AMIT BAJAJ ADVOCATE

Amritsar ITAT has held in DCIT vs Mangat Ram that jurisdiction under section 147 can be acquired only after limitation to issue notice under section 143(2) has expired.

 In this case it has been held by the ITAT that The Assessing Officer cannot acquire two jurisdictions to issue notice under section 148 as well as under section 143(2), especially when there is a time left for issuing notice under section 143(2) with respect to the original return filed by the assessee on 13-3-2008. 

The jurisdiction under section 147 can be acquired only after the limitation to issue notice under section 143(2) had expired. Section 147/148 comes into play only when the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year then he may subject to the provisions of sections 148 to 153, assess or reassess such income, which has escaped assessment.

FACTS

		The assessee was engaged in the business of civil construction contracts. The assessee did not maintain any books of account. The income had been computed from TDS certificates by applying 8 per cent on contract receipts as done in the past.
		The return was processed on 25-3-2008. Proceedings were initiated under section 147 on 3-2-2009 and notice under section 148 was issued to the assessee on 4-2-2009.
		The assessee challenged proceedings initiated under section 147/148 on the ground that since time limit to issue notice under section 143(2) had not expired, impugned notice under section 148 was invalid.

		Prior to substitution by the Finance Act, 2008 with effect from 1-4-2008, proviso to section 143(2)(ii), as amended by the Finance Act, 2003 with effect from 1-6-2003 was that no notice under clause (ii) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. On the substitution by the Finance Act, 2008 with effect from 1-4-2008, there was amendment in the proviso to section 143(2)(ii) where it was substituted that no notice under clause (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. As on the date of filing of the return, i.e., 13-3-2008, the law prevailed as contained in proviso to section 143(2)(ii) that no notice under clause (ii) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, as per the said law, the limitation for issuance of notice under section 143(2) is upto 31-3-2009. The limitation law is prospective as it does not revive the action which may have become time-barred on the date of enforcement of changed law nor the changed law extinguished the subsequent cause of action.
		In the present case, the Assessing Officer had not issued any notice under section 143(2). The Assessing Officer cannot acquire two jurisdictions to issue notice under section 148 as well as under section 143(2), especially when there is a time left for issuing notice under section 143(2) with respect to the original return filed by the assessee on 13-3-2008. The jurisdiction under section 147 can be acquired only after the limitation to issue notice under section 143(2) had expired. Section 147/148 comes into play only when the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year then he may subject to the provisions of sections 148 to 153, assess or reassess such income, which has escaped assessment. In section 147 only escaped income can be assessed or reassessed. Whereas in section 143(2)(ii) read with section 143(3), the notice can be issued if the Assessing Officer considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner then a notice can be served as within time provided in proviso to the said section. The assessment has to be made after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. Therefore, both the assessments are different assessments and have different basis.
		It is also not a case of applicability of section 292BB in view of the decision of Tribunal Delhi Bench (Special Bench), in the case of Kuber Tobacco Products (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273, in which it has been held that section 292BB cannot be construed by the retrospective operation and it has to be applied prospectively. Consequently, upto 31-3-2008, the assessee is not precluded from taking any objection regarding invalidity of an assessment etc. on the ground of invalid issuance/service of notice in appellate proceedings. But the assessee is precluded from all the doings for and from assessment year 2008-09. In the facts and circumstances of the present case, the notice issued by the Assessing Officer under section 148 is bad in law and, therefore, the assessment is directed to be quashed. [Para 12]

IN THE ITAT AMRITSAR BENCH

Deputy Commissioner of Income-tax

v.

