U.P.Electronics Corporation Ltd., Lucknow V. Dy. Commissioner of Income Tax, Lucknow

ITA 3/LKW/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87754 (ITAT-LUCKNOW)
• Duration Of Justice: 2 year(s) 1 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 05-02-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PUNIT KUMAR
• Assessee Lawyers: R C JAIN
• Keywords: Principle of natural justice; Earning of tax free income; Period of limitation; Procedural lapse; Assessment record; Block assessment; Time period of passing order; Revised return
• Section: 143(3); 14A; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A, LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. A. K. GARODIA, ACCOUNTANT MEMBER ITA NO.03/LKW/2013 ASSESSMENT YEAR:2008-09 U.P. ELECTRONICS CORPORATION LTD. 10, ASHOK MARG LUCKNOW V. DCIT RANGE VI, LUCKNOW TAN/PAN:AAACU3391H (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI. R. C. JAIN, C.A. RESPONDENT BY: SHRI. PUNIT KUMAR, D.R. DATE OF HEARING: 05 02 2015 DATE OF PRONOUNCEMENT: 16 02 2015 O R D E R PER SUNIL KUMAR YADAV: THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), INTER ALIA, ON VARIOUS GROUNDS WHICH ARE AS UNDER:- 1.1 BECAUSE THE NOTICE U/S 143(2) HAVING BEEN SERVED BEYOND THE LIMITATION PERIOD, THE LEARNED ASSESSING OFFICER LACKED THE JURISDICTION FOR MAKING THE ASSESSMENT AND HENCE THE ORDER PASSED U/S 143(3) IS LIABLE TO BE CANCELLED. 1.2 BECAUSE THE FINDING OF THE LEARNED FIRST APPELLATE AUTHORITY IN REGARD TO NOTICE DATED 30-09-2010 U/S 143(2) OF THE INCOME TAX ACT, 1961 IS ERRONEOUS AS IT PERTAINS TO THE ISSUE OF NOTICE BY THE LEARNED AO WHEREAS THE STIPULATION IN THIS SECTION IS IN REGARD TO THE SERVICE OF THE NOTICE. WITHOUT PREJUDICE TO THE ABOVE GROUND 2.1 BECAUSE THE FUNDS PARKED BY THE ASSESSEE COMPANY IN BANK FOR WERE GIVEN BY THE GOVERNMENT FOR A SPECIFIC PURPOSE AND WERE TO BE :- 2 -: UTILIZED FOR THAT PURPOSE ONLY AND THE ASSESSEE CORPORATION BEING ONLY A TRUSTEE OF THESE FUNDS, THE INTEREST INCOME OF RS.4,20,830/- ON SUCH FUNDS OUGHT NOT TO HAVE BEEN ASSESSED THE INCOME OF THE ASSESSEE CORPORATION. 2.2 BECAUSE THE FUNDS BEING MADE AVAILABLE BY THE GOVERNMENT OF U.P. ONLY FOR DISBURSEMENT TO THE EMPLOYEES OF UPTRON INDIA LIMITED UNDER THE VOLUNTARY RETIREMENT SCHEME (VRS) AND THE GOVERNMENT HAVING DECIDED THAT THE INTEREST ON SUCH FUNDS COULD NOT BE APPROPRIATED BY THE ASSESSEE COMPANY TOWARDS ITS INCOME, THE LEARNED CIT(APPEALS) ERRED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER OF TREATING SUCH INTEREST OF RS.4,20,830/- AS INCOME OF THE ASSESSEE COMPANY. 