C/SCA/9162/2017 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION NO. 9162 of 2017 With SPECIAL CIVIL APPLICATION NO. 9163 of 2017 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV 1 Whether Reporters of Local Papers may be allowed to see judgment ? 2 To be referred to Reporter or not ? 3 Whether their Lordships wish to see fair copy of judgment ? 4 Whether this case involves substantial question of law as to interpretation of Constitution of India or any order made thereunder? RAVJIBHAI K. SUTARIA HUF Petitioner(s) Versus PRINCIPAL COMMISSIONER OF INCOME TAX-1 & 1 Respondent(s) Appearance: MR B S SOPARKAR, ADVOCATE for Petitioner(s) No. 1 MRS MAUNA M BHATT, ADVOCATE for Respondent(s) No. 1 - 2 CORAM: HONOURABLE MR.JUSTICE AKIL KURESHI and HONOURABLE MR.JUSTICE BIREN VAISHNAV Page 1 of 19 HC-NIC Page 1 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT Date : 05/09/2017 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. These petitions arise in common background. We may refer facts from Special Civil Application No.9162/2017. 2. petitioner has challenged order dated 3.1.2017 passed by Principal Commissioner of Income tax, Surat, rejecting petitioner's applications for settlement under Direct Tax Dispute Resolution Scheme 2016 ( Scheme for short) as also order dated 2.6.2016 passed by Commissioner (Appeals) rejecting petitioner's appeal against order of penalty passed by Assessing Officer. 3. petitioner's challenges arise in following factual background. petitioner is Hindu Undivided Family. For assessment year 2011 2012, petitioner had filed return of income on 10.9.2011 declaring total income of Rs.1.72 lacs. assessment of petitioner was reopened by issuing notice under section 148 of Income Tax Act, 1961 ( Act for short) on ground that during course of survey at business premises Page 2 of 19 HC-NIC Page 2 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT of one Baldevbhai Bhikhabhai Patel, incriminating documents were found in relation to purchase and sale of lands situated at Surat which included petitioner's land. In response to notice, petitioner filed return of income on 23.2.2015 declaring total income of Rs.1.40 crores (rounded off). Assessing Officer passed order of assessment under section 143(3) of Act read with section 147 of Act on 31.3.2015. He also initiated penalty proceedings under section 271(1)(c) of Act against petitioner for furnishing inaccurate particulars of his income. Assessing Officer passed order of penalty on 28.9.2015 levying penalty at rate of 100% of tax sought to be evaded. 4. petitioner did not challenge order of assessment but filed appeal against order of penalty before appellate Commissioner on 26.10.2015. When this appeal was pending, Government of India framed scheme under Chapter X of Finance Act, 2016. Scheme provides for opportunity to assessees under litigation to settle disputes with department under certain circumstances and subject to certain conditions. We will take note of relevant provisions of Scheme later. Suffice it to note that Scheme was notified on 26.5.2016 and was brought into force with effect from 1.6.2016. assessees interested in availing benefit Page 3 of 19 HC-NIC Page 3 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT of Scheme would have to make declaration on or before 31.12.2016 which date was later extended upto 31.1.2017. 5. It has come on record that petitioner's appeal against order of penalty came to be dismissed by appellate Commissioner by order dated 2.6.2016. order records that despite being given opportunity to represent by issuance of two notices, no one appeared for petitioner and, therefore, Commissioner had proceeded ex parte and rejected appeal. According to petitioner, neither of these two notices were received by petitioner nor was petitioner served with order of appellate Commissioner rejecting appeal. Unmindful of disposal of appeal, petitioner applied to designated authority on 21.12.2016 seeking benefit of Scheme. petitioner also deposited 25% of disputed amount as per terms of Scheme. This application came to be dismissed by designated authority by impugned order Annexure on ground that petitioner's appeal was already decided by Commissioner (Appeals) in month of June 2016. petitioner has also challenged order of Commissioner (Appeals) rejecting appeal without proper notice to petitioner. Page 4 of 19 HC-NIC Page 4 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT 6. Facts in Special Civil Application No.9163/2017 are very similar except that in said case, petitioner assessee has challenged orders passed by appellate Commissioner and designated authority concerning penalty proceedings for assessment year 2007 2008. 