C B SURATWALA & SONS V. INCOME TAX OFFICER

TAXAP/1385/2007

AI Insights

The case revolves around a dispute concerning the validity of income tax assessments made by the Income Tax Officer (ITO) against C B Suratwala & Sons for the Assessment Year 1998-99. The primary contention was whether the ITAT was correct in upholding the assessment despite the return of income for A.Y. 1997-98 being treated as invalid and the absence of a notice under section 143(2) of the Income Tax Act during the assessment proceedings. The High Court referenced a similar case (Tax Appeal No. 1357 of 2007) where it was established that the issuance of notice under section 143(2) is mandatory and its absence invalidates the entire proceedings. The court, aligning with precedents and statutory requirements, ruled in favor of the assessee, leading to the allowance of the appeal.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 753779 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 05-12-2014
• Assessment Year: misc
• Other Referred Cases: Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts, Assistant Commissioner of Income-tax vs. Hotel Blue Moon
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S UDHIR M EHTA
• Assessee Lawyers: S N DIVATIA
• Keywords: Assessment; Escapement of income; Income Tax; Invalid Return; Notice
• Section: 148; 144; 143(2)

Judgement Text

"O/TAXAP/1385/2007 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1385 of 2007 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ C B SURATWALA & SONS....Appellant(s) Versus INCOME TAX OFFICER....Opponent(s) ================================================================ Appearance: MR SN DIVATIA, ADVOCATE for the Appellant(s) No. 1 MR SUDHIR M MEHTA, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER Page 1 of 7 O/TAXAP/1385/2007 JUDGMENT Date : 05/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned order passed by the Income Tax Appellate Tribunal, Ahmedabad Bench ‘A’ (hereinafter referred to as ITAT) dated 19.01.2007 in ITA No. 3203/Ahd/2004 for the Assessment Year 1998-99, the assessee has preferred the present Tax Appeal. 2. This appeal was admitted on 09.04.2008 for consideration of the following substantial questions of law: “A. Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in upholding the assessment, even though the return of income for A.Y. 1997-98 was treated as invalid and no notice was issued u/s.143(2) of the IT Act during the course of assessment proceedings? B. Whether on the facts and in the circumstances of the case, the Income-Tax Appellate Tribunal was right in law in upholding the assessment order passed by the Assessing Officer for A.Y. 1997-98 as in sum and substance u/s.144 of the IT Act, 1961?” 2.1 The assessee Company declared its total income/loss for the assessment year in question by filing its return of income. The Assessing Officer held that huge transactions of sales and purchase were carried out by the assessee outside its books of accounts and as such there was escapement of income. A notice u/s 148 of the Act was accordingly issued. The assessment proceedings were completed by the AO by Page 2 of 7 O/TAXAP/1385/2007 JUDGMENT estimating sales and G.P at 18.62% as declared for the assessment year 1996-97. On appeal before the CIT(A), the CIT(A) dismissed the appeal. 2.2 Being aggrieved by the order of the first appellate authority, the assessee preferred appeal before the ITAT and the ITAT confirmed the validity of the assessment framed by the revenue. Being aggrieved by the said order, the present appeal is filed. 3. Question no. A raised for consideration in the present Tax Appeal is now not res integra in view of the decision of this Court dated 10.03.2014 rendered in Tax Appeal No. 1357 of 2007 which involved identical issue. This Court in the said decision has held as under: “6. When challenged before the Tribunal, it also concurred with the view of CIT(Appeals). Therefore, the present appeals by the Revenue challenging these concurrent findings. The Tribunal exhaustively dealt with this issue and referred to various pronouncements on the subject. It also had at length discussed the issue of 12 months of issuance of notice from the date of filing of the return. It concluded thereafter that the Revenues contention is not sustainable that when details were called for by virtue of the issuance of notice under section 142(1), in substance the notice under section 143(2) was issued. We notice that this Court in the case of Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts reported in [2006]287 ITR 360(Guj) considered this question at length and held such requirement absolute in all cases. Holding further that any neglect to attend such requirement would invalidate the whole proceedings. 