M/s Subhkarma Electricals, Parwanoo V. ITO, Parwanoo

ITA 1007/CHANDI/2009

• Counselvise Citation: 100721514 RSA 2009
• Duration Of Justice: 1 year(s) 9 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-08-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 27-10-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AJAY SHARMA
• Keywords: Invalid notice; Recovery proceedings; Period of limitation; Non compliance; Reason to believe; Set aside
• Section: 143(3); 80IB; 144

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL: CHANDIGARH BENCH A BEFORE HONBLE MS SUSHMA CHOWLA, JM AND HONBLE SHRI MEHAR SINGH, AM ITA NO. 1007/CHANDI/2009 ASSESSMENT YEAR 2006-07 M/S SUBHKARMA ELECTRICALS V. I.T.O. PARNWANOO PARWANOO (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI JASPAL SHARMA RESPONDENT BY: SHRI AJAY SHARMA DATE OF HEARING: 24.8.2011 DATE OF PRONOUNCEMENT: 26.8.2011 ORDER PER MEHAR SINGH, AM THE PRESENT APPEAL FILED BY THE ASSESSEE FOR ASSES SMENT YEAR 2006- 07, IS DIRECTED AGAINST THE ORDER OF LD. CIT(A), SH IMLA DATED 18.9.2009 PASSED U/S 250(6) OF THE INCOME-TAX ACT (HEREINAFTE R REFERRED TO THE ACT). 2. THE GROUNDS OF APPEAL ARE AS UNDER:- 1 THE IMPUGNED ORDER IS BOTH AGAINST FACTS AND ERR ONEOUS IN LAW. 2 THE LD. CIT(A) HAS ERRED IN NOT HAVING QUASHED T HE ASSESSMENT ORDER PASSED U/S 144 WHICH IS ILLEGAL AS NO NOTICE U/S 143(2) WAS SERVED ON THE ASSESSEE WITHIN PRESCRIBED TIME. 3 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HAVING CONFIRMED THE ORDER OF THE AO RESTR ICTING THE DEDUCTION U/S 80IB TO RS.1,77,596/- AS AGAINST THE DEDUCTION CLAIMED BY THE ASSESSEE AT RS. 4,68,630/- AND THUS TREATING THE DIFFERENCE OF RS. 2,91,034/- AS INCOME FROM UNDISCL OSED SOURCES MERELY ON FLIMSY GROUNDS. ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 2 4 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) HAS ERRED IN HAVING ACCEPTED THE NET PROFIT RATE AT 10% AS APAPLIED BY THE AO WITHOUT ANY JUSTIFICATION AND WITHOUT POINTI NG OUT ANY DEFECT IN THE BOOKS MAINTAINED BY THE ASSESSEE AS A GAINST THAT DECLARED BY THE ASSESSEE FIRM AT 26.39%. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FI LED RETURN OF INCOME ON 31.10.2006 DECLARING INCOME AT RS. 3,11,140/- AF TER CLAIMING DEDUCTION U/S 80IB AMOUNTING TO RS. 4,68,630/-. THE RETURN W AS PROCESSED ON 30.5.2007. THE RETURN WAS SELECTED FOR SCRUTINY. N OTICE U/S 143(2) WAS ISSUED ON 19.10.2007. THE NOTICE COULD NOT BE SERV ED ON ASSESSEE AS NONE WAS FOUND AT THE BUSINESS PREMISES OF THE ASSESSEE. ANOTHER NOTICE WAS ISSUED, ON 29.10.2007, AND THE INSPECTOR WAS AUTHOR IZED TO SERVE THE NOTICE BY AFFIXTURE. ON 31.10.2007 NOTICE U/S 143( 2) OF THE ACT WAS SERVED BY AFFIXTURE, ON THE LAST KNOWN ADDRESS OF T HE ASSESSEE, GIVEN IN THE RETURN OF INCOME. THE CASE WAS FIXED FOR HEARI NG FOR 8.11.2007. SUBSEQUENTLY A COPY OF THIS NOTICE WAS SERVED ON SH RI MOHINDER SINGH, PARTNER ON 2.11.2007. 