KAILASHCHAND METHI, Gangapur City V. CIT, Kota

ITA 219/JPR/2011

• Counselvise Citation: 21923114 RSA 2011
• Duration Of Justice: 4 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-07-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 10-03-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH CHANDRA
• Assessee Lawyers: S K SHARMA; K R SABARWAL
• Keywords: Opportunity of being heard
• Section: 143(3); 263; 154

Judgement Text

1 ITA 219-11 IN THE INCOME TAX APPELLATE TRIBUNAL JAIPUR BENCH B JAIPUR BEFORE SHRI R.K. GUPTA AND SHRI N.L. KALRA ITA NO. 219/JP/2011 ASSTT. YEAR : 2006-07. SHRI KAILASHCHAND METHI, PROP. VS. COMMISSIONER OF INCOME-TAX, M/S. REWARMALKAILASHCHAND METHI, KOTA. B-37, NEW MANDI, GANGAPUR CITY. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI K.R. SABARWAL & SHRI S.K. SHARMA RESPONDENT BY : SHRI SUBHASH CHANDRA ORDER DATE OF ORDER : 28/07/2011. PER R.K. GUPTA, J.M. THIS IS AN APPEAL BY ASSESSEE AGAINST THE ORDER OF LD. CIT PASSED UNDER SECTION 263 READ WITH SECTION 154 OF THE IT ACT. 2. THE FOLLOWING GROUNDS HAVE BEEN TAKEN BY THE ASS ESSEE IN HIS APPEAL :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE : 1. THAT THE CIT WAS NOT JUSTIFIED IN RECTIFYING HI S PREDECESSORS ORDER PASSED UNDER SECTION 263 DATED 4.5.2010 MERELY ON A SSUMPTION AND PRESUMPTION AND WITHOUT RECORDING HIS OWN SATISFACT ION OR REASONS WAS WITHOUT JURISDICTION AND UN SUPPORTABLE IN LAW AND ON FACTS, HENCE THE ORDER U/S 263/154 DATED 1.2.2011 PASSED BY LD. CIT, KOTA IS VOID AB INITIO AND IS LIABLE TO BE QUASHED. 2. THAT THE NOTICE ISSUED UNDER SECTION 154/263 BY CIT, KOTA IS ILLEGAL AND NON SUSTAINABLE AS THERE IS NO APPARENT MISTAKE IN THE ORDER OF HIS PREDECESSOR PASSED U/S 263 DATED 4.5.2010. 3. THAT THE ORDER PASSED U/S 154/263 BY THE LD. CIT , KOTA IS WITHOUT PROPER JURISDICTION AND BAD IN LAW. 2 4. THAT THE ORDER PASSED U/S 263 DT. 4.5.2010 BY HI S PREDECESSOR WAS CORRECTLY PASSED AFTER APPRECIATING THE SUBMISSIONS MADE BY THE APPELLANT DURING THE COURSE OF PROCEEDINGS U/S 263, HENCE THE CONCLUSION DRAWN BY THEN CIT WAS WELL FOUNDED, JUSTIFIED AND LEGAL. 5. THAT IN ANY VIEW OF THE MATTER AND IN ANY CASE, THE ORDER PASSED BY THE CIT KOTA U/S 154/263 DT. 1.2.2011 IN SETTING AS IDE THE ASSESSMENT ORDER WITHOUT ESTABLISHING THAT THE ASSTT. ORDER PA SSED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE, IS NOT SUSTAINABLE IN LAW. 6. THAT THE ORDER PASSED U/S 154/263 DT. 1.2.2011 I S BAD IN LAW IN, AS MUCH AS, THE SAME IS SUBJECT MATTER OF APPEAL BEFOR E CIT (A) AND THERE IS NO FRESH MATTER AND THERE IS NO PRIMA FACIE MISTAKE IN THE ORDER OF HIS PREDECESSOR. 