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Tarsem Singla v. Deputy Commissioner Of Income-Tax
High Court Opinion Summary — Ajay Kumar Mittal, J.
Factual and Procedural Background
This opinion concerns two procedural elements and a substantive appeal under the Income-tax Act, 1961.
First, an application (CM No. 7425 CII of 2015) under section 5 of the Limitation Act, 1963 sought condonation of delay of 164 days in filing the appeal. Notice was given to the respondent, reasons were stated in the application, the parties were heard, and the court condoned the delay of 164 days. The connected miscellaneous application was disposed of.
Second, I.T.A. No. 112 of 2015 is an appeal under section 260A of the Income-tax Act, 1961 against the Income-tax Appellate Tribunal's order dated November 22, 2013 (Annexure A.4) in I.T.A. No. M/CHfD/2012 for the assessment year 2004-05. The appellant is a real-estate businessman who was subject to a search and seizure under section 132(1) on May 7, 2008. A block assessment was conducted for the preceding six years. A notice under section 153A was issued on December 5, 2008; the appellant filed a return on January 30, 2009 declaring income of Rs. 1,49,250.
Notices under sections 143(2) and 142(1) were subsequently issued on June 10, 2010. The Assessing Officer's order dated December 30, 2010 (Annexure A.1) made additions of Rs. 5,25,000 (construction of house) and Rs. 9,95,029 (difference in capital in the balance-sheet), computing taxable income of Rs. 16,69,280, and initiating penalty proceedings. The appellant appealed to the Commissioner of Income-tax (Appeals), who by order dated April 16, 2012 (Annexure A.3) deleted the Rs. 5,25,000 addition but upheld the remainder. The appellant then appealed to the Tribunal, contending, inter alia, that the time limits for issuing notice under section 143(2) apply to assessments under section 153A. The Tribunal declined an adjournment application by the appellant, proceeded ex parte, and dismissed the appeal on November 22, 2013. The present appeal challenges that Tribunal order.
Legal Issues Presented
- Whether the issuance of notice under section 143(2) within the stipulated time period is mandatory or a curable procedural irregularity so as to clothe the Assessing Officer with jurisdiction to undertake the assessment.
- Whether the balance-sheet and capital account filed by the assessee in the course of a block assessment should be considered as evidence/material found in consequence of the search so as to sustain the addition of income in the block assessment.
- Whether the figure disclosed in the opening balance-sheet in a particular year represents the income earned in the previous years and thus whether any addition should be made to the relevant/previous years and not in the subsequent year.
Arguments of the Parties
Appellant's Arguments
- The Tribunal erred in dismissing the appeal; notice under section 153A was issued on December 5, 2008, return filed on January 30, 2009, but notice under section 143(2) was issued only on June 10, 2010—beyond the stipulated six-month period; therefore the Assessing Officer lacked jurisdiction to proceed.
- The appellant relied on several precedents to support the contention that issuance of notice under section 143(2) is mandatory in the circumstances asserted: Asst. CIT v. Hotel Blue Moon [2010] 321 ITR 362 (SC); Virendra Dev Dixit v. Asst. CIT [2011] 331 ITR 483 (All); Commissioner Of Income-Tax v. B. Satyanarayana [2013] 356 ITR 323 (AP); Commissioner Of Income-Tax v. Pratapbhai K. Soni [2014] 361 ITR 201 (Guj); and R. Romi v. Commissioner Of Income-Tax [2014] 363 ITR 311 (Ker).
Respondent's Arguments
- The respondent supported the impugned Tribunal order and relied upon authorities including CIT v. Panchvati Motors P. Ltd. [2011] 243 CTR (P & H) 189; Commissioner Of Income-Tax v. Raj Kumar Arora [2014] 367 ITR 517 (All); and Ashok Chaddha v. ITO [2011] 337 ITR 399 (Delhi).
- In particular, Ashok Chaddha (Delhi High Court) had addressed the identical question and held that there is no specific statutory requirement that an assessment under section 153A be preceded by issuance of notice under section 143(2).
