MENZ RETAIL P. LTD, MUMBAI V. DCIT 8(2), MUMBAI

ITA 3889/MUM/2012

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8404 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 11-06-2015
• Assessment Year: 2004-2005
• Appeal Filed On: 01-06-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUMAN KUMAR
• Keywords: Business income; Retrospective amendment; Question of law; Wrong claim; Procedural lapse; Block assessment; Reassessment proceedings
• Section: 143(3); 147; 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH B, MUMBAI BEFORE SHRI D.T. GARASIA, JUDICIAL MEMBER AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ITA NO.3889/M/2012 ASSESSMENT YEAR: 2004-05 M/S. MENZ RETAIL PVT. LTD., GROUND FLOOR, KNOWLEDGE HOUSE, OFF. JOGESHWARI-VIKROLI LINK RD., SHYAM NAGAR, JOGESHWARI (EAST), MUMBAI 400 060 PAN: AAACM1978J VS. DCIT, 8(2), R.N.216-A, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 60 (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : MS. DINKLE HARIA, C.A. REVENUE BY : SHRI SUMAN KUMAR, D.R. DATE OF HEARING : 15.09.2017 DATE OF PRONOUNCEMENT : 10.11.2017 O R D E R PER D.T. GARASIA , JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 02.03.2012 OF THE COMMISSIONER OF I NCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] R ELEVANT TO ASSESSMENT YEAR 2004-05. 2. THE SHORT FACTS OF THE CASE ARE AS UNDER: IN THIS CASE, THE ASSESSEE HAS FILED THE RETURN OF INCOME ON 29.10.2004 DECLARING TOTAL INCOME AT RS.3,44,94,442 /-. THE RETURN ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 2 WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THE REAFTER, THE ASSESSING OFFICER (HEREINAFTER REFERRED TO AS THE A O) OBSERVED THAT ASSESSEE HAS CLAIMED DEDUCTION OF RS.67,89,715/- OU T OF BUSINESS INCOME ON ACCOUNT OF PURCHASE OF TENANCY RIGHTS. THE AO OBSERVED THAT SINCE THE PURCHASE OF TENANCY RIGHTS IS AN EXP ENDITURE WHICH IS OF CAPITAL IN NATURE, DEDUCTION FOR THE SAME CANNOT BE ALLOWED AGAINST BUSINESS INCOME. THE AO OBSERVED THAT ASSESSEE H AS MADE WRONG CLAIM OF EXPENDITURE OF RS.67,89,715/-. THE AO ALS O OBSERVED THAT INCOME ON PURCHASE AND SALE OF SHARES AMOUNTING TO RS.4,07,69,668/- FOR THE TAX UNDER THE HEAD INCOME FROM CAPITAL GAI N. THE AO HELD THAT SHARES IN WHICH INVESTMENTS ARE MADE ARE OF GR OUP COMPANY M/S. PANTALOON RETAIL (INDIA) LTD. AND ALL THE SHAR ES HAVE BEEN ACQUIRED OUT OF LOAN FUNDS. THE AO OBSERVED THAT A SSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) ON 30.12.08 AND IT WAS CATEGORICALLY HELD THAT ASSESSEE IS NOT INVESTOR BUT TRADER. THE ASSESSMENT WAS COMPLETED. THEREAFTER, THE AO HAS REOPENED THE ASS ESSMENT UNDER SECTION 147 OF THE ACT AND COMPLETED THE ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 147 OF THE ACT. 3. THE ASSESSEE HAS TAKEN THE PRELIMINARY OBJECTION THAT WHILE PASSING THE RE-ASSESSMENT ORDER THE AO HAS NOT ISSU ED NOTICE UNDER SECTION 143(2) AND