Sh. Rameshwar Dass Prop., Sirsa V. ITO, Sirsa

ITA 1375/CHANDI/2010

• Counselvise Citation: 137521514 RSA 2010
• Duration Of Justice: 1 year(s) 6 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-06-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 13-12-2011
• Assessment Year: 2003-2004
• Appeal Filed On: 02-12-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business income; Rule of consistency; Period of limitation; Time period of passing order; Revised return; Ignorance of law
• Section: 147; 145; 148; 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH A CHANDIGARH BEFORE MS.SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1375 & 1376/CHD/2010 A.Y.: 2003-04 & 2005-06 SHRI RAMESHWAR DASS, V ITO, WARD-2, C/O RAMESHWAR DASS & SONS, JIND NOHARIA-BASAR, (CAMP AT SIRSA), SIRSA. SIRSA. PAN: ABKPD-0073F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI M.R.SHARMA RESPONDENT : SHRI AKHILESH GUPTA DATE OF HEARING : 07.06.2012 DATE OF PRONOUNCEMENT : 22.06.2012 ORDER PER MEHAR SINGH, AM THE PRESENT TWO APPEALS FILED BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 21.09.2010 PASSED BY THE CIT(A) U/S 250(6) OF THE INCOME-TAX ACT,1961 (IN SH ORT 'THE ACT'), FOR THE ASSESSMENT YEAR 2003-04 & 2005-06. A S BOTH THE APPEALS INVOLVE SIMILAR FACTS AND ISSUES, THEY ARE BEING DISPOSED OF BY A CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE AND BREVITY. 2. IN APPEAL, FOR THE ASSESSMENT YEAR 2003-04, THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1 . THAT THE ORDER OF THE ASSESSING OFFICER AS UPHE LD BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND IS BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) PASSED ON THE BASIS OF THE NOTICE ISSUED U/S 143(2) DATED 11-7-2008 & SERVED UPON ON 15-7-2008, BEING BEYOND THE PERIOD OF 12-MONTHS FROM THE DATE OF FILING OF RETURN IS BAD IN LAW AND IS LIABLE TO BE SET ASIDE. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ERRED IN INITIATING PROCEEDINGS U/S 147/148 & FRAMING ASSESSMENT AND THEREBY MAKING AN ADDITION OF RS. 759500-00 ON ACCOUNT OF INTEREST AND RS. 33000-00 ON ACCOUNT OF SALARY IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ADD, DELETE ANY OF THE GROUNDS OF APPEAL, BEFORE THE APPEAL IS FINALLY HEARD AND DECIDED. 3. IN APPEAL FOR THE ASSESSMENT YEAR 2005-06, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1 . THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) IS BAD IN LAW AND IS BEYOND ALL THE CANNONS OF LAW AND JUSTICE. 2. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) PASSED ON THE BASIS OF THE NOTICE ISSUED U/S 143(2) DATED 11-7-2008 & SERVED UPON ON 15-7-2008, BEING BEYOND THE PERIOD OF 12-MONTHS FROM THE DATE OF FILING OF RETURN IS BAD IN LAW AND IS LIABLE TO BE SET ASIDE. 3. THAT THE ORDER OF THE ASSESSING OFFICER AS UPHELD BY THE COMMISSIONER OF INCOME TAX (APPEALS) 3 IN THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE ERRED IN INITIATING PROCEEDINGS U/S 147/148 & FRAMING ASSESSMENT AND THEREBY MAKING AN ADDITION OF RS. 736000-00 ON ACCOUNT OF INTEREST, RS. 38000/ - ON ACCOUNT OF SALARY, RS. 18000/- ON ACCOUNT OF RENT AND RS. 5000/- ON ACCOUNT OF LEGAL CHARGES IS BAD IN LAW AND NEEDS TO BE SET ASIDE. 4. THAT THE APPELLANT CRAVES LEAVE TO AMEND, ADD, DELETE ANY OF THE GROUNDS OF APPEAL, BEFORE THE APPEAL IS FINALLY HEARD AND DECIDED. ITA 1375/CHD/2010 (A.Y. 2003-04) 4. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE, HEN CE, NEED NO SEPARATE ADJUDICATION. ACCORDINGLY, SAME ARE DI SMISSED. 