Ita/56/2017 Of K.v.abdul Azeez v. Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HONOURABLE MR.JUSTICE K.VINOD CHANDRAN &THE HONOURABLE MR. JUSTICE ASHOK MENON MONDAY, THE 18TH DAY OF DECEMBER 2017/27TH AGRAHAYANA, 1939 ITA.No. 56 of 2017 () ---------------------- AGAINST THE ORDER IN ITA 432/COCH/2015 (AY 2000-01) ofI.T.A.TRIBUNAL,COCHIN BENCH DATED 10-11-2016 APPELLANT: ---------- K.V.ABDUL AZEEZ 6C, BELAIR APARTMENTS, PANAMPILLY NAGAR, KOCHI - 682 036. BY ADVS.SRI.V.V.ASOKAN (SR.) SRI.K.I.MAYANKUTTY MATHER SRI.R.JAIKRISHNA RESPONDENTS: ----------- 1. COMMISSIONER OF INCOME TAX CENTRAL, KOCHI - 682 015. CENTRAL, KOCHI - 682 015. 2. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 2(1), I.S PRESS ROAD, KOCHI - 682 018. CIRCLE 2(1), I.S PRESS ROAD, KOCHI - 682 018. 3. ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 1(1), I.S PRESS ROAD, KOCHI - 682 018. NON CORPORATE CIRCLE 1(1), I.S PRESS ROAD, KOCHI - 682 018. R1-R3 BY ADV. SRI.P.K.RAVINDRANATHA MENON (SR.) R1-R3 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS INCOME TAX APPEAL HAVING COME UP FOR ADMISSION ON 18-12-2017, ALONG WITH ITA. 57/2017, ITA. 58/2017, ITA. 59/2017, ITA. 60/2017, ITA. 61/2017, ITA. 62/2017, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: APPENDIX PETITIONER'S ANNEXURES A:TRUE COPY OF THE ASSESSMENT ORDER (2000-01) B:TRUE COPY OF THE SECTION 263 ORDER PASSED BY THE COMMISSIONER OF INCOME TAX INCOME TAX C:TRUE COPY OF THE SECTION 263 ORDER PASSED BY THE COMMISSIONER OF INCOME TAX INCOME TAX D:TRUE COPY OF THE SECTION 263 ORDER PASSED BY THE COMMISSIONER OF INCOME TAXINCOME TAX E:TRUE COPY OF THE ORDER PASSED BY THE ASSESSING OFFICER (2000-01) F:TRUE COPY OF THE ASSESSMENT ORDER COMPLETED IN THE NAME OF SKYLINEBUILDERS FOR AY 2000-2001BUILDERS FOR AY 2000-2001 G:TRUE COPY OF THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS), ERNAKULAM(APPEALS), ERNAKULAM H:TRUE COPY OF THE ORDER OF THE TRIBUNAL //TRUE COPY// P.A. TO JUDGE K. VINOD CHANDRAN & ASHOK MENON, JJ. ------------------------------------------ I.T.A. Nos. 56, 57, 58, 59, 60, 61 and 62 of 2017------------------------------------------ Dated: 18[th] December, 2017 J U D G M E N T K.Vinod Chandran.J, The appellant, common in all the appeals, isconcerned with the assessment years 2000-2001 to2006-2007. The records reveal an assessment havingbeen completed under Section 153C of the Income TaxAct, 1961 ('Act' for short), read with Section 153Bpursuant to a search conducted in another's premises.The assessment was suo motu revised under Section263 and remanded for fresh consideration to theAssessing Officer (A.O). 2.The assessee has raised questions of lawfrom the order; on the question of limitation forcompletion of assessment, on a remand made underSection 263 of the Act. At the time of hearing an -2- additional question was raised, of satisfaction of theA.O. being necessitated under Section 153C. Thoughthe additional question is not raised in the instantappeals, we are inclined to consider it too, for, it strikesat the very root of the matter, being an essentialrequirement to initiate and proceed with theassessment; in the absence of which the proceedingsstand fatally vitiated. We are re-framing the questionsof law as follows: (i)Ought not the Tribunal have found that theA.O should have completed the fresh assessment,on a remand under Section 263, within the periodof limitation, as provided under Section 153B of theAct? (ii)Whether on a remand made under Section 263the limitation provided under Section 153B wouldstand automatically extended, and would not thatdo violence to the specific period of limitationprovided in the Statute? (i)Ought not the Tribunal have found that theA.O should have completed the fresh assessment,on a remand under Section 263, within the periodof limitation, as provided under Section 153B of theAct? (ii)Whether on a remand made under Section 263the limitation provided under Section 153B wouldstand automatically extended, and would not thatdo violence to the specific period of limitationprovided in the Statute? (iii) Whether it was proper for the Commissionerto have remanded the matter for fresh assessment,when the time for assessment under Section153Bstood expired; especially when the Commissionerhimself had the power to make a modification orenhancement in the assessment, within two yearsfrom the date of the initial order under Section 263of the Act? (iv) Whether the A.O was justified in proceedingwith the matter for assessment under Section 153Cwithout entering a satisfaction as to theassessment to be made on the other person, asdefined under Section 153C of the Act? 3.We need not look into the details of theassessment made, since the questions raised are purelyon law, touching upon limitation and satisfaction of the A.O. The original order of assessment was on27.12.2007 and for convenience we refer to I.T.A.No.56/2017, wherein the order is produced as Annexure A. The Commissioner, by orders dated 12.03.2010,revised the assessments for the six year period, i.e.,2000-2001 to 2005-2006 by Annexure -B, and for theyear 2006-2007 by Annexure D; both under Section 263of the Act. A fresh assessment was made by the AO forall the years, identical so to say, by Annexure E dated30.12.2010. The said order goes beyond the period oflimitation, is the specific contention raised. 