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C.I.T. v. Sri Ashok Kumar Bharti - INCOME TAX REFERENCE No. 3 of 1995  RD-AH 1587 (8 July 2005)
INCOME TAX REFERENCE No.3 Of 1995.
Commissioner of Income-tax, Meerut Applicant
Shri Ashok Kumar Bharti & Shri Vijay Kumar Goel, Meerut Respondent.
Hon'ble R. K. Agrawal, J.
Hon'ble Rajes Kumar, J.
(Delivered by Hon'ble Rajes Kumar, J)
The Income Tax Appellate Tribunal has referred the following question under section 256 (1) of the Income-tax Act (hereinafter referred to as "Act") relating to the assessment year 1986-87 for opinion to this Court:
"Whether on the facts and in the circumstances of the case, the ITAT was legally right in confirming the order of the learned CIT (Appeals) who held that the A.O. was not having jurisdiction to make an assessment on AOP of two members."
The brief facts of the case are as follows.
The Assessing Authority issued notice under section 148 of the Act to Sri Ashok Kumar Bharti, Sri Vijay Kumar Goel and Sri S.P. Garg members of AOP through Shri Ashok Kumar Bharti, 31, Phool Bagh Colony, Meerut calling upon to furnish return of "income of the AOP consisting of Shri Vijay Kumar Goel, Shri S.P.Garg and you". This notice is dated15.2.1988. The return of income was filed on 30.3.1988 wherein income of Rs.16,340/- was disclosed. Assessment was completed by the Assessing Officer on 30.3.1988 at an income of Rs.1,61,934/- made on the AOP comprising of two persons only, namely, Shri Ashok Kumar and Shri Vijay Kumar Goel, when the name of Shri S.P.Garg though duly mentioned in the assessment order as member of the A.O.P, but it was scored off. The assessee filed appeal before the Commissioner of Income Tax (Appeal).
The learned Commissioner of Income Tax (Appeals) noted that the assessment made is without assumption of jurisdiction by the Assessing Officer, inasmuch as notice under sec. 148 was issued to an AOP of three persons while the assessment was framed on AOP of two persons. He held that the assessee to whom the notice was issued/served was different from the assessee on whom the assessment was made. The learned Commissioner of Income Tax (Appeals) held that having not served notice under sec. 148 on the AOP in whose name the assessment was made, the Assessing Officer did not get jurisdiction to make assessment on the assessee. He, thus, cancelled the assessment. The revenue came in appeal before the Tribunal, which up held the order of the learned Commissioner of Income Tax (Appeals). The revenue has come in reference.
Heard Sri Shambhu Chopra, learned Standing Counsel for the Revenue and Sri R.R.Agarwal, learned counsel for the respondent-assessee.
Learned Standing Counsel submitted that merely because the notice was issued to AOP consisting of Shri Ashok Kumar, Sri Vijay Kumar Goel and Shri S.P.Garg and the assessment was completed in the status of AOP consisting of Shri Ashok Kumar and Sri Vijay Kumar Goel, the assessment order cannot be held invalid. He submitted that in pursuance of the notice, Shri Ashok Kumar appeared and participated in the assessment proceedings, therefore, a proper opportunity was given and hence the order passed in the status of AOP consisting of Ashok Kumar and Vijay Kumar Goel is valid. He relied upon the decisions in the case of Rajmani Devi Versus CIT reported in 5 ITR 631, Chattu Ram Versus CIT reported in 15 ITR 302, CIT Versus Kanpur Coal Syndicate reported in 53 ITR 225, Estate of Late Rangalal Jajodia Versus CIT reported in 79 ITR 505, G. Murugesan and Brothers Versus Commissioner of Income Tax (Madras) reported in 88 ITR 432 and Swaran Kanta Versus CIT reported in 176 ITR 291.