5. IN GROUND NO.2, THE ASSESSEE CONTENDED THAT UPHOLDI NG BY THE CIT(A), OF THE ORDER OF THE AO, ON THE BASIS OF NOTICE ISSUED U/S 143(2) DATED 11.07.2008 AND SERVED ON 15.07.2008 BEING BEYOND THE PERIOD OF 12 MONTHS FRO M THE DATE OF FILING OF RETURN, IS BAD IN LAW AND IS LIAB LE TO BE SET ASIDE. 6. IN ITA NO. 1376/CHD/2010 (A.Y. 2005-06) , VIDE GROUND NO.2, ASSESSEE HAS MADE A SIMILAR CONTENTION S. AS THESE GROUNDS OF APPEAL ARE IDENTICAL IN NATURE, SA ME ARE BEING ADJUDICATED TOGETHER. 7. BEFORE THE AO, ASSESSEE CONTENDED THAT NOTICES U /S 143(2) AND PROCEEDINGS INITIATED U/S 147/148 OF THE ACT ARE NOT VALID. IT WAS POINTED OUT THAT THE AMENDMENT T O SECTION 143(2) W.E.F. 01.04.2008 CANNOT OPERATE RETROSPECTI VELY. ACCORDINGLY, ASSESSEE REQUESTED THAT PROCEEDINGS IN ITIATED 4 U/S 147/148 OF THE ACT MAY BE DROPPED. THE AO DEALT WITH THE OBJECTION RAISED BY THE ASSESSEE IN THE MATTER IN PARA 6 OF THE ASSESSMENT ORDER DATED 29.10.2008 PASSED U/S 143(2)/147 OF THE ACT. CONTENTS OF THE SAME ARE SE LF- EXPLANATORY IN NATURE. FOR THE SAKE OF PROPER APPRE CIATION AND READY REFERENCE, THE SAME IS REPRODUCED HEREUND ER: 6. I HAVE CAREFULLY CONSIDERED THE VARIOUS ARGUMEN TS ADVANCED BY THE ASSESSEE THROUGH WRITTEN REPLIES FURNISHED F ROM TIME TO TIME BUT THESE ARE HARDLY OF ANY CONSEQUENCE. THE OBJECT ION OF THE~ ASSESSEE WITH REGARD TO THE ISSUE OF NOTICE U/S 143 (2) IS NOT TENABLE. THE DATE FROM WHICH: AN AMENDMENT BECOMES EFFECTIVE BECOMES OFTEN A MATTER OF CONTROVERSY-EVEN WHERE TH E DATE FROM WHICH AMENDMENT IS TO TAKE EFFECT IS CLEARLY STATED . IT IS AN ESTABLISHED LAW THAT IF THE AMENDMENT IS OF PROCEDU RAL NATURE, IT SHOULD HAVE EFFECT ON ALL MATTERS PENDING AS ON DAT E ON WHICH THE AMENDMENT IS DECLARED TO BE EFFECTIVE AND WOULD ALS O BE APPLICABLE TO OTHER FUTURE CASES, THOUGH IT MAY RELATE, TO AME NDMENT OR PROCEEDINGS EARLIER TO THE EFFECTIVE DATE. HOWEVER, IN MATTERS OF SUBSTANTIVE LAW THE AMENDMENT CANNOT HAVE RETROSPEC TIVE EFFECT UNLESS IT IS SPECIFICALLY MADE RETROSPECTIVE. IN CI T. VS. KERALA TRANSPORT CO. (2000) 242-ITR-263 THE HON'BLE KERALA HIGH COURT TOOK THE VIEW THAT THE DATE ON WHICH THE DISPUTE HA D COMMENCED IS THE RELEVANT DATE WITH REFERENCE TO THE CIVIL PROCE DURE CODE, SO; THAT THE DATE ON WHICH THE NOTICE U/S 143(2) WAS IS SUED WOULD BE THE: RELEVANT DATE FOR CONSIDERING THE APPLICABILIT Y OF THE AMENDMENT. SINCE ON THE DATE OF ISSUE OF NOTICE U/S 143(2) I.E. 11/7/2008, WHICH FALLS AFTER 1/4/2008 WHEN AMENDMEN T WAS BROUGHT ON THE STATUTE BOOK, IT CANNOT BY ANY STRET CH OF IMAGINATION BE SAID TO HAVE BEEN ISSUED AFTER 1 THE EXPIRY OF LIMITATION PERIOD I.E. AFTER SIX MONTHS FROM THE EN D OF THE RELEVANT FINANCIAL YEAR I.E. 30/09/2008. THE VARIOUS CASE LA WS RELIED UPON BY THE ASSESSEE ARE NOT IN RESPECT OF PROCEDURAL AM ENDMENTS. THEREFORE, THE CONTENTION OF THE ASSESSEE IS NOT AC CEPTABLE AND THE CASE LAWS DO NOT COME TO HIS RESCUE. 