4.The learned Counsel for the appellantmakes pointed reference to Section 153B of the Act,wherein limitation is provided with respect toassessments to be completed under Section 153A,which also applies to the assessments under Section153C. By the first proviso to sub section (1) of Section153B, from the 1[st] day of April, 2004, the second provisosubstitutes the two year period with a 21 month period. Hence, the limitation for completion of assessmentunder Section 153C, as available under Section 153B, isa period of 21 months from the end of the financialyear in which the last of the authorisation, for searchunder Section 132 or for requisition under Section132A, was executed. Insofar as the 'other person',referred to in Section 153C, the first proviso makes afurther extension of the period of limitation to run oneyear from the date on which the books of accounts ordocuments or assets seized or requisitions, are handedover under Section 153C to the A.O of that 'otherperson'; whichever is later. 5.In the instant case, the search wasconducted on 24.01.2006. Though the specific date ofauthorisation is not available, it would definitely be inthe financial year 2005-2006. Hence, 21 months isavailable from the end of the financial year, i.e., from -6- 31.03.2006, till 31.12.2007. With respect to 'otherperson' there is a further period available, but, thatneed not be looked into, since, admittedly, the orderspassed for six years and the one for the seventh year,are on 27.12.2007, within the period of limitationprovided. 6.The Commissioner under Section 263 ofthe Act suo motu revised the assessments, after servingnotice on the assessee, by order dated 12.03.2010.Under Section 263 the limitation provided, for revisionof orders prejudicial to revenue, by sub section (2), is aperiod of two years from the end of the financial year inwhich the order sought to be revised was passed. Theassessment order having been passed on 27.12.2007,the limitation commences from 31.03.2008 and expiresonly on 31.03.2010. The Commissioner passed theorder within the limitation period, on 12.03.2010. Now -7- 6.The Commissioner under Section 263 ofthe Act suo motu revised the assessments, after servingnotice on the assessee, by order dated 12.03.2010.Under Section 263 the limitation provided, for revisionof orders prejudicial to revenue, by sub section (2), is aperiod of two years from the end of the financial year inwhich the order sought to be revised was passed. Theassessment order having been passed on 27.12.2007,the limitation commences from 31.03.2008 and expiresonly on 31.03.2010. The Commissioner passed theorder within the limitation period, on 12.03.2010. Now -7- the controversy arises as to whether the freshassessment completed for all the years on 30.12.2010 isbarred by limitation or not. If the period under Section153B is taken definitely, limitation bars the proceeding. 7.The learned Counsel for the appellantcontends that the Commissioner, under Section 263,has the power to either modify or enhance theassessment or cancel the assessment and direct a freshassessment. The limitation for an assessment underSection 153C, as regulated by Section 153B, is 21months from the date of authorisation. In the case of'other person' it can be one year from the date ofhanding over of materials to the A.O. On a remandmade under Section 263, the fresh assessment wouldhave to be completed within that period, is theargument. The Commissioner ought to have been aware of the provisions, which bars an assessment bythe A.O, beyond the limitation period, as provided underSection 153B of the Act. The 21 month period, from theend of the financial year in which the search wasauthorised and the one year period, even taken fromthe assessment order, had expired by the time an orderwas passed under Section 263. The Commissioner nothaving been conferred with the power to extend theperiod of limitation, ought not to have remanded thematter for fresh assessment. The Commissioner couldhave modified or enhanced the assessment, but, couldnot have remanded the matter, asserts the learnedCounsel. On remand, if limitation has already expired,then, the necessary consequence would