4. BEFORE ADJUDICATING THE ISSUE IN QUESTION IT IS PERTINENT TO HIGH LIGHT THE FACTUAL MATRIX OF THE CASE. A BARE PERUSAL OF T HE FACT-SITUATION REVEALS THAT THE FIRST NOTICE U/S 143(2) OF THE ACT WAS ISS UED, ON 19.10.2007, BY THE AO, WHOSE SERVICE COULD NOT BE EFFECTED. THE I MPUGNED NOTICE WAS ISSUED AT THE ADDRESS GIVEN IN THE RETURN OF INCOME IGNORING THE SPECIFIC REQUEST MADE BY THE ASSESSEE VIDE LETTER DATED 13.2 .2006, WHICH WAS RECEIVED IN THE OFFICE OF THE AO, ON 16.2.2006, WHE REIN CURRENT CORRESPONDENCE ADDRESS WAS FURNISHED. THEREFORE, I T IS UNDISPUTED THAT THE AO ISSUED THE IMPUGNED NOTICE AT THE WRONG ADDR ESS WHICH NATURALLY COULD NOT BE SERVED. THE AO ISSUED FRESH NOTICE U/ S 143(2) OF THE ACT, ON 29.10.07, AND AUTHORIZED THE INSPECTOR TO EFFECT SE RVE THE NOTICE BY ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 3 AFFIXTURE. THE SEQUENCE OF EVENTS, IN THE MATTER O F ISSUANCE OF NOTICE U/S 143(2) OF THE ACT, REVEALS THAT THE FIRST NOTICE WA S ISSUED, ON 19.10.07, AND SUBSEQUENTLY ANOTHER NOTICE WAS ISSUED, ON 29.1 0.07. THE NOTICE DATED 29.10.07, ISSUED U/S 143(2) OF THE ACT WAS SE RVED BY WAY OF AFFIXTURE ON 31.10.07. THEREFORE, THERE WAS ONLY T WO DAYS GAP BETWEEN THE ISSUE OF SAID NOTICE AND THE AFFIXTURE. IT IS EVIDENT THAT THE AO HAS FAILED TO DEMONSTRATE THAT THE ASSESSEE AVOIDED SER VICE OF THE IMPUGNED NOTICE AND HE HAD EXHAUSTED ALL EFFORTS, TO EFFECT THE SERVICE BY AN ORDINARY MODE OF SERVICE. THE CASE-LAWS RELIED ON B Y THE LD. AR, FOR THE ASSESSEE ARE SQUARELY APPLICABLE TO THE FACTS OF TH E PRESENT CASE, AS IS EVIDENT FROM THE REPRODUCTION OF RELEVANT AND OPERA TIVE PART OF THE SAME, HEREINAFTER. 5. BEFORE THE BENCH, THE LD AR FOR THE ASSESSEE V EHEMENTLY CONTENDED THAT THE SERVICE OF NOTICE U/S 143(2) OF THE ACT HAS NOT BEEN EFFECTED, WITHIN THE PRESCRIBED TIME. CONSEQUENTLY , THE ASSESSMENT FRAMED U/S 144 OF THE ACT IS BAD IN LAW. HE, FURTH ER, STATED THAT THE ASSESSEE DULY INFORMED THE CHANGE OF ADDRESS FOR CO RRESPONDENCE AS IT IS EVIDENT FROM PAGE FIRST OF THE PAPER BOOK, WHICH CO NTAINS A LETTER, DATED 13.2.2006 ADDRESSED TO THE ITO, PARWANOO RECEIVED B Y HIM ON 16.2.2006, SUPPORTING HIS CONTENTION. HE ALSO REFERRED TO PAG E 4 OF THE PAPER BOOK, INDICATING THAT THE ASSESSEE RECEIVED NOTICE DATED TO 12.10.2007, ON 14.10.2007, ISSUED U/S 143(3) OF THE ACT (SUNDAY AT OUR DELHI ADDRESS) THROUGH ITO INSPECTOR, WHICH WAS DULY SIGNED BY THE SAME OFFICER FOR 2005-06. THE LD. AR FOR THE ASSESSEE WAS OF THE O PINION THAT THE CHANGE OF ADDRESS WAS IN THE KNOWLEDGE OF THE AO. LD. AR FOR THE ASSESSEE REFERRED TO PARA 4 OF LD. CIT(A). IT