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Asst. CIT v. Hotel Blue Moon, [2010] 321 ITR 362 (SC) | Held that where assessment is to be completed under section 143(3) read with section 158BC, notice under section 143(2) must be issued and omission to do so is not curable. | The court distinguished this authority as being in the context of section 158BC (which expressly applies specified provisions including sub-sections (2) and (3) of section 143) and held Hotel Blue Moon inapplicable to assessments under section 153A. |
| Virendra Dev Dixit v. Asst. CIT, [2011] 331 ITR 483 (All) | Relied upon by appellant in support of mandatory issuance of section 143(2) notice (as presented by appellant). | The court noted it was cited by the appellant but observed it did not directly address applicability of the section 143(2) time-limit to section 153A proceedings; therefore it afforded no advantage to the assessee on the point. |
| Commissioner Of Income-Tax v. B. Satyanarayana, [2013] 356 ITR 323 (AP) | Relied upon by appellant (authority cited by appellant). | The court recorded that this authority was relied on by the appellant but did not treat it as determinative for applicability of section 143(2) timing to section 153A assessments. |
| Commissioner Of Income-Tax v. Pratapbhai K. Soni, [2014] 361 ITR 201 (Guj) | Relied upon by appellant (authority cited by appellant). | The court noted it was cited by the appellant but did not accept it as controlling on the specific question concerning section 153A and section 143(2). |
| R. Romi v. Commissioner Of Income-Tax, [2014] 363 ITR 311 (Ker) | Relied upon by appellant (authority cited by appellant). | The court recorded citation by the appellant but held it did not resolve the specific question on applicability of section 143(2) to section 153A assessments. |
| CIT v. Panchvati Motors P. Ltd., [2011] 243 CTR (P & H) 189 | Cited by respondent in support of the impugned order. | The court recorded it among authorities relied upon by the respondent; the opinion does not state detailed reliance beyond that fact. |
| Commissioner Of Income-Tax v. Raj Kumar Arora, [2014] 367 ITR 517 (All) | Cited by respondent in support of the impugned order. | The court recorded citation by the respondent; the opinion does not elaborate further on its application to the present facts. |
| Ashok Chaddha v. ITO, [2011] 337 ITR 399 (Delhi) | Delved into whether issuance of notice under section 143(2) is mandatory for assessments under section 153A; held in the negative — no specific statutory requirement for section 143(2) notice in section 153A proceedings. | The court relied on this decision as directly on point and followed its reasoning, stating that Ashok Chaddha addressed the identical matter and supported the Tribunal's approach here. |
| Lunar Diamonds Ltd., [2006] 281 ITR 1 (Delhi) | Related to requirement of service of notice upon the assessee within a prescribed time. | The court noted Lunar Diamonds dealt with service of notice within prescribed time and therefore was not applicable to the present question concerning section 153A; cited in Ashok Chaddha. |
| Vardhman Estate, [2006] 287 ITR 368 (Delhi) | Related to requirement of service of notice within a prescribed time. | The court noted it was not applicable to the specific issue under section 153A (as discussed in Ashok Chaddha). |
| Bhan Textiles P. Ltd., [2006] 287 ITR 370 (Delhi) | Related to requirement of service of notice within a prescribed time. | The court observed it was not applicable to the present case (per Ashok Chaddha discussion). |
| Pawan Gupta, [2009] 318 ITR 322 (Delhi) | Related to mandatory issue of notice under section 143(2) in the case of regular assessment and block assessment (but not specifically a section 153A search case). | The court noted Pawan Gupta was not a section 153A case and therefore not applicable to the question before it. |
| Raj Kumar Chawla, [2005] 277 ITR (AT) 225 (Delhi) [SB] | Tribunal view that if a return filed under section 148 is sought to be scrutinized, compliance with the proviso under section 143(2) is mandatory. | The court noted this was a Tribunal decision and was distinguished from the present statutory context involving section 153A. |
| CIT v. Madhya Bharat Energy Corporation Ltd., [2011] 337 ITR 389 (Delhi) | Considered whether issuance of notice under section 143(2) is mandatory under section 147; held issuance of section 143(2) notice is not mandatory in absence of a specific provision under section 147. | The court cited this decision to show similar reasoning where absence of a specific statutory requirement meant notice under section 143(2) need not be treated as mandatory; Ashok Chaddha drew upon this line of reasoning. |
| R. Dalmia v. CIT, [1999] 236 ITR 480 (SC) | Examined applicability of section 144B and section 153 (now omitted) to assessments under sections 147 and 148; discussed procedure in reassessments under section 147. | The court observed R. Dalmia primarily concerned applicability of certain procedural provisions to reassessments and cannot be taken as laying down law that issue of notice under section 143(2) is mandatory for section 153A assessments. |
Court's Reasoning and Analysis
The court identified the central question as whether issuance of notice under section 143(2) is mandatory for assessment proceedings under section 153A. The court reasoned as follows, drawing largely on the Delhi High Court's decision in Ashok Chaddha:
- The court observed that Ashok Chaddha had already considered the identical issue and held that there is no specific provision in the Act requiring an assessment under section 153A to be preceded by issuance of notice under section 143(2). The High Court in Ashok Chaddha analyzed the statutory scheme and applicable precedents.
