Commissioner Of Income Tax, Alwar v. M/S Rameshwar Prasad Sharma, Contractor

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 642 / 2011 COMMISSIONER OF INCOME TAX, ALWAR ----Appellant Versus M/S RAMESHWAR PRASAD SHARMA, CONTRACTOR,316, KRISHNANAGAR BHARATPUR ----Respondent _____________________________________________________ For Appellant(s) : Mrs. Parinitoo Jain with Ms. Shiva GoyalFor Respondent(s) : Mr. P.K. Kasliwal _____________________________________________________ HON'BLE MR. JUSTICE K.S. JHAVERIHON'BLE MR. JUSTICE INDERJEET SINGH Judgment 04/09/2017 1.By way of this appeal, the appellant has assailed thejudgment and order of the tribunal whereby tribunal has allowedthe appeal of the assessee and dismissed the appeal of thedepartment and further modified the order of the CIT(A) whichwas party allowed the appeal of the assessee. 2.This court while admitting the appeal on 27.9.2012 framedfollowing substantial question of law:- 1. Whether the tribunal was legally justifiedin reversing the finding of CIT(A) andannulling the reassessment u/s 147 whichwas done on the basis of material foundduring the course of survey and not on thebasis of annulled assessment u/s 143(3)? 2. Whether the tribunal was legallyjustified in annulling the reassessment doneu/s 147 when the return of income filed bythe assessee reassumes the same statusafter the annulled assessment u/s 143(3) as if on which no assessment has beencarried out? 3.The facts of the case are that the assessee respondent is acontractor who filed the return of income on 31.10.2001 forRs.65,172/- after adjusting brought forward loss ofRs.10,59,233/- out of total loss of Rs.11,3337,535/-. The incomein the return represented income from other sources. The returnwas processed and a notice u/s 143(2) was issued on 23.10.02. 3.1Further again notice u/s 143(2) and 142(1) alongwithquestionnaries were issued and duly served to the assessee. Theassessee sought adjournments and did not furnish the requireddetails. Since the required documents were not submitted despiteseveral opportunities, again a notice u/s 143(2) and 142(1) wereserved. No details and books of accounts as called for by the AOwere produced by the assessee. A survery u/s 133A was carriedout at the business premises of the assessee on 18.2.03. 3.2During the course of survey operations, some books ofaccounts/documents as cash book, ledger, small diary and loosepapers were found and impounded relating to various years. Outof them some documents as A-1, A-5, A-6, A-19, A-27, A-28 andA-20 relating to F.Y. 200-01 i.e. assessment year 200-01 the yearunder consideration. The assessee was asked to verify the entriesappearing in these impounded documents with the regular booksof accounts and required the assessee firm to file other details butsame was not complied with. The assessee did not produce anybooks of accounts and vouchers of the expenses. Since assessee firm could not get verified entries in these incriminatorydocuments from the regular books of accounts which were neverproduced for verification, hence looking to the facts of the caseand complexities involved, the case was referred for special auditwith the prior approval of the CIT. 3.3The case was referred for special audit nominating Sh. K.K.Gupta CA, Bhartpur for conducting special audit u/s 142(2A) andthe assessee was asked vide this office letter no.843 dt. 30.3.04to get its accounts audited from the nominated by CA by 30.5.04.Assessee was requested to extend its full cooperation getting itsaccounts audited. On the request of assessee firm, certified photocopy of all impounded documents relating to the F.Y. 2000-01Annexures A, A-1 to M-6, A-19, A-25, A-26, A-27, A-28 & A-29were again provided to the assessee inspite of the facts that Xeroxcopies of all impounded material had already been supplied to thefirm. Assessee firm sought extension of time for getting itsaccount audited from the nominated CA several times. 3.3The case was referred for special audit nominating Sh. K.K.Gupta CA, Bhartpur for conducting special audit u/s 142(2A) andthe assessee was asked vide this office letter no.843 dt. 30.3.04to get its accounts audited from the nominated by CA by 30.5.04.Assessee was requested to extend its full cooperation getting itsaccounts audited. On the request of assessee firm, certified photocopy of all impounded documents relating to the F.Y. 2000-01Annexures A, A-1 to M-6, A-19, A-25, A-26, A-27, A-28 & A-29were again provided to the assessee inspite of the facts that Xeroxcopies of all impounded material had already been supplied to thefirm. Assessee firm sought extension of time for getting itsaccount audited from the nominated CA several times. 3.4 Assessee was granted extension of time upto 23.9.04. Buthe could not get its account audited from the nominated CA till thelast date. The nominated CA vide his letter dt. 22.9.04 appearedof the facts of the case that in circumstances under which he couldnot conduct the audit u/s 142(2A). The letter of the special auditorindicates that the firm did not provide him any information/booksof accounts/documents/vouchers of expenses and other relevantpapers which are necessary for conducting special audit. Theincome of the assessee was determined Rs.3,56,78,146/- againstdeclared income of Rs.65,172/- vide order dt. 23.11.04. 4.Counsel for the appellant has taken us to the order of CIT(A) in which it has been observed as under:- “In the first ground of appeal the appellanthas claimed that the assessment underreference has been passed withoutjurisdiction, therefore, same is liable to bequashed. During the appellate proceedings the AR ofthe appellant at the outset challenged thejurisdiction of the AO with regard toassesssment under reference. It wasclaimed that the notice u/s 143(2) for theassessement under reference was servedupon the appellant first time on 11.12.03while the appellant filed its return of incomeon 31.10.2001. Therefore, it was contendedthat since the valid notice u/s 143(2) wasnot issued to the appellant within the timestipulated under the section, the entireproceedings for assessment were null andvoid. Keeping in view the grounds of theappellant and the evidences filed by himduring the appellate proceedings the matterwas referred to the ACIT, Cricle-Bharatpurvide this office’s letter dt. 20.1.05 No.1056.The AO was asked to give his comments onthe ground raised by the AR of theappellant and also provide the factualposition with regard to service of notice u/s143(2) to the appellant. The AO’s reportwas received through the CIT, Alwar videhis office’s letter No.493 dt. 10.2.05. Therelevant extracts of the report are asunder:- (a) The assessee firm filed its return ofincome on 31.10.2001 in the office of ITO,Ward-I, Bharatpur. (b) Later on the then AO was submittedscrutiny proposal to the worthy CIT, Alwarafter recording due reasons and worthy CIT,Alwar has accorded his permission videtheir letter no.1080 dt. 22.10.02 forselecting the case under scrutiny. (c) After receiving permission for scrutinyfrom the CIT, Alwar the then AO enteredthe name of above assessee in his scrutinyregister. (d) ITO Ward-I, Bharatpur issued notice u/s143(2) of the IT Act, 1961 on 23.10.02which was served upon the partner of thefirst Smt. Geeta Sharma on the same dayi.e. 23.10.02 but inadvertently the name ofassessee firm was written in the notice asSh. Rameshwar Prasad Sharma in place ofM/s. Rameshwar Prasad Sharma which waspurely a clerical mistake. (e) As per notice u/s 143(2) dt. 23.10.02case was fixed for 29.10.02 and in responsethereto AR of the assessee firm M/s.Rameshwar Prasad Sharma contractor,attended the office on the fixed date i.e.29.10.02 and requested for an adjournmentof firm case. (c) After receiving permission for scrutinyfrom the CIT, Alwar the then AO enteredthe name of above assessee in his scrutinyregister. (d) ITO Ward-I, Bharatpur issued notice u/s143(2) of the IT Act, 1961 on 23.10.02which was served upon the partner of thefirst Smt. Geeta Sharma on the same dayi.e. 23.10.02 but inadvertently the name ofassessee firm was written in the notice asSh. Rameshwar Prasad Sharma in place ofM/s. Rameshwar Prasad Sharma which waspurely a clerical mistake. (e) As per notice u/s 143(2) dt. 23.10.02case was fixed for 29.10.02 and in responsethereto AR of the assessee firm M/s.Rameshwar Prasad Sharma contractor,attended the office on the fixed date i.e.29.10.02 and requested for an adjournmentof firm case. (f) Vide this office letter dt. 19.3.04 it wasinformed to the assessee firm that mistakein the notice issued u/s 143(2) on 23.10.02was a purely clerical mistake and as perprovision of Sec.292 of the IT Act, 1961 nonotice can be declared invalid on the basisof clerical mistake and hence the service ofnotice is valid. It is pertinent to mention here that theassessee firm itself accepting this type ofclerical mistake in may TDS certificatesissued from various departments in variousyears to assessee firm in those certificatesname of Sh. Rameshwar Prasad Sharma. Allthese certificates are accepted by the firmand claiming benefit of tax from variousdepartmentsincludingIncomeTaxDepartment on the basis of thesecertificates which were issued only in thename of Sh. Rameshwar Prasad Sharmaand the department is also giving due creditto the assessee on the basis of such TDScertificates enclosed by the assessee withthe return of income, despite the fact thatthey are not in the name of firm but in thename of Sh. Rameshwar Prasad Sharma.Thus departments is ignoring such technicallapse appearing in TDS certificates andassessee has never raised any objection asto why he is given undue benefits when hedoes not deserves for the same. Thus theassessee firm as well as variousdepartments are ignoring this type ofclerical mistake and accepting all thesecertificates as of firm (M/s. RameshwarPrasad Sharma Contractor) instead of individual Sh. Rameshwar Prasad Sharma inwhose name the certificates are issued. When there is a matter to the benefit forthe assessee then assessee firm did notraise any objection on technical mistakeappearing in TDS certificates relating toassessee firm. Other hand any technicalmistake committed by the department inthe notice us/ 143(2) then firm wants toraise objections in respect of technicalmistake for taking benefit from the samehence, objection raised by the assessee arebaseless and away from the truth. (g) As per provision of Section 292B of theAct, no notice issued from the departmentshall be invalid or shall be deemed to beinvalid merely by the reason of any mistakedefect or omissions in such notice. Suchtypes of mistakes are curable u/s 292B ofthe IT Act, 1961. (h) The contents and view of the provisions292B of the Act clearly explained andsupported by the Judgment of Hon’bleGuwahati High Court reported in 227 ITR512. Hon’ble Court has held that Section292B provides that no proceedings taking inpursurance of any of the provisions of theAct shall be invalid by reason of anymistake or defect in the proceedings if it isin effect in confirmatory with or accordingto the intent of purpose of the Act. (I) From the above mentioned facts it isclear that notice issued to the assesseefirm come under the purview of provisionof Section 292B and valid one. An assessee firm filed its return of incomefor assessment year 2001-02 on31.10.2001 and notice u/s 143(2) wasserved on 23.10.02 to the assessee firm.The notice issued for taking the case underscrutiny is well in time as prescribed by theAct. Hence objection raised by the assesseeis not sustainable. Notice u/s 143(2) wasissued legally and as per provisions of theAct.” (I) From the above mentioned facts it isclear that notice issued to the assesseefirm come under the purview of provisionof Section 292B and valid one. An assessee firm filed its return of incomefor assessment year 2001-02 on31.10.2001 and notice u/s 143(2) wasserved on 23.10.02 to the assessee firm.The notice issued for taking the case underscrutiny is well in time as prescribed by theAct. Hence objection raised by the assesseeis not sustainable. Notice u/s 143(2) wasissued legally and as per provisions of theAct.” 4.1. She also taken us to the order of the CIT(A) in which it hasbeen held as under:- “5.3 On the basis of foregoing discussion itcan safely be concluded that the appellantwas not served a valid notice 143(2) by theAO in the stipulated time. Therefore, theassessment proceedings carried out by himsubsequently were without valid jurisdiction.Hence, the proceedings were void-ab-initio.In view of this the assessment underreference is hereby annulled.” 4.2. She contended that reasons were recorded after the order ofCIT(A) u/s 148 and all reasons were given after issuing the notice. 4.3However CIT(A) vide Annexure-5, while considering the case of the assessee observed as under: “5.4 The AO is, however, free to resort toSection 147 of the Act to bring the escapedincome, if any to tax.” 4.4After taking into consideration the factual position and other material on record, the CIT(A) partly allowed the appeal andholding as under:- “On the above issue the ld. AR hassubmitted that the provisions of Sec.234Dis applicable to cases where the refund hasbeen made in excess u/s 143(1)(a) or ‘Norefund is due in regular assessment.Regular assessment includes first timeassessment u/s 147 also (vide explanationto Sec.234D) w.e.f. 1.6.03’, the ld. AR alsosubmitted that the imposition of interestbeing substantive law, interest u/s 234Dcannot be charged in respect of assessmentyears prior to coming into force of theseprovisions i.e. w.e.f. 1.6.03, hence it is notapplicable to A.Y. 2001-02 and relied uponthe decision in the case of M/s. AgarwalMarbles & Industries Ltd. Vs. ACIT (2007)37 TAX WORLD 25 (ITAT-Jaipur Bench). Theld. AR also submitted that the interestunder Sec.234B is to be calculated withreference to the total tax demand minus taxdeducted at source. On considering the arguments advanced bythe ld. AR and case as above cited I am ofthe considered opinion that there issubstance in the connection of the ld. ARthat section 234D has come into effect from1.6.03 and thus not applicable in thepresent case of assessment year 2001.02.The same views has been confirmed by theHon’ble ITAT Jaipur Bench ‘A” in the case ofACIT vs. M/s. GAD FASHION (2008) XI, TAXWORLD 156 (ITAT-JP). Therefore, theinterest charged under section 234D is thusdirected to be deleted. However in respectof interest charge u/s 234B is consequentialof the above findings.” 4.5She further contended that when the assessment wasannulled, on the basis of judgment in the case of Babulal Lath, 83ITD 691 rendered by Mumbai Bench of the Tribunal, there was noreason for the department to take further proceedings. 4.6She also taken us to the order of CIT(A) wherein it has beenobserved as under:- “4.3 The rival submission has beenconsidered by me. The contention of learnedAR is not acceptable as the notice issued148 was well in power of the learned AO andas per direction of the CIT(A) vide his orderdt. 28.3.2005 as is mentioned by thelearned AR. Therefore, the actions of thelearned AO has been confirmed.” 5.Counsel for the respondent has taken us to the order of the Tribunal wherein it has been observed as under:- 8. We have heard rival submissionsand considered them carefully. Beforeproceeding further, we would like toproduce here the computation ofincome made in the originalassessment order dt. 22.11.2004:- 4.6She also taken us to the order of CIT(A) wherein it has beenobserved as under:- “4.3 The rival submission has beenconsidered by me. The contention of learnedAR is not acceptable as the notice issued148 was well in power of the learned AO andas per direction of the CIT(A) vide his orderdt. 28.3.2005 as is mentioned by thelearned AR. Therefore, the actions of thelearned AO has been confirmed.” 5.Counsel for the respondent has taken us to the order of the Tribunal wherein it has been observed as under:- 8. We have heard rival submissionsand considered them carefully. Beforeproceeding further, we would like toproduce here the computation ofincome made in the originalassessment order dt. 22.11.2004:- This order was challenged before ld. CIT(A)who annulled the assessment by observingthat notice u/s 143(2) issued was barred bylimitation by his order dt. 28.3.2005.Thereafter, AO recorded reason on 8.7.2005before issuing notice u/s 148. As perreasons recorded, the AO observed that thefollowing amount of income has escapedassessment:- In response to notice u/s 148, theassessee submitted reply on 25.7.05 andstated that return filed on 31.10.2001under Sec.139(1) may kindly be treated asfiled in response to notice u/s 148 and alsodemanded a copy of reasons recorded. Thesame was replied on 29.7.2005.Subsequently notice u/s 143(2) as well asquestionnaire was issued to the assessee.In response to the same, the detailed replywas filed before the AO and it wassubmitted that assessment completedoriginally has been quashed and no appealhas been filed against that order by thedepartment. It