V.dhivakaran v. The Deputy Commissioner Of Income Tax, Central Circle – Ii(3)

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 18.01.2006 CORAM : THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANANDTHE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.386 of 2001 V.Dhivakaran ..AppellantVs The Deputy Commissioner of Income Tax,Central Circle – II(3),No.121, Nungambakkam High Road,Chennai-600 034. ..Respondent Appeal under Sections 260-A of the Income Tax Act,1961 against Income Tax Appellate Tribunal, "C" Bench,Chennai in IT (SS) A No.187/Mds/1998 for the block period1986-87 to 1996-97. PAN/GIR NO. 26717 – D Assessment yearBlcok period Asst. years 1987-88 to 1997-98 up to24.09.1996 date of order 03.12.1998 on the file of theDeputy Commissioner of Income Tax Circle II (3) Chennai –34. For Appellant : Mr.C.Natarajan, Senior Counsel for Mr.N.Inbarajan & Mr.S.Shanmugam P.P.S.JANARTHANA RAJA J. The Appellant Assessee has filed this appeal underSection 260-A of the Income Tax Act against the order ofthe Income Tax Appellate Tribunal, Chennai, 'C' Bench in IT(SS) No.187/Mds/1998 dated 26.02.2001 and the appeal wasadmitted in terms of the following substantial questions oflaw: 1. Is the assessment, along with theorder of the Income Tax AppellateTribunal, liable to be set aside asillegal because no notice under Section158.BC was issued after an order ofhttps://hcservices.ecourts.gov.in/hcservices/transfer by notification dated 13.4.1998of the Commissioner of Income Tax, Trichy which itself took effect onlyfrom 16.4.1998? 2.Is the order of assessment dated3.12.1998barredbylimitation,especially when the Income Tax AppellateTribunal had not found the mandatoryperiod of limitation saved by anythingstated in sub-section (2) of Section158.BE of the Income Tax Act? 3.Should the Income Tax AppellateTribunal ought to have held that theearlier order dated 30.9.1996 underSection 127 of the Act was illegal andvoid, and not merely irregular,especially when it was patently wrong,non-speaking and in violation of rulesof natural justice being open tocollateral attack so that the Revenueitself abandoned the said proceedings,and there was nothing to save anythingdone thereunder? 2.In respect of Question No.3, the counselappearing for the Appellant submitted that he is notpressing the same. The facts lead to the remaining twoquestions of law are as under: (i) The premises of the Appellant was raided underSection 132 of the Act on 02.04.1996 and cash, jewellery,documentation etc. came to be seized. The AssessingOfficer issued a notice under Section 158-BC of the Act on06.12.1996 and the Appellant Assessee on 14.12.1996,received the notice. The Appellant Assessee, however, didnot filed any return, in response to the said notice. TheAssessing Officer proceeded to frame the assessment and inthis process, issued Questionnaire on various dates, whichwere not responded. The Commissioner of Income Tax, TamilNadu V, by his notification in C. No.2040 (4) /96-97 dated09.09.1996 issued a notice to the Appellant Assesseeproposing to transfer the cases under Section 127 of theIncome Tax Act to the Assistant Commissioner of IncomeTax, Central Circle II(6), Madras, while seeking theobjections on or before 20.09.1996. Acknowledging thenotice which was served on 19.09.1996, the AppellantAssessee by letter dated 25.09.1996 objected to thetransfer on grounds of hardship. By proceeding dated30.09.1996, the Commissioner of Income Tax, Tamil Nadu V,Chennai, notified the transfer of the Appellant's case tothe Assistant Commissioner of Income Tax, Central Circle II(6), Madras. On 06.12.1996, a notice under Section 158-BCof the Income Tax Act was issued by the Assistanthttps://hcservices.ecourts.gov.in/hcservices/Commissioner of Income Tax, Central Circle II (6), to theAppellant, calling upon the Appellant to file the returns. (ii) The Appellant filed W.P. No.4782/97 before thisCourt, challenging the order of transfer dated 30.09.1996on which, notice was ordered on 07.04.1997, but no interimorder was passed. On 02.09.1997, the learned Single Judgeof this Court, granted interim stay of further proceedingsin pursuant to the order of transfer of the AppellantAssessee Case in W.M.P. No.8001 of 1997. The High