- The court distinguished Hotel Blue Moon (Supreme Court) because that case concerned section 158BC, a provision that expressly directs application of certain provisions including sub-sections (2) and (3) of section 143. Therefore, the rule in Hotel Blue Moon that a section 143(2) notice must be issued arose from the express statutory cross-application in section 158BC and did not apply to section 153A.
- The court noted that several cases cited by the appellant (Lunar Diamonds, Vardhman Estate, Bhan Textiles) related to service of notice within a prescribed time and were not on point for the section 153A issue; Pawan Gupta dealt with regular and block assessments but not assessments following a search under section 153A; Raj Kumar Chawla was a Tribunal view concerning section 148 returns; and R. Dalmia concerned applicability of other procedural provisions to reassessments—none of these laid down that issuance of section 143(2) notice is mandatory under section 153A.
- The court examined the text of section 153A which contains a non-obstante clause and specifically requires in clause (a) issuance of a notice to the person searched (or whose documents are requisitioned) to furnish a return of income. The court concluded that clause (a) does not itself prescribe issuance of a separate notice under section 143(2), and that the phrase "so far as may be" in section 153A(1)(a) cannot be stretched to make issuance of section 143(2) mandatory.
- The court accepted the Ashok Chaddha observation that where the specific notice required by section 153A(1)(a) has been given, no further notice under section 143(2) is contemplated for purposes of assessment under section 153A. The court also noted that, in the present case, two questionnaires were issued to the assessee which the Ashok Chaddha decision treated as sufficient notice to require the assessee to attend and produce documents.
- On these bases, the court found no error or perversity in the Tribunal's approach and rejected the appellant's reliance on the authorities cited as inapposite to a section 153A assessment framed after a search.
Holding and Implications
Holding: The court concluded that, following the settled position reflected in Ashok Chaddha and related reasoning, issuance of a separate notice under section 143(2) within the period prescribed for framing assessment is not a mandatory prerequisite for an assessment under section 153A of the Income-tax Act. Consequently,
APPEAL DISMISSED
Implications:
- The direct effect is that the appellant's appeal against the Tribunal's order dated November 22, 2013 is dismissed and the Tribunal's decision stands.
- The court also previously condoned the delay of 164 days in filing the appeal (application under section 5 of the Limitation Act was allowed), and disposed of the connected miscellaneous application accordingly.
- The opinion follows existing authority (notably Ashok Chaddha) and does not purport to lay down a new legal principle; the court expressly treated the matter as no longer res integra and found no substantial question of law arising for interference.
Ajay Kumar Mittal, J.:—
CM No. 7425 CII of 2015
2. This is an application under section 5 of the Limitation Act, 1963 for condonation of delay of 164 days in filing the appeal.
3. Notice of the application was given to the respondent. For the reasons stated in the application and after hearing learned counsel for the parties, the delay of 164 days in filing the appeal is condoned. CM stands disposed of.
I.T.A. No. 112 of 2015
4. This appeal has been preferred by the appellant under section 260A of the Income-tax Act, 1961 (in short, “the Act”) against the order dated November 22, 2013, Ahnexure A.4 passed by the Income-tax Appellate Tribunal, Chandigarh B Bench in I.T.A. No. M/CHfD/2012 for the assessment year 2004-05, claiming the following substantial questions of law:
“(I) Whether the issuance of notice under section 143(2) within the stipulated time period is mandatory or curable procedural irregularities so as to, clothe the Assessing Officer with jurisdiction to undertake the assessment
(II) Whether the balance-sheet, and capital account filed by the assessee in the course of block asssment be considered as evidence/material found in conseqence of the search so as to sustain the addi tion of income in the block assessment ?
(III) Whether the figure disclosed in the opening balance-sheet in a particular year represents the income earned in the previous years and thus addition, if any, could be made to the relevant/previous years and not in the subsequent year ?”
