DCIT, Kanpur V. M/s. K.M. Sugar Mills Ltd., Kanpur

ITA 699/LKW/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 9178 (ITAT-LUCKNOW)
• Duration Of Justice: 1 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 12-01-2011
• Assessment Year: 1999-2000
• Appeal Filed On: 29-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK MISHRA
• Keywords: Search and seizure; Period of limitation; Procedural lapse; Block assessment; Reason to believe; Reassessment proceedings
• Section: 143(3); 142(1); 147; 148; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, B - BENCH, LUCKNOW. BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT AND SHRI N.K.SAINI, ACCOUNTANT MEMBER I.T.A.NO.699(LKW.)/2010 A.Y.: 1999-2000 THE DY.CIT,C.C.-2, VS. M/S. K.M. SUGAR MILLS LTD. , KANPUR. 11-MOTI BHAWAN, 52/1, COLLECTORGANJ, KANPUR. PAN AAACK 5545P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI VIVEK MISHRA, CIT(D.R.) RESPONDENT BY : SHRI AMIT SHUKLA, ADVOCATE O R D E R PER H.L.KARWA, VICE PRESIDENT THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAIN ST THE ORDER OF THE LD.CIT(A)-II, KANPUR DATED 15.9.2010 RELATING TO TH E ASSESSMENT YEAR 1999- 2000. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER : CIT(A) ERRED IN ANNULLING THE ASSESSMENT PROCEEDI NG U/S 148 PURELY ON TECHNICAL GROUND WITHOUT GOING INTO THE MERIT OF THE CASE BY OBSERVING THAT THE NOTICE U/S 143(2) OF I.T.ACT WAS NOT SERVED IN THIS CASE ON THE ASSESSEE, AND WHICH WAS MANDATORY BEFOR E PROCEEDING THE ACTION U/S 148. 2 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT THE ASSESSEE, WHICH IS A COMPANY BY STATUS, HAS BEEN ENGAGED SINCE ITS INCEP TION IN THE BUSINESS OF MANUFACTURE OF WHITE CRYSTAL SUGAR AND SALE THEREOF . FOR THE ASSESSMENT YEAR 1999-2000, THE ASSESSEE FILED ITS RETURN DISCLOSING NET LOSS OF RS.3,60,12,790 ON 21.12.199. THE SAID RETURN WAS PROCESSED ON RET URNED LOSS UNDER SECTION 143(1) OF THE INCOME-TAX ACT,1961 (IN SHORT THE AC T) ON 23.3.2000. THE PROCESSING RESULTED IN REFUND AMOUNTING TO RS.1,92 ,539 WHICH WAS ALLOWED TO THE ASSESSEE-COMPANY VIDE R.V.NO.B-984602 ON 28. 4.2000. SUBSEQUENTLY, IT WAS NOTICED THAT THE ASSESSEE-COM PANY HAD CLAIMED FOLLOWING DEDUCTIONS IN THE COMPUTATION OF INCOME F ILED ALONGWITH THE RETURN. 1. SUBSIDY ON MAINTENANCE OF BUFFER STOCK OF SUGAR RS.31,28,741 2. SUBSIDY ON PURCHASE TAX OF CANE RS.46,30,17 1 THE DEDUCTION IN RESPECT OF THE AFOREMENTIONED SUBS IDIES RECEIVED IN THE RELEVANT ACCOUNTING PERIOD FROM THE GOVERNMENT WAS CLAIMED IN THE COMPUTATION AS IN VIEW OF THE ASSESSEE-COMPANY THES E RECEIPTS WERE CAPITAL IN NATURE. THE AO TOOK THE VIEW THAT BOTH THE SUBSI DIES WERE APPARENTLY OF REVENUE IN NATURE AND THEREFORE, IT WAS SEEN THAT THE DEDUCTION CLAIMED IN THE COMPUTATION WAS PATENTLY WRONG AND BY MAKING T