be that the A.Owould be disabled from going ahead with theassessment. It is further contended that, even onremand, the AO has to enter a satisfaction as to the fresh assessment being made. 8.The learned Counsel would also placereliance on the decisions reported in Superintendentof Taxes v. Onkarmal Nathmal Trust - AIR 1975 SC2065, Manish Maheswari v. Asstt. Commissioner ofIncome Tax -2007(3) SC 794 and two un-reporteddecisions: one of the Gujarat High Court and another ofa Division Bench of this Court, respectively Tax AppealNo.1254/2014and connected matters dated09.03.2015 and I.T.A. No.419/2009 dated 20.10.2017.9.The learned Counsel for the appellant wouldalso specifically refer to Section 153(2A) of the Act,which, by a non obstante clause, provides extension ofperiod of limitation with respect to instances wherein afresh assessment is necessitated in pursuance of anorder under Sections 250, 254, 263 or 264. Section 150also provides for an assessment, re-assessment or re-computation in consequence of or to give effect to anorder passed by any authority in any proceeding underthis Act, by way of appeal, reference or revision, at anytime, subject only to sub-section (2). There was nodifficulty in making such a provision, extending thelimitation under Section 153B, in the event of a remandunder Section 263. The same having not beenprovided, there is no ground for permitting theassessments beyond the limitation period as providedunder Section 153B. re-computation in consequence of or to give effect to anorder passed by any authority in any proceeding underthis Act, by way of appeal, reference or revision, at anytime, subject only to sub-section (2). There was nodifficulty in making such a provision, extending thelimitation under Section 153B, in the event of a remandunder Section 263. The same having not beenprovided, there is no ground for permitting theassessments beyond the limitation period as providedunder Section 153B. 10. The learned Senior Counsel, Governmentof India (Taxes), submits that since there is nolimitation provided for completion of an assessment, ona remand made under Section 263 of the Act, therecould be no specific time indicated, and then, it wouldhave to be completed only within a reasonable period oftime. It is also contended that the appellant had waived his right to rely on the ground of limitation, since heconceded to the fresh assessment at the hands of theA.O; before whom, he never raised the specificobjection. The learned Senior Counsel would rely onDirector of Inspection of Income-Tax (Investigation) v.Pooran Mall & Sons - (1974)96 ITR 390 to contend thatwhen an assessment order is revised suo motu within twoyears from its date, and there is specific power soconferred on the Commissioner to remand theassessment, it cannot be said that the limitation has tobe related back to that available for initial, originalassessment. Reliance is placed on a Division Benchdecision of this Court inIswara Bhat Vs.Commissioner of Agricultural Income-Tax - (1993)200 ITR 238 to contend that in the absence of a timelimit provided, the only rigour would be insofar as theinitiation and completion should be within a reasonable time. 11. We have given anxious consideration tothe issues raised to answer the questions of law asframed by us. 12. Section 153B of the Act provides for limitation as noticed herein above. Undisputed is thefact that the original order has been passed within thelimitation period, i.e., on 27.12.2007, within 21 monthsfrom the end of the financial year in which the searchwas conducted. The period for completion ofassessment, as per Section 153B, going by the facts ofthe instant case, would have been over on 31.12.2007.When the Commissioner passed an order under Section263, remanding it to the A.O, for fresh assessment, theperiod of limitation under Section 153B was also over. Ifwe accept the argument raised by the appellant thatlimitation has to be under Section 153B itself, even for fresh assessment, the power of the Commissioner tomake a remand, would be curtailed and ineffectivealways rendering the provision otiose. 