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Income Tax Appellate Tribunal, “A” BENCH, KOLKATA
Before: Shri P.M. Jagtap, & Shri S.S Viswanethra Ravi
Date of Hearing: 01-03-2016 Date of Pronouncement: 13- 05-2015 ORDER SHRI S.S VISWANETHRA RAVI, JM This appeal of the revenue is arising out of the order of the Learned CIT(A)-XXXVI, Kolkata in appeal no. 129/CIT(A)-XXXVI/Kol/ACIT, Circle- 1/Hooghly./2011-12 dated 22-01-2013 for the assessment years 2005-06 against the order of assessment framed by the ld.AO u/s 147/144 of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’). 1.1 The appeal was filed by the revenue with a delay of 35 days. For which the revenue has filed the condonation petition. After perusing the same and hearing both the parties, the delay is condoned and the appeal is admitted.
In this appeal, the revenue has raised the following grounds:-
1. Ld. CIT(A) has erred on facts and in law in quashing the assessment order framed u/s.147 which resulted in deleting of Rs.28,91,126/-.
2. That CIT(A) has erred on facts and in law in not relying on the Hon 'ble Madras High Court decision in 294 ITR 233 (2007)(SC) in the 1 M/s. Jairam Distributors matter of non-issue of notice u/s.143(2) as notice u/s.148 clearly says that his case would be reassessed for which fresh return is invited.
3. That CIT(A) has erred on facts and in law in not examining that the assessee's case was reopened before the expiry of 4 years' time from the end of the assessment year and so, the 1st proviso of sec. 147 would not apply.
4. That CIT(A) has erred on facts and in law in relying on the apex court decision which is a block assessment case and not similar to the present case.
5. The appellant craves leave to add, alter or abrogate any ground.
3. The brief facts of the case are that the assessee is a partnership firm engaged in the business of distribution of medicines. Originally the assessment was completed on 31-12-2007 u/s. 143(3) of the Act and the total income determined at Rs.69,52,470/-. Aggrieved, the assessee preferred an appeal before the ld. CIT(A) and the assessee got relief of Rs.61,78,960/- by an order dated 22-01-2009 as against the above determined income by the AO. The revised total income was assessed at Rs.7,73,510/-. Thereafter, the AO issued notice u/s. 148 on 04-01-2010 on two grounds that the assessee paid excess remuneration to its partners for Rs. 96,000/- and no TDS amount was deposited in time. The assessee requested for information regarding the issuance of notice u/s. 148 of the Act and objected for re-opening of assessment for the reason as the assessment was already completed u/s. 143(3) of the Act. The AO has accepted the assessee’s contention that the excess remuneration paid to its partners under its amended partnership deed dated 07-04-2001, wherein it had allowed to disburse the partners’ remuneration of Rs.1,92,000/- per anum. In respect of non deposit of TDS amount in time the AO found that the assessee deposited TDS amount to the extent of Rs.1,47,448/- on 28-06-200, where it
2 M/s. Jairam Distributors requires to be paid on 31-05-2005 as specified under Rule 30(1) of the Income Tax Rules. Therefore, the AO added the entire commission payment of Rs. 28,91,126/- on which TDS deducted but deposited belatedly to the total income of the assessee by invoking the provisions section 40(a)(ia) of the Act.
Before the ld.CIT(A), the only contention of the assessee was that the assessment cannot be re-opened u/s. 147 without issuing of notice u/s. 143(2) of the Act. Further, contended that the AO did not consider the said submission during the course of reassessment proceedings. The CIT(A) sought for remand report from the AO to verify whether the AO had issued notice u/s. 143(2) of the Act prior to the issuance of notice u/s. 147 of the Act. The CIT(A) found that no entry was made on the note sheet of the AO records and held that no notice was issued to the assessee u/s. 143(2) of the Act and allowed the appeal of the assessee by relying on the order of Tribunal, Kolkata in the case of ACIT –Vs- M/s. I.S Leather in and quashed the re-assessment proceedings passed by the AO u/s.147/144 of the Act dated 23-07-2010.
Therefore, the only issue is to be decided in this appeal of revenue as to whether the issuance of notice u/s. 143(2) of the Act is necessary to exercise power u/s. 147 of the Act by the AO.
The ld.DR appearing on behalf of the revenue has relied on the order of the AO and the ld.AR of the assessee has relied on the impugned order of the ld.CIT(A) in quashing the re-assessment.
Heard the rival submissions and perused the material available on record. It is noticed from the record that the assessee has objected to the re-opening of 3 M/s. Jairam Distributors assessment vide its letter dated 16-07-2010 before the AO. The AO has not accepted the contention of the assessee and by following the judgments mentioned therein completed the re-assessment proceedings u/s. 147/148 of the Act by making the impugned addition u/s. 40(a)(ia). We find that before the Ld. CITA) the assessee submitted that the TDS on commission payment was duly explained before the ld.AO. The assessee requested the AO to decide whether the re-assessment u/s. 147 is maintainable without thereby issuance of notice u/s. 147.
Now, we may refer to the Tribunal order in the case of (supra) as relied by the CIT-A. In that case, the Tribunal decided the issue that whether the notice u/s. 143(2) is required during the pendency of re-assessment proceedings. The order of Tribunal supra passed by following order of the Co-ordinate Bench decision in the case of Sheela Chopra Vs. ITO in for the A.Y 2005-06 dated 21-06-2012. It is noticed that the Tribunal in the case of Sheela Chopra supra has discussed the case law reported in (2002) 255 ITR 220 in the case of Vipan Khanna Vs. CIT of Hon’ble Punjab & Haryana High Court.
As relied on by the assessee in the case of M/s. I.S. Leather supra Relevant portion of which is reproduced herein below for the sake clarity:-
We have head rival submissions and gone through facts and circumstances of the case. Brief facts are that original return of income was filed by the assessee on 29.10.2005, which was processed u/s. 143(1) of the Act on 28.02.2007. Thereafter, the revenue issued notice u/s. 143(2) of the Act dated 30.01.2008 i.e. beyond 12 months from the date of filing of return and i.e. on 29. 10. 2005. Subsequently, the notice was withdrawn by AO issuing letter
4 M/s. Jairam Distributors dated 25.08.2008 stating that this notice was issued inadvertently. However, the AO in same day i.e. 25.08.2008 issued notice u/s. 148 of the Act and assessee in response to the notice u/s. 148 of the Act filed return of income on 20.10.2008. These are admitted and undisputed facts. Subsequently, we find from the orders of the lower authorities and even conceded by Ld. OR that no notice u/s. 143(2) of the Act issued in this case whereas only notice u/s. 143(2)(1) of the Act was issued. We find that this issue is now squarely covered in favour of the assessee and against revenue by Coordinate Bench decision in the case of Sheela Chopra Vs. ITO, AY 2005-06 dated 21.06.2012 wherein the Tribunal has held as under:
" 5. We have heard the rival contentions and gone through facts and circumstances of the case. First of all we find from the assessment order that AO has considered the reply dated 22.04.2008 and whereby assessee vide point no.4 has stated as under :-
"4. That my original return filed on 2810312006 which was revised by computation Rs.575,000/- may kindly be treated as return filed disclosing income Ra. 575,0001- in compliance to your notice U/s. 148 of the Act. However, your honour is requested to give the reasons recorded which prompted you for issuing the notice u/s 148 at your earliest."
From the assessment order, it is dear that AO has acted upon the revised computation as filed in the return of income along with letter dated 22.04.2008 and passed assessment order accordingly. Once AO has acted upon the return filed by assessee he has actually condoned the delay in filing of return in response to notice u/s 148 of the Act, which stipulates the time limit of 30 days and even the reply is beyond that period. Once AO has acted upon the return there is no option except to issue notice u/s 143(2) of the Act for framing assessment even though this is a re-assessment u/s 147 r.w.s. 148 of the Act. We find that in the case of Vipan Khanna vs CIT (2002) 255 ITR 220 the Hon’ble Punjab and Haryana High Court has explained the important principle of law in relation to powers of AO u/s 147 of the Act and time limit set out therein as well as u/s 143(2) of the Act. The Hon’ble High Court has taken note that notice for scrutiny u/s 143(2) of the Act has to be issued within 12 months from the end of 5 M/s. Jairam Distributors the month in which return is filed and if it is not so issued the AO cannot, no doubt, exercise his power u/s 147 of the Act. But it cannot be done merely for scrutinizing the return. Where the AO has issued notice u/s 147 of the Act accompanied by letter, indicating that he wants to verify the claim of carriage expenses and income in each of the truck, besides chocking of overdraft account apart from such other details, there was no absolute inference of any escapement of income. In such case notice has to be issued only u/s 143(2) of the Act and section 147 is not an extension of right to frame assessment u/s 143(3) of the Act as otherwise provided that there would have been no purpose in laying doing the time limit of one year. Even the Hon’ble High Court has considered the Board Circular No.549 of 31.10.1989 reported in [1990] 182 ITR Statute 1 explaining the new procedure w.e.f. 1.4.1989, wherein the Board has in unmistakable terms advised its officers that, if the assessee has not been served with a notice u/s 143(2) of the Act within the stipulated time he can take it that his return of income has become final and no scrutiny proceedings can be started after that. In response to the procedure for compliance of assessment u/s 143(3) of the Act r.w.s. 147 of the Act, we find Hon' ble Supreme Court in the case of ACIT vs Hotel Blue moon (2010) 321 ITR 362 (9:) has held that the procedure of issuance of notice u/s 143(2) of the Act is mandatory and has to be followed for framing the assessment. The Hon' ble Apex Court has emphasized as under :-
(i) While notice u/s 143 (2) is nor necessary if the AO accepts the return as filed, the notice within the prescribed time is mandatory if the AO proposes to make an assessment u/s 158BC r. w. s. 143 (3). Omission to issue notice u/s 143(2) is not a procedural irregularity and the same is not curable and, the requirement of notice u/s 143(2) cannot be dispensed with. If the intention of the legislature was to exclude the provisions of s. 143(2). the legislature would have indicated that.
(ii) in Circular No. 71 7 dated 14. 8.1995 the CBDT has directed that the AO "shall proceed to determine the undisclosed income of the block period and the provisions of s. 142. sub-s (2) and (3) of s. 143 and s. 144 shall apply accordingly". This circular clarifies the requirement of law in respect of service of notice u/s 143 (2). The circular is binding on the department though not on the Court.
6 M/s. Jairam Distributors
(iii) A search is the sine qua non for a block assessment under Ch. XIV-B. A block assessment is in addition to regular assessments proceedings and not in substitution thereof. The scope and ambit of a block assessment is limited to materials unearthed during search and can only be done on the basis of evidence found as a result of search or requisition.
5.1. Further the Hon'ble Madras High Court in the case of CIT vs C. Palaniappan (2006) 284 ITR 257 (Mad) while considering the reopening of assessment u/s 147 r.w.s. 148 of the Act qua the issuance of notice u/s 143(2) the Act has held as under :-
" We heard learned counsel for the parties. Learned counsel appearing for the Revenue submitted that the Appellate Tribunal failed to appreciate the fad that the assessment was completed only under section 143(1) of the Act and hence the reopening of assessment under section 147 of the Act to consider the correct quantum of interest allowable as deduction in computing the income from house property was correct as the assessee had nor furnished relevant facts and evidence along with the return. Learned counsel further submitted that the Appellate Tribunal erred in its conclusion that in the case of reopened assessment, issue of notice under section on 143 (2) of the Act within 12 months is statutory and the Tribunal was also wrong in deleting the issue on technical grounds without going into the merits of the case
In respect of question No. 1, we find that on a similar issue which came up for consideration in CIT v. M Chellappan [2006] 281 ITR 444, a Division Bench of this court, in which one of us was a party (P. D. Dinakaran J.) applying the ratio laid down by the Punjab and Haryana High Court in Vipan Khanna v. CIT[2002] 2551TR220 (P & H), held as follows (page 445):
" ... admittedly, no notices under section 143(2) of the Act were served on the assessees within the stipulated period of twelve months and, therefore, the proceedings under section 143 of the Act come to an end and the matter becomes final"
7 M/s. Jairam Distributors
In view of the above, the first question now raised, therefore, stands concluded in favour of the assessee."
5.2. In view of the above admitted facts, as well as ratio laid in the case of ACIT vs Hotel Blue Moon (supra) and CIT vs C. Palaniappan (supra), that no notice u/s 143(2) of the Act was issued in the present case during the proceedings pending u/s 148 of the Act, we are of the considered view that re-assessment framed without issuance of notice u/s 143(2) of the Act is without jurisdiction and hence quashed."
Since issue is covered by the aforesaid decision cited supra, we quash the reassessment proceedings. Assessee' s CO is allowed.
In the present case that the assessee requested the AO to furnish reasons regarding the issuance of notice u/s. 148 of the Act and objected for re-opening of assessment for the reason as the assessment was already completed u/s. 143(3) of the Act vide its letter dated 16-07-2010. Before the ld.CIT(A), assessee contended that the assessment cannot be re-opened u/s. 147 without issuing of notice u/s. 143(2) of the Act. In first appeal proceedings, The CIT(A) sought for remand report from the AO to verify whether the AO had issued notice u/s. 143(2) of the Act prior to the issuance of notice u/s. 147 of the Act. The CIT(A) found that no entry was made on the note sheet of the AO records and held that no notice was issued to the assessee u/s. 143(2) of the Act. The Hon’ble Punjab and Haryana High Court supra held that if the AO fails to issue notice u/s. 143(2) of the Act to the assessee, then, the AO cannot, no doubt, exercise his power u/s 147 of the Act. The Hon'ble Madras High Court in the case of CIT vs C. Palaniappan considered the ratio laid down by the Hon' ble Supreme Court in the case of ACIT vs Hotel Blue moon and held during the proceedings pending u/s 148 of the Act, that in the re-assessment framed without issuance of notice u/s 143(2) of the Act is without jurisdiction.
8 M/s. Jairam Distributors Therefore, we are of the view that the facts of the cases before the Hon’ble Punjab and Haryana High Court and The Hon'ble Madras High Court are similar to the facts of the case on hand and the ratio thereon laid down by the Hon’ble Courts are being followed by the Coordinate benches of Tribunal as relied by the assessee in the case of ACIT –Vs- M/s. I.S Leather supra, Respectfully following the same, we dismiss the grounds raised by the Revenue.
In the result, the appeal of the Revenue is dismissed
THIS ORDER IS PRONOUNCED IN OPEN COURT ON 13 /05/2016