Mangat Ram*

H.S. SIDHU, JUDICIAL MEMBER
AND B.P. Jain, ACCOUNTANT MEMBER

IT Appeal No. 8 (Asr.) of 2011
[ASSESSMENT YEAR 2007-08]

APRIL  26, 2012 

ORDER

2. The Revenue has raised following grounds of appeal :

 

3. The assessee has raised following grounds of appeal:

"1. (a) That on the facts and circumstances of the case, reassessment proceedings initiated by the learned AO by issue of notice under s. 148 of the Act are illegal and bad in law because assessment of the return filed on 13th March, 2008 was still pending at the time of issue of notice under s. 148 dt. 4th Feb., 2009 since notice under s. 143(2) of the Act could have been issued upto 31st March, 2009.

(b) That notice under s. 148 of the Act is illegal and as such consequent assessment framed is illegal, bad in law and void ab initio.

2. That without prejudice to the fact that alleged assessment framed by the learned AO without assumption of valid jurisdiction is illegal and void ab initio since notice issued under s. 148 of the Act is illegal and bad in law even otherwise :

(a) That on the facts and circumstances of the case, learned CIT(A) has grossly erred in confirming the addition of Rs. 11,31,004 as made by the AO by applying 12 per cent on contract receipts as against 8 per cent declared by the assessee. Addition confirmed is illegal and bad in law.

(b.1) That on the facts and circumstances of the case, learned CIT(A) has grossly erred in confirming addition of Rs. 15,97,347 by computing difference between alleged expenses/investments with availability of cash by estimating expenses and investments at Rs. 45,42,823 as against income receipts calculated at Rs. 29,45,476 thereby confirming addition of Rs. 15,97,347. Addition confirmed is illegal and bad in law.

(b.2) That learned CIT(A) while confirming addition of Rs. 15,97,347 has grossly erred in including following expenses/investments while computing the same with availability of cash :

(b.3) That on the facts and circumstances of the case, learned CIT(A) has grossly erred in not including Rs. 6,00,000 being sale proceeds of car in the cash available with the assessee.

(c) That on the facts and circumstances of the case, learned CIT(A) has grossly erred in not admitting additional ground of appeal filed by the assessee wherein assessee has challenged addition of Rs. 4,00,000 on account of investment in purchase of plot made in the year 2001-02. Addition confirmed is illegal and bad in law.

3. That the assessee requests for leave to add or amend the grounds of appeal before the appeal is heard or disposed of."

 

4. The assessee has raised grounds 1(a) and 1(b) referred to hereinabove in the grounds of appeal as additional grounds. It was argued by the learned counsel for the assessee, Shri Surinder Mahajan, chartered accountant that inadvertently the issue of illegality of notice under s. 148 of the Act, could not be challenged in the appeal filed before the learned CIT(A) and the same being a legal issue goes deep into the roots of the matter and therefore, in view of the judgment of Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383, the same may be admitted.

 

5. The learned Departmental Representative, on the other hand, did not have any objection to the same.

 

6. We have heard the rival contentions and perused the facts of the case. The issue with regard to illegality of notice under s. 148 of the Act being a legal issue and in view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. (supra), the same is admitted.

 

7. The brief facts of the case, as stated by the learned counsel for the assessee are that the assessee is engaged in the business of civil construction contracts. The assessee does not maintain any books of account. The income has been computed from TDS certificates by applying 8 per cent on contract receipts as done in the past. The capital investment made in the venture was made by transfer through cheques drawn on Oriental Bank of Commerce and a loan of Rs. 4,00,000 was taken. The return was revised by rectifying the omission and mistake on 13th March, 2008 declaring income of Rs. 14.23 lakhs by applying 8 per cent on contract receipts of Rs. 1,74,87,525. The return was processed on 25th March, 2008. Proceedings were initiated under s. 147of the Act on 3rd Feb., 2009 and notice under s. 148 of the Act was issued to the assessee on 4th Feb., 2009. The AO framed assessment at Rs. 67,71,213 as against returned income of Rs. 14.23 lakhs and following additions were made :

8. The learned CIT(A), vide his order dt. 28th Oct., 2010 has deleted the following additions :

 

