Sona Construction Vs. Income-tax Officer - Court Judgment

Excerpt:
1. the appeal is disposed of ex parte in the absence of any representation from the assessee.2. the appeal is against the order under section 263 of the act whereby the cit has set aside the assessment for making a fresh assessment after considering the issue whether in the case of estimate of net profit a further deduction on account of royalty and cess can be given and whether the interest earned by the assessee should be brought to tax or not. even before the cit there was no representation from the assessee. since the cit has only set aside the assessment for de novo consideration of the aforesaid items, we do not find any merit in the grievance of the assessee.1. i wish to record my respectful dissent, as i disagree with the conclusive decision reached by my learned brother. the.....

Judgment:
1. The appeal is disposed of ex parte in the absence of any representation from the assessee.

2. The appeal is against the order under section 263 of the Act whereby the CIT has set aside the assessment for making a fresh assessment after considering the issue whether in the case of estimate of net profit a further deduction on account of royalty and cess can be given and whether the interest earned by the assessee should be brought to tax or not. Even before the CIT there was no representation from the assessee. Since the CIT has only set aside the assessment for de novo consideration of the aforesaid items, we do not find any merit in the grievance of the assessee.

1. I wish to record my respectful dissent, as I disagree with the conclusive decision reached by my learned brother. The assessee has raised the following grounds :- "1. For that the learned CIT has erred in passing ex parte order under section 263 of I.T. Act, 1961. The appellant does not receive show-cause notice from the Commissioner Office though it was sent by registered post nor it has been returned back to the office. So it does not mean that Notice has been served on him.

2. For that it should be appreciated that the appellant could not appear on the date of hearing when the date was not known to him nor he has applied for time.

3. For that learned CIT has failed to appreciate that the appellant was not heard before passing ex parte order, so the appellant was prevented by sufficient cause for not complying the notice of CIT and the order passed by the ITO is not erroneous and prejudicial to the interest of revenue.

4. For that the appellant filed affidavit that show-cause notice has not been served on him, even he has not received the CIT's order under section 263. The appellant came to know from the office, only when the notice was served by the ITO on 18-7-1989. He has applied for certified copy on 19-7-1989 and it was delivered on 31-7-1989.

The delay for filling appeal may kindly be condoned.

5. For that on the fact and in the circumstances of the case the learned CIT is not justified in passing order under section 263 of I.T. Act without being heard of the appellant.

6. For that the fact of the case is that the appellant firm is doing contract work and Department has deducted Sales Tax amounting Rs. 1,06,898 from the Bill for the first time which the appellant has claimed 10% Net Profit subject to Sales Tax deducted by Dept. and has been allowed by the learned ITO. The Contractor Association is fighting on this point and the matter is now pending before the Supreme Court. The Supreme court has stayed the proceeding. And now sales Tax is not deducted from the Bill.

7. For that it will be appreciated that the Government has deducted Sales tax, which ought to have been allowed and it has correctly been allowed by the learned ITO. So the learned CIT is wrong in cancelling the assessment without being heard of the appellant on this point.

8. For that the learned CIT has failed to appreciate that the Royalty and cess has also been allowed in earlier years this is also not the ground for cancelling the assessment under section 263 of Income-tax Act, 1961.

9. For that the order under section 263 is otherwise is bad in fact and law and fit to be cancelled.

10. For that other ground, if any, shall be urgent at the time of hearing." Original notice issued by Tribunal is returned unserved and revised notice through department is not acknowledge.

In this case the CIT, Patna, on going through the record noticed that while determining the net income from contract business by applying the net profit rate of 10% of gross receipt, reduced by the value of materials supplied by the Department, the ITO had allowed further deduction of Rs. 14,033 on account royalty and cess inasmuch as he further allowed deduction of Rs. 1,06,898. He also observed that the interest of Rs. 3,381 earned and shown by the assessee in the return was also not considered. He, therefore, issued a show-cause notice under section 263 by a registered post inviting objection from the assessee fixing the date for hearing on 27-2-1989. As there was no compliance with the show-cause notice the CIT, Patna set aside the order of assessment being erroneous and prejudicial to the interest of revenue with the direction to make de novo assessment.

2. Aggrieved by this order under section 263 the assessee has preferred this appeal to the Tribunal. On perusal of ground Nos. 1 to 5 it is observed that the assessee has raised objection on the ground that the assessee has not received the show-cause notice and assessee came to know when the notice was served by the ITO only on 18-7-1989. It is also contended that the order was passed ex parte without hearing the assessee who was prevented by sufficient cause for not complying with the notice of the CIT.3. From ground Nos. 6 & 7 it is seen that the assessee has deducted sale tax amounted to Rs. 1,06,898 from the bill for the first time which the appellant has claimed and has been allowed by the ITO. It is found that no doubt the CIT has mentioned the deduction of Rs. 1,06,898 but nowhere in his order he has maintained that it is deduction on account of sale tax. In the ground of appeal it is also mentioned that the contractor Association is fighting on this point and the matter is now pending before the Supreme Court which has stayed the proceeding and now sale tax is not deducted from the bill. In view of above submissions and contentions raised in the grounds of appeal the assessee has requested in ground No. 9 that the order under section 263 is otherwise bad in fact and in law and fit to be cancelled.

4. Thus, it is seen that the CIT has not gone into the details of the deduction on account of sale tax. It is also observed that the notice is not served on the assessee and no acknowledgement is received which means reasonable opportunity as not granted to the assessee and there is violation of principles of natural justice. The Hon'ble Calcutta High Court in the case of Bagsu Devi Bafna v. CIT [1966] 62 ITR 506 affirmed, Bagsu Devi Bafna v. CIT [1967] 63 ITR 333 while laying down the extent and limitation of the rules of natural justice applicable to section 263 proceeding has held that the notice to show cause must be served on the assessee reasonably ahead of the date fixed for hearing.

In this case it is reverse as assessee came to know about notice after 4 1/2 months. I, therefore, find that the assessee was not given a reasonable opportunity of being heard by the CIT. On similar facts the Madhya Pradesh High Court in the case of CIT v. Prem Syndicate [1983] 141 ITR 290 held that when the order under section 263(1) is set aside by the Tribunal on the ground that there was no adequate opportunity to the assessee, the Tribunal has jurisdiction to remand the case to the CIT for redeciding the case afresh in accordance with law. I, therefore, follow the decision of the Hon'ble Madhya Pradesh High Court in the case of Prem Syndicate (supra), Calcutta High Court in the case of Bagsu Devi Bafna (supra) and remand the matter to the CIT with the direction to dispose of the proceeding under section 263(1) afresh after giving reasonable opportunity to the assessee.

5. In the result, the appeal is treated as allowed for statistical purposes.

In view of the difference of opinion, the following question is referred to the Hon'ble President, Income-tax Appellate Tribunal for reference to the Third Member as per the aforesaid section : "Whether, on the facts and in the circumstances of the case the appeal filed against setting aside of the assessment order under section 263 by the CIT is to be decided on merit or not be the Tribunal and whether on the facts and in the circumstances of the case there is any merit in the grounds of appeal ?" 1. The assessee in this case is a registered firm deriving income from contract works. For the assessment year 1986-87 the assessment was completed by the Assessing Officer under section 143(3)/182(1) of the Income-tax Act on 24-9-1986 determining the total income at Rs. 2,21,440. On going through the records it was found by the Commissioner of Income-tax that while determining the net income from contract business by applying the net profit rate of 10% the gross receipt was reduced by the value of materials supplied by the Government. It was further found by him that the Assessing Officer had allowed further deduction of Rs. 14,033 on account of royalty and cess/inasmuch as he further allowed deduction of Rs. 1,06,896. It was also found by him that interest of Rs. 3,381 shown by the assessee was not considered in the assessment made by the Assessing Officer. It was the view of the commissioner that when the income was determined on the basis of net profit by applying certain percentage, further deduction therefrom should not have been allowed. He accordingly issued notice by Registered Post fixing the hearing on 27-2-1989. On the date fixed there was no compliance by the assessee. The learned Commissioner, therefore, passed the order ex parte and set aside the order of the Assessing Officer with a direction to make de novo assessment.

2. Against this, the assessee filed appeal before the Tribunal challenging the ex parte order and also the finding of facts recorded by the Commissioner. When the matter was fixed up for hearing on 3-3-1994, there was no compliance from the assessee. The Tribunal, therefore, heard the appeal ex parte and passed the order. The Judicial Member dictated the order confirming the order of the Commissioner on the reasoning that the assessment was only set aside for de novo consideration of the aforesaid items. It was held by him that there was no merit in the grievance of the assessee. On the other hand, the learned Accountant Member held that it was a case for restoring the same to the file of the Commissioner for giving reasonable opportunity to the assessee. The Bench, therefore, referred the following question to the Hon'ble President for consideration by the Third Member which was allotted to me : "Whether, on the facts and in the circumstances of the case, the appeal filed against setting aside of the assessment order under section 263 by the CIT is to be decided on merit or not by the Tribunal and whether on the facts and in the circumstances of the case there is any merit in the grounds of the appeal." 3. The case was accordingly fixed up for hearing on 21-3-1997. In response to the notices both the parties, namely, the learned Counsel of the assessee and the learned Departmental Representative submitted written submissions. After careful consideration of the rival submissions in the light of the material on record, I am of the view that the case needs to go back to the Commissioner. The learned Commissioner in this case gave a finding that since the Assessing Officer resorted to determination of net income of the year by applying the net profit rate, no further deduction therefrom should have been considered and allowed by the ITO. It is, however, the claim of the assessee that sales-tax was deducted from the bill in the previous year relevant to the present assessment year which was debited in the Profit & Loss Account. Accordingly, the Assessing Officer allowed the claim.

Similar is stated to be for royalty and cess which have been paid for road roller and similar claim was allowed in the earlier years. Since this aspect of the matter has not been placed before the Commissioner before passing the order under section 263, it is fair and reasonable that the assessee should be given a chance to produce a Trading and Profit & Loss Account and other relevant materials and than the Commissioner should decide the question whether the order of assessment is erroneous and prejudicial to the interests of the Revenue. In that view of the matter, I am in agreement with the learned Accountant Member that the matter should go back to the Commissioner with a direction to dispose of the proceedings under section 263(1) afresh after giving reasonable opportunity to the assessee.

4. The matter will now go back to the regular Bench which heard the appeal, for disposal, in accordance with the opinion of the majority.