TaxTMI 
TaxTMI 
2008 (9) TMI 450
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.... CIT(A)-XII, Ahmedabad has erred in law and on facts in deleting the addition made of Rs. 64,73,337 on account of suppressed sales. 2. On the facts and in the circumstances of the case, the learned CIT(A)-XII, Ahmedabad ought to upheld the order of the AO. Grounds of appeal in ITA No. 104/Ahd/2008 3. In ITA No. l04/Ahd/2008, the Department has taken the following grounds of appeal: 1. The learned CIT(A)-XI, Ahmedabad has erred in law and on facts in holding that there is no apparent mistake in the appeal effect order dt. 6th Feb., 2007 passed by the AO. 2. The learned CIT(A)-XI, Ahmedabad has erred in law and on facts in deleting the addition made of Rs. 32,89,882 on account of low GP as was proposed to be made in the assessment order dt. 24th March, 2005 and was not made, as an addition of Rs. 64,73,337 was made on account of suppressed sales. 3. On the facts and in the circumstances of the case, the learned CIT(A)-XI, Ahmedabad ought to have upheld the order of the AO. Facts of the case : Findings in the assessment order 4. The assessee, a partnership firm, was engaged in the business of manufacturing and sale of rolling mills. The ....
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....see and, therefore, added the same to the income of the assessee. It is in this background that the addition of Rs. 64,73,337 was made by the AO to the returned income of the assessee. 7. In addition to the aforesaid, the AO further noticed that the GP shown by the assessee was only 13 per cent, which, according to him, was quite low. Me perused the sales bills and noted that the sale price of rolling mills varied between Rs. 4.50 lacs to Rs. 40.00 lacs. In the course of the assessment proceedings, the AO called upon the assessee to give the details of each input (item-wise) in the composition of sale price in response to which the assessee gave the estimated rate of items used in the manufacturing of goods. However, the assessee could not give the quantity and value of each of the items used in the manufacturing of goods. The assessee was also asked to produce all the quotations sent to the parties for approval before execution of their orders. In response, the assessee filed copies of a couple of quotations instead of all the quotations. The AO perused the quotations and noted that one of the quotations was for the supply of 4 high cold rolling mills at a price of Rs. 1,00,00,....
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.... the AO on account of suppressed sales, he held that the assessee had received the aforesaid sum of Rs. 64,73,337 on behalf of C.P. Udyog and accordingly, deleted the addition made by the AO. While deleting the addition of Rs. 64,73,337, the learned CIT(A) did not consider the other addition of Rs. 32,89,882 quantified in the assessment order on account of low GP but not added by the AO as he had telescoped the same against the larger addition of Rs. 64,73,337. 11. It may be relevant to mention here that the assessee had also challenged the validity of the assessment order due to non-service of notice by the AO under Section 143(2)(ii) within the prescribed time-limit, before the CIT(A). It was submitted before the CIT (A) that the return was filed on 31st Oct., 2002 and, therefore, the notice under Section 143(2)(ii) of the Act ought to have been issued on or before 31st Oct., 2003 if the AO was keen to enquire into areas other than those for which the case was picked up for limited scrutiny and for which notice under Section 143(2)(i) had been issued on 30th May, 2003. It was pointed out that the notice under Section 143(2)(ii) of the Act was actually issued on 19th Jan., 2005....
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.... by the order passed by the CIT(A) on 29th June, 2006 deleting the entire addition of Rs. 64,73,337, the Department has filed appeal bearing ITA No. 1226/Ahd/2007. The assessee, as stated above, has not filed any appeal or memorandum of cross-objections against the order of the CIT(A) rejecting the ground of appeal taken by the assessee challenging the validity of the assessment order due to non-timely service of notice as per time provision of Section 143(2)(ii) of the IT Act. Facts of the case in ITA No. 104/Ahd/2008 14. We shall now turn to the facts relevant for the disposal of the other appeal bearing ITA No. 104/Ahd/2008 filed by the Department. Pursuant to the order passed by the CIT(A) on 29th June, 2006 deleting the addition of Rs. 64,73,337 made by the AO on account of suppressed sales, the AO passed an order to give effect to the aforesaid appellate order. The AO subsequently noticed that the other addition considered and quantified by the AO at Rs. 32,89,882 in the assessment order on account of low rate of GP needed to be revived as the aforesaid amount was not added separately in the assessment order solely on account of its being telescoped against the larger a....
