Smt. Prabha Rani Agrawal vs Income Tax Officer and Another

The present appeal has been filed u/s 260A of the income tax Act, 1961 (hereinafter referred to as "the Act") against the order dated July 29, 2004, passed by the income tax Appellate Tribunal,, Allahabad. The appeal has been admitted, vide order- dated September 2, 2008, on the following two substantial questions of law arising out of the order passed by the income tax Appellate Tribunal, Allahabad: 1. Whether the income tax Appellate Tribunal was correct to hold that since in the set aside proceedings, the jurisdiction of the notice pertaining to the status was not challenged, the additional ground cannot be admitted ignoring that the jurisdiction goes to the root of the matter and can be raised for the first time before the Tribunal even otherwise the validity of notice u/s 148 of the income tax Act was challenged before the Commissioner of income tax (Appeals) in set aside matter?

Whether the income tax Appellate Tribunal was correct to hold that in the set aside proceedings the entire jurisdiction cannot be entertained ignoring the decision of Commissioner of Income Tax Vs. Ishwar Singh and Sons, ?

Briefly stated, the facts in brief, giving rise to the present appeal are as follows:

The appeal relates to the assessment year 1990-91 in proceedings arising u/s 147 /148 of the Act. The appellant is an individual. She is engaged in the business of silver bullion, etc. For the assessment year in question, she did not file any return of income. Notice u/s 148 of the Act was issued on January 18, 1995. In compliance thereof, she filed a return of income declaring an income of Rs. 17,900. The income tax Officer, Ward-1, Mirzapur (hereinafter referred to as "the Assessing Officer")/vide order dated March 21, 1997, assessed the income of the appellant on Rs. 1,01,500. Feeling aggrieved, the appellant filed an appeal before the Commissioner of income tax (Appeals), Allahabad, who, vide order dated February 5, 1998, set aside the order passed by the Assessing Officer and directed a fresh assessment to be made in accordance with law after giving a reasonable opportunity of being heard. In the remand proceedings, the appellant appeared before the Assessing Officer. Vide order dated October 4, 1999, the Assessing Officer once again assessed the income at Rs. 1,01,500. Feeling aggrieved,, the appellant preferred an appeal before the Commissioner of income tax (Appeals) Allahabad, who vide order dated March 3, 2000, partly allowed" the appeal. Minor relief was allowed. The proceedings initiated u/s 147 /148 of the Act was confirmed. Feeling aggrieved, the appellant preferred a second appeal before the Tribunal. The Tribunal by the impugned order had partly allowed the appeal.

We have heard Sri Suyash Agrawal, learned counsel for the appellant and Sri Shambhu Chopra, learned senior standing counsel appearing for the Revenue.

Learned counsel for the appellant submitted that the appellant had specifically raised a ground challenging the validity of the proceedings initiated u/s 148 of the Act in the appeal preferred before the Commissioner of income tax (Appeals), Allahabad, against the order dated March 21, 1997, and as the assessment order was set aside, the Commissioner of income tax (Appeals), Allahabad, did not go into that question. It was again raised before the Commissioner of income tax (Appeals) in the appeal preferred against the order dated October 4, 1999, but the Commissioner of income tax (Appeals), while deciding the appeal, vide order dated March 3, 2000, had declined to go into this question on the wrong premise that the appellant cannot raise this issue in reopened assessment proceedings and had incorrectly applied the principles laid down by the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., . He further submitted that the Commissioner of income tax (Appeals), however, had held that the action u/s 148 has been validly initiated. According to him, the Tribunal had wrongly upheld the order passed by the Commissioner of income tax (Appeals) on this point. Sri Agrawal submitted that as the matter goes to the root of the case, this issue can be raised at any stage for which he had relied upon the following decisions:

(1) Commissioner of Sales Tax Vs. Ram Chand, ; Commissioner of Sales Tax Vs. Ram Chand, ;

(2) Ram Dayal Harbilas Vs. The Commissioner of Sales Tax, ;

(3) Laxmi Narain Anand Prakash Vs. Commissioner of Sales Tax, Lucknow, ;

(4) Cawnpore Chemical Works Pvt. Ltd. (No. 1) Vs. Commissioner of Income Tax, ;

(5) B. K. GOOYEE Vs. COMMISSIONER OF Income Tax, WEST BENGAL., ;

(6) P. DOSHI Vs. COMMISSIONER OF Income Tax, GUJARAT, ;

(7) Commissioner of Income Tax Vs. Ishwar Singh and Sons, ; and

(8) Deputy Deputy Commissioner of Income Tax (Asstt.) Vs. Surat Electricity Co. Ltd., .

Sri Chopra, learned counsel submitted that it is not correct to state that the Assessing Officer, while passing the order on October 4, 1999, was making the assessment u/s 148 of the Act. In fact, he was passing the order u/s 251 of the Act to give effect to the direction given by the Commissioner of income tax (Appeals), vide order dated February 5, 1998, and, therefore, the appellant cannot raise the plea of jurisdiction or the validity of the proceedings initiated u/s 147 /148 of the Act. He submitted that the Commissioner of income tax (Appeals) has rightly declined to permit the appellant to raise such a ground in the second round of proceedings. In support of his aforesaid submission, he has relied upon the following decisions:

(1) Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, ;

(2) Commissioner of Income Tax Vs. Eicher Ltd., ;

(3) Saheli Synthetsics Pvt. Ltd. Vs. Commissioner of Income Tax, ; and

(4) (2009) 120 ITD 126 .

We have given our thoughtful consideration to the various pleas raised by the learned counsel for the parties. We find that against the order dated March 21, 1997, passed by the Assessing Officer u/s 147 /148 of the Act, the appellant in the memo of appeal preferred before the Commissioner of income tax (Appeals), Allahabad, had specifically questioned the proceedings initiated u/s 148 of the Act. Ground No. 1 taken in the memo of appeal is reproduced below:

That proceedings initiated u/s 148 are wholly illegal and without jurisdiction and have no nexus with the material on record.

The Commissioner of income tax (Appeals), while deciding the appeal, vide order dated February 5, 1998, had set aside the assessment on the short ground that reasonable opportunity was not given.

He did not go into the other grounds taken in the memo of appeal. The Commissioner of income tax (Appeals) has noted that there are as many as 11 grounds in appeal. However, while allowing the appeal, he has dealt with the matter as follows:

I have considered the matter and am of the opinion that in the facts and circumstances of the case it would be in the interest of justice to set aside the assessment to the Assessing Officer to be made afresh as per law after giving reasonable opportunity of being heard to the appellant. In the result, the assessment is set aside.

In the remand proceedings, the appellant did not question the jurisdiction of the Assessing Officer regarding initiation of proceedings u/s 148 of the Act. However, in the appeal preferred against the order dated October 4, 1999, she had questioned the initiation of proceedings u/s 148 of the Act. The Commissioner of income tax (Appeals), vide order dated March 3, 2000, had held that the appellant cannot raise this issue in reopened assessment proceedings as it had been settled earlier. The relevant portion of the order dated March 3, 2000, passed by the Commissioner of income tax (Appeals), Allahabad, is reproduced below:

I have considered the arguments of the appellant''s counsel and the entire material on record. The action u/s 148 has been validly initiated. Moreover, in this case assessment u/s 143(3) was made on March 21, 1997, originally and the appellant had filed an appeal. But no ground of appeal was taken regarding action u/s 148, Hence, following the decision of hon''ble Supreme Court in Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., , it is held that the appellant cannot raise this issue in reopened assessment proceedings as it had been settled earlier.

In the second appeal preferred before the Tribunal, the appellant had challenged the order passed by the Commissioner of income tax (Appeals) on this point by taking four grounds, which are reproduced below:

That the learned Commissioner of income tax (Appeals) erred in law and on facts, while holding that the action u/s 148 has been validly initiated.

That the observations made by the Commissioner of income tax (Appeals) that since the appellant had not taken any ground regarding action u/s 148, in the appeal originally filed, hence following the decision of the hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., the issue regarding reopening of the proceeding, cannot be raised, is factually wrong since the appellant had specifically challenged the initiation of proceeding u/s 148 in appeal originally filed.