5 8. LD. CIT(A) PASSED A CONSOLIDATED ORDER FOR THE ASSESSMENT YEAR 2003-04 AND 2005-06, VIDE ORDER DAT ED 21.09.2010. LD. CIT(A) UPHELD THE FINDINGS OF THE AO, AS FAR AS ISSUANCE OF NOTICE U/S 143(2) IS CONCERNED. REL EVANT FINDING OF THE CIT(A), AS CONTAINED IN PARA 4 OF TH E APPELLATE ORDER, IS REPRODUCED HEREUNDER: 4. DURING THE APPEAL PROCEEDINGS, THE AR SUBMITTED THAT IN RESPONSE TO NOTICE U/S 147 THE ASSESSEE FIL ED THE RETURN OF INCOME FOR THE A.YS. 2003-04 & 2005-0 6 ON 29.6.2007. HOWEVER, NOTICE U/S 142 WAS ONLY SERVED ON 15.7.2008 FOR BOTH THE YEARS WHICH IS INVALID AS IT WAS BEYOND THE PERIOD OF 12 MONTHS FR OM THE END OF THE MONTH IN WHICH THE RETURN WAS FILED. THIS OBJECTION WAS TAKEN BY THE ASSESSEE BEFORE THE AO WHO DISPOSED OFF IT BY AN ORDER DATED 10.10.2008 . THE AO DISMISSED THE OBJECTION OF THE ASSESSEE ON T HE GROUND THAT SECTION 143 (2) AMENDED W.E.F. 1.4.2008 PRESCRIBED THAT NOTICE SHALL NOT BE ISSUED AFTER TH E EXPIRY OF 6 MONTHS FROM THE END OF THE F.Y. IN WHIC H THE RETURN WAS FILED. I AGREE WITH THE REASONING OF THE AO AND HOLD THAT NOTICE U/S 143 (2) WAS ISSUED IN TIME AND THEREFORE THIS GROUND OF APPEAL IS DISMISSED. 9. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, LD. 'AR' STATED THAT BOTH GROUNDS OF APPEAL, RAISED IN THESE APPEAL ARE IDENTICAL IN SUBJECT MATTER AND NATURE AND HENC E, CONSOLIDATED PLEADINGS, IN BOTH THE APPEALS ARE MAD E. HE GAVE FACTUAL HISTORY OF THE CASE AND REFERRED TO VA RIOUS PAGES OF THE PAPER BOOK, INDICATING ISSUANCE OF NOT ICE U/S 148 OF THE ACT. PAGE 1 OF THE PAPER BOOK CONTAINS NOTICES U/S 148 OF THE ACT DATED 5.6.2007 FOR THE ASSESSMEN T YEAR 6 2003-04 ISSUED BY THE AO AND SIMILARLY, PAGE 2 OF T HE PAPER BOOK CONTAINS NOTICE U/S 148 DATED 5.6.2007 FOR THE ASSESSMENT YEAR 2005-06 ISSUED BY THE AO. PAGE NO. 5 AND 7 CONTAINS REASONS RECORDED BY THE AO U/S 148 FOR THE ASSESSMENT YEAR 2003-04 AND 2005-06 RESPECTIVELY. PAGE NO. 11 OF THE PAPER BOOK CONTAINS FACTUAL BACKGROUN D OF THE CASE. THE LD. 'AR' CONTENDED THAT THE PROVISIONS O F SECTION 292BB OF THE ACT WERE INSERTED BY THE FINANCE ACT 2 008 W.E.F. 1.4.2008, HENCE, THE SAME CANNOT BE INVOKED BY THE AO. LD. 'AR' WAS OF THE OPINION THAT THE NOTICE HA S BEEN ISSUED AFTER THE EXPIRY OF 12 MONTHS, FROM THE DATE OF FILING OF RETURN. THEREFORE, SUCH NOTICES ISSUED, DESERVE TO BE QUASHED. 10. LD. 'AR' PLACED RELIANCE ON THE DECISION DATED MARCH 27,2000 OF HON'BLE SUPREME COURT, IN THE CASE OF CI T V HINDUSTAN ELECTRO GRAPHICS LTD. TO SUPPORT HIS CONT ENTIONS. A BARE PERUSAL OF THE CASE LAW REVEALS THAT THE CAS E LAW PERTAINS TO THE ASSESSMENT YEAR 1989-90 AND DEALS W ITH THE ISSUE OF LEVY OF ADDITIONAL TAX. IN THE PRESENT CA SE, SUBJECT MATTER BEFORE THE AO, IS NOT LEVY OF ADDITIONAL TAX , BUT THE ISSUANCE OF NOTICE U/S 148 OF THE ACT. THE HON'BLE SUPREME COURT INTERPRETED THE LEVY OF ADDITIONAL TAX, AS HA VING THE CHARACTERISTICS OF PENALTY. IN VIEW OF THIS, THE C ASE LAW RELIED UPON BY THE ASSESSEE IS FACTUALLY DIFFERENT AND DISTINGUISHABLE AND, HENCE, CANNOT BE APPLIED TO TH E FACTS OF THE PRESENT CASE. 7 11. LD. 'AR' FURTHER PLACED RELIANCE ON THE DECISIO N OF THE SPECIAL BENCH IN THE CASE OF TOBACCO PRODUCTS PVT. LTD. V DY.CIT 120 TTJ (DEL)(SB) 577. A BARE PERUSAL OF TH E CASE LAW RELIED UPON BY THE ASSESSEE REVEALS THAT THE LD . 'AR' HAS MISREAD AND MIS-APPLIED THE DECISION OF THE SPECIAL BENCH. IN THE PRESENT CASE, AO HAS NOT TAKEN AID OF SECTIO N 292BB OF THE ACT IN THE MATTER, FOR THE PURPOSE OF ISSUE OF NOTICE U/S 148 OF THE ACT. HOWEVER, THE DECISION RENDERED BY THE HON'BLE SPECIAL BENCH PERTAINS TO THE INTERPRETATIO N OF SECTION 292BB OF THE ACT, WHEREBY IT WAS HELD THAT SECTION 292BB CANNOT BE CONSTRUED, TO HAVE RETROSPECTIVE EF FECT. IN VIEW OF THIS, THE FACTS OF THE PRESENT CASE ARE MAT ERIALLY DIFFERENT AND DISTINGUISHABLE. HENCE, CASE LAW CIT ED BY THE ASSESSEE IS NOT APPLICABLE TO THE FACTS OF THE PRES ENT CASE. 11(I) LD. 