Courtmade the interim stay granted on 02.09.1997 absolute on04.09.1997. Further, on a request made by the SeniorCounsel for the Department, seeking liberty to proceedafresh in terms of Section 127 of the Act, by issue offresh notice and to pass fresh orders, the said liberty wasgiven to the respondent Department to which the AppellantAssessee had no objection. On 23.09.1997, a notice underSection 127 of the Act was issued by the Commissioner ofIncome Tax, Trichy, who has jurisdiction over the AppellantAssessee by virtue of creation of new Commissionerate atTrichy with effect from 11.06.1997 to transfer theproceeding to the jurisdiction of the AssistantCommissioner of Income Tax, Central Circle II(3), Chennaiwhich was objected to. Thereafter, by notificationNo.1/98-99 dated 13.04.1998, the Commissioner of IncomeTax, Trichy passed an order under Section 127 of the Act,transferring the case of the Appellant Assessee from thefile of the Assistant Commissioner of Income Tax,Investigation Circle No.II, Trichy to the AssistantCommissioner of Income Tax, Central Circle II(3), Chennai.The said notification was stated to take effect from16.04.1998. On 06.11.1998, an order was passed in W.P.No.4782/97 wherein the transfer proceeding dated 30.09.1996was dismissed as infructuous in view of the fresh orderpassed on the case. (iii) The Assessing Officer called upon the AppellantAssessee with a questionnaire dated 16.11.1998 on theissues concerning the Block Assessment to submit his replyby 23.11.1998. The Appellant also filed his reply on23.11.1998 conveying his inability to give his submissionson various poser, because the time was too short and raisedpoints of assessment being barred by time. The contentionof the Appellant Assessee being barred by time, was basedon two basic points. First point was that the High Courthad stayed the proceedings initiated by the transferreeOfficer and the Assessing Officer should have completed theassessment by 30.09.1997. The second point was that thesecond Notification was made effective from 16.04.1998 andthe Assessing Officer should have concluded his assessmentwithin 28 days. The Assessing Officer observed that theHigh Court had considered only the stay proceedingsinitiated by him based on the notification issued earlier,but had not quashed the notification. He further observedhttps://hcservices.ecourts.gov.in/hcservices/that the order of High Court staying assessmentproceedings, to the officer from whom the case wastransferred. On the second issue raised, the Assessing Officer observed that the High Court had directed theDepartment to place its report before it after issue offresh notification and on compliance of this direction, theHigh Court had vacated the stay on 06.11.1998. He observedthat from this date of vacating the stay, the AssessingOfficer would get 28 days that expires on 4.12.1998. TheAssessing Officer called upon the Appellant Assessee toplace his submissions to the various points noted by himvide his letter of inquiry dated 24.11.1998, in response towhich the representative of the Appellant Assessee attendedon 27.11.1998 and prayer for inspection of the seizedmaterial and Assessing Officer had granted the permissionto peruse the seized records. The Assessing Officer notedthat on 01.12.1998 a letter from the officer of theChartered Accountant was filed without enclosing theauthority in its favour and accordingly ignored the saidletter. The Assessing Officer accordingly concluded theassessment with reference to provisions of Section 144 ofthe Act and estimated the undisclosed income atRs.2,44,91,270/-. The said order was passed on 03.12.1998under Section 158-BC read with Section 144 of the IncomeTax Act. (iv) Aggrieved by the said order, the AppellantAssessee preferred an appeal against the order of theAssessing Officer before the Income Tax Appellate Tribunalin which, inter alia the following grounds were urged:-1.that the Block Assessment order passed on03.12.1998 was barred by limitation of one year governed bySection 158.BE (1) (a) of the Income Tax Act, not beingextended by Explanation I therein; and2.that there was no proceeding initiated underSection 158.BC of the Act pursuant to the order passed on13.04.1998 and therefore