IT WAS NOT SERVED ON THE ASSESSE E. THE LD. A.R. SUBMITTED THAT IN THIS CASE THE ASSESSEES RETURN W AS PROCESSED UNDER SECTION 143(1) AND NOTICE UNDER SECTION 143(2) WAS NOT ISSUED TO THE ASSESSEE. THE ASSESSEE SUBMITTED THAT NOW A WELL S ETTLED LEGAL POSITION STATES THAT AO CANNOT TAKE RECOURSE OF REA SSESSMENT ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 3 PROCEEDINGS JUST BECAUSE HE MISSED THE TIME LIMIT F OR ISSUING SCRUTINY NOTICE. THE ASSESSEE SUBMITTED THAT RE-ASSESSMENT PROCEEDING IS BAD IN LAW AND ILLEGAL. IT IS WELL SETTLED LEGAL POSIT ION THAT NON ISSUANCE OF MANDATORY NOTICE UNDER SECTION 143(2) IS JURISDI CTIONAL DEFECT AND IS NOT CURABLE EVEN IN CASE WHERE THE ASSESSEE HAS APPEARED. THIS GROUND WAS TAKEN BEFORE THE LD. CIT(A) AND THE LD. CIT(A) HAS DISMISSED. 4. THE LD. A.R. SUBMITTED THAT NO NOTICE UNDER SECT ION 143(2) WAS ISSUED. NOTICE ISSUED BY AO IN WHICH THERE IS NO M ENTION ABOUT NOTICE UNDER SECTION 142 OF THE ACT. THE LD. A.R. SUBMITTED THAT THE NOTICE UNDER SECTION 143(2) IN ASSESSMENT PROCEEDIN G IS NECESSARY. THE LD. A.R. FURTHER SUBMITTED THAT NOTICE UNDER SE CTION 143 IS MANDATORY AND IN ABSENCE OF SUCH SERVICE AO CANNOT PROCEED TO MAKE AN ENQUIRY ON THE RETURN FILED IN COMPLIANCE W ITH NOTICE UNDER SECTION 148 OF THE ACT. THE OMISSION ON PART OF AO TO ISSUE NOTICE UNDER SECTION 143(2) IS A PROCEDURAL IRREGULARITY A ND IT CAN BE DISPENSED WITH. IN ABSENCE OF NOTICE UNDER SECTION 143(2), THE REASSESSMENT UNDER SECTION 148 COULD NOT BE HELD TO BE VALIDLY MADE. MERELY BECAUSE MATTER WAS DISCUSSED WITH THE ASSESS EE AND SIGNATURE IS AFFIXED, IT DOESNT MEAN THE REST OF PROCEDURE O F NOTICE UNDER SECTION 143(2) STOOD COMPLIED WITH OR THAT ON PLACI NG OBJECTION ASSESSEE HAD WAIVED NOTICE FOR FURTHER PROCESSING O F REASSESSMENT PROCEEDINGS. WHERE PROCEDURE PRESCRIBED OF ISSUANCE OF NOTICE UNDER SECTION 143(2) HAD NOT BEEN FOLLOWED AT ALL, ASSUMPTION OF JURISDICTION OF ISSUANCE OF NOTICE OF REOPENING ITS ELF WOULD NOT BE ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 4 SUSTAINABLE. EVEN WHERE ASSESSEE REQUESTED AO TO T REAT ORIGINAL RETURN AS ONE IN RESPONSE TO SECTION 148 PROCEEDING , NOTICE UNDER SECTION 143(2) WAS MANDATORY; OTHERWISE RE-ASSESSME NT WOULD BE BAD IN LAW. THE LD. A.R. FURTHER SUBMITTED THAT ME RELY BECAUSE ASSESSEE PARTICIPATED IN PROCEEDINGS PURSUANT TO NO TICE UNDER SECTION 148, IT WOULD NOT OBVIATE MANDATORY REQUIREMENT OF AO TO ISSUE ASSESSEE A NOTICE UNDER SECTION 143(2) BEFORE FINAL IZING ORDER OF REASSESSMENT. THE LD. A.R. FURTHER SUBMITTED THAT THERE WAS FAILURE OF AO TO ISSUE THE NOTICE UNDER SECTION 143(2) PRIO R TO FINALIZING REASSESSMENT ORDER, THEREFORE, REASSESSMENT IS BAD IN LAW. IN CASE OF PROCEEDINGS INITIATED UNDER SECTION 143(3) READ WIT H SECTION 147 REQUIREMENT TO ISSUE A NOTICE UNDER SECTION 143(2) IS MANDATORY AND SECTION 292BB DOES NOT IN ANY MANNER GRANT ANY PRIV ILEGE TO AO IN DISPENSING WITH ISSUANCE OF SUCH A NOTICE. 