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Judgment
Chitra Venkataraman, J.—Tax Case Nos. 886 to 889 of 2005 preferred by the Revenue were admitted by this Court on the following substantial questions of law:
(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the reopening of the assessment u/s 147 and completion of assessment without issue of notice under Sections 143(2) within 12 months is not valid ?
(ii) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that non-furnishing of the copies of the reasons by the AO for reopening the case u/s 147, even though the Assessee has not applied for certified copies of the reasons recorded by the AO and paying the necessary charges is valid ?
Even though Tax Case Nos. 672 to 675 of 2009 were filed along with Tax Case Nos. 886 to 889 of 2005, they got numbered long after the admission of Tax Case Nos. 886 to 889 of 2005 and are yet to be admitted. As the issues arise out of the common order of the Tribunal dt. 18th Aug., 2004 relating to the Assessee and other co-owners and the learned Counsel appearing for the Assessee in the abovesaid appeals are one and the same, these appeals are formally admitted on the questions of law raised as above.
Tax Case Nos. 672 to 675 of 2009 relate to asst. yrs. 1996-97, 1993-94, 1994-95 and 1995-96. Tax Case Nos. 886 to 889 of 2005 relate to asst. yrs. 1989-90, 1990-91, 1991-92 and 1992-93. All these appeals arise out of the common order of the Tribunal, wherein, apart from this Assessee, 9 other co-owners'' appeals were also considered.
It must be pointed out herein that on an earlier occasion, in respect of the questions of law raised by the Revenue in the case of G. Palaniappan, this Court considered the identical questions of law raised by the Revenue arising in the case of other co-owners and rejected the same at the admission stage. The said decision is reported in The Commissioner of Income Tax Vs. C. Palaniappan, , to which one of us (P.P.S. Janarthana Raja, J.) was a party. Even though the cause title refers to the name of the Assessee therein as "C. Palaniappan", learned Counsel appearing for the Assessee pointed out that going by the income tax appeal number referred to therein, the appeal considered by this Court related to the co-owner by name "G. Palaniappan" and not to "C. Palaniappan", as had been stated. The typed set in the present appeals before us contains orders of assessment relating to G. Palaniappan, even though the appeals herein now before us relate to the Assessee "C. Palaniappan". The reported decision referred to above followed the decision of one of the co-owners reported in The Commissioner of Income Tax Vs. M. Chellappan and P.L. Gandhi, , which related to the case of one of the co-owners--Chellappan. Tax Case No. 843 of 2004, relating to P.L. Gandhi, one of the co-owners, was dismissed by this Court by order dt. 28th April, 2009 on account of low tax effect. Tax Case Nos. (386 to 690 and 707 to 709 of 2004 in the case of Chellappan and Gandhi, were dismissed by this Court on 9th Nov., 2004 at the admission stage, on the ground that notices u/s 143(2) were issued beyond the period prescribed under the said provision and thus this Court rejected the appeals of the Revenue at the admission stage. The issues raised herein in the appeals and the facts relating to all the co-owner Assessees considered in the earlier tax cases decided by this Court are one and the same. We have proceeded to consider the case on merits.
C. Palaniappan, the Respondent Assessee herein, is one among the ten co-owners, who had 12.5 per cent share in Kannammai Building, situate in Anna Salai. In the returns filed for the relevant assessment years, the Assessee admitted his net share income from the said property under the head "Income from house property" based on the consolidated P&L a/c maintained by the co-owners in respect of the said building, year after year. One of the major items of expenditure appearing in the building account was "interest on borrowed capital". The original assessment in respect of the asst. yrs. 1989-90 to 1996-97 was completed, accepting the returned income, thereby the claim for deduction u/s 24(vi) of the IT Act (hereinafter referred to as ''the Act'') on the proportionate share of interest payable on the capital borrowed from numerous parties aggregating Rs. 1,78,09,878.91 towards the cost of construction of the building Kannammai Buildings was granted to the Assessee. However, on information coming to his possession that the cost of construction of the building was about Rs. 60,00,000 in 1965, carried on entirely through borrowed funds and that the co-owners had withdrawn huge amounts of the borrowed funds for purposes other than for payment of creditors who lent money for the construction of the building, the AO found that the co-owners claimed excess deductions towards interest on borrowed capital, leading to escapement of income. Since the cost of construction of the building was at Rs. 60 lakhs, that the borrowed funds were nearly 3 to 5 times more than the total cost of construction, the interest admissible u/s 24(1)(vi) of the Act could be worked out only on the abovesaid amount and nothing more. Thus based on the cost, the assessing authority viewed that there was a strong indication that the borrowed funds might have been diverted for personal use of the co-owners. Thus the failure to furnish the details regarding the utilisation of the borrowed funds each year, amounted to non-disclosure of material facts, truly and fully. This led to the reopening of the assessments in respect of all the co-owners, including that of the present Assessee in respect of the asst. yrs. 1989-90 to 1996-97. Notice u/s 148 of the Act was issued on 31st March, 2000 for the asst. yrs. 1989-90 to 1994-95, and for the asst. yrs. 1995-96 and 1996-97, the notice was issued on 28th March, 2000.