HE DEDUCTION IN RESPECT OF AFOREMENTIONED SUBSIDIES, THE LOSS AGGREGATING T O THE AMOUNT OF SUBSIDIES RECEIVED WAS EXCLUSIVELY CLAIMED. IT WAS IN VIEW OF THESE FACTS, THAT THE PROVISIONS UNDER SECTION 147 OF THE ACT WERE INVOK ED AFTER RECORDING THE REASON FOR DOING SO AND NOTICE UNDER SECTION 148 W AS ISSUED ON 31.3.2005. THE ASSESSEE WAS REQUIRED TO FURNISH THE RETURN OF INCOME IN THE PRESCRIBED FORM AND VERIFIED IN PRESCRIBED MANNER WITHIN 15 D AYS FROM THE RECEIPT OF THE SAID NOTICE. IN RESPONSE TO THE AFORESAID NOT ICE, VIDE LETTER DATED 11.4.2005, THE ASSESSEE-COMPANY SUBMITTED THAT THE RETURN FILED ON 3 21.12.1999 BE TREATED TO HAVE BEEN FILED IN COMPL IANCE TO NOTICE UNDER SECTION 148 OF THE ACT DATED 31.3.2005. VIDE NOTI CE UNDER SECTION 142(1) OF THE ACT DATED 21.4.2006, THE ASSESSEE COMPANY WA S REQUIRED TO FURNISH DETAILS AS MENTIONED IN THE SAID NOTICE. THE AO DID NOT ISSUE NOTICE UNDER SECTION 143(2) OF THE ACT. HOWEVER, THE AO FRAMED T HE ASSESSMENT ON 31.5.2006 UNDER SECTION 143(3)/148 OF THE ACT DETE RMINING NET LOSS OF RS.3,30,10,220. 4. AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE C ARRIED THE MATTER IN APPEAL BEFORE THE LD.CIT(A). THE ASSESSEE HAS RAIS ED A NUMBER OF GROUNDS BEFORE THE LD.CIT(A). HOWEVER, THE ASSESSEE ALSO R AISED AN ADDITIONAL GROUND BEFORE THE LD.CIT(A), WHICH READS AS UNDER : BECAUSE IN ABSENCE OF MANDATORY NOTICE U/S 143(2) HAVING BEEN SERVED ON APPELLANT ON THE APPELLANT WITHIN THE SPE CIFIED PERIOD, THE AO DID NOT GET JURISDICTION TO MAKE ASSESSMENT U/S 143(3) READ WITH SECTION 148 AND THE ASSESSMENT ORDER DATED 31.5.20 06 AS ALSO VARIATION CONTAINED THEREIN ARE VOID AB INITIO. 5. THE LD.CIT(A) ANNULLED THE ASSESSMENT ORDER DATE D 31 ST MAY, 2006 PASSED UNDER SECTION 143(3)/148 OF THE ACT BY ALLO WING THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. HOWEVER, T HE LD.CIT(A) HAS NOT DEALT WITH THE GROUNDS RAISED BY THE ASSESSEE ON ME RITS. THE RELEVANT FINDINGS GIVEN BY THE LD.CIT(A) ON ADDITIONAL GROUN D OF APPEAL ARE AS UNDER: 3.3 DISCUSSIONS & DECISION THE FACTS OF THE CASE ARE THAT THE ASSESSEE, A LIM ITED COMPANY, FILED ITS RETURN FOR ASSESSMENT YEAR 1999-2000 WHIC H WAS PROCESSED. THEREAFTER, THE ASSESSING OFFICER AFTER RECORDING THE REASONS, ISSUED NOTICE U/S 148 OF THE ACT ON 31.03. 2005 . THE ASSESSEE IN COMPLIANCE TO THE SAID NOTICE HAD SUBMI TTED VIDE ITS LETTER DATED 11.04.2005 THAT THE RETURN FILED EARLIER U/S 139(1) BE 4 CONSIDERED AS RETURN FILED IN RESPONSE TO NOTICE U/ S. 148. THUS, THE RETURN IN RESPONSE TO NOTICE ISSUED U/S.148 WOU LD DEEM TO HAVE BEEN FILED ON 11.04.2005 . THE RETURN FILED IN RESPONSE TO NOTICE ISSUED U/S 148 IS TO BE TREATED AS ONE FILED U/S.139 OF THE ACT AND THE PROVISIONS OF THE ACT SO FAR AS MAY BE, SHALL APPLY ACCORDINGLY AS IF SUCH A