5. The Scheme of the Act broadly Page 3 of 7 O/TAXAP/1385/2007 JUDGMENT permits the assessment in three formats; (i) acceptance of the returned income; (ii) acceptance of returned income subject to permissible adjustments u/s.143(1) of the Act by issuance of intimation; and (iii) scrutiny assessment under section 143(3) of the Act. This Scheme was originally introduced by Direct Tax Laws (Amendment) Act,1989 with effect from 1.4.1989. The issuance of notice under section 143(2) of the Act is in the course of assessment in the third mode, namely, scrutiny assessment. 6 Section 143(2) of the Act requires that where return has been made by an assessee, 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 under-paid tax in any manner, he shall serve on the assessee a notice requiring him either to attend his office, or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return. Therefore, the language of the main provision requires Assessing Officer to prima facie arrive at satisfaction of existence of any one of the three conditions. Proviso under the said sub-section states :ýýprovided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnishedýý. On a plain reading of the language in which the proviso is couched it is apparent that the limitation prescribed therein is mandatory, the format of provision being in negative terms. The position in law is well settled that if the requirements of a statute which prescribes the manner in which something is to be done are expressed in negative language, that is to say, if the statute enacts that it shall be done in such a manner and in no other manner, such Page 4 of 7 O/TAXAP/1385/2007 JUDGMENT requirements are, in all cases absolute and neglect to attend to such requirement will invalidate the whole proceeding. 7. Question in the present form has been answered by this Court in the case of Deputy Commissioner of Income Tax vs. Mahi Valley Hotels and Resorts(supra). However, without attaching the question of limitation which again by Finance Act, 2008 has been reduced to six months. Issue is no longer res integra. 8. The Apex Court in the case of Assistant Commissioner of Income-tax vs. Hotel Blue Moon reported in [2010]321 ITR 362 has considered the very issue. The Apex Court held that the Assessing Officer has to necessarily follow the provisions of section 142 and sub-sections (2) and (3) of section 143. It did not accept the submission of the Revenue that the requirement of the notice under section 143 can be dispensed with and the same is mere procedural irregularity. In the words of the Apex Court, it is held as under: 16. The case of the revenue is that the expression so far as may be apply indicates that it is not expected to follow the provisions of section 142, sub-sections(2) and (3) of section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the revenue, since we do not see any reason to restrict the scope and meaning of the expression so far as may be apply. In our view, where the Assessing Officer in repudiation of the return filed under section 158BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of section 142, sub-sections (2) and (3) of section 143. 9. In the instant case, we notice that both CIT(Appeals) and the Tribunal have held that the procedure prescribed for issuance of notice under section 143(2) has not been followed at all. This Page 5 of 7 O/TAXAP/1385/2007 JUDGMENT realm of fact has not been disputed by the Revenue. In view of this decision of the Apex Court, the assumption of the jurisdiction of issuance of notice of reopening itself would not be sustainable, and therefore, this Court does not require to indulge into the concurrent findings of both the authorities. In absence of fulfillment of mandatory requirement of issuance of notice under section 143(2) both the authorities rightly and validly held against the Revenue and in favour of the assessee. Resultantly, Tax Appeals deserve no further consideration and are dismissed with no order as to cost.” 4. Having heard learned advocates for the revenue and the questions posed for consideration for us reproduced hereinabove and considering the decision cited, question no. A which is raised in the present appeal is required to be answered in favour of the assessee. We are not giving any elaborate reasons for the same as this Court in similar case has answered the very same question in favour of assessee. Therefore, question no. A is answered in favour of assessee and against the revenue. In view of answer of question no. A in favour of assessee, question no. B raised in this appeal shall not survive and therefore is not required to be answered 5. In view of the above, the impugned judgment and order passed by the ITAT is modified accordingly. Hence, the present Tax Appeal is allowed to the aforesaid extent. (K.S.JHAVERI, J.) 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