'AR', FURTHER, PLACED RELIANCE, ON THE DECISION OF JURISDICTIONAL HIGH COURT, IN THE CASE OF OM SONS INTERNATIONAL V CIT (2011) CTR (P&H) 110. IN THIS CASE, IT HAS BEEN HELD BY THE HON'BLE JURISDICTIONAL HIGH CO URT THAT THE PROVISIONS OF SECTION 292BB ARE APPLICABLE TO T HE PROCEEDINGS PENDING AS ON 1.4.2008. HOWEVER, IF OBJ ECTION IS RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE TH E COURT, THAT THERE WAS NO PROPER SERVICE U/S 148 OF THE ACT , AND HENCE, THE SAME IS NOT MAINTAINABLE. IN THE PRESEN T CASE, AO WAS NOT CONCERNED AT ALL WITH THE PROVISIONS OF SECTION 292BB OF THE ACT. THE AO DIDNT INVOKE THE PROVISI ONS OF SECTION 292BB OF THE ACT, IN THESE CASES. THE AO ME RELY APPLIED THE PROVISIONS OF SECTION 143(2) OF THE ACT , AMENDED VIDE FINANCE ACT,2008, W.E.F. 1.4.2008. THEREFORE, THE 8 DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I S NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. 11(II) LD. 'AR' FURTHER PLACED RELIANCE ON THE DECISION OF INDORE BENCH OF THE TRIBUNAL, IN THE CASE OF SERVIT E SISTERS SOCIETY V ASSTT.CIT (2010) 130 TTJ (IND) 96. WE HA VE CAREFULLY PERUSED THE RIVAL SUBMISSIONS, FACTS OF T HE CASE AND THE RATIO LAID DOWN BY THE HON'BLE BENCH AND FO UND THAT THE SAME IS NOT APPLICABLE TO THE FACTS OF THE PRES ENT CASE, BEING DIFFERENT AND DISTINGUISHABLE. 11(III) LD. 'DR', ON THE OTHER HAND, REFERRED TO TH E CIRCULAR ISSUED BY CBDT TO SUPPORT THE CONTENTION. THE CIRCULAR IS REPORTED IN 310 ITR (STATUTES) 42. IT W AS CONTENDED BY THE LD. 'DR' THAT CIRCULAR ISSUED BY T HE CBDT, EXPLAINING THE RELEVANT AMENDMENTS ARE BINDING, ON THE INCOME TAX AUTHORITIES, AS HELD IN PLETHORA OF DECI SIONS OF THE HON'BLE HIGH COURTS AND HON'BLE SUPREME COURT. 12. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE CASE LAWS CITED IN THIS APPEAL. THE AO HAS INVOKED THE AMENDED PROVISIONS OF SECTION 143(2 ) OF THE ACT. THE FINANCE ACT, 2008, AMENDED THE PROVISIONS OF SECTION 143(2) W.E.F. 01.04.2008. CBDT VIDE CIRCULA R NO. 1 OF 2009, DATED 27.03.2009, ISSUED EXPLANATORY NOTE ON THE OF PROVISIONS RELATING TO DIRECT TAXES. IN THIS CO NTEXT, WE DEEM IT FIT, TO REPRODUCE THE RELEVANT CLAUSES NUMB ER 42.8 AND 42.9 OF THE SAID CIRCULAR AS UNDER : 42.8 SIMILARLY THE AMENDED PROVISION OF SUB- SECTION (2) OF SECTION 143 SHALL APPLY TO ALL SUCH 9 RETURNS (IRRESPECTIVE OF THE ASSESSMENT YEAR TO WHICH THE RETURNS PERTAIN) WHERE NOTICE UNDER SUB- SECTION (2) OF SECTION 143 CAN STILL BE ISSUED ON I ST APRIL 2008 UNDER THE PRE-AMENDED PROVISION. 42.9 FOR EXAMPLE, THE ASSESSEE A FILES HIS TAX RETURN ON 31 ST MARCH 2007, THE ASSESSEE B FILES HIS TAX RETURN ON 15 TH APRIL,2007 AND THE ASSESSEE C FILES HIS TAX RETURN ON 16 TH OCTOBER, 2007. AS ON IST APRIL,2008 NOTICE UNDER THE PRE-AMENDED PROVISION OF SUB-SECTION (2) OF SECTION 143 COULD N OT HAVE BEEN ISSUED IN CASE OF A AND COULD HAVE BEEN ISSUED IN CASES OF B AND C. HENCE, THE NEW PROVISION SHALL APPLY FOR RETURNS FILED BY B AND C BUT NOT FOR RETURN FILED BY A. IN CASE OF RETURNS FILED BY B AND C, THE NOTICE UNDER SUB- SECTION (2) OF SECTION 143 CAN BE SERVED ON THE ASSESSEE ON OR BEFORE 31 ST SEPTEMBER 2008. ANY NOTICE SERVED ON THE ASSESSEE IN THESE TWO CASES, AFTER THIS DATE, WILL NOT BE VALID. 