot raise the same point once again at the execution."
8.4. Similar view has been taken by Hon'ble Supreme Court by
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following aforesaid judgments recently in the case of Indian Bank vs Manual Govindji Khona reported in 2015 (3) SCC 712. Further, similar view was emphasized by Hon'ble Bombay High Court (GOA Bench) in the case of Mavany Brothers vs CIT (Tax Appeal No 8 of 2007) in its order dt 17th April, 2015 wherein it was held that an issue of jurisdiction can be raised at any time even in appeal or execution.
8.5. The aforesaid principles, enunciated by the Apex Court in the case of Kiran Singh & Ors. v. Chaman Paswan & Ors, supra were reiterated by the Apex Court in the cases of Superintendent of Taxes vs Onkarmal Nathmal Trust (AIR 1975 SC 2065) and Dasa Muni Reddy v. Appa Rao (AIR 1974 SC 2089). In the first of these decisions it was pointed out that revenue statutes protect the public on the one hand and confer power upon the State on the other, and the fetter on the jurisdiction is one meant to protect the public on the broader ground of public policy and, therefore, jurisdiction to assess or reassess a person can never be waived or created by consent. This decision shows that the basic principle recognized in Kiran Singh (supra) is applicable even to revenue statutes such as the Income Tax Act. Dasa Muni Reddy (supra) is a judgment where the principle of 'coram non judice' was applied to rent control law. It was held that neither the rule of estoppel nor the principle of res ludicata can confer the Court jurisdiction where none exists. Here also the principle that was put into operation was that jurisdiction cannot be conferred by consent or agreement where it did not exist, nor can the lack of jurisdiction be waived.
8.6. These judgments were subsequently noticed by Hon'ble Gujarat High Court in the case of P. V. Doshi 113 ITR 22(Gujrat). This case arose under the Income Tax Act with reference to the provisions of Section 147 dealing with re-assessment. The facts were that the assessment was sought to be reopened under Section 147 and notice under section 148 was issued. Validity of reopening was not challenged upto Tribunal and additions were challenged on merits only. The Tribunal restored the matter to the Assessing Officer with some directions to reexamine the issue on merits. When the matter came back to the assessing officer the assessee specifically raised the point of jurisdiction to reopen the assessment, contending that the notice of reopening was prompted by a mere change of opinion. The AO rejected plea of the assessee but the AAC accepted this ground and also held the reassessment to be bad in law on jurisdictional ground. Against the order of the AAC the Revenue went in appeal before the Tribunal and specifically raised the plea that the question of jurisdiction to reopen the assessment having been expressly given up by the assessee in the appeal against the reassessment order in the first round, the assessee was debarred from raising that point again before the AAC and the AAC was equally wrong in permitting the assessee to raise that point which had become final in the first round and in adjudicating upon the same. The plea of the Revenue impressed the Tribunal which took the view that after its earlier order
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in the first round of proceedings the matter attained finality with regard to the point of jurisdiction which was given up before the AAC and not agitated further and that in the remand proceedings what was open before the Assessing Officer was only the question whether the addition was justified on merits and the point regarding the jurisdictional aspect was not open before the Assessing Officer. According to the Tribunal, the assessee having raised the point in the first round and having given it up could not revive it in the second round of proceedings where the issue was limited to the merits of the additions. In this view, the Tribunal accepted the Revenues plea. The assessee thereafter carried order of the Tribunal in reference before the Gujarat High Court. The High Court after considering various judgments of the Supreme Court on the point of jurisdiction to reopen the assessment and also after specifically discussing the judgment of the Supreme Court in Onkarmal Nathmal Trust (supra) and Dasa Muni Reddy (supra) held that the Tribunal was in error in holding that the question of jurisdiction became final when it passed the earlier remand order. It was held that neither the question of res judicata nor the rule of estoppel could be invoked where the jurisdiction of an authority was under challenge. According to Hon'ble Gujarat High Court, the rule of res judicata cannot be invoked where the question involved is the competence of the Court to assume jurisdiction, either pecuniary or territorial or over the subject matter of the dispute. Hon'ble High Court further held that since neither consent nor waiver can confer jurisdiction upon the Assessing Officer where it did not exist, no importance could be attached to the fact that the assessee, in the first round of proceedings, expressly gave up the plea against the erroneous assumption of jurisdiction by the assessing authority. According to the Hon'ble Court, the "finality or conclusiveness could only arise in respect of orders which are competent orders with jurisdiction and if the proceedings of reassessment are not validly initiated at all, the order would be a void order as per the settled legal position which could never have any finality or conclusiveness. If the original order is without jurisdiction, it would be only a nullity confirmed in further appeals'. In this view of the matter, Hon'ble High Court finally answered the reference in favour of the assessee.