Pursuant to the same, the Assessee filed a letter on 31st March, 2000, stating that the return of income already filed for the assessment years under the provisions of Section 139 of the Act be treated as returns filed in response to the notices issued u/s 148 of the Act. Subsequently, on 18th Sept., 2000, the Assessee filed fresh returns of income in Form 2D SARAL, stating that the income for each assessment year was admitted under the narration "as originally assessed". The assessing authority pointed out that barring such a statement, no particulars were filed along with the return. However, the Assessee objected to the reopening of the assessment.
On 31st Oct., 2000, the assessing authority addressed a letter to the Assessee, stating the reasons for reopening of the assessment. On receipt of the communication, the Assessee once again filed objections therein, reiterating his original stand. Apart from that, the Assessee also asked for certified copies of the order sheets as regards the reopening of the assessment. However, after hearing the Assessee, the assessing authority confirmed the proposal. Thus the assessment u/s 148 of the Act was made. Aggrieved by the same, the Assessee preferred an appeal before the CIT(A). following the decision in the case of M. Chellappan (supra) and yet another co-owner, the CIT(A) rejected the claim of the Assessee as inadmissible. Like all other co-owners, the Assessee preferred an appeal before the Tribunal. In the course of the proceedings before the Tribunal as well as before the CIT(A), the Assessee took a specific objection as regards the limitation on reopening the assessment, apart from the assessing authority not furnishing the copies of the reasons recorded for reopening the assessment u/s 148 of the Act. As regards the non-furnishing of the copies of the reasons recorded for reopening of the case, in spite of the request made by the Assessee, the Tribunal pointed out that as admitted by the Revenue, the assessing authority furnished the gist of the reasons recorded and not the entire reasons recorded by the AO. The Revenue''s contention that the Assessee had to apply for certified copies along with the copying fee, however, was rejected by the Tribunal, since there was no confidentiality attached to the reasons recorded for reopening the case. Consequently, the Tribunal held that there was violation of the statutory provisions and the order passed suffered an illegality.
Coming to the question of applicability of Section 143(2) of the Act and the aspect of limitation, the Tribunal held that the provisions applicable for a regular assessment, as regards the return filed u/s 139 of the Act, would be applicable to the extent possible, while processing the return filed in pursuance of a notice u/s 148 of the Act. The Tribunal further pointed out that when the AO issues a notice u/s 148 of the Act and the Assessee files a return in response to the said notice, the AO may accept the computation of income as returned by the Assessee. In such case, no further notice is required to be given to the Assessee to proceed with the computation of income. However, where the Assessee understates his income, the assessing authority may consider it necessary to serve a notice u/s 143(2) of the Act, requesting the Assessee to produce the necessary evidence to explain the case of the Assessee. In the circumstances, the Tribunal held that Section 143(2) of the Act is a mandatory procedure to be complied with; that the AO is bound to follow the procedure as set out u/s 143 of the Act. In the circumstances, holding that the ease herein is similar to the case of R. Dalmia and Another Vs. Commissioner of Income Tax, , the Tribunal allowed the appeal of the Assessee that there was no compliance of the procedure u/s 143 of the Act. On the question of limitation, the Tribunal held that since the notice was issued beyond the period of 12 months from the end of the month in which the return was filed and the same was in violation of Section 143(2) of the Act, the assessment was null and void. Aggrieved by the same, the Revenue is on appeal before this Court, raising the substantial questions of law as referred to in para 1 of this judgment.
Learned Counsel appearing for the Respondent brought to our notice, the tax implication in all these cases to maintain the appeals. The tax implication, as stated by the learned Counsel appearing for the Respondent, reads as follows:
s.
No.
Asst. yr.
Returned income in Rs.
Tax as per Section143(1)
order in Rs.
Total income computation as per revision order in Rs.
Tax as per revision order giving effect to CIT(A)''s order in Rs.
Difference being the tax effect in Rs.
