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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N.V. VASUDEVAN & SHRI ABRAHAM P. GEORGE
O R D E R
Per N.V. Vasudevan, Judicial Member
This appeal by the assessee is against the order dated 2.7.2010 of CIT(Appeals), Bangalore relating to assessment year 2000-01.
The assessee is in the business of manufacture, sale and servicing of FRP Rotor blades for windmills. The assessee was earlier known as L M Glassfiber (India) Pvt. Ltd. and has changed its name to LM Wind Power Blades (India) Private Ltd. The return of income filed by the Assessee for AY 2000-01 was processed u/s. 143(1) of the Act on 27.3.2002. In the said return, assessee had claimed depreciation of technical know how of a sum of Rs.31,44,375. According to the assessee, it had under an agreement dated 17.1.2000 acquired technology for manufacture of rotor blades LAM 15.4. It is also claim of the assessee that technology was used by the assessee during the previous year and assessee had manufactured LM 15.4 blades and sold them to one of its customers under Invoice LMGI 038/99-2000 dated 11.2.2000. According to the assessee, it was therefore entitled to claim depreciation on the capitalised value of technical know-how, as the technology has been acquired and used by the assessee during the previous year. The assessee earned interest income of Rs.65,64,857 on deposits with banks. According to the assessee, the deposits were made out of sale proceeds of blades manufactured by it. It was the claim of the Assessee that it was entitled to claim deduction u/s. 80IA of the Act. The assessee had included the interest on deposits also as income or profits on which deduction u/s. 80IA of the Act has to be allowed. According to the assessee, the source of deposits was business and therefore interest income has to be considered as eligible profits for the purpose of deduction u/s. 80IA of the Act viz., business of manufacture of article of thing. As already stated the return of income of the Assessee was accepted u/s.143(1) of the Act and the claim of the Assessee for depreciation as well as the claim of the Assessee for inclusion of interest income as income eligible for deduction u/s.80-IA of the Act, was accepted
The Assessing Officer initiated proceedings u/s. 147 of the Act by recording the following reasons:-
“Reasons for the reopening the assessment u/s. 147 : On perusal of the records pertaining to asst. year 2000-01, I t was observed that the assessee company has capitalized a sum of Rs.2,51,55,000/- on technical know-how purchased from outside India and claimed depreciation @ 12.5%, i.e. Rs.31,44,375/-. Also, the assessee company has included a sum of Rs.65,64,857/- while arriving at the eligible profit for its claim of deduction u/s. 80 IA though the above sum is interest earned form fixed deposits made out of surplus funds. In view of the above, I have reason to believe that the income has escaped assessment accordingly and it is a fit case to reopen u/s 147 in order to bring the escaped amount to tax.”
Accordingly notice u/s. 148 of the Act dated 19.9.2005 was issued. The AO has observed in the order of assessment as follows:-
“Notice u/s. 148 was issued to the assessee on 19.9.05. In response to the notice u/s. 148 of the I.T. Act, 1961 Shri Balasubramanian CA and Shri Bhaskar CA appeared and the case discussed.”
Thereafter the AO proceeded to disallow depreciation on technical know-how on the ground that on payment made to non-resident for acquiring the know-how, the assessee did not deduct tax at source u/s. 195 of the Act, nor had the assessee paid the cost to the non-resident. The AO also held that interest income cannot be considered as profits eligible for deduction u/s. 80IA of the Act.
In appeal before the CIT(Appeals), the assessee submitted that the notice u/s. 148 of the Act was not served on the assessee and therefore the order passed u/s. 147 of the Act has to be quashed as a nullity. The assessee further pointed out before the CIT(A) that the only notice received by it was the notice u/s. 143(2) and 142(1) and in response to the said notice dated 28.11.06, the AR of the assessee appeared before the AO on 27.12.06. The assessee submitted that this notice had been served on the assessee at the address mentioned in the return of income which is also registered office of the assessee viz., Plot No.61 and 62, Koramangala Industrial Area, Hoskote, Bangalore 562 114. The assessee also pointed out that in the course of assessment proceedings before the AO, the AR of the assessee orally submitted that no notice u/s. 148 of the Act was served on the assessee. It was also claimed that the AO informed the AR that it would have been served. On the basis of the aforesaid allegations made by the assessee before CIT(A), the ld. CIT(A) called for a remand report from the AO and after considering the same dealt with the issue of non- service of notice u/s.148 of the Act and observed on the same as under:-
“5.3. The A.O. Dr. K J Divya appeared personally and showed the assessment records. She argued that on 29-11-2000 the appellant had filed a covering letter along with the return of income of A.Y.2000-0l. The covering letter revealed the following addresses - L M Glassfiber (India) Limited,
Off: 310, Raheja Arcade, 1/1, Koramangala Industrial Layout, Bangalore -560 095.
