Thursday, 1 May 2014

Whether quashing of proceedings by ITAT for faulty service of notice under Ss 148, 143(2) & 142(1) amounts to allowing assessee to go scot-free even if he is liable to pay capital gains tax - YES: HC

THE issues before the Bench are - Whether quashing of proceedings by the Tribunal for faulty service of notice under Ss 148, 143(2) & 142(1) amounts to allowing assessee to go scot-free even if he is liable to pay capital gains tax on compensation received for statutory acquisition of his land; Whether merely because there is an error in service of notice on the assessee, the statutory liability to pay tax on capital gains gets extinguished and Whether assessee is to be assessed at the place of its agent or the place where his land was acquired. And the Bench allows the Revenue's appeal.
The assessee Jasbir Singh received compensation amounting to Rs.1,04,54,474/- against compulsory acquisition of his land situated at village Mansoorwal Dona, District Kapurthala. The assessee had not furnished his return of income. Finding it to be a case of income having escaped assessment for the assessment year 1999-2000 by reason of failure on the part of the assessee to make a return under Section 139 of the Act, after recording reasons and obtaining necessary approval, notice under Section 148 of the Act was served on the assessee on 21.3.2006. He did not furnish his return even then. Thereafter, notice under Section 142(1) was issued along with a questionnaire. The assessee neither attended the office of the named Income Tax authority in the notice nor filed return nor made compliance of the said notice. Even on information made available, the Assessing Officer could not get current residential address of the assessee. The concerned Inspector of the revenue found that it was not possible to effect service in ordinary manner and consequently, service of the notice was effected under Section 142(1) of the Act through affixation on the last known address of the assessee. Since after acquisition of the whole land of village Mansoorwal Dona by PUDA, it had been converted into a residential colony and as such, notice was affixed on the Dharamshala of the village. None appeared on behalf of the assessee. Accordingly, the AO proceeded to frame assessment in terms of Section 144 of the Act i.e. calculating the quantum of long term capital gain for the assessment year 1999-2000 at Rs.1,00,09,746/-. As the assessee had concealed this entire income, penalty notice under Section 271-C of the Act was also issued separately for the concealment of this income on account of long term capital gains arising from compulsory acquisition of land by PUDA.
Assessee filed a petition u/s 264. The plea of the assessee was that statutory notice had not been served upon him and affixture of notice somewhere in village, where the assessee neither was residing nor was working for gain and had only agriculture land which had been acquired, was of no legal value. It was pleaded that his address was available with PUDA, Jalandhar and had the AO made some genuine efforts, his address could have been obtained from his bank account or from the office of Land Acquisition Collector, PUDA, Jalandhar and from the Income Tax Department itself where the assessee was allegedly assessed for the assessment year 1999-2000. It was elaborated that the assessment proceedings for the year 1999-2000 had already been finalised by the revenue through his power of attorney Jarnail Singh. Consequently, the CIT accepting version of the assessee had set aside order of the AO, wherein directions were issued for framing assessment afresh after allowing adequate opportunity to the assessee of being heard. Directions were also issued to the AO to ensure that contentions of the assessee were judiciously dealt with. Pursuant to this order, proceedings of assessment were started afresh. During that proceedings, it was noticed that the assessee had filed the return of income for the assessment year 1999-2000 with the Income Tax Officer, Ward-VI, Jalandhar mentioning the address as c/o Shri Jarnail Singh, resident of village Dheena, District Jalandhar Cantt. The AO noticed that the return filed by the assessee on 21.8.2000 without enclosing the power of attorney in favour of Jarnail Singh and with incorrect address, was an invalid return. The verification had also been found to be improper and thus return was invalidated on that account as well.
It was further noticed that the ITO, Jalandhar, had dropped the proceedings under Section 147 of the Act for want of jurisdiction, making a noting that jurisdiction was territorial and would not depend upon address of the power of attorney holder of the assessee. In short, it was felt that merely because power of attorney holder of the assessee was a resident of Jalandhar, there would not be jurisdiction of Jalandhar but would remain with the Income Tax Officer, Kapurthala. In this backdrop, the Income Tax Officer, Kapurthala had held that the jurisdiction over the case of the assessee was rightly vested with it. Making calculations and taking into account quantum of compensation received as Rs.1,04,54,474/-, long term capital gain was computed at Rs.26,50,340/-. Penalty proceedings under Section 271(1)(c) of the Act were also initiated separately for concealment of income. This order was challenged in appeal by the assessee; it was dismissed.
On appeal, the Tribunal accepted the version of the assessee by holding that notices should have been served on the agent of the assessee Jarnail Singh, power of attorney, and notices issued by the Income Tax Officer, Kapurthala-I, under Sections 148 as also 143(2) of the Act were bad in law and the assessment made thereunder was liable to be quashed. Accepting version of the assessee, assessments were quashed.
The plea of the Revenue was that when the Tribunal had accepted the claim of the assessee that notices issued by the Income Tax Officer, Kapurthala under Section 147 as also under Section 143(2) of the Act had neither been served on the assessee nor on his agent Jarnail Singh and thus, were of no legal significance, the assessee should not have been just let off. It was contended that when liability of the assessee to pay tax on capital gains was undisputed, he should have been brought back within the ambit and scope of law to discharge his liability.
Having heard the parties, the HC held that,
++ there is force in contention of the revenue that once service of notice under Section 148, 143(2) and 142(1) of the Act was held to be bad observing that the assessee was no more residing at the last known address and was accessible only through his attorney Jarnail Singh, it was incumbent on the Tribunal not to quash the whole proceedings as it amounted to leaving the assessee go scot-free, though he is liable to pay tax on the capital gains. It is nowhere denied that compensation for compulsory acquisition of the land was received by the assessee. As such, he cannot deny his liability to pay long term capital gain tax. Merely because there was some error in service of notices on the assessee, statutory liability of the assessee to pay tax on capital gain was not over. Because of procedural lapses, the assessee should not be a gainer and that too by default to escape his liability. Sequelly, order of the Tribunal also lacks merit;
++ looking from another angle, default made by the revenue in compliance with the procedure in place for service of the assessee ipsofacto, is not a circumstance to let the assessee go scot free from the taxation regime when his liability of payment of capital gain tax is not questioned. When the proceedings had been started by the Income Tax Officer, Kapurthala-I, Kapurthala but the same were found to be defective on technical and procedural grounds of service of the assessee, liability of payment and capital gains tax which had accrued against the assessee, would not be lost sight of and forgotten, as has been projected by the assessee;
++ it is, thus, ordered that the Income Tax Officer, Kapurthala-I, Kapurthala would start the proceedings afresh after seeking appearance of the assessee either in person or through his power of attorney and would decide the matter afresh from the stage of issuance of notice to the assessee;
++ since the land is located at village Mansoorwal Dona, District Kapurthala and the proceedings are not required to be conducted at the place of residence of power of attorney of the assessee and, in fact, the assessment proceedings are to continue at District Kapurthala where the land acquired is situated, the time spent in conducting the proceedings would be duly considered by the authorities if any question with regard to limitation at any stage arises;

++ all the substantial questions of law enumerated in earlier portion of the judgment to the extent already discussed are answered in favour of the revenue. By setting aside the impugned orders, the appeals, consequently, are allowed in favour of the revenue.

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