5. A few facts relevant for the decision of the controversy involved as narrated in the appeal may be noticed. The appellant-assessee is engaged in the business of real estate. A search and seizure was carried out under section 132(1) of the Act on May 7, 2008, by the investigation wing at the premises of the appellant. Consequently, block assessment was carried out with respect to the preceding six years. Notice under section 153A of the Act for the assessment year 2004-05 was issued to the assessee on December 5, 2008 and in compliance thereof, the appellant filed return of income on January 30, 2009 declaring an income of Rs. 1,49,250. Thereafter, notices under sections 143(2) and 142(1) of the Act were issued to the assessee on June 10, 2010. The Assessing Officer vide order dated December 30, 2010, annexure A.1 made addition of Rs. 5,25,000 on account of construction of the house and a sum of Rs. 9,95,029 on account of the difference in the capital reflected in the balance-sheet and computed the taxable income to be Rs. 16,69,280. Penalty proceedings were also ordered to be carried out. Aggrieved by the order, the appellant filed appeal before the Commissioner of Income-tax (Appeals) (CIT(A)). Vide order dated April 16, 2012, annexure A.3, the Commissioner of Income-tax (Appeals) partly allowed the appeal and deleted the addition of Rs. 5,25,000 on the construction of the house by holding that the same was available out of the increase in the capital amounting to Rs. 9,95,029 for which separate addition had already been made by the Assessing Officer. However, the remaining part of the impugned order was kept intact and upheld by the Commissioner of Income-tax (Appeals). Still dissatisfied by the order, the assessee filed appeal before the Tribunal inter alia on the ground that the stipulated time period for service of notice under section 143(2) of the Act shall also be applicable in respect of assessment framed under section 153A of the Act. Learned counsel for the appellant-assessee sought adjournment on the due date of hearing by filing an application but the same was declined. The appellant was proceeded against ex-parte. Vide order dated November 22, 2013, annexure A.4, the appeal was dismissed by the Tribunal. Hence the instant appeal.
6. We have heard learned counsel for the parties.
7. Learned counsel for the appellant-assessee submitted that the Tribunal erred in dismissing the appeal filed by the assessee. In the present case, notice under section 153A of the Act was issued on December 5, 2008 and the assessee filed the income-tax return on January 30, 2009. Notice under section 143(2) of the Act was issued to the assessee on June 10, 2010 much beyond the stipulated time period of six months. In view of this, the Assessing Officer did not have any jurisdiction to proceed with the matter. Learned counsel for the assessee relied upon judgments in Asst. CIT v. Hotel Blue Moon, [2010] 321 ITR 362 (SC), Virendra Dev Dixit v. Asst. CIT, [2011] 331 ITR 483 (All), Commissioner Of Income-Tax v. B. Satyanarayana, [2013] 356 ITR 323 (AP), Commissioner Of Income-Tax v. Pratapbhai K. Soni, [2014] 361 ITR 201 (Guj) and R. Romi v. Commissioner Of Income-Tax, [2014] 363 ITR 311 (Ker) to assail the order of the Tribunal.
8. On the other hand, learned counsel for the respondent besides supporting the impugned order relied upon the judgments in CIT v. Panchvati Motors P. Ltd., [2011] 243 CTR (P & H) 189, Commissioner Of Income-Tax v. Raj Kumar Arora, [2014] 367 ITR 517 (All), Ashok Chaddha v. ITO, [2011] 337 ITR 399 (Delhi).
9. The question that arises for consideration in this appeal relates to whether there is any mandatory requirement of issuance of notice under section 143(2) of the Act in respect of assessment proceedings under section 153A of the Act or not. The question is no longer res integra as the Delhi High Court in Ashok Chaddha's case (supra) delving into identical matter had opined in the negative holding that there was no specific provision in the Act requiring the assessment made under section 153A of the Act to be after issuance of notice under section 143(2) of the Act. After considering the matter in detail, it was recorded as under (page 404 of 337 ITR):
“There is no specific provision in the Act requiring the assessment made under section 153A to be after’ issue of notice under section 143(2) of the Act. Learned counsel for the assessee places heavy reliance on the judgment of the hon'ble Supreme Court in Hotel Blue Moon, [2010] 321 ITR 362 (SC) wherein it was held that where an assessment has to be completed under-section 143(3) read with section 158BC, notice under section 143(2)’must be issued and omission to do so cannot be a procedural irregularity and the same is not curable. It is to be noted that the abovesaid judgment was in the context of section 158BC. Clause (b) of section 158BC expressly provides that “the Assessing Officer shall proceed to determine the undisclosed income of the block period in the” manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145 shall, so far as may be, apply. This is not the position under section 153A. The law laid down in. Hotel Blue Moon, [2010] 321 ITR 362 (SC); is thus not applicable to the facts of the present case.