(a)
(b)
(c)
(d)
(d) - (b)
1
1996-97
1,46,970
31,302
3,21,110
1,00,946
69,644
2
1995-96
1,06,920
17,578
2,64,220
79,190
61,612
3
1994-95
96,770
16,533
2,46,290
85,140
68,607
4
1993-94
79,022
13,106
1,90,330
62,196
49,090
5
1992-93
1,46,795
55,622
2,33.350
1,03,910
48.288
6
1991-92
1,44,569
54,373
1,90,820
81,771
27,398
7
1990-91
79,842
22,503
1,12,540
37,984
15,481
8
1989-90
62,119
14,803
1,00,410
30,928
16,125
Considering the circulars issued by the Board setting the monetary limit for filing the appeal u/s 260A of the Act, learned Counsel appearing for the Respondent submitted that the Department''s appeals have to be, in limine, rejected. Secondly, this Court had already considered the issue on merits on the claim for deduction u/s 24(1)(vi) of the Act in the appeals preferred by the Revenue in respect of more than one co-owner, in the decision reported in CIT v. C. Palaniappan (supra) (to be read as G. Palaniappan)--CIT v. M. Chellappan (supra), which related to the case of one of the co-owners--Chellappan. Tax Case No. 843 of 2004, relating to P.L. Gandhi, one of the co-owners, was dismissed by this Court by order dt. 28th April, 2009, on account of low tax effect. Tax Case Nos. 686 to 690 and 707 to 709 of 2004, in the case of Chellappan (supra) and Gandhi (supra), were dismissed by this Court on 9th Nov., 2004. Thus when the issue is already concluded, no useful purpose would be served in considering afresh the question of law now raised in the appeal, relating to another co-owner, to take a different view.
Apart from replying to the primary objection taken on the maintainability of the appeals, learned standing counsel appearing for the Revenue took us through the retrospective amendment brought to the provisions of Section 148(1) of the Act under the Finance Act, 1996, effective from 1st Oct., 1991, inserting proviso to Sub-section (1) of Section 148 of the Act, having relevance and applicable to the present case and submitted that in the light of the above, the question of applying the limitation as given u/s 143(2) of the Act, does not apply. He pointed out that contrary to the assertion of the learned Counsel appearing for the Assessee, in view of the amendment, the plea of limitation, as given u/s 143(2) of the Act and as applied in other co-owners'' case, would not be of any relevance herein. Hence, as the decisions in respect of other co-owners'' case were decided by this Court on 11th Feb., 2006 in accordance with the provisions then available u/s 148 and Section 143(2) of the Act, prescribing the limitation of 12 months, the retrospective amendment under the Finance Act, 2006, effective from 1st Oct., 1991, applicable to the Assessee''s case, has to be applied to consider the appeals afresh. Learned senior standing counsel further pointed out that although the procedure in calling upon the Assessee to submit his return of income in response to the notice u/s 148 of the Act is that of a normal assessment pursuant to the return u/s 139 of the Act, and the officer has to comply with the requirement u/s 143(2) and (3) of the Act as the case may be to issue notice thereon, yet, for the purpose of limitation, whatever might have been the relevancy of the limitation given u/s 143(2) of the Act which prescribes the period of six months or one year, as the ease may be, to cases prior to the amendment, the retrospective amended limitation, as given under the proviso to Section 148 of the Act, alone has to be looked into; as such, limitation provided for u/s 143(2) of the Act has no relevance at all in the matter of assessments u/s 148 of the Act. In sum and substance, he submitted that the amended provision under the proviso to Section 148(1) of the Act is exclusive to a case of escaped assessment or reassessment or recomputation u/s 148 of the Act. Considering the abovesaid aspects, the Tribunal is not correct in holding that the notice issued u/s 148 of the Act has to fail, by reason of the limitation prescribed u/s 143(2) of the Act.
He pointed out that apart from the procedure to be followed on the notice given u/s 148 of the Act, when specific provisions are brought u/s 148 of the Act to deal with the notice issued to make the assessment u/s 147 of the Act, it is no longer open to the Assessee to state that the proceedings are hit by limitation. As regards the furnishing of copies, he pointed out that when the gist of the reasons is already given, the Tribunal is not correct in observing that the reasons were not disclosed to the Assessee. As regards the tax effect in all these cases, he pointed out that considering the question of law raised, the tax effect has no significance in considering the maintainability of the appeal.