7. THAT THE ORDER PASSED BY THE LD. CIT, KOTA U/S 1 54/263 DT. 1.2.2011 ON THE ISSUE OF JURISDICTION OF AO IS NOT VALID AS THE ITO, WARD-2, SAWAIMADHOPUR HAD JURISDICTION OVER THE CASE. ALTER NATIVELY, IF DEEMED THAT THE ACIT, CIRCLE, SAWAIMADHOPUR HAD JURISDICTI ON THEN THE ASSESSMENT ORDER ITSELF IS VALID AND THE LD. CIT DI D NOT HAVE ANY POWER TO EXERCISE HIS JURISDICTION U/S 263 OF IT ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT ASSESSEE FI LED RETURN FOR ASSESSMENT YEAR 2006- 07 DECLARING AN INCOME OF RS. 2,32,969/- ON 30.10.2 006. NOTICE UNDER SECTION 143(2) WAS ISSUED ON 11.1.2007. ASSESSEE FILED RETURN FOR ASSESSMENT YEAR 2007-08 DECLARING AN INCOME OF RS. 5,11,220/- ON 31.08.2007. THE ASSESS MENT FOR ASSESSMENT YEAR 2006-07 UNDER SECTION 143(3) WAS COMPLETED ON 30.9.2008 ON A TOTAL INCOME OF RS. 6,81,500/- AS AGAINST RETURNED INCOME OF RS. 2,32,969/-. 3.1. VIDE LETTER NO. ITO/WARD-2/SWM/2009-10/657 DAT ED 1.9.2009 ITO WARD-2, SAWAIMADHOPUR HAS MOVED A PROPOSAL UNDER SECTION 26 3 OF IT ACT IN THE CASE FOR A.Y. 2006-07 POINTING OUT FOLLOWING ISSUES DECIDED BY TH E AO AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE :- ON PAGE NO. 9 OF THE ASSESSMENT ORDER, IT HAS BEE N MENTIONED THAT AS PER BOOKS OF ACCOUNTS, MUDDAT EXPENSES HAVE BEEN SHOWN AT RS. 3 1,27,644/- OUT OF WHICH 20% HAS BEEN DISALLOWED BY CALCULATING THE SAME AT RS. 25,529/-. HOWEVER, AS PER P&L ACCOUNT, ONLY A SUM OF RS. 24,51,761/- HAS BEEN DEBITED ON ACCOUNT OF MUDDAT. THUS, CORRECT FACT HAVE NOT BEEN DISCUSSED IN THE ASSESSMENT ORDER ON THIS ISSUE. CONSIDERING THE ADAPT RECEIPT OF RS. 2,18,345/- AND TOTAL TURNOVER OF RS. 48,68,050/-, SUCH HUGE AMOUNT OF RS. 1,27,644/- ON ACCOUNT OF MUDDAT BY PREPARING SELF MADE VOUCHERS IS NOT APPARENTLY ADMI SSIBLE. THIS CLAIM OF THE ASSESSEE IS, THEREFORE, OF DOUBTFUL NATURE AND REQUIRES CLARIFICATION. IN THE PENALTY NOTICE ISSUED U/S 271(1)(C), THE ASS ESSMENT YEAR HAS NOT BEEN MENTIONED. SUNDRY CREDITORS (I.E. FARMERS) ARE APPEARING AT RS . 8,23,105/-. NO CONFIRMATIONS OF THESE PERSONS HAVE BEEN OBTAINED. IT IS A KNOWN FACT THE FARMERS ARE ALWAYS IN NEED OF FUND, THEN HOW THEY C AN ADVANCE MONEY TO A BUSINESSMAN UNDER NORMAL CIRCUMSTANCES AND BUSINESS PRACTICES ? THUS, THIS POINT HAS REMAINED TO BE EXAMINED. A SUM OF RS.9,17,296/- HAS BEEN ADVANCED BY THE ASS ESSEE TO THE FARMERS. HOWEVER, THE RATE OF INTEREST CHARGED BY T HE ASSESSEE IS NOT KNOWN. THE EXACT POSITION OF ADVANCING THE AMOUNT A ND CHARGING OF INTEREST IS NOT AVAILABLE ON FILE. ANOTHER LIST OF DEBTORS OF RS. 24,53,382/- IS ALSO AVAILABLE ON FILE. FROM THIS LIST ALSO, THE POSITION OF CHARGING OF INTEREST IS NOT ASCERTAINABLE. IN THIS CASE, RETURN OF INCOME FOR A.YR. 2007-08 HA S BEEN FILED ON 31.08.2007 DECLARING AN INCOME OF RS. 5,11,220/-. T HEREFORE, AS ON 01.04.2008, THE JURISDICTION OVER THIS CASE LIES WI TH THE ACIT, CIRCLE- SAWAI MADHOPUR. THUS, THE ORDER PASSED IN THIS CAS E HAS BEEN WITHOUT JURISDICTION. 