5. ON THE OTHER HAND, THE LD. D.R. SUBMITTED THAT T HE LD. CIT(A) HAS HELD THAT 148 HAS BEEN RIGHTLY TAKEN BY AO AS T HE ASSESSEE TOOK WRONG CLAIM, THEREFORE, IT IS A PROCEDURAL DEFECT A ND AS PER SECTION 292BB THIS DEFECT IS NOT A DEFECT. THE LD. D.R. SU BMITTED THAT PARTICIPATION BY ASSESSEE IN PROCEEDINGS ON RECEIPT OF COPY OF NOTICE CAN BE DEEMED TO BE SERVICE OF NOTICE WITHIN THE AM BIT OF SECTION 148(1). 6. WE HAVE HEARD THE RIVAL CONTENTIONS OF BOTH THE P ARTIES. DURING THE COURSE OF HEARING, THE AO WAS REQUESTED TO CALL FOR THE RECORD AND WE HAVE VERIFIED THAT IN CASE OF THE ASSESSEE THE A SSESSMENT WAS ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 5 REOPENED UNDER SECTION 147 OF THE ACT BY AO BY ISSU ING NOTICE UNDER SECTION 148 OF THE ACT ON 19.01.09. IN RESPONSE TO THE SAID NOTICE THE ASSESSEE VIDE LETTER DATED 07.03.09 REQUESTED THE A O TO TREAT THE RETURN ALREADY FILED AS IT IS RETURN IN RESPONSE TO THE SAID NOTICE. HOWEVER, THEREAFTER, THE MANDATORY NOTICE UNDER SEC TION 143(2) WHICH WAS NEITHER ISSUED NOR SERVED ON THE ASSESSEE . THERE WAS OMISSION ON THE PART OF AO TO ISSUE SAID NOTICE. W E HAVE VERIFIED THIS FACT FROM THE RECORD AND IT IS FOUND THAT NO N OTICE UNDER SECTION 143(2) WAS ISSUED AFTER REOPENING OF THE ASSESSMENT ORDER. WE FIND THAT THIS IS A MANDATORY REQUIREMENT. AS PER THE D ECISION OF HONBLE SUPREME COURT IN THE CASE OF ACIT VS. HOTEL BLUE MO ON 321 ITR 362 (SC) WHEREIN IT IS HELD THAT IF THE AO FOR ANY REASON REPUDIATES THE RETURN FILED BY THE ASSESSEE IN RESPONSE TO THE NOTICE UNDER SECTION 158BC(A) OF THE ACT RELATING TO BLOCK ASSESSMENT, T HE AO MUST NECESSARILY SEND NOTICE UNDER SECTION 143(2). IT W AS FURTHER HELD THAT BY MAKING THE ISSUE OF NOTICE MANDATORY UNDER SECTI ON 158BC DEALING WITH BLOCK ASSESSMENT, MAKES SUCH NOTICE VE RY FOUNDATION. THE REQUIREMENT OF NOTICE UNDER SECTION 143(2) CANN OT BE DISPENSED WITH. 7. WE FIND THAT THE AO HAS COMPLETED THE ASSESSMENT UNDER SECTION 147/143 OF THE ACT. WE FIND THAT SIMILAR IS SUE HAD COME UP BEFORE THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. MANI KAKAR 178 TAXMAN 315 (DEL) WHEREIN IT WAS HELD AS U NDER: FOR RELEVANT ASSESSMENT YEAR, ASSESSING OFFICER CO MPLETED ASSESSMENT U/S. 147 / 143(3) OF THE ACT. ON APPEAL BEFORE TRIBUNAL, ASSESSEE CON TENDED THAT SINCE NO NOTICE U/S. 148 HAD BEEN ISSUED / SER VED UPON HIM, ALL ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 6 SUBSEQUENT PROCEEDINGS INCLUDING FRAMING OF REASSES SMENT ORDER WERE LIABLE TO BE SET ASIDE. THE TRIBUNAL HAVING EXAMINE D ISSUE ON FACTS CONCLUDED THAT THERE WAS NO SERVICE OF NOTICE ON AS SESSEE UNDER SECTION 148 AND, THEREFORE, IMPUGNED ASSESSMENT WAS LIABLE TO B E QUASHED - ON INSTANT APPEAL, REVENUE SOUGHT TO PLACE RELIANCE ON PROVISI ONS OF SECTION 292BB WHICH HAVE BEEN INTRODUCED