13. The limitation for assessment, on search and seizure commences from the last date of thefinancial year, in which the authorisation for search isexecuted or in the case of 'other person' the materialsseized are handed over to the A.O; respectivelyextending upto 21 months and one year respectively,whichever is later. The limitation under Section 263 istwo years from the date of the original assessment.Hence, invariably the order passed under Section 263would be hit by limitation under Section 153B. 14. The legislature having specificallyconferred the power on the Commissioner to revise anorder suo motu, within two years from the date of theassessment order, it cannot be said that when such a remand is made, the fresh assessment also has to becompleted within the limitation period, as provided forthe original assessment. This is especially so when theprovision granting suo motu power of revision conferspower to make a remand for fresh assessment, inaddition to the power to make modifications orenhancement. If the argument is accepted, then, therecould be no remand and it can only be understood asthe legislature having conferred a power, which isineffective and unworkable; which cannot be. 15. Then, the question would arise as to what 14. The legislature having specificallyconferred the power on the Commissioner to revise anorder suo motu, within two years from the date of theassessment order, it cannot be said that when such a remand is made, the fresh assessment also has to becompleted within the limitation period, as provided forthe original assessment. This is especially so when theprovision granting suo motu power of revision conferspower to make a remand for fresh assessment, inaddition to the power to make modifications orenhancement. If the argument is accepted, then, therecould be no remand and it can only be understood asthe legislature having conferred a power, which isineffective and unworkable; which cannot be. 15. Then, the question would arise as to what should be the limitation under Section 263 of the Act.Under Section 263, as was noticed, the limitationprovided for revision of orders prejudicial to revenue, isa period of two years from the end of the financial yearin which the order sought to be revised was passed.The revision could be made by the Commissioner ITA Nos.56, 57, 58, 59, 60, 61 and 62/2017 enhancing or modifying the assessment or canceling theassessment and directing a fresh assessment. It is truethat by Section 150 a carte blanche is granted to theA.O insofar as proceeding at any time to complete anassessment, re-assessment or re-computation inconsequence or to give effect to an order passed by anauthority in a proceedings under this Act. Sub section(2A) of Section 153 provides for a limitation of one yearto comply with an order passed under Section 263. Ifsuch a provision has not been made under Section153B, then, it cannot be said that the assessment onremand being ordered by the Commissioner has to becompleted within a period provided under Section 153Bor that provided under Section 263. The limitationprovided under Section 153B is for completing theassessment originally proposed. When a freshassessment is directed, if there is no limitation ITA Nos.56, 57, 58, 59, 60, 61 and 62/2017 -16- provided, then it has to be completed within areasonable time. 16. Onkarmal Nathmal Trust is pressedinto service to refute the argument of the departmentthat, in submitting to the fresh assessment at the handsof the A.O the appellant waived the ground of limitation. Tax Appeal No.1254/2014 also was a case in whichthe notice issued under Section 158BC did not containthe specific name of the various assessees who werebefore Court. The ground of lack of jurisdiction raisedas an additional ground, was found to be permissiblethough not raised before the lower authorities. Theassessments were also set aside on that ground.Manish Maheswari has been relied on, as a decisionrendered on identical facts, to urge the necessity of theA.O' s satisfaction in proceeding with an assessment onan 'other person'. The A.O in proceeding with an assessment against a third party (other person) on thebasis of documents, accounts or assets seized inconnection with a search and seizure in the premises ofanother person should be satisfied that they have abearing on the determination of total income of that'other person'. Therein, the satisfaction that thedocuments seized from the residence of the Directors,had any bearing on the income of the Company, the'other person', was not entered and the seized materialswere also not transferred to the A.O of the Company. 17. Even we are not agreeable to that line ofdefence set up by the Revenue, since the question oflimitation is a mixed one of law and facts and theassessee could raise it at any stage. There can also beno dispute that in proceeding to assess an 'otherperson' the A.O of that 'other person' has to entersatisfaction. Hence, elaboration of the principle of -18- 17. Even we are not agreeable to that line ofdefence set up by the Revenue, since the question oflimitation is a mixed one of law and facts and theassessee could raise it at any stage. There can also beno dispute that in proceeding to assess an 'otherperson' the A.O of that 'other person' has to entersatisfaction. Hence, elaboration of the principle of -18- waiver, as dilated upon by the Honble Supreme Court,in the cited