13. A BARE PERUSAL OF THE EXPLANATORY NOTE AND PARTICULARLY SUB-CLAUSE 42.8 OF SUCH EXPLANATORY NO TE REVEALS THAT THE AMENDED PROVISION OF SECTION 143(2 ) SHALL APPLY TO ALL SUCH RETURNS (IRRESPECTIVE OF THE ASSE SSMENT YEAR, TO WHICH THE RETURNS PERTAIN) WHERE NOTICE U/ S 143(2) CAN STILL BE ISSUED ON 1.4.2008, UNDER THE PRE-AME NDED PROVISION. THE SAID CIRCULAR UNDER CLAUSE 42.9 HAS ALSO GIVEN ILLUSTRATIONS TO MAKE THE ISSUE MORE CLEAR. 14. A PERUSAL OF THE ASSTT ORDER FOR THE YEAR 2003- 04, REVEALS THAT THE AO ISSUED NOTICE U/S 148 OF THE AC T ON 05.06.2007 WHICH WAS SERVED UPON THE ASSESSEE ON 25.06.2007. IN RESPONSE TO THE SAID NOTICE, RETURN DECLARING AN INCOME OF RS.1,98,190/- WAS FILED ON 29.06.2007. SIMILARLY, A PERUSAL OF THE ASSESSMENT ORDER FOR TH E ASSESSMENT YEAR 2005-06 REVEALS THAT THE AO ISSUED NOTICE U/S 148 OF THE ACT ON 5.6.2007, WHICH WAS SERVED UP ON THE ASSESSEE ON 25.06.2007. IN RESPONSE TO THE SAID NO TICE, THE 10 ASSESSEE FILED RETURN OF INCOME DECLARING INCOME OF RS.1,98,190/- ON 29.06.2007. THUS, IT IS CLEAR THAT IN BOTH THE ASSESSMENT YEARS, THE ASSESSEE FILED RETUR N OF INCOME, IN RESPONSE TO THE IMPUGNED NOTICES U/S 148 OF THE ACT ON 29.06.2007. THEREFORE, ACCORDING TO THE PRE- AMENDED PROVISION OF SECTION 143(2), NOTICE IN THIS CASE COULD HAVE BEEN ISSUED BY 30.6.2008. HOWEVER, AO I SSUED NOTICE ON 11.7.2008 FOR THE ASSESSMENT YEAR 2003-04 . SIMILARLY, FOR THE ASSESSMENT YEAR 2005-06, NOTICE U/S 143(2) WAS ISSUED BY THE AO ON 11.7.2008. HOWEVER, IT IS EVIDENT THAT THE AO IS COMPETENT TO ISSUE NOTICE, O N 1.4.2008, IN TERMS OF PRE-AMENDED PROVISIONS OF SEC TION 143(2) OF THE ACT. ACCORDINGLY, THE AO HAS ISSUED NOTICE STRICTLY IN ACCORDANCE WITH THE IMPUGNED INSTRUCTIO NS. HENCE, WE DO NOT FIND ANY ILLEGALITY IN THE SAID NO TICES. 16. HAVING REGARD TO THE FACT-SITUATION OF THE PRES ENT CASE, THE NOTICE U/S 143(2) CAN BE ISSUED ON 1.4.2008, UN DER THE PRE-AMENDED PROVISION. THEREFORE, IN TERMS OF THE CIRCULAR UNDER REFERENCE, AO HAS VALIDLY ISSUED IMPUGNED NOT ICES, IN BOTH THE CASES, IN CONSONANCE WITH PROVISIONS OF TH E SAID CBDT CIRCULAR. IN THIS CONNECTION, IT IS PERTINENT TO MENTION HERE THAT THE CIRCULARS OR GENERAL DIRECTIO NS, ISSUED BY THE CBDT WOULD BE BINDING U/S 119 OF THE ACT, ON ALL OFFICERS AND PERSONS, EMPLOYED IN THE EXECUTION OF THE ACT. CIRCULARS MAY BE UTILIZED TO UNDERSTAND THE SCOPE A ND MEANING OF THE PROVISIONS, TO WHICH THEY RELATE. T HESE CIRCULARS ARE THE INTERPRETATION OF THE PROVISIONS OF THE ACT BY THE CBDT, IN THE NATURE OF CONTEMPORANEA EXPOSIT ION, 11 FOLLOWING THE LEGITIMATE AID IN THE CONSTRUCTION OF A PROVISION, AS HAS BEEN HELD IN A NUMBER OF DECISION S. IN VIEW OF THIS, THE ACTION TAKEN BY THE AO, IN ISSUAN CE OF IMPUGNED NOTICES, FOR BOTH ASSESSMENT YEARS AS UPHE LD BY THE CIT(A), DOES NOT SUFFER FROM ANY LEGAL INFIRMIT Y, AS THE SAME FINDS DIRECT SUPPORT FROM THE IMPUGNED CIRCULA R, ISSUED BY THE CBDT INTERPRETING THE RELEVANT AMENDE D PROVISIONS OF SECTION 143(2) OF THE ACT BY THE FINA NCE ACT, 2008 W.E.F. 1.4.2008. IN VIEW OF THIS, FINDINGS OF THE CIT(A) ARE UPHELD AND THE GROUNDS OF APPEAL OF THE ASSESSE E, IN BOTH THE APPEALS, ARE DISMISSED. 17. IN GROUND NO.3, THE ASSESSEE CONTENDED THAT AN ADDITION OF RS.7,59,500/- ON ACCOUNT OF INTEREST AN D RS.33,000/- ON ACCOUNT OF SALARY, IS BAD IN LAW AND NEEDS TO BE SET ASIDE. SIMILAR GROUND HAS BEEN RAISED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.1376/CHD/ 2010, WHEREBY IT HAS BEEN CONTENDED THAT AN ADDITION OF RS.7,36,000/- ON ACCOUNT OF INTEREST, RS.38,000/-, ON ACCOUNT OF SALARY, RS.18,000/- ON ACCOUNT OF RENT A ND RS.5,000/- ON ACCOUNT OF LEGAL CHARGES, IS BAD IN L AW AND NEEDS TO BE SET ASIDE. 