WAS CONTENDED BY THE LD. AR FOR THE ASSESSEE THAT THE SERVICE OF NOTICE FOR IMPUGNED AS SESSMENT ORDER WAS ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 4 EFFECTED BY WAY OF AFFIXTURE, WHICH IS NOT AS PER L AW. HE PLACED RELIANCE, ON THE DECISIONS OF HON'BLE JURISDICTIONAL HIGH COU RT IN CIT V. AVI-OIL INDIA P. LTD (2010) 323 ITR 242 (P & H) AND KUNJ BE HARI V. ITO, DISTRICT II(VI) AMRITSAR (1983) 139 ITR 72 (P & H). HE, FUR THER, PRAYED THAT REQUISITE STATUTORY NOTICE WAS NOT SERVED, AS STATE D EARLIER, AS PER LAW AND HENCE, CONSEQUENTIAL ASSESSMENT IS BAD IN LAW. 6. IN CIT V. AVI-OIL INDIA P. LTD, 323 ITR 242 (P & H), HON'BLE HIGH COURT HAS HELD LAS UNDER: DISMISSING THE APPEAL, THAT THERE WAS NO PERSONAL SERVICE OF NOTICE ON THE ASSESSEE AND THE NOTICE DATED OCT 31,2002, W AS SERVED ON THE ASSESSEE BEYOND THE PERIOD OF LIMITATION PRESCRIBED . THE FIRST NOTICE SERVED BY AFFIXTURE WAS INVALID SINCE THE AS SESSEE HAD NEITHER AVOIDED SERVICE OF NOTICE NOR WAS THERE ANY REASON TO INFER THAT THE NOTICE COULD NOT BE SERVED IN AN ORDINARY WAY. THE NOTICE WHICH WAS SERVED BEYOND A PERIOD OF 12 MONTHS WAS INVALID IN TERMS OF SEC 143(2) OF THE ACT. THEREFORE, ANY ACTION TAKEN PURSUANT TO ISSUE OF INVALID NOTICE WAS LIABLE TO BE SET ASIDE AND THE ASSESSMENT WAS TO BE ANNULLED. THE DEPARTMENT COULD NOT RESORT TO SEC 292B OF THE ACT TO VALIDATE THE MANDATORY RE QUIREMENT OF SERVICE AS POSTULATED UNDER SEC 143(2) OF THE ACT. THEREFORE, NON COMPLIANCE WITH SEC 143(2) OF THE ACT COULD NOT BE TREATED AS A DEFECT IN SERVICE OF NOTICE WHICH COULD BE CUR ED U/S 292B OF THE ACT. THE NOTICE SERVED U/S 143(2) OF THE ACT W AS INVALID. THE HON'BLE SUPREME COURT HAD DISMISSED THE SPECIAL LEAVE PETITION FILED BY THE DEPARTMENT AGAINST THIS JUDGMENT: SEE (2009) 317 ITR (ST.)1). 7. IN KUNJ BEHARI V. ITO, DISTT II(VI) AMRITSAR AND OTHERS (1983) 139 ITR 73 (P & H), HON'BLE PUNJAB & HARYANA HIGH COURT HELD AS UNDER: THAT WITH A VIEW TO RESORT TO THE METHOD OF SUBSTI TUTED SERVICE, IT IS THE DUTY OF THE DEPARTMENT TO DISCHARGE THE ONUS BY SHOWING THAT THE AUTHORITY CONCERNED HAD REASON TO BELIEVE THAT THE ASSESSEE WAS KEEPING OUT OF THE WAY FOR THE PURPOSE OF AVOIDING SERVICE OR THAT ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 5 THERE WERE OTHER GOOD REASONS TO COME TO THE CONCLU SION THAT THE SUMMONS COULD NOT BE SERVED IN THE ORDINARY WAY. I N SPITE OF A SPECIFIC AVERMENT HAVING BEEN MADE IN THE PETITION, NOTHING HAD BEEN DISCLOSED IN THE RETURN TO SHOW THAT THE CONDI TION PRECEDENT WAS SATISFIED BEFORE THE SUBSTITUTED SERVICE WAS RE SORTED TO. THE ONLY AVERMENT MADE IN THE RETURN WAS THAT THE ASSE SSEE WAS DULY SERVED BY AFFIXATION. NOTHING HAD BEEN AVERRED IN THE RETURN, NOR WAS ANY RECORD PRODUCED AT THE TIME OF