P.P.S. Janarthana Raja, J.
1. This appeal is filed under Section 260A of the Income Tax Act, 1961 by the assessee against the order of the Income Tax Appellate Tribunal, Chennai, 'A' Bench dated 21.07.2006 passed in I.T.A. No. 2236/Mds/2005. On 21.08.2006, this Court admitted the appeal and formulated the following substantial questions of law:
1. Whether on the facts and in the circumstances of the case the Appellate Tribunal was right in law in treating the letter dated 20.12.2004 by the assessing officer is equivalent to a notice prescribed under Section 143(2) of the Income Tax Act, 1961 when the letter is nothing but furnishing the reasons for reopening the assessment?
2. If the answer to the above question is in affirmative then on the facts and circumstances of the case was the Appellate Tribunal right in law in holding that the appellant filed its Return of Income by its letter dated 18.12.2004 itself, whereas the Appellant filed its return only on 17.1.2005 which was admitted by the Assessing Officer in his assessment order?
3. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that a notice under Section 143(2) can be issued before the assessee files a return of income?
4. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that the letter dated 20.12.2004 of the respondent had not closed any one of the options to the Appellant namely (i) to attend his office; (ii) to produce any evidence and (iii) cause to be produced any evidence on which the assessee may rely in support of the return as held by the Allahabad High Court in the case of Rajamani Devi v. CIT : [1937]5ITR631(All) ?
5. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in concluding that Valuation of Closing Net Asset with the help of Chartered Accountant Firm be construed as a valuation of the plant and machinery by item-wise and detract from the concept of slump sale?
6. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in remanding the assessment relating to the assessment year 1999-2000 to the assessing officer to tax depreciable assets under Section 50 of the Income Tax Act?
7. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in ignoring that the consideration received by the Assessee in a slump sale would be outside the purview of capital gains under Section 45 of the Act, as held by the Madras High Court in the case of CIT v. KPV. Shaikh Mohammed Rowther & Co. 1995 Tax LR 675 following the judgment of the Apex Court in the case of B.C. Srinivasa Setty?
8. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in setting aside the issue of Non-compete fees received by the assessee for fresh verification, ignoring the settled principle of law that in the relevant assessment year, it was a non-taxable capital receipt?
9. Whether on the facts and circumstances of the case the Appellate Tribunal was right in law in remanding the assessment to the assessing officer to verify fresh additions to Book profits of a sum of Rs. 4,89,08,241/- representing provision for contract contingencies?
2. The facts leading to the above questions of law are as under:
The assessee is a company engaged in the business of manufacture of heavy electric equipment including High Voltage and Medium Voltage Switchgears, transformers, control panels, rotating machines, industrial fans, relays, cubicle gear panels and energy meters. The assessee also executes projects involving transmission and distribution of power and other turnkey projects. Further the company also trades in ceiling fans, pumps, capacitors and motors. The relevant assessment year is 1999-2000 and the corresponding accounting year ended on 31.03.1999. The assessee filed Return of income on 31.12.1999 declaring loss of Rs. 55,04,29,430/-. The Return was processed under Section 143(1)(a) of the Income-tax Act (hereinafter referred to as the 'Act') on 29.03.2000. Later, notice under Section 148 of the Act was issued since income had escaped assessment. This was issued on 17.11.2003 and the time limit to complete the reopened assessment expires on 31.03.2005. Later, reassessment was completed under Section 143(3) read with 147 of the Act, on 28.03.2005. While completing the reassessment, the Assessing Officer disallowed the loss claimed by the assessee and made additions and disallowances and finally determined a taxable income of Rs. 6.06 Crores under the normal provisions of the Income-tax Act and Rs. 15.9 Crores, being book profits under special provision under Section 115JA and demanded a tax of Rs. 7.69 Crores which is inclusive of Rs. 3.59 Crores being the interest levied under Section 234A & 234B and further interest under Section 234D of Rs. 60.77 lakhs, in all totalling Rs. 9.94 Crores. Aggrieved by the order, the assessee filed an appeal to the Commissioner of Income-tax (Appeals), disputing the reopening of the assessment as well as various disallowances and additions made by the Assessing Officer. The C.I.T.(A) confirmed the order of the Assessing Officer. Aggrieved, the assessee filed an appeal before the Income-tax Appellate Tribunal (hereinafter referred to as the 'Tribunal'). The Appellate Tribunal upheld the reopening of the assessment, and in respect of additions and disallowances, remanded the matter to the Assessing Officer with a direction to redo the assessment and the appeal was allowed partly.
3. Learned Senior Counsel appearing for the assessee submitted that the reassessment order passed by the Assessing Officer is wrong, illegal and without basis on the ground that the Assessing Officer failed to consider the objections given by the assessee in response to the notice issued under Section 148 of the Act, and also reassessment was completed without giving statutory notice under Section 143(2) of the Act and relied on the following judgments to support his contention.
a) : [2006]281ITR444(Mad) in the case of Commissioner of Income-tax v. M. Chellappan and Anr.
b) in the case of Vipan Khanna v. Commissioner of Income-tax and Ors.
c) 259 ITR 19 in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer and Ors.
It is also further submitted that in respect of the merits of the case, the Tribunal was wrong in remanding the matter to the Assessing Officer and when all the materials are available in the record, they ought to have decided the issue without remanding the same. Hence, the order passed by the Tribunal is without basis and justification. In respect of Question No. 9, it is submitted that he is not pressing the same and hence the same stands rejected as not pressed.
4. Learned Standing Counsel appearing for the Revenue submitted that the Tribunal considered all the materials and evidence and came to the conclusion that reopening of the assessment is valid in law. It is alternatively contended that mere non-considering the objections for reopening as well as non-issuance of notice under Section 143(2) of the Act, will not make the reassessment a nullity in law, which is validly initiated under Section 148 of the Act. The learned Standing Counsel also submitted that if at all, it is only a procedural defect committed by the Assessing Officer which amounts to only irregularity and relied on the following judgments to support her contention.
i) : [1973]90ITR197(All) , in the case of Sant Baba Mohan Singh v. Commissioner of Income-tax, U.P.
ii) , in the case of Commissioner of Income-tax v. Gyan Prakash Gupta.
In respect of the merits of the case, it is stated that the Tribunal correctly remanded the matter with a direction to the Assessing Officer to redo the assessment. Hence the order of the Tribunal is in confirmity with law.
5. Let us now examine the merits of the rival contentions. The assessee filed Return of income dated 22.12.1999 on 31.12.1999. The said Return was processed under Section 143(1)(a) of the Act on 29.03.2000. Later, the Assessing Officer issued a notice under Section 148 of the Act dated 17.11.2003, directing the assessee to file Return on the ground that he has reason to believe that income which is chargeable to tax for the assessment year 1999-2000, has escaped assessment within the meaning of Section 147 of the Act. The assessee, by letter dated 19.12.2003, objected to the reopening of the assessment and requested the Assessing Officer to furnish reasons for reopening. The Assessing Officer sent a letter dated 24.12.2003 stating that the provision of law does not make it necessary to communicate the reasons to the assessee but the same would be definitely communicated during the course of the reopening proceedings. The Assessing Officer, by letter dated 7.12.2004, further directed the assessee to file the Return and produce records on 16.12.2004. In consequence of the said notice, the assessee immediately sent a letter dated 18.12.2004 to the Assessing Officer and objected again for reopening the assessment and requested the Assessing Officer to treat the original Return filed on 31.12.1999 as Return to the notice issued under Section 148 of the Act. Later, the Assessing Officer sent a letter dated 20.12.2004 enclosing the reasons recorded for reopening, for the assessment year 1999-2000 and posted the case for hearing on 24.12.2004 at 03.30 p.m. Immediately, the assessee sent his objections for reopening the assessment stating that no income has escaped assessment and requested the Assessing Officer to drop the proceedings. Further letter was also sent by the assessee on 05.01.2005 objecting for reopening and submitted that no income has escaped assessment and requested not to proceed with Section 148 of the Act since all the materials and evidence were available to the Officer on record along with the Return of income filed originally. Another letter dated 17.01.2005 was sent by the assessee to the Assessing Officer, requesting to drop the proceedings and the same reads as follows:
Without prejudice to our all our submissions, since you feel that there is no option available to us but to file our return once again, we are enclosing the return in response to your notice Under Section 148. Since the contents of the return are exactly the same as per the original return, we are not duplicating the statement of assessable income and other relevant annexures.
The Assessing Officer completed the assessment on 28.03.2005 without considering the objections of the assessee to the reopening of the assessment. It is seen from the ressessment Order that the Assessing Officer considered only the Return filed on 17.01.2005 and while completing the assessment, he also levied interest under Section 234A of the Act on the basis of the said Return, which reads as under:
Add: Interest Under Section 234A
From Dec. 03 to Jan. 05 57,33,686
6. The argument of the Counsel for the assessee is that the Assessing Officer was not justified in completing the reassessment without issuing notice under Section 143(2) of the Act, as well as not considering the objections given by the assessee to the reopening of the assessment. In the present case, there is valid issue of notice under Section 148 of the Act for initiation of reassessment proceedings and issue of such notice is not in dispute. Not sending the notice under Section 143(2) of the Act as well as not considering the reasons given by the assessee to the reopening of the assessment, will make the reassessment order null and void or it will amount to only irregularity in completing the reassessment. If it is nullity, the whole assessment made by the Assessing Officer is bad and the same has to be annulled. If it is mere procedural irregularity, the reassessment will have to be set aside and the same must go before the Assessing Officer for reconsidering the matter afresh for following the procedure contemplated under the provision. Section 148 of the Act, reads as follows:
Issue of notice where income has escaped assessment.
148.(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act, shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
It is evident from the above provision that the Assessing Officer shall serve on the assessee, as notice requiring him to furnish the Return within such time, in the prescribed form and verified in the prescribed manner. In the present case, this part of the provision is satisfied. As regards the second part of the provision, the wordings 'shall, so far as may be, apply' means, other procedural aspect of the machinery provision to the extent possible should be followed. The second part deals with procedure or machinery provision for completing the reassessment proceedings. In this case, the assessee sent a letter dated 18.12.2004 which reads as under:
Given the above submissions, we request your goodself to TREAT THE ORIGINAL RETURN AS FINAL AND HAVING SUBMITTED IN RESPONSE TO THE NOTICE SERVED UNDER SECTION 148 and oblige. We also submit that since the original return was filed Under Section 139(1) within due dates, provisions of Section 139(8) shall not apply.
The above letter clearly indicates that the assessee has no intention to file a Return in response to the notice, but he requested the Assessing Officer to treat the Original Return filed, as Return in response to the notice under Section 148 of the Act. In response to this letter, the Assessing Officer sent a letter dated 20.12.2004 and posted the case on 24.12.2004 at 03.30 p.m. Further to the said letter, the assessee also sent replies dated 24.12.2004 and 05.01.2005 objecting to the reopening of the assessment and contended that no income has escaped assessment. Further, the assessee also sent another letter dated 17.01.2005 enclosing the Return in response to the notice under Section 148 of the Act, which reads as follows:
Without prejudice to our all our submissions, since you feel that there is no option available to us but to file our return once again, we are enclosing the return in response to your notice Under Section 148. Since the contents of the return are exactly the same as per the original return, we are not duplicating the statement of assessable income and other relevant annexures.
From the above facts, it is clear that the Assessing Officer issued notice dated 20.12.2004 to the assessee requesting the assessee to appear on 24.12.2004 at 03.30 p.m. The above hearing notice was served because of the assessee's reply dated 18.12.2004, requesting the Assessing Officer to treat the Return dated 22.12.1999 filed on 31.12.1999, as Return filed in response to the notice under Section 148 of the Act. Another factor in this case is that the assessee had continuously appeared and participated in all the reassessment proceedings. It is not the case of the assessee that no proper opportunity was given in this case. The only contention is that there was no notice under Section 143(2) of the Act before completing the reassessment. Another relevant factor that must be taken into account is that the assessee, by letter dated 17.01.2005, sent a letter enclosing the Return in response to the notice under Section 148 of the Act stating that the contents of the said Return are exactly the same as per the original Return. Since there was no difference in the contents of the original Return as well as the Return enclosed by the assessee to its letter dated 17.01.2005, the Assessing Officer thought that it was not necessary to give another notice of hearing under Section 143(2) of the Act. The following distinguishing features emanate from the above facts:
i) Original Return as well as subsequent Return filed in response to notice under Section 148 of the Act, are same and there is no difference in the contents of both the Returns.
ii) The assessee himself participated in all the proceedings objecting to the reassessment.
iii) Objections of the assessee, were not considered by the Assessing Officer.
iv) There is a valid reopening of the assessment, but there are procedural irregularities committed by the Assessing Officer in completing the reassessment.
Taking into consideration the above factors, we are of the view that only irregularities are committed by the Assessing Officer, while completing the reassessment. Irregularity is want of adherence to some prescribed Rule or mode of proceedings. Nullity is where there is a void Act or an Act having no legal force or validity. In this case, the Assessing Officer has not followed the rule prescribed as well as there is failure to consider the objections, which amounted to nothing but irregularities and hence the same will not make the reassessment a nullity in law.
7. Learned Senior Counsel for the assessee relied on this Court judgment reported in : [2006]281ITR444(Mad) in the case of Commissioner of Income-tax v. M. Chellappan. This Tax Case (A) was filed by the Revenue under Section 260A of the Income-tax Act against the order of the Income-tax Appellate Tribunal raising the following substantial question of law:
Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in holding that the reopening of the assessment under Section 147 of the Act and completion of assessment without issue of notice under Section 143(2) of the Act within 12 months is not valid?
In considering whether there is a substantial question of law or not, this Court was of the view that no substantial question of law arises out of the order of the Tribunal under Section 260A of the Income-tax Act and hence dismissed the appeal filed by the Revenue and held as follows:
The Punjab and Haryana High Court in Vipan Khanna v. CIT held where no notice under Section 143(2) of the Act had been served on the assessee within the stipulated period and the return as such had become final, in view of the amendment made in Section 147 of the Act with effect from April 1, 1989, the Assessing Officer could not only assess or reassess the escaped income in respect of which proceedings under Section 147 of the Act have been initiated, but also any other income chargeable to tax which may have escaped assessment and which comes to his knowledge subsequently, in the course of such proceedings.
In the instant case, admittedly, no notices under Section 143(2) of the Act were served on the assessees within the stipulated period of twelve months and, therefore, the proceedings under Section 143 of the Act come to an end and the matter becomes final. Hence applying the ratio laid down by the Punjab and Haryana High Court in Vipan Khanna v. CIT , we are of the view that no substantial question of law arises for our consideration in these appeals.
It is evident from the fact that this Court was of the view that no substantial question of law arises out of the order of the Tribunal, and dismissed the same at the time of admission, by relying on the Punjab and Haryana High Court judgment reported in , in the case of Vipan Khanna v. CIT. We find the facts involved in the present case are entirely different from the facts involved in the above judgment and because of the distinguishing features in the present case, the above referred to judgment will not help the assessee.
8. In the case of Vipan Khanna v. CIT (P & H), reported in , the assessee filed writ petition in which it was contended that, requiring the assessee to produce his books of account to furnish information on various points, was not warranted in proceedings under Section 147 of the Act. Initially, the assessee had not challenged the validity of reassessment proceeding, but raised the issue during the course of argument. The finding given is that the assessee claimed depreciation in the Return at the rate of 50% and the assessee had nowhere disputed the fact that the admissible rate of depreciation to him was only 40% and this fact alone was sufficient for the Income-tax Officer to initiate proceeding under Section 147 of the Act. Hence, the Court held that the initiation of proceeding under Section 147 was valid. From the letter dated 30th July 1998, the Assessing Officer was seeking general information on other issues merely to verify the return. Such general enquiry can only be made by issuing notice under Section 143(2) of the Act within the stipulated period. Admittedly, it was not the case of the Revenue that during the course of proceeding under Section 147 of the Act, it had come across any material relating to the items mentioned in the letter dated 30th July 1998, suggesting escapement of income under any of those heads. Hence the Court held that letter dated 30th July 1998, issued by the Assessing Officer in so far as it related to matters unconnected with the issue of depreciation as also the directions issued by the Deputy Commissioner under Section 144A of the Act dated 26th October 1998, could not be sustained. The issue in this Punjab and Haryana High Court judgment is also entirely different from the facts involved in the present case. Further, it is seen that the Allahabad High Court judgment reported in : [1973]90ITR197(All) , in the case of Sant Baba Mohan Singh v. Commissioner of Income-tax and Rajasthan High Court judgment reported in , in the case of Commissioner of Income-tax v. Gyan Prakash Gupta, relied on by the learned Standing counsel for the Revenue, considered a similar issue and have taken a view that any irregularity committed by the Assessing Officer will not make the assessment nullity in law.
9. The said Allahabad High Court judgment considered the scope of completing the assessment without issuing notice under Section 23(2) under the old Act corresponding to Section 143(2) of the present Act. Therefore, the Appellate Assistant Commissioner, in that case, set aside the assessment made by the Income-tax Officer for the reason that the assessment order was completed under Section 23(3) of the Act without the issue of notice under Section 23(2) and directed the Income-tax Officer to make a fresh assessment after issuing notice under Section 23(2) of the Act, which was confirmed by the Appellate Tribunal. On a reference to the High Court, it was contended by the assessee that the Appellate Assistant Commissioner's direction to make a fresh assessment was without jurisdiction, and further it was argued that once the assessment was completed without notice, it amounts to nullity in law and the assessment should be annulled. The Court rejected the contention and held as follows:
That is a power to be exercised where the assessment proceeding is a nullity in the sense that the Income-tax Officer had no jurisdiction ab initio to take the proceeding. A proceeding is a nullity when the authority taking it has no jurisdiction either because of want of pecuniary jurisdiction or of territorial jurisdiction or of jurisdiction over the subject-matter of the proceeding. A proceeding is a nullity when the authority taking it has no power to have seisin over the case. The omission of the Income-tax Officer to issue a notice under Section 23(2) does not affect the ab initio jurisdiction enjoyed by the Income-tax Officer in respect of the proceeding. The Income-tax Officer had seisin over the case, he had overall jurisdiction over the case and in that sense had power to initiate the proceeding. The omission to issue a notice under Section 23(2) merely prevents the Income-tax Officer from making an assessment order under Section 23(3), and after he rectifies the omission by issuing that notice he can proceed further to the next stage, that is, to exercise the power of completing the assessment under Section 23(3). All these are steps within the overall jurisdiction vested in the Income-tax Officer over the entire assessment proceeding. We are of definite opinion that the failure of the Income-tax Officer to issue a notice under Section 23(2) does not call for an order by the Appellate Assistant Commissioner annulling the assessment. The Appellate Assistant Commissioner was right in merely setting aside the assessment.
The above Allahabad High Court judgment was followed by the Rajasthan High Court in the case of Commissioner of Income-tax v. Gyan Prakash Gupta, cited supra. The said Rajasthan High Court judgment also considered the scope of Section 143(2) of the Act and held as follows:
As stated above, the assessment order passed without notice under Section 143(2) is invalid and it is vitiated, but the invalidity is not, however, of such a nature which goes to the root of the proceedings and that being so, the Appellate Assistant Commissioner having found it to be invalid, that invalidity did not go to the root of the matter. It could be set aside for being redone de novo. He should not have annulled it. Failure to serve notice on the assessee under Section 143(2) of the Act is merely an irregularity and the Income-tax Officer, until and unless he gets the notices served, cannot complete the assessment. We find it difficult to hold that the Income-tax Officer has no jurisdiction in respect of the proceedings. As soon as the return is filed, he gets seisin over the case. He has jurisdiction over it, but on failure to comply with Section 143(2) of the Act, the only limited restriction is that he cannot complete the assessment. In these circumstances, the assessment orders completed without service of notice under Section 143(2) cannot be said to be ab initio void and when it is not so, the assessment order cannot be annulled.
We feel that the above two High Court judgments are similar to the facts of the present case and hence, we are agreeing with these judgments and we are of the view that there are only procedural irregularities committed by the Assessing Officer and hence the reassessment cannot be annulled.
10. Learned Counsel for the assessee also relied on the Supreme Court judgment in the case of GKN Driveshafts (India) Ltd. v. Income-tax Officer and Ors. reported in 259 ITR 19 to support his contention that objections were not considered by the Assessing Officer while completing the reassessment and hence the order of the reassessment is bad in law. The Supreme Court considered the scope of reopening of the assessment and held as follows:
We see no justifiable reason to interfere with the order under challenge. However, we clarify that when a notice under Section 148 of the Income-tax Act is issued, the proper course of action for the noticee is to file a return and if he so desires, to seek reasons for issuing notices. The Assessing Officer is bound to furnish reasons within a reasonable time. On receipt of reasons, the noticee is entitled to file objections to issuance of notice and the Assessing Officer is bound to dispose of the same by passing a speaking order. In the instant case, as the reasons have been disclosed in these proceedings, the Assessing Officer has to dispose of the objections, if filed, by passing a speaking order, before proceeding with the assessment in respect of the abovesaid five assessment years.
From a reading of the above, it is clear that the Assessing Officer has to furnish reasons, within a reasonable time and on receipt of the same, the assessee can file objection to issue of notice and the Assessing Officer is bound to dispose of the same by a speaking order, before proceeding with the reassessment. In the present case, the objections have not been considered at all by the Assessing Officer before proceeding with the reassessment. Reassessment order was completed without considering the objections to the reopening of the assessment. It is nothing but a procedural defect and therefore it could not be held that the reassessment is a nullity in law.
11. Since we are of the view that these are only irregularities committed by the Assessing Officer (i.e.) not considering the objections as well as not issuing notice under Section 143(2) of the Act, before completing the reassessment, we set aside the order of the Tribunal as well as the lower authorities with a direction to the Assessing Officer to consider the matter afresh, particularly the objections given by the assessee for reopening and issue notice under Section 143(2) of the Act, after giving opportunity to the assessee to raise all contentions relating to the reopening of the assessment as well as the merits of the case and permit the assessee to produce materials and evidence, if any, and pass orders in accordance with law, as expeditiously as possible. As the matter is remanded, it is not necessary to answer the above questions of law, as the same is likely to adversely affect the rights of either parties.
12. With the above observation, the tax case is disposd of. No costs. Consequently, M.P. Nos. 1 and 2 of 2006 are closed.