Technical witness. Suit alleging infringement of patent . Lawyers would not be expected to have technical knowledge to cross examine a technical witness .

2018  (73) PTC  401 (HIGH COURT OF DELHI)

Ito, New Delhi vs Ptc Impex (India) Pvt. Ltd., Delhi on 16 February, 2018

//FIT FOR PUBLICATION//                                                     Sd/-             Sd/-                                                     A.M.             J.M.           IN THE INCOME TAX APPELLATE TRIBUNAL                 DELHI BENCHES “F” : DELHI      BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER                          AND         SHRI L.P. SAHU, ACCOUNTANT MEMBER

 

ITA.No.2907/Del./2010                   Assessment Year 2005-2006 The Income Tax Officer,              PTC Impex (India) Pvt. Ltd.,Ward-14(1), Room No.209,       vs.   251-252, Dina Ka Talao,Central Revenue Building,            Malka Ganj, Delhi.New Delhi – 110 002.                 PAN AACCP3165C         (Appellant)                        (Respondent)                 Cross Objection No.213/Del./2010                         Arising out of                    ITA.No.2907/Del./2010                  Assessment Year 2005-2006 PTC Impex (India) Pvt. Ltd.,         The Income Tax Officer,251-252, Dina Ka Talao,        vs.   Ward-14(1), Room No.209,Malka Ganj, Delhi.                   Central Revenue Building,PAN AACCP3165C                       New Delhi – 110 002.      (Cross-Objector)                       (Respondent)                    For Revenue : Shri Afiq Ahmad, Sr.D.R.                  For Assessee : Shri Somil Agarwal, Advocate

Date of Hearing : 01.02.2018       Date of Pronouncement : 16.02.2018

2                              ITA.No.2907/Del./2010 & C.O.No.213/Del./2010                                             PTC Impex (India) Pvt. Ltd., Delhi

Technical witness. Witness . Suit alleging infringement of patent . Lawyers would not be expected to have technical knowledge to cross examine a technical witness . He should be allowed to be present after the completion of defendants evidence.  Delhi High Court (Original Side) Rules, 1967 Chapter 13 Rule 4 . Defendants will be entitled to have the presence of their technical expert [Para 9]                                  ORDER

PER BHAVNESH SAINI, J.M.

The Departmental Appeal as well as Cross-Objection by assessee are directed against the order of the Ld. CIT(A)-XVII, New Delhi, Dated 15th March, 2010, for the A.Y. 2005-2006.

  1. We have heard the learned Representatives of both the parties and perused the material available on record.
  2. The Revenue has filed the appeal on the following grounds :

“1. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the disallowance of deduction of Rs.1,57,41,762/- claimed u/s 10B of IT Act.

The Ld. CIT(A) ignored the evidences such as non purchasing of new plant and machinery, running of similar business from the same premises, the undertaking was formed from the earlier existing company dealing in the same activities and thus, assessee was not fulfilling the basic conditions of section 10B of IT Act.

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi

  1. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in ignoring the findings of the AO with respect to manufacturing process, consumption of electricity, deployment of labour production vis-a- vis consumption of raw material etc.
  2. That on the facts and circumstances of the case and in law the Ld. CIT(A) erred in deleting the addition of Rs.73,89,823/- being the price of 46,401 Kg of finished product not accounted for by the assessee by ignoring the fact that there was difference of 46,401 Kg in consumption and production pattern.”
  3. The assessee has filed the cross objection on the following ground :

“1. That having regard to the facts and circumstances of the case, the Ld. CIT(A) erred in law and on facts in confirming the action of Ld. A.O. in assuming the jurisdiction to pass the impugned assessment order under section 143(3), more so when jurisdictional notice under section 143(2) was not served within the statutory allowable period, much less in accordance with law.”

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi

  1. Briefly, the facts of the case are that return declaring income of Rs.96,450 was filed on 31st October, 2005. The case was selected for scrutiny by issuing notice under section 143(2)on 27th October, 2006 which was served upon the assesses. The A.O. asked the assessee to file details. The A.O. considered the issue of claim of exemption under section 10Bof the I.T. Act, 1961. The assessee claimed deduction of Rs.1,57,41,762 under section 10B on export of hot mix masala claimed to have been manufactured by the assessee. The A.O. denied the exemption under section 10B of the I.T. Act and held that since the assessee has been found not to be engaged in manufacturing activity and found to export item which are not manufactured by it, its claim of deduction of Rs.1,57,41,762 under section 10B was not allowable and the same was accordingly, disallowed and addition was accordingly, made.