HEARING TO S ATISFY THE COURT, THAT THE ITO WHO ORDERED THE SUBSTITUTED SERVICE, W AS SATISFIED THAT THERE WAS REASON TO BELIEVE THAT THE ASSESSEE WAS K EEPING OUT OF THE WAY FOR THE PURPOSE OF AVOIDING SERVICE OR THERE WA S ANY GOOD REASON TO COME TO THE CONCLUSION THAT THE ASSESSEE COULD NOT BE SERVED IN THE ORDINARY WAY. THE ASSESSEE HAD NO KN OWLEDGE OF THE PASSING OF THE EX PARTE ASSESSMENT ORDER AND, THERE FORE, THE NOTICE OF DEMAND SHOULD BE QUASHED. 8. THE DR STATED THAT THE ISSUE IS COVERED BY THE PROVISIONS OF SEC 292B OF THE ACT. HE ALSO PLEADED THAT FIRST NOTICE WAS ISSUED ON THE ADDRESS PROVIDED BY THE ASSESSEE IN THE RETURN OF I NCOME. THE DR PLACED RELIANCE IN SWARAN KANTA V. CIT (1989) 176 ITR 291 (P & H). 9. WE HAVE CAREFULLY PERUSED THE FACTS OF THE CASE, RELEVANT PAPER BOOK. THE DR HAS RELIED UPON THE PROVISIONS OF SE CTION 292B OF THE ACT WHICH ARE NOT AT ALL APPLICABLE TO THE FACTS OF THE CASE. AS THE CORE ISSUE PERTAINS TO EFFECT A VALID SERVICE OF NOTICE AND NO T THE CURABLE DEFECT IN THE IMPUGNED NOTICE. THE DECISION CITED AND RELIED UPON BY THE DR ARE FACTUALLY DIFFERENT AND DISTINGUISHABLE. HOWEVER, RELEVANT PART OF THE DECISION IN SWARAN KANTA V. CIT (1989) 176 ITR 291 IS REPRODUCED HEREUNDER: ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 6 ASSESSMENT VALIDITY OF DEATH OF ASSESSEE IN CO URSE OF ASSESSMENT PROCEEDINGS LEGAL REPRESENTATIVE IMPLE ADED AND HEARD ASSESSEE COMPLETED ASSESSMENT ORDER MENTI ONING NAME OF DECEASED ASSESSEE INSTEAD OF THE LEGAL HEIR IS ONLY A CLERICAL ERROR DECEASED IS THE ORIGINAL ASSESSEE LEGAL REPRESENTATIVE BECOMES DEEMED ASSESSEE FOR PURPOSES OF COMPLETION OF PROCEEDINGS AND FOR RECOVERY OF TAX F ROM ESTATE OF DECEASED IN HANDS OF LEGAL REPRESENTATIVE ASSESSM ENT IS VALID INCOME TAX ACT, 1961, SS 159(2)(A), (2)(C), (3), 29 2B. 10. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSI ON, WE ARE OF THE CONSIDERED VIEW THAT THE SERVICE OF NOTICE HAS NOT BEEN MADE AS PER THE RATIO LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE DISCUSSED EARLIER. THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT, IN THE CASE OF C IT V. AVI-OIL INDIA P. LTD, 323 ITR 242 (P & H) AND KUNJ BEHARI V. ITO, DI STT II(VI) AMRITSAR AND OTHERS , IT IS HELD THAT THE FINDINGS OF LD. CI T(A), CANNOT BE UPHELD. THUS, THE ASSESSEE SUCCEEDS IN HIS GROUNDS OF APPEA L. 11 IN VIEW OF THE ADJUDICATION OF FIRST GROUND, WE DO NOT DEEM IT FIT TO ADJUDICATE THE REMAINING GROUNDS OF APPEAL. 12. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON 26 .8.2011 SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNANT MEMBER CHANDIGARH, THE 26..8.2011 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE CIT(A) / THE DR ITA NO. 1007/CHANDI/2009 SUBHKARMA ELECTRICALS V. ITO 7