the assessment passed on03.12.1998 was illegal. (v) The Income Tax Appellate Tribunal passed an orderon 26.02.2001, and rejected the grounds as above stating:1)that eventhough the transfer of the case orderedon 13.04.1998 under Section 127 of the Income Tax Act waseffective from 16.4.1998, the earlier proceedings was onlyirregular which was cured and the assessing authority had28 days only in framing the assessment, especially when theasssessing authority at Trichy who had the jurisdictionover the case, could not have proceeded with the assessmentbecause there was an earlier order of transfer dated30.09.1996 under Section 127 of the Act;2)that the conferment of jurisdiction by earlierorders dated 30.09.1996 under Section 127 of the Act wasonly containing a procedural defect of not affordingopportunities to the Appellant, and the High Court had nothttps://hcservices.ecourts.gov.in/hcservices/and perhaps could not have held that the assessingauthority who had initiated the assessment proceedingsearlier to 13.04.1998 had no jurisdiction to proceed further; 3)that the Department could not restart theproceedings even after the notification dated 13.04.1998without the express sanction of the Court, and thereforethe assessing authority could not recommence theproceedings, and immediately the jurisdiction was conferredon 16.04.1998 and 4)that the provision introduced with effect from01.04.1998 would permit the continuation of the proceedingswithout reissue of any notice which indicated the wisdom ofthe law makers as to the necessity or otherwise for freshnotice, which therefore was not required in the case. (vi) In respect of the best judgment addition, theIncome Tax Appellate Tribunal has set aside the assessmentwith a direction to the Assessing Officer to reconsider theentire issue on merits. Aggrieved against the said ordersof the Tribunal, the Appellant Assessee preferred thispresent appeal and raised the above substantial questionsof law. 4)that the provision introduced with effect from01.04.1998 would permit the continuation of the proceedingswithout reissue of any notice which indicated the wisdom ofthe law makers as to the necessity or otherwise for freshnotice, which therefore was not required in the case. (vi) In respect of the best judgment addition, theIncome Tax Appellate Tribunal has set aside the assessmentwith a direction to the Assessing Officer to reconsider theentire issue on merits. Aggrieved against the said ordersof the Tribunal, the Appellant Assessee preferred thispresent appeal and raised the above substantial questionsof law. 3.The counsel for the Appellant contended that theHigh Court of Madras has stayed the assessment proceedingsinitiated by the Assessing Officer to whom the jurisdictionwas given by the notification of September 1996 and this hesubmitted impliedly restored the jurisdiction with theAssessing Officer, who had the jurisdiction based on theterritory aspect. He further submitted that the staygranted by the High Court also indicated that theproceedings till that stage was illegal and it should meanthat the appellant assessee was never served with anynotice under Section 158.BC of the Act. It is also furthersubmitted that the High Court had directed issue of freshnotification by the Department after considering theobjections of the Appellant Assessee to such a transfer ofthe case because it is a requirement of law. The Revenuecomplied with this direction of this Court and had calledthe Appellant Assessee to place his objections and afterconsidering those objections, the notification dated13.04.1998 made effective from 16.04.1998 was issued givingthe jurisdiction to the present Assessing Officer. Furtherhe contended that the necessity of issuing a freshnotification always arose when the direction notificationwas bad in law. He contended that the earlier notificationwas bad in law, and the proceedings that followed suchillegal notification are also bad in law and would have tobe treated as not enforceable in law. The notificationissued in 1996 was found by the High Court, as issued bynot complying with the mandatory requirements of law andtherefore, had called for a fresh notification. Hesubmitted that it is a clear indication that it