The Pr. Commissioner Of Income ... vs M/S. Gj Trading Pvt Ltd
2022 Latest Caselaw 4366 Tel

     * THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN
                             AND
       THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY


                 + I.T.T.A.No.246 of 2022

% Date: 05.09.2022

# Pr. Commissioner of Income Tax-2, Hyderabad.

                                                  ... Appellant
                               v.



$ M/s GJ Trading Pvt. Ltd.
                                                 ... Respondent

! Counsel for the appellant : Ms. K.Mamata Chowdary (Standing Counsel for Income Tax Department)

^ Counsel for respondent : None appeared

< GIST:

 HEAD NOTE:

? CASES REFERRED:

1. (1998) 229 ITR 383 (SC)

2. (2010) 321 ITR 362 (SC)

THE HON'BLE THE CHIEF JUSTICE UJJAL BHUYAN AND THE HON'BLE SRI JUSTICE C.V.BHASKAR REDDY

I.T.T.A.No.246 of 2022

JUDGMENT: (Per the Hon'ble the Chief Justice Ujjal Bhuyan)

Heard Ms. K.Mamata Chowdary, learned

Standing Counsel for Income Tax Department

appearing for the appellant.

2. This appeal has been preferred by the revenue as

the appellant under Section 260A of the Income Tax

Act, 1961 (briefly, 'the Act' hereinafter) assailing the

order dated 12.07.2021 passed by the Income Tax

Appellate Tribunal, Hyderabad 'B' Bench, Hyderabad

(Tribunal), in ITA No.337/Hyderabad/2017 for the

assessment year 2008-09.

3. The appeal has been preferred proposing the

following as substantial questions of law:

"1. Whether on the facts and in the circumstances of the case and in law, the ITAT is

correct in applying the ratio of Apex Court in the case of ACIT v. Hotel Blue Moon ((2010) 321 ITR

362), when a valid notice u/s. 143(2) of the Act was issued and served within the prescribed limit?

2. Whether on the facts and in the circumstances of the case and in law, the ITAT is correct in holding that mentioning of "Section 115WE(2)" in the notice issued will invalidate the assessment proceedings when the provisions of "Section 115WE(2) of the Act were very much in vogue for A.Y.2008-09 and the provisions of Section 115WE(2) are in pari materia with the provisions of Section 143(2) for scrutiny of the return of "Fringe Benefit"?"

4. To appreciate the above, we may briefly analyse

the relevant facts. Respondent is an assessee under

the Act having the status of a company, engaged in the

business of trading in iron and steel products.

Respondent filed its return of income for the

assessment year 2008-09 on 29.09.2008 declaring

total loss of Rs.26,18,29,327.00. The return was

selected for scrutiny whereafter notices under Section

143(2) and 143(1) of the Act were issued. The matter

was heard. In the course of assessment proceedings,

assessing officer noted that respondent had shown

sales of Rs.210,39,18,689.00 and declared gross loss

of Rs.26,20,10,099.00 which worked out to 12.45%.

Assessing officer further noted that gross loss admitted

by the respondent for the immediately preceding

assessment year i.e., 2006-07 was 4.28% and

immediately succeeding year i.e., 2007-08 was

0.067%. Details as to claim of various expenditures

made by the respondent were called for. Assessing

officer further noticed that in one of the group cases

namely M/s. Ganga Exim Pvt. Ltd., assessee had

declared gross profit of 0.75% for the assessment year

2008-09 while admitting gross profit of 0.65% for the

assessment year 2007-08 and 1.14% for the

assessment year 2006-07. Holding that respondent

had failed to produce any evidence to substantiate its

claim of loss, assessing officer rejected the book results

and estimated the income of the respondent at 2.5%

on the gross receipts of Rs.210,39,18,689.00 which

worked out to Rs.5,25,97,967.00 whereafter tax and

interest were levied.

5. This assessment order came to be challenged by

the respondent before the first appellate authority i.e.,

Commissioner of Income Tax (Appeals) - 2, Hyderabad.

First appellate authority by the appellate order dated

24.11.2016 held that assessing officer had dealt with

the issue elaborately. Though opportunities were

granted, respondent failed to produce any evidence in

support of its claim. Agreeing with the conclusions

drawn by the assessing officer, first appellate authority

held that assessing officer was justified in estimating

the income of the assessee at 2.5% of the gross

receipts and accordingly dismissed the appeal.