5.1. Further, the A.O. considered the issue of suppression of sales. The assessee submitted that difference of 46,401 Kg. is because of natural loss which happens during the cleaning,ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi staining, grinding, packing etc. The A.O. however, did not allow claim of assessee. It was, therefore, noted that assessee has not accounted for the same income in respect of disposal of 46,401 Kg of finished products. Therefore, the income amounting to Rs.73,89,823 (being sale price of 46,401 Kg @ Rs.159.26per Kg) in the domestic market was added to the income of the assessee. The A.O. completed the assessment under section 143(3) vide order dated 31st December, 2007.

  1. The assessee challenged the validity of the assessment so framed by the A.O. without serving mandatory notices under section 143(2)within the statutory period. It was, therefore, submitted that A.O. has wrongly assumed jurisdiction to frame the assessment. The assessee also challenged the disallowance of deduction under section 10B of Rs.1,57,41,762 and addition of Rs.73,89,823 on account of alleged suppression of sales before Ld. CIT(A).

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi

  1. The assessee as regards the assumption of jurisdiction to frame assessment under section 143(3)submitted that the mandatory notice under section 143(2)was not served upon him within the prescribed period as per law. Therefore, the assessment order framed by the A.O. was without assuming jurisdiction as per law and therefore, the same is nullity in the eye of law. The assessee also filed written submissions in which it was explained that the A.O. assumed jurisdiction to frame the assessment under section 143(3)without complying with the mandatory requirement of service of notice under section 143(2) within the mandatory period of 12 months from the end of the month in which the return of income was filed as per the proviso to Section 143(2) of the I.T. Act, 1961. Copy of the acknowledgment of filing of the return was filed to prove that return was filed on 31st October, 2005. Copy of the notice under section 143(2) dated 27th October, 2006 was filed which was dispatched on 30th October, 2006 at 12.12. P.M. and served/received on 2nd November, 2006. The assessee objected to the assumption of jurisdiction under ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi section 143(2) before A.O. and contended that notice was served on 2nd November, 2006. This objection was raised during the course of assessment proceedings vide letter sent through UPC/ Registered Post. Copies of the same were also filed before Ld. CIT(A). Assessee requested that departmental record may be inspected and could find that it contain envelope showing the receipt of registered post dated 27.11.2007. Surprisingly, the Department assessment record does not contain the assessee’s letter objecting the present assessment proceedings on the ground of non-service of notice under section 143(2) of the Act, within the prescribed time. The A.O. in the assessment order did not mention as to when the notice dated 27th October, 2006 was served and merely mentioned the date of issue. Thus, the notice under section 143(2) having been served beyond 31st October, 2006, and therefore, the jurisdiction assumed by the A.O. is nullity and so is the present assessment order under appeal. The assessee relied upon several decisions in support of the proposition that service of notice under section 143(2) within the statutory period is mandatory and in the absence of ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi same, the assessment order would be illegal and void abinitio. The burden is upon the Revenue to prove service of the notice. The decisions relied upon by assessee includes the decisions of the Hon’ble Delhi High Court in the cases of Nulon India Ltd., 216 CTR 142 in which it was held that “service has to be proved by the Revenue by leading positive evidence and that there is no presumption that notice must have been served upon it within 24 hours.” and CIT vs. Lunar Diamonds Ltd., 197 CTR 312 (Del.) in which it was held that “Tribunal having held that the Revenue has failed to prove that the notice under section 143(2) was served upon the assessee within the prescribed time and set aside the assessment order on that ground, no substantial question of law arise” and the assessee also filed additional evidences under Rule 46A, which are copy of the letter and postal receipts to prove letter sent through registered post and UPC on 27.11.2007, in which it was brought to the notice of the A.O. that there is a delayed service of the notice under section 143(2). It was also explained that assessee challenged the validity of notice by submitting his letter dated 27.11.2007 ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi before A.O, copy of which is filed before Ld. CIT(A) and relevant portion of letter is reproduced in para 3.4 of the appellate order in which the assessee challenged the service of notice under section 143(2) because it was served on 02.11.2006 beyond the period prescribed under section 143(2)(ii) of the I.T. Act. The Ld. CIT(A) sent all these evidences to the A.O. for his specific comments. The A.O. sent his remand report on 14th May, 2009, which is reproduced in the appellate order in which the A.O. highlighted that the notice under section 143(2) dated 27th October, 2006 was sent through the registered post on 30th October, 2006. Another copy of the notice was also served upon the assessee on 30th October, 2006 by affixture on the last known address of the assessee which is valid service. Copy of the service through affixture was filed with remand report. The A.O. also stated that when letter dated 17.11.2007 was sent, why it was sent again on 27.11.2017 is not explained. It was stated that letter dated 27.11.2007 is not available on record. The A.O. also referred to Section 292BB of the Finance Act, 2008, in which it has been made clear that where an assessee ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi appeared in any proceedings or cooperated in any inquiry relating to assessment or re-assessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him, in accordance with the provisions of law, and such assessee shall be precluded from taking any objection in any proceedings or inquiry under this Act that the notice was not served upon him within time. It was, therefore, submitted that additional evidence may not be admitted as notice under section 143(2)have been served within the time.