Learned counsel for the assessee submitted that the notice under section 148 of the Act was a jurisdictional notice and the Assessing Authority could assume jurisdiction to proceed against the assessee only when proper notice under section 148 of the Act would have been issued. In the present case, the assessment order in the status of AOP consisting of Sri Ashok Kumar and Sri Vijay Kumar Goel was passed without any notice under section 148 of the Act inasmuch as the alleged notice issued under section 148 of the Act was not to the AOP consisting of Ashok Kumar and Vijay Kumar Goel, but to AOP consisting of Ashok Kumar, Vijay Kumar Goel and S.P Garg. He submitted that mere participation in the assessment proceedings could not validate the proceedings which is ab initio, illegal and without jurisdiction for want of valid notice. In support of his contention, he relied upon the Full Bench decision of this court in the case of Laxmi Narain Anand Prakash Versus CST reported in 1980 UPTC 125. He further submitted that the AOP is a separate legal entity taxable under the Income Tax Act. He submitted that an association of person is constituted by more than one person with the object to earn profit, therefore, one person can form numbers of AOPs along with various persons and each association of person consist of different members constitute a separate legal entity liable to assessment. In support of his contention, he relied upon the decisions in the case of CIT Versus Indra Bal Krishna reported in 39 ITR 546, Khan Sahib Mohd. Oomer Sahib Versus CIT (Madras) reported in 42 ITR 115, CIT Versus Bibhuti Bhusan Mallick reportedin 165 ITR 107, CIT Versus Ishwar Singh and Co. reported in 131 ITR, 480, P.N.Sasi Kumar Versus CIT reported in 170 ITR, 80, Gokul Chand Versus CIT reported in 211 ITR, 738 and Commissioner of Income-tax Versus V.K.Adinareyana Murty reported in AIR 1967 SC, 1545.
Having heard the learned counsel for the parties, we have perused the order of the Tribunal and the authorities below and given our anxious consideration to the submissions. On the facts and circumstances, we are of the opinion that there is no error in the order of the Tribunal. It is a settled principle of law that the notice under section 148 is a jurisdictional notice. It is not a notice for the regular assessment and on the issue of the notice under section 148 of the Act, the Assessing Authority assumes jurisdiction to proceed and pass assessment order. Therefore, the issue and service of valid notice under section 148 of the Act to the assessee against whom the action is being proposed to be taken and finally the assessment order is being passed is essential. It is settled that none of the party can provide any jurisdiction to the authority and even the waiver on the part of the assessee to issue or the service of the notice would not confer jurisdiction to proceed. The notice under section 148 of the Act is not a mere procedural requirement. It is a condition precedent to the valid assessment order (vide Kishan Chand Vs. CST reported in 1971 UPTC, 13, Laxmi Narain Versus CST, reported in 1971 UPTC 217, Y. Narayana Chetty and Another Versus Income Tax Officer reported in 35 ITR, 388, Mahabir Singh Versus Narain Tewari reported in AIR 1931 All. 490 (FB), CIT Versus Thayaballi Mulla Jeevaji Kapasi reported in 66 ITR 147, CST Versus Manchandra reported in 42 STC 432, Sewa Lal Daga Versus CST reported in 53 ITR, 406 (Cal), Banarsi Silk Palace Versus CIT reported in 52 ITR 220 and Bhagwan Devi Versus ITO reported in 118 ITR,806).
In the case of Laxmi Narain Anand Prakash Versus CST reported in 1980 UPTC 125, the Full Bench of this Court held that the service of the notice under section 21 which is equivalent to the notice under section 148 of the Act, is a condition precedent to assume jurisdiction and mere knowledge or participation in the proceedings will not validate the proceeding which is not proper.
In the case of Sikri Brothers and Co. Versus CST reported in 1979 UPTC, 1490, this court held as follows:
"Invalidity of the notice goes to the very root of the matter and when once it is found that the notice instead of being addressed to the dealer who was to be made liable for the escaped turnover was addressed to an entity which did not exist, whole proceeding stand vitiated in law and defect in notice was fatal to assumption of jurisdiction by the Sales Tax Officer."
In the case of Gokul Chand Versus ITO reported in 211 ITR 738, the Division Bench of this court held that where a person has a dual capacity as an individual as well as karta of Hindu Undivided Family, it is necessary to specifically mentioned in the notice of re-assessment, the capacity in which the assessee is sought to be re-assessed. In the absence of status being mentioned in the notice it was held invalid.
In the case of CIT Versus Ishwar Singh and Sons reported in 131 ITR 480, the Division Bench of this Court held that the notice under section 148 of the Act is a jurisdictional notice and unless such a notice is issued, the ITO does not get jurisdiction to make the assessment to a particular assessee.