RETURN WERE A RETURN REQUI RED TO BE FURNISHED U/S.139. EVEN THOUGH THE A.O. ISSUED NOTI CE(S) U/S 142(1) OF THE ACT, ADMITTEDLY NO NOTICE U/S 143(2) OF THE ACT WAS EVER ISSUED. IT IS NOW A TRITE LAW THAT TO COMP LETE AN ASSESSMENT U/S. 143(3)/147/158BC ETC., THE AO IS DU TY BOUND TO ISSUE NOTICE U/S 143(2) OF THE ACT. REFERENCE IN THIS REGARD IS MADE TO THE FOLLOWING DECISIONS: (I) ACIT & ANA. VS. HOTEL BLUE MOON (2010) 35 DTR (SC) 'IF AN ASSESSMENT IS TO BE COMPLETED UNDER S. 143(3 ) R/W S. 158BC, NOTICE UNDER S. 143(2) SHOULD BE ISSUED W ITHIN ONE YEAR FROM THE DATE OF FILING OF BLOCK RETURN- O MISSION ON THE PART OF THE ASSESSING AUTHORITY TO ISSUE NOT ICE UNDER S. 143(2) CANNOT BE A MERE PROCEDURAL IRREGUL ARITY AND THE SAME IS NOT CURABLE . ' (II) CIT VS. RAJEEVE SHARMA (2010) 232 CTR (ALL.) 303 REASSESSMENT - VALIDITY - ABSENCE OF NOTICE UNDER S . 143(2)- AS PER S. 148, IT IS INCUMBENT ON THE AO TO SEND A NOTICE UNDER S. 143(2) WITHIN THE STATUTORY PERIO D SPECIFIED THEREIN- PROVISION CONTAINED IN SUB-S. (2 ) OF S. 143 IS MANDATORY AND THE LEGISLATURE IN ITS WISDOM BY USING THE WORDS 'REASON TO BELIEVE' HAS CAST A DUTY ON THE AO TO APPLY MIND TO THE MATERIAL ON RECORD AND SERV E NOTICE AFTER BEING SATISFIED WITH REGARD TO ESCAPED ASSESSMENT- THUS, AFTER RECEIPT OF RETURN IN RESPON SE TO NOTICE UNDER S. 148, IT IS MANDATORY FOR THE AO TO SERVE A NOTICE UNDER S. 143(2) ASSIGNING REASON THEREIN- IN THE ABSENCE OF A NOTICE UNDER S. 143(2) AFTER RECEIPT O F FRESH RETURN, THE ENTIRE PROCEDURE ADOPTED FOR ESCAPED ASSESSMENT SHALL BE INVALID- IN THE INSTANT CASE, S INCE THE ASSESSEE FIELD A FRESH RETURN IN RESPONSE TO NOTICE UNDER S. 5 148 PURSUANT TO THE LETTER OF THE AO INFORMING HIM ABOUT THE PENDENCY OF PROCEEDINGS AND REJECTING HIS REQUE ST FOR DROPPING THE PROCEEDINGS, THE EARLIER NOTICE CANNOT BE TREATED AS VALID FOR THE PURPOSE OF ESCAPED ASSESSM ENT- AO HAS TO APPLY HIS MIND TO CONTENTS OF FRESH RETUR N AND THEN ISSUE A NOTICE UNDER S.143(2). THEREFORE, NON- ISSUANCE OF NOTICE UNDER S. 143(2) VITIATED THE REASSESSMENT PROCEEDINGS. (III) VIRENDRA DEV DIXIT VS. ACIT (2010) 41 DTR (ALL) 43 SEARCH AND SEIZURE- BLOCK ASSESSMENT- NOTICE UNDER S. 143(2)NOTICE UNDER S. 143(2) WITHIN THE PRESCRIBED PERIOD OF TIME IS A PREREQUISITE FOR FRAMING THE BL OCK ASSESSMENT UNDER CHAPTER XIV-B-NON-ISSUANCE OF NOTI CE IS NOT A MERE PROCEDURAL IRREGULARITY AND THE SAME IS NOT CURABLE- NO ASSESSMENT COULD BE MADE WITHOUT ISSUIN G NOTICE UNDER S. 143(2) WITHIN THE TIME SPECIFIED- N OTICE HAVING NOT BEEN ISSUED AND THE PERIOD OF LIMITATION HAVING ALREADY EXPIRED, SUCH NOTICE CANNOT BE ISSUE D- TRIBUNAL NOT JUSTIFIED IN REMANDING THE CASE TO THE AO TO CURE THE DEFECT BY ISSUING A FRESH NOTICE. (IV) DY.CIT VS. MAHI VALLEY HOTELS AND RESORTS 'HENCE WHEN AN ASSESSMENT IS FRAMED UNDER SECTION 143(3) OF THE ACT BY ISSUING STATUTORY NOTICE BEYON D THE PRESCRIBED TIME LIMIT, THE ASSESSMENT WOULD BE BAD IN LAW AND HAS TO BE QUASHED. 