  2. Copy of the remand report and copy of affixture report were provided to the assessee for its counter comments. The assessee filed the counter comments vide letter dated 13th June, 2009. The relevant portion of the same is reproduced in the appellate order in which the assessee briefly explained that A.O. did not give opportunity at assessment stage. Therefore, additional evidence as above may be admitted. The A.O. did not mention in the assessment order that notice dated 27th October,ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi 2006 under section 143(2)have been served through affixture. This fact is disclosed for the first time in the remand report. It was submitted that assessee was consistently submitted that notice sent by registered post on 30th October, 2006, at 12.12 P.M. was received by assessee on 2nd November, 2006. It is a jurisdictional notice. Therefore, it should be served upon the assessee up to 31st October, 2006. The assessee challenged the service of the notice, within the period. A.O. has not brought any evidence on record to prove that notice dispatched on 30th October, 2006 at 12.12. P.M was served upon assessee by 31st October, 2006. Therefore, jurisdiction assumed by the A.O. based upon notice dated 27th October, 2006 by registered post, is invalid. It appears that A.O. sought to serve the notice as per Order-V, Rule-20 CPC because the Notice Server and the Inspector stated that service of affixture was done under the order of the I.T.O. However, there is no order of the I.T.O. in the Department assessment record which could be verified from the record. The A.O. has not provided any such order in his remand report. The service by affixture is invalid because the procedure ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi of the substitute service have not been followed by the A.O. The satisfaction of the A.O. is nowhere available on record as per Order-V, Rule-20 CPC for the purpose of serving notice through affixture. Therefore, conditions of Order-V, Rule-20 CPC have not been fulfilled. There is no proof available on record if the Notice Server has made any attempt to serve the notice on assessee personally. No affidavit of Notice Server have been brought on record for complying with the provisions of law. Therefore, service of notice through affixture is bad in law. The assessee raised objection regarding service of the notice at the assessment stage. But even if it is assumed that it was not raised, it does not operate against the assessee as Section 292BBof the Act is prospective in nature as held by the Hon’ble Delhi High Court in the case of Mani Kakkar 18 DTR 145 and by the Special Bench of the Tribunal in the case of Kuber Tobacco Products Pvt. Ltd., 120 TTJ 577 (Del.). The assessee raised the issue of non-service of the notice under section 143(2) at assessment stage itself by sending the objections through registered post as well as by UPC which the assessee sought to ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi admit as additional evidences. The assessee submitted that since the provisions of Order-V, Rule-20 CPC have not been strictly complied with, service of notice under section 143(2) by affixture was invalid and there being no evidence on record to show that notice sent by registered post was served upon the assessee, the assessment was liable to be quashed. It is the duty of the A.O. to make diligent efforts in finding-out the assessee and in making service upon him either in person or by Registered Post Acknowledgment due at correct address only. The report of the Inspector discloses that first time effort was made on 30th October, 2006 and that too at incorrect address. Therefore, no effort was made to serve the notice upon the assessee personally. The assessee relied upon the decisions of the jurisdictional Delhi Bench in the cases of Ram Singh Mathur vs. ITO 112 TTJ 989 (Del.), Chandra Agencies vs. ITO 89 ITD 1 (Del.) and decision of Calcutta High Court in the case of Rameswar Sirkar vs. ITO 88 ITR 374 (Cal.) (HC) and decision of Hon’ble Madras High Court in the case of Kiran Machines vs. ITO 295 ITR 4 (Madras) (HC) and etc. ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi
  3. The Ld. CIT(A) as regards the additional evidences found that assessee has filed copy of the letter sent by registered post to the A.O. and in support of it, filed copy of the register receipt. Both these were provided to the A.O. for his comments. In fact, registered receipt is the record of the post office and the letter of the assessee is already part of the assessment record. The Ld. CIT(A), accordingly, admitted the additional evidences. We may note here that as regards admission of the additional evidences, there is no challenge to the same in the Departmental Appeal.
  4. The Ld. CIT(A) as regards the service of the notice under section 143(2)within the period of limitation noted that income tax is a fiscal statute and its purpose is to collect revenue for the State. Therefore, the procedural irregularity are not treated as fatal. The Ld. CIT(A) also noted that the postal receipt shows that notice was dispatched on 30th October, 2006, therefore, it is deemed to have been served in the ordinary course of business. The Ld. CIT(A) also noted that A.O. hasITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi taken precautionary measure also to serve the notice by affixture. In view of these facts, the Ld. CIT(A) held that notice was served within time. Therefore, assessment proceedings were held as valid and this ground of appeal of assessee was dismissed.
  5. The assessee in the cross-objection challenged the findings of the Ld. CIT(A) that notice under section 143(2)have been served within the statutory period.
  6. We have heard the Learned Representatives of both the parties and perused the material on record. Learned Counsel for the Assessee reiterated the submissions made before the authorities below.
  7. On the other hand, Ld. D.R. relied upon the order of the Ld. CIT(A) and also filed copy of the order sheet from 19th April, 2010 to 14th May, 2010, which are not relevant to the matter in issue.

