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TMI Blog2016 (11) TMI 76X X X X Extracts X X X X X X X X Extracts X X X X ..... our tax system would achieve an acceptable level of trust of its citizenry if it is generally seen as fair and equitable and this would be the desideratum that any society would aspire to obtain. 3. Perhaps, the most primary pre-requisite to achieve a process of equality in a tax regime would be the safeguards and the checks and balances that the regime adopts for itself. This is because, for a system based on voluntary compliance, the tax payers must have a perception that the system treats them with equity and fairness. 4. The Income Tax Act, 1961 ('the Act' for brevity) provides ineluctably for several layers of safeguards against arbitrary and capricious action. The most fundamental among them is that the tax payers are made to understand and put to notice about the detriment that the Act would inflict on them in case fiscal violation, evasion of tax or suppression of income are substantiated in the manner prescribed. It is when these safeguards and checks are perceived as being primary and inviolable that the system would achieve its most desired level of competence. 5. Taxation is a realm that is completely and absolutely authorised and defined by statute. No tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urse of survey, it was found that the assessee had suppressed the receipts for taking MRI Scan and CT Scan among others and also that it had paid the commission and professional fees to the doctors without deducting tax at source. Perhaps, as a response to the survey or being alerted of having to file their return to avoid further issues, the assessee, on 30.09.2009, filed their return of income under Section 139(1) of the Act for the assessment year 2009-10 declaring a total income at Rs. 1,58,519/-. The return for the year 2010-11 was subsequently filed, also under Section 139(1), on 14.10.2010. The return for the year 2009-10 was processed under Section 143(1) of the Act on 01.11.2010. However, on the basis of certain alleged incriminating documents and materials unearthed during the survey, the Revenue issued a notice under Section 148 of the Act on 11.01.2012. This notice has been annexed to the papers in ITA 221/2015 as Annexure- A12. It is admitted by both sides that the assessee filed a reply on 08.02.2012, in response to the Section 148 notice, to treat the return earlier filed by them on 30.09.2009 under Section 139(1), also to be a return in response to the notice under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interpretation of the statement of oath of the representative of the assessee. In such view, the appellate authority concluded that the Assessing Officer had no fundamental basis for estimating the income based on such presumptive ratios and therefore, he restricted the additions made by the assessing authority for the year 2009-10 to Rs. 3,37,755/- being the difference in the actual gross collection as was reflected in the incriminating papers, namely receipts showing collection for four months to which such materials related to and the collection shown for this period in the books of accounts. With reference to the assessment year 2010-11, the appellate authority deleted all the additions made by the Assessing Officer. 11. As is expected, the Revenue carried the orders of the CIT (Appeals) in further appeals before the Income Tax Appellate Tribunal (ITAT), Kochi Bench, which were numbered as ITA Nos.289 and 290/Coch/14 for the assessment years 2009-10 and 2010-11 respectively. The assessee had also filed cross objections, numbered as C.O.No.31/Coch/2014 against the order of the CIT (Appeals) for the assessment year 2009-10 and C.O.No. 32/Coch/2014 for the assessment year 2010-11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionale basis and concluded the total suppressed collection for the assessment year 2009-10 at Rs. 24,35,576/- as against Rs. 3,37,755/- assessed by the CIT(A). The ITAT then proceeded to estimate the suppressed receipts for the year 2010-11 adopting the same figures as were arrived at for the previous year. Since there was an increase of 24% per annum in the declared receipts for the year 2010-11 when compared to the assessment year 2009-10, the ITAT used this percentile of 24% to estimate the income for the assessment year 2010-11, arriving at a figure of Rs. 28,97,354/- for the assessment year 2010-11 over and above the returned income. 15. The assessee has filed these ITAs against the order of the ITAT raising various substantial questions of law. ITA 221/2015 has been filed against the order of the ITAT for the assessment year 2009-10 and ITA 228/2015 has been filed against the order of the ITAT for the assessment year 2010-11. Since the factual substratum of both these appeals are identical and arises out of the same set of incidents, we are proceeding to dispose of both the appeals by a common judgment. For the purpose of convenience, we are treating ITA 221/2015 as the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has escaped assessment within the meaning of that term explained in the statute, It is a settled position that the AO has to record his reasons for initiating proceedings for assessment under s.147 and notice has to be issued under s.148 and if assessee calls for justification for initiation of proceedings, the AO is bound to communicate reasons for initiating the income escaping assessment for any year against the assessee. Therefore, an income escaping asessment need not be based on return filed or the materials available therein or in the statement of accounts or documents attached