18. WE HAVE CAREFULLY PERUSED THE RIVAL SUBMISSIONS , FACTS OF THE CASE AND THE RELEVANT RECORDS, ON THE ISSUE UNDER CONSIDERATION. THE FINDINGS OF THE AO, AS CONTAINED IN PARA 7 OF THE ASSESSMENT ORDER DATED 29.10.2008 FOR THE ASSESSMENT YEAR 2003-04, ARE REPRODUCED HEREUNDER : 7. THE DEVIATION NOW SOUGHT BY THE ASSESSEE FOR COMPUTING THE INTEREST INCOME AND ALLOWABILITY OF 12 EXPENDITURE THEREON ON MERCANTILE BASIS IS NOTHING BUT A FUTILE ATTEMPT TO WRIGGLE OUT OF THE SITUATI ON WHICH HAS EMERGED AS A RESULT OF COMPLETION OF ASSESSMENT IN THE ASSESSEE'S CASE FOR THE ASSESSMENT YEAR 2004-05 ON 1/12/2006 HOLDING THAT THE ASSESSEE'S INCOME FROM INTEREST WAS TAXABLE ON CASH BASIS AND SIMILARLY EXPENDITURE THEREON ALLOWABLE ON THE SIMILAR BASIS, IN VIEW OF PROVISIONS OF SECTION 145(1) OF THE INCOME-TAX ACT. THE .FILING OF REVISED RETURN FOR THE ASSESSMENT, YEAR 2006-07 ON 29/2/2007 ENHANCING THE INTEREST INCOME BY RS.7,23,703/-, WAS ALSO CONSEQUENTIAL TO THE ABOVE ORDER FOR THE ASSESSMENT YEAR 2004-05 JUST TO SHOW THE SO CALLED BONAFIDES WHICH INFACT WERE NOT THERE BECAUSE THE ORIGINAL RETURN FOR THIS YEAR WAS FILED BY THE ASSESSEE ON 26/09/2006 BY CALCULATING INTEREST ON RECEIPT BASIS AND CLAIMING EXPENDITURE ON MERCANTILE BASIS. MOREOVER, THE ISSUE OF ACCESSIBILITY OF INCOME ON CASH BASIS HAS REACHED FINALITY BY THE JUDGEMENT OF LD. ITAT REFERRED TO SUPRA AND CANNOT BE ALTERED NOW. THE PLEA OF IGNORANCE OF LAW ON SUCH A SIGNIFICANT ISSUE OF ASSESSABILITY OF INCOME CANNOT ALSO BE ACCEPTED AS A VALID EXCUSE BECAUSE THE ASSESSEE IS GUIDED BY A VERY SENIOR ADVOCATE FOR THE LAST MANY YEARS AND IT WAS NOT DIFFICULT FOR HIM TO SEEK HIS OPINIO N REGARDING ADOPTING OF SYSTEM OF ACCOUNTING AFTER THE AMENDMENT MADE TO SECTION 145 PERMITTING ONLY ONE SYSTEM I.E. CASH OR MERCANTILE AND NOT HYBRID SYSTEM/TAX PLANNING MAY BE LEGITIMATE PROVIDED IT IS WITHIN THE FRAMEWORK OF LAW. COLOURABLE DEVICES CANNOT BE PART OF TAX PLANNING AND IT IS WRONG TO ENCOURAGE OR ENTERTAIN THE BELIE F THAT IT IS HONOURABLE TO AVOID THE PAYMENT OF TAX BY RESORTING TO DUBIOUS METHODS. IT IS THE OBLIGATION OF EVERY CITIZEN TO PAY THE TAXES 13 HONESTLY WITHOUT RESORTING TO SUBTERFUGES. RELIANCE IN THIS CONTEXT MAY BE PLACED .ON THE LANDMARK JUDGEMENT OF HON'BLE SUPREME COURT OF INDIA IN THE CASE OF ME. DOWELL & CO.' LTD. VS. C.T.O. REPORTED IN 154-ITR-148. CONSIDERING ALL THE FACTS OF THE CASE, THE METHOD OF ACCOUNTING APPLIED BY THE ASSESSEE IS REJECTED. SIMILAR OBSERVATION HAS BEEN MADE BY THE AO IN PARA 7 OF THE ASSESSMENT ORDER FOR THE ASSESSMENT YEAR 2005-0 6 PASSED ON 29.10.2008 U/S 143(3) READ WITH SECTION 1 47 OF THE ACT. LD. CIT(A) PASSED CONSOLIDATED ORDER FOR BOTH ASSESSMENT Y EARS AND GAVE THE FINDINGS AS UNDER : 7. AS REGARDS ADDITION MADE BY THE AO BY ADOPTING CASH SYSTEM OF ACCOUNTING, THE AR SUBMITTE D AS UNDER:- THE ASSESSEE HAS BEEN CONSISTENTLY FOLLOWING THE ACCOUNTING SYSTEM OF CREDITING THE INCOME RECEIVED FROM FAWNERS ON RECEIPT BASIS AND EXPENDITURE ON ACCOUNT OF INTEREST TO THE CREDITORS AND OTHERS ON ACCRUAL BAS IS. WHEN IT WAS POINTED OUT BY THE AO DURING THE ASSESSMENT PROCEEDINGS FOR THE A.Y. 2004-05 THAT HYBRID SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSE E IS NOT ACCEPTABLE AS PER SECTION 145 (1) OF THE IT ACT, THE ASSESSEE REQUESTED THE AO TO ADOPT MERCANTILE SYSTEM OF ACCOUNTING. ACCORDINGLY, ASSESSEE REVISED THE RETURN FOR THE A.Y. 2006-07 ON 29.2.2007 BY ADOPTING MERCANTILE SYSTEM OF ACCOUNTING DECLARING ADDITIONAL INCOME OF RS. 7,23,703/-. HOWEVER, THE A O DISREGARDED THE REQUEST OF THE ASSESSEE AND ASSESSE D THE INCOME ON CASH BASIS FOR THE A.Y. 2005-06 AND COMPLETED THE ASSESSMENT ON 1.12.2006. HE SUBMITTED THAT WHEN THE INCOME PERTAINING TO THE EARLIER YEAR S WAS COMPUTED ON MERCANTILE BASIS AND ADMITTED AS ADDITIONAL INCOME IN THE REVISED RETURN FOR THE A.Y . 