Obsolete Tax Laws Must Go for Speedy Development

by October 23, 2018 0 comments

obsolete tax laws must go for speedy developmentPrior to introduction of Section 292BB by Finance Act, 2008 w.e.f. 01-04-2008 in the IT Act, non-service, or no service in time, or improper service were taken as ground for attacking assessment orders. The Courts also took cognizance of non-service of notice such as one u/s 148 for reassessment, and often quashed reassessment orders. Further, there used to be defect in service of the other notices such as u/s 143(2) or 142(1). In order to save assessment/reassessments framed in pursuant to such defectively served notices, Section 292BB was introduced, wherein Revenue was protected from proving service of notices. However, a safeguard has been provided there under, if assessee objects to the proper/ no service of notice then Revenue has to prove such service. This provision was restricted to cure defects in service of the notice or notices and not defects in issuance of notices. Therefore, where notice u/s 143(2) was not issued at all then proceedings consequent thereto were quashed. A similar case arose in PCIT v. Oberoi Hotels (P.) Ltd. [2018] 96 taxmann.com 104 (Calcutta). The facts of the case, the arguments of the parties, decision of the Court and comments thereon are briefly discussed below.

Facts of the case:

In this case, reassessment u/s 147/143(3) was completed without issuing notice u/s 143(2). The CIT(A) seems to have confirmed the order of AO. In appeal before the Tribunal the assesses raised the ground that no notice u/s 143(2) was issued which is mandatory. The Appellate Tribunal quashed the entire reassessment proceedings on the assessee’s assertion that no notice under Section 143(2) of the Act was issued by the Assessing Officer before undertaking the reassessment. For coming to this conclusion that Tribunal relied on the decision of Hon’ble Apex Court in Asstt. CIT v. Hotel Blue Moon [2010] 188 Taxman 113/321 ITR 362 (SC).

Question of law before Hon’ble High Court:

Following questions of law were raised before Hon’ble High Court-

1. Whether the failure to issue a notice under Section 143(2) of the Act in course of reassessment proceedings would vitiate the reassessment proceedings altogether? What is the effect in view of Section 292BB of the Act when a notice under Section 143(2) of the Act is not issued at all?

Arguments by the Department:

The Department submitted before Hon’ble High Court that in view of Section 292BB of the Act, non-service of the notice u/s 143(2) could not be fatal to the proceedings because (i) the assessee had participated in course of the reassessment, (ii) the objections of the assessee as to the reassessment were considered by the Assessing Officer and it was not pointed out by the assessee prior to the reassessment being completed that no notice under Section 143(2) of the Act had been issued to him in respect of the reassessment (iii) if a notice under Section 143(2) is deemed to be mandatory, so that in the absence thereof, the subsequent order of assessment (or reassessment) has to be annulled, the matter must be restored to the stage where a notice under Section 143(2) of the Act was to be issued for completing the assessment or reassessment. The Department relied on a Madras High Court judgment inAreva T & D India Ltd. v. Asstt. CIT [2007] 165 Taxman 123/294 ITR 233 where the view taken was that “the non-issuance of a notice under section 143(2) of the Act, will not make the reassessment nullity in law, which is validly initiated under section 148 of the Act”.

Further, Revenue pointed out that Hon’ble Calcutta High Court, in an order dated April, 8, 2014 rendered in ITAT 149 of 2013 (CIT v. Humboldt Wedag India (P.) Ltd.) had expressed an opinion that when an order of assessment was passed in course of reassessment under Section 143(3) of Act, “The omission could have been a reason for setting aside the order of assessment, but that could not have been a reason, in the facts and circumstances of that case, for nullifying the exercise under section 147 of the Income Tax Act.

Arguments of the assessee:

The assessee relied on the judgement of Hon’ble Apex Court in Asstt. CIT v. Hotel Blue Moon (supra), where Hon’ble Apex Court held that if an assessment is to be completed under section 143(3) read with section 158 BC, notice under section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under section 143(2) cannot be dispensed with …”

Reasoning and Decision by Hon’ble High Court:

(i) The ratio of Hon’ble Supreme Court in Hotel Blue Moon (supra) is not limited to block assessment but would apply to every case where a notice under Section 143(2) of the Act is necessary.

(ii) The judgement by this Court in Humboldt Wedag India Pvt. Ltd. (supra) was rendered without noticing the Supreme Court judgment in Hotel Blue Moon(supra). The relevant Bench also did not take into consideration a previous order of this Court of April 4, 2013 when the reassessment proceedings were quashed merely on the ground that no notice under Section 143(2) of the Act was issued to the assessee before making the reassessment.

(iii) Judgement of Hon’ble Madras High Court in Areva T & D India Ltd. v. Asstt. CIT (supra) was considered by Madras High Court in Sapthagiri Finance & Investments v. ITO [2012] 25 taxmann.com 341/210 Taxman 78 (Mad.) (Mag) wherein it was held that the view taken in Areva T & D India Ltd was no longer good law in view of the Supreme Court judgment in Hotel Blue Moon (supra).

(iv) It was finally held that taking into consideration the law laid down by the Supreme Court in Hotel Blue Moon (supra), it is inescapable that the issuance of a notice under Section 143(2) of the Act is mandatory, if the Assessing Officer seeks not to accept any part of the return as furnished by the assessee, or make an assessment order contrary thereto and, even in course of reassessment proceedings, such notice cannot be dispensed with.

2. Further, it was held that Section 292BB of the Act does not dispense with the issuance of any notice that is mandated to be issued under the Act, but merely cures the defect of service of such notice if an objection in such regard is not taken before the completion of the assessment or reassessment.

Comments:

“292BB Notice deemed to be valid in certain circumstances Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was

(a) not served upon him; or

(b) not served upon him in time; or

(c) served upon him in an improper manner:

Provided that nothing contained in this section shall apply where the assessee had raised such objection before the completion of such assessment or reassessment.”

(i) Section 292BB is incorporated in the statute to take care of contingencies where an assessee is put on notice of the initiation of proceedings, but who takes advantage of defective notices or defective service of notice on him. It is trite to point out that the purpose of issue of notice is to make the noticee aware of the nature of the proceedings. Once the nature of the proceedings is made known and understood by the assessee, he should not be allowed to take advantage of certain procedural defects. [refer- CIT v. M. Hemanathan[2016] 68 taxmann.com 22 (Madras)]

(ii) Section 292BB incorporates principle of estoppel: Section 292BB can be pressed into action to safeguard the Revenue from getting the assessment quashed due to non-service upon the assessee, or nonservice in time or not properly served, if the assessee (i) appeared in any proceeding, or (ii) cooperated in any inquiry relating to an assessment or reassessment. However, the proviso states that the principle of estoppel incorporated in the main section would not apply, if the assesses raises objection, before completion of assessment/ reassessment about non-service upon the assessee or non-service in time or not properly served, then Section 292BB cannot be invoked to safeguard assessment/reassessment. The Revenue has to prove the service of the notice upon the assessee, and in time and service in accordance with law.

(iii) Section 292BB provides a deeming fiction:Section 292BB is a deeming fiction to the effect that once the assessee has appeared in any proceedings or cooperated in any enquiry relating to an assessment or reassessment, it shall be deemed that any notice under the provisions of the Act, which is required to be served on the assessee, has been duly served upon him in time in accordance with the provisions of the Act. [refer- CIT v. Salarpur Cold Storage (P.) Ltd. [2014] 50 taxmann.com 105/[2015] 228 Taxman 48 (Mag.)(All.)]. It has been held that this defect in regard to the assumption of jurisdiction for making assessment/ reassessment by not issuing notice u/s 143(2) cannot be cured by taking recourse to the deeming fiction under section 292BB.

(iv) Section 292BB is a rule of evidence: In CIT v. Parikalpana Estate Development (P.) Ltd [2013] 40 taxmann.com 248/[2014] 220 Taxman 39 (All.), it has been held that section 292BB talks of the drawing of a presumption of service of notice on an assessee and is basically is a rule of evidence and it has nothing to do with the mandatory requirement of giving a notice and especially a notice under section 143(2) which is a notice giving jurisdiction to the Assessing Officer to frame an assessment.

2.1 Meaning of “Cooperated in any inquiry”:Section 292BB is of no assistance to the revenue unless it is shown that the assessee appeared in any proceedings or co-operated in any inquiry relating to assessment or reassessment.The meaning and scope of the expression “cooperated inquiry” used in section 292BB has been explained by the Tribunal in Prakash Ramji Gavali v. ITo [2012] 21 taxmann.com 534 (Mum.) as under-

“Co-operation in any inquiry by the assessee can take place only when any information demanded by the Assessing Officer is supplied or any other material is adduced in support of his case. The words ‘cooperated in any inquiry’ are succeeded by the phrase ‘relating to an assessment or reassessment’. Simple receipt of notice under section 142 cannot be termed as co-operation in any inquiry relating to an assessment. Co-operation will come forth only when certain inquiry is made by the Assessing Officer and that is properly or improperly replied by the assessee. Further, such inquiry must relate to an assessment or reassessment. If an inquiry is made but no reply is given, it cannot be said that the assessee ‘co-operated in any inquiry relating to an assessment’.”It also means that where cooperation is not related to assessment or reassessment then such cooperation is irrelevant for invoking section 292BB. Also, service of notice under section 142(1) on the assessee should not be construed as ‘co-operation’ by the assessee in any inquiry relating to an assessment. Therefore, where an assessee did neither furnish nor cause to be furnished any reply to the Assessing Officer’s questionnaire inquiring about various aspects concerning the assessment, the deeming fiction contained in section 292BB about the proper service of any notice under the provisions of this Act, cannot be held to have been activated.

A simple receipt of notice under section 142 cannot be termed as co-operation in any inquiry relating to an assessment. [refer- Prakash Ramji Gavali v. ITO [2012] 21 taxmann.com 534 (Mum.)]

2.2 Participation in assessment /reassessment proceedings:

Where assessee objects that no notice has been served upon him, then mere participation in assessment/reassessment proceedings is not a waiver of requirement of issuance /service of notice u/s 143(2). It has been held that the mere fact that an assessee or some other person on his behalf not duly authorised has participated in the reassessment proceedings after coming to know of it will not constitute a waiver of the requirement of effecting proper service of notice on the assessee under section 148. [refer- CIT v. Chetan Gupta [2015] 62 taxmann.com 249 (Delhi);PCIT v. Silver Line[2016] 65 taxmann. com 137 (Delhi)]

2.3 Issue and service of the Notice:

For invoking Section 292BB, it is necessary that notice u/s 143(2) must be issued to the assessee. The provision cannot be invoked to cure the defect in the issuance of the notice. It can be invoked for curing the defect in the service of the notice if it is found that(i) the notice is not served on the assessee, or (ii) not served upon him in time; or(iii) served upon him in an improper manner. Where there is no evidence of issuance of notice u/s 143(2), Section 292BB cannot come to the rescue of the Revenue. Omission on the part of the assessing authority to issue notice under section 143(2) cannot be a mere procedural irregularity and the same is not curable. But where assessee objects before the completion of such assessment or reassessment that no notice u/s 143(2) was served on him, then also Section 292BB cannot be pressed into action to rescue the Revenue.

It has been held in Pr. CIT v. Shri Jay Shiv Shankar Traders (P.) Ltd. [2015] taxmann.com 220/[2016] 383 ITR 448 (Delhi)that the provision of section 292BB would apply in so far as failure of “service” of notice is concerned and not with regard to failure to “issue” notice. Hon’ble Gujarat High Court inCIT v. Panorama Builders (P.) Ltd. [2014] 45 taxmann.com 159 (Gujarat) and ITAT Mumbai in Suresh Exports (P.) Ltd. v. DCIT [2017] 88 taxmann.com 374 (Mumbai – Trib.)also held that section 292BB is only confined to service of notice and does not apply to issuance of notice, neither it cures defect or enlarges statutory period where a mandatory notice under section 143(2) is required to be issued within limitation fixed under Act.

2.4 Improper service of the notice:

Where assessee has objected to the service of the notice within the meaning of Proviso to Section 292BB then following services of notice have been held invalid and were not saved by Section 292BB. (i) Where notice was sent on wrong address and person alleged to be an employee of assessee was not authorized to receive notice. [refer- CIT v. Dr. Ajay Prakash [2014] 42 taxmann.com 387 (Allahabad)]

(ii) Service of notice u/s 148 to the Chartered Accountant of the assessee-company was not service at all. [refer- Ardent Steel Ltd. v. ACIT [2018] 94 taxmann.com 95 (Chhattisgarh)]

(iii) Mere giving of dispatch number for issue would not cure the defect of service. [refer- CIT v. Cebon India Ltd. [2009] 184 Taxman 290 (Punjab & Haryana)]

(iv) Even in a case where other notices sent to the ‘assessee group’ were received by the employee Mr. ‘V’ of ‘K’ Cinema, there could not be an inference that ‘V’ was duly empowered by the assessee to receive notices on his behalf. [refer- CIT v. Chetan Gupta[2015] 62 taxmann.com 249 (Delhi)]

(v) Where notice is issued in name of deceased-assessee but was served upon legal heir, who, then, participated in proceedings, even then such proceedings was a nullity being initiated against a dead person. [refer- CIT v. M. Hemanathan[2016] 68 taxmann.com 22 (Madras)]

(vi) Where notice was issued against a company which was already merged and was not in existence, it was held that the provisions of section 292BB would not come to the rescue of the revenue when there is a basic fault on the assumption of jurisdiction itself on a nonexistent entity by the Commissioner by issuing show cause notice u/s 263 and passing the order on the non-existent entity. When there is a jurisdictional defect, it does not become curable. [refer- Emerald Company Ltd. v. ITO [2017] 83 taxmann.com 29 (Kolkata – Trib.)]

2.5 The scope of objection:

It has been provided in Section 292BB that objection about service of the notice should be raised during assessment/reassessment proceedings. Once, such objection is raised then participation of the assessee in the assessment/ reassessment proceedings or cooperation in any inquiry relating to assessment are irrelevant. Once, objection is raised by the assessee, the revenue has to prove that notice has been served in accordance with law. [refer- CIT v. Chetan Gupta [2015] 62 taxmann.com 249/382 ITR 613 (Delhi); Ardent Steel Ltd. v. ACIT [2018] 94 taxmann.com 95 (Chhattisgarh)]

2.6 objection during draft assessment order:

Draft assessment order u/s 144C is not a completed assessment order. Under section 144C(3), the Assessing Officer shall complete assessment proceedings on the basis of the draft order only if the assessee files his acceptance to the variations or if no objections are received within 30 days. Thus, if objection is raised during draft assessment order stage it will be a valid objection. [refer- Alpine Electronics Asia Pte. Ltd. v. DGIT [2012] 18 taxmann.com 246 (Delhi)]

2.7 Whether Section 292BB can be invoked in revisional proceedings:

Section 292BB can be made applicable only for the assessment or reassessment proceedings and the same cannot be made applicable for revisional proceedings as contemplated under section 263. [refer- Emerald Company Ltd. v. ITO [2017] 83 taxmann.com 29 (Kolkata – Trib.)]

2.8 Whether objection can be raised during appeal:

It has been held that objection about non-service of the notice or non-service in time or improper service as contemplated u/s 292BB, can be raised by the assessee only during the course of assessment proceedings and not during appellate proceedings before CIT(A) or Tribunal. [refer- Aravali Engineers (P.) Ltd. v. CIT [2011] 11 taxmann. com 291 (Punjab &Haryana);CIT v. Premium Capital Market & Investment Ltd. [2005] 275 ITR 260 /[2006] 151 Taxman 194 (MP); Venkatesan Raghuram Prasad v. ITO [2018] 94 taxmann.com 249 (Madras)]. Thus, whereno objection regarding valid service of notice under section 148 was raised before the Assessing Office, the argument of the assessee that there was no valid service of notice under section 148 failed. [refer- CIT v. Panchvati Motors (P.) Ltd. [2011] 12 taxmann.com 111 (Punjab & Haryana)]

2.9 Non-issue of notice u/s 143(2):

It has been held, following the decision of Hon’ble Apex Court in Hotel Blue Moon’s case (supra) in the under mentioned cases that where notice u/s 143(2) is not issued assessment/reassessment proceedings will be invalid and hence quashedand revenue cannot take advantage of provisions of section 292BB.

(i) ACIT v. Ashed Properties & Investments (P.) Ltd. [2015] 62 taxmann.com 340 (Bangalore – Trib.)

(ii) ACIT v. Greater Noida Industrial Development Authority [2017] 88 taxmann.com 421 (Allahabad)

(iii) ACIT v. Laxman Das Khandelwal [2017] 87 taxmann.com 346 (Agra – Trib.)

(iv) Travancore Diagnostic (P.) Ltd. v. Dy. CIT [2017] 390 ITR 167/244 Taxman 316/[2016] 74 taxmann.com 239 (Kerala)

(v) Alok Mittal v. DCIT [2017] 86 taxmann.com 275 (Kolkata – Trib.)

(vi) CIT v. Salarpur Cold Storage (P.) Ltd. [2014] 50 taxmann.com 105/[2015] 228 Taxman 48 (Mag.)

(vii) Anil Kumar v. ITO [2017] 88 taxmann.com 834 (Amritsar – Trib.)

(viii) CIT v. Cebon India Ltd. [2009] 184 Taxman 290 (Punjab & Haryana)

(ix) DCIT v. Shrikant Rathi[2012] 17 taxmann.com 248 (Indore)

(x) ITO v. Aligarh Auto Centre[2013] 34 taxmann.com 211 (Agra – Trib.)

(xi) PCIT v. Shri Jai Shiv Shankar Traders (P.) Ltd. [2015] 64 taxmann.com 220 (Delhi)

(xii) Travancore Diagnostics (P.) Ltd. v. ACIT [2016] 74 taxmann. com 239 (Kerala)

2.10 Section 292BB is prospective in operation:

The Central Board of Direct Taxes issued circular No. 1 of 2009, dated 27-3-2009 (2009) 310 ITR (St.) 42 giving explanatory notes on the provisions relating to direct taxes contained in Finance Act, 2008. Clause 42.7 (at page 86 of the report) is relevant which relates to applicability of this provision and reads thus:

“42.7 Applicability. —This amendment has been made applicable with effect from 1st April, 2008. This means that the provision of new-section 292BB shall apply in all proceedings which are pending on 1st April, 2008.”

However, it has been held that Section 292BB creates new disability it would be prospective in operation andis applicable for and from assessment year 2008-09. [refer- CIT v. Chetan Gupta[2015] 62 taxmann.com 249 (Delhi);CIT v. Mani Kakar[2009] 178 Taxman 315 (Delhi); CIT v. Mohammad Khaleeq Commercial Taxes[2014] 44 taxmann.com 484 (Allahabad); DCIT v. DharampalSatyapal Ltd. [2017] 82 taxmann.com 322 (Delhi – Trib.); Ghanshyamdas Gems & Jewels v. DCIT [2015] 58 taxmann.com 108 (Hyderabad – Trib.); Heaven Distillery (P.) Ltd. v. ITO [2017] 88 taxmann.com 825 (Mumbai – Trib.); ITO v. Aligarh Auto Centre[2013] 34 taxmann. com 211 (Agra – Trib.); Kuber Tobacco Product (P.) Ltd. v. Dy. CIT [2009] 117 ITD 273/28 SOT 292 (Delhi)

3. Conclusion:

Thus, Section 292BB is held prospective and applicable for and from assessment year 2008-09 and not to earlier assessment year as it creates a new disability upon the assessee. It is furtherheld that the issuance of notice u/s 143(2) is mandatory and non-issuance thereof is considered as jurisdictional defect and assessment/ reassessment made without issuance of notice u/s 143(2) are liable to be quashed. Further, Section 292BB can cure the defect only in respect of service of the notices and not in respect of issuance of notices. Section 292BB will come to the rescue of the Revenue only where assessee has participated in the assessment /reassessment proceedings or cooperated in any inquiry relating thereto. However, where assessee objects to the service of the notice, during assessment/ reassessment proceedings, then mere participation of the assessee or cooperation by him will not save the assessment/ reassessment unless Revenue proves that notice has been served in accordance with law.

(Advocate-on-Record, Supreme Court of India)

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