Per contra, learned Counsel appearing for the Assessee pointed out that when there is a failure to follow the procedure under the provisions of Section 143(2) of the Act, the proceedings u/s 148 of the Act are void ab initio. Secondly, on the aspect of limitation, he submitted that when all the other Assessees, who are the co-owners of the property, had had the benefit of the orders of this Court under the unamended provision, to single out the present Assessee from the benefit of limitation, would lead to a case of grave injustice to the Assessee. Thirdly, he pointed out that the amendment brought forth to the proviso u/s 148(1) of the Act does not meet the purpose; that without amending Section 143(2) of the Act, Section 148(1)(b) cannot be read as validating the time-barred proceedings u/s 148 of the Act. He pointed out that validating a notice is not the same as extending the time-limit. Hence, contrary to what had been conceived of as an object of inserting the proviso to Section 148(1) of the Act, the amendment has failed to achieve its purpose. In this connection, he placed reliance on the decision reported in Yogindraprasad N. Mafatlal Vs. Commissioner of Income Tax, Bombay City-I, , which was subsequently confirmed in the decision reported in Commissioner of Income Tax, Gujarat Vs. M.R. Doshi (Dead) by Lrs., that when the amendment does not meet the object of legislation, no useful purpose would be served by the amendment. Placing reliance on the decision reported in Commissioner of Income Tax Vs. T.G.K. Raman (Deceased) by Legal Representatives, , he pointed out that the amendment is not curative in nature, particularly as regards any deficiency in the language or to set right a mischief otherwise found in the section. Apart from that, learned Counsel for the Assessee placed reliance on the decision of the apex Court reported in Commissioner of Income Tax Vs. Max India Ltd., , followed by the Karnataka High Court in the decision reported in Shriram Chits (Bangalore) Limited. Vs. The Joint Commissioner of Income Tax, , that the amended provision cannot be made use of at the stage when an appeal u/s 260A of the Act is filed, to accept the claim of the Revenue that by reason of the amended provision, the limitation plea, as given u/s 143(1) of the Act, is not available. In any event, having regard to the finding of the Tribunal that the reasons for reopening of assessment were not given to the Assessee and that the proceedings were not in conformity with Section 143(2) of the Act, the question of even saving the proceedings by referring to the proviso u/s 148 of the Act, does not arise. He further emphasized that going by the Board''s circular, fixing the monetary limit for filing tax cases applicable herein, when the other co-owners'' appeals were dismissed by this Court and some of the co-owners'' appeals were not even appealed against by the Revenue, the contention advanced by the Revenue does not deserve any countenance.
Heard the learned Counsel appearing for both sides and perused the material on record.
It is not denied herein that in respect of one of the co-owners G. Palaniappan (cause title given wrongly as C. Palaniappan), this Court had considered the identical question on limitation on the reopening of assessment on the disallowance of the claim of interest on borrowed capital. Referring to the decision given in the case of a co-owner by name Chellappan, reported in CIT v. M. Chellappan (supra), which followed the decision of the Punjab & Haryana High Court reported in Vipin Khanna Vs. Commissioner of Income Tax and Others, , this Court held that when no notice was served on the Assessee within the stipulated period of twelve months u/s 143(2) of the Act, the proceedings u/s 143 of the Act came to an end. Going by the fact that the reopening of the assessment has to undergo the procedure u/s 143(2) of the Act, as the notice had been issued beyond the period of 12 months'' statutory period, the reopening of the assessment was held as time barred.
We do not think, one can ignore the amendment that had been brought to Section 148 of the Act by inserting the proviso by the Finance Act. 2006, effective from 1st Oct., 1991, and apply the decision reported in CIT v. C. Palaniappan (supra) to the Assessee herein, to reject the case of the Revenue. The proviso to Section 148(1) of the Act, as is available now, having retrospective application w.e.f. 1st Oct., 1991, reads as follows:
Section 148. Issue of notice where income has escaped assessment.--(1) Before making the assessment, reassessment or recomputation u/s 147, the AO 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 u/s 139:
Provided that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143, as it stood immediately before the amendment of said Sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in Sub-section (2) of Section 153, every such notice preferred to in this clause shall be deemed to be a valid notice:
Provided further that in a case--
(a) where a return has been furnished during the period commencing on the 1st day of October. 1991 and ending on the 30th day of September. 2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under Clause (ii) of Sub-section (2) of Section 143 after the expiry of twelve months specified in the proviso to Clause (ii) of Sub-section (2) of Section 143, but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in Sub-section (2) of Section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
Explanation.--For the removal of doubts, it is hereby declared that nothing contained in the first proviso or the second proviso shall apply to any return which has been furnished on or after the 1st day of October, 2005 in response to a notice served in this section.
(2) The AO shall, before issuing any notice under this section, record his reasons for doing so.
The Explanation to the said section was also added under Finance Act, 2006, w.e.f. 1st of October, 2005, that by way of removal of any doubts, the first proviso or the second proviso will not have any application to a return furnished on or after 1st Oct., 2005 in response to a notice served under the section. The effect of the amendment inserting the proviso is stated to be as follows:
"The first proviso to Section 148(1) provides that where a return has been furnished during the period from 1st Oct., 1991 to 30th Sept., 2005 in response to a notice served u/s 148 and, subsequently a notice has been served u/s 143(2) after the expiry of twelve months specified in the proviso to Section 143(2) as it stood immediately before the amendment of the said Sub-section by the Finance Act, 2002, but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in Section 153(2), such notice shall be deemed to be a valid notice.