8.7. It is further noted that many of these judgments were discussed and followed by the co-ordinate bench of the Tribunal in the case of Indian Farmers Fertilizers Co-operative Ltd vs KIT 105 lTD 33 (Del), wherein a similar issue had arisen. In this case, the issue raised before the bench was whether it is open to the assessee, not having appealed against the reassessment order, to set up or canvass its correctness in collateral proceedings taken for rectification thereof u/s 154. The bench minutely analysed law in this regard and applying the principle of 'coram non judice' and following aforesaid judgments of the supreme court, it was held that if an assessee seeks to challenge the reassessment proceedings as being without jurisdiction, when action for rectification is sought to be taken on
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the assumption of the validity of the reassessment order, then the assessee has to step in and protect its interests and the liberty to question even the validity of the reassessment proceedings ought to be given to it......." (emphasis supplied)
8.8. Similar view was taken in another decision of the Tribunal in the case of Dhiraj Suri vs ACIT 98 lTD 87 (Del). In the said case, appeal was filed by the assessee before the Tribunal against the levy of penalty. In the appeal challenging the penalty order, the assessee challenged the validity of block assessment order which had determined the tax liability of the assessee on the basis of which penalty was levied subsequently. The revenue objected with respect to the ground of the assessee raising jurisdictional issues of assessment proceedings in the appeal against the penalty order. After analysing the legal position, as clarified by Hon'ble Gujrat High Court in the case of P.V. Doshi, supra and Hon'ble Bombay High Court in the case of Jainaravan Babulal vs CIT. 170 ITR 399, the bench held as that if the block assessment itself is without jurisdiction then there is no question of levy of any penalty u/s. 158BFA(2) and therefore it is open to the assessee to set up the question of validity of the assessment in the appeal against the levy of penalty.
8.9. We also derive support from another judgement of Hon'ble Bombay High Court in the case of Inventors Industrial Corporation Ltd vs CIT 194 ITR 548 (Bombay) wherein it was held that assessee was entitled to challenge the jurisdiction of the AO to initiate re- assessment proceedings before the CIT(A) in the second round of proceedings, even though he had not raised it in earlier proceedings before the Assessing Officer or in the earlier appeal.
8.10. Thus, on the basis of aforesaid discussion we can safely hold that as per law, the assessee should be permitted to challenge the validity of order passed u/s 263 on the ground that the impugned assessment order was non est and we hold accordingly.” The Tribunal further in para 10 & 11 of the order has observed as under: “10. If the impugned assessment order passed u/s 143(3) was illegal or nullity in the eyes of law, then, whether the CIT had a valid jurisdiction to pass the impugned order u/s 263 to revise the non est assessment order: Having decided the aforesaid two issues, the next issue that is to be decided by us is about the validity of order passed u/s 263 by the Ld. CIT seeking to revise the assessment order which was nullity in the eyes of law.
10.1. We have discussed in detail in earlier part of our order that an invalid order cannot give birth to legally valid
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proceedings. It is further noticed by us that some of the judgments relied upon by the Ld. Counsel have already addressed this issue. This issue has also been decided by the co-ordinate bench (Delhi Bench of Tribunal) in the case of Krishna Kumar Saraf vs CIT (supra). The relevant part of the order is reproduced below:
"17. There is no quarrel with the proposition advanced by Id. DR that the proceedings u/s 263 are for the benefit of revenue and not for assessee. 18. However, u/s 263 the Id. Commissioner cannot revise a non est order in the eye of law. Since the assessment order was passed in pursuance to the notice U/S 143(2), which was beyond time, therefore, the assessment order passed in pursuance to the barred notice had no legs to stand as the some was non est in the eyes of law. All proceedings subsequent to the said notice are of no consequence. Further, the decision of Hon'ble Madras High Court in the case of CIT Vs. Gitsons Engineering Co. 370 ITR 87 (Mad) clearly holds that the objection in relation to non service of notice could be raised for the first time before the Tribunal as the some was legal, which went to the root of the matter. 19. While exercising powers u/s 263 Id. Commissioner cannot revise an assessment order which is non est in the eye of law because it would prejudice the right of assessee which has accrued in favour of assessee on account of its income being determined. If Id. Commissioner revises such an assessment order, then it would imply extending/ granting fresh limitation for passing fresh assessment order. It is settled law that by the action of the authorities the limitation cannot be extended, because the provisions of limitation are provided in the same. 20. In view of above discussion, ground no.3 is allowed and revision order passed u/s 263 is quashed."
10.2. It is further noticed by us that similar view has been taken by Chandigarh Bench of the Tribunal in the case of Steel Strips Ltd (supra). 11. Thus, after taking into account all the facts and circumstances of the case, we find that in this case, the original assessment order passed u/s 143(3) dt 24-10-2013 was null & void in the eyes of law as the same was passed upon a non-existing entity and, therefore, the Ld. CIT could not have assumed jurisdiction under the law to make revision of a non est order and, therefore, the impugned order passed u/s 263 by the Ld.CIT is also nullity in the eyes of law and therefore the same is hereby quashed.”