decision, would not be necessary. Thegrounds raised on the jurisdiction of the A.O to proceedfor fresh assessment are two fold and they are the baron limitation and the satisfaction having not beenentered into by the A.O, which is an essentialrequirement. If the grounds are valid, we are of theopinion that, the mere fact that it was not raised beforethe A.O at the first instance cannot preclude theassessee from raising it in appeal or even before thisCourt. As has been held inTax AppealNo.1254/2014,the distinction is between an'irregularity' and a 'nullity'. If the prerequisite forproceeding is the 'satisfaction', then, proceedingwithout entering a satisfaction would be a nullity.Likewise, if the order is passed beyond the limitationprovided, then, again, it cannot be sustained. 18. In the present case there was an originalassessment made and the Commissioner exercisingpower of suo motu revision, cancelled the assessmentand remanded it for fresh assessment. Section 153Cspeaks of a satisfaction, which has to be entered into atthe first point, when, on recovery of materials on asearch conducted in a partnership firm's business, the'other person', the appellant, was issued with notice.There is no requirement for a further satisfaction for afresh assessment on a remand made under Section 263.The A.O, on the materials received, at the initial stage,had entered his satisfaction and issued notice forassessment based on the recoveries made from anotherperson's premises. 19. The assessee filed a return, as originallyreturned, which was accepted. The assessment stoodcompleted without revising the original income returned by the assessee even prior to the search.Obviously, the A.O was then of the opinion that thedocuments seized are not material or relevant to theassessee. This opinion was revised by theCommissioner under Section 263, as prejudicial torevenue. When there is thus a remand made underSection 263, if the A.O is required to again entersatisfaction, it would result in the A.O sitting in appealover the order of the Commissioner. Here, we have tonotice that the assessee did not challenge the order ofremand made under Section 263, nor are weconsidering its sustainability. 20. On the question of limitation, Section 263 confers power on the Commissioner to revise orders,which are found to be prejudicial to the revenue. Whensuch an order is made within the time provided formaking such order, it cannot be said that the limitation under Section 153B has to be resorted to, which wouldbe impossible of compliance. Then, if no furtherextension is provided, either under Section 153B orunder Section 263, for making a fresh assessment onthe assessment being remanded to the AO, it has to betaken that there is no limitation provided. In thatcontext, it would have to be understood, as the statutebeing silent on limitation, in which event, the principlesof reasonableness would have to be imported. Thefresh assessment then has to be completed within areasonable time. We would not make any strait-jacketstipulation as to the reasonable time, which has to bedecided on the facts and circumstances of each case. Inthe present case, suffice it to notice that theCommissioner had passed the order cancelling theassessment and directing a fresh assessment on12.03.2010, within the two year period provided under Section 263 of the Act. The fresh assessment waspassed on 30.12.2010, a little more than nine monthsfrom the order of revision. Considering the fact thatthere was requirement for a fresh notice and a hearing,in making that fresh assessment and that too of sevenyears, we are of the opinion that the fresh assessmentmade under Section 153C is within a reasonable time. 21. I.T.A No. 419 of 2009, was concernedwith Chapter XIVB, Special Procedure For AssessmentOf Search Cases, applicable prior to 2003 (31.05.2003)and Section 251. There pursuant to a search,assessment was completed under Section 158 BC. Onfirst appeal, under Section 251, favouring the assessescontention that the assessment ought to have beenunder Section 158BD, the matter was remanded.Section 251 did not confer the Appellate Authority withany power to remand the matter; which power was -23- earlier available but specifically taken away byamendment. The fresh assessment was beyond theperiod of limitation as provided under Section 158BE.What distinguishes the instant case is the specificpower of remand, in Section 263, evident from thewords: 'cancellation of the assessment and directingfresh assessment'. As is found by us, there is nolimitation provided to carry out the assessment. Thefresh assessment cannot be said to be possible onlywithin the limitation provided under Section 153B,since the power to revise extends to two years whilethat under Section153B is far lesser. The legislaturecannot be said to have conferred a power redundant,ineffective and unworkable. 