8.1 The learned CIT(A), however, confirmed the additions i.e. (i) addition of Rs. 11,31,004 on account of contract receipts by estimating 12 per cent, (ii) addition of Rs. 15,97,347 by computing difference between alleged expenses/investments with availability of cash i.e. on account of cash deposits of Rs. 9,13,060, investment in Naveen Trehan Autos - loan Rs. 14.75 lakhs, investment in plot Rs. 4,00,000, repayment of housing loan Rs. 96,000, repayment of car loan Rs. 5,75,763, fixed deposits with JCT Ltd. Rs. 8,00,000 and household expenses Rs. 5,00,000. Out of the same cash available was computed by the learned CIT(A) at Rs. 29,45,476 and accordingly, the balance additions were confirmed at Rs. 15,97,347 as against made by the AO at Rs. 41,93,209.

9. The learned counsel for the assessee, Mr. Surinder Mahajan, chartered accountant, first of all argued on the legal issue that the return of income was filed on 13th March, 2008 which was processed under s. 143(1) of the Act on 25th March, 2008. The time available for issue of notice under s. 143(2) of the Act was upto 31st March, 2009. The AO issued notice under s. 148 of the Act on 4th Feb., 2009. It was argued that notice under s. 148 of the Act cannot be issued when time available for s. 143(2) of the Act is available. Notice under s. 148 r/w s. 147 can be issued only when the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year and he may subject to the provisions of ss. 148 to 153 assess or reassess such income. This reopening of assessment by the AO under s. 147 r/w s. 148 comes into play only when time required under s. 143(2)(ii) had expired. The provisions of s. 147/148 cannot be used in a routine and casual manner. Therefore, the notice issued by the AO under s. 148 of the Act is bad in law and the assessment framed under s. 147/143(3) of the Act is liable to be quashed.

 

10. The learned counsel for the assessee submitted his arguments on marit also that the AO had estimated the income @ 12 per cent of the contract receipts as against 8 per cent declared by the assessee without taking into consideration the past results of the comparable cases. As regards availability of cash of Rs. 15,97,347, it was argued that when contract receipts are not taken as cash available then 92 per cent of the expenses should not be taken as cash deposited out of cash available. It was argued with regard to the investment of Rs. 4,00,000 in the purchase of plot during the year 2000-01, the assessee submitted the confirmation of Shri Rajiv Aggarwal that investment had been made during the year 2000-01 supporting the affidavit of Shri Rajiv Aggarwal and the additional ground raised before the learned CIT(A) had not been considered. As regards the cash loan, the learned CIT(A) has not appreciated that car was sold for Rs. 6,00,000, which was mortgaged and which could be sold after clearing outstanding loan of Rs. 3,91,763. As regards Rs. 14,75,000 included in the total value of investment, it was submitted before the learned CIT(A) that the same has already been included in the cash flow statement available at pp. 9 and 10 of the CIT(A)'s order. As regards the fixed deposit with M/s JCT Ltd. amounting to Rs 8,00,000, it was submitted before the learned CIT(A) that these have been made out of contract receipts from JCT Ltd. A copy of bank account with Allahabad Bank showing receipts of four cheques for Rs. 2 lakh each from JCT Ltd. was filed supported with certificate issued by JCT Ltd.

 

11. The learned Departmental Representative, on the other hand, invited our attention to s. 143(2) read with proviso where the amendment was made by the Finance Act, 2008 w.e.f. 1st April, 2008 where it has been mentioned in the Act that no notice under cl. (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. In the present case, notice under s. 143(2) can be issued upto 30th Sept., 2008 and thereafter the notice under s. 148 can be issued and the AO issued notice on 4th Feb., 2009 well after the limitation period as provided under s. 143(2) of the Act expired. As regards the merits of the case, the learned CIT(A) relied upon the order of the AO.

12. We have heard the rival contentions and perused the facts of the case. As regards legal grounds of the assessee, there is no dispute to the fact that the return of the assessee was filed on 13th March, 2008 and notice under s. 148 was issued on 4th Feb., 2009 for the asst. yr. 2007-08. Now the issue before us is whether notice under s. 148 of the Act could validly be issued and there was sufficient time to issue notice by the AO under s. 143(2) of the Act. Prior to substitution by the Finance Act, 2008 w.e.f. 1st April, 2008, proviso to s. 143(2)(ii), as amended by Finance Act, 2003 w.e.f. 1st June, 2003 was that no notice under cl. (ii) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. On the substitution by the Finance Act, 2008 w.e.f. 1st April, 2008, there was amendment in the proviso to s. 143(2)(ii) where it was substituted that no notice under cl. (ii) shall be served on the assessee after the expiry of six months from the end of the financial year in which the return is furnished. As on the date of filing of the return i.e. 13th March, 2008, the law prevailed as contained in proviso to s. 143(2)(ii) that no notice under cl. (ii) shall be served on the assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, as per the said law, the limitation for issuance of notice under s. 143(2) of the Act is upto 31st March, 2009. The limitation law is prospective as it does not revive the action which may have become time-barred on the date of enforcement of changed law nor the changed law extinguished the subsequent cause of action). These are duly supported by the decision of Hon'ble Supreme Court in the case of S.S. Gadgil v. Lal & Co. [1964] 53 ITR 231. Therefore, there is no dispute to the said proposition. In the present case, the AO had not issued any notice under s. 143(2) of the Act. The AO cannot acquire two jurisdictions to issue notice under s. 148 as well as under s. 143(2) of the Act, especially when there is a time left for issuing notice under s. 143(2) of the Act with respect to the original return filed by the assessee on 13th March, 2008. The jurisdiction under s. 147 can be acquired only after the limitation to issue notice under s. 143(2) had expired. See. 147/148 comes into play only when the AO has reason to believe that any income chargeable to tax has escaped assessment for any assessment year then he may subject to the provisions of ss. 148 to 153 of the Act, assess or reassess such income, which has escaped assessment. In s. 147 of the Act only escaped income can be assessed or reassessed. Whereas in s. 143(2)(ii) r/w s. 143(3) of the Act, the notice can be issued if the AO considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner then a notice can be served as within time provided in proviso to the said section. The assessment has to be made after hearing such evidence as the assessee may produce and such other evidence as the AO may require on specified points and after taking into account all relevant material which he has gathered, the AO shall, by an order in writing, make an assessment of the total income or loss of the assessee and determine the sum payable by him or refund of any amount due to him on the basis of such assessment. Therefore, both the assessments are different assessments and have different basis as mentioned hereinabove. There is no dispute to the fact that the law applicable on the date of filing of return of income is applicable, as held by the Hon'ble Supreme Court in the case of CIT v. Onkar Saran & Sons [1992] 195 ITR 1/62 Taxman 440. It is also not a case of applicability of s. 292BB in view of the decision of Tribunal Delhi Bench (Special Bench), in the case of Kuber Tobacco Products (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273 in which it has been held that s. 292BB of the Act, cannot be construed by the retrospective operation and it has to be applied prospectively. Consequently, upto 31st March, 2008, the assessee is not precluded from taking any objection regarding invalidity of an assessment etc. on the ground of invalid issuance/service of notice in appellate proceedings. But the assessee is precluded from all the doings for and from asst. yr. 2008-09. Therefore, in the facts and circumstances of the case, the argument made by the learned Departmental Representative cannot help the Revenue. In the facts and circumstances of the present case, the notice issued by the AO under s. 148 of the Act as mentioned hereinabove is bad in law and, therefore, the assessment is directed to be quashed. Thus, ground Nos. 1(a) and 1(b) of the assessee being additional grounds are allowed.

 

13. As regards other grounds on merits are not considered for decision in view of our decision hereinabove. Thus, the appeal of the assessee is allowed and the appeal of the Revenue is dismissed.

14. In the result, the appeal of the assessee in ITA No. 25/Asr/2011 is allowed and the appeal of the Revenue in ITA No. 8/Asr/2011 is dismissed.