14 2006-07 FILED ON 29.2.2007, THE AO SHOULD NOT HAVE ASSESSED THE INCOME FOR THE A.Y. 2003-04 & 2005-06 ADOPTING THE CASH SYSTEM OF ACCOUNTING IN THE RE- ASSESSMENT PROCEEDINGS. HE RELIED UPON THE CASE LAW CIT VS PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION, [2002] 255 ITR 351 (P&H) REGARDING SYSTEM OF ACCOUNTING 'REGULARLY' FOLLOWED BY THE ASSESSEE. THE CONTENTIONS OF THE ASSESSEE HAVE BEEN FORWARDED TO THE AO FOR HIS COMMENTS AND THE REMAND REPORT OF THE AO AND REJOINDER BY THE ASSESSEE HAVE BEEN TAKEN ON RECORD. 8. IT MAY BE MENTIONED THAT THE ASSESSMENT FOR THE A.Y, 2004-05 ADOPTING THE CASH SYSTEM OF ACCOUNTING HAS BEEN UPHELD BY HON'BLE ITAT, CHANDIGARH BEN CH VIDE ORDER DATED 18.8.2008 IN ITA NO. 193/CHANDI/2008. WHILE DECIDING THE CASE, HON'BLE ITAT HAS CONSIDERED THE CASE LAW CITED BY THE ASSESSEE (SUPRA) AND UPHELD THE STAND OF THE DEPARTMENT. 9. I HAVE CONSIDERED THE ISSUE AND THE SUBMISSIONS MADE BY THE AR. ADMITTEDLY, THE ASSESSEE HAS BEEN FOLLOWING HYBRID SYSTEM OF ACCOUNTING WHICH IS NOT PERMISSIBLE U/S 145 OF THE IT ACT. THE STAND THE DEPARTMENT IN ASSESSING THE INCOME ON CASH BASIS FO R THE A.Y. 2004-05HAS BEEN UPHELD BY THE HON'BLE ITAT . THEREFORE, INCOME ASSESSED BY THE AO IN RE-ASSESSME NT PROCEEDINGS UNDER CASH SYSTEM OF ACCOUNTING FOR THE A.YS. 2003-04 & 2005-06 IS APPROPRIATE. REVISED RET URN FILED BY THE ASSESSEE FOR THE A.Y. 2006-07 ADOPTING MERCANTILE SYSTEM OF ACCOUNTING DOES NOT HELP HIM I N CONTESTING THE INCOME BROUGHT TO TAX UNDER CASH SYS TEM OF ACCOUNTING FOR THE A.YS. 2003-04 & 2005-06. THEREFORE, THE ADDITION MADE BY THE AO IS SUSTAINED FOR BOTH THE ASSESSMENT YEARS AND THIS GROUND OF APPEAL IS DISMISSED. 15 19. IN THE COURSE OF PRESENT APPELLATE PROCEEDINGS, IT TRANSPIRED THAT THE ISSUE IN QUESTION, IN BOTH THES E GROUNDS OF APPEAL, IS DIRECTLY COVERED BY THE DECISION OF C HANDIGARH BENCH, IN ASSESSEE'S OWN CASE IN ITA NO. 193/CHD/20 08 ASSESSMENT YEAR 2004-05 DATED 18.08.2008. THE RELEV ANT PART OF THE DECISION IS REPRODUCED HEREUNDER : 5. ON THIS ASPECT, WE HAVE CAREFULLY CONSIDERED TH E ARGUMENTS OF BOTH THE SIDES. THE DISPUTE REVOLVES AROUND THE IMPLICATIONS OF SECTION 145(1) R.W.S. 14 5(3) OF THE ACT. APART FROM OTHER THINGS, SECTION 145(3) EMPOWERS AN ASSESSING OFFICER TO REJECT THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE IF THE SAME IS NOT IN CONFORMITY TO THE METHOD OF ACCOUNTING PROVI DED IN SECTION 145(1) OF THE ACT. IN THIS CASE THE ASSE SSEE WAS ACCOUNTING FOR THE INCOMES ON CASH BASIS AND TH E EXPENSES WERE CLAIMED ON MERCANTILE BASIS IN ORDER TO COMPUTE THE INCOME CHARGEABLE UNDER THE HEAD PROFI TS AND GAINS OF BUSINESS OR PROFESSION. THE ASSESSING OFFICER FOUND THE SAME AS CONTRARY TO SECTION 145(1 ) OF THE ACT ON THE GROUND THAT THE SAID SECTION PROVIDE D THAT INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION OR INCOME FROM OT HER SOURCES IS TO BE COMPUTED IN ACCORDANCE WITH EITHE R CASH OR