7. Appearing for petitioner, learned counsel Shri Soparkar mainly concentrated on order passed by appellate Commissioner on 2.6.2016 rejecting petitioner's appeal. His main contention was that notices dated 22.3.2016 and 23.5.2016 referred to in impugned order which were issued by department were never served on petitioner. appellate Commissioner therefore, could not have disposed of appeal without hearing petitioner. In this context, counsel took us through section 250 of Act pertaining to procedure in appeals before appellate Commissioner to contend that true meaning of expression shall give notice of same to appellant must mean serve notice. petitioner not having been served with notice, this statutory requirement was not fulfilled. Counsel relied on affidavit filed on behalf of petitioner HUF declaring that such notices were never served on petitioner or any person authorised by petitioner. Our attention was drawn to various sections of Act where in context of notices to be issued either by department or to Page 5 of 19 HC-NIC Page 5 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT department or in context of intimations to be sent, legislature had used expressions issue , give and serve at different places. Counsel submitted that different expressions used in different situations must carry different connotations. In context of requiring participation of appellant before appellate Commissioner expression to give notice must carry meaning to serve notice . Counsel also criticised action of appellate Commissioner to dispose of appeal on 2.6.2016 when Scheme of amnesty was brought into effect from 1.6.2016. Counsel would suggest that disposal of appeal of petitioner in hot haste was only in order to deprive petitioner from availing benefit of Scheme. There was no reason why Commissioner should have disposed of appeal only day after Scheme was promulgated, that too, without verifying whether petitioner was served with notices of hearing or not. 8. On other hand, learned counsel Ms. Mauna Bhatt opposed petitions contending that section 250 of Act requires appellate Commissioner to give notice to assessee which cannot be equated with requirement of actual service of notice. Whenever service of notice was found necessary legislature has used such expression. department had dispatched two notices at Page 6 of 19 HC-NIC Page 6 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT address supplied by petitioner through Speed Post. order of rejection of appeals was also sent on same address. Proof of dispatch of these communications is produced on record. department had therefore, discharged its onus of giving notice. Dispatching notice through normal mode would give rise to presumption that same was duly served. Scheme did not provide that appellate authorities should delay disposal of appeal to enable assessees to decide whether they want to apply under Scheme. Commissioner(Appeals) was therefore,well within his rights to dispose of appeal. He neither had intention nor reason to deprive petitioner from availing benefit under Scheme. 9. Section 201 of Finance At, 2016 containing Chapter X is definition clause. Clause(g) of sub section(1) thereof defines term 'specified tax' and includes tax dispute in respect of which appeal is pending as on 29.2.2016. term 'tax arrear' is defined as to mean amount of tax, interest or penalty determined under Income tax Act or Wealth Tax Act, in respect of which appeal is pending before Commissioner of Income tax (Appeals) or Commissioner of Wealth tax (Appeals) as on 29.2.2016. Under section 202 of Finance Act, 2016, declarant can make declaration to designated authority in Page 7 of 19 HC-NIC Page 7 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT respect of tax arrears or specified tax after 1.6.2016 and in such case, amount payable by declarant would be one provided in Scheme and which in case of penalty is prescribed as 25% of minimum penalty leviable. Upon such declaration being made by assessee, designated authority would process same and determine sum payable under Scheme. If application is granted, he may also grant immunity from prosecution and penalty as may be applicable. We are not concerned with finer aspects of Scheme. Only point to be noted is that declaration with respect to any disputed tax can be made only concerning tax arrears in respect of which appeal is pending before Commissioner. 