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi

  1. It is well settled according to proviso to Section 143(2)of the I.T. Act, no notice under clause (ii) shall be served upon the assessee after expiry of 12 months from the end of the month in which the return is furnished. In this case, assessee filed return of income on 31st October, 2005. Therefore, the notice under section 143(2)(ii)could have been served upon the assessee on or before 31st October, 2006. The A.O. in the assessment order did not mention as to when the notice under section 143(2)have been served upon the assessee through post. The A.O. in the assessment order also did not mention as to whether assessee has been served with the notice through affixture through the Process Server of the Department. The assessee filed copy of the notice under section 143(2) dated 27th October, 2006 which were dispatched on 30th October, 2006 at 12.12 P.M. and served/received on 2nd November, 2006. The submission of the assessee and relevant documents were forwarded to the A.O. for filing the remand report. However, there is no rebuttal from the side of the A.O. to dispute the above statement of the assessee. It is, therefore, an admitted ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi fact that though the notice under section 143(2) dated 27th October, 2006, was issued but it was dispatched only on 30th October, 2006 at 12.12 PM and served upon assessee on 2nd November, 2006. The assessee also filed additional evidences before Ld. CIT(A) with regard to the fact that assessee challenged the service of the notice under section 143(2) through letter which was sent by registered post and the UPC. The assessee highlighted in these additional evidences that notice under section 143(2) have not been served upon the assessee within the period prescribed under the law. The additional evidences were referred to the A.O. for filing the remand report. The Ld. CIT(A) admitted the additional evidences and also noted in his findings letter of the assessee is already part of the record. It would mean that the assessee after receipt of the notice under section 143(2) belatedly on 2nd November, 2006 made a representation to the A.O. submitting therein that notice under section 143(2) have not been served upon the assessee within the statutory period. The Ld. CIT(A) also reproduced the relevant portion of letter in para 3.4 of theITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi impugned order. The A.O. did not discuss the objection of the assessee challenging the service of the notice under section 143(2) in the assessment order. There is no challenge to the admission of the additional evidences by the Ld. CIT(A) in the grounds of appeal raised by the Revenue before the Tribunal. Since there is no rebuttal to the objections of the assessee supported by the relevant or cogent material, therefore, it is established on record that the notice dated 27th October, 2006 issued under section 143(2), was dispatched on 30th October, 2006 at 12.12 PM, was delivered to the assessee on 2nd November, 2006. Therefore, it is clearly served upon the assessee against the provisions contained in proviso to Section 143(2)(ii) of the I.T. Act, 1961. The Hon’ble Delhi High Court in the case of CIT vs. Lunar Diamonds Ltd., (2006) 281 ITR 1 (Del.) held as under:

“The assessee filed its return for the assessment year 1995-96 on November 29, 1995. On appeal before the Commissioner (Appeals) it was contended by the assessee that it had not received any notice under ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi section 143(2) of the Income Tax Act, 1961, by registered post. An affidavit to this effect was filed. It was contended that the receipt issued by the post office did not bear the address of the assessee but only its name. It was, therefore, submitted that there was a possibility that the correct address of the assessee might not have been written on the envelope and, therefore, the question of service of notice on the assessee did not arise. The contention of the assessee was accepted by the Commissioner (Appeals) and it was held that there was no valid service of notice on the assessee and, therefore, the assessment framed was invalid. This was upheld by the Tribunal. On appeal to the High Court:

Held, dismissing the appeal, that the assessee had filed an affidavit stating that it had not received the notice and the Tribunal rightly held that under these circumstances, the burden was upon the Department to prove that notice was served upon the assessee within the prescribed time. The Department had failed to prove its case in this regard. The Tribunal was right in setting aside the order of assessment. No substantial question of law arose from its order.”

