TMI Blog2009 (7) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. 3. In the cross appeal, the revenue has taken the following effective grounds:- 1 .0n the facts and in the circumstances of the case, the Id. CIT(A) has erred in deleting the addition of ₹ 2,27 ,463/- made on account of GP rate as books of accounts, vouchers etc. were not produced before the AO in spite of several opportunities afforded to the assessee. 2. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in deleting the addition of ₹ 11,25,000/- made u/ s 69A of the IT Act, as the source of repayment was never explained or reply produced before the AO in spite of several opportunities afforded to the assessee. 3. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in deleting the addition of ₹ 2,72,917/- u/ s 68 of the IT Act as creditworthiness and genuineness of the transaction was not proved before the AO in spit of several opportunities afforded to the assessee. 4. On the facts and in the circumstances of the case, the Id. CIT(A) has erred in accepting and relying upon the evidence which were not produced before the AO in violation of Rule 46-A of the i. T. Rules. 4. Fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assumption of jurisdiction to pass an order u/ s 143(3) and the assessment was, therefore, liable to be cancelled. 7. The CIT(A) after considering the detailed submissions of the assessee held that the assessment framed by the AO u/ s 143(3) was in accordance with law, after proper service of the notice u/ s 143(2) upon the assessee, by adopting a valid procedure for service of the notice upon the assessee i.e. by affixture, while passing a detailed order. 8. We have considered the rival contentions of both the parties, perused the records and examined the various case laws cited by both the parties on the issue under consideration before us. 9. In order to appreciate the arguments of both the parties we would first like to examine the relevant case law on this issue. 10. In CIT vs. Shankarlal Ved Parkasa 300 ITR 243 (Delhi) their lordships while dealing with the issue of service of notice issued u/ s 143(2) have also observed in their order as under : In the present context we are of the view that the observations of their Lordships are not relevant since we are concerned with a presumption of service under s. 27 of the General Clauses Act, failure to serve a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the qua_ntum of tax. The following observations are opposite : The IT assessment proceedings commence with the issue of a notice. The issue or receipt of a notice is not, however, the foundation of the jurisdiction of the ITO to make the assessment or of the liability of the assessee to pay the tax. It may be urged that the issue and service of a notice under s. 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice. Suppose a person, even before a notice is published in the papers under s. 22(1), or before he receives a notice under s. 22(2) of the IT Act, gets a form of return from the IT Office and submits his return, it will be futile to contend that the ITO is not entitled to assess the party or that the party is not liable to pay any tax because a notice had not been issued to him. The liability to pay the tax is founded in ss. 3 and 4 of the IT Act, which are the charging sections. Sec. 22, etc., are the machinery sections to determine the amount to tax . 14. The Estate of Late Ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... position of law that to issue a notice u/ s 143 (2) is mandatory and, therefore, if the assessment is made without complying with section 143 (2), then the amendment is ordinarily, invalid. But as per ratio of the decision (supra) invalidity does not go to the root of the matter. It can simply be set aside for being redone de novo but the assessment certainly cannot be annulled because failure to serve the notice or an irregularity in serving the notice u/ s 143 (2) upon the assessee is merely an irregularity and, therefore, unless the ITO gets the notices served the assessment cannot be completed. However, it cannot be said that the ITO has no jurisdiction in respect of the proceedings because as soon as the return is filed before him the ITO assumes jurisdiction over the case but failure to comply with section 143 (2), the only restriction is that the ITO cannot complete the assessment. Hence, in these circumstances the assessment order passed either without serving notice u/ s 143 (2) or serving the notice improperly upon the assessee cannot be said to be void ab initio and the assessment order cannot be annulled on this ground. 17. In CIT Vs. Regency Express Builders (P) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortunity of 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 of notice. From the decisions (supra) of Delhi High Court and M.P. High Court it clearly emerges that even if no notice u/ s 143(2) had been properly served upon the assessee on or before 31.10.2003 (in the instant case of the assessee) but the assessee appears before the ITO to represent his case during the assessment proceedings the assessment frarned by the Assessing Officer does not stand vitiated. 19. We will now briefly consider the conduct of the assessee with regard to the service of the notice u/ s 143(2) on the assessee by affixture on 30.10.03. The notice conveyed to the assessee that a hearing had been fixed before the Assessing Officer on 6.1 1.2003. Thereafter notice dated 24.1 1.2003 fixing the case for 12.12.2003 and again a notice dated 31.8.04 fixing the case for 23.9.04 were issued. The assessee attended the hearings on 23.9.04 and 6.10.04 but the hearing was adjourned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On going through the typed letter of the assessee we find that even in the letter the assessee has not raised any such question or objection i.e. that the assessee had not received any notice purported to be issued by the Assessing Officer u/ s 43(2) and why the learned AR for the assessee appeared before the A.O. and in response to which notice, and that why on appearing first time before the Assessing Officer the assessee did not demand from the Assessing Officer on that very day the copy of the notice u/ s 143(2) issued and served by the Assessing Officer upon the assessee. However, in this typed letter the assessee seems to have obliquely noted in hand on the left side on the first page of the letter and also service of the first notice u/ s 143(2) which from the letter appears to be indicating that the assessee for the first time through this letter wanted the Assessing Officer to supply the copy of the first notice, though before the date on which this letter was written the assessee/or learned AR attended the proceedings before the Assessing Officer a number of times. The ratio of the decision of Delhi High Court in the case of Regency Express Builders (P) Ltd. (supra) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mode was done as per the rules, hence, such service of notice under section 143(2). could be accepted to be legally valid and therefore, the assessment made by the Assessing Officer on the basis of such invalid notice was declared null and void and quashed by the Tribunal, is also of no help, first, because it does not apply to the facts of the instant case of the assessee as in the case (supra) even the notice by affixture was served beyond the period of limitation and, second, because in the case (supra) the assessee denied service of any notice u/ s 143(2) before the prescribed date of period of limitation of service of notice u/ s 143(2), whereas, in the instant case the notice was not denied by the assessee to have been served before the due date of service and because of notice in the instant case was served through affixture within the period of limitation i.e. 30.10.2003 and lastly the order of the Tribunal (supra) quashing the assessment holding the service of notice as invalid cannot be followed for the reasons mentioned in the order of Apex Court other High Courts (supra) wherein it was specifically laid down that the assessment can only be set aside and not annull ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is presumed held that the notice served through affixture on 30.10.2003 would have definitely come to the notice of the assessee on the next day i.e. 31.10.2003 and now by raising this frivolous plea the assessee wants get out of the clutches of a valid assessment order passed by the Assessing Officer, as from the facts discussed hereinabove it is held that in the instant case the Assessing Officer served the notice u/ s 143(2) upon the assessee by affixture on 30.10.2003 i.e. well within the period of limitation of 12 months as prescribed under provision of section 143(2) and, therefore, the assessment framed was a valid assessment. For the detailed reasons given herein above the legal plea taken by the assessee on the issue of invalid assessment is rejected and it is held that the assessment framed by the Assessing Officer is a valid assessment framed in accordance with relevant provision of law. The ground No. 1 of the appeal taken by the assessee is rejected. 25. Now we proceed to deal with ground No.2 of the appeal of the assessee and the grounds of the cross appeal filed by the revenue. 26. The ground No. 2 of the assessee relates to disallowance of interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y suggest that no interest has been provided in the accounts against the cash credit working capital limits obtained from S.B.I. Ballabhgarh. The assessee stopped providing for interest on receipt of the bank's letter dated 12.01.94, whereby the bank decided to call up the advances granted to the assessee in the year/ years for reasons of non payment of the loans obtained from the bank. Undisputedly, on the basis of the compromise settlement agreed to by the assessee and so conveyed by the bank in its letter dated 09.12.00, the bank issued a certificate dated 21.09.04 that the assessee has liquidated an amount of ₹ 35.00 lakhs being the full and final settled amount, of which ₹ 26,28,238/- is the principle and ₹ 8,71,761/- is the interest. There is no dispute to the well-settled legal proposition that where liability for any expenditure is disputed, the claim of its deduction can be allowed only during the year when the same is crystallized and payment is made. In the instant case, before us, no interest was paid by the assessee from 1993 onwards nor any claim of expenditure was made in the profit loss account during these years. As per the settlement deed, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the banks dues suggest that the dead line of one year from 9.12.2000 given in the Bank's letter dated. 9.12.2000 for giving effect to the compromise settlement was the factor responsible for sale of products from out of the old inventory at whatever prices those could yield at the given time. One other reason for accepting the gross profit rate for the year under appeal is that the assessee had earned a better GP over the earlier years and that there is no technical sanctity for ignoring the job work receipts for deterrnining gross profit. According to the assessee its gross profit for the year under appeal is 31.51% as against 26.23 % during A. Y. 01-02 and 24.08 % during A. Y. 00-01. The trading results as shown by the assessee for determining GP of 31.51 % includes job work receipts of ₹ 5,25, 905/ In order that the assessee earns receipts by way of job work from others at a charge, it has allowed its premises plant and machinery and services of staff for earning from such activity. There is obviously supervisory control over the goods manufactured. Engagement in manufacture of processing of the goods can take, according to commercial experiences, different form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar vis- vis GP of the earlier year. The job work receipts by their very nature entail the expenditure and the gross trading results covering both the sales and job work receipts would determine whether the trading results are comparable to the previous year. The finding so recorded by the CIT(A) has not been controverted. Keeping in view the higher GP rate shown during the year under consideration as compared to the immediately preceding year, we do not find any merit in the AO's action for making the trading addition by deducting the job work receipts from gross profit. Accordingly the order of the C[T(A) in this regard is upheld and ground No. I of the Revenue's appeal is rejected. 33. In the next ground, the Revenue is aggrieved for deletion of addition of ₹ 11,25,000/- which was made by the AO u/ s 69A of the IT Act. Facts in brief are that for making repayment of the loan as per the settlement deed, the assessee issued cheque in favour of the bank, the source of which was asked by the AO. The A.O. states that the assessee in order to comply to the terms of the compromise settlement has paid to the bank an amount of ₹ 11,25,000/- in cash. The bank informe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the AO for deciding the same afresh and the assessee is directed to explain the source of payment made to bank in liquidation of its loan, by producing books of account and other details of proving the identity, genuineness and creditworthiness of the loan creditor from whom loans were taken for repayment of the working capital liability to the bank. We direct accordingly. 36. Next grievance of the Revenue relates to deletion of addition of ₹ 2,72,917/-. 37. According to the A.O. the assessee obtained fresh unsecured loans of ₹ 1,00,000/- from Directors, ₹ 1,00,000/- from shareholders, ₹ 72,917/- from other. When called upon to submit details of bank statement, confirmation and income tax particulars of the persons from whom the loans have been taken, the assesse submitted before the AO the income tax particulars of its Directors. The AO that in the absence of necessary documents, the sources and genuineness of the loan transaction remaining unverifiable, the amounts are assessable u/ s 68 of the Act. 38. By the impugned order, the CIT(A) deleted the addition by making the following observations: I have considered the submission to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