10. Concededly, petitioner's appeal against order of penalty came to be dismissed by appellate Commissioner on 2.6.2016. When petitioner therefore, filed declaration before designated authority on 21.12.2016, appeal against order of penalty was no longer pending before appellate Commissioner. As long as this situation prevails, order dated 3.1.2017 passed by designated authority rejecting petitioner's applications under Scheme cannot be faulted. inquiry before said authority was brief namely, whether appeal of declarant was still alive, at least on Page 8 of 19 HC-NIC Page 8 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT date when such declaration was made. When Principal Commissioner of Income tax found from record that appeal was already dismissed on 2.6.2016 by appellate Commissioner, he was perfectly justified in conveying to petitioner that petitioner cannot avail benefit of Scheme as this was only course open to authority. On other hand, if we come to conclusion that Commissioner(Appeals) was not justified in deciding petitioner's appeal ex parte, entire complexion would change. appellate order would then have to be set aside and appeal would have to be revived. revival of appeal would obviously relate back to original date when appellate Commissioner dismissed same. consequence of such action by Court would be that when petitioner made declaration before designated authority, appeal would be deemed to be alive and in such situation, petitioner would be entitled to benefit of Scheme. 11. entire issue thus hinges on question whether order dated 2.6.2016 passed by appellate Commissioner should be confirmed or reversed. In this context, before adverting to relevant provisions, we may take note of facts presented by both sides. appellate order itself records that two notices were issued to petitioner dated 22.3.2016 and 23.5.2016. Though Page 9 of 19 HC-NIC Page 9 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT order records that as many as three opportunities were given to petitioner to furnish details but no compliance was made, learned counsel for Revenue clarified that reference is only to two notices issued by appellate Commissioner noted above. In view of such assertion in appellate order, petitioner had even before we issued notice filed affidavit dated 9.6.2017 of Rajivbhai K. Sutharia, Karta of petitioner HUF, stating that he had never received any notice of hearing in respect of said appeal nor had he received order dismissing appeal. Non service of notice had thus deprived him of any effective hearing before appellate authority. 12. department has filed affidavit in reply dated 4.7.2017 mainly contending that rejection of petitioner's declaration by designated authority was valid since on date of filing of declaration, appeal was already disposed of by Commissioner. Affidavit dated 3.7.2017 came to be filed on behalf of respondents pointing out that notices were issued through speed post at address provided by petitioner in appeal memo. Necessary documents that were dispatched have been annexed. Like wise, order of appellate authority was also communicated through same mode at same address. It is pointed out that in response to petitioner's communication dated Page 10 of 19 HC-NIC Page 10 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT 27.1.2017, raising grievance of non receipt of notice in appellate order, department had replied under letter dated 31.1.2017 also by same mode of communication at same address which was duly received by petitioner. 13. Section 246A of Act provides for orders which are appealable before Commissioner(Appeals). Section 249 provides for form of appeal and limitation for filing appeal. Section 250 of Act lays down procedure in appeal and reads as under : Procedure in appeal. 250. (1) Commissioner (Appeals) shall fix day and place for hearing of appeal and shall give notice of same to appellant and to Assessing Officer against whose order appeal is preferred. (2) following shall have right to be heard at hearing of appeal (a) appellant, either in person or by authorised representative; (b) Assessing Officer, either in person or by representative. (3) Commissioner (Appeals) shall have power to adjourn hearing of appeal from time to time. (4) Commissioner (Appeals) may before disposing of any appeal, make such further inquiry as he thinks fit, or Page 11 of 19 HC-NIC Page 11 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT may direct Assessing Officer to make further inquiry and report result of same to Commissioner(Appeals). (5) Commissioner (Appeals) may, at hearing of appeal, allow appellant to go into any ground of appeal not specified in grounds of appeal, if Commissioner (Appeals) is satisfied that omission of that ground from form of appeal was not wilful or unreasonable. (6) order of Commissioner(Appeals) disposing of appeal shall be in writing and shall state points for determination, decision thereon and reason for decision. (6A) In every appeal, Commissioner (Appeals) where it is possible, may hear and decide such appeal within period of one year from end of financial year in which such appeal is filed before him under sub section(1) of section 246A. (7) On disposal of appeal, Commissioner (Appeals) shall communicate order passed by him to assessee and to Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner. 14. Section 251 provides for powers of appellate Commissioner and reads as under : Powers of Commissioner (Appeals). 251. In disposing of appeal, Commissioner (Appeals) shall have following powers (a) in appeal against order of assessment, he may Page 12 of 19 HC-NIC Page 12 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT confirm, reduce, enhance or annul assessment (aa) in appeal against order of assessment in respect of which proceeding before Settlement Commission abates under section 245HA, he may, after taking into consideration all material and other information produced by assessee before, or results of inquiry held or evidence recorded by, Settlement Commission, in course of proceeding before it and such other material as may be brought on his record, confirm, reduce, enhance or annul assessment; (b) in appeal against order imposing penalty, he may confirm or cancel such order or vary it so as either to enhance or to reduce penalty; (c) in any other case, he may pass such orders in appeal as he thinks fit. (2) Commissioner (Appeals) shall not enhance assessment or penalty or reduce amount of refund unless appellant has had reasonable opportunity of showing cause against such enhancement or reduction. Explanation In disposing of appeal, Commissioner (Appeals) may consider and decide any matter arising out of proceedings in which order appealed against was passed, notwithstanding that such matter was not raised before Commissioner (Appeals) by appellant. 15. Under sub section(1) of section 250, Commissioner would fix day and place for hearing of appeal and he shall give notice of same to appellant and to Assessing Officer against whose order appeal is preferred. As per sub section(2) of section Page 13 of 19 HC-NIC Page 13 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT 250, appellant in person or through authorised representative and Assessing Officer or his representative would have right to be heard at hearing of appeal. Under sub section(4) of section 250, Commissioner(Appeals) is empowered to make such further inquiry as he thinks fit or to direct Assessing Officer to make further inquiry. Under sub section(5) of section 250 Commissioner may allow raising of additional grounds not specified in grounds of appeal. Sub section(6) of section 250 requires that order of Commissioner disposing of appeal would be in writing and would state points for determination and decision thereon of Commissioner along with reasons for decision. Under sub section(7) of section 250, upon disposal of appeal, Commissioner is required to communicate order to assessee and to department authorities mentioned therein. 16. Commissioner while exercising appellate powers thus decides important issues concerning assessee as well as Revenue. requirement of hearing which would even other wise be inbuilt in exercise of any similar quasi judicial functions, has been further amplified in different provisions contained in section 250. For example sub section(1) of section 250, as noted, requires Commissioner to fix day and place for Page 14 of 19 HC-NIC Page 14 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT hearing of appeal and to give notice thereof to assessee as well as Assessing Officer. assessee as well as Assessing Officer or their representatives would have right of hearing as per sub section(2). In process of hearing appeal, Commissioner may carry out further inquiry or require Assessing Officer to do so. order disposing of appeal would be in writing containing points for determination, decision of Commissioner on such points and reasons in support of decision. 17. Section 250 of Act thus envisages right of hearing and effective participation by assessee in appeal which would then culminate into reasoned order that Commissioner may pass deciding all points of determination which may have arisen. This requirement of hearing of assessee would be further amplified when we consider nature of powers exercised by Commissioner as specified in section 251 of Act. Sub section(1) of Section 251 vests wide powers in Commissioner while disposing of appeal. He may confirm, reduce, enhance or annul assessment. Thus in process of deciding appeal, Commissioner may even enhance assessment, only limitation being, as provided in sub section(2) of section 251, such enhancement of assessment would not be done unless Page 15 of 19 HC-NIC Page 15 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT appellant has been given reasonable opportunity of showing cause against such enhancement. 