6. Aggrieved by the above, respondent preferred

further appeal before the Tribunal. Before the

Tribunal, respondent filed a petition dated 24.05.2021

for raising an additional ground in view of the decision

of the Supreme Court in NTPC Limited v. CIT1 that

assessing officer had failed to issue notice under

Section 143(2) of the Act within the specified period of

six months from the end of financial year in which the

return was furnished. Further reliance was placed on

the decision of the Supreme Court in Assistant

Commissioner of Income Tax v. Hotel Blue Moon2

on the very same issue. Tribunal noticed that the

additional ground raised on behalf of the respondent

pertains to a pure question of law. Therefore, Tribunal

allowed the respondent to raise the above ground.

Though it was contended by the revenue that notices

under Section 143(2) of the Act dated 17.09.2009 and

25.05.2010 were issued, Tribunal rejected the same on

the ground that the said notices basically pertain to

Section 115WE(2) of the Act dealing with Fringe

Benefit Tax, which was abolished with effect from the

(1998) 229 ITR 383 (SC)

(2010) 321 ITR 362 (SC)

assessment year 2010-11. Tribunal held that such a

notice could not be construed to be a notice for

determining the respondent's correct taxable income

despite the return having been filed on 29.09.2008.

Concurring with the view taken by the Supreme Court

in Hotel Blue Moon's case (supra), Tribunal vide the

order dated 12.07.2021 set aside the order of

assessment on the ground that there was no valid

notice under Section 143(2) of the Act. Relevant

portion of the order of the Tribunal dated 12.07.2021

reads as under:

"4. We have given our thoughtful consideration to rival pleadings against and in support of the correctness of the impugned assessment on account of Assessing Officer's alleged failure; as per the assessee's stand, in issuing section 143(2) notice "within a specified time factor of six months from the end of financial year of furnishing of its return." We find merit in assessee's instant additional ground petition (supra) as per (2012) 137 ITD 26 (Mum) (SB) All Cargo Global Logistics Ltd. Vs. DCIT holding in light of hon'ble apex court's judgment in NTPC Ltd (supra) that this tribunal can

very well entertain a pure question of law, in order to determine correct tax liability of an assessee provided all the relevant facts are already on record.

5. We next advert to this Revenue's paper book pages 14 & 16 containing the alleged section 143(2) notice(s) dt.25.5.2010 and 17.9.2009; respectively. We find no merit in Revenue's foregoing arguments since the said notices pertained to section 115WE(2) Fringe Benefit Tax "FBT" proceedings (abolished w.e.f. A.Y. 2010-11) than assuming jurisdiction for determining the assessee's correct taxable income despite the fact that it had duly filed its return on 29.09.2008. We thus quote Hotel Blue Moon (supra) and hold that the impugned assessment is not sustainable in law since framed in absence of a valid section 143(2) notice issued within the prescribed time period. The same stands quashed therefore. All other pleadings on merits are rendered academic."

7. Learned Standing Counsel for Income Tax

Department has drawn our attention to page No.32 of

the paper book to show that it was a notice under

Section 143(2) of the Act and therefore, Tribunal had

erred in holding that there was no valid notice under

Section 143(2) of the Act.

8. We have perused the notice at page No.32 of the

paper book. As already noticed above, the return of

income for the assessment year 2008-09 was filed on

29.09.2008. The notice is dated 17.09.2009 and it was

issued under Sections 143(2) and 115WE(2) of the Act,

the latter dealing with Fringe Benefit Tax. Section 143

of the Act deals with assessment. Sub-section (2) of

Section 143 says that when a return is filed under

Section 139 of the Act or in response to a notice under

sub-section (1) of Section 142 of the Act, the assessing

officer, if he considers it necessary to ensure that the

assessee has not understated the income or has not

computed excessive loss or has not under-paid the tax

in any manner, shall serve on the assessee a notice

requiring him, on a date to be specified therein, either

to attend the office of the assessing officer or to

produce, or cause to be produced before the assessing

officer any evidence on which the assessee may rely in

support of the return. As per the proviso, no notice

under this sub-section shall be served on the assessee

after the expiry of six months from end of the financial

year in which the return is furnished. We may

mention at this stage that by the Finance Act, 2021,

the period of six months has now been substituted by

three months with effect from 01.04.2021.