2.3 BECAUSE, IN ANY CASE, THE DEPOSIT ACCOUNT HAVING BEEN SEIZED/ ATTACHED BY THE PROVIDENT FUND COMMISSIONER AND THE ASSESSEE COMPANY HAVING NO CONTROL OVER THESE FUNDS, THE INTEREST ON SUCH FUNDS OF RS 4,20,830/- OUGHT NOT TO HAVE BEEN TREATED AS INCOME OF THE ASSESSEE COMPANY. 3.1 BECAUSE THE LEARNED 1ST APPELLATE AUTHORITY ERRED IN CONFIRMING THE ADDITION MADE BY THE ASSESSING OFFICER U/S 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 3. 2 BECAUSE THE LEARNED 1ST APPELLATE AUTHORITY FAILED TO APPRECIATE THAT THE ASSESSING OFFICER APPLIED RULE 8D IN A MECHANICAL MANNER WITHOUT APPLICATION OF MIND AND WITHOUT REGARD TO FACTS AND REPLY OF THE ASSESSEE; SO MUCH SO THAT THE LEARNED ASSESSING OFFICER RECORDED AN ERRONEOUS FINDING BY STATING THAT THE 'ASSESSEE SUBMITTED THAT NO EXPENDITURE HAS BEEN INCURRED ON THIS ACCOUNT' THOUGH THE ASSESSEE ON ITS OWN HAD DETERMINED EXPENDITURE OF RS.41,837/- FOR EARNING THE EXEMPT INCOME AND MADE DISALLOWANCE ON ITS OWN AND GAVE DETAILED SUBMISSIONS DURING HEARING IN THIS REGARD AND EVEN THE DISALLOWANCE OF RS. 41,8377- MADE BY THE ASSESSEE ON ITS OWN WAS NOT EXCLUDED BY THE LEARNED ASSESSING OFFICER FROM THE TOTAL DISALLOWANCE. :- 3 -: 3. 3 BECAUSE THE LEARNED ASSESSING OFFICER HAVING FAILED TO GIVE ANY FINDING ON THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE, THE DETERMINATION OF EXPENDITURE AS PER SUB-RULE (2) OF RULE 8D OF THE INCOME TAX RULES, 1962 WAS BEYOND THE JURISDICTION OF THE LEARNED ASSESSING OFFICER AND THE LEARNED FIRST APPELLATE AUTHORITY ERRED IN SUSTAINING THE ADDITION MADE WITHOUT JURISDICTION. 3. 4 BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY HAD NO WARRANT TO STATE THAT 'THE APPELLATE HAS NOWHERE GIVEN ANY DETAIL OF EXPENDITURE DIRECTLY INCURRED IN EARNING THE EXEMPT DIVIDEND INCOME' AS NO SUCH EXPENSES WERE INCURRED BY THE ASSESSEE AND EVEN THE ASSESSING OFFICER HAS NOT CONSIDERED ANY DIRECT EXPENDITURE IN MAKING THE DISALLOWANCE. 3. 5 BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY ERRED IN CONCLUDING THAT ONCE THE DIRECT EXPENSES ARE NOT IDENTIFIABLE THEN THE INDIRECT EXPENSES ARE TO BE CALCULATED IN THE MANNER PROVIDED IN CLAUSE III OF RULE 8D(2). 3. 6 BECAUSE THE LEARNED FIRST APPELLATE AUTHORITY HAD NO WARRANT TO HOLD THAT THERE IS NO ANOMALY IN COMPUTATION OF DISALLOWABLE EXPENDITURE DONE BY THE AO BY APPLYING RULE 4. BECAUSE THE ORDER APPEALED AGAINST IS CONTRARY TO THE FACT, LAW AND PRINCIPLES OF NATURAL JUSTICE. 