22. In taking this view we are fortified by thedecision of the Hon'ble Supreme Court in Pooran Mall& Sons. Pursuant to a search under Section 132, as it then existed, an inquiry was conducted under sub-section (5) and a prima facie order passed by theIncome-tax Officer. The order directed retention of theassets seized, for appropriation against the tax dues,which liability could be determined finally, only in aregular assessment. The assessee filed a writ petition,from that order, challenging the constitutional validityof Section 132 and the legality of the search andseizure. Both the grounds were negatived and later inyet another writ petition on grounds of violation ofprinciples of natural justice, on consent, the matter wasrestored to be considered afresh under sub-section (5).The order passed on remand was set aside by the HighCourt on the ground that it was beyond the limitationprovided in sub-section(5). 23. Sub-section (5) of Section 132 providedfor a summary enquiry to estimate the undisclosed income and the probable amount of dues that may ariseand retain the assets seized to the extent of satisfyingsuch dues. This exercise had to be completed within 90days of the seizure. An order so passed could also bechallenged under sub-section (12), within 30 days. Onthe question of limitation as also the effect of a remandmade under Article 226, the Court held so: “Even if the period of time fixed underSection 132(5) is held to be mandatory thatwas satisfied when the first order was made.Thereafter if any direction is given underSection 132(12) or by a court in writproceedings, as in this case, we do not thinkan order made in pursuance of such adirection would be subject to the limitationsprescribed under Section 132(5). Once theorder has been made within ninety days theaggrieved person has got the right toapproach the notified authority underSection 132(11) within thirty days and thatauthority can direct the Income Tax Officerto pass a fresh order. We cannot accept the “Even if the period of time fixed underSection 132(5) is held to be mandatory thatwas satisfied when the first order was made.Thereafter if any direction is given underSection 132(12) or by a court in writproceedings, as in this case, we do not thinkan order made in pursuance of such adirection would be subject to the limitationsprescribed under Section 132(5). Once theorder has been made within ninety days theaggrieved person has got the right toapproach the notified authority underSection 132(11) within thirty days and thatauthority can direct the Income Tax Officerto pass a fresh order. We cannot accept the contention on behalf of the respondents thateven such a fresh order should be passedwithin ninety days. It would make the sub-sections (11) and (12) of Section 132ridiculous and useless. It cannot be said thatwhat the notified authority could directunder Section 132 could not be done by acourt which exercises its powers underArticle 226 of the Constitution. To holdotherwise would make the powers of courtsunder Article 226 wholly ineffective.” The dictum squarely applies here and the argumentraised on limitation on behalf of the assessee fails. Ifwe hold that even a fresh assessment ordered underSection 263 has to be completed within the timeprovided under Section 153B, then, we would renderthe power to remand, useless. 24. The learned Counsel would also refer to the principle as to strict interpretation of taxingstatutes and no interpretation being commended of creating an additional burden on the assessee. It is alsotrite that when two interpretations are possible theCourts would lean in favour of the tax payer and againstthe Revenue. However the reasoning above does notwarrant application of the above principles. We haveread the provisions to come to a definite conclusion andthere is no ambiguity which would enable us to lean infavour of the assessee. 25. On the above reasoning the questions oflaw are answered against the assessee and in favour ofthe revenue, on the aspect of limitation as agitatedbefore this Court in the aforesaid appeals. There is alsono requirement for a 'satisfaction' to be entered onmaking the fresh assessment since it is a continuationof the earlier proceedings. Though the returns filed intandem with the original returns were accepted, theCommissioner revised the same as prejudicial to ITA Nos.56, 57, 58, 59, 60, 61 and 62/2017 -28- revenue and if the A.O is directed to again entersatisfaction, the A.O will be sitting in appeal from the order under Section 263. The appeals stand rejected. No orders as to costs. Sd/-K.VINOD CHANDRAN, JUDGE Sd/-ASHOK MENON,JUDGE jjj 19/12/17