9. As pointed out above, the return of income was

filed by the respondent on 29.09.2008. In other words,

in the financial year 2008-09. The six months period

was available to the assessing officer till 30.09.2009.

10. The question before this Court is whether the

notice dated 17.09.2009 on which much reliance has

been placed by the learned Standing Counsel for the

Income Tax Department can be construed to be a

notice under Section 143(2) of the Act?

11. Section 115WE(2) of the Act deals with income

tax on fringe benefits. It was inserted by the Finance

Act, 2005, with effect from 01.04.2006 and withdrawn

with effect from the assessment year 2010-11. Section

115WA of the Act provides for charge of fringe benefit

tax. As per sub-section (1), in addition, to the income

tax charged under the Act, there shall be charged for

every assessment year commencing on or after the 1st

day of April, 2006, additional income tax referred to as

fringe benefit tax in respect of the fringe benefits

provided or deemed to have been provided by an

employer to his employees during the previous year at

the rate of thirty percent on the value of such fringe

benefits. According to sub-section (2) thereof, even if

no income tax is payable by an employer on his total

income computed in accordance with the provisions of

the Act, the tax on fringe benefits shall be payable by

such employer. What are fringe benefits have been

explained in Section 115WB of the Act. According to

Section 115WD of the Act, without prejudice to the

provisions contained in Section 139 of the Act, every

employer who has paid or made provision for payment

of fringe benefits to his employees during the previous

year shall on or before the due date furnish the return

of fringe benefits to the assessing officer. Section

115WE of the Act deals with assessment. As per sub-

section (1) thereof, where a return has been made

under Section 115WD of the Act, such return shall be

processed in the manner provided thereunder. Sub-

section (2) of Section 115WE of the Act provides that

where a return has been furnished under Section

115WD, the assessing officer shall, if he considers it

necessary or expedient to ensure that the assessee has

not understated the value of fringe benefits or has not

underpaid the tax in any manner, serve on the

assessee a notice requiring him to attend his office or

to produce any evidence relied upon by the assessee

on specified date. As per the proviso, no notice under

sub-section (2) shall be served on the assessee after

the expiry of six months from the end of the financial

year in which the return is furnished.

12. From a reading of the above notice in conjunction

with Section 143(2) and Section 115WE(2) of the Act,

there can be no manner of doubt that the above notice

was issued in the context of the return filed for fringe

benefits by the respondent.

13. In Hotel Blue Moon's case (supra), the question

before the Supreme Court was whether issuance of

notice under Section 143(2) of the Act within the

prescribed time limit is mandatory or not. On due

consideration, Supreme Court took the view that such

a notice is not a mere procedural requirement, but a

mandatory provision. Though the above question was

examined in the light of Section 158BC of the Act

dealing with block assessment following search and

seizure, nonetheless Supreme Court upheld the views

expressed by the Gauhati High Court that Section

143(2) of the Act is mandatory and violation thereof

cannot be construed to be a procedural irregularity.

14. Though Tribunal had followed the aforesaid

decision which decision may not be strictly applicable

to the facts of the case, nonetheless, we are of the view

that the notice dated 17.09.2009 cannot be construed

to be a notice under Section 143(2) of the Act for the

purpose of assessment under Section 143 of the Act.

It was a notice issued for the purpose of assessment on

fringe benefits. Insofar this issue is concerned, we are

of the view that it goes to the root of the matter and

therefore, Tribunal was justified in entertaining the

petition filed by the respondent raising the additional

ground, which is nothing but a pure question of law

going to the root of jurisdiction.

15. Therefore, not on the ground on which the

Tribunal arrived at the conclusion, but for the reasons

mentioned above, we are not inclined to interfere with

the order of the Tribunal dated 12.07.2021.

16. Thus we do not find any question of law involved,

not to speak of any substantial question of law.

17. Consequently, writ appeal is dismissed.

Miscellaneous applications pending, if any, shall

stand closed. However, there shall be no order as to

costs.

______________________________________ UJJAL BHUYAN, CJ

______________________________________ C.V.BHASKAR REDDY, J

05.09.2022 vs