3.4 MOREOVER, IN SEC. 148 OF THE ACT ITSELF, TWO P ROVISOS (A) & (B) HAD BEEN INSERTED BY THE FINANCE ACT, 2006 W.R.E.F. 01.10.1991 WHICH SAVED THE ASSESSMENT/REASSESSMENTS MADE U/S.147 OF THE ACT EVEN WHEN THE NOTICES U/S.143(2) OF THE ACT WERE SERVED BEYOND THE STIPULATED PERIOD (AS MENTIONED IN SEC. 143(2) OF T HE I.T.ACT). HOWEVER, SUCH PROTECTION WAS AVAILABLE ONLY FOR THE PERIOD 01.10.1991 TILL THE 30.09.2005. THE EXPLANATION ATT ACHED BELOW THESE PROVISOS MAKES IT ABUNDANTLY CLEAR THAT THESE PROVI SOS WOULD NOT BE APPLICABLE AFTER 1SL DAY OF OCT. 2005; THE COROLLAR Y TO WHICH WOULD BE 6 THAT EVEN THE STATUTE (I.E. IT ACT) RECOGNIZES THE MANDATORY ASPECT OF ISSUE AND SERVICE OF NOTICE U/S 143(2) OF THE ACT A ND THAT TOO WITHIN THE STIPULATED TIME PERIOD BEFORE MAKING AN ASSESSM ENT/REASSESSMENT U/S.143(3) R.W.S.147 OF THE I.T. ACT. THE INSTANT C ASE IS NOT THAT OF LATE ISSUE OF NOTICE U/S 143(2) BUT NON-ISSUE OF NOTICE U/S 143(2) OF THE ACT ALTOGETHER. 3.5 ON APPRAISAL OF THE FACTS AND THE CASE LAWS DI SCUSSED (SUPRA), I AM OF THE CONSIDERED VIEW THAT NO ASSESSMENT/REASSE SSMENT CAN BE FRAMED WITHOUT THE PROPER ISSUE AND SERVICE OF NOTI CE U/S 143(2). THUS, THE IMPUGNED ASSESSMENT ORDER IS BAD IN LAW A ND, THEREFORE, ANNULLED. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. SHRI VIVEK MISHRA,LD.CIT(DR) SUBMITTED THAT THE LD.CIT(A) FAILED TO APPRECIATE THAT THE HON'BLE ALLAHABAD HIGH COURT-LUCKNOW BENCH IN THE CASE OF CIT VS. RAJ EEV SHARMA (2010) 232 CTR (ALL.) 303 NEVER INTENDED THAT THE NOTICE UNDER SECTION 143(2) SHOULD BE ISSUED IN ALL THE CASES WHERE ACTION UNDE R SECTION 148 IS CONTEMPLATED. BUT WHAT THE HON'BLE HIGH COURT INTEN DED WAS THAT THE NOTICE U/S 143(2) SHOULD BE ISSUED IN THOSE CASES ONLY WH ERE THE ASSESSEE HAS FILED A FRESH RETURN IN RESPONSE TO NOTICE U/S 148 OF THE ACT AND NOT IN THOSE CASES WHERE THE RETURN ALREADY FILED IS DEEMED TO HAVE B EEN FILED IN RESPONSE TO NOTICE U/S 148 OF THE ACT. ON THE OTHER HAND, SHRI AMIT SHUKLA, ADVOCATE,LD. COUNSEL FOR THE ASSESSEE SUBMITTED THA T BEFORE MAKING ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 47 OF THE ACT, THE AO WAS OBLIGED UNDER THE LAW TO ISSUE NOTICE UNDER SEC TION 143(2) AND SERVE THE SAME ON THE ASSESSEE WITHIN A STIPULATED PERIOD OF ONE YEAR. ACCORDING TO THE LD. COUNSEL FOR THE ASSESSEE, THE ISSUE IS NO LON GER RES INTEGRA THAT SUCH A NOTICE IS MANDATORY AND IN THE ABSENCE OF SUCH MAN DATORY NOTICE BEING SERVED ON THE ASSESSEE, THE AO DOES NOT GET JURIS DICTION TO MAKE AN 7 ASSESSMENT UNDER SECTION 143(3) READ WITH SECTION 1 48 OF THE ACT. WE FIND SUBSTANTIAL FORCE