High Court Of Madhya Pradesh : Indore Bench
CIT vs. Premium Capital Market & Investment Ltd.
Sections 143(2), 254(1)
Asst. Year 1996-97
A.M. Sapre & Ashok Kumar Tiwari, JJ.
IT Appeal No. 22 of 2001
3rd January, 2005
Counsel Appeared
R.L. Jain with Ku. V. Mandlik, for the Appellant : P.M. Choudhary, for the Respondent
JUDGMENT
A.M. Sapre, J. :
This is an appeal filed by the Revenue (CIT) under s. 260A of the IT Act, 1961, against an order dt. 11th Dec., 2000, passed by the Tribunal in ITA No. 81/Ind/2000. This appeal was admitted for final hearing on the following substantial questions of law :
“1. Whether, on the facts and in the circumstances of the case, the Tribunal was justified in entertaining the challenge to the assuming of the jurisdiction by the AO in view of the provisions of s. 143 of the IT Act, 1961, on the ground of validity of service of notice when such a point was not raised either before the AO or the CIT ?
Whether, on the facts and in the circumstances of the case, the point of service of notice by the mode of substituted service as indicated by order V, rr. 17 and 20 of the CPC could be entertained by the Tribunal when that point was not raised before either the AO or the CIT ?
Whether, on the facts and in the circumstances of the case, non-raising of point of non-service of notice to the assessee within the prescribed time- limit, the Tribunal was having jurisdiction to set aside the judgment and orders passed by the AO and the CIT ?
Whether, on the facts and in the circumstances of the case, the Tribunal was justified in setting aside the judgment and orders passed by the AO and the CIT quashing the assessment on the point of non-service of notice and resultantly lacking of jurisdiction to initiate the proceedings for assessment of tax ?
Whether, on the facts and in the circumstances of the case, the judgment and orders passed by the Tribunal are bad in law ?”
The assessee (respondent herein) is a limited company. For the asst. yr. 1996-97, the assessee filed a return on 29th Nov., 1996, showing a total income of Rs. 5,97,920. This return was processed under s. 143(1)(a) ibid. Later it was selected for scrutiny. Accordingly, a notice under s. 143(2) dt. 24th Nov., 1997, was issued to the assessee. As per record, the notice is said to be served on the assessee by Mr. R.S. Kurup on 29th Nov., 1997, by affixture. Thereafter further notices under s. 142(1) along with requisition were served on the assessee on 9th Sept., 1998, pursuant to which the assessee appeared before the AO along with their chartered accountant—one Mr. Nagori and director, Mr. Bandi. The proceedings before the AO then continued on 5th Nov., 1998, 13th Nov., 1998, 15th March, 1999 and 17th March, 1999. The assessee not only appeared on all these dates along with their chartered accountant but also contested all issues on the merits by submitting written submissions at the end. They also tendered evidence pursuant to certain queries made from time to time by the AO in support of the returned income disclosed. Eventually, by a reasoned order dt. 22nd March, 1999 (at p. 47), the AO determined the taxable income at Rs. 1,20,26,780 as against what the assessee had shown at Rs. 5,97,920 as their total income.
The assessee felt aggrieved filed appeal to the CIT(A). By order dt. 31st Jan., 2000 (p. 72), the appeal was substantially dismissed resulting in upholding of the aforementioned assessment order. The assessee, therefore, filed second appeal before the Tribunal. By an impugned order, the Tribunal allowed the appeal filed by the assessee essentially on the ground that the notice dt. 24th Nov., 1997, sent by the AO to the assessee was not served in accordance with law and hence, the entire assessment is held to be non est. The Tribunal then also proceeded to examine the case on the merits and finding some infirmities remanded the case to the AO for further investigation on certain factual issues. It is against this order, the Revenue has come up in appeal. As observed supra, the appeal was admitted for final hearing on the aforementioned questions of law. Heard Shri R.L. Jain, learned senior counsel with Ku. V. Mandlik, learned counsel for the Revenue, and Shri P.M. Choudhary, learned counsel for the assessee.
Having heard learned counsel for the parties and having perused the record of the case, we are of the considered opinion that the appeal deserves to be allowed in part resulting in setting aside of the finding insofar as it relates to notice issued by the AO to the assessee is concerned.
In our considered opinion, the Tribunal erred in annulling the assessment on the ground of invalidity of service of notice dt. 24th Nov., 1997, issued under s. 143(2) ibid on the assessee. This finding in our humble view is not legally sustainable for various reasons as indicated infra. Firstly, the assessee not having raised any objection in relation to the legality or invalidity or illegality or irregularity of the impugned notice dt. 24th Nov., 1997, either before the AO or even before the CIT(A), the same could not have been held in favour of the assessee. Secondly, and on the other hand, the assessee having submitted to the jurisdiction of the AO and when on appearing before him, participating in the proceedings on each date of hearing which lasted for more than one year and raising all possible pleas on the merits of the case with the assistance of their chartered accountant but not raising any objection as to irregularity in effecting service of notice on the assessee, the issue of notice cannot be decided in favour of the assessee. Thirdly, even in appeal filed before the CIT(A), challenging the assessment order, the assessee did not raise any ground of illegality of notice but raised all grounds on the merits. Fourthly, even in second appeal before the Tribunal, the ground relating to the notice was not raised in the memo of appeal (see p. 89 back) but was sought to be raised by seeking an amendment. Fifthly, it was thus a clear case of waiver and/or abandoning of the so-called ground which was not raised at a proper time and place. Sixthly, the Tribunal should have seen and held that it was not a ground based on a pure question of law but it was a ground of mixed question of law and fact. It was required to be decided even if raised at a proper place on appreciation of evidence led in support of service.
In our considered opinion, a question whether a particular notice is properly served or not on the assessee cannot be said to be a pure question of law. It is a mixed question of law and fact. Indeed, in order to decide whether notice is properly served or not on the assessee, it is necessary for the authority of first instance to see (if the objection is raised before him) as to whether the report of the process server is proper or not ?
Whether it should be believed or not ?
Whether the witness who has signed the report in the presence of the process-server on the spot as one of the eye witnesses to affixture should be believed or not ?
Whether the assessee should be believed on his statement of service or not ? Whether the persons defined in order V, r. 19 of the CPC are required to be summoned for being examined as witness on the question of service and his report ?
Whether their evidence should be believed or not ?
All this has to be gone into at the first instance by means of factual inquiry in the form of recording of evidence, i.e., statement of such persons— namely, process server, witness named in notice and the assessee. It is only after the evidence/ statement of these persons is taken up, in accordance with the requirement of law that an authority can come to a conclusion one way or other as to whether the service in question was regular or irregular and whether it can be held to be good or not as per law.
In substance, therefore, we are of the view that the question of service of notice cannot be said to be a pure question of law as sought to be urged by the assessee but it is a mixed question of law and fact. The position would have been different, if the AO had recorded a factual finding on this issue on an objection being raised by the assessee before him and the same was again examined by the CIT(A) at the instance of the appellant in appeal and some factual finding essentially on the issue of service of notice had been recorded.
In our opinion, therefore, the Tribunal should not have allowed the assessee to raise the plea of service of notice for the first time in second appeal as one of the additional grounds for challenging the order of assessment. It was much moreso when there was no factual material available for recording a finding on merits.
The submission of learned counsel for the assessee with vehemence was that firstly on the basis of the material on record, i.e., report of P.S., one could conclude that the service of notice dt. 24th Nov., 1997, on the assessee was not in accordance with the requirement of s. 282 r/w order V, r. 20. His second submission was that when the Tribunal has recorded a finding of fact in favour of the assessee then the same should not be interfered with and lastly the question of notice being not a procedural but jurisdictional one the same cannot be allowed to be given up but has to be gone into. We find no substance in any of these submissions.
So far as his first submission is concerned, we have already held supra that the Tribunal committed an error in examining the question of fact for the first time in second appeal. In our opinion, it was not an issue which could be taken up for discussion de novo for the first time treating it to be a question of jurisdiction. It is one thing to say that the question of notice has a jurisdictional issue but it is another thing to say that in order to examine the issue, it must first be dealt with on facts in the manner provided in order V, by the AO and then one can assail it in appeal. It is then one may say that it is not a pure question of fact but a question of law. Such is not the case here. Secondly, as held supra, it is a clear case of waiver/abandonment of an objection and hence, the same could not be allowed to be raised for the first time in second appeal by the assessee.
In our opinion, at best it could be regarded as an irregularity in effecting service on the assessee of the notice but not an invalidity as alleged by the assessee so as to annul the entire assessment. The very fact that the assessee thereafter appeared before the AO and went on participating in the entire proceedings on the merits for more than one year, clearly shows that the so-called illegality/irregularity did not cause any prejudice to the assessee. In other words, the assessee was afforded fullest opportunity to participate in the proceedings.
The submission of learned counsel for the assessee was that the AO got the notice served on the assessee by affixture in the first instance itself whereas he should have first made an attempt to serve the assessee in the manner provided in order 5. This in the submission of learned counsel renders the issuance of notice bad. We do not agree. There is nothing on record filed by the assessee in rebuttal to show that what is mentioned in the report of P.S. is incorrect. Secondly, by the very fact that the assessee appeared before the AO thereafter pursuant to the notices issued under s. 142(1), the so-called objection regarding effecting service by affixture on the assessee loses its significance. After all, one of the basic objects of service of notice on the assessee is to give him full opportunity to participate in the assessment proceeding before the final assessment order is passed. The position would have been different if the AO had proceeded to make assessment on the strength of such service of notice without affording any opportunity to the assessee to participate in the proceeding and had passed an ex parte assessment order holding the assessee to have been validly served. Such is not the case.
Learned counsel for the assessee then placed reliance on an authority reported in CIT vs. Thayaballi Mulla Jeevaji Kapasi (Decd.) (1967) 66 ITR 147 (SC) and contended that the impugned notice can be declared illegal. We do not agree. Firstly, the facts of that case and those involved in this case are distinguishable. Secondly, in that case, the Supreme Court eventually upheld the notice. Thirdly, in that case, the issue was raised since inception which then travelled at each stage upto the Supreme Court with factual finding. Such is not the case here.
Learned counsel also placed reliance on several authorities. Such as P.V. Doshi vs. CIT 1977 CTR (Guj) 683 : (1978) 113 ITR 22 (Guj); Supdt. of Taxes vs. Onkarmal Nathmal Trust 1975 CTR (SC) 172 : AIR 1975 SC 2065; Dhirendra Nath Gorai vs. Sudhir Chandra Ghosh AIR 1964 SC 1300; Rameswar Sirkar vs. ITO (1973) 88 ITR 374 (Cal) and Panna Lal Umesh Kumar vs. Asstt. STO (1965) 16 STC 146 (All) in support of his contention. We have perused the ratio laid down in these authorities. In our opinion, while there can be no quarrel with the proposition of law laid down, the same has to be distinguished with reference to the facts of each case. So is in the facts of this case. This discussion is sufficient to take care of the authorities relied on by learned counsel for the assessee.
In our opinion, the question of service of notice on the assessee may assume some significance if the AO proceeds to make an ex parte assessment by holding the alleged service to be good on the assessee. It is in such case, when the assessee suffers an ex parte assessment that he is entitled to question the manner of effecting service on him of by the AO which had the effect of depriving him of an opportunity to participate in the assessment proceedings. But in a case where the assessee participates in the proceedings, contests the issue on the merits and does not raise any objection, the authorities have no jurisdiction to set aside the orders on the ground of irregularity in service.
In our opinion, the Tribunal but for no valid reasons devoted much of their time in deciding the issue of notice. It was in our view, not called for in the facts of this case at least. It was too technical rather than substantial. It was a clear case where the assessee disclosed their total income at Rs. 5,97,920 whereas they were assessed at Rs. 1,20,26,780. What was more a matter of serious concern was the forged and bogus claims made by the assessee in claiming depreciation. All these claims on a detailed inquiry made by the Director of Investigation at Bombay exposed the assessee in indulging in evading payment of tax. The assessee was given full opportunity to defend. They did avail of full opportunity and contested the case by filing documents and written submission. We are not however concerned on this issue because the Tribunal has remanded the case for inquiry on some matters. It is now for the AO to complete the inquiry as directed by the Tribunal and pass final assessment orders. Needless to observe the AO will again give enough opportunity to the assessee in proceedings as per the directives of the Tribunal contained in the impugned order. Let the inquiry be completed within six months from the date of this order by the AO in accordance with the directions given by the Tribunal in the impugned order and final assessment orders be passed.
19. Since no other question is either raised by the appellant, except that of notice, we need not go into any other question. We, thus, allow the appeal in part and set aside the finding of the Tribunal insofar as it relates to service of notice. We hold that service of notice being proper, the assessment made by the AO on 22nd March, 1999, by the Dy. CIT (Circle I), Indore, is legal and valid. All other findings recorded by the Tribunal are upheld being not under challenge. No costs.
[Citation : 275 ITR 260]