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi 14.1. The Hon’ble Punjab & Haryana High Court in the case of CIT vs. Cebon India Ltd., (2012) 347 ITR 583 (P&H) held as under:

“The assessee’s return for the assessment year 1996- 97 on November 30, 1996, was processed under section 143(1)(a) of the Income-tax Act, 1961, on May 30,1997, and assessment was framed under section 144 of the Act and affirmed in appeal. The Tribunal remanded the matter to the Commissioner (Appeals). The Commissioner (Appeals) in the second round, allowed the appeal on the ground that there was no evidence to show that notice under section 143(2) of the Act had been served on the assessee before November 30, 1997, i.e., within one year of the filing of the return. Therefore, he held the assessment void. This finding was affirmed by the Tribunal. On appeal:

Held, dismissing the appeal, that a concurrent finding had been recorded by the Commissioner (Appeals) and the Tribunal on the question of date of service of notice. The notice was not served within the stipulated time. Mere giving of dispatch number would not render the finding perverse. In the absence of notice being served, the Assessing Officer had no jurisdiction to ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi make assessment. Absence of notice was not curable under section 292BB of the Act.”

  1. In the present case, the A.O. was having no proof of service of notice under section 143(2)of the Act upon the assessee on or before 31st October, 2006. The Ld. CIT(A) noted in his findings that Income Tax Actis a fiscal statute and its purpose is to collect revenue for the State. Therefore, the procedural irregularity are not treated as fatal. The Ld. CIT(A) failed to note that the notice under section 143(2) is a jurisdictional notice. Unless the same is served upon the assessee within the statutory period prescribed under the law, no assessment could be made upon the assessee. Therefore, it goes to the legality of the assessment itself. Hon’ble Delhi High Court in the case of CIT vs. Pawan Gupta 318 ITR 322 held that “if an assessment order is passed in such a situation without complying with Section 143(2), it would be invalid and not be merely irregular.” Therefore, findings of the Ld. CIT(A) are incorrect and against the provisions of law.

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi 15.1. The Ld. CIT(A) also noted in his findings that the A.O. has served another notice under section 143(2) as a precautionary measure by affixture also. Such a finding is also against the provision of law because no notice could be issued as precautionary measure because it has to be served in accordance with law as prescribed under the Act. The A.O. did not mention in the assessment order that he has served any notice under section 143(2) upon assessee through affixture. It has come for the first time in the remand report of the A.O. before Ld. CIT(A). It is not explained why notice was sent through the Process Server on the same day of dispatch on 30th October, 2006 for affixture when it was also dispatched by registered post. The A.O. did not take any step to serve the notice upon assessee personally through ordinary process. It may be noted that it was a one day prior to the last date when notice was dispatched on 30th October, 2006. There is no order available on record of the assessment if the A.O. has authorised the Process Server of the Department to serve the assessee by affixture and no reasons have been assigned in the notice sent ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi for service through affixture without following the procedure provided under the Act. The procedure for substituted service through affixture have been provided under Order-V, Rule-20 CPC and the same reads as under :

  1. “Substituted service.–(!) Where the Court is satisfied that there is reason to believe that the defendant is keeping out of the way for the purpose of avoiding service, or that for any other reason the summons cannot be served in the ordinary way, the Court shall order the summons to be served by affixing a copy thereof in some conspicuous place in the Court-house, and also upon some conspicuous part of the house (if any) in which the defendant is known to have last resided or carried on business or personally worked for gain, or in such other manner as the Court thinks fit.

[(1A) Where the Court acting under sub-rule (1) orders service by an advertisement in a newspaper, the newspaper shall be a daily newspaper circulating in the locality in which the defendant is last known to have actually and voluntarily resided, carried on business or personally worked for gain.]ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi (2) Effect of substituted service.–Service substituted by order of the Court shall be as effectual as if it has been made on the defendant personally.”

15.2. Before adopting the mode to serve the assessee through affixture, the A.O. should be satisfied that there is a reason to believe that assessee is keeping out of way for the purpose of avoiding service or that for any other reason the notice cannot be served in the ordinary way, the A.O. shall order the notice to be served by affixture a copy thereof in some conspicuous place in the Court House and also upon some conspicuous part of the house in which the assessee is known to have last resided or carried on business or personal work for gain or any such other manner as the A.O. thinks fit. 15.3. However, no such satisfaction has been arrived at by the A.O. in this case and nothing is recorded, if the assessee was keeping out the way for the purpose of avoiding the service of the notice or that the notice could not be served upon the assessee in an ordinary way. The substitute service through affixture would not be valid unless the conditions of Order-V, ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi Rule-20 CPC are satisfied. The Process Server did not make any attempt to serve the notice to the assessee personally. The Hon’ble Calcutta High Court in the case of Rameswar Sirkar vs. ITO (1973) 88 ITR 374 (Cal.) held as under :