thereto, but can be based on materials independently collected by the AO and available with him. In our view, s.147 is a distinct and separate power conferred on the AO to initiate action for assessment or reassessment and the only condition provided in the statute is that the AO has reason to believe that income chargeable to tax has escaped assessment. This, however, does not mean that in order to make an assessment or reassessment, there should be already an assessment or even a return filed by the assessee. In our view, s.147 cannot be related to an intimation under s.143(1) or a regular assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he survey that the copies of these receipts were not maintained in the books of account and that only ad hoc amounts were recorded in the books without any basis. It is also seen that there was variance between the actual receipts and declared receipts in the books of account. This justifiably led to a suspicion that income had escaped from assessment and it was in such circumstances that the Assessing Officer issued notice under Section 148 of the Act. Our opinion on this issue is guided by the dicta in the judgment of the Hon'ble Supreme Court in ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd. ((2007) 291 ITR 500), which leculently declared the pre-requisites for assumption of jurisdiction under Section 147 of the Assessing Officer as under: "16. Section 147 authorizes and permits the Assessing officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment. It is, however, to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to section 147. The case at hand is covered by the main provision and not the proviso." 22. Continuing on the path of challenge of the authority of the Assessing Officer under Section 147 of the Act, Mr.Sreekumaran, the learned counsel for the appellant, further asserts that no notice under Section 148 of the Act could have been issued by the Assessing Officer when the returns filed by the assessee in response to the earlier notice under Section 142(1) was pending and not processed. This contention again has been answered to the contrary in Abad Fisheries (supra). The judgment grants complete clarity to this position also in its further findings as below: "Therefore, in our view, an assessment under s.147 is permissible subject to the period of limitation stated therein, irrespective of whether the return was filed or intimation sent to the assessee or regular assessment under s.143(3) after issuing notice under s.143(2) of the Act was made or not. In other words, even within the time available for issuing notice under s.143(2) for making regular asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. These figures were then extrapolated to the year 2010-11 and taking into account the fact that there was 24% increase in the income declared by the assessee, vis-a-vis the income declared for the year 2009-10, the Assessing Officer proceeded to aseess the income for the year 2010-11 adopting this percentile of 24%. This method has been approved by the ITAT in its orders. However, the learned counsel for the appellant assails this on two grounds. For the first, he asserts that the materials impounded during the survey and the statement given by the representative to the questionnaire have no evidenciary value and that they cannot be used by the assessee for the purpose of assessment. He relies on the judgment of this Court in Paul Mathew and Sons v. CIT ((2003) 263 ITR 101 (Ker.)) and he placed before us paragraph 11 of the said judgment, which is as under: "......... we find that such a power to examine a person on oath is specifically conferred on the authorised officer only under s.132(4) of the IT Act in the course of any search or seizure. Thus, the IT Act, whenever it thought fit and ncesssary to confer such power to examine a person on oath, the same has been expressly pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... withdraw from the statement or admission, since such statement had not been made under Section 132(4), which provides for a sworn statement, but one under Section 133A of the Act. 26. In the case at hand, it is obvious that the statement made by the assessee was never resciled or recanted by it, but it continued to hold the statement to be correct throughout the proceedings. All that has been attempted to be done by the assessee is to show that the said statement has been wrongly interpreted by the Assessing Officer and that the statements given on its behalf by its authorised representative do not give rise to any admission. We have examined the answers to the questionnaire given by the representative of the assessee, which has been produced as Annexure-A15 in the papers annexed to ITA 221/2015. The answers are obviously self incriminating and the admissions are rather clear that several heads of income have not been accounted in the books of account and that this has been the pattern in the branch at Kottarakkara also. Further, the pleadings in the appeal filed by the assessee before the CIT (Appeals), which is produced as Annexure-A5 to the papers in ITA 221/2015, would also s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is substantially in the nature of questions of facts, which we do not intent to entertain under Section 166 of the Act. 28. The issue that, however, engages out attention more than the other issues is the contention of the learned counsel for the appellant that before making an assessment under Section 143(3) read with Section 147 of the Act, they ought to have been given a statutory notice under Section 143(2) of the Act. We must say that this contention, in our mind, assumes great