That the learned Commissioner of income tax (Appeals) misinterpreted the decision of the hon''ble Supreme Court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., .

That there is neither any material nor any reason to believe for taking action u/s 148 of the income tax Act inasmuch as the income tax Officer failed to disclose the said material or reason to the appellant during the course of the assessment proceedings and as such the income tax Officer''s order is vitiated in law.

The Tribunal in paragraph 9 did not admit the additional grounds of appeals Nos. 1 to 4 by holding as follows:

Originally the assessment order dated March 21, 1997, for the assessment year 1990-91, was set aside by an order dated February 5, 1998, of the learned Commissioner of income tax (Appeals), with the direction to the Assessing Officer to reframe the assessment after giving the opportunity to the assessee. The assessment order dated March 21, 1997, was challenged by the assessee before the learned Commissioner of income tax (Appeals) but no ground relating to the issue of notice u/s 148 was taken by the assessee. No appeal has been filed by the assessee against the order of the learned Commissioner of income tax (Appeals) dated February 5, 1998. Therefore, order dated February 5, 1998, has become final. As no grounds were raised against the original assessment order dated March 21, 1997, regarding issue of notice u/s 148, now the assessee cannot raise this ground because the Assessing Officer was bound by the direction of the learned Commissioner of income tax (Appeals), setting aside the assessment order dated March 21, 1997, vide the learned Commissioner of income tax (Appeals)''s order dated February 5, 1998, which has become final. Therefore, all the grounds of appeal are not maintainable in the second appeal against the learned Commissioner of income tax (Appeals)''s order dated March 3, 2000. Therefore, the additional ground of appeal Nos. 1 to 4 are not admitted and dismissed.

From the aforesaid, it is absolutely clear that in the first round of proceedings, the Commissioner of income tax (Appeals) did not go into the question regarding the validity of the proceedings initiated u/s 148 of the Act and he had simply set aside the assessment to be made de novo after giving reasonable opportunity to the appellant. There was no occasion for the appellant to take up the matter further in appeal. In the second round of proceedings, the appellant had challenged the initiation of proceedings u/s 148 of the Act before the Commissioner of income tax (Appeals) though no such plea was raised before the Assessing Officer. The Commissioner of income tax (Appeals) on the one hand had held that the action u/s 148 of the Act had been validly initiated but on the other hand had held that as in the assessment made on March 21, 1997, originally the appellant had filed an appeal but no ground of appeal was taken regarding action u/s 148 of the Act, hence, the appellant cannot raise this issue in reopened assessment proceedings.

In the case of Commissioner of Sales Tax Vs. Ram Chand, ; Commissioner of Sales Tax Vs. Ram Chand, , this court has held that a point which goes to the root of the matter or affects the very existence of the jurisdiction of the authority, can be raised at any time, be it in appeal or in revision.

In the case of Ram Dayal Harbilas Vs. The Commissioner of Sales Tax, , a Full Bench of this court was considering the provisions of section 9 of the U. P. Sales Tax Act, 1948, which empowered the appellate authority while hearing an appeal against the order of remand to confirm, reduce, enhance or annul the assessment order to set aside the assessment and to direct the assessing authority to pass a fresh assessment order after such further enquiry as may be directed. This court has held that:

13... As we read the section, the appellate authority acting u/s 9(3)(b) of the Act, has merely to set aside the assessment, leaving it to the assessment authority to bring into a fresh assessment order made in accordance with law after removing the defects pointed out by it, of course, when the case goes back to the assessing authority, the assessing authority would while making assessment, be bound by the findings, if any, recorded by the appellate authority on the basis of material already on the record and he will have to make the final assessment treating such finding as binding on him, but as while completing the assessment proceedings it is open to the assessing authority to make such enquiry as it likes and to take notice of fresh material which come to his knowledge before making the assessment order, the assessing authority will be able to reconsider the findings, if any, recorded by the appellate authority on the basis of the additional material coming to its knowledge.

It, therefore, follows that where an assessment made u/s 7 of the Act is set aside by the appellate authority and the case is remanded to the assessing authority, the assessing authority has, subject to carrying out the direction''s made by the appellate authority with regard to making of enquiries, the same power as it originally had for making the assessment under that section.