WITH EFFECT FROM 1-4-2008. THE REVENUE'S RELIANCE ON PROVISIONS OF SECTION 292BB WAS MISPLAC ED AS SAID PROVISIONS WERE NOT APPLICABLE TO ASSESSMENT YEAR 2001-02. SINCE, I N INSTANT CASE, NO SUCH NOTICE WAS SERVED ON ASSESSEE PRIOR TO RE-OPENING O F ASSESSMENT PROCEEDINGS, THE TRIBUNAL WAS JUSTIFIED IN SETTING ASIDE ASSESSMENT ORDER PASSED UNDER SECTION 147/143(3) 8. SIMILARLY, THE HONBLE DELHI HIGH COURT HAS ALSO CONSIDERED THAT ON RECEIPT OF NOTICE WHEN THE ASSESSEE PARTICI PATES IN PROCEEDING IN THAT CASE WHETHER SECTION 292BB IS APPLICABLE OR NOT HAS BEEN EXPLAINED BY OBSERVING AS UNDER: THE REVENUE ALSO SUBMITTED THAT THE TRIBUNAL HAS I GNORED THE PROVISIONS OF SECTION 292BB WHICH LAYS DOWN THAT WHERE AN ASSESSE E HAS APPEARED IN ANY PROCEEDINGS OR CO-OPERATED IN ANY INQUIRY RELATING TO AN ASSESSMENT OR REASSESSMENT, IT SHALL BE DEEMED THAT ANY NOTICE UN DER ANY PROVISION OF THIS ACT, WHICH IS REQUIRED TO BE SERVED UPON HIM, HAS BEEN D ULY SERVED UPON HIM IN TIME AND THE ASSESSEE SHALL BE PRECLUDED FROM TAKING ANY OBJECTION IN ANY PROCEEDINGS OR INQUIRY UNDER THE ACT THAT NOTICE WA S NOT SERVED UPON HIM OR WAS SERVED IN AN IMPROPER MANNER. IN THIS REGARD, I T MAY BE STATED THAT THIS PROVISION CAME TO BE INSERTED BY THE FINANCE ACT, 2 008 WITH EFFECT FROM 1-9- 2008 AND IS NOT APPLICABLE TO THE ASSESSMENT YEAR I N QUESTION. HOWEVER, THIS PROVISION ALSO SUBSTANTIATES THE FINDING THAT IN TH E GIVEN CIRCUMSTANCES AS IN THE INSTANT CASE, SERVICE OF NOTICE BEFORE ASSES SMENT COULD BE INFERRED. THE PARTICIPATION BY THE ASSESSEE IN THE ASSESSMENT PROCEEDINGS ON RECEIPT OF THE COPY OF THE NOTICE CAN BE DEEMED TO BE SERVICE OF NOTICE WITHIN THE AMBIT OF SECTION 148(1). THAT IS WHAT IS THE LEGISLATIVE INTENT OF 'SERVICE OF NOTICE' ON ASSESSEE UNDER THIS SECTION THAT NO ASSESSMENT UNDER SECTION 147 CAN BE FINALIZED BEFORE THE ASSESSEE HA S SUFFICIENT NOTICE THEREOF. [PARA 19] THUS, IT WAS HELD THAT THE TRIBUNAL WAS NOT CORRECT ON FACTS AND LAW TO ANNUL THE ASSESSMENT FRAMED BY THE ASSESSING OFFICE R. [PARA 20] 9. IN THE INSTANT CASE, WE FIND THAT THE ASSESSMENT YEAR IS 2004-05, THEREFORE SECTION 292BB IS NOT APPLICABLE BECAUSE T HE TRIBUNAL IN THE CASE OF GHANSHYAMDAS GEMS & JEWELS VS. DCIT 36 IT R(T) 381 ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 7 (HYD TRIB) WHEREIN IT WAS HELD THAT PROVISIONS OF SECTION 292BB DEEMING A NOTICE TO BE VALID WAS INSERTED BY FINANC E AT, 2008 WITH EFFECT FROM 01.04.2008 PROSPECTIVELY AND, HENCE, CO ULD NOT BE INVOKED FOR EARLIER PERIOD. WE ALSO FIND THAT SIMI LAR VIEW HAS BEEN TAKEN BY SPECIAL BENCH IN THE CASE OF KUBER TOBACCO PRODUCTS (P.) LTD. VS. DCIT 117 ITD 273 (DEL) (SB) WHEREIN IT H AS BEEN HELD AS UNDER: SECTION 292BB, INSERTED BY FINANCE ACT, 2008, HAS NO RETROSPECTIVE EFFECT AND IS TO BE CONSTRUED PROSPECTIVELY. THEREFORE, UP TO 31-3-2008 AS PER SECTION 2921313, ASSESSEE IS NOT PRECLUDED