2. THE ASSESSEE HAS RAISED A PRELIMINARY OBJECTION WITH REGARD TO THE SERVICE OF NOTICE UNDER SECTION 143(2) OF THE INCOME-TAX ACT, 1961 (HEREINAFTER CALLED IN SHORT THE ACT') WITHIN THE PRESCRIBED PERIOD. IN SUPPORT OF HIS CONTENTIONS, THE LD. COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION TO THE ASSESSMENT ORDER WITH THE SUBMISSION THAT THE RETURN WAS FILED ON 30.9.2008, WHICH WAS LATER ON REVISED BY FILING A REVISED RETURN ON 30.3.2010. IN VIEW OF THE PROVISIONS OF SECTION 143(2) OF THE ACT, THE NOTICE UNDER SECTION 143(2) OF THE ACT WAS REQUIRED TO BE SERVED UPON THE ASSESSEE LATEST BY 30.9.2010, BUT THE NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 15.11.2010, THOUGH IT HAS BEEN MENTIONED IN THE ASSESSMENT :- 4 -: ORDER THAT NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED ON 30.9.2010. SINCE THERE WAS A DISPUTE WITH REGARD TO THE ISSUANCE AND SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT, THE LD. D.R. WAS DIRECTED TO OBTAIN THE ASSESSMENT RECORD AND TO FURNISH THE COPY OF THE NOTICE ALLEGEDLY SERVED UPON THE ASSESSEE ON 30.9.2010. CONSEQUENTLY, THE LD. D.R. HAS FILED A COPY OF NOTICE ISSUED UNDER SECTION 143(2) OF THE ACT DATED 30.9.2010 WITH THE SUBMISSION THAT SINCE THE NOTICE UNDER SECTION 143(2) OF THE ACT WAS SERVED WITHIN THE PRESCRIBED PERIOD, THE ASSESSMENT CANNOT BE CALLED TO BE INVALID FOR WANT OF SERVICE OF NOTICE UNDER SECTION 143(2) OF THE ACT WITHIN THE PRESCRIBED PERIOD. 3. IN RESPONSE THERETO, THE LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THIS NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON THE LAST DAY OF THE PRESCRIBED PERIOD I.E. 30.9.2010 AND THERE IS NO EVIDENCE ON RECORD WITH REGARD TO THE VALID SERVICE OF NOTICE. HE HAS ALSO INVITED OUR ATTENTION THAT IN THIS NOTICE, IT HAS BEEN STATED THAT THE NOTICE WAS SERVED THROUGH AFFIXTURE. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER CONTENDED, IN THIS REGARD, THAT THE SERVICE BY AFFIXTURE OR BY ANY OTHER SUBSTITUTE MODE OF SERVICE CAN ONLY BE AFFECTED WHEN THE AUTHORITIES CONCERNED FAIL TO GET THE NOTICE SERVED BY ORDINARY MEANS. THE LD. COUNSEL FOR THE ASSESSEE HAS CONTENDED THAT EVEN IF IT IS PRESUMED THAT THE NOTICE DATED 30.9.2010 WAS SERVED UPON THE ASSESSEE, EVEN THEN THIS IS NOT A VALID NOTICE, AS IT WAS ISSUED BY AN OFFICER HAVING NO JURISDICTION OVER THE ASSESSEE. THE LD. COUNSEL FOR THE ASSESSEE HAS FURTHER RAISED AN OBJECTION TO THE FACT THAT THE NOTICE DATED 15.11.2010 APPEARING AT PAGE 3 OF THE COMPILATION OF THE ASSESSEE WAS ISSUED UNDER SECTION 143(2) OF THE ACT BY THE ASSESSING OFFICER, SMT. RANU BISWAS, DCIT, RANGE VI, LUCKNOW; WHEREAS THE EARLIER NOTICE DATED 30.9.2010 WAS ISSUED BY SHRI. MANOJ NIGAM, INCOME TAX OFFICER 1(4), LUCKNOW. IN FACT DCIT-VI, LUCKNOW IS HAVING JURISDICTION OVER THE ASSESSEE. THEREFORE, THE EARLIER NOTICE DATED 30.9.2010 WAS NOT ISSUED BY AN ASSESSING OFFICER HAVING JURISDICTION OVER THE ASSESSEE. :- 5 -: 4. THESE FACTS WERE CONFRONTED TO THE LD. D.R. THE LD. D.R. WAS ASKED TO EXPLAIN AND ESTABLISH THAT THE NOTICE DATED 30.9.2010 WAS ISSUED BY AN OFFICER