The second proviso to Section 148(1) provides that where a return has been furnished during the period from 1st Oct., 1991 to 30th Sept., 2005 in response to a notice served u/s 148 and, subsequently a notice has been served u/s 143(2)(ii), but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in Section 153(2), such notice shall be deemed to be a valid notice."
Admittedly, in all these cases, pursuant to the notice u/s 148 of the Act, the returns were filed prior to 2005. Hence, the proviso is of relevance in respect of the assessment relating to the asst. yrs. 1989-90 to 1996-97. Thus a reading of Section 148 of the Act, along with the proviso, shows that while resorting to an assessment as an escaped assessment or a reassessment or a recomputation u/s 147 of the Act, when a notice is issued u/s 148 of the Act, requiring the Assessee to file the revised return of his income or income of any other person in respect of which he is assessable under the Act during the previous year corresponding to the relevant assessment year in the prescribed form and verified in the prescribed manner and setting forth particulars as may be prescribed, then the return filed shall be treated as if such a return is one required to be filed u/s 139 of the Act, to follow the other provisions of the Act. Chapter XIV of the Act deals with the procedure for assessment.
Leaving aside the other provisions on the filing of the return and self-assessment which are not relevant for the purpose of our case, the next relevant provision herein is Section 143 of the Act, dealing with assessment. Where a return has been furnished u/s 139 of the Act or in response to a notice u/s 142(1) of the Act, in order to ensure that the Assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, u/s 143(2) of the Act, the assessing authority has to serve a notice on the Assessee, requiring him either to attend his office or to produce or caused to be produced therein, on a date to be specified therein, such evidence that the Assessee relies upon in support of the return. Proviso to Sub-section (2) of Section 143 of the Act states that a notice under the section has to be served within a period of 12 months from the end of the month in which the return is furnished and any notice that has been served beyond the period of 12 months would make the entire proceedings herein, invalid and illegal. Sub-section (2) of Section 143 of the Act, as stated above, was subsequently amended under the Finance Act, 2002, w.e.f. 1st June, 2002, wherein, it is stated that where the AO has reason to believe that any loss, exemption, deduction, allowance or relief made in the return is inadmissible, he shall serve a notice on the Assessee, specifying the particulars of such claim of loss, exemption, deduction, allowance or relief and require the Assessee to produce or cause to be produced, any evidence or particulars specified thereon, on which the Assessee may rely, in support of such claim. Going by the provisions of Section 143(2) of the Act as applicable to the proceedings u/s 148 of the Act, prior to the insertion of the proviso to Section 148(1) of the Act, the officer concerned is duty-bound to issue the notice within the period of limitation of 12 months from the end of the month in which the return was furnished. In other words, where on a return filed pursuant to the notice u/s 148 of the Act, a notice is served u/s 143(2) of the Act after the expiry of the 12 months'' period, under normal circumstances, the period of limitation would certainly hit the proceedings u/s 148 of the Act. However, under the Finance Act, 2006, the amendment inserting the proviso to Section 148 saved the limitation on the notice issued u/s 143(2) beyond the period of 12 months. Thus as per the proviso to Section 148(1) of the Act, where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served u/s 148 of the Act and subsequently a notice has been served under Sub-section (2) of Section 143 of the Act, but after the expiry of twelve months specified in the proviso to Sub-section (2) of Section 143, as it stood immediately before the amendment of said Sub-section by the Finance Act, 2002 (20 of 2002), but before the expiry of the time-limit for making the assessment, reassessment or recomputation as specified in Sub-section (2) of Section 153 of the Act, every such notice issued is deemed to be a valid notice. The Explanation appended therein pointed out to the limited scope of the newly inserted provisos that the same would not be available to a return filed on or after 1st day of October, 2005, in response to a notice served u/s 148 of the Act. Thus the substantive provision on limitation in a case of filing a return on a notice issued u/s 148 of the Act would be the one provided under the proviso to Section 148 and limitation available for making an assessment or reassessment or recomputation, as specified u/s 153(2) of the Act and nothing beyond. Hence, in respect of the returns filed between the period 1st Oct., 1991 and 30th Sept., 2005 pursuant to the proceedings u/s 148 would not be hit by limitation on the issuance of notice u/s 143(2) of the Act. The only limitation that has to be seen to confer validity to the proceedings u/s 148, would be the time-limit given u/s 153(2) for making the assessment, reassessment, recomputation and nothing beyond. Thus even though under normal circumstances, for a regular assessment falling u/s 143 proceedings, a notice issued after the expiry of 12 months would make the proceedings illegal; yet, as regards the notice issued u/s 148 of the Act leading to the filing of return, the returns filed during the period commencing from 1st Oct., 1991 to 30th Sept., 2005 fall under the proviso to Section 148(1) of the Act. The only requirement for compliance of the procedure, as given u/s 148(1), being a notice u/s 143(2), without reference on limitation, Section 148(1) proviso has relevance for returns filed from 1st Oct., 1991 to 30th Sept., 2005. On and after the 1st day of October, 2005, the procedure to be adopted thereon is given u/s 149 of the Article 19. Looking at the facts of the case herein, particularly the discussion in the order of the CIT(A), it is evident that for the asst. yrs. 1989-90 to 1994-95, notice u/s 148 of the Act was issued on 31st March. 2000 and for 1995-96 to 1996-97, on 28th March, 2000, the Assessee filed a letter on 31st March, 2000 that returns filed already u/s 139 of the Act were to be treated as returns filed pursuant to the issuance of notice u/s 148 of the Act. The Assessee had responded to the notice u/s 143(2) of the Act. Subsequently, he filed a return in Form 2D SARAL admitting as "as originally assessed". No particulars were furnished along with the return. The discussion in the CIT''s order shows that the AO had addressed a letter on 31st Oct., 2001, giving reasons that the assessment for the eight assessment years had been reopened and thereafter, the Assessee had also filed a reply on 16th Nov., 2001, followed by another letter dt. 10th Dec, 2001. This is apart from the reply by the Assessee as early as 31st March, 2000. It is no doubt true that in the appeal filed before the Tribunal, the Assessee took the plea that there was no notice issued u/s 143(2) of the Act after the filing of the return. However, the order of the Tribunal shows that the said issue was taken up more from the angle of limitation issue, that the notice had been issued after a period of 12 months from the end of the month, in which the return was filed. In para 20 of the Tribunal''s order, it held that the proviso to Section 143(2) of the Act is squarely applicable to the proceedings u/s 148 of the Act. In the circumstances, the assessing authority was under an obligation to issue a notice, if he considered that there was understatement of income in the return, within twelve months from the end of the month in which the return was filed. Since the notice was issued beyond the period of 12 months, the order was null and void. As already pointed out, having regard to the proviso inserted to Section 148 of the Act under the Finance Act, 2006, with the notice issued u/s 143(2) beyond 12 months and other requirements as regards the period covered and the limitation available for passing the order u/s 153 of the Act, we do not find any ground to uphold the order of the Tribunal on the aspect of limitation. We agree with the submission of the Revenue that the notices are saved by reason of the proviso to Section 148 of the Act, introduced under the Finance Act, 2006. Consequently, the first question raised, has to be answered in favour of the Revenue.
Learned Counsel appearing for the Assessee pointed out that the intention of the legislature in saving limitation as regards the notice issued beyond the time limit u/s 143(2) in respect of the proceedings u/s 148 of the Act cannot be fully achieved, so long as the provisions u/s 143(2) remained unaltered. Thus Section 143(2) remaining as it is and with no ambiguity in the provision, the amendment in the year 2006, cannot be called a curative legislation to remove any illegality in the section to result in the validation of the proceedings. In this connection, learned Counsel relied on the decision reported in Yogindraprasad N. Mafatlal v. CIT (supra).
We do not agree with the line of thinking of the learned Counsel for the Respondent. The amendment inserting the proviso in Section 148 of the Act seeks to cover a situation falling u/s 148 alone and has nothing to do with the assessment falling u/s 143 of the Act. A reading of Section 148(1) shows that before making an assessment u/s 147 of the Act, the AO has to send a notice u/s 148 of the Act, calling upon the Assessee to file a return of income, setting forth particulars. Section 148(1) of the Act states that the provisions of the Act shall "so far as may be, apply accordingly as if such return were required to be furnished u/s 139". Thus Section 148 treats the return filed on a notice u/s 148(1) fictionally, as if it is a return u/s 139, to adopt the procedure thereon, on the filing of return for the limited purpose of calling for details and for enquiry on the return filed pursuant to the notice u/s 148 of the Act, insofar as may be relevant for proceeding u/s 148. Thus when the legislature decided to make a deviation on the limitation provided on the procedure given u/s 143(2) of the Act as regards a notice to be issued on the return filed u/s 148, it is well within the legislative power to do so by making a specific provision applicable retrospectively and thereby limiting the scope of the deeming fiction as to the operation of the provisions relating to the filing of the return. It is well settled that legal fictions are created for some definite purpose and the same should be limited to the purpose for which it is created and cannot be extended beyond the expected and desired field. Thus in understanding the extent or scope of the operation of the legal fiction, one must ascertain the purpose for which the fiction is created. After ascertaining the purpose, the application of the fiction, if restricted by the provision by which the fiction is created, then the purpose for which it is created alone has to be acted upon and nothing beyond. Thus although full effect must be normally given to a legal fiction, yet, it cannot be extended beyond the purpose for which it is created [refer The Bengal Immunity Company Limited Vs. The State of Bihar and Others, and UCO Bank and Another Vs. Rajinder Lal Capoor, . In so providing a specific treatment for cases falling u/s 148 of the Act, the question of considering the amendment as a curative legislation does not arise, or for that matter, the amendment failing to meet the avowed object by reason of not carrying out a corresponding amendment to Section 143(2) of the Act.
In this connection, the decisions cited by the learned Counsel appearing for the Assessee as regards the amendment not meeting up the object with which it was made, need to be seen. The first of the decisions is the Bombay High Court decision reported in Yogindraprasad N. Mafatlal v. CIT (supra). The said decision was concerned about Section 64(1) of the Act, particularly with reference to the phrase "deferred". The question therein was as to whether the income of the minor daughter of the settlor could be included in the Assessee''s total income during the period of minority only. The Bombay High Court pointed out that the word "immediate" or "deferred" has to have a relevance to the word "minor" appearing in Clause (v) of Section 64 of the Act. Given a purposive meaning to the word "minor", the expression "deferred" could not be regarded as extending beyond the period of minority. The expression used u/s 64(v) of the Act requires that the income should be for the benefit of the minor child. Thus looking at from this point of view, the expression "immediate" or "deferred" cannot be regarded as having been added with the intention of covering a case where the benefit has been deferred beyond the minority of the child or the children concerned. Even though the Bombay High Court observed in its judgment that the contention of the Revenue that the stage should be beyond the minority of the child, yet, the intention not thus having been stated so in the provisions amended, the language of the section could not be strained to accept the contention of the Revenue.
We do not find that the provisions herein call for any such exercise. The decision relied on has no relevance to the case on hand.
Learned Counsel appearing for the Respondent further placed reliance on the decision reported in Shriram Chits (Bangalore) Ltd. v. Jt. CIT (supra). This case relates to the rectification proceedings u/s 154 of the Act to levy interest u/s 234B of the Act by reason of retrospective amendment of Section 234B under Finance Act, 2001, wherein, a reference to the apex Court decision reported in CIT v. Max India Ltd. (supra) on the effect of the amendment, particularly with reference to the powers u/s 263 of the Act, was considered, A reading of the decision reported in CIT v. Max India Ltd. (supra) shows that the powers of the CIT u/s 263 of the Act for revising the order of the AO are available, where an order is prejudicial to the interest of the Revenue. The apex Court pointed out to the phrase "prejudicial to the interests of the Revenue" tinder Section 263 of the Act, holding that the same has to be read in conjunction with the expression "erroneous" order passed by the AO. Thus, if on the date of passing the order, the same was with reference to the law then existing, the same, on revision u/s 263 of the Act, shall not be challenged on the score that the law had undergone a change thereafter, after the passing of the assessment order. The Karnataka High Court, in the decision reported in Shriram Chits (Bangalore) Ltd. v. Jt. CIT (supra), applied the said decision. The said decision related to an order of rectification passed by the officer in view of the subsequent retrospective amendment to Section 234 of the IT Act under the Finance Act, allowing the appeal filed by the Assessee. By following the decision reported in CIT v. Max India Ltd. (supra), the Karnataka High Court held that it was not possible for the AO to reopen the case, since, at the time of passing of the order, the officer had followed the decision reported in Commissioner of Income Tax and Others Vs. Ranchi Club Ltd., . Thus the subsequent amendment, by itself, would not allow the officer to reopen the assessment. It must be noted herein that the scope of Section 154 of the Act is not the same as u/s 148 of the Act, to touch on the fact of an amendment of the provisions brought therein. Given the scope of Section 263 as well as Section 154 of the Act for rectifying the mistake, we do not agree with the submission of the learned Counsel appearing for the Assessee that the decision of the apex Court as well as that of the Karnataka High Court would have to be read in for the purpose of understanding the relevancy of the amendment brought to Section 148 of the Act in the appeal herein. This Court cannot apply the amended provisions to the facts herein.