A perusal of the above order reveals that various Courts of Law including the Hon’ble Supreme Court has held that a defect of
ITA No.1612/Mum/2013 20 jurisdiction whether its pecuniary or territorial or whether it is a subject- matter of the action, strikes at the very validity of the Court to pass any decree and such a defect cannot be cured even by consent of the parties. That a decree passed by a Court without jurisdiction is a nullity and that its invalidity can be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. That the issue of jurisdiction can be raised at any stage even in appellate or execution stage. Neither the Rule of Estoppels nor the Principle of res-judicata can confer the jurisdiction where none exists. The facts in the case of P. B. Doshi (supra) are very much relevant wherein re-assessment proceedings were initiated against assessee and an addition was made to his income. Before AAC, contention about validity of notice for re- assessment was given up by the assessee and on merits appeal was dismissed. On further appeal, Tribunal remanded matter to file of ITO with direction to on re-examine witness and then complete assessment. ITO on remand completed assessment and again made addition. On appeal, assessee re-agitated point of validity of re- assessment proceedings on ground that there was mere change of opinion. AAC found that no reasons were recorded by ITO before issuing notice for re-assessment and, therefore, held that ITO had no jurisdiction to re-open assessment. Tribunal held that in restoring case to file of ITO by earlier order, only point left open was in respect of addition of on merits and that legal or jurisdictional aspect whether re- assessment proceedings were legally initiated was not kept open; It also held that even though this point went to root of jurisdiction and was pure question of law, merely because point was initially raised and not pressed when matter was taken up before AAC, it could be waived and it could not be reagitated ; The the Hon’ble Gujarat High Court reversing the order of the Tribunal held that if the jurisdiction
ITA No.1612/Mum/2013 21 cannot be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such cases would lack inherent jurisdiction unless the conditions precedent are fulfilled and it would be a void order or a nullity. The above decision of the Hon’ble Gujrat High Court has also been followed by the co-ordinate bench of the Tribunal in the case of “Indian Farmers Fertilizers Co-operative Ltd vs KIT” ( Supra) as discussed above. Even, the Tribunal in the case or Dhiraj Suri (supra) in an appeal against the penalty order has held that if the assessment order was without jurisdiction, there was no question of levy of penalty, therefore, it was open to the assessee to set up the question of validity of the assessment in the appeal against levy of penalty. The Hon’ble Bombay High Court in the case of investors Industrial Corporation (supra) has held that the assessee was entitled to challenge the jurisdiction of the AO to initiate reopening of assessment proceedings before the CIT (A) in the second round of proceedings even though it has not raised the same before earlier proceedings before the AO or in the earlier appeal.
In the light of various case laws as cited above, the proposition that is coming out is that the jurisdiction or the legality of the proceedings can be agitated in a subsequent proceedings or even in a collateral proceedings or an execution proceedings also. If, the original order is illegal or without jurisdiction, the subsequent or collateral proceedings arisen out of such orders or proceedings, cannot be held to be valid.
Coming to the facts of the present case, the original assessment proceedings u/s 143(3) of the Act had already been completed and attained finality. At the time of search, the reopened assessment
ITA No.1612/Mum/2013 22 proceedings u/s 147 of the Act were pending. So, what were abated due to the search action were the reassessment proceedings u/s 147 of the Act (in which the issue of section 80IB deduction on DEPB receipt was pending) and not the original assessment proceedings u/s 143(3) of the Act. Now, subsequent to the search action, the fresh assessment order was passed by the AO u/s 153A of the Act. In this assessment order the AO did not consider the issue relating to the claim of deduction in relation to DEPB receipts. Admittedly, no incriminating material during the search action was found in relation to any of the issue and no additions were made. Under the circumstances, the learned CIT invoked his revision jurisdiction u/s 263 of the Act and directed the AO to consider the issues which were pending in the reassessment proceedings regarding the allowance of deduction of DEPB receipts. Clearly, independent of the reassessment proceedings under section 147, the AO could not have considered the issue of the claim of section 80IB on DEPB receipts in the section 153A proceedings as no incriminating material was found in the search on this issue. Now, the question arises whether the assessee has a right to agitate the very validity of that reopening of assessment/s 147, which stood abated, in the fresh assessment proceedings u/s 153A carried out by the AO pursuant to the direction given by the CIT vide his revision order passed u/s 263 of the Act. As observed above, the various High Courts including the Apex Court of the Country have held that jurisdictional aspect of the primary proceedings can always be agitated by the assessee in the subsequent proceedings. The fresh assessment proceedings u/s 153A of the Act carried out pursuant to the search action were the off shoot of the search action u/s 132 of the Act. However, the various Courts of Law on this issue have held that in the case of concluded assessment proceedings, the AO cannot raise
ITA No.1612/Mum/2013 23 or take into consideration the issue for the purpose of addition during the assessment proceedings u/s 153A which has already been concluded or decided in the original assessment proceedings and that addition cannot be made on any other issue if no incriminating material is found during search action. The AO cannot disturb the assessment order or reassessment order which has attained finality, unless the material gathered in the course of proceedings u/s 153A of the Act establishes that relief granted under the final assessment/reassessment was contrary to the fact unearthed during the course of 153A proceedings. Reliance can be placed in this respect on the decision of the Hon’ble Bombay High Court in the case of All Cargo Global Logistics (supra) and Continental Warehousing Corporation (supra). Identical view has been taken by the jurisdictional Hon’ble Bombay High Court in the case of CIT Vs. Murli Agro Products Ltd. ITA No.36 of 2009 decided vide order dated 29-10-2010.