HAVING JURISDICTION OVER THE ASSESSEE. IN RESPONSE THERETO, THE LD. D.R. HAS SUBMITTED THAT THE INCOME TAX OFFICER 1(4), LUCKNOW WAS PAN- INCOME TAX OFFICER, THEREFORE, HE CAN ISSUE NOTICE UNDER SECTION 143(2) OF THE ACT UPON THE ASSESSEE. IN SUPPORT OF HIS CONTENTION, THE LD. D.R. HAS FURNISHED THE INSTRUCTION ISSUED BY THE DIRECTORATE OF INCOME TAX (SYSTEMS), NEW DELHI VIDE OFFICE LETTER NO. F. NO. DIT(S)-II/CASS/2013- 14/603 7957 DATED 2.8.2013 AND INSTRUCTION NO.115. THE LD. D.R. HAS ALSO PLACED RELIANCE UPON THE SUBMISSIONS FILED BY THE ASSESSING OFFICER, SHRI. V. S. NEGI, DCIT, LUCKNOW. 5. ON PERUSAL OF THE INSTRUCTION OF THE DIRECTORATE OF INCOME TAX (SYSTEMS), WE FIND THAT THIS INSTRUCTION WAS ISSUED ON 2.8.2013; WHEREAS THE NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED ON 30.9.2010. THEREAFTER, THE LD. D.R. WAS AFFORDED VARIOUS OPPORTUNITIES TO PLACE RELEVANT EVIDENCE ON RECORD TO ESTABLISH THAT AT THE RELEVANT POINT OF TIME WHEN THE NOTICE WAS ISSUED, THE PAN-INCOME TAX OFFICER WAS ALSO COMPETENT TO ISSUE NOTICE UNDER SECTION 143(2) OF THE ACT UPON THE ASSESSEE, BUT THE LD. D.R. COULD NOT PLACE ANY INSTRUCTION ISSUED BY THE BOARD OR THE DIRECTORATE OF INCOME TAX (SYSTEMS) IN THIS REGARD. SINCE THE REVENUE COULD NOT ESTABLISH THAT THE INCOME TAX OFFICER 1(4), LCKNOW, PAN-INCOME TAX OFFICER OF THE ASSESSEE WAS HAVING JURISDICTION OVER THE ASSESSEE, THE NOTICE UNDER SECTION 143(2) OF THE ACT ISSUED BY HIM ON 30.9.2010 IS NOT A VALID NOTICE. 6. IT IS SETTLED POSITION OF LAW THAT BY ISSUING NOTICE UNDER SECTION 143(2) OF THE ACT, THE ASSESSING OFFICER ASSUMES JURISDICTION TO FRAME THE ASSESSMENT OVER THE ASSESSEE UNDER SECTION 143(3) OF THE ACT. IF THE ASSUMPTION IS NOT PROPER, THE ASSESSMENT FRAMED CONSEQUENT THERETO CANNOT BE HELD TO BE VALID. IF THE NOTICE UNDER SECTION 143(2) OF THE ACT :- 6 -: DATED 30.9.2010 IS HELD TO BE INVALID, THE OTHER NOTICE DATED 15.11.2010 WAS TIME BARRED, AS IT WAS ISSUED AFTER THE PRESCRIBED PERIOD. THEREFORE, IN THE LIGHT OF BOTH THE NOTICES ISSUED UNDER SECTION 143(2) OF THE ACT, IT CANNOT BE SAID THAT THE ASSESSING OFFICER HAS VALIDLY ASSUMED JURISDICTION OVER THE ASSESSEE FOR COMPLETING THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT. 7. WE HAVE ALSO CAREFULLY EXAMINED VARIOUS JUDGMENTS RENDERED ON THE SUBJECT AND IN THE CASE OF CIT VS. MUKESH KUMAR AGARWAL, 345 ITR 29 (ALLD), IN WHICH IT HAS BEEN HELD BY THE JURISDICTIONAL HIGH COURT THAT THE VERY FOUNDATION OF JURISDICTION OF THE ASSESSING OFFICER IS ON THE BASIS OF ISSUANCE OF NOTICE UNDER SECTION 143(2) OF THE ACT. IN THAT CASE ALSO NOTICE UNDER SECTION 143(2) OF THE ACT WAS NOT ISSUED UPON THE ASSESSEE AND A PLEA WAS RAISED WITH REGARD TO THE