was onlyafter the issue of the fresh notification that thehttps://hcservices.ecourts.gov.in/hcservices/Assessing Officer has jurisdiction over the case, andtherefore it must be held that the issue of the notification in 1996 and all that followed it, are illegaland deserve to be quashed. He further submitted that theraid was on 24.09.1996 and in accordance with theprovisions of Section 158.BE (1) (a) of the Act, theAssessing Officer would get one year to frame theassessment and in a normal course by 30.09.1997, theAssessing Officer must have made the assessment and despitethe intervention by the High Court, and granting stay on02.09.1997, the time available to frame the assessmentexpired on 30.09.1997. Hence the assessment made on03.12.1998 was beyond time and must be quashed. It wassubmitted that the notification issued in 1996 sufferedfrom basic legal infirmity and after this was redressed, afresh notification become a necessity and this clearlyshows that the Assessing Officer who completed theassessment, got the jurisdiction only from 16.04.1998, bywhich time, the time for framing of the assessment hadalready expired. The grievance of the Appellant Assesseebeing satisfied under law by the Revenue by hearing hisobjections and issuing a fresh notification, the writ filedby the Appellant Assessee had no other purpose and theAppellant Assessee submitted that the writ be treated asinfructuous. He contended that both the notifications,i.e. one issued in September 1996 and in April 1998, couldnot be effective simultenaously and the latter was notissued superceding the one issued in 1996 and by the issueof a subsequent notification, the Revenue must be held ashaving realised that the earlier notification was invalidin the eye of law. Hence, it should be treated as neverissued and further pleaded that proceedings logically fromthis point onwards, the only possible conclusion was thenthe jurisdiction always remained with the Assessing Officerat Trichy and he should have completed the assessment by30.09.1997, which having not done by him, the same shouldbe held that the assessment was barred by time. 4.Further reference also made of the order of stayby the High Court wherein it was observed that it would beopen to the Appellant Assessee to challenge thenotification order afresh and this was in recognition ofthe right of objection against an invalid order of theRevenue. He submitted that the submission of the AppellantAssessee before the High Court that the writ be treated asinfructuous could not be held against him and revived theearlier notification and that this aspect clearly showsthat the earlier notification died by action of law. Thecounsel also placed his alternative arguments on theassumption that the proceedings of Assessing Officer whoconcluded the assessment are proper. He pleaded that underChapter XIV-B of the Act that covers assessment consequentto search, has a mandate in Section 158.BC of the Act andhttps://hcservices.ecourts.gov.in/hcservices/that is, Assessing Officer must issue a notice to theAssessee. He submitted that Assessing Officer got hisjurisdiction on 16.04.1998 but he never issued any notice under Section 158.BC of the Act. He insisted that theassessment framed without issue of the notice, that ismandatory requirement is bad in law and must be quashed andalso further submitted that even on the assumption that theproceedings are treated as continuing, the AssessingOfficer would get only 28 days from 16.04.1998 and thisexpired in May 1998 and viewing from this point also, theconclusion has to be that the assessment was barred bytime. under Section 158.BC of the Act. He insisted that theassessment framed without issue of the notice, that ismandatory requirement is bad in law and must be quashed andalso further submitted that even on the assumption that theproceedings are treated as continuing, the AssessingOfficer would get only 28 days from 16.04.1998 and thisexpired in May 1998 and viewing from this point also, theconclusion has to be that the assessment was barred bytime. 