“The service of notice under section 148 is mandatory and is a condition precedent for the initiation of reassessment proceedings. The mere fact that the serving officer did not find the assessee to be served with the notice at his address is not sufficient to establish that he could not be found. It must be shown not only that the serving officer went to that place at a reasonable time when the assessee was expected to be present, but also that if he was not found, proper and reasonable attempts had been made to find him either at that address or elsewhere. A notice by affixture without reasonable attempts to find the assessee is not a proper notice.”

15.4. The Hon’ble Madras High Court in the case of Kiran Machines vs. ITO & Another (2007) 295 ITR 4 (Mad.) (HC) held as under :

“Held that in this case, admittedly, the A.O. had not recorded any satisfaction in his order that notice could not be served personally, before causing service of notice byITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi affixture. Under Order 5, rule 20(1 A), the Assessing Officer could have ordered publication in a newspaper if the address of the petitioner was not known or could not be furnished by his representative. But that too had not been done in this case. When an order of assessment levying tax is being passed, it is incumbent upon the Assessing Officer to serve the notice in accordance with the provisions. But in this case, that had not been done. Thus, the principles of natural justice had been violated and on this ground, the assessment order was liable to be set aside.”

15.5. Since the conditions of Order-V, Rule-20 CPC have not been satisfied in this case, therefore, service through affixture, is invalid and bad in law. There is no other evidence available on record to prove that assessee has been served with notice under section 143(2) within the statutory period. It was the presumption of the authorities below that assessee has been served with notice through registered post in ordinary course of business. It was the presumption of the A.O. that notice has been served upon the assessee, which is rebutted by the assessee through evidence and material on record. The presumption cannot take place of legal proof particularly when ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi the notice through registered post was dispatched only 30th October, 2006 and as per law it has to be served on or before 31st October, 2006. The A.O. in the remand report has referred to provisions of Section 292BB of the Finance Act, 2008 in support of his contention that when assessee appeared in the proceedings before A.O, it shall be deemed that any notice under any provision of the Act, has been duly served upon him, in accordance with law and assessee shall be precluded from taking any objection in any proceeding or enquiry under this Act that notice has not been served upon him in time. It may be noted that proviso to this Section provides that “nothing contained in this Section shall apply where assessee has raised such objection before completion of the assessment or re- assessment.” In the present case, the assessee has raised objection in writing regarding service of the notice under section 143(2) within the statutory period at the assessment stage itself. Therefore, such provision would not apply against the assessee. Further, Section 292BB of the Act, would not operate against the assessee, as Section 292BB has been inserted into the ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi statute by Finance Act, 2008 w.e.f. 01.04.2008 and it has been held as prospective in nature by the Hon’ble jurisdictional Delhi High Court in the case of CIT vs. Mani Kakkar 18 DTR 145 (Del.) (HC)/178 Taxman 315 and by Special Bench of the Delhi Tribunal in the case of Kuber Tobacco Products Pvt. Ltd., vs. CIT (2009) 120 TTJ 577 (Del.) (S.B) (Tribu.). Therefore, such objection of the A.O. is also invalid. Considering the facts of the case in the light of material on record and discussion above, it is clear that the theory of service through affixture was an afterthought and manipulated by the A.O. There was no evidence on record to prove that assessee has been served with the notice under section 143(2) within the period of limitation and the alleged service of the notice through affixture is invalid and void abinitio itself. Since no notice under section 143(2) have been served upon the assessee within the statutory period, therefore, the same is invalid, consequently, the assessment order gets vitiated and is null and void. We, accordingly, set aside the orders of the authorities below and quash the assessment itself. The additions stand deleted.