In the case of Laxmi Narain Anand Prakash Vs. Commissioner of Sales Tax, Lucknow, , a Full Bench of this court has held that further notice u/s 21 of the U. P. Sales Tax Act, 1948, having been improperly served the initiation of proceedings was without jurisdiction and it could not be validated by participation of the assessee in the proceedings and the invalidity of the notice goes to the very root of the matter and the whole proceedings has been vitiated in law. If it is found that the notice instead of being addressed to the dealer was addressed to an entity which did not exist, the defect in the notice was fatal to the assumption of jurisdiction by a Sales Tax Officer.

In the case of Cawnpore Chemical Works Pvt. Ltd. (No. 1) Vs. Commissioner of Income Tax, , this court has held that the Appellate Assistant Commissioner under the income tax Act has been given ample power to inhibit the scope and ambit of the assessment proceedings to be carried on by the assessing authority. If any disallowance on account of the commission paid to the selling agent by the assessee has been upheld and the matter has been remanded to the income tax Officer to fresh determination, and the matter is not pursued further by the assessee, then in the fresh assessment, disallowance on account of the commission paid to the selling agent cannot be contested and considered on the merits in appeal filed against the fresh assessment.

In the case of B. K. GOOYEE Vs. COMMISSIONER OF Income Tax, WEST BENGAL., , the Calcutta High Court has held that the objection of invalidity of the notice issued u/s 34 of the Indian income tax Act, 1922, and all proceedings thereunder can be taken in appeal by the assessee even though he had submitted a return in response to the notice and had not taken this objection before the income tax Officer as service of a valid notice is necessary to invest the income tax Officer with jurisdiction to take proceedings under this section.

In the case of Deputy Commissioner of Income Tax (Asstt.) Vs. Surat Electricity Co. Ltd., , the Gujarat High Court has held that as a jurisdictional provision which was mandatory and enacted in public interest could never be waived and the want of jurisdiction was discovered by the Appellate Assistant Commissioner, there was no question of waiver by the assessee. No question of finality of the remand order of the Tribunal could arise because the mandatory conditions for founding jurisdiction for initiating reassessment proceedings had not been fulfilled. The order of reassessment was, therefore, not valid.

In the case of Commissioner of Income Tax Vs. Ishwar Singh and Sons, , this court has held that the issue of notice u/s 148(1) is the condition precedent to the validity of an assessment u/s 147. It is a jurisdictional issue and unless such a notice is issued the income tax Officer does not get jurisdiction to make an assessment on a particular assessee.

In the case of Deputy Commissioner of Income Tax (Asstt.) Vs. Surat Electricity Co. Ltd., , the Gujarat High Court has held that the set aside of the assessment made by the appellate authority is always in accordance with the directions given by the appellate authority for making a fresh assessment. But the most material part of the provision is the opening portion which stipulates "In an appeal against an-order of assessment". In other words, the entire gamut of powers which are available to the appellate authority is governed within the four corners of the subject-matter of appeal. The subject-matter of appeal is the assessment of income which forms part of the order of assessment in the light of the return of income filed by an assessee. Examining the facts of the present case in the light of the aforesaid decision, it is apparent that the Assessing Officer was required to make a fresh assessment in accordance with the directions given by the Commissioner (Appeals) and could not have travelled beyond the same.

In the case of Central Provinces Manganese Ore Co. Ltd. Vs. Commissioner of Income Tax, , the apex court has approved the principles laid down by the Karnataka High Court in the case of National Products Vs. Commissioner of Income Tax, Mysore, wherein it has been held that simpliciter challenging the levy of interest u/s 215 of the Act is not appealable but, in an appeal against an order of assessment the assessee can challenge its liability to pay advance tax which may have effect on the question of levy of penal interest otherwise not.

In the case of Commissioner of Income Tax Vs. Eicher Ltd., , the Delhi High Court has held as follows (page 315):

... if the entire material had been placed by the assessee before the Assessing Officer at the time when the original assessment was made and the Assessing Officer applied his mind to that material and accepted the view canvassed by the assessee, then merely because he did not express this in the assessment order, that by itself would not give him a ground to conclude that income has escaped assessment and, therefore, the assessment needed to be reopened. On the other hand, if the Assessing Officer did not apply his mind and committed a lapse, there is no reason why the assessee should be made to suffer the consequences of that lapse.