Learned Counsel appearing for the Assessee further placed before this Court, the decision in the ease of two other co-owners, which was decided in favour of the Assessees, following the then law available, in Tax Case Nos. 696 to 698 and 707 to 709 of 2004, CIT v. M. Chellappan (supra), dt. 9th Nov., 2004 and in Tax Case No. 843 of 2004, CIT v. P.L. Gandhi, dt. 28th April, 2009, who also happen to be co-owner. It is relevant to see from the unreported decision of this Court in Tax Case No. 843 of 2004, CIT v. P.L. Gandhi, dt. 28th April, 2009 that the appeal by the Revenue was rejected by this Court, following the circular of the CBDT dt. 27th March, 2000, fixing the monetary limit and that the exceptions therein would be a case (i) where there was a revenue audit objection: (ii) where the Board''s order, notification, instruction or circular is the subject-matter of an adverse order; (iii) where prosecution proceedings are contemplated against the Assessee and (iv) where the constitutional validity of the provisions of the Act is under challenge. In the absence of any such exception, this Court followed the earlier decision of this Court as regards the monetary limit fixed therein and held that having regard to the tax effect, which is less than Rs. 2 lakhs-- the limit prescribed, the circular dt. 27th March, 2000 would be applicable to the appeal filed on 1st July, 2005. Hence, the appeal was dismissed.
As already pointed out, all these appeals are filed in the year 2004. The Revenue had raised a question of law, which is admitted by this Court, as to whether the non-furnishing of the copies of the reasons by the AO for reopening of the case, even though asked for by the Assessee, would be fatal to the proceedings u/s 148 of the Act. The ground on which the Revenue rakes up this issue is that the Assessee had not applied for certified copies of the reasons recorded by the AO by paying the necessary charges.
We do not appreciate this line of reasoning of the Revenue herein, particularly when the Revenue is duty-bound to furnish the reasons on which the assessment proceedings are initiated. The Revenue contended that the gist of reasons was furnished. It must be pointed out that it is not the same as indicating the grounds on which the proceedings have been initiated u/s 148 of the Act. It is a well settled proposition of law that furnishing of grounds for reopening of assessment is a compliance of the principles of natural justice. Quite apart, while Section 148 of the Act contemplates that the AO has to serve a notice on the Assessee requiring him to file a return, such notice is not just a formality that the Assessee may follow up by a ritualistic manner of filing a return, since it is not called as of assumption of jurisdiction u/s 148 of the Act which would enable the assessing authority to assess the escaped income, reassess or recompute the income, to state the ground on which the assessing authority based its proceedings u/s 148 of the Act as a requirement to fix, before it was, at any point of time, assessed, and the effective participation in the proceedings u/s 148 of the Act. The fact that the officer had not given reasons as had been required, does not mean that the proceedings, by itself, would become void in the eye of law. In the circumstances, where the notice does not disclose the reasons, the officer shall have to proceed from the stage from which the illegality had crept into the proceedings herein, furnish the grounds on which the reassessment proceedings had been sought for and a notice in the revision has to be furnished to the Assessee. It is of relevance to note herein that wherever the Assessee seeks the grounds for reopening of the assessment, the officer concerned is duty-bound to furnish the same-- [GKN Driveshafts (India) Ltd. v. ITO (2003) 179 CTR (SC) 11: (2003) 259 ITR 19 (SC)]. In the background of the said aspect, the course of action to be taken herein has to be noted.
As already pointed out, the Assessee is one among the ten co-owners having income from the property called Kannammai Building, situated in Anna Salai, Chennai. In respect of nine other Assessees the assessments have become final, in the sense that the assessing authority''s reopening of the assessment had been found to be barred by limitation. This however, does not help the Assessee''s case before this Court for the simple reason that the decisions in those cases came much before the amendment to Section 148 of the Act. The assessment order covers the period starting from 1989-90 to 1996-97. At this distance of time, considering the tax effect, we feel that the proper course herein would be that, by answering the question of law in favour of the Revenue, no useful purpose would be served, since the tax effect in all these cases is at Rs. 2 lakhs. We have considered the Assessee''s case based on the amendment brought forth under the Finance Act, 2006 to Section 148 of the Act, only to hold that the plea of limitation, as propounded by the order, no longer survives. That does not mean that this Court, on the merits of the assessment, has to agree with the Revenue''s contention, particularly in the context of the Tribunal''s finding on the non-furnishing of reasons for reopening of the assessment, and above all, the monetary limit in all these appeals.
In the circumstances, while agreeing with the Assessee on the aspect of monetary limit and the non-furnishing of the reasons, no purpose would be served by remanding the matter back to the AO to furnish the Assessee with the reasons, which would take another few years for the issue to be settled and it would strike a discordant note as regards this particular Assessee alone on the aspect of interest.
In the circumstances, we allow the appeal partly with reference to the first question alone. No costs.