MERCANTILE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE, SUBJECT TO THE PROVISIONS OF SUB-SECTION (2) OF SECTION 145. IN THE PRESENT CASE , THE ASSESSEE WAS NEITHER EMPLOYING MERCANTILE BASIS NOR CASH BASIS OF ACCOUNTING. HE WAS EMPLOYING A HYBRID SYSTEM OF ACCOUNTING. THIS METHOD OF ACCOUNTING IS NO LONGER PERMISSIBLE IN VIEW OF THE PROVISIONS OF SEC TION 145(1) OF THE ACT AS AMENDED W.E.F. 01.04.1997. IT IS PERTINENT TO NOTE THAT SECTION 145 IS COUCHED IN MANDATORY TERMS. THEREFORE, IN PRINCIPLE, WE UPHOLD THE ACTION OF THE ASSESSING OFFICER IN NOT ACCEPTIN G THE METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE TO 16 COMPUTE HIS BUSINESS INCOME. THE PLEA OF THE ASSESSEE, BASED ON PAST CONSISTENCY, ALSO DOES NOT HELP HIS CAUSE BECAUSE OF THE STATUTORY PROVISIONS. IN THIS CONNECTION, THE COUNSEL FOR THE APPELLANT HAS EMPHASIZED THE PRESENCE OF THE WORDS REGULARLY EMPLOYED IN SECTION 145(1) TO ARGUE THAT IN THE PA ST THE REVENUE HAS ACCEPTED SUCH METHOD OF ACCOUNTING AND THEREFORE SAME CANNOT BE DISTURBED IN THIS YEAR TOO. ON THIS ASPECT WE FIND NO FORCE IN THE STAND O F THE APPELLANT. NO DOUBT THE PROVISIONS OF SECTION 145(1 ) STIPULATE THAT INCOME SHALL BE COMPUTED IN TERMS OF THE SYSTEM OF ACCOUNTING REGULARLY EMPLOYED BY THE ASSESSEE. HOWEVER, THE SAME CANNOT BE CONSTRUED TO MEAN THAT ONCE A SYSTEM OF ACCOUNTING IS ADOPTED, I T CAN NEVER BE CHANGED. THIS PRINCIPLE HAS BEEN UPHEL D BY THE HONBLE PUNJAB & HARYANA HIGH COURT ALSO IN CIT VS. PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LIMITED 255 ITR 351 (P&H). MOREOVER, WHEN THE CHANGE IS WARRANTED ON ACCOUNT OF A STATUTORY PROVISION, IN OUR CONSIDERED OPINION, THE PRINCIPLE OF CONSISTENCY HAS TO FAIL AND GIVE WAY T O THE LEGISLATIVE MANDATE. IN THE PRESENT CASE, AS SECTIO N 145(1) STANDS ON THE STATUTE FOR THE INSTANT ASSESSMENT YEAR, THE PERMISSIBLE SYSTEM OF ACCOUNTING FOR COMPUTING INCOME CHARGEABLE UNDER TH E HEAD PROFIT AND GAINS OF BUSINESS OR PROFESSION A RE EITHER CASH OR MERCANTILE SYSTEM AND NONE OF THE METHODS HAVE BEEN EMPLOYED BY THE ASSESSEE. THEREFORE, OUR DECISION TO UPHOLD THE ACTION OF THE INCOME TAX AUTHORITIES IN REJECTING METHOD OF ACCOUNTING EMPLOYED BY THE ASSESSEE, WHICH IS NEITH ER CASH NOR MERCANTILE. AT THIS STAGE, WE MAY REFER TO AN ALTERNATIVE PLEA RAISED BY THE APPELLANT THAT THE EXPENSES DISALLOWED BY THE ASSESSING OFFICER IN THI S YEAR DUE TO THE CHANGE OF ACCOUNTING METHOD SHOULD BE CONSIDERED FOR DEDUCTION IN THE RESPECTIVE YEARS OF ACTUAL PAYMENT. TO THIS PLEA THERE WAS NO 17 DISAGREEMENT FROM THE LD. D. R. REPRESENTING THE REVENUE. ON THIS ASPECT THEREFORE WE DIRECT THE ASSESSING OFFICER TO CONSIDER THE ALLOWABILITY OF T HE EXPENSES IN QUESTION NAMELY INTEREST RS.6,84,350/ -, SALARIES RS.18,000/- AND RENT RS.15,000/- IN TH E YEAR OF THEIR PAYMENT IN ACCORDANCE WITH LAW. THUS, IN PRINCIPLE, WE CONCLUDE BY HOLDING THAT THE ASSESSEE HAS TO FAIL ON THIS ISSUE. IN THIS MANNER THE GROUN DS OF APPEAL NO. 1,2 & 3 STAND DISPOSED OF. 20. RESPECTFULLY FOLLOWING DECISION OF THE TRIBUNAL , IN ASSESSEE'S OWN CASE, BOTH GROUNDS OF APPEAL, RAISED BY THE ASSESSEE ARE DISMISSED. 21. OTHER GROUNDS OF APPEAL ARE GENERAL IN NATURE A ND NEED NO SEPARATE ADJUDICATION. 22. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 22 ND JUNE,2012. SD/- SD/- (SUSHMA CHOWLA) (MEHAR SINGH) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 22 ND JUNE,2012. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH