Ita Nos.146 & 1510/2009 v. Commissioner Of Income Tax Reported In 170 Itr

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE B.P.RAY FRIDAY, THE 12TH NOVEMBER 2010 / 21ST KARTHIKA 1932 ITA.No. 146 of 2009() --------------------- ITA.14/COCH/2002 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT ---------------------------------------- THE COMMISSIONER OF INCOME-TAX, THIRUVANANTHAPURAM. BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX MR.P.K.R.MENON, SC FOR INCOME TAX DEPARTMENT RESPONDENT(S): APPELLANT ------------------------ M/S.LEKSHMI TRADERS, ABKARI CONTRACTORS, SASTHAMCOTTAH, KOLLAM. ADV. SRI.P.BALAKRISHNAN (E) THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 12/11/2010, ALONG WITH ITA NO. 1510 OF 2009 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.R. C.N.RAMACHANDRAN NAIR & BHABANI PRASAD RAY, JJ. ---------------------------------- ITA Nos.146 & 1510 of 2009 --------------------------------- Dated, this the 12[th] day of November, 2010 J U D G M E N T Ramachandran Nair, J. The question raised in these connected appeals filed by the Revenue is whether the Tribunal was justified in cancellingthe assessment made on the respondent assessee underSection 158 BC read with Section 158BD for the block periodcommencing from 01/04/1988 to 23/02/1999 for the reasonthat notice of assessment issued was defective or invalid. 2.We have heard Shri.P.K.R.Menon, learned seniorcounsel appearing for the Revenue and Shri.P.Balakrishnanlearned counsel appearing for the respondent assessee. We have heard Shri.P.K.R.Menon, learned senior 3.The facts leading to the controversy are as follows:-The respondent assessee, a partnership firm, was engaged inliquor business. However, since abkari licence, with which thebusiness was carried on by the firm, was issued in the name of ITA Nos.146 & 1510/2009 one of the partners, the firm was assessed as an AOP by virtueof two Full Bench decisions of this Court. Consequently, blockassessment made after search was on the respondentassessee. Against assessment as an Association of Persons(AOP), there is no dispute on the status assigned to theassessee by the Assessing Officer. However, the assessmentwas made under Section 158 BC read with Section 158 BDbased on the evidence gathered during the search conductedin the premises of one Mr.Prasad, a partner of the firm, inother words a member of the AOP. The search in the premisesof Mr.Prasad yielded materials about the income of therespondent assessee, which is an AOP, in which the searchedperson is a member. Therefore, Annexure D notice producedin ITA No.146/2009 was issued to the respondent assesseeunder Section 158 BD of the Income Tax Act. Pursuant to thenotice, the assessee filed return declaring an undisclosedincome of Rs.5,30,000/-. After verifying the return andevidence, the Assessing Officer issued pre-assessment notice ITA Nos.146 & 1510/2009 ITA Nos.146 & 1510/2009 under Section 158 BC read with Section 158 BD and completedthe assessment in the name of the respondent assessee underthe above provisions. The total income assessed was aboveRs. 13 crores. The assessee filed appeal before the CIT(Appeals) without challenging the validity of the assessmentbut by contesting the assessment on merits. The CIT(Appeals) granted a quantum relief by reducing the incomeassessed by over Rs.2 crores. The assessee as well as theDepartment filed separate appeals against the order of the CIT(Appeals). In the ground of appeal filed before the Tribunalalso, the assessee did not have a case that the assessment isinvalid on account of issue of notice allegedly under a wrongsection. However the assessee raised an additional ground inthe appeal before the Tribunal contending that Annexure Dnotice is invalid, and so much so assessment made based onthe same is also invalid. The Tribunal, by mainly relying onthe Division Bench judgment of this Court in P.N.Sasikumar &Others v. Commissioner of Income Tax reported in 170 ITR ITA Nos.146 & 1510/2009 80, cancelled the assessment for the reason that Annexure D notice was issued under Section 158 BD and not under“Section 158 BC read with Section 158 BD”, and against thisorder of the Tribunal, separate appeals were filed by theRevenue raising the question as to whether the Tribunal isright in holding that Annexure D notice is invalid andconsequently the assessment also is invalid. 4.Admittedly search was made in the premises of oneMr.Prakash, who is one of the partners and one of themembers of the respondent AOP. Materials and evidencecollected during the search, proved receipt of income by therespondent AOP from the abkari business carried on by themduring the block period. Consequently Annexure D notice wasissued to the respondent assessee under Section 158 BD ofthe Income Tax Act. Since validity of this notice is the crux ofthe issue in these appeals, we have thoroughly examined thecontents of the said notice. What is seen in Annexure D noticeis that it is a notice printed requiring the assessee to file ITA Nos.146 & 1510/2009 return in form 2B for the purpose of block assessment underSection 158BC of the Act. In fact, while issuing the printednotice, the Officer has corrected Section 158BC to Section158BD both in the heading and in the operative portion, butthe return called for is in Form 2B, which is the return forblock period for assessment under Section 158BC. 5.The question to be considered is whether the noticesent under Section 158BD is invalid for the reason that theAssessing Officer has not separately mentioned in the saidnotice that it is issued under Section 158BC also. TheTribunal's finding is that if the notice was issued “underSection 158BD read with Section 158BC”, the assessmentwould have been valid. In this context, we have to examinethe effect of the notice sent by the Assessing Officer bycorrecting in the printed form Section 158BC to Section158BD. For this purpose we have to examine the scope ofblock assessment under Sections 158BC and 158BD. Section158BD authorises the Department to assess a person other ITA Nos.146 & 1510/2009 ITA Nos.146 & 1510/2009 than the searched person based on materials recovered duringsearch. In this case search was made in the premises of oneMr.Prasad, who is one of the partners and one of the membersof the respondent AOP. When evidence was recovered aboutthe undisclosed income earned by the respondent assesseeduring the course of search in the premises of one of themembers of the AOP, assessment has to be made onrespondent under Section 158BD read with Section 158BC.The assessee also does not dispute this position. But the onlyquestion raised is whether the notice issued by theDepartment based on which the block assessment wascompleted is valid or not. What we find from Section 158BD isthat no independent notice is contemplated under the saidsection because it only gives jurisdiction to the AssessingOfficer to assess a person other than the searched personbased on materials gathered during search. What is stated inSection 158 BD is that when any evidence is collected aboutincome earned by a person other than the person searched ITA Nos.146 & 1510/2009 under Section 132, the Officer who conducted the search shallhand over those materials and evidence to the AssessingOfficer having jurisdiction over such other person to beproceeded for assessment, and once the materials are handedover, the Assessing Officer having jurisdiction over the personto be assessed should issue notice and make assessmentunder Section 158BC. In other words, the procedure forassessment of a person other than the searched person underSection 158BD is the same procedure contained in Section158BC. Since no notice is prescribed under Section 158BD,what is required is to issue an intimation about the initiationof proceedings under Section 158BD by the Officer, and thento call for return in form 2B prescribed under Rule 12(1)(a) forassessment under Section 158BC of the Act. In this case,Annexure D notice clearly shows that the jurisdiction theAssessing Officer for initiation of proceedings for assessmentis by virtue of powers under Section 158BD, and the returncalled under the said notice is the return in Form 2B, which is ITA Nos.146 & 1510/2009 the return required to be filed by the assessee for assessmentunder Section 158BC. While the learned counsel for theassessee specifically referred to Section 282(2)(c) andcontended that there is failure in serving notice as mentionedabove, learned senior counsel for the Revenue relied onSection 292B and contended that non-mentioning of Section158BC along with Section 158 BD in Annexure D notice will notinvalidate the notice based on which the assessment wascompleted. Sections 282(2)(c) and 292B are extractedhereunder:- “Section 282.Service of notice generally:-(1)A notice orrequisition under this Act may be served on the person thereinnamed either by post or as if it were a summons issued by a courtunder the Code of Civil Procedure, 1908 (5 of 1908).(2)Any such notice or requisition may be addressed - ----- ----- ----- (c)in the case of any other association or body of individuals,to the principal officer or any member thereof;” “Section 292B :No return of income, assessment, notice,summons or other proceeding, furnished or made or issued ortaken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall beinvalid or shall be deemed to be invalid merely by reason of anymistake, defect or omission in such return of income, assessment,notice, summons or other proceeding if such return of income,assessment, notice, summons or other proceeding is in substanceand effect in conformity with or according to the intent andpurpose of this Act.” ----- ----- ----- (c)in the case of any other association or body of individuals,to the principal officer or any member thereof;” “Section 292B :No return of income, assessment, notice,summons or other proceeding, furnished or made or issued ortaken or purported to have been furnished or made or issued or taken in pursuance of any of the provisions of this Act shall beinvalid or shall be deemed to be invalid merely by reason of anymistake, defect or omission in such return of income, assessment,notice, summons or other proceeding if such return of income,assessment, notice, summons or other proceeding is in substanceand effect in conformity with or according to the intent andpurpose of this Act.” 6.What is clear from the above provisions is thatnotice should be issued in the name of the assessee proposedto be assessed and in the case of an AOP, to the PrincipalOfficer or any member thereof and serve notice on suchperson to represent the AOP. In this case, admittedly, noticewas received by the respondent assessee, and one of themembers of the AOP filed return pursuant to the notice, inform 2B on behalf of the AOP. In other words, when theassessee admits receipt of notice and files it's proper return inthe prescribed form in terms of the notice, we do not thinkthat the assessee is entitled to contend that the notice is notserved in accordance with the procedure prescribed under theabove Sections. In our view, proof of the detailed procedure What is clear from the above provisions is that ITA Nos.146 & 1510/2009 adopted for service of notice under sub section (2) of Section282 is required to be enquired into only when the assesseecomplains non-receipt of notice. In other words, when noticeissued is accepted by the assessee and return is filed in termsof the notice, the assessee cannot contend that there is noservice of notice in terms of the Section. Besides the above,what we find is that Annexure D notice is a notice prescribedunder Rule 12(1)(a) of the Rules and in the said notice what iscalled for is return in the prescribed format i.e. in Form 2B,which is for making block assessment under Section 158BC.So much so, even though the Assessing Officer has correctedSection “158BC” to Section “158BD”, the contents of the noticesatisfy the requirement of a notice under Section 158BC aswell. Therefore, in our view, the notice served on the assesseehas to be necessarily taken as a notice issued under Section158BC read with Section 158BD, and not an independentnotice under Section 158BD as held by the Tribunal. Asalready found by us the assessee rightly understood the notice ITA Nos.146 & 1510/2009 as one issued under Section 158BD read with Section 158BCand in fact the assessee correctly responded by filing return inForm 2B. The Tribunal misdirected themselves to reach thewrong conclusion, because they have not cared to go throughthe contents of the notice and to find out under what provisionthe notice is issued. So much so, we hold that the finding ofthe Tribunal that the notice is one issued under Section 158BDalone is incorrect and unsustainable. On facts it is furtherfound that after the receipt of return, the Assessing Officerissued a pre-assessment notice specifically mentioning thatthe said notice for assessment is issued under Section 158BCread with Section 158BD, and after considering the assessee'sreply, assessment also was completed under Section 158 BCread with Section 158BD. Further, the very purpose of theprovisions made in Section 292B is to ensure that defects orminor omissions will not invalidate the return of income filedunder the Act for assessment or other proceedings completedunder the provisions of the Act. Strangely the Tribunal did not ITA Nos.146 & 1510/2009 consider relevance of Section 292B, but allowed the appeal bymerely following the decision of the Division Bench of thisCourt referred to above. ITA Nos.146 & 1510/2009 consider relevance of Section 292B, but allowed the appeal bymerely following the decision of the Division Bench of thisCourt referred to above. 7.On going through the Division Bench judgmentreferred to above, we find that the case decided by this Courtwas one, where after serving notice on an individual underSection 148, assessment is made on an AOP. The casedecided was not a block assessment. However, in this case,we have found that Annexure D notice was issued underSection 158 BC because what is called for is return in Form 2B,which is called for only for the purpose of making blockassessment under Section 158BC, and Section 158 BD is alsomentioned in the notice. It is nothing but a combined noticeissued under Section 158 BC read with Section 158 BD and thefindings of the Tribunal to the contrary is absolutelyuntenable. In our view, this ground raised by the assesseeitself is an after thought because it was raised in the first timeas an additional ground in the second appeal stage. We, ITA Nos.146 & 1510/2009 -13- therefore, answer the question referred in favour of theRevenue and against the assessee. Therefore, these appeals are allowed vacating the orders of the Tribunal and by restoring both the appeals filed by theassessee and the Department to the Tribunal for fresh decisionon merits, after hearing the parties. (C.N.RAMACHANDRAN NAIR, JUDGE) (BHABANI PRASAD RAY, JUDGE) jg