3.2. THEREAFTER, THE THEN LD. CIT ISSUED SHOW CAU SE NOTICE UNDER SECTION 263 DATED 29.10.2009. AFTER HEARING THE ASSESSEE, THE LD. C IT KOTA VIDE LETTER DATED 4.5.2010 DROPPED THE PROCEEDINGS INITIATED UNDER SECTION 263 . WHILE DROPPING THE PROCEEDINGS UNDER SECTION 263, THE LD. CIT IN HIS OFFICE NOTE R ECORDED HIS REASONING. THEREAFTER, VIDE LETTER NO. ITO/WARD-2/SWM/2010-11/4584 DATED 13/14. 12.2010 ITO WARD-2, SAWAI MADHOPUR THROUGH ADDITIONAL CIT, RANGE SAWAI MADHOP UR MOVED AN APPLICATION UNDER 4 SECTION 154 POINTING OUT MISTAKE IN THE ORDER UNDER SECTION 263 DATED 4.5.2010 IN AS MUCH AS THAT THE THEN LD. CIT HAS NOT DECIDED THE F OLLOWING TWO POINTS :- (I) IN THE PENALTY NOTICE ISSUED U/S 271(1)(C), THE ASSESSMENT YEAR HAS NOT BEEN MENTIONED. (II) IN THIS CASE, RETURN OF INCOME FOR A.YR. 2007- 08 HAS BEEN FILED ON 31.08.2007 DECLARING AN INCOME OF RS. 5,11,220/-. THEREFORE, AS ON 1.4.2008, THE JURISDICTION OVER THIS CASE LIES WITH THE ACIT, CIRCLE-SAWAI MADHOPUR. THUS, THE ORDER PASSED IN THIS CASE HAS B EEN WITHOUT JURISDICTION. THEREAFTER, THE PRESENT LD. CIT ISSUED NOTICE DATED 17.1.2011 AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD AND STATING THAT THE ASS ESSMENT HAS BEEN COMPLETED BY THE ITO WHO HAS NO JURISDICTION OVER THE CASE AFTER 1.4.200 8. THEREFORE, THE ASSESSMENT COMPLETED BY THE AO IS WITHOUT JURISDICTIONAL POWER. THE REP LY WAS FILED. HOWEVER, LD. CIT WAS NOT SATISFIED WITH THE REPLY AS IN HIS VIEW SINCE R ETURN FOR A.Y. 2007-08 WAS MORE THAN RS. 5,00,000/-, THEREFORE, THE JURISDICTION OVER TH E CASE LIES WITH THE DCIT/ACIT, CIRCLE SAWAI MADHOPUR. ACCORDINGLY THE AO WHO HAS COMPLETE D THE ASSESSMENT FOR A.Y. 2006- 07 ON 30.9.2008 WAS BEYOND HIS JURISDICTIONAL POWER . ACCORDINGLY THIS ORDER WAS TREATED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND THE SAME WAS CANCELLED/SET ASIDE AND THE AO WHO WAS HAVING JURISDICTION OVER T HE CASE WAS DIRECTED TO PASS ASSESSMENT DENOVO AFTER AFFORDING OPPORTUNITY TO TH E ASSESSEE. AGAINST THIS ORDER, THE ASSESSEE HAS FILED APPEAL BEFORE LD. CIT (A). 4. DETAILED WRITTEN SUBMISSIONS CONTAINING 10 PAGES ARE FILED WHICH ARE PLACED ON RECORD, ON WHICH RELIANCE HAS BEEN PLACED BY LD. A/ R OF THE ASSESSEE. 5. ON THE OTHER HAND, LD. CIT D/R PLACED RELIANCE O N THE ORDER OF LD. CIT PASSED UNDER SECTION 263 /154. 5 6. AFTER CONSIDERING THE WRITTEN SUBMISSIONS AND PE RUSING THE MATERIAL ON RECORD, WE FIND THAT ASSESSEE DESERVES TO SUCCEED IN HIS APPEA L. THE PROVISIONS OF SECTION 263(1) READS AS UNDER :- 263.(1) THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDING UNDER THIS ACT, AND IF HE CONSIDERS THAT ANY ORDER PASSED THEREIN BY THE ASSESSING OFFICER IS ERRONEOU S IN SO FAR AS IT IS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, HE MAY, AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD AND AFTE R MAKING OR CAUSING TO BE MADE SUCH INQUIRY AS HE DEEMS NECESSA RY, PASS SUCH ORDER THEREON AS THE CIRCUMSTANCES OF THE CASE JUST IFY, INCLUDING AN ORDER ENHANCING OR MODIFYING THE ASSESSMENT, OR CAN CELING THE ASSESSMENT AND DIRECTING A FRESH ASSESSMENT. SECTION 154(2)(B) READS AS UNDER :- 154(2) XXXXXXXXXXX XXXXXXXXXXXX (A) XXXXXXXXXXX XXXXXXXXXXXX (B) SHALL MAKE SUCH AMENDMENT FOR RECTIFYING ANY SU CH MISTAKE WHICH HAS BEEN BROUGHT TO ITS NOTICE BY THE ASSESSE E, AND WHERE THE AUTHORITY CONCERNED IS THE COMMISSIONER (APPEALS) B Y THE ASSESSING OFFICER ALSO. 7. AFTER GOING THROUGH THE PROVISIONS OF SECTION 26 3(1) AND 154(2)(B), IT IS SEEN THAT AO HAS NOT GIVEN ANY POWER TO INFORM THE CIT ABOUT THE MISTAKE IN THE ASSESSMENT ORDER PASSED BY THE AO. AS PER SECTION 154(2)(B), THE AO CONCERNED CAN POINT OUT MISTAKE IN THE ORDER OF LD. CIT (A) ONLY BUT NOT TO THE CIT WH O IS EXERCISING POWER UNDER SECTION 263. 7.1. AS PER SECTION 263(1) IT IS PROVIDED THAT ONLY THE COMMISSIONER MAY CALL FOR AND EXAMINE THE RECORD OF ANY PROCEEDINGS UNDER THIS AC T, BUT NOWHERE IT IS PROVIDED THAT ANY OFFICER CAN POINT OUT THE MISTAKE IN THE ASSESSMENT ORDER PASSED BY AN AO. THEREFORE, IN OUR CONSIDERED VIEW THE JURISDICTION EXERCISED BY T HE THEN LD. CIT WHO ISSUED NOTICE ON 6 29.10.2009 WAS ITSELF NOT CORRECT. HOWEVER, THE THE N LD. CIT, AFTER CONSIDERING THE REPLY OF THE ASSESSEE BY WHICH THE ASSESSEE HAS GIVEN A C ATEGORICAL REPLY IN PARA 1 OF HIS REPLY THAT THE RETURN OF INCOME FOR A.Y. 2006-07 WAS FILE D AND THE CONCERNED AO ISSUED NOTICE UNDER SECTION 143(2) AND THEREAFTER THE ASSESSMENT WAS COMPLETED. IT IS FURTHER MENTIONED THAT THE ASSESSEE IS NOT SUPPOSED TO BE A WARE OF INTERNAL ADMINISTRATIVE MATTER OF THE DEPARTMENT. HE OBEYED THE INSTRUCTIONS GIVEN BY ITO WARD-2 SAWAI MADHOPUR AND GOT HIS ASSESSMENT COMPLETED UNDER SECTION 143(3) O F THE ACT. THEREAFTER IN SUBSEQUENT PARAS THE ASSESSEE HAS GIVEN REPLY ON EACH AND EVER Y POINT RAISED BY THE LD. CIT IN HIS SHOW CAUSE NOTICE UNDER SECTION 263. AFTER CONSIDE RING THE REPLY, THE LD. CIT WAS SATISFIED THAT NO MISTAKE HAS BEEN CREPT IN THE ORD ER PASSED UNDER SECTION 143(3) AND, THEREFORE, THE PROCEEDINGS INITIATED UNDER SECTION 263 WERE DROPPED VIDE ORDER DATED 4.5.2010. THEREAFTER, AGAIN ITO WARD-2, SAWAI MADH OPUR FILED AN APPLICATION TO THE PRESENT CIT UNDER SECTION 154 THAT WHILE DROPPING T HE PROCEEDINGS, TWO POINTS WHICH HAVE BEEN REPRODUCED SOMEWHERE ABOVE IN THIS ORDER WERE LEFT TO BE DECIDED AND, THEREAFTER THE PRESENT CIT ISSUED FURTHER SHOW CAUS E NOTICE UNDER SECTION 263/154 WHO AFTER CONSIDERING THE REPLY OF THE ASSESSEE HELD TH AT THE ASSESSMENT COMPLETED WAS WITHOUT JURISDICTION AND, THEREFORE, THE SAME WAS S ET ASIDE TO PASS A DENOVO FRESH ASSESSMENT ORDER BY THE OFFICER WHO WAS HAVING JURI SDICTION OVER THE CASE. 8. AFTER CONSIDERING THIS ORDER AND SUBMISSIONS OF THE ASSESSEE, WE FURTHER FIND