High Court Of Kerala
Travancore Diagnostics (P.) Ltd. vs. ACIT, Circle-1, Kollam
Section : 143, 147, 292BB
Assessment Year : 2009-10
Thottathil B. Radhakrishnan And Devan Ramachandran, JJ.
IT Appeal Nos. 221 And 228 Of 2015
October 19, 2016
Devan Ramachandran, J. – “The subjects of every State ought to have contributed towards support of the Government, as merely as possible in proportion to their respective abilities” Adam Smith said in his celebrated treatise “Wealth of Nations” in the year 1776.
2. Most citizens recognise that the taxes are unexpendable for the creation, protection and maintenance of all the constitutive infrastructural services provided by the Government. Citizens would generally comply with the tax levies as long as certain inviolable criterion are met. As the society grows in complexity, especially in financial and fiscal areas, it may not be easy to design and administer a tax system that is fair and equitable in the absolute sense. However, 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 can be levied or collected except under the authority of law. While implementing and administering the tax statute, the classic words of Rowlatt, J. in Cape Brandy Syndicate V.I.R.C. (1921) 1 KB 64 would be the fundamental guiding line:
“In a taxing statute one has to look merely at what is clearly said. There is no reason for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look faily at the language used.”
That the statutes imposing taxes or monetary burdens are to be strictly construed is settled by the Hon’ble Supreme Court of India in a multitude of decisions and the above words of Rowlatt J. has found approval in them. It is the statutes of taxation that the maxim “A verbis legis non est recedendum” is the most apt and apodictic. This maxim directs the construction to be put on statutes, against the express letter of which the courts will not sanction any interpretation.
6. We have started this judgment with the above exordium, since we find certain issues that have been raised in this matter, essentially relating to non-compliance, on account of oversight or heedlessness, by the Tax Officers of imperative provisions, which unfortunately obtain to the assessees the benefit of technical defences against orders, which otherwise they would have had to legally suffer.
7. The facts of this case, compendiously, for the purpose of answering the issues raised herein are that the Revenue claims that the assessee, who is the appellant herein, is a company having a Diagnostics Laboratory at Kollam and a branch at Kottarakkara. The factual controversy starts straightaway, since the assessee maintains that the alleged branch at Kollam, which is having a Magnetic Resonance Imaging (MRI) Scan facility, is not owned by it but it is owned by another company by name M/s. Travancore Health Care (P) Ltd. and that it has no connection whatsoever with this company. The Revenue of course asserts otherwise and it is alleged that the assessee has facilities for MRI Scan, CT Scan, Ultrasound Scan, X-ray and Laboratory tests in both the Labs. On a suspicion of suppression or escaped assessment, a survey was conducted under the provisions of Section 133A of the Act both in the Kollam and Kottarakkara premises of the assessee on 24.09.2009. The Revenue maintains that during the course 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 Section 148. It appears that thereafter, the case was posted for hearing on 19.12.2012 and that the assessee’s authorised representative Sri. Alex Kuriakose, Chartered Accountant, appeared before the authorities and submitted certain details. A questionnaire under Section 142(1) of the Act was issued to Sri. Alex Kuriakose on 25.02.2013, and his answers shown to be sworn under oath, were furnished by him on 05.03.2013. Thereafter, the Revenue issued a proposal to the assessee on 25.03.2013, in response to which the assessee filed a reply on 26.03.2013 and again Sri. Alex Kuriakose appeared personally representing the assessee on 19.12.2012, 11.03.2013 and 27.03.2013.
8. The Assistant Commissioner of Income Tax, Circle-1, Kollam, who was the relevant Assessing Officer, assessed the assessee under Section 143(3) read with Section 147 of the Act to a total income of Rs. 1,09,38,057/- as per the assessment order dated 30.03.2013. This was for the assessment year 2009-10. This order is annexed as Annexure-A4 along with ITA 221/2015.
9. As far as the next assessment year, namely A/Y 2010-11 was concerned, on the same set of allegations the Assessing Officer issued an assessment order under Section 143(3) of the Act dated 30.03.2013 assessing a total income of Rs. 1,43,52,665/-. This order is annexed as Annexure-A2 in ITA 228/2015. The assessment for the year 2010-11, as is perspicuous from Annexure-A2 was based on the calculations and computations arrived at by taking into account the gross receipts and income at Kollam and Kottarakkara branches of the assessee obtained through the documents impounded during the survey and then adopting such figures for the assessment year 2010-11.
10. The two assessment orders mentioned above were challenged by the assessee before the Commissioner of Income Tax (Appeals), Thiruvananthapuram in separate Appeals numbered as ITA No. 15/CIT (A)/TVM/13-14 and ITA No. 14/CIT (A)/TVM/13-14 with respect to the assessment years 2009-10 and 2010-11 respectively. The appeals were heard by the Appellate Officer and by separate orders, both dated 25.03.2014, it was concluded that the Assessing Officer’s estimation of income was based on mere presumptive ratios. He also came to the conclusion that the business of Travancore Health Care (P.) Ltd. has been considered by the Assessing Officer to be that of the assessee though an incorrect 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.
12. The ITAT thereafter proceeded to dispose of both the cross objections of the assessee and the appeals filed by the Revenue by a common order dated 12.02.2015.
13. Additional jurisdictional grounds were raised by the assessee before the ITAT. Primary among them being that since the assessment was completed by the assessing authority under Section 143(3) read with Section 147 of the Act, a notice under Section 143(2) of the Act had to be issued within the period of limitation. The assessee maintains that no such notice under Section 143(2) had ever been issued to him and that in such circumstances, the entire assessment fails. The assessee also raised an issue regarding the assumption of jurisdiction for assessment by the Assessing Officer under Section 147(1) which he claimed was without jurisdiction. It is the specific case of the assessee that the Assessing Officer had initiated action under Section 147 without sufficient material and without sufficient cause or reason and that thus it eroded the substratum of the entire process initiated under Section 147 of the Act. The assessee has also asserted that the quantification of unaccounted income and that the assessment/re assessment has been done without any discernible rationale or comprehensible reason and that it, therefore, suffers from gross illegality.
14. The ITAT, however, after considering each of the above issues, rejected all the contentions of the assessee and allowed the appeals filed by the Revenue holding that since the representative of the assessee had participated in the re-assessment proceedings under Section 147 and the assessment proceedings under Section 143, absence of issuance of notice under Section 143(2) would have no bearing and would stand condoned in view of Section 292BB of the Act and that there were valid cause and grounds for assumption of jurisdiction under Section 147, since the Assessing Ovfficer had recorded reasons for issuance of notice under Section 148 of the Act. The ITAT had also concluded that there was clear case of suppression of collection by the assessee for the years 2009-10 and 2010-11 as having been found during the course of survey and which was admitted by the assessee’s representative Mr. Alex Kuriakose in his sworn statement. The ITAT then proceeded to hold that the estimate made by the assessing authority is a bona fide estimate, based on rationale 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 in lead and all the documents and references to parties, if not otherwise specifically mentioned, would be as per the reference made in ITA 221/2015.
16. We have heard Sri. D.S. Sreekumaran, the learned counsel appearing for the appellant and Sri. Christopher Abraham, the learned Standing Counsel for the Assistant Commissioner of Income Tax, Circle-1, Kollam, the sole respondent in both the appeals. We have also read the notes of arguments filed by Mr. Sreekumaran on 26.08.2016 and 07.09.2016.
17. An ex facie examination of the questions of law that have been raised as above, would clearly show that some of the questions that have been raised are essentially questions of fact sought to be presented with the facade of questions of law, especially in the case of ITA 288/2015.
18. The questions that have been raised in ITA 228/2015 would also, according to our view, deal with the questions that have been raised in ITA 221/2015. The questions raised in ITA 221/2015 can be clubbed broadly into three classes. Question Nos. 1 to 4 relate to the authority of the Assessing Officer to assume jurisdiction for re-assessment under Section 147 of the Act. Question No. 6 relates to the service of notice under Section 143(2) and question Nos. 5 to 10 relate to the method adopted by the authorities in arriving at the quantum of assessment and the method used for doing so.
19. As to the question of assumption of jurisdiction, the ITAT has clearly found that sufficient reasons are recorded by the Assessing Officer in order to issue a notice seeking to re-open the assessment under Section 147 of the Act. Section 147 is a provision that empowers the Assessing Officer to make an assessment or a re-assessment, if he has reason to believe that any income chargeable to tax has escaped assessment. The sweep of Section 147 has been stated with felicity by a Bench of this Court in CIT v. Abad Fisheries  204 Taxman 267/ 16 taxmann.com 398. Paragraph 7 of the judgment declares the position succinctly and is extracted hereunder for immediate reference:
“So far as s. 147 is concerned, in the first place, it is an income escaping assessment and it can be made for the first time as an assessment, no matter whether assessee has filed return or not. However, the sine qua non for initiating proceedings under s. 147 is information available with the officer that any income chargeable to tax 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 assessment 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 assessment under s. 143(3), though in a case where assessee has filed return escaped income has to be determined with reference to income so returned or assessed. In other words, whether return is filed or intimation sent or regular assessment is completed or not, the AO can initiate and complete an assessment under s. 147 for any year, if he has reason to believe that any income chargeable to tax has escaped assessment within the meaning of the said expression contained in the Act. As already stated, s. 147 is a self-contained provision and the limitations and conditions are only those specifically stated therein. This position is fortified by the first proviso to s. 147 which provides for extended period of limitation for reassessment under s. 147 beyond four years after completion of assessment under s. 143(3) only if assessee failed to disclose fully and truly all material facts necessary for assessment.”
20. We are in absolute agreement with the above stated position of law and it is indubitable that, an income escaping assessment as provided under Section 147, may not be based on the return filed or on the basis of the materials thereunder, but may be the materials independently collected leading to a subjective opinion in the minds of the Assessing Officer that he has reasons to believe that any income has escaped assessment with the only limitation that this shall be done within four years after the completion of assessment. The Assessing Officer has recorded the reasons for issuance of notice under Section 148 as under:
“a. A survey was conducted under Section 133A of the Act.
b. The return of income under Section 139(1) had been filed by the assessee electronically and
c. During the course of survey, it was found that the assessee had not maintained copies of the bills issued to the pateients earlier for the years to substantiate the receipts admitted in the books of account.”
21. For the purpose of entertaining an initial suspicion by the Assessing Officer, the materials impounded and recovered during the survey and the statement of the Manager of the assessee, Sri. Philip Varghese, were sufficient and it would become the foundational basis for the initial suspicion that the assessee had suppressed receipts for conducting MRI, CT Scan, etc. Further, though the assessee had issued receipts to the patients for conducting various tests, it was noticed during the 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 Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd.  291 ITR 500/161 Taxman 316, 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 expression cannot be read to mean that the Assessing officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Delhi High Court in Central Province Manganese Ore Co. Ltd. v. ITO  191 ITR 662, for initiation of action u/s. 147 (a) (as the provision stood at the relevant time) fulfillment of the two requisite conditions in that regard is essential. At that stage, the final outcome of the proceeding, is not relevant. In other words, at the initiation stage, what is required is reason to believe, but not the established fact of escapement of income. At the stage of issue of notice, the only question is whether there was relevant material on which a reasonable person could have formed a requisite belief. Whether the materials would conclusively prove the escapement is not the concern at that stage. This is so because the formation of belief by the Assessing officer is within the realm of subjective satisfaction.
17. The scope and effect of section 147 as substituted with effect from April 1, 1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the ciucumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction u/s. 147(a) two conditions were required to be satisfied firstly the Assessing officer must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the Assessing officer could have jurisdiction to issue notice u/s. 148 read with section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the Assessing officer for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to re-open the assessment. 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 case (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 assessment if the AO is of the view that materials available with him or discovered by him are such as to justify income escaping assessment under s. 147, he is free to record the reasons for the belief and proceed to make income escaping assessment under s. 147 without proceeding to make a regular assessment under s. 143 (3) of the Act.”
The only caveat in the nature of a proscription noticed by this Court in Abad Fisheries case (supra) while proceeding with re-assessment under Section 147 when the assessment proceedings under Section 143(3) is pending, is that “an income escaping assessment under Section 147 cannot be completed within the time available for issuing notice under Section 143(2) of the Act and for the completion of assessment under Section 143(3)”.
23. On a conspectus of the ratio of the judgments noticed above and the reasons stated by us supra, we are of the view that the Assessing Officer was forensically empowered and justified for assuming the jurisdiction vested in him under Section 147 of the Act and that the notice issued to him under Section 148 of the Act suffers from no legal error or infirmity.
24. Quoad hoc the contention of the appellant that the assessments for the years 2009-10 and 2010-11 have been made by the Assessing Officer without any discernable rationale and on conjunctures and surmises. We are of the considered view that the contention will not hold water. The assessments were made based on incrimanating materials that were impounded during the survey and on the basis of the statement given by the representative of the assessee to the questionnaire presented to him under Section 133A(3)(iii) of the Act. For ease of comprehension, Section 133A(3)(iii) is extreacted below:
“record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.”
As has been recorded by the ITAT also, the Assessing Officer had assessed the escaped income based on the collections that were reflected in the impounded documents and the differance between the figures mentioned in those documents and the books of account maintained by the assessee which was justifiably found to be escaped and suppressed. Since the figures that were unearthed during the survey related to four months, the Assessing Officer then, on a pro-rata basis, adopted the same figures for the whole year and made an assessment for the year 2009-10. 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 assess 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 & Sons v. CIT  263 ITR 101/129 Taxman 416 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 provided whereas s. 133A does not empower any ITO to examine any person on oath. Thus, in contradistinction to the power under s. 133A, s. 132(4) of the IT Act enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the IT Act. On the other hand, whatever statement recorded under s. 133A of the IT Act, is not given any evidentiary value obviously for the reason that the officer is not authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated under law. Therefore, there is much force in the argument of the learned counsel for the appellant that the statement, elicited during the survey operation has no evidentiary value and the ITO was well aware of this.”
25. Before we examine this contention, we have to bear in mind that another Bench of this Court in the judgment in CIT v. Hotel Samart  323 ITR 353 (Ker.) has virtually gone to the extent of thinking that the judgment in Paul Mathew & Sons case (supra) may not lay down the correct law. However, in the said judgment, since the learned counsel for the assessee did not press further contentions based on the vires of Paul Mathew & Sons case (supra), no further discussion as to the correctness or otherwise of Paul Mathew & Sons case (supra) was recorded. However, since the learned counsel for the appellant presses before us the same contention, we are contrained to answer it. For the purpose of this case, we do not think that it is necessary to venture into a question as to whether Paul Mathew & Sons case (supra) lays down the right law. Even taking the dicta in Paul Mathew & Sons case (supra) as the correct law, it is clear from the judgment that what this Court had said is that the statement made by the assessee under Section 133A of the Act is not conclusive and that it is open to the person who made the admission to rescile from it and to state the same to be incorrect, in which event, the assessee should be given an opportunity to show that the books of account discloses the correct statement of facts. We draw support for our opinion from the judgment of the Hon’ble Supreme Court in Pullangode Rubber Produce Co. Ltd. v. State of Kerala  91 ITR 18 (SC). The position appears to be clear that the person making the admission or the statement will be at liberty to 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 show that the consistent case of the assessee is that “even though separare bills are issued to the patients for MRI Scan and other diagnostic services, cash collection is done at one single point. On the end of the day, total income is separated and the income from MRI Scan and X-ray is given to Travancore Health Care Private Limited, which is accounted for by them and the income from other diagnostic services is account for by the appellant”. In view of these specific pleadings, the uncontroverted and admitted statement given on behalf of the assessee under Section 133A and the documents impounded during the survey, which were also virtually admitted by the assessee, we do not find any error in the order of the ITAT in accepting the materials on record in order to arrive at an assessment.
27. The learned counsel for the appellant finally asserts that even if the documents impounded and the statement made are acceptable in evidence, the method adopted by the Assessing Officer and approved by the orders of ITAT in adopting the figures, found in the documents impounded, for the whole year on a prorata basis and the extrapolation of such figures for the subsequent year in order to make a best judgment or assessment is completely erroneous. We cannot accept this contention. As has been already found by us, the materials obtained during the survey and the statement made on behalf of the assessee remain uncontroverted and are not resciled or recanted by them and thus virtually being admitted by the assessee. When the suppression had been thus found from the documents and the statement on record, the Assessing Officer was completely justified in adopting those figures for the whole year and for the next year, which is based on sound rationale, since from the statement on behalf of the assessee the suppression was found to be continued. This method has already been found imprimatur by this Court in CIT v. Dr. P. Sasi Kumar  387 ITR 8/73 taxmann.com 173 (SC) as well as in the judgment of the Hon’ble Supreme Court in CST v. H.M. Esufali H.M. Abdulali  90 ITR 271 (SC). Even though the latter case relates to sales tax, the principles that have been stated therein would apply in all force for a best judgment in a matter of this nature also. In any event of the matter, this contention raises no question of law and 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 re assessment 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 Asstt. CIT v. Hotel Blue Moon  321 ITR  321 ITR 362/188 Taxman 113 (SC) 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 completed under s. 143(3) read with s. 158BC, notice under s. 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 s. 143(2) cannot be a procedural irregularity and the same is not curable and, therefor, the requirement of notice under s. 143(2) cannot be dispensed with.”
29. At the time when the matter was heard, the learned counsel for the Revenue virtually admitted that no notice under Section 143(2) of the Act has been issued but held out that even in the absence of Section 143(2) notice, the assessment made could be maintained on two grounds. He contends that the Assessing Officer had, during the proceedings, issued a notice as is discernible from the order sheet produced as Annexure-A2 in the papers of ITA 221/2015, on 10.12.2012. Even though the said notice has not been produced before us, we see from the order of the ITAT that same has been extracted. For ease of reference and since the Revenue contends that this notice can be treated as one issued under Section 143(2), we deem it appropriate to extract the same here:
Government of India
Income Tax Department
Office of the Additional Commissioner of Income-tax
Kollam Range, Kollam
M/s. Travancoe Diagnostics Pvt. Ltd.
Chamakada, Najeem Complex, Kollam.
Sub: Income tax Assessment in your own case-A.Y.2009-10 reg.
Ref: Notice u/s. 143(2) dated 11/01/2012.
Income tax assessment for the A.Y. 2009-10 is posted for hearing at my office at Kollam on 19-12-12 at 3.30 p.m. You are requested to appear before me on the date of hearing either in person or through an Authorized Representative. Failure on your part, the assessment will be finalized on the basis of material available on record.
Asst. Commissioner of Income-tax
From a reading of this notice, we believe that the submission that this may be treated as one issued under Section 143(2) of the Act is a contention bordering on brinkmanship by the Revenue and not one with real conviction. The order sheet very clearly shows that this is a notice that had been issued as a “posting notice” and nothing else. The above extracted notice ineffably refer to a notice under Section 143(2) dated 11.01.2012. However, the learned counsel for the Revenue 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 expiry of six months from the end of the financial year in which the return is furnished.”
It is indubitable from the section that the Assessing Officer shall serve on the assessee a notice specifying the particulars of such claim of loss, exemption, deduction, allowance or relief made in the return, if he has reason to believe that all such are inadmissible. The notice is also to direct the assessee to produce or cause to be produced any evidence or particulars specified therein or on which the assessee may rely. A notice under Section 143(2) is the hypostasis on which any proceedings under Section 143(3) or a re-assessment under Section 147 (if the time for regular assessment is not over) will have to be rested on. In the absence of a notice under Section 143(2), it is obvious that no further proceedings can be continued for assessment under Section 143 and the Hon’ble Supreme Court has already settled the law that without such a notice the Assessing Officer could not assume jurisdiction and that this defect cannot be cured subsequently, since it is not a procedural defect, but it is the defect that goes to the root of the jurisdiction.
31. The learned counsel for the Revenue, however, fervently tried to support the assessment in the absence of Section 143(2) notice, taking refuge under the provisions of Section 292BB of the Act. For immediate reference, the said section is extracted under:
“Where an assessee has appeared in any proceeding or co-operated 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 proceedin 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 has raised such objection before the completion of such assessment or reassessment.”
This section was introduced by the Finance Act, 2008 with effect from 01.04.2008. This section incorporates the principle of estoppel. It stipulates that the assessee, who has appeared in a proceeding and has co-operated in an enquiry relating to the assessment 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 Officer under the bona fide impression that the proceedings that were going on was the re-assessment under Section 147 and not for assessment under Section 143 for the year 2009-10. We are not impressed with this stand of the assessee because as regards 2010-11, the assessee admits that the Revenue had issued a Section 143(2) notice and that the assessee had received the same. He was, therefore, obviously aware of the fact that the proceedings being continued were under Sections 143 and 147. However, the assessee is entitled to take all technical defences available to them and we cast no aspirations on their conduct in making a defence that they were not aware that they was participating in a proceedings under Section 143 for the year 2009-10.
32. It is virtually admitted by the Revenue that no notice under Section 143(2) had been issued. In Hotel Blue Moon’s case (supra), the Hon’ble Supreme Court has already settled the position of law the omission on the part of the Assessing Officer under Section 143(2) cannot be a procedural irregularity and that the same is not curable and that therefore, the requirement of notice under Section 143(2) cannot be dispensed with. This emphatic statement of law, in the absence of issuance of a notice under Section 143(2) by the Revenue, would, therefore, inure to the benefit of the assessee, even though as noticed above, we are not impressed by the contention that he was not aware of the proceedings under Section 143 for the assessment year 2009-10. However, when the statute makes it imperative that notice under Section 143 (2) is to be issued, the omission or failure would then hit at the root of the jurisdiction applying the principles enunciated in Anisminic Ltd. v. Foreign Compensation Commission  2 AC 147 , which has been approved by the Hon’ble Supreme Court in several judgments.
33. The extended question then is whether even if the assessee is deemed to have participated in the proceedings under Section 143, even without the Assessing Officer having issued the mandatory notice, would the Revenue be entitled to the benefit provided under Section 292BB of the Act. Section 292BB creates an estoppel against the assessee in claiming that no notice has been served on him, if he has participated in the proceedings. However, the said section does not in any manner grant any privilege to the Assessing Officer in dispensing with the issuance of a notice 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 Asstt. CIT v. Greater Noida Industrial Development Authority  379 ITR 14 (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 obtains to the assessing officer is that after the issuance of such notice the assessee appears and participates in the proceedings, then he shall not he heard, subject to the proviso to the said section, that he had not been properly served with notice. We have no hesitation in holding that the Assessing Officer can claim and avail the benefit under Section 292BB and the assessee will be burdened by the rigour of estoppel contained therein only after a notice under Section 143(2) had been validly issued. When it is virtually admitted that no such notice had been issued, the Assessing Officer loses even the authority to enter into the jurisdiction under Section 143 and the participation or otherwise of the assessee would be of no avail. It is here that the words of Rowlat, J. vide supra in paragraph 5 of this judgment assumes climataric importance because in taxation nothing is to be intended and nothing can be presumed. If a notice under Section 143(2) has not been issued, the Assessing Officer cannot claim the benefit under Section 292BB and the claim that the earlier notice extracted in paragraph 29 of the judgment was intended to be the notice issued under Section 143(2) and that substantial compliance under Section 143(2) must be inferred, cannot be countenanced.
35. From the records available before us, we are unable to understand why a notice under Section 143(2) was not issued for the year 2009-10 when the same was issued for the year 2010-11. The order sheet, Annexure-A2 annexed along with the papers in ITA 221/2015, shows that the Assessing Officer was aware of the need for issuance of the said notice as early as in April 2012. The only reason for not issuing a Section 143(2) notice has been recorded by him in the order sheet as “it is not possible to generate notice under Section 143(2) through an AST, since the assessee has not filed the return electronically”. The order sheet further shows that the assessee was again requested to file their return in response to Section 148 electronically. This conduct of the Assessing Officer is rather surprising and it defies logic, since the assessee cannot be forced and coerced to file their return electronically so as to then enable the Assessing Officer to issue a notice under Section 143(2) of the Act. This is more so because even in the absence of such an electronic return for the year 2010-11, the Assessing 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-A4 therein is set aside, as being made contrary to imperative statutory provisions as discussed above and ITA 228/2015 is dismissed upholding the assessment order Annexure-A2 therein.
We are not ordering costs in these appeals, since the issue found in favour of the appellant has been so answered only on account of technical reasons as we have detailed herein.
[Citation : 390 ITR 167]