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....gh various findings recorded in the assessment order to support the case of the Department. According to the learned Departmental Representative, the impugned sum of Rs. 64,73,337 was found recorded and credited in the books of the assessee. He submitted that it was the case of the assessee that the aforesaid sum represented the proceeds received by the assessee on account of sales made by C.P. Udyog and therefore the burden was squarely on him to establish that the impugned sum represented the proceeds in respect of sales made by C.P. Udyog. In this connection, he took us through the findings recorded at p. 7 of the assessment order in which it is stated that the assessee has not complied with the show cause notice issued by the AO requiring the assessee to explain the variations as reflected from the copies of the contra accounts obtained by the AO and supplied to the assessee along with the show-cause notice. He submitted that the AO was justified in making the impugned addition in the absence of any efforts made by the assessee to reconcile the discrepancy which the AO had noticed from the copies of the contra accounts obtained from the other parties and also on account of fail....
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....order in the absence of timely service of the impugned notice by the AO as per time provision of Section 143(2)(ii) of the Act. He submitted that the assessee was entitled to challenge the aforesaid order of the CIT(A) even without filing any appeal or memorandum of cross-objections in this behalf. He invited our attention to Rule 27 of the ITAT Rules which provides that the "respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him." He contended that the aforesaid rule enabled him as a respondent to challenge the order of the CIT(A) rejecting any of his "grounds of appeal" taken before him and therefore he was well supported by the said rule to challenge the order of the CIT(A) upholding the validity of the assessment order in the absence of service of notice as per time provision of Section 143(2)(ii) even without filing any appeal or memorandum of cross-objections. In support of his submissions, he relied upon the judgment in Ravinder Kumar Sharma v. State of Assam AIR 1999 SC 3571 for the proposition that a respondent can question adverse finding without filing cross-objection. It was submitted that the case w....
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....sed [(2008) 215 CTR (St) 166, 192-193 : (2008) 298 ITR (St) 190, 216217]. The relevant portion of the Memorandum is reproduced below: In order to address these issues and to reduce litigation, it is proposed to insert a new Section 292BB in the IT Act to provide that where an assessee has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act has been duly served upon him in time in accordance with the relevant provision of the Act. From the said Memorandum, it may please be seen that to address the problem of administrative difficulties and to reduce litigation Section 292BB is introduced. The new section is not introduced with a view to provide remedial or validating measures. (b) Section 292BB provides that the notice under Section 143(2) shall be deemed to be served if the assessee has participated in the assessment proceedings. Section provides legal fiction about service of notice. The legal fiction can never be operative retrospectively. The Supreme Court in the case of Bhavnagar University v. Palitana Sugar Mills (P) Ltd. (2003) 2 SCC 111....
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....d Authorised Representative for the assessee relied upon the following decisions: (i) ITO vs. Smt Sukhini P. Modi (2008) 113 TTJ (Ahd) 63 : (2008) 112 ITD 1 (Ahd); (ii) Dy. CIT vs. Mahi Valley Hotels & Resorts (2006) 201 CTR (Guj) 308 : (2006) 287 ITR 360 (Guj) for the proposition that assessment framed in pursuance of notice issued after expiry of period stipulated in s. 143(2) was void ab initio. (iii) Raj Kumar Chawla & Ors. vs. ITO (2005) 92 TTJ (Del)(SB) 1245 : (2005) 94 ITD 1 (Del)(SB). 22. The learned Departmental Representative was also called upon to make his submissions in this behalf. He submitted that the assessee has not filed any appeal or memorandum of cross-objections before this Tribunal to challenge the order of the CIT(A) upholding the validity of the assessment order even though no notice was issued by the AO as per the time provision of Section 143(2)(ii) of the Act on the ground that the assessee had participated in the assessment proceedings. He submitted that it was not open to the assessee to challenge the aforesaid order of the CIT(A) before this Tribunal without filing any appeal or memorandum of cross-objections and thereby ....
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....ice of notice and the time limit for issuance of notice under Section 143(2) of the IT Act Sub-s. (2) of Section 143 of the IT Act provides that the notice under this subsection shall be served on the assessee within a period of twelve months from the end of the month in which the return is furnished. Further, the service of such notice must be affected in a manner laid down in Sections 282, 283 and 284 of the IT Act r/w General Clauses Act. Instances have come to the notice of the Department, where notices. under Sub-section (2) of Section 143, though issued by registered post within twelve months from the end of the month in which the return was furnished, have been held 'invalid' on the ground that the notice was actually received by the assessee after the limitation date and there was no 'service' as postulated under the section. This is notwithstanding the fact that the assessee has attended the assessment proceedings in response to the notice served on him. Instances have also come to notice where the order of the AO is being quashed on the consideration that there is no evidence of issue or service of notice, even though the assessee and his....
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....r reassessment, the legal fiction created by the second limb of the section 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 the Act, follows automatically and as a necessary consequence. The aforesaid legal fiction is absolute and cannot be defeated or rendered inoperative by any process after 31st March, 2008 unless the facts constituting the conditions precedent are shown to be absent. Third limb, which is in the nature of a disabling provision, too automatically comes into play where an assessee has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment. It precludes an assessee and thereby disables him from taking any objection after 31st March, 2008 that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner. Fourth limb, however, makes the section inapplicable where an assessee has raised such objection before the completion of such assessment or reassessment. Thus the legal fiction created by Section 292BB cannot be defeated or rendered inoperative a....
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....hich are made effective from a given date and not from a given assessment year. In this view of the matter, there is no warrant for taking a view that the provisions of Section 292BB are effective from asst. yr. 2008-09 or any particular assessment year. Rather there is clear indication on bare perusal of the section that it (1) is effective from 1st April, 2008 irrespective of the fact whether assessment year involved is asst. yr. 2008-09 or any preceding or subsequent assessment year (1) ; and (2) statutorily precludes an assessee from taking any objection after 31st March, 2008 in any proceeding or inquiry under the IT Act that the notice was (i) not served upon him; or (ii) not served upon him in time; or (iii) served upon him in an improper manner once he has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment. In this view of the matter, we hold that Section 292BB shall govern the validity of all the notices after 31st March, 2008 irrespective of the fact whether the assessment year involved is 2008-09 or any subsequent year or any earlier assessment year. (iii) Whether Section 292BB cures the invalidity in service of notices i....
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....effective otherwise the legislative prescription of making the section effective from 1st April, 2008 would be completely frustrated. The use of the words "related to an 'assessment or reassessment" in the section effective from 1st April, 2008 refers, in no uncertain terms, to the things and assessments that are past as on 1st April, 2008. Therefore the mere fact that the assessee has appeared in any proceeding or cooperated at any time in the past, i.e., prior to 1st April, 2008, in any inquiry related to an assessment or reassessment would per se be sufficient to invoke the fiction created by the section and thereby preclude an assessee from raising any such objection in terms of the third limb of the provision, for that assessment year. If Section 292BB itself does not specify any date or assessment year before or after which an assessee should have so appeared or participated, the obvious result is that such a limitation, which curtails or restricts the applicability of Section 292BB, cannot be read in any of the limbs of the provision for the reason that we have no jurisdiction to dilute or curtail the legislative mandate, which is clearly and unambiguously expressed. It ....
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....t any time in the past. The meaning conveyed by the section is loud and clear in that it has been enacted to cure after 31st March, 2008 what was invalid or irregular at any time in the past and therefore any past irregularity/invalidity in the matter of service of notice which is otherwise covered by the section would stand cured after 31st March, 2008 irrespective of the assessment year involved. 31. In view of the aforesaid, it is held that there is nothing in the text of the section to indicate that the legal fiction created by the section would apply to those cases only in which notices have been issued/served after 31st March, 2008 or in which the assessee has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment after 31st March, 2008. On the other hand, the position that clearly emerges on perusal of Section 292BB is that it is effective from 1st April, 2008 to cure any irregularity/invalidity in the matter of service of notice issued at any time in the past. For these reasons also, the legal fiction created by Section 292BB will have to be given full effect from 1st April, 2008 if it is found that an assessee has appeared in a....
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....cedural infirmities and irregularities in the matter of service of notice. This aspect of the matter is squarely covered by the judgment of the Hon'ble jurisdictional High Court in CWT v. Kasturbhai Mayabhai (1986) 51 CTR (Guj) 309 : (1987)164 ITR 107 (Guj) [affirmed by the Hon'ble Supreme Court in CWT v. Sharvan Kumar Swamp & Sons (1994) 122 CTR (SC) 380 : (1994) 210 ITR 886 (SC) and CWT v. Sharvan Kumar Swarup & Sons (supra)]. Since the Hon'ble jurisdictional High Court and Hon'ble Supreme Court have comprehensively dealt with this aspect of the matter, it is not necessary for us to deal further with the issue that procedural provisions are always applicable to pending matters. We therefore hold that the provisions of Section 292BB are procedural in nature and hence they would cure all the notices of their deficiencies regardless of the fact that they were served before 1st April, 2008. (v) Whether the legal fiction created by Section 292BB is declaratory and therefore applicable to all pending matters 33. It is equally well-established that declaratory laws simply declare the position of law to remove doubts existing, inter alia, as to the legal effect of a....
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....uld be deemed to have been validly served upon the assessee in accordance with the provisions of the Act on the fulfilment of the stipulated condition; three, to cure the notices of their deficiencies in their service or non-service; and four, disabling an assessee from raising any of the aforesaid objections. Keeping in view the phraseology of the section as also its substance, we hold that the phrase "it shall be deemed that any notice under any provision of this Act has been duly served upon him in time in accordance with the provisions of the this Act" indicates quite clearly that Section 292BB is a declaratory provision in that it declares the law and therefore it will apply with full force to all pending matters after 31st March, 2008. (vi) Whether Section 292BB is a curative provision and therefore cures the notices served before 1st April, 2008 of their infirmities 35. Curative provisions operate, by their very nature, on conditions already existing prior to their enactment or being made effective and therefore curative provisions of Section 292BB have to be applied after 31st March, 2008 on the conditions already existing regardless of the fact that such conditions a....
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...., which would otherwise have been invalid. (vii) Whether Section 292BB can draw a part of its requisites for its operation from time antecedent to the date from which it is effective. 37. The crux of the argument, however, is that even a part of the requisites cannot be drawn for the operation of the legal fiction created by Section 292BB from time antecedent to the date from which the section has been made effective without giving retrospective effect to the section. It is submitted that retrospective effect has not been given to the section and hence even a part of the requisites for its operation cannot be drawn from time antecedent to the date from which it has been made effective. We are unable to concur with the aforesaid submissions. It is no doubt true that Section 292BB effective from 1st April, 2008 draws a part of the requisites for its operation, i.e., an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, from past which can as well be from a point of time antecedent to the date from which Section 292BB has been made effective. Merely because a statute seeks to draw a part of the requisites for its opera....
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....ifically applicable to the things that are past as on 1st April, 2008 and hence absence of service of notice in time or in accordance with law at any time in the past would stand cured after 31st March, 2008, i.e., the date after which the provision has been made effective provided the assessee has appeared in any proceeding or co-operated in any inquiry related to an assessment or reassessment. The mere fact that the legislature has not "expressly" made Section 292BB retrospectively effective would not come in the way of curing those notices which were invalid/irregular at any time in the past including the period prior to 1st April, 2008. (viii) Applicability of Section 292BB to matters pending in appeal 39. It was also contended that Section 292BB was not on the statute book as on the first day of the relevant assessment year under appeal and hence cannot be applied to that year. We are unable to agree with the aforesaid submissions also. It is true that in the ordinary way an appellate Court/Tribunal cannot take into account a statute which has been passed in the interval since the matter was decided at first instance, because the rights and obligations of an assessee are....
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....ions of the Act and therefore the assessee stands statutorily precluded from taking any objection at this stage that the notice was not served upon him, or was not served upon him in time, or was served upon him in an improper manner. All his submissions in this behalf are therefore rejected. Decision on the issues involved in both the appeals 42. We shall now consider the merits of addition made by the AO and deleted by the learned CIT(A). It is not in dispute that the assessee has recorded a sum of Rs. 64,73,337 in his books of account for the year under appeal. It is well established that the receipts recorded in the books of account are presumed to be of assessable nature unless the assessee establishes otherwise. It is the case of the assessee that the sales were made by C.P. Udyog but the sales proceeds thereof were received by the assessee as the bank account of C.P. Udyog was inoperative due to disputes between the partners. In support of his claim, the assessee relied upon the entries made in its books of account and also in the books of C.P. Udyog, before the learned CIT(A). The learned CIT(A) has straightaway concluded, on the basis of the entries in the books of a....