Now, coming to the facts of the case, we find that the AO could have made the addition in the proceedings u/s 147 of the Act in relation to the DEPB receipts if the said reassessment proceedings u/s 147 of the Act were held to be valid. If, the said proceedings were held to be invalid, illegal or without jurisdiction, then the AO could not have made any addition in relation to DEPB receipts. However, as observed, the said reopened assessment proceedings abated without decision on the question of the validity of initiation of reopening of the said assessment proceedings u/s 147 of the Act. The learned CIT under his revision jurisdiction u/s 263 of the Act has directed the AO to consider the addition in respect of DEPB receipts, the issue which was under consideration in the re-assessment proceedings. As held by various higher Courts that if the initiation of the proceedings are held to be without jurisdiction, then, subsequently no addition can be made
ITA No.1612/Mum/2013 24 even in the collateral proceedings. In view of the above, if the assessee proves that the very initiation of the reopening of the assessment u/s 147 of the Act was invalid or bad in law, then, in the absence of any incriminating material found during the search action, the AO could not have jurisdiction to consider or make addition in respect of DEPB receipts during the fresh assessment proceedings u/s 153A done in pursuance to the direction of the CIT given u/s 263 of the Act. The principle behind that is if, the very reopening of the assessment is treated as invalid or without jurisdiction then, in such circumstances, the original assessment proceedings u/s 143 (3) of the Act will be deemed to be concluded proceedings. When the reopened proceedings u/s 147 of the Act being nullity or void ab-initio will not be considered as existing and will be treated as non-est, then, in such circumstances, in the assessment proceedings u/s 153A of the Act, the AO is precluded from making any addition in respect of any issue which has already attained finality during the original assessment proceedings, and for which no incriminating material has been found during search action, as has been held by various Courts of Law as discussed above. The assessee, thus, in this regard has rightly agitated the jurisdiction issue regarding validity of initiation of reassessment proceedings u/s 147 during the fresh assessment proceedings u/s 153A of the Act carried out by the AO pursuant to the direction of the learned CIT given vide his order passed u/s 263 of the Act. Since, the very validity of reopening of the assessment proceedings strikes to the very base of such addition, the learned CIT(A) was supposed to decide the same. Admittedly, the AO had rejected the objections of the assessee regarding the validity of the reassessment proceedings u/s 147 of the Act during the fresh assessment proceedings u/s 153A of the Act. The assessee has raised this ground before the learned CIT (A), who has dismissed the said ground holding that the same cannot
ITA No.1612/Mum/2013 25 be taken by the assessee at this stage. The learned CIT (A) thus has wrongly taken a view that the assessee was estopped at this stage to raise this issue as he has not filed any appeal against the order of the CIT passed u/s 263 of the Act. As discussed above, such finding of the learned CIT (A) is not sustainable in the eyes of law. Hence, we direct the learned CIT (A) to consider the issue of the validity of the jurisdiction u/s 147 of the Act raised by the assessee and decide the same afresh. Needless to say that since it is a legal issue the assessee will be at liberty to challenge all aspects regarding validity and legality of the proceedings u/s 147 of the Act. The learned CIT (A) will consider the same and decide the said issue as per law. If, the very validity of the reassessment proceedings u/s 147 of the Act is held to be without jurisdiction, then the original assessment proceedings will be deemed to be concluded and attained finality. The subsequent reassessment proceedings u/s 147 of the Act thus, if, being held as non-est or void abinitio, the AO will have no jurisdiction in the fresh assessment proceedings u/s 153A to make any addition in respect of issues already concluded in original assessment in the absence of any incriminating material found during the course of action. With the above observation the appeal of the assessee is treated as allowed for statistical purposes.
In the result, appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on 27 July, 2016
Sd/- Sd/- (G. S. PANNU) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated 27 July, 2016 Lakshmikanta Deka/Sr.PS
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Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT (A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER,
Assistant Registrar ITAT, MUMBAI