Gujarat High Court Case Information System
Print
TAXAP/386/1999 11/ 11 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
TAX
APPEAL No. 386 of 1999
with
TAX
APPEAL NO.387 of 1999
For
Approval and Signature:
HONOURABLE
MR.JUSTICE D.A.MEHTA
HONOURABLE
MS.JUSTICE H.N.DEVANI
=========================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To
be referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=========================================
DY.
C.I.T. - Appellant(s)
Versus
MAXIMA
SYSTEMS LIMITED - Opponent(s)
=========================================
Appearance :
MRS
MAUNA M BHATT for
Appellant
MR SN SOPARKAR for
Respondent
=========================================
CORAM
:
HONOURABLE
MR.JUSTICE D.A.MEHTA
and
HONOURABLE
MS.JUSTICE H.N.DEVANI
Date
: 13/04/2010
ORAL
JUDGMENT
(Per
: HONOURABLE MS.JUSTICE H.N.DEVANI)
Both
these appeals arise out of common order dated 5th May
1999 made by the Income Tax Appellate Tribunal (the Tribunal) and
the parties are also common. Hence, the same were taken up for
hearing and are disposed of by this common order.
While
admitting these appeals under section 260A of the Income Tax Act,
1961 (the Act) on 7th August 2000, following substantial
question of law had been formulated in both the appeals :
Was
the unsigned notice under section 143(2) of the Act deemed to have
been served on the assessee because it was posted within the
prescribed period, though received by the assessee thereafter?
The
assessment year is 1995-96. The respondent had filed return of
income declaring nil income on 29th November 1995 which
was processed under section 143(1)(a) of the Act on 27.11.1996 by
making prima facie adjustments of Rs.40,79,353/- in relation to
relief under section 80-HHC of the Act. Subsequently, notice under
section 143(2) of the Act came to be issued on 29th
November 1996. It appears that the said notice did not bear the
signature of the Assessing Officer having jurisdiction over the case
of the assessee, although it bore his rubber stamp. The said notice
was served upon the assessee on 2nd December 1996.
Pursuant
to the said notice, the assessee appeared before the Assessing
Officer and vide order dated 26.2.1998, assessment came to be framed
under section 143(3) of the Act at a total income of
Rs.1,64,81,302/-. It appears that the assessee moved an application
under section 154 of the Act seeking deletion of income of
Rs.1,56,77,325/-. The said application came to be decided vide order
dated 23.06.1998 whereby the Assessing Officer reduced a sum of
Rs.48,66,867/- and made an addition of Rs.10,57,708/- on account of
bogus purchases.
The
assessee carried both the orders made by way of separate appeals
before Commissioner (Appeals). The validity of the assessment framed
by the Assessing Officer under section 143(3) was challenged mainly
on two counts viz., (1) the notice issued under section 143(2)
having not been signed by the Assessing Officer, and (2) the notice
being served on the assessee after the period prescribed under
section 143(2) of the Act. The Commissioner (Appeals) partly allowed
the appeals. However, both the aforesaid grounds raised by the
assessee came to be rejected. The assessee carried the matter in
second appeal before the Tribunal and succeeded.
Mrs.
M .M. Bhatt, learned Senior Standing Counsel for the
appellant-revenue submitted that in view of the decision in Madanlal
Mathurdas v. Chunilal, Income Tax Officer, [1962] , 44 ITR
325, since the notice had been issued within the prescribed period
of limitation, the Tribunal ought to have held that the service is
valid. It is submitted that the Tribunal had failed to appreciate
that pursuant to the notice under section 143(2) of the Act, the
assessee had put in appearance and had not taken any objection as
regards the notice not having been signed by the Assessing Officer;
or that the notice had been served after the period of limitation
prescribed under section 143(2) of the Act. It is submitted that in
the circumstances, the respondent assessee is deemed to have waived
his right to object to the delay in effecting service.
The
learned counsel has also submitted that the Tribunal has held that
the notice under section 142(2) was invalid as the same had not been
signed by the Assessing Officer and that as such, the question as to
whether the Tribunal was justified in holding that the unsigned
notice was not a valid notice, does arise from the impugned order of
the Tribunal.
Mrs.
Swati Soparkar, learned advocate for the respondent-assessee has
submitted that the issue involved in the present case is no longer
res integra inasmuch as the same stands decided in favour of
the assessee by a decision of this Court in Deputy
Commissioner of Income Tax v. Mahi Valley Hotels and Resorts,
[2006] 287 ITR 360 (Guj) as well as a decision of the Supreme Court
in Assistant Commissioner of Income Tax and another v. Hotel
Blue Moon, [2010] 321 ITR 362 (SC). It is submitted that in
the circumstances, the question is required to be answered in favour
of the assessee.