5.The learned counsel for the Revenue submittedthat the issues concerning the assessment being barred bytime had been dealt with by lower authorities are inaccordance with law and he also stated that the orderpassed by the assessing officer was within a time allowedunder the statute and further submitted that the transferof case for the convenience of tax administration is anAdministrative Act only and would not open for questionbefore any Court. He also further submitted that inthis case, the Court had also ruled that the coordinationof investigation is a good ground for such transfer. Healso contended that the Allahabad High Court in HindustanTransport Co. Vs. I.A.C. (1991) 189 326 had held that theallocation of functions is a procedural matter only andhence the strict construction of the section applies onlyto a charging provision and not a machinery provision forwhich he relied on the Apex Court in the case of C.I.T. Vs.National Taj Traders reported in 121 ITR 535 and he alsofurther relied on the decision of the Supreme CourtJudgment reported in Kapurchand Shrimal Vs. C.I.T. (1981),(131 ITR 451) and submitted that the High Court haddirected the issue of a notification after affordingopportunity to the assessee which procedure was overlookedinitially and thereby the notification issued in 1996only, suffered a procedural irregularity. He contendedthat whenever any one pleads for an opportunity, the Courtshad only remanded it for compliance of the said procedurebut never had rendered the earlier action as invalid in theeye of law, but always held it as an irregularity thatcould be corrected. He relied on the Bombay High Courtdecision in C.I.T. Vs. Bharatkumar Modi (2000), (246 ITR693) and on the Kerala High Court decision in C.I.T. Vs.N.Krishnan (1999) (235 ITR 386). He finally submitted thata Court should never be a party to an unfair advantage thatthe assessee tries to gain, because it would result inneutralising the proceedings and he contended that it isthe view of Supreme Court in Grindlays Bank Ltd. Vs. I.T.O.(1980) (122 ITR 55) and he also finally submitted that theprovisions contained in Section 127 (4) of the Act might bean answer to the issue in appeal. Heard the Counsel's contentions on the legal issueshttps://hcservices.ecourts.gov.in/hcservices/have been considered very carefully. The learned singleJudge made the interim stay absolute on 04.09.1997 inW.M.P. No.8001/97 in W.P. No.4782/97. Originally the Heard the Counsel's contentions on the legal issueshttps://hcservices.ecourts.gov.in/hcservices/have been considered very carefully. The learned singleJudge made the interim stay absolute on 04.09.1997 inW.M.P. No.8001/97 in W.P. No.4782/97. Originally the interim stay was granted on 02.09.1997. While passing theorder, this Court expressly stayed further proceedings bythe Transferee Officer pursuant to the impugned proceedings(i.e.) original notification transferring the case of theassessee. While granting stay, the High Court did not quashthe earlier notification of transfer dated 30.09.1996.When the assessment proceeding by the Transferee Officerwas stayed, the Transferor Officer did not get back thejurisdiction as the notification dated 30.09.1996 was notstruck down or quashed by the Court. In such an event, theonly person having jurisdiction over the Appellant Assesseewas the Transferee Officer for whom the assessmentproceeding, by him, were stayed by the High Court.Therefore the contention of the counsel for the appellantthat the Transferor Officer should have initiated andcompleted the Block Assessment proceedings is baseless.The stay was vacated only when the High Court dismissed theWrit Petition of the Appellant on 06.11.1998. Thereforethere were 28 days left after the writ petition of theappellant assessee was dismissed on 06.11.1998 and theassessment has become time barred only on 04.12.1998. Thedate of search was on 24.09.1996. The Assessing Officerhas to pass orders within one year from the end of themonth in which raid was conducted. Section 158.BE (1) (a)deals with limitation. In the present case, the officerhas to pass order on or before 30.09.1997. The limitationstarts from end of the month of the raid (i.e.) 30.09.1996.The only exception prescribed in the Act is that if thereis any stay order, the period of stay order will have tobe excluded for the purpose of computation and exclusionclause is prescribed under Section 158 BE (1) (a) read withExplanation 1 (i). In this case, interim stay was grantedon 02.09.1997 and the same was made absolute on 04.11.1997and later, the writ petition was dismissed on 06.11.1998,and hence there was 28 days left for completing theassessment after excluding the stay period. The said 28days commences from the date on which the writ petition wasdismissed on 06.11.1998. The last date for completing theassessment was on or before 04.12.1998. In this case, theassessment order was passed on 03.12.1998 and hence theBlock Assessment made is within a time and not barred bylimitation. 