significance. The question as to whether a notice has to be issued under Section 143(2) before making an assessment or reassessment under the provisions of Sections 143 and 147 respectively is no longer res integra and is not untouched by dicta. The Hon'ble Supreme Court has answered this with precision in Assistant Commissioner of Income Tax v. Hotel Blue Moon ((2010) 321 ITR 0362)) stating as under: "But s.143(2) itself becomes necessary only where it becomes necessary to ckeck the return, so that where block return conforms to the undisclosed income inferred by the authorities, there is no reason, why the authorities should issue notice under s.143(2). However, it an assessment is to be comple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue took a defence that it was only a typographical error and in fact, refers to Section 148 notice that was issued on 11.01.2012. In any event of the matter, the fact that the above extracted notice can no way qualify itself to be a notice under Section 143(2) becomes obvious from the way Section 143(2) is engrafted in the Statute. 30. Section 143(2) of the Act, as it stood before being substituted by the Finance Act, 2016, reads as under: "Where a return has been furnished under section 139, or in response to a notice under sub-section (1) of section 142, the Assessing Officer or the prescribed income-tax authority, as the case may be, if, considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not under-paid the tax in any manner, shall serve on the assessee a notice requiring him, on a date to be specifed therein, either to attend the office of the Assessing Officer or to produce, or cause to be produced before the Assessing Officer any evidence on which the assessee may rely in support of the return: Provided that no notice under this sub-section shall be served on the assessee after the expir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t or re-assessment, shall be deemed to be served with the notice, which was required to be served and that he would, thereafter, be precluded from objecting that notice was not served upon him, or that it was served upon him in an improper manner or that it was not served upon him in time. In this case, it is admitted by the assessee that his representative had appeared before the Assessing Officer on 19.12.2012, 11.03.2013 and 27.03.2013. The Revenue, therefore, asserts that since the assessee had appeared in the proceeding and had co-operated with the inquiry, he shall be then precluded from raising any contention that no notice had been served on him. This submission at the first blush appears to be appealing. However, on a clear reading of the section it becomes inscrutable that the issue of estoppel would arise against the assessee only after he had appeared in the assessment proceeding pursuant to a notice validly issued. In this case, the learned counsel for the assessee maintains that since no notice under Section 143(2) was issued to the assessee and that they have only received a Section 148 notice, they had been co-operating with the Assessing Offcer under the bona fide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tice under Section 143(2) of the Act. Since the jurisdiction under Section 143 is founded on the issuance of a notice under Section 143(2), the assessing officer could have assumed jurisdiction only after issuing a notice under Section 143 (2). Even the participation of the assessee would not provide the benefit under Section 292BB to the Revenue. The requirement that a notice be issued is mandatory and the Assessing Officer has no other option but to issue the notice before commencing the jurisdiction. Here, we draw support from the judgment of the Hon'ble Supreme Court in Assistant Commissioner of Income Tax v. Greater Noida Industrial Development Authority ((2015) 379 ITR 0014 (All)), wherein it was held as under: "Section 148(1) provides for service of notice as a condition precedent to making the order of assessment. Once a notice is issued within the period of limitation, jurisdiction becomes vested in the Income-tax Officer to proceed to reassess. The mandate of section 148(1) is that reassessment shall not be made until there has been service. The requirement of issue of notice is satisfied when a notice is actually issued." 34. The only benefit that Section 292BB obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer had infact issued the mandatory notice for that year on 11.01.2012. It is beyond comprehension that even though the Assessing Officer had time till 30.09.2011 to issue notice under Section 143(2) and even though he had recorded the reasons for assuming jurisdiction under Section 147 for re-assessment on 21.09.2011, he had still not chosen to issue the notice which would have then given him the jurisdiction to continue with the proceedings. We are unable to obtain any reasons to these omissions and it is rather distressing, as we have recorded in the opening lines of the judgment, that on account of this omission and non compliance of mandatory and imperative provisions, the assessee would now be entitled to reliefs which they otherwise would not have able to obtain. We have, therefore, no other option but to hold in the absence of a Section 143(2) notice, proceedings of assessment initiated, conducted and completed for the year 2009-10 will have to fail but for the year 2010-11, since the proceedings have been continued on the basis of a validly issued Section 143(2) notice, same is being upheld. In the result, ITA 221/2015 is allowed and the assessment order Annexure-A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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