FROM TAK ING ANY OBJECTION REGARDING INVALIDITY OF AN ASSESSMENT/REASSESSMENT ON GROUND OF IMPROPER/INVALID ISSUANCE/SERVICE OF NOTICE. SO FAR AS APPLICABILITY OF SECTION 292BB IS CONCERNED, IT IS NOT STRICTLY RESTRICTED T O ISSUE OF NOTICE UNDER SECTION 143(2), BUT IT IS IN RESPECT OF OTHER NOTIC ES RELATING TO ANY PROVISIONS OF ACT WHICH INCLUDE NOTICE TO INITIATE RE-ASSESSME NT PROCEEDINGS AND OTHER PROCEEDINGS ALSO. SUMMARISING OUR FINDINGS WE HOLD AS FOLLOWS:- (I) SECTION 292BB EVEN IF IT IS PROCEDURAL IT IS CREATI NG A NEW DISABILITY AS IT PRECLUDES THE ASSESSEE FROM TAKING A PLEA WHICH COULD BE TAKEN AS A RIGHT, CANNOT BE CONSTRUED RETROSPECTIVELY AS THE SAME IS MADE APPLICABLE BY THE STATUTE WITH EFFECT FROM 01.04.20 08. (II) SECTION 292BB IS APPLICABLE TO THE ASSESSMENT YEAR 2008-09 AND SUBSEQUENT ASSESSMENT YEARS. THE MATTER WILL BE PLACED BEFORE THE REGULAR BENCH TO DECIDE THE APPEALS IN REGULAR MANNER. 10. WE ALSO GET THE SUPPORT FROM JURISDICTIONAL HIGH COURT IN THE CASE OF ACIT VS. GENO PHARMACEUTICALS LTD. (2013) 214 TAXMAN 83 (BOM) WHEREIN IT IS HELD AS UNDER: 5. APART FROM THAT, IT IS AN ADMITTED POSITION THA T NO NOTICE UNDER SECTION 143(2) HAD BEEN ISSUED WHILE MAKING ASSESSMENT UNDER SECTI ON 143(3) READ WITH SECTION 147. THE APEX COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. V. CIT [1998] 229 ITR 383 HAS HELD THAT THE TRIBUNAL HAS DISCRETION TO ALLOW OR NOT TO ALLOW A NEW GROUND TO BE RAISED. BUT IN A CASE WHERE THE TRIBUN AL IS ONLY REQUIRED TO CONSIDER THE QUESTION OF LAW ARISING FROM FACTS WHICH ARE ON RECORD IN THE ASSESSMENT PROCEEDINGS, THERE IS NO REASON WHY SUCH A QUESTION SHOULD NOT BE ALLOWED TO BE RAISED WHEN IT IS NECESSARY TO CONSIDER THAT QUESTI ON IN ORDER TO CORRECTLY ASSESS THE ITA NO.3889/M/2012 M/S. MENZ RETAIL PVT. LTD. 8 TAX LIABILITY OF AN ASSESSEE. THE ITAT, AFTER RELYI NG ON THE JUDGMENT OF THE APEX COURT IN R. DALMIA V. CIT [1999] 236 ITR 480/102 TAXMAN 702 , CAME TO THE CONCLUSION THAT ISSUANCE OF NOTICE UNDER SECTION 14 3(2) WAS MANDATORY. THE ITAT HAS TAKEN INTO CONSIDERATION THE RELEVANT PROVISION S AND HAS ALSO TAKEN INTO CONSIDERATION THE JUDGMENT OF THE APEX COURT AND RE LYING ON THE SAID JUDGMENTS, THE ITAT HAS HELD THAT NOTICE UNDER SECTION 143(2) IS MANDATORY AND IN THE ABSENCE OF SUCH SERVICE, THE ASSESSING OFFICER CANNOT PROCE ED TO MAKE AN INQUIRY ON THE RETURN FILED IN COMPLIANCE WITH THE NOTICE ISSUED U NDER SECTION 148. 11. RESPECTFULLY FOLLOWING ABOVE DECISION OF THE HO NBLE BOMBAY HIGH COURT, WE ALLOW THE APPEAL OF THE ASSESSEE. 12. AS WE HAVE DISPOSED THE MATTER ON TECHNICAL GRO UND IT IS NOT NECESSARY TO DISPOSE REST OF THE GROUNDS. 13. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT ON 10.11.2017. SD/- SD/- (G. MANJUNATHA) (D.T. GARASIA) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED:10.11.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.