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi

  1. In the result, cross-objection of the assessee allowed. ITA.No.2907/Del./2010 – A.Y. 2005-2006 (Revenue Appeal):
  2. In view of the above order on Cross-Objection, we decide the Departmental appeal briefly as under.
  3. On ground Nos. 1 and 2, Revenue challenged the deletion of addition of Rs.1,57,41,762 claimed under section 10Bof the I.T. Act. According to A.O. assessee has not carried out manufacturing activity of his own but has purchased hot mix masala which is exported and claimed exemption undersection 10Bof the I.T. Act.
  4. On the other hand, the case of the assessee is that it carried out manufacturing activity which was supported by contemporary evidences. The assessee submitted that objection raised by the Revenue, were replied with evidences by the assessee, which were not considered by A.O. The assessee, therefore, pleaded that deduction under section 10Bof the Act may be allowed. The written submissions of the assessee is reproduced in the appellate order in which assessee brieflyITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi explained that assessee was in the business of manufacturing of hot mix masala and exported the same after manufacturing, which is proved by documentary evidence like Audited Balance- Sheet, Registration under Central Excise, Details of the Stock, Manufacturing Process, Installed Capacity of Grinding Machine and the production done by assessee, explaining manufacturing activity, Payment of Visit and Inspection Charges of Excise Officials etc., which are noted in detail, in the appellate order. The assessee also moved application for admission of additional evidence, which were, challan from the supplier of the machinery with copy of the bill of machinery, confirmation for payment of electricity charges, genset bill, lab report regarding the wastage, annual return attested by Central Excise Department, monthly return filed with Excise Authorities showing manufacturing with copy of the daily stock register, register showing import of goods received by assessee in his factory and check list for export prepared at the time of dispatch of goods for export certified by the Central Excise Officer. The assessee pleaded that no proper opportunity was given by the ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi A.O. Therefore, these additional evidences were admitted by the Ld. CIT(A) for adjudicating the appeal. The Ld. CIT(A) considering the detailed evidences on record furnished by the assessee, in the light of remand report of the A.O, deleted the entire addition and allowed exemption under section 10Bof the Act, to the assessee. The findings of the Ld. CIT(A) in para 4.7 of the order are reproduced as under :

“4.7. I have considered the facts of the case and have also gone through the assessment order, written submissions and paper books filed by the appellant. The issue in dispute is relating to disallowance of deduction under section 10B of the IT Act, 1961 with the observation that the assessee was not manufacturing the products exported but has procured and purchased and then exported it. My observations on this issue are as under :

(i) On perusal of paper book, which shall be called hence forthwith, in short as ‘PB’, on page 17, there is a note to the Balance Sheet that the appellant was registered under ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi Central Excise. It is further noticed that inspection charges have been paid in connection with the visit of the excise officials as is evident from PB 138-141. The manufacturing process has been outlined by the appellant to the Assessing Officer, which is at PB-88. I also find that excise records have been verified by the excise officials and such records bear the signature of excise officials, which clearly establish that assessee was a manufacturer of hot mix masala.

(ii) The appellant has consistently pleaded (PB-89) that appellant was manufacturing hot mix masala and that there was adequate installed capacity of the grinding machine and that production of hot mix masala was to the tune of Rs.149.47 tonnes (PB-122). So much so, the appellant gave detailed explanation regarding the manufacturing activity undertaken and rebutting all the objections of the AO.

(iii) I find that the AO’s observation that assessee purchased grinding machine on 11.06.2004 is factually not correct, in view of the challan of the machine which shows ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi that the machine was received on 01.06.2004 and not on 11.6.2004. In fact, on 11.06.2004, the invoice relating to the sale of the machine was made and that is how AO recorded a finding as to how hot mix masala could be manufactured prior to that date. On the contrary, it is established that machine was supplied to the appellant on 01.06.2004 and production was made from 02.06.2004.

(iv) The appellant has submitted that the generator was hired and hire charges was composite one including the consumption of diesel. The appellant has also explained in its letter dated 26.12.2007 about the consumption of electricity and there is nothing unusual or abnormal in it. Hence, the appellant ‘s explanation is acceptable in this regard.

(v) In respect of quantum of production vis-a-vis consumption of electricity, the appellant has submitted that the consumption of electricity as per the working of the AO comes to 2,291 units and not 5,400 units. It is further noticed that details of wages were given to the AO onITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi 14.12.2007 and copies of vouchers were also produced. Hence, I find no substance in the allegation of the AO that investment proposed before Development Commissioner, SEZ, Noida was estimated at Rs.83.50 lakhs whereas the actual investment was much less as it is not necessary that investment once proposed is invariably to be made by the assessee. In fact, the appellant has elaborately rebutted all the contentions of the AO in its letter dated 26.12.2007 which has not been taken in to account by the AO in correct perspective.

(vi) ……..I further find that the AO in his comments dated ….11/2009 has admitted, “undoubtedly from the evidences submitted before your good self it is evident that the manufacturing was being done at the premises of assessee…..”. But, thereafter, he raised the issue that since other firms were also working from the same premises, it raises iota of doubt. However, after admission of manufacturing, I find no substance in this objection. The excise records clearly show that the ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi manufacturing was done by the appellant company and records were duly checked by excise authorities. Considering the facts and circumstances of the case, legal provisions are having regard to the evidences placed, more particularly the excise records evidencing the manufacturing, there remains no doubt that the appellant was manufacturing hot mix masala and therefore, the AO was not justified in denying the exemption u/s 10B. Accordingly, disallowance of exemption u/s 10B made by AO is hereby deleted.”