THAT ONCE AN ORDER HAS BEEN FOUND WITHOUT JURISDICTION I T MEANS THAT ORDER IS NOT VALID ORDER, THEREFORE, CANNOT BE RECTIFIED EITHER UNDER SECTION 154 OR UNDER SECTION 263. THEREFORE, FOR THIS REASON ALSO, WE ARE OF THE CONSIDERED VIEW THA T THE PRESENT LD. CIT WAS NOT HAVING JURISDICTION TO SET ASIDE AN ASSESSMENT WHICH WAS N ULL AND VOID IN THE EYES OF LAW. 7 MOREOVER, IT IS SURPRISING THAT THE PERSON WHO MAY BE AGGRIEVED WAS THE ASSESSEE, HAS NOT CHALLENGED THE ASSESSMENT THAT THE SAME IS WITHOUT JURISDICTION AND HAS ACCEPTED THE ASSESSMENT ORDER. HOWEVER, THE DEPARTMENT WANTS TO HOLD THAT SUCH ASSESSMENT COMPLETED WAS WITHOUT JURISDICTION, IN OUR CONSIDER ED VIEW, IS NOT UNDERSTANDABLE. WE FURTHER NOTED THAT EVEN THE AO WHO COMPLETED THE A SSESSMENT FOR A.Y. 2006-07 WHICH IS SUBJECT MATTER HERE BEFORE THE TRIBUNAL HAS ASSUMED VALID JURISDICTION AS THE NOTICE UNDER SECTION 143(2) WAS ISSUED ON 11.1.2007. AT THAT PO INT OF TIME THERE WAS NO RETURN FOR ASSESSMENT YEAR 2007-08 DECLARING INCOME OF MORE TH AN RS. 5,00,000/- AS THE RETURN FOR A.Y. 2007-08 WAS FILED ON 31.8.2007. THEREFORE, F OR THIS REASON ALSO WE ARE OF THE VIEW THAT THE ASSESSMENT COMPLETED ORIGINALLY WAS A VALI D ASSESSMENT. 9. IN VIEW OF THESE FACTS AND CIRCUMSTANCES WE HOLD THAT THE ORDER PASSED UNDER SECTION 263/154 WAS INCORRECT AND IS LIABLE TO BE S ET ASIDE ON THE FOLLOWING REASONS :- 9.1. FIRSTLY, THE AO ASSUMED JURISDICTION BY ISSUIN G NOTICE UNDER SECTION 143(2) ON 11.1.2007. RETURN FOR A.Y. 2006-07 WAS BELOW RS. 5, 00,000/-, THEREFORE, AO WAS HAVING VALID JURISDICTION. RETURN FOR A.Y. 2007-08 WAS F ILED ON 31.8.2007 AND BEFORE THAT DATE JURISDICTION WAS ALREADY ASSUMED BY THE AO WHILE IS SUING NOTICE UNDER SECTION 143(2) ON 11.1.2007. 9.2. SECONDLY, THERE IS NO PROVISION EITHER UNDER S ECTION 154 OR UNDER SECTION 263(1) TO INFORM THE CIT TO ISSUE SHOW CAUSE NOTICE UNDER SEC TION 263 AS THE CIT ONLY HAVE THE JURISDICTION TO ISSUE SHOW CAUSE NOTICE UNDER SECTI ON 263 IF HE IS SATISFIED AFTER EXAMINING THE RECORDS OF THE ASSESSMENT ORDER PASSED BY THE A O WHICH FALLS UNDER HIS JURISDICTION. 8 9.3. THIRDLY, IF DEPARTMENT FEELS THAT THE ASSESSME NT SO COMPLETED WAS WITHOUT JURISDICTION THEN THE ORDER PASSED WITHOUT JURISDIC TION IS NO ORDER AND, THEREFORE, CANNOT BE RECTIFIED EITHER UNDER SECTION 154 OR UNDER SECT ION 263. 9.4. ACCORDINGLY, WE CANCEL THE ORDER UNDER SECTION 263 READ WITH SECTION 154. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. 11. THE ORDER IS PRONOUNCED IN THE OPEN COURT ON 28 .7.2011. SD/- SD/- ( N.L. KALRA ) ( R.K. GUPTA ) ACCOUNTANT MEMBER JUDICIAL MEMBER JAIPUR, D/- COPY FORWARDED TO :- SHRI KAILASHCHAND METHI, GANGAPUR CITY. THE COMMISSIONER OF INCOME-TAX, KOTA. THE CIT (A) THE CIT THE D/R GUARD FILE (ITA NO. 219/JP/11) BY ORDER, AR ITAT JAIPUR. FIT FOR PUBLICATION AM JM