Regd. Off/Fac: Plot No.61 & 62, KASABA Industrial Area, Hosakote -562 114
Tel: 98440 - 26413/26414 Telefax: 08111 - 71320 /71701
5.3.1. She pointed out that, in view of the above, there is nothing strange if the A.O. had issued the notice u/s.148 of I.T.Act in one of the addresses mentioned in the letter pad of the assessee even if it is different from that of address mentioned in the return of income. 5.4. I have considered the above. For better understanding of the fact, the letter pad and the Acknowledgment copy of ITS-1 dated 29-11-2000 are enclosed herewith as Annexure-1 and 2 respectively. The basic issue involved in this case is whether the notice u/s.148 of I.T.Act sent to an address mentioned in the letter pad of the assessee different from that of the return can be said to have been served duly on the assessee so as to provide jurisdiction to the A.O. to initiate proceedings u/s.148 of I.T.Act? After considering the evidences on the record, I find that notice u/s.148 had been sent to the assessee in its Raheja Arcade address and even if it is not ascertained, who has received the same on behalf of the assessee. I hold that the notice has been served properly because the initial notice of hearing dated 28-11- 2006 had been given the heading “Notice u/s.143(2) r.w.s.147 of I.T.Act which distinguishes the facts of this case from the facts of the cited case of Mintu Kalita vide supra wherein the hearing was commenced by a notice u/s.142(1) of I.T.Act only. In view of the above, I find the A.O. has assumed the jurisdiction properly and also started the hearing proceeding properly by issuance and services of notice u/s.148 of I.T.Act dated 19-9-2005 and notice u/s.143(2) r.w.s.147 of I.T.Act dated 28-11-2006.”
Aggrieved by the aforesaid findings of the CIT(Appeals), the assessee has raised ground No.3 before the Tribunal. We deem it appropriate to take up the said grounds for consideration as a preliminary issue.
The ld. counsel for the assessee submitted before us that it is mandatory for the AO to serve notice u/s. 148 of the Act. It was his submission that this is a fundamental requirement before completing the assessment u/s. 147 of the Act. In this regard reliance was placed on the decision of the Hon’ble Gauhati High Court in CIT Vs Mintu Kalita 253 ITR 334. It was held therein that in view of the Supreme Court decision in R.K. Upadhyaya Vs Shanabhai P. Patel, 166 ITR 163, service under the new Act is not a condition precedent to conferment of jurisdiction on the Income Tax Officer to deal with the matter but it is a condition precedent to the making of the order of reassessment. In Mintu Kalitas case (supra), it was held that in the absence of a proper service of notice u/s 148, the AO cannot make an assessment u/s 147 of the Act. It was further held that just because the assessee responds to notice issued u/s 142(1), it cannot be said that there is a response to notice u/s 148. Therefore, it was submitted that the non-service of notice on the assessee at the proper address is fatal to the order u/s 147 for the AY 2000-01. It was also submitted that the learned CIT (A) has held that the notice has been issued to the address given in the covering letter. The learned counsel drew our attention to the covering letter referred to in the CIT(A) order and submitted that perusal of the letter would show that it clearly contains the address of the registered office and factory and also the office address at Raheja Arcade. He queried as to why the AO chose only the office address at Raheja Arcade. The return filed by the Assessee shows the Hoskote Industrial area as the address of the Assessee. He pointed out that all other notices issued by the assessing officer were addressed to the Hoskote address. According to him therefore, it is a bit strange to find that only the notice u/s 148 of the Act was issued to the Raheja address.
Without prejudice to his contention that there is no evidence on record to show that such a notice was issued to the Office address at Raheja Arcade, it was submitted by him that even if such notice has been issued, it is not a proper notice. According to him, the law is well settled that the notice should be addressed to the correct address of the assessee. Issue of notice to a wrong address is not permitted under the law. In this connection the assessee relied on the following decisions wherein it was held that the service of notice on the correct address is a mandatory requirement:- a) CIT Vs Mascomtel India Ltd (345) ITR 58 b) Hind Book House Vs Income Tax Officer (274) ITR (AT)61.
It was thus submitted by him that the finding of the learned CIT(A) that there is a proper service of the notice u/s 148 is liable to be quashed.
8. It was further urged by him that it is also necessary that the notice should be served on an assessee or his authorized agent. Drawing our attention to Para 5.4 of the appellate order, he argued that it is not even known who has received the notice. It was submitted that when the identity of the person who has received the notice is not known it cannot be determined whether such a person constitutes an authorized agent of the Assessee to receive notices. According to him the burden of proof is on the income tax department to prove that there is a valid service of notice on the authorized person. Reliance was placed on the decision in the case of CIT Vs Miscounted India Ltd. 345 ITR 58 & Hind Book House Vs Income Tax Officer 274 ITR (AT) 6l. According to him the CIT(A) failed to appreciate that the service of notice u/s 148 of the Act is a condition precedent to making an assessment. Just because a notice u/s 143(2) r.w.s 147 was served on the Assessee it cannot be said that it is a valid service of notice u/s 148. The non-valid service of the notice u/s. 148 cannot be cured by issuing a notice u/s 143(2). It was submitted that the distinction made by the learned CIT(A) that in Mintu Kalita’s case the notice u/s 142(1) is involved whereas the present case involves a notice u/s 142(2) rws 147 is totally erroneous. It was submitted that a notice u/s 142(1) deals with enquiry before assessment and the appearance of the employee in terms of this notice to produce such books or documents as the assessing officer may require cannot be deemed to be knowledge of the proceedings u/s 147 of the Act. It was his submission that the learned CIT(A) has completely failed to notice that the notices u/s 143(2), 142(1) are to be issued only after the valid service of notice u/s 148. If there is no valid service of notice u/s 148, the question of initiating assessment proceedings by issuing notice u/s 143(2), 142(1) does not arise at all. Such notices are null and void as held by the Hon’ble Tribunal in Hind Book House 274 ITR (AT) 61. Hence, it was submitted that the assessment made u/s. 147 is void and liable to be quashed.
It was further submitted that just because the authorized representative of the Assessee appeared before the assessing officer in response to notice u/s 143(2) of the Act, it cannot be said that it has acquiesced in the proceedings. It was submitted that S.292 BB of the Act is not applicable for the AY 2000-2001. Our attention was drawn to the decision of the Special Bench of Hon’ble ITAT in Kuber Tobacco Products Pvt Ltd DCIT 310 ITR (AT) 300 wherein it was held that provision of S.292BB would apply only w.e.f AY 2008-09 and not for the earlier assessment years. Therefore, it was permissible for an assessee to question the jurisdiction in appeal proceedings even if he had appeared before the assessing officer in response to any notice. So also, an assessee can challenge the validity of the assessment at the appellate stage.
The ld. DR reiterated the stand of the revenue as reflected in the order of the CIT(A).
With a view to verify the facts with regard to service of notice u/s. 148, assessment records were called for. It is seen from the assessment records that notice u/s. 148 of the Act dated 19.9.05 is available on the record, but there is no evidence for this notice having been dispatched to the assessee. Another aspect which we noticed was that address of the assessee as given in the return of income which is also its registered office has been written, but struck off and the address of ‘310, Raheja Arcade, 1/1, Koramangala Industrial Layout, Bangalore’, is found. A copy of the postal acknowledgment for having dispatched the aforesaid notice by RPAD was called for as there was no acknowledgment. The said notice also contains an endorsement that it was sent by RPAD. For better appreciation of the facts, this notice is enclosed as ANNEXURE-I to the Order. It was also submitted by the AO in his letter dated 20.12.13 to the CIT filed before us that the despatch register relevant for the period 2005- 06 is not available in the office and the records for the said period were weeded out. There is no evidence in the form of postal acknowledgment when a letter is lodged for being sent by RPAD. The ld. DR, however, submitted that since the assessee has participated in the assessment proceedings, the provisions of section 292BB of the Act will be applicable and therefore the assessee cannot be permitted to challenge service of notice and on that ground seek to set aside the order of assessment as a nullity.
We have given a very careful consideration to the rival submissions. It is clear from the records that there is no evidence for the notice u/s. 148 of the Act dated 19.9.05 having been dispatched. There is no evidence, admittedly, for the said notice having been served on the assessee as well. It is also clear from the notice dated 19.9.05 that the AO originally started writing the address given in the return of income, but for the reasons best known to him, had struck off the said address and has addressed the notice to ‘310, Raheja Arcade, 1/1, Koramangala Industrial Layout, Bangalore’. These circumstances throw suspicion on whether notice u/s. 148 was issued at all to the assessee. From the evidence available on the record, we are of the view that revenue has failed to establish the issue of notice u/s. 148 of the Act as well as its service on the assessee.
The Hon’ble Supreme Court in the case of R.K. Upadhyaya v. 13.