18. It therefore, cannot be gainsaid that very purpose of giving notice under sub section(1) of section 250 of Act is to ensure proper participation by appellant assessee in appeal proceedings and notice is thus not mere formality. Despite such statutory scheme of things, sub section(1) of section 250 uses expression shall give notice and falls short of using otherwise oft repeated expression of serve notice used at many other places in Act. Can expression in be context of which it has been used be equated with service of notice, is undoubtedly interesting question which in present case we are not inclined to answer conclusively. This is so because of following reasons. We have noticed that Commissioner (Appeals) having issued two notices dated 22.3.2016 and 23.5.2016 to assessee, proceeded to decide matter ex parte since assessee did not respond to either of these two notices. assessee however, contends that such notices were never served and assessee therefore, was naturally unaware about date of hearing fixed by appellate Commissioner. petitioner assessee has filed affidavit making such averments. department though has produced documents showing that notices were dispatched Page 16 of 19 HC-NIC Page 16 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT through Speed Post at address given by assessee and which averment we have no reason to doubt, is not in position to show proof of actual service of notices. Under normal circumstances, we would have readily accepted assessee's request for remand of proceedings to enable assessee to make full participation in appeal before Commissioner so that assessee may be heard by Commissioner before fresh order could be passed. That would be most natural and reasonable order Court would pass in facts and circumstances of case. only question is merely because effect of such action on our part would be to bring petitioner assessee within fold of scheme, should we allow our imagination to boggle? 19. We have noticed that Scheme was promulgated with effect from 1.6.2016. appellate Commissioner disposed of appeal on 2.6.2016. There is of course, no bar in appellate Commissioner proceeding ahead with pending appeals merely because Scheme was promulgated nor we see any lack of bona fide on his part in doing so. However merely because by reviving appeals before Commissioner, petitioner may get benefit of Scheme on ground that appeal would now be deemed to be pending on date of declaration, should not persuade us to take view any different from what we Page 17 of 19 HC-NIC Page 17 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT normally would have in such set of facts and circumstances. If by setting aside appellate order and placing it back before Commissioner for fresh disposal after giving opportunity of hearing to assessee, resultant effect unintended or indirectly is that petitioner's declaration of Scheme becomes valid, so be it. tax amnesty schemes are neither unknown nor uncommon. legislation often times comes up with Schemes to reduce tax litigations offering reduced tax or immunity from penalty or prosecution, prime purpose being reduction of pending taxation related litigation. idea behind promulgation of Scheme is not to make Scheme and then to deny benefit of Scheme to as many people as possible. idea is always to give benefit of Scheme to one who is other wise eligible, makes declaration and fulfills all conditions of Scheme. 20. Under circumstances, impugned orders Annexure B to both petitions by which appellate Commissioner disposed of respective appeals, are set aside. appeal proceedings for assessment years 2007 2008 and 2011 2012 are revived and placed back before appellate Commissioner Resultantly, impugned orders at Annexure in both petitions by which designated authority had rejected petitioner's Page 18 of 19 HC-NIC Page 18 of 19 Created On Tue Sep 12 09:46:17 IST 2017 C/SCA/9162/2017 JUDGMENT declaration under Scheme are also set aside. designated authority shall take into account changed circumstances arising out of this judgment and proceed as if on date of declaration for assessment years 2007 2008 and 2011 2012, appeals of petitioner were pending. 21. Before closing, we clarify that we have expressed no opinion on other eligibility requirements of Scheme vis vis petitioner. If ultimately on any other ground, benefit of Scheme is not made available to petitioner, appellate Commissioner shall proceed further to decide appeals after hearing petitioner. 22. Petitions are disposed of. (AKIL KURESHI, J.) (BIREN VAISHNAV, J.) raghu Page 19 of 19 HC-NIC Page 19 of 19 Created On Tue Sep 12 09:46:17 IST 2017 Ravjibhai K. Sutaria HUF v. Principal Commissioner of Income-tax-1 & 1