ORDER
Joginder Pall, A.M.
1. This is bunch of five appeals, all filed by the assessee against five orders, all dt. 15th April, 2004, of CIT(A), Jalandhar, for the assessment years from 1988-89 to 1990-91, 1993-94 and 1994-95. Since the issues involved in all these appeals are identical, these were heard together and are being disposed of by this consolidated order for the sake of convenience.
2. The first grievance of the assessee is that the learned CIT(A) was not justified in sustaining the action of the AO for initiating proceedings under Section 147, as such action was void ah initio. The next grievance of the assessee is that the learned CIT(A) was not justified in sustaining the protective assessments made in the hands of the assessee for all these assessment years, though as per order of the Hon’ble Punjab & Haryana High Court, the income arising by way of dividend on shares of M/s Leader Valves (P) Ltd. belonged to the firm M/s Sehgal Oil & General Mills, and Sh. D.D. Sehgal was holding shares in his representative capacity as a partner. The next grievance of the assessee is that the learned CIT(A) was not justified in sustaining the order of AO for calculating the tax and interest without allowing credit for TDS.
3. The facts of the case are that late Sh. D.D. Sehgal was a partner in a firm, M/s Sehgal Oil & General Mills, Mandi Road, Jalandhar (engaged in the business of oil cakes etc.), vide partnership deed dt. 29th July, 1961. The said partnership firm was a partner in another firm, M/s Leader Engg. Works, Jalandhar, through one of its partner, Sh. D.D. Sehgal. The said firm, M/s Sehgal Oil & General Mills, was regularly assessed with IT Department, Jalandhar, wherein it duly reflected its income from the business of oil cakes etc. and share of profits from M/s Leader Engg. Works, Jalandhar. The said firm, M/s Leader Engg. Works, was converted into a private limited company, namely, M/s Leader Valves (P) Ltd., on 31st Dec., 1978, and thereupon the share of M/s Sehgal Oil & General Mills, as a partner, represented through Sh. D.D. Sehgal (partner), in M/s Leader Engg. Works was converted into equity share capital. Subsequently dividends on the said equity shares of M/s Leader Valves (P) Ltd., belong to M/s Sehgal Oil & General Mills (held in the name of D.D. Sehgal) were received and were regularly reflected by the firm, M/s Sehgal Oil & General Mills, in its IT returns, and thereupon were regularly assessed by the IT Department. But on 11th April, 1982, Sh. D.D. Sehgal, expired and in the absence of any specific clause in the partnership deed, the firm stood dissolved by operation of law. After his death remaining partners and legal heirs failed to obtain succession certificate due to differences. But, interest and dividend income accrued in the books of M/s Leader Valves (P) Ltd. The same was not being declared in the returns either by the erstwhile firm, AOP or legal heirs of late Sh. D.D, Sehgal.
3.1 Subsequently, the AO initiated proceedings under Section 147 in the case of M/s Sehgal Oil & General Mills, Jalandhar, for the asst. yrs. 1983-84, 1984-85 and 1987-88. The assessments were completed in the hands of AOP. The AOP filed appeals before the Tribunal and it was contended that the assessments completed in the case of AOP of M/s Sehgal Oil & General Mills, were illegal and invalid because no notice under Section 148 had been served on the AOP. The Tribunal vide its order dt. 14th May, 1996, in ITA Nos. 709 to 711/Asr/1990 for the asst. yrs. 1983-84, 1984-85 and 1987-88 quashed the assessments on the ground that the notices under Section 148 had not been served on the AOP. The reference application filed under Section 256(1) by the Department was also rejected by the Tribunal. However, the petition moved under Section 256(2) by the Department was accepted by the Hon’ble Punjab & Haryana High Court and the said matter is now pending before the Hon’ble High Court.
3.2 Subsequent to the assessments framed in the AOP, M/s Sehgal Oil & General Mills, on substantive basis, the Revenue authorities initiated action under Section 147 in the hands of the legal heirs of late Sh. D.D. Sehgal and issued notices under Section 148 for the aforesaid assessment years. In response to such notices, the legal heirs filed returns of income under protest declaring therein nil income on the ground that notices issued under Section 148 were invalid and further, legal heirs had no right to receive any income on behalf of late Sh. D.D. Sehgal. Accordingly, the legal heirs, therefore, objected to the assessments proposed to be made in the hands of legal heirs. However, the AO observed that the remaining partners of the firm, M/s Sehgal Oil & General Mills, failed to perform their statutory obligation to settle the accounts of the dissolved sub-partnership. The AO also observed that some of the partners were also the legal heirs of late Sh. D.D. Sehgal. Thus, they should have taken the steps for distribution of the assets and accounted for interest and dividend income arising from the assets of the partnership firm. Thus, the AO completed the assessments under Section 147 read with Section 143(3) on protective basis for the abovementioned assessment years.
4. Being aggrieved, the assessee filed appeals against the orders of the AO for protective assessments for the abovementioned assessment years. As per grounds of appeals taken before the CIT(A), the assessee had raised grounds regarding legality and validity of the proceedings initiated under Section 147 on the ground that ‘reasons to believe’ did not exist. Ground was also taken for completing the protective assessments in the hands of the legal heirs of late Sh. D.D. Sehgal. During the course of hearing of the appeal, submissions were also made in support of the various grounds of appeal. The learned CIT(A) accepted the contention of the assessee that shares were held by Sh. D.D. Sehgal in his representative capacity as partner of the firm. However, she upheld the protective assessments by recording cryptic findings in last para of the order for the asst. yr. 1988-89 which read as under :
“I have carefully considered the facts of the case and the arguments of the learned Counsel as well as gone through the relevant record. In my view although the appellant is correct to the extent that the Department has itself held on more than one occasion that the shares were held by Sh. D.D. Sehgal in his representative capacity as partner of the sub-partnership. But in my view, the assessee’s case ends here. As long as he was alive there is no denying the fact that he was holding the assets in his representative capacity but after his death the assets were to be distributed. No evidence for distribution has been placed either before me or the AO since the distribution was not done the tax evasion went on for years. Once sub-partnership dissolved on deal, the question of holding in representative capacity also ended. In the event to non-distribution of assets for years, I hold that the income of Rs. 4,46,954 (in) the hands of the aforesaid legal heirs on protective basis has been rightly assessed by the AO.”
This order was followed in the remaining cases. The learned CIT(A) has not recorded any reasons as to why the ground regarding validity of the assessments completed under Section 147 was not accepted. She has also not given any reasons about the merits of the protective assessments made in the hands of the legal heirs. The assessee is aggrieved by the orders of the CIT(A). Hence, these appeals before me.
5. The learned Counsel for the assessee, Sh. Ravish Sood, reiterated the submissions which were made before the authorities below. He submitted that the proceedings initiated under Section 147 were void ab initio because there did not exist ‘reasons to believe’. He submitted that in this case, the AO did not have even reasons to suspect. He submitted that the Department itself had accepted that late Sh. D.D. Sehgal was holding the shares in his representative capacity as a partner of M/s Sehgal Oil & General Mills. This fact is also conceded by the learned CIT(A) in the impugned orders. Thus, it is not understood as to how there could be reason to believe that this was income of the legal heirs of late Sh. D.D. Sehgal. He further submitted that substantive assessments have been made in the hands of AOP of M/s Sehgal Oil & General Mills, where action of the AO was quashed and the matter is now pending with the High Court. He submitted that the AO was fully aware that such income belonged to the erstwhile partnership firm. He submitted that even in the affidavit filed before the Hon’ble High Court (copy placed at pp. 6 to 9 of the paper book), the Revenue conceded that it, was partnership firm to whom the income, interest and dividend income from shares belonged. Thus, he submitted that the action taken by the AO for initiating proceedings under Section 147 with a view to make protective assessments was illegal and bad in law. He further submitted that the learned CIT(A) has not addressed to such grounds and has not recorded any finding thereon.
6. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.
7. I have heard both the parties and carefully considered the rival submissions with reference to facts, evidence and material on record. From the facts discussed above, it is obvious that the assessee had raised grounds regarding initiating of reassessment proceedings under Section 147 and making of protective assessments in the case of the assessee. These have been duly noted at pp. 2 and 3 of the impugned order for the asst. yr. 1988-89 which was followed by the CIT(A) for the remaining assessment years. The learned CIT(A) has confirmed the orders of the AO in a summary manner without recording finding on the specific grounds taken before her. The learned CIT(A) has not passed any reasoned or speaking order while dismissing the appeals of the assessee in a summary manner. Such orders could hardly be considered as a judicial orders. Under these circumstances, I consider it fair and appropriate to set aside the orders of the CIT(A) and restore the matter to her file for deciding the appeals afresh as per law and after allowing proper opportunity to both the parties. Needless to say that while redeciding the appeals, the learned CIT(A) shall take into account the detailed submissions of the assessee and then pass an speaking order giving groundwise reasons for agreement or disagreement with the same. I order accordingly. The grounds of appeal are treated as allowed for statistical purposes for all the assessment years.
8. As regards the grounds regarding of interest under Sections 234A, 234B and 234C and allowing credit for TDS, these are also restored to the file of the CIT(A) for readjudication as per law and after allowing proper opportunity to the assessee. These grounds are also, therefore, allowed for statistical purposes.
9. During the course of hearing of the appeals, the assessee also raised one additional ground for all the assessment years which read as under :
“I. That the AO erred in initiating ‘protective recovery’ proceedings by issuing demand notice under Section 156 along with the ‘assessment’. And therein erred in not appreciating that though ‘protective assessment’ is allowed to be framed keeping in view the interest of the Revenue, but ‘protective recovery’ is not at all permitted under law.”
10. The learned Counsel for the assessee submitted that this was purely a legal ground which does not call for any investigation into the facts. Therefore, the same should be admitted. The learned Departmental Representative did not raise any objection to the admission of the additional ground.
10.1 Having heard both the parties, I am of the opinion that the additional ground now being raised is purely a legal ground which does not call for any investigation into the facts. Therefore, relying on the judgment of Hon’ble Supreme Court in the case of National Thermal Power Co. v. CIT , the additional ground raised by the assessee is admitted for all the assessment years.
11. The learned Counsel for the assessee submitted that despite the fact that the assessments have been made on protective basis, the AO is vigorously pursuing the recovery of the demand in these cases. He, submitted that when protective assessments have been made, no recovery of the demand could be enforced. Reliance has been placed on the judgments of the various High Courts :
(1) Jagannath Hanumanbux v. ITO (1957) 31 ITR 603 (Cal)
(2) P.K. Trading Co. v. ITO
(3) CIT v. Cochin Co. (P) Ltd.
(4) Jagannath Bawri and Ors. v. CIT
(5) Sunil Kumar v. CIT .
11.1 The learned Departmental Representative, on the other hand, relied on the orders of the authorities below.
11.2 I have heard both the parties and carefully considered the rival contentions. It is a fact that substantive assessment has been made in the hands of AOP of M/s Sehgal Oil & General Mills and the assessments in the present case have been made on protective basis. It is also a fact that a case where substantive assessments have been made is still pending with the Hon’ble High Court. In the case of Jagannath Hanumanbux v. ITO (supra), the Hon’ble High Court has held that while protective assessment is permissible, a protective recovery of tax is not permissible. Similar view has been held by the same High Court in the case of P.K. Trading Co. v. ITO (supra). Same view has been taken by the Hon’ble Kerala High Court in the case of CIT v. Cochin Co. (P) Ltd. (supra) and in the case of Sunil Kumar v. CIT (supra), the Hon’ble Bombay High Court held that the recovery proceedings on the basis of protective assessments were not tenable and the same would depend on the ultimate decision. All these judgments support the case of the assessee and no contrary judgment has been cited by the learned Departmental Representative. However, considering the fact that I have already set aside the orders of the CIT(A) and restored the matter to her file, this issue is also restored to the file of the CIT(A) with a direction to record her finding on the same at the time of deciding the appeal. I was informed that appeals filed by the Department in the case of AOP have already been listed for hearing before the High Court. While redeciding the matter, the learned CIT(A) may also take into account the outcome of these appeals as to whether the substantive assessments have to be made in this case or in the case of an AOP. I order accordingly. Respective grounds of appeals for the all the assessments years are allowed for statistical purposes.
12. In the result, all the appeals of the assessee are allowed for statistical purposes.