was further submitted thatnow issuing notice u/s 148 forreassessment of income is not valid andaccordingly it was submitted that thenotice issued u/s 148 is ultra vires andillegal. Reliance was placed on various caselaws before AO i.e. in case of CIT vs. Mrs.Ratanbai N.K. Dubhash, 230 ITR 495(Bom.). In this judgment it has been heldthat the assessment was not set aside asthe same was annulled and in case ofannulled assessment the order passedoriginally u/s 143(3) becomes non est. It was also submitted that the assessmentcannot be reopened u/s 147/1048 as thereshould be fresh material or information forissuing notice u/s 148. As there is no freshmaterial or information, therefore, on thebasis of completed assessment originallynotice u/s 148 cannot be issued. 9.Reliance was placed on the decisionof Hon’ble Punjab & Haryana High Court inthe case of Vipin Khanna, 255 ITR 220 andalso on the decision of Hon’ble SupremeCourt in the case of Sun Engineering, 198ITR 297. 10.After considering these submissions,the objection raised by assessee was notfound satisfied by the AO. Accordinglythese submissions were rejected by theAO. Therefore, the AO proceeded tocomplete the assessment and variousdetails were asked for which were filedfrom time to time and ultimately theassessment was completed by makingfollowing additions:- Net profit applied @ 12.5% on gross ___________Rs.27,60,155/-Add: u/s 37(1) as discussed aboveRs.42,403,310/-Repayment to Sh. Kailash ChandRs. 6,74,000/- Cash credit in the name of Sh. S.K. UpadhyahyRs.3,25,000/- 11.Against this order, the assesseepreferred appeal before ld. CIT(A). Theproceedings initiated u/s 148 were alsochallenged. The ld. CIT(A) uphold thereopening of the assessment. However,appeal of the assessee on merit wasallowed in part as certain additions weresustained i.e. trading addition by applyingn.p. rate at 10.5% confirming the additionof Rs.3,25,000/- in the name of Sh. S.K.Upadhyay and not treating the interest onfixed deposit income as business income.The remaining additions were deleted byld. CIT(A). Net profit applied @ 12.5% on gross ___________Rs.27,60,155/-Add: u/s 37(1) as discussed aboveRs.42,403,310/-Repayment to Sh. Kailash ChandRs. 6,74,000/- Cash credit in the name of Sh. S.K. UpadhyahyRs.3,25,000/- 11.Against this order, the assesseepreferred appeal before ld. CIT(A). Theproceedings initiated u/s 148 were alsochallenged. The ld. CIT(A) uphold thereopening of the assessment. However,appeal of the assessee on merit wasallowed in part as certain additions weresustained i.e. trading addition by applyingn.p. rate at 10.5% confirming the additionof Rs.3,25,000/- in the name of Sh. S.K.Upadhyay and not treating the interest onfixed deposit income as business income.The remaining additions were deleted byld. CIT(A). 12 The department is in appeal againstdeleting the additions by ld. CIT(A) andassessee is challenging confirming thereopening the assessment and addition onaccount of applying n.p. rate of 10.5% andaddition made in the name of Sh. S.K.Upadhyay at Rs.3,25,000/-. 14.1Once an assessment has beencompleted and the same was subjectmatter of appeal, therefore, in ourconsidered view on the same issuereassessment cannot be framed afterissuing notice u/s 148. Notice u/s 143(2)was not issued in time, therefore, theassessment was annulled and this action ofthe ld. CIT(A) has been accepted by thedepartment as no second appeal has beenpreferred against the order of ld. CIT(A).Now taking a recourse of reopening of theassessment cannot be permitted either inthe eyes of law or in the facts of thepresent case. Language of provisions ofSection 147 which provides:- “If the AO has reason to believe that anyincome chargeable to tax has escaped assessment for any assessment year, hemay, subject to provisions of Section 148to 153, assess or reassess such incomeand also any other income chargeable totax which has escaped assessment andwhich comes to his notice subsequently inthe course of proceedings under thissection or recompute the loss or thedepreciation allowance or any otherallowance, as the case may be, for theassessment year concerned.” It has been further provided that noassessment completed u/s 143(3) can bereopened after expiry of four years fromthe end of