The decision of Lunar Diamonds Ltd., [2006] 281 ITR 1 (Delhi), Vardhman Estate, [2006] 287 ITR 368 (Delhi) and Bhan Textiles P. Ltd., [2006] 287 ITR 370 (Delhi) relied upon by learned counsel for the assessee related to the requirement of service of notice upon the assessee within a prescribed time and thus not applicable to the present case. The case of Pawan Gupta, [2009] 318 ITR 322 (Delhi) related to a mandatory issue of notice under section 143(2) of the Act in the case of regular assessment as also on block assessment. This being not a case of assessment based on search under section 153A, the same is not applicable to the present case. In the case of Raj Kumar Chawla, [2005] 277 ITR (AT) 225 (Delhi) [SB] relied upon by learned counsel for the assessee was that of the Tribunal, wherein, a view was taken that if a return filed under section 148 of the Act is sought to be scrutinized, the compliance with the provision contained in the proviso under section 143(2) of the Act is mandatory. The issue of requirement of notice under section 143(2) for an assessment under section 147 came up for consideration before this court recently in CIT v. Madhya Bharat Energy Corporation Ltd. (I.T.A. No. 950 of 2008, decided on July 11, 2011) [2011] 337 ITR 389 (Delhi). In that case also, this court has held that in the absence of any specific provision under section 147 of the Act, the issuance of notice under section 143(2) cannot be held to be a mandatory requirement.
It is also to be noted that section 153A provides for the procedure for assessment in case of search or requisition. Sub-section (1) starts with a non obstante clause, stating that it was notwithstanding anything contained, in sections 147, 148 and 149, etc. Clause (a) thereof provides for issuance of notice to the person searched under section 132 or where documents, etc., are requisitioned under section 132A, to furnish a return of income. This clause nowhere prescribes for issuance of notice under section 143(2). Learned counsel for the assessee/appellant sought to contend that the words, so far as may be applicable made it mandatory for issuance of notice under section 143(2) since the return filed in response to a notice under section 153A was to be treated as one under section 139. Learned counsel relies upon R. Dalmia v. CIT, [1999] 236 ITR 480 (SC) wherein the question of issue of notice under section 143(2) was examiried with reference to section i48 by the Supreme Court in the context of section 147. The apex court held as under (page 488):
‘As to the argument based upon sections 144A, 246 and 263, we do not doubt that assessments under section 143 and assessments and reassessments under section 147 are different, but in making assessment and reassessments under section 147 the procedure laid down in sections subsequent to section 139, including that laid down by section 144B, has to be followed.’
The case of R. Dalmia v. CIT, [1999] 236 ITR 480 (SC) primarily was with regard to the applicability of section 144B and section 153(since omitted with effect from April 1, 1989) to the assessment made under sections 147 and 148 and thus cannot be said to be the decision laying down the law regarding the mandatory issue of notice under section 143(2).
The words so far as may be in clause (a) of sub-section (1) of section 153A could not be interpreted that the issue of notice under section 143(2) was mandatory in case of assessment under section 153A. The use of the words so far as may be cannot be stretched to the extent of mandatory issue of notice under section 143(2). As is noted, a specific notice was required to be issued under clause (a) of sub-section (1) of section 153A calling upon the persons searched or requisitioned to file return. That being so, no further notice under section 143(2) could be contemplated for assessment under section 153A.
No specific notice was required under section 143(2) of the Act when the notice in the present case as required under section 153A(1)(a) of the Act was already given. In addition, the two questionnaires issued to the assessee were sufficient so as to give notice to the assessee, asking him to attend the office of the Assessing Officer in person or through a representative duly authorized in writing or produce or cause to be produced at the given time any documents, accounts, and any other evidence on which he may rely in support of the return filed by him.”
10. In view of the aforesaid pronouncement we do not find any error or perversity in the approach of the Tribunal ‘warranting interference by this court
11. With regard to the judgments relied upon by the learned counsel for the assessee, suffice it to notice that none of them was relating to applicability of requirement of issuance of notice under section 143(2) of the Act within the prescribed period thereunder relating to framing of assessment under section 153A of the Act. Thus, the assessee cannot derive any advantage from the said pronouncements.
12. In view of the above settled position of law, no substantial question of law arises. The appeal, stands, dismissed.
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