PROVISIONS OF SECTION 292BB OF THE ACT AND THEIR LORDSHIPS HAVE HELD THAT NON-CONSIDERATION OF SECTION 292BB OF THE ACT, WHICH IS A RULE OF EVIDENCE, AND DEEMING PROVISION TO VALIDATE NOTICE IN CERTAIN CIRCUMSTANCES, WILL NOT HAVE ANY EFFECT ON THE JUDGMENT IN THE CASE OF HOTEL BLUE MOON (SUPRA). IN THAT CASE, THE ASSESSMENT WAS FRAMED UNDER SECTION 158BC OF THE ACT AND EVEN IN THAT PROCEEDINGS, NOTICE UNDER SECTION 143(2) OF THE ACT WAS REQUIRED TO BE ISSUED. 8. IN THE CASE OF VIRENDRA DEVI DIXIT VS. ACIT, 233 CTR 177 (ALLD)), THE JURISDICTIONAL HIGH COURT HAS HELD THAT NOTICE UNDER SECTION 143(2) OF THE ACT WITHIN THE PRESCRIBED PERIOD OF TIME IS A PREREQUISITE FOR FRAMING BLOCK ASSESSMENT UNDER CHAPTER XIV-B OF THE ACT. NON-ISSUANCE OF NOTICE IS NOT MERE PROCEDURAL IRREGULARITY AND THE SAME IS NOT CURABLE. THEREFORE, NO ASSESSMENT COULD BE MADE WITHOUT ISSUING NOTICE UNDER SECTION 143(2) OF THE ACT WITHIN THE TIME PRESCRIBED. 9. IN THE CASE OF CIT VS. RAJEEV SHARMA, 336 ITR 678, THEIR LORDSHIPS HAVE HELD THAT SINCE THE RETURN WAS FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT, EARLIER NOTICES COULD NOT BE TREATED AS VALID FOR THE PURPOSE :- 7 -: OF RE-ASSESSMENT. IN THE ABSENCE OF ANY NOTICE ISSUED UNDER SUB-SECTION (2) OF SECTION 143 OF THE ACT AFTER RECEIVING FRESH RETURN SUBMITTED BY THE ASSESSEE IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT, THE ENTIRE PROCEDURE ADOPTED FOR ESCAPEMENT OF ASSESSMENT WAS NOT VALID. IT WAS ALSO HELD BY THE HON'BLE HIGH COURT THAT THE PROVISIONS CONTAINED IN SECTION 143(2) OF THE ACT IS MANDATORY IN NATURE AND SHALL BE OBLIGATORY FOR THE ASSESSING OFFICER TO APPLY HIS MIND TO THE CONTENTS OF THE RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 148 OF THE ACT AND RECORD REASONS AND THEREAFTER ISSUE NOTICE UNDER SECTION 143(2) OF THE ACT BEFORE PROCEEDING TO DECIDE THE CONTROVERSY WITH REGARD TO THE ESCAPED ASSESSMENT. 10. IN THE LIGHT OF THE AFORESAID JUDICIAL PRONOUNCEMENTS, WE ARE OF THE CONSIDERED VIEW THAT SINCE NOTICE UNDER SECTION 143(2) OF THE ACT WAS NOT VALIDLY ISSUED UPON THE ASSESSEE WITHIN THE PRESCRIBED PERIOD, THE ASSESSING OFFICER COULD NOT ASSUME JURISDICTION TO FRAME THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT. THEREFORE, THE ASSESSMENT FRAMED CONSEQUENT TO THE INVALID ASSUMPTION OF JURISDICTION IS NOT SUSTAINABLE IN THE EYES OF LAW. WE ACCORDINGLY ANNUL THE ASSESSMENT AND DELETE THE ADDITIONS MADE BY THE ASSESSING OFFICER. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTIONED PAGE. SD/- SD/- [A. K. GARODIA] [SUNIL KUMAR YADAV] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED:16 TH FEBRUARY, 2015 JJ:0502 :- 8 -: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR