Court Upholds Reassessment Order, Rejects Assessee's Revision Petition

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Case Name:

Jindal Metal Co. vs Principal Commissioner of Income Tax (High Court of Delhi)

W.P.(C)No.11739/2018 & CM Nos.45456-57/2018

Date: 31st October 2018

Key Takeaways:

1. Reassessment proceedings can be valid even if the assessee claims non-receipt of initial notices, provided subsequent communications were received.

2. The court emphasized the importance of responding to tax notices and filing appeals within the limitation period.

3. The Commissioner's decision to reject a revision petition can be justified if there's no apparent jurisdictional error in the reassessment process.

Issue: 

Was the Commissioner of Income Tax justified in rejecting the assessee's revision petition against the reassessment order for the assessment year 2008-09?

Facts:

1. The petitioner, an individual taxpayer, claims to reside at C-309, Vikas Puri, New Delhi-110018 .

2. He opened a proprietorship concern named Jindal Metal Co. on 09.05.1999 at 5870/37, First Floor, Basti Harphool Singh, Sadar Bazaar, Delhi-110006 .

3. The petitioner filed his income tax return for AY 2008-09 on 29.09.2008 .

4. On 26.04.2010, a search and seizure operation was conducted on M/s Rakesh Gupta, Vishesh Gupta, Navneet Jain & Vaibhav Jain .

5. Based on materials gathered during this search, the Revenue sought to reopen the petitioner's assessment for AY 2008-09 .

6. The Additional CIT approved the reopening on 23.03.2015 .

7. The Assessing Officer (AO) issued notices under Section 148 (of Income Tax Act, 1961) and 142(1) of the Income Tax Act, which the petitioner claims he didn't receive .

8. The AO completed the reassessment on 11.01.2016 .

9. The petitioner filed a revision petition under Section 264 (of Income Tax Act, 1961), seeking revision of the reassessment order .

Arguments:

Petitioner's Arguments:

1. The entire reassessment proceeding was without jurisdiction as it should have been initiated under Section 153C (of Income Tax Act, 1961), not through reassessment .

2. The jurisdictional notice under Section 148 (of Income Tax Act, 1961) was not properly served .

3. The affixture of notice was defective and didn't comply with legal requirements .

Revenue's Arguments:

1. The assessee had not appeared before the AO in response to valid notices issued under Section 148 (of Income Tax Act, 1961).

2. The assessee partially admitted its lapse in not responding to the notices.

3. The assessment order was validly issued under Section 144 (of Income Tax Act, 1961) read with Section 147 (of Income Tax Act, 1961).

Key Legal Precedents:

1. R. K. Upadhyay v Shanabhai P. Patel (1987) 3 SCC 96 

2. Commissioner of Income Tax v Chetan Gupta (2016) 382 ITR 613 (Del) 

These cases reiterated the legal requirement of service of notice upon the assessee in terms of Section 148 (of Income Tax Act, 1961).

Judgement:

The court dismissed the petition, finding no merit in the assessee's arguments. Key points of the judgment include:

1. The petitioner had one PAN number and was served with proceedings relating to the reassessment notice.

2. The petitioner admitted receiving the reassessment order and subsequent demand notice.

3. The court found the petitioner's claim about non-receipt of notices to be unsubstantial and unmerited.

4. The Commissioner was not at fault for rejecting the revision petition as there was no jurisdictional error.

FAQs:

1. Q: Why did the court dismiss the petitioner's arguments about improper notice?

  A: The court found that the petitioner had admitted to receiving the reassessment order and subsequent notices, which contradicted his claim of non-receipt of initial notices.

2. Q: What was the significance of the petitioner having one PAN number?

  A: It suggested that the petitioner was operating under a single identity for tax purposes, making it less likely that notices were sent to the wrong address.

3. Q: Why couldn't the petitioner appeal against the reassessment order?

  A: The petitioner filed the revision petition after the period of limitation for filing an appeal had elapsed.

4. Q: What lesson can taxpayers learn from this case?

  A: It's crucial to respond promptly to tax notices and file appeals within the prescribed time limits, even if there are concerns about the validity of the proceedings.

5. Q: How did the court view the petitioner's conduct in this case?

  A: The court seemed to view the petitioner's conduct as uncooperative and recalcitrant, which weakened his case against the reassessment proceedings.

1. The writ petitioner challenges a revisional order dated 22.05.2017 of

the Commissioner of Income Tax (“CIT” hereafter) which upheld the reassessment order of the Assessment Officer (AO) made for the assessment year (AY) 2008-09.

2. The petitioner, an individual tax payer, claims to reside at C-309,

Vikas Puri, New Delhi-110018. From the said address, he submits that he

has been filing his income tax returns since 1996 onwards in accordance

with Section 124(1)(b) (of Income Tax Act, 1961). This address falls within the jurisdiction of Income Tax Officer Ward - 26(4) from where he was issued notice dated 28.02.2003 under Section 271F (of Income Tax Act, 1961) for AY 2000-01 followed by the penalty order dated 12.03.2003. It is not in dispute that on 09.05.1999, he opened a proprietorship concern by the name of Jindal Metal Co. at 5870/37, First Floor, Basti Harphool Singh, Sadar Bazaar, Delhi-110006 which was

registered with the sales tax department at Delhi. The Petitioner filed his

income tax return for the AY 2008-09 with ward 26(4) against PAN

No.AEEPJ7166A on 29.09.2008. Along with the return, he filed an audit

report in Form 3CB as required under Section 44AB (of Income Tax Act, 1961) fully

disclosing all the details relating to sale/purchase, expenses, etc. On

26.04.2010, search and seizure under Section 132 (of Income Tax Act, 1961) was carried out

of M/s Rakesh Gupta, Vishesh Gupta, Navneet Jain & Vaibhav Jain

(hereafter “Rakesh Gupta & Ors.”). The search assessments in accordance

with provisions of the Act (Section 153A (of Income Tax Act, 1961) etc) were pursued by the

Revenue, against Rakesh Gupta & Ors. In the meanwhile, claiming that the

materials gathered and the statements made in the course of search were

relevant, the Revenue sought to re-open the petitioner’s assessment for AY

2008-09. The Additional CIT approved this move, on 23.03.2015. It is

alleged that on the same day, the AO issued a notice under Section 148 (of Income Tax Act, 1961) in

the name of Jindal Metal Co. This could not be served as the shop was

closed on 24/25 and 26.03.2015. It is alleged that one Rajesh Kumar, the

process server put a note dated 24.03.2015 on the file stating therein that on enquiry it was found that the person has sold this shop long time ago. But he affixed the notice under Section 148 (of Income Tax Act, 1961) on 26.03.2015 which as per the

affixture report was witnessed by one Anil Kumar, Inspector of Income

Tax.

3. On 05.10.2015, the AO issued notice under Section 142(1) (of Income Tax Act, 1961) to the

petitioner which was not responded to in the course of reassessment

proceedings. Again, on 04.01.2016, a notice of hearing and final

assessment was sought to be served; due to the petitioner’s absence, it was

affixed at the premises; in these circumstances, the AO completed the

reassessment on 11.01.2016, at `12,52,390/- after allowing credit of pre-

paid taxes, if any, and charged interest u/s 234A (of Income Tax Act, 1961), 234B, 234C and 234D of

Income Tax Act as per law. Penalty proceedings under Section 271(1)(b) (of Income Tax Act, 1961)

& 271 (1) (c) of the Act too were initiated.

4. The petitioner apparently did not respond; however, he approached

the CIT under Section 264 (of Income Tax Act, 1961), seeking revision of the

reassessment order. In the revision petition, it was averred as follows:

“The petitioner received on 28/01/2016 an assessment order

passed under section 143(3) (of Income Tax Act, 1961)/147 of the I T Act, 1961 on 11-01-

2016 accompanied by a notice of demand of date for Rs

785588.00 from the ITO, Ward-63(3), New Delhi in the case of

M/s Jindal Metal Co. in the status of Firm for Assessment Year

2008-09.

As it was not addressed to the petitioner and did not emanate

from his jurisdictional Assessing Officer, namely, ITO, Ward-26(

4), New Delhi the petitioner took these to have been miss-sent

and didn't bother much about it.

On 21-12-2016 the petitioner received yet another assessment

order passed under section 143(3) (of Income Tax Act, 1961)/14 7 of the I T Act, 1961

accompanied by another notice of demand of date for

Rs.589960.00again from the ITO, Ward-63(3), New Delhi in the

case of M/s Jindal Metal Co. in the status of firm for Assessment

Year 2009-10.

Alarmed by the recurrence the petitioner sought inspection of the

assessment records of the Firm M/s Jindal Metal Co, and came

to know that the learned AO, ITO, Ward-63(3), New Delhi had

acted on receipt of some information from ACIT, Central Circle

10, New Delhi about some alleged accommodation bills having

been issued by Shri Rakesh Gupta, Vinesh Gupta, Navneet Jain,

Vaibhav Jain to various traders including one M/s Jindal Metal

Co. which have culminated in these assessments.

Since the petitioner is also doing business under the trade name

M/s Jindal Metal Co. and the address of the Firm assessed by the

AO coincides with that of the petitioner, he felt that it may be

possible that the ITO, Ward-63(3), New Delhi intended to assess

the petitioner himself and as the petitioner is a law abiding

citizen and an honest tax payer and doesn't want to dodge any

proceedings intended to assess him, he decided to intervene.

He has preferred an appeal to the learned CIT (Appeal) XX New

Delhi impugning the assessment order dated 21-12-2016 for the

assessment year 2009-10 and since the time for filing an appeal

against the assessment order dated 11-01-2016 for the

assessment year 2008-09 has elapsed, the petitioner has come up

before you with this humble petition under section 264 (of Income Tax Act, 1961) of the

Income Tax Act.”

5. The CIT disposed of the revision petition, stating as follows:

“I have carefully considered the submission of the assessee in the

petition under reference and the comments offered by the

assessing officer in this regard. It is a fact on record that the

assessee had not bothered to appear before the assessingofficer

in response to valid notice issued under section 148 (of Income Tax Act, 1961) of the

income tax act 1961 and assessee has partially admitted its

lapse, which according to him is due to the fact that the notice u/s

148 of the IT Act and subsequent assessment order was received

on January 28, 2016 passed under section 144 (of Income Tax Act, 1961)/147 of the IT Act

1961 dated 11.01.2016 accompanied by a notice of demand of

status of firm for the A.Y. 2008-09 but accordingly to the

assessee as what he claims that as the same was not addressed to

the petitioner assessee and did not emanate from his

jurisdictional assessing officer, namely ITO Ward 26(4), New

Delhi the assessee petitioner look the assessment order and

notice of demand to have been misspent and he did not bother

accordingly, that it is only on 21.12.2016, when the petitioner

received yet another assessment order passed under section

144/147 of the IT Act accompanied by another notice of demand

of date in the case of M/s Jindal Metal Co. in the status of firm

for the A Y 2009-10, he sought inspection of the assessment

records of the firm M/s Jindal Metal Co. and came to know about

the factual details of the case and intervened in the matter and

subsequently filed the revision petition as the time for filing an

appeal against the assessment order dated 11.01.2016 for the

A.Y. 2008-09 had elapsed. However it IS evident that due to no-

cooperative and recalcitrant attitude of the assessee he could file

any appeal before the CIT (Appeal) though the assessment order

who duly served on the assessee on 28.01.2016 as also admitted

by the assessee. The order has been validity issued by the

assessing officer u/s 144 (of Income Tax Act, 1961) r.w.s. 147 (of Income Tax Rules, 1962) of the IT Act 1961. Moreover

the assessee in its audit report u/s 44AB (of Income Tax Act, 1961), has

reflected 5870/37, First Floor, Basti Harphool Singh, Sadar

Bazar, Delhi as his business address. Here the 'reason to believe'

of the assessing officer is based on relevant and material reasons

and the assessee is required to file a return of income in response

to issue of notice under section 148 (of Income Tax Act, 1961), even if

return if filed under section 139 (of Income Tax Act, 1961) or 142(1) of the IT Act,

therefore, this petition of the assessee seeking relief for the

cancellation of the assessment order is herebydismissed being

devoid of any merits. However, the assessing officer should verify

the details submitted by the assessee during the review petition

filed before the undersigned and take appropriate action as

provided under the income tax act, 1961 including rectification

for carrying out the change of status of the assessee and if

deemed necessary may obtain the necessary records of the case

from the present assessing officer of the assessee he being the

correct jurisdictional officer of the case under reference.

The petition of the assessee is disposed of accordingly.”

6. It is urged by the petitioner that the entire proceedings right from the

issuance of notice under Section 148 (of Income Tax Act, 1961) followed by the framing of the

assessment order under Section 147 (of Income Tax Act, 1961) are without jurisdiction. It is submitted that the foundation of the case rests on the search conducted on Rakesh Gupta & Ors. on 26.04.2010. The search was carried out under

Section 132 (of Income Tax Act, 1961) by the DGIT (Investigation). During investigations,

it was found that these persons were engaged in the business of providing

accommodation entries. As a consequence of this, assessment orders of the

above persons were passed by the ACIT, Central Circle-X under Section

153A/143(3) of the Act on 28.03.2013. It is submitted therefore, that the

proceedings could have been initiated only under Section 153C (of Income Tax Act, 1961), and not

through reassessment.

7. It is stated that the entire proceeding under Section 147 (of Income Tax Act, 1961) is vitiated as

thejurisdictional notice u/s 148 (of Income Tax Act, 1961) has not been served upon the

petitioner. The fact of the matter is that the Section 148 (of Income Tax Act, 1961) notice dated

23.03.2015 was sent by Speed Post on 23.03.2015. This could not be served

because in terms of the report, the shop was found to be closed on 24, 25

and 26.03.2015 itself. The notice so sent apparently came back to the AO

on 30.3.2015. But before this report of non-service could come back, the

said notice was said to be affixed on 24.03.2015. The affixture was said to

be made under Order V Rule XVII of the Code of Civil Procedure. It is

submitted that as per the affixture report, Mr. Rajesh Kumar, the notice

server stated that he had affixed the notice at the address of the petitioner, in the presence of the Inspector, who affirmed that the notice has been affixed by the notice server at the last known address. It was therefore, argued that the entire reassessment proceedings and additions made were vitiated and consequently, the Commissioner erred in not interfering with it. Learned counsel relied on some decisions, notably R. K. Upadhyay v Shanabhai P. Patel (1987) 3 SCC 96 and that of this Court in Commissioner of Income Tax v Chetan Gupta (2016) 382 ITR 613 (Del) which, following R. K. Upadhyay (supra) and considering other judgments as well, has reiterated that the legal requirement of service of notice upon the assessee in terms of Section 148 (of Income Tax Act, 1961).

8. The materials on record show that the petitioner had one PAN

number; furthermore, it is not in dispute that he was served with

proceedings relating to reassessment notice. However, according to his

admission (in the averments in the revision petition) notice of assessment

and notice of demand for the subsequent assessment years were received by

him. These established that he was functioning at the address to which the

reassessment notices (and hearing notices) were addressed. In these

circumstances, his claim that the process server’s file noting conclusively

established that notice could not be served (due to his absence) and the

defect alleged in the affixture (at the address) is insubstantial and

unmerited. The revision petition admitted in clear terms that the

reassessment order and subsequent demand notice, were received. In the

circumstances, the argument that notice of reassessment and hearing notices

were not received, rings hollow.

9. Undoubtedly, reassessment proceedings can be initiated and

completed after notice to the assessees and granting opportunity to them.

However, the facts of this case reveal that not only were the notices

received, even the reassessment order was received (the revision petition

admits as much) and the assessee did not care to appeal against it;

concededly, he filed the revision petition after the period of limitation.

Given these facts, the Commissioner cannot be faulted for rejecting the

revision petition on the ground that there was no jurisdictional error.

10. For the above reasons, this court is of opinion that there is no merit

in this petition; it is accordingly dismissed but without any order on costs.

Pending applications also stand dismissed.

S. RAVINDRA BHAT, J.

PRATEEK JALAN, J.

OCTOBER 31, 2018