6.Further, the learned counsel for the appellantfiled a typed set, containing Supreme Court and High Courtjudgments, and they are as follows: 1.AIR 1953 SC 95 (Straw Board Manufacturing Co. Vs. GuttaMills).2.AIR 1959 SC 198 (Siraj Ul Haq Vs. Board of Waqf).3.AIR 1964 SC 1300 (Dhirendranath Vs Sudhir Chandra).4.AIR 1975 SC 2065 (Supdt. Of Taxes Vs. O.N. Trust).https://hcservices.ecourts.gov.in/hcservices/5.AIR 1987 SC 1161 (Gokak Patel Volkart Vs. CCE, Belgaum).6.1998 (3) SCC 540 (J.K. Cotton Spinning Vs. CCE).7.257 ITR 198 (Peerulal, Mohanlal Vs. CIT). 8.2004 (2) SCC 579 (N.C. Dhoundilal Vs. UOI) We have gone through the above judgments and the saidjudgments are rendered under various statutes. In thepresent case, we are concerned with the exclusion of stayperiod for purpose of calculating the limitation asprovided under Section 158.BE (1) (a) read with Explanation1 (a) of the Income Tax Act. Hence, the judgments reliedon by the counsel for the appellant have no relevance andare not of any assistance to support the case of appellantin the present case. Therefore we answered the secondquestion of law against the assessee. 8.2004 (2) SCC 579 (N.C. Dhoundilal Vs. UOI) We have gone through the above judgments and the saidjudgments are rendered under various statutes. In thepresent case, we are concerned with the exclusion of stayperiod for purpose of calculating the limitation asprovided under Section 158.BE (1) (a) read with Explanation1 (a) of the Income Tax Act. Hence, the judgments reliedon by the counsel for the appellant have no relevance andare not of any assistance to support the case of appellantin the present case. Therefore we answered the secondquestion of law against the assessee. 7.In respect of first question regarding no noticeunder Section 158.BC was issued after an order of transfernotification dated 13.04.1998 of C.I.T., Trichy which tookeffect from 16.04.1998, the Section 127(4) is very relevantand the same reads as follows:- "The transfer of a case under Sub-Section (1) or Sub-Section (2) may be made at any stage of the proceedings,and shall not render necessary the reissue of any noticealready issued by the Assessing Officer or AssessingOfficers from whom the case is transferred". The above section makes it clear that even where acase is transferred from one officer to another in themiddle of the proceeding, it is not necessary to reissue anotice to the assessee. In the instant case, the casealready stands transferred to the Assessing Officer atChennai and he had issued a notice under Section 158.BC ofthe Act. He had been reconferred with the powers underSection 127 and therefore, the claim of the appellantassessee that fresh notice should have been issued afterthe notification of 16.04.1998 is frivolous and hencerejected. 8.In the foregoing reasons, we have answered boththe questions of law against the Appellant and hencedismiss the above Tax Case. Accordingly, the T.C.M.P.No.42 of 2001 is closed. No costs.Sd/Asst.Registrar /true copy/ Sub Asst.Registrar To 1.The Assistant RegistrarIncome Tax Appeallate Tribunal III FloorRajaji Bhavan, Besant Nagar, Madras 90Income Tax Appeallate Tribunal III FloorRajaji Bhavan, Besant Nagar, Madras 90 2. The Deputy Commissioner of Income Tax, Central Circle – II(3), No.121, Nungambakkam High Road, Chennai-600 034. Central Circle – II(3), No.121, Nungambakkam High Road, Chennai-600 034. + one cc to Mr. Pushya Sitaraman, Senior Standing CounselIncome Tax Dept. SR NO. 1502Income Tax Dept. SR NO. 1502•one cc to Mr. N. Inbarajan, Advocate sr no. 1399one cc to Mr. N. Inbarajan, Advocate sr no. 1399 Tax Case (Appeal) No.386 of 2001