In this case, the notice under section 148 of the Act was issued in the status of individual. Return was filed by the brother of the individual as a karta of his HUF. The assessment in the status of HUF has been held invalid for want of valid notice under sections 148 of the Act.
In the case of P.N. Sasi Kumar and others versus CIT reported in 170 ITR, 80, the Division Bench of Kerala High Court held that the notice under section 148 of the Act is a condition precedent to the validity of the re-assessment. It has been held that the notice for re-assessment issued to individual (s) not specifying whether it was issued to principal officer or member of AOP consisting of (5) and others, the assessment order made in the status of AOP consisting of (5) and others has been held invalid.
In the case of G. Mairugesan and brothers Versus CIT reported in 88 ITR 432, the Supreme Court observed as follows.
"For forming "association of person", the members of association must be done together for the purpose of producing income and "association of person" can be formed only when two or more individual validly combined together for certain purpose, hence, violation on the part of the members of the association is an essential ingredient.
In the case of CIT Versus Indra Bal Krishna reported in 39 ITR 546, the Apex Court held as follows:
"It is enough for our purpose to refer to three decisions: In re. B.N. Elias; CIT Versus Laxmidas Devidas; and In re Dwarakanath Harischandra. In re. B.N. Elias Derbyshre, CJ rightly pointed out that the word "associate" means according to the Oxford Dictionary " to join in common members or to join in an action". Therefore, association of persons must be one in which two or more persons joins in a common members or common action and has the words occur in a section which imposes a tax of income, association must be one the object of which is to produce income, profits or gains".
In view of the above principle of law laid down by the various courts, it is settled that the notice under section 148 of the Act is a jurisdictional notice and unless a proper and valid notice is issued and served, jurisdiction to make the assessment cannot be assumed. Notice under section 148 of the Act has been held as a condition precedent for a valid assessment. It has also been held that in the notice the correct status should be mentioned and if the person has a dual capacity, the correct status of a person against whom re-assessment order is proposed to be made is to be mentioned in the notice, under section 148 of the Act and in the absence of a notice to the assessee against whom re-assessment order is proposed, the said order is held to be invalid.
In the present case, the re-assessment order was proposed to be made and has been made in the status of AOP consisting of Shri Ashok Kumar Bharti and Sri Vijay Kumar Goel, while admittedly, the notice was issued to the AOP consisting of Shri Ashok Kumar Bharti, Shri Vijay Kumar Goel and Shri S.P. Garg. Perusal of the assessment order also shows that the entire material which has been considered for making the re-assessment was relating to Shri Ashok Kumar Bharti and Shri Vijay Kumar Goel and it has been held that they have carried on the business of coal jointly in the association of person and the name of Shri S.P. Garg has no where referred or considered. In this view of the matter, the assessment made in the status of AOP consisting of Shri Ashok Kumar Bharti and Shri Vijay Kumar Goel was without notice under section 148 of the Act. The notice on the basis of which the assessment order is alleged to have been made was issued in the name of three persons, namely, Shri Ashok Kumar Bharti, Shri Vijay Kumar Goel and Shri S.P. Garg in the status of AOP which could not be made basis for making the assessment in the name of Shri Ashok Kumar Bharti and Shri Vijay Kumar Goel in the status of AOP. AOP is an independent identity. One person can form more than one association of person with a different person to carry on the business to earn profit and each such association is an independent identity for the purposes of the assessment under the Act. In the circumstances, in the absence of notice under section 148 of the Act to the present assessee, the Tribunal has rightly held the assessment order passed under section 147 read with Section 148 of the Act invalid.
In view of the foregoing discussions, the submission of the learned Standing Counsel has no force. The cases cited by the learned Standing Counsel are not applicable to the facts of the present In the case of CIT Versus Kanpur Coal Syndicate reported in 53 ITR, 225, proceedings was not relating to section 34 of 1922 Act or Section 148 of 1961. The cases of G. Murugesan and Brothers Versus CIT reported in 88 ITR, 432, Rajmani Devi Versus CIT reported in 5 ITR, 631 and Chattu Ram and others Versus CIT reported in 15 ITR 302 are not relevant to the issue involved in the present case.
In the result, the question referred to us is answered in the affirmative i.e. in favour of the assessee and against the revenue.
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