IN THE ABOVE SUBMISSION OF SHRI AMIT SHUKLA, ADVOCATE,LD. COUNSEL FOR THE ASSESSEE. IT IS SEEN T HAT WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE, THE LD.CIT(A) HAS RELI ED ON THE DECISIONS OF HON'BLE SUPREME COURT IN THE CASE OF ACIT AND ANOTH ER VS. HOTEL BLUE MOON (2010) 321 ITR 362(SC) AND THAT OF THE HON'BL E JURISDICTIONAL HIGH COURT-LUCKNOW BENCH IN THE CASE OF CIT VS. RAJEEV S HARMA (2010) 232 CTR (ALL.) 303. THE LD.CIT(A) HAS REPRODUCED THE DE CISIONS OF THE HON'BLE SUPREME COURT IN THE CASE OF HOTEL BLUE MOON (SUP RA)AND THAT OF HON'BLE ALLAHABAD HIGH COURT- LUCKNOW BENCH IN THE CASE OF RAJEEV SHARMA (SUPRA) IN PARA 3.3 OF THE IMPUGNED ORDER. IN OUR VIEW, THE ABOVE DECISIONS ARE SQUARELY APPLICABLE TO THE FACTS OF THE PRESENT CASE AND THEREFORE, THE LD.CIT(A) WAS JUSTIFIED IN FOLLOWING THE SAME. IN THE CASE OF RAJEEV SHARMA (SUPRA), THE HON'BLE ALLAHABAD HIGH COURT LUCKNOW BENCH HELD THAT THE PROVISION CONTAINED IN SECTION 143(2) IS MANDATORY IN NATURE AND IT IS OBLIGATORY FOR THE AO TO APPLY HIS MIND TO THE CONT ENTS OF THE RETURN FILED IN RESPONSE TO NOTICE UNDER SECTION 148 AND THEREAFTER ISSUE NOTICE UNDER SECTION 143(2) BEFORE PROCEEDING TO DECIDE THE CON TROVERSY REGARDING ESCAPED ASSESSMENT; NON-ISSUANCE OF NOTICE UNDER SE CTION 143(2) AFTER FILING OF RETURN BY ASSESSEE VITIATED THE REASSESSMENT PR OCEEDINGS. IN THE CASE OF HOTEL BLUE MOON (SUPRA), THE HON'BLE SUPREME COURT RULED THAT IF THE AO, FOR ANY REASON, REPUDIATES THE RETURN FILED BY AN A SSESSEE IN RESPONSE TO NOTICE UNDER SECTION 158BC(A) OF THE INCOME-TAX AC T,1961 RELATING TO A BLOCK ASSESSMENT, THE AO MUST NECESSARILY ISSUE NO TICE UNDER SECTION 143(2) OF THE ACT WITHIN THE TIME PRESCRIBED IN TH E PROVISO TO SECTION 143(2). IN THE CASE OF VIRENDRA DEV DIXIT VS. ACIT (2010) 41 DTR (ALL.) 43, THE HON'BLE JURISDICTIONAL HIGH COURT HAS HE LD THAT SERVICE OF NOTICE 8 ON THE ASSESSEE UNDER SECTION 143(2) WITHIN THE PRESCRIBED PERIOD OF TIME IS A PRE-REQUISITE FOR FRAMING THE BLOCK ASSESSMENT ; NON-ISSUANCE OF NOTICE IS NOT A MERE PROCEDURAL IRREGULARITY AND THE SAME IS NOT CURABLE. IN VIEW OF THE ABOVE DECISIONS, WE DO NOT FIND ANY MERIT IN TH E SUBMISSIONS OF SHRI VIVEK MISHRA, LD.CIT(DR). KEEPING IN VIEW THE JUDGM ENTS OF THE HON'BLE SUPREME COURT IN THE CASE OF HOTEL BLUE MOON (SUPRA ) AND THAT OF THE HON'BLE JURISDICTIONAL HIGH COURT-LUCKNOW BENCH IN THE CASE OF RAJEEV SHARMA (SUPRA), WE UPHOLD THE ORDER OF THE LD. CIT( A) AND DISMISS THE APPEAL OF THE REVENUE. 7. IN THE RESULT, THE APPEAL IS DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 17.1.11 . SD. SD. (N.K.SAINI) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT JANUARY 17TH , 2011. COPY TO THE : 1. APPELLANT 2. RESPONDENT 3. CIT(A) (4) CIT 5.DR. A.R.,ITAT, LUCKNOW. SRIVASTAVA.