The
facts are not in dispute. Admittedly, the return of income was filed
by the assessee on 29th November 1995 and was processed
under section 143(1)(a) of the Act on 27th November 1996.
The notice under section 143(2) was issued on 29th
November 1996 and served upon the assessee on 2nd
December 1996, that is, after a period of twelve months from the end
of the month in which the return was furnished.
In
the impugned order, the Tribunal has recorded a finding of fact that
the notice under section 143(2) of the Act was served on the
assessee on 2.12.1996. According to the Tribunal, as per the
proviso to section 143(2), no notice under section 143(2) can be
served on the assessee after the expiry of 12 months from the end of
the month in which the return is furnished. That from the language
used in the proviso, it is clear that the jurisdiction to frame the
assessment under section 143(3) pursuant to notice under section
143(2) can be assumed only if the notice is served on the assessee
within 12 months of the month in which the return was filed. The
Tribunal held that it is clear that the notice under section 143(2)
which is the foundation for assuming jurisdiction to make an
assessment in the case of an assessee under section 143(3), had been
assumed by the Assessing Officer on the basis of a notice which
though issued on 29.11.1996 fixing the date of hearing on
19.12.1996, was in fact sent by Registered Post A.D. and was served
on the assessee on 2.12.1996, which was not permissible in law. The
Tribunal, accordingly, held that the assessment framed by the
Assessing Officer under section 143(3) of the Act pursuant to the
notice under section 143(2) which was served beyond the period of
limitation prescribed by the proviso to section 143(2) of the Act
was not a valid assessment and quashed the same.
In
Deputy Commissioner of Income Tax v. Mahi Valley Hotels and
Resorts (supra), this Court was considering as to whether an
assessment framed under section 143(3) of the Act by issuing
statutory notice beyond the prescribed time limit is bad in law,
wherein it was held thus:
[4] The
second contention regarding there being acquiescence and/or waiver
on part of the assessee by participating in the proceedings also
does not merit acceptance. It is an admitted position that the
return of income was filed on 30/03/1997 for Assessment Year 1997-98
and the notice under section 143(2) of the Act came to be issued for
the first time only on 20/08/1998. Therefore, the notice was
admittedly beyond the period of 12 months which is the statutory
period of limitation prescribed under the Proviso to sub-section (2)
of Section 143 of the Act.
[5] The
Scheme of the Act broadly permits the assessment in three formats;
(i) acceptance of the returned income; (ii) acceptance of returned
income subject to permissible adjustments u/s.143(1) of the Act
by issuance of intimation; and (iii) scrutiny assessment under
section 143(3) of the Act. This Scheme was originally introduced by
Direct Tax Laws (Amendment) Act, 1989 with effect from
1.4.1989. The issuance of notice under section 143(2) of the Act is
in the course of assessment in the third mode, namely, scrutiny
assessment.
[6] Section
143(2) of the Act requires that where return has been made by an
assessee, if the Assessing Officer considers it necessary or
expedient to ensure that the assessee has not understated the
income, or has not computed excessive loss, or has not
under-paid tax in any manner, he shall serve on the assessee a
notice requiring him either to attend his office, or to produce, or
cause to be produced there, any evidence on which the assessee may
rely in support of the return. Therefore, the language of the main
provision requires Assessing Officer to prima facie arrive at
satisfaction of existence of any one of the three conditions.
Proviso under the said sub-section states: provided that no
notice under this sub-section shall be served on the assessee after
the expiry of twelve months from the end of the month in which the
return is furnished . On a plain reading of the language in which
the proviso is couched it is apparent that the limitation prescribed
therein is mandatory, the format of provision being in negative
terms. The position in law is well settled that if the requirements
of a statute which prescribes the manner in which something is to
be done are expressed in negative language, that is to say, if the
statute enacts that it shall be done in such a manner and in no
other manner, such requirements are, in all cases absolute and
neglect to attend to such requirement will invalidate the whole
proceeding.
[7] When
the provision was first introduced in the statute the Central Board
of Direct Taxes issued departmental Circular No. 549 dated
31/10/1989 and the necessity of the proviso as well as the
consequences flowing on failure to issue notice within the
limitation have been explained in the following words :
5.13
A proviso to sub-section (2) provides that a notice under the
sub-section can be served on the assessee only during the financial
year in which the return is furnished or within six months from the
end of the month in which the return is furnished, whichever is
later. This means that the Department must serve the said notice on
the assessee within this period, if a case is picked up for
scrutiny. It follows that if an assessee, after furnishing the
return of income does not receive a notice under section 143(2)
from the Department within the aforesaid period, he can take it
that the return filed by him has become final and no scrutiny
proceedings are to be started in respect of that return .
(Ref:CBDT
Circular No.549, dated 31st October,1989,
Chaturvedi & Pithisaria’s Income Tax Law, Fifth Edition, Vol.3,
Pg.4737 at Pg.4742).
[8] Originally
the period of limitation was provided as during the financial
year in which the return is furnished or within six months from
the end of the month in which the return is furnished. By Finance
(No.2) Act, 1991 the proviso was substituted by the present proviso
extending the period of limitation to twelve months and vide
departmental circular No.621 dated 19/12/1991, it was stated in
paragraph No.49.1 of the circular that: The aforesaid period of
limitation for the service of a notice under sub-section (2) of
Section 143 of the Act does not allow sufficient time to the
Assessing Officers to select returns for scrutiny before assessment.
Therefore, the provision was amended to provide that the notice can
be served within twelve months from the end of the month in which
the return is furnished .(Ref:CBDT Circular No.621, dated 19th
December,1991 Chaturvedi & Pithisaria’s Income Tax Law, Fifth
Edition, Vol.3, Pg.4747 at Pg.4748).
[9] It
goes without saying that the departmental authorities are bound by
the circulars issued by the Central Board of Direct Taxes. In the
circumstances, it is not open to the revenue to contend otherwise.
These Circulars are explanatory. They give contemporaneous
exposition of legal position. Even otherwise, on a plain reading of
the section and the proviso it is more than abundantly clear that
the proviso prescribes a mandatory period of limitation in light
of the scheme of assessment wherein majority of returns are
required to be accepted without scrutiny and only certain returns
are taken up for scrutiny.
Thus,
the controversy in issue in the present case stands concluded by the
above cited decision and all the contentions raised by
appellant-revenue stand answered against the revenue and in favour
of the assessee. The said view also finds support in the decision of
the Supreme Court in Assistant Commissioner of Income Tax and
another v. Hotel Blue Moon (supra) wherein the Court held
that if an assessment is to be completed under section 143(3) read
with section 158BC, notice under section 143(2) should be issued
within one year from the date of filing of the block return.
Omission on the part of the assessing authority in issuing notice
under section 143(2) cannot be a procedural irregularity and is not
curable and, therefore, the requirement of notice under section
143(2) cannot be dispensed with.
The
decision of this Court in Madanlal Mathurdas v. Chunilal,
Income Tax Officer (supra) does not in any manner support
the case of the appellant-revenue inasmuch as the said decision was
rendered in a totally different set of facts, in relation to the
provisions of section 34 of the said Act and the question as to
whether notice was required to be served within the prescribed
period did not arise in the said case.
The
decision of the Apex Court in Commissioner of Income-tax,
Shillong v. Jai Prakash, (1996) 3 SCC 525 on which reliance
has been placed by the learned advocate for the appellant-revenue,
also does not carry the case of the revenue any further inasmuch in
the facts of the said case pursuant to the death of the assessee,
his eldest son Jai Prakash filed returns. Returns filed by Jai
Prakash were scrutinized by the Income-tax officer and notices under
sections 142(1) and 143(2) was served upon the said Jai Prakash. The
deceased had, in all, ten legal heirs. During the course of
assessment proceedings no objection was raised by Jai Prakash as
regards non-service of notice to the other heirs till the assessment
order was passed. It was only at the stage of appeal, that the said
Jai Prakash contended that the assessment stood vitiated on the
ground that the other heirs were not served with notice under
section 143(2). Thus, the facts of the said case were totally
different and as such the said decision has no relevance insofar as
the present case is concerned.
Insofar
as the issue regarding the notice under section 143(2) of the Act
not being a valid notice, the same does not arise out of the
question formulated by the Court at the time of admission of the
appeal, nor does the same arise out of the question proposed by the
revenue in the memo of appeal. In the circumstances, it is not
necessary to go into the merits of the said issue.
In
view of the above discussion, it is abundantly clear that the view
taken by the Tribunal is in consonance with the above referred
decisions of the Supreme Court as well as this Court. In the
circumstances, it cannot be stated that the impugned order of the
Tribunal suffers from any legal infirmity so as to warrant
interference. The question is accordingly answered in the negative
i.e. in favour of the assessee and against the revenue.
The
appeals are, accordingly, dismissed with no order as to costs.
[D.A.MEHTA,
J.]
[HARSHA
DEVANI, J.]
parmar*
Top