  1. After considering the rival submissions, we do not find any merit in this grounds of appeal of the Revenue. The Ld. D.R. merely relied upon order of the A.O. and has not pointed out any infirmity in the order of the Ld. CIT(A). There is no challenge to the additional evidences admitted by the Ld. CIT(A) in the Departmental appeal. The assessee produced sufficient documentary evidences before Ld. CIT(A) to prove that it manufactures hot mix masala and exports them and claimedITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi exemption under section 10Bof the I.T. Act. The claim of assessee is supported by documentary evidences as well as excise records checked by the Excise Authorities. The A.O. in the remand report admitted that the documents submitted by the assessee before Ld. CIT(A) were evident that manufacturing was being done at the premises of the assessee. In view of the admission of the A.O. that assessee is manufacturing hot mix masala and thereafter, it is exported by assessee, supported by documents, the Ld. CIT(A) correctly deleted the addition. Ground Nos. 1 and 2 of appeal of the Revenue are accordingly dismissed.
  2. On Ground No.3, the Revenue challenged the deletion of addition of Rs.73,89,823. The A.O. made the above addition by holding that claim made by assessee regarding waste of 46401 kg was not proved and according to A.O. it must have been sold outside the books of account. The assessee challenged the addition before Ld. CIT(A) and filed the written submissions supported by large number of documents to show ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi that it was a natural loss/wastage in the business of assessee. The Ld. CIT(A) accepted the contention of assessee and deleted the addition. The findings of the Ld. CIT(A) in paras 5.2 and 5.3 of the order are reads as under :

5.2. “I have carefully considered the issue with reference to assessment order and written submissions placed on record by the assessee and I find that in this business, there are several processes like cleaning, staining, grinding, packing etc. Hence, the wastage is bound to occur at every stage. The fact of the excise records having been checked and verified by the excise authority cannot be giossed over. I find that the appellant had maintained the input stock register and stock register of finished goods (PB 177- 190) & (PB 142- 176) and in view of these records, there is no justifiable ground for not believing the wastage.

5.3. I further find that quantitative details were filed before the AO and the copy of the same were also filed before me. The chart placed at PB-279 explains the natural loss in the process of production of hot mix masala which is further supported by the Laboratory report (PB-284). Further, there is no evidence of any ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi sale outside the books of accounts and the books of accounts have been accepted. Further, there is no finding in the assessment order regarding the rejection of books of accounts. Thus, the addition of Rs.78,89,823/- denying the wastage was not justified. Therefore, the addition of Rs.73,89,823/- made by the A.O. is hereby deleted.”

  1. The Ld. D.R. relied upon the order of the A.O.
  2. On the other hand, the Learned Counsel for the Assessee reiterated the submissions made before the authorities below.
  3. After considering the rival submissions, we do not find any merit in this ground of appeal of the Revenue. The excise records have been checked and verified by the Excise Authorities. The Ld. CIT(A) found that assessee has maintained the in-put stock register and stock register of the finished goods. Therefore, there were no justification to disbelieve the wastage claimed by the assessee. Further, the A.O. did not reject the books of account of the assessee and has not pointed out anyITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi of the specific defects in the books of account and records maintained by assessee. The assessee explained that there is a natural loss in the process of production of hot mix masala which is supported by laboratory report. Further, there is no evidence on record to prove any sales made by assessee outside the books of account. In this view of the mater, we do not find any infirmity in the order of the Ld. CIT(A) in deleting this addition. Ground No.3 of appeal of the Revenue is dismissed.
  4. In the result, appeal of the Revenue is dismissed.
  5. To sum-up, Cross-Objection of the assessee is allowed and appeal of the Revenue is dismissed.

Order pronounced in the open Court.

Sd/-                                          Sd/-   (L.P. SAHU)                                   (BHAVNESH SAINI)ACCOUNTANT MEMBER                                JUDICIAL MEMBER Delhi, Dated 16th February, 2018 VBP/-

ITA.No.2907/Del./2010 & C.O.No.213/Del./2010 PTC Impex (India) Pvt. Ltd., Delhi Copy to

  1. The appellant
  2. The respondent
  3. CIT(A) concerned
  4. CIT concerned
  5. D.R. ITAT ‘F’ Bench, Delhi
  6. Guard File.

// BY Order // Assessment. Registrar : ITAT Delhi Benches :

Delhi.

 

Add a Comment

Your email address will not be published. Required fields are marked *