the relevant assessment yearunless any such income has escapedassessment by reason of failure on the partof the assessee to make a return u/s139(1). It is further provided that AO mayassess or reassess such income other thanincome involving matters which are subjectmatter of any appeal, reference or revisionwhich is chargeable to tax and has escapedassessment. After analyzing the provisionsof section 147, we are of the view thatthere was no material with the AO to holdany income has escaped assessment.Original return was filed u/s 139(1) whichwas subject matter of scrutiny assessmentand assessment u/s 143(3) wascompleted. Huge additions were made,they were challenged before ld. CIT(A) andon legal point it was found that theassessment completed by issuing noticeu/s 143(2) issued was barred by limitation.Since, the first assessment was subjectmatter of appeal before appellateauthority, therefore, on the same issuewhen it was found that assessment hasbeen annulled it cannot be a subjectmatter of reopening of the assessment.Thee must be some fresh material or newinformation which authorizes the AO toissue notice u/s 148. There are so manycases when return had been filed by therespective assessee has been acepted u/s143(1) on the same material. No notice u/s148 can be issued as held by variouscourts. There must be reason to believeand there must be some material beforeAO to hold that any part of income hasescaped assessment. 15. In the present case there was no freshmaterial at all. The material which wasavailable before the AO was only originalassessment order which was annulled.Once an assessment has been annulledthen department cannot adopt a recourseto corret their mistake committed originallynot issuing notice u/s 143(2) in time. 23. Again such facts are not in the case inhand as the reason were recorded on thebasis of annulled assessment only.Therefore, the ratio of this decision is alsonot applicable on the facts of the presentcase. 24. Few more cases on which reliance hasbeen placed by ld. D/R i.e. in case ofRaymond Woollen Mills Ltd. Vs. ITO 236ITR 34 (SC), Claggat Brachi Co. Ltd. Vs.CIT 177 ITR 409 (SC) and Kalyan Mavjiand Co. Vs. CIT 102 ITR 287 (SC). In allthese cases certain information wasreceivedduringtheassessmentproceedings and, therefore, notice u/s 148was issued and held as valid. However, inthe present case no such facts are involvedas no information was received during theassessment proceedings. We have alsoseen various other case laws on whichreliance has been placed by ld. D/R andfound that these cases are alsodistinguishable. 25. In view of the above facts andcircumstances and in view of the directdecision of Mumbai Bench of the Tribunal inthe case of Babu Lal Lath (supra), we holdthat reassessment completed was ab initiovoid and liable to be annulled. Accordinglythe same is annulled.” 6.We have heard both the sides. 7.Before proceeding with the matter, it will not be out of placeto mention that the judgment which sought to be relied upon bythe tribunal in the case of Babulal Lath (supra) has not beendiluted by any other court. 8.Apart from that tribunal while considering the matter hasgiven reason in para no.23-24, after taking into consideration, theSupreme Court decision in Raymond Woolen Mills Ltd. Vs. ITO,236 ITR 34 (SC), Claggat Brachi Co. Ltd. Vs. CIT 177 ITR 409(SC) and Kalyan Mavji & Co. Vs. CIT 102 ITR 287 (SC) which wasrelied upon by the Mumbai Tribunal in Babulal Lath (supra). 9.In that view of the matter, we are of the considered opinionthe tribunal has rightly heldthat the matter of re-assessment u/s147 was done on the basis of material found during surveysubsequent to assessment on 18.3.03. Therefore, we are of theopinion that tribunal rightly decided the issue in favour of theassessee and first issue is required to be answered in favour of theassessee. With regard to second issue in view of finding on issueno.1, this issue is also answered in favour of the assessee. 10.We make it clear that the order of tribunal is not reversedtherefore, if it is taken that the order is reversed, it will be openfor the department to make appropriate application forreconsideration. 11.The appeal accordingly stands dismissed. (INDERJEET SINGH),J. (K.S. JHAVERI),J. Brijesh 35.