Shanabhai P. Patel, 166 163 (SC) had to deal with a case where notice u/s. 148 of the Act was issued within the period of limitation, but it was served on the assessee beyond that period. The validity of such proceedings was in challenge before the Hon’ble Apex Court. The Hon’ble Supreme Court held that once a notice is issued within the period of limitation, the AO gets power to proceed to reassess. It was further held that service of notice u/s. 148(1) is mandatory for making an order of assessment. Such service of notice u/s. 148 is not a condition precedent for assuming jurisdiction, but it is a condition only for making an order of assessment. Following were the observations of the Hon’ble Supreme Court:- (at page-165)
“The mandate of s. 148(1) is that reassessment shall not be made until there has been service. The requirement of the issue of notice is satisfied when a notice is actually issued. In this case, admittedly the notice was issued within the prescribed period of limitation as 31st March, 1970, was the last day of that period. Service under the new Act is not a condition precedent to confirm of jurisdiction on the ITO to deal with the matter but it is a condition precedent to the making of the order of assessment.”
The Hon’ble Gauhati High Court in the case of CIT v. Mintu 14.
Kalita, 253 ITR 334 (Gau) has held that service of notice for proceedings u/s. 147 is mandatory and that appearance of employee of the assessee before the ITO in response to notice u/s. 142(1) cannot be a substitute for non-service of notice u/s. 148 of the Act.
In the light of the aforesaid judicial pronouncements, we are of the view that the reassessment proceedings and order of reassessment have to be held to be a nullity and liable to be annulled. We hold accordingly.
With regard to the reliance placed by ld. DR on the provisions of section 292BB of the Act, we find that the aforesaid provisions are applicable only with reference to assessment year 2008-09 and thereafter.
The provisions of section 292BB are as follows:-
“292BB. Where an assessee has appeared in any proceeding or co-operated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was— (a) not served upon him; or (b) not served upon him in time; or (c) served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.
The Special Bench of the Delhi Tribunal in the case of Kuber 17.
Tobacco Products Pvt. Ltd. v. DCIT, 310 ITR (AT) 300 (Del)(SB) held as follows:-
“No doubt, the issue of notice as well as service of notice is a procedural section, but when the same has time limitation, the obligation of the Department to issue notice within a prescribed time becomes the right of the assessee to receive that notice in time to validly commence the proceedings and validly completing the same. First and foremost rule of construction of interpretation is that in the absence of anything in the enactment to show that it is to have retrospective operation, the said enactment cannot be construed to have retrospective operation and when amendment relating to a procedural provision results into creating a new disability or obligation and which imposes new duty in respect of transactions already completed, then, the said procedural provision also cannot be applied retrospectively. Similar is the position where a statute which not only changes the procedure, but also creates new rights and liabilities which shall be construed to be prospective in operation unless otherwise provided either expressly or by necessary implication. Sec. 292BB has been made effective by the legislature from 1st April, 2008 and there is nothing in the enactment to show that s. 292BB has retrospective operation. If it is so, according to rule of interpretation, s. 292BB cannot be construed retrospectively. No doubt, issue and service of notice though may relate to procedural law, but where procedural statute creates a new disability or obligation and imposes new duties in respect of transactions already accomplished, then the statute cannot be construed to have retrospective effect. Issue and service of notice in the manner prescribed by the statute have played a vital role in determining the validity or otherwise of assessment/reassessment and other proceedings under the Act and where the Courts have found defect either in the notice or in its proper service, the validity of assessment/reassessment and other proceedings have been struck down by the Courts subject, of course, to s. 292B introduced w.e.f. 1st Oct., 1975. Thus, to challenge the validity of a particular action of the Department of making assessment or reassessment on the basis of invalidly issuance/service of notice had become right of litigant assessee during the course of appellate proceedings even though such contention was never raised during the course of assessment proceedings. By insertion of s. 292BB such right of the assessee to challenge the validity of assessment or reassessment proceedings during the course of appellate proceedings has been taken away by the statute w.e.f. 1st April, 2008. It is also observed that the issue and service of notice relate to procedural law, but, at the same time, it created a new disability on the assessee litigant to the extent that he is debarred from taking a plea in the appellate proceedings to challenge the validity of the same on the ground of valid issuance/service of notice required to be given by the statute in a case where assessee has appeared in such proceedings or co- operated in the inquiry relating to assessment or reassessment. Therefore, it has to be held that s. 292BB cannot be construed to have retrospective operation and it has to be applied prospectively. Having arrived at the conclusion that s. 292BB has no retrospective effect and is to be construed prospectively, it has to be held that prior to 1st April, 2008 i.e., upto 31st March, 2008, as per s. 292BB, the assessee is not precluded from taking any objection regarding invalidity of assessment/reassessment on the ground of improper/invalid issuance/service of a notice.” (emphasis supplied)
In the light of aforesaid judicial pronouncements, we are of the view that the objections raised by the ld. DR before us cannot be sustained.
In view of the fact that the order of reassessment is annulled on the preliminary issue, we do not deem it necessary to take up the other issues raised by the assessee on merits.
In the result, the appeal by the assessee is allowed. 20.
Pronounced in the open court on this 9th day of January, 2015.