In the case of Saheli Synthetsics Pvt. Ltd. Vs. Commissioner of Income Tax, , the Gujarat High Court has held as follows:

Similarly even where an assessment is set aside simpliciter, without any enhancement proposal, it is always in the context of the appeal against an order of assessment and cannot be read to mean that the appellate authority granted powers to the Assessing Officer in relation to items of assessment which were never forming part of the appeal before the appellate authority. At the cost of repetition it is required to be noted that processing a new source of income which was on the record before the Assessing Officer but is not forming part of subject-matter of appeal before the appellate authority can be undertaken by the appellate authority only in the course of enhancement of the assessment and, therefore, any set aside, which does not involve a proposal for enhancement cannot be used for the purpose of expanding the scope of the powers available to the Assessing Officer while making a fresh assessment pursuant to a set aside.

in the case of (2009) 120 ITD 126 , the Chennai Bench of the income tax Appellate Tribunal has held that the assessee can not be permitted to convert the reopened proceedings as his appeal or revision, in disguise, and seek relief in respect of items not claimed in the original proceedings unless relatable to escaped income and reagitate the concluded matters.

From the aforesaid decisions, it follows that (i) a question relating to jurisdiction which goes to the root of the matter can always be raised at any stage, be in appeal or revision, (ii) initiation of proceedings u/s 147 of the Act and/or service of notice are all questions relating to assumption of jurisdiction to assess escaped income, (iii) if an issue has not been decided in appeal and the matter has simply been remanded, the same can be raised again notwithstanding with the fact that no further appeal has been preferred, (iv) in the reassessment proceedings, relief in respect of item which was not originally claimed cannot be claimed again as the reassessment proceedings are for the benefit of the Revenue, and (v) relief can only be claimed in respect of the escaped income. Applying the principles laid down in the aforesaid cases to the facts of the present case, we find that in the first round of proceedings before the Commissioner of income tax (Appeals), the appellant had specifically questioned the validity of the proceedings initiated u/s 148 of the Act. That issue was not decided by the Commissioner (Appeals) who had remanded the matter for fresh assessment after providing opportunity of hearing. The question relating to the jurisdiction assumed under, section 147 /148 of the Act goes to the very root of the matter and it can be raised in appeal for the first time. The appellant had raised this question again in appeal and, therefore, it was incumbent upon the Commissioner of income tax (Appeals) to adjudicate upon the grounds taken before him. In fact, he had casually observed that the proceedings u/s 148 of the Act had been validly initiated but, wrongly applied the principles laid down by the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., .

Before the Tribunal, the appellant had challenged the adverse findings recorded by the Commissioner of income tax (Appeals) by raising four specific grounds which we have already reproduced hereinbefore. The Tribunal had erred in law in declining to permit the appellant to raise those grounds.

The approach of the Commissioner of income tax (Appeals) is erroneous in law for the reason that in the grounds of appeal filed against the order dated March 21, 1997, a specific ground relating to validity of proceedings initiated u/s 148 of the Act had been taken which was not gone into by the Commissioner of income tax (Appeals) while setting aside the assessment. The principles laid down by the apex court in the case of Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., would not apply as the appellant is not claiming any deduction or relief on the taxability of any item in the reopened assessment proceedings which had not been claimed in the original assessment. The Tribunal had also erred in law in holding that as no appeal had been filed by the appellant against the order dated February 5, 1998, passed by the Commissioner of income tax (Appeals), the same had become final and the appellant cannot be permitted to raise any ground relating to the validity of the proceedings u/s 148 of the Act in the remand proceedings.

In view of the foregoing discussions we are of the considered opinion that the Tribunal has erred in law in so far as it refused to permit the appellant to raise the ground Nos. 1 to 4 and, therefore, the same cannot be sustained. The appeal succeeds and is allowed. The Tribunal is directed to decide the appeal a fresh in accordance with the directions contained hereinabove.