Case Law Details

Case Name : Mohammad Rajiv Hakeem Vs ITO (ITAT Lucknow)
Appeal Number : ITA Nos. 777 & 779/Lkw/2016
Date of Judgement/Order : 05/06/2017
Related Assessment Year : 2007-08
Courts : All ITAT (7438) ITAT Lucknow (92)

Mohammad Rajiv Hakeem Vs ITO (ITAT Lucknow)

Assessing officer has mentioned two sections framing the assessment i.e., 144/147. For proceeding ahead to frame an assessment under section 147, the assessing officer is bound to issue notice under section 148 of the Act. As per the available record, no such notice was issued and this fact is accepted by the Revenue also. We further observe that as per the provisions of section 163(2) of the Act, which deals with the procedure to examine as to who may be regarded as an agent in relation to a non-resident and the provision specifically mentions that “no person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the assessing officer as to his liability to be treated as such”. It contemplates that in the case of a non-resident, if a person is having an authority to receive any income directly or indirectly, which in this case is sale consideration, then the assessing officer before proceeding ahead to make any assessment has to first give an opportunity to that person before treating him as an agent of non-resident and to examine as to whether this person can uphold liability to pay tax on behalf of the non-resident. From a perusal of the record we observe that since the beginning of the proceeding on 28-1-2015 nothing has been brought on record to prove that any such opportunity of being heard was provided to Shri Muzarraf Shah and Shri Akram Shah who were holding power of attorney on behalf of the assessee. This is a clear non-compliance with section 163(2) of the Act. We also observe that the assessing officer has made protective addition in the hands of both the agents namely Shri Muzarraf Shah and Shri Akram Shah at Rs. 16,63,000 and no substantive addition has been made. For a protective addition to stand for, there has to be a substantive addition. From going through all the above series of events which clearly shows that the assessing officer has proceeded in this matter in a haste and without complying with the necessary provisions of law and not providing any opportunity of being heard by merely observing that he had no other option except to pass the order under section 144 as the matter was getting time barred. We are of the considered opinion that limitation of time in the hands of the assessing officer to frame the assess­ment cannot give him the power to make high pitched assessment without providing proper opportunity of being heard and not complying with the necessary provisions of the Act. We are therefore, of the view that the order passed under section 144/147 is not valid and needs to be quashed.

Full Text of the ITAT Order is as follows:-

These two appeals of the same assessee (assessed in the name of different agents) relating to the assess­ment year 2007-08 are directed against separate orders of the Commissioner (Appeals), Bareilly of the even date 27-9-2016 arising out of the order passed under section 144/147 of the Income Tax Act framed by the Income Tax Officer, Ward-1(3), both dated 3-3-2015.

2. As the issues raised in both the appeals are common therefore, they are being heard together and are disposed of by this common order for the sake of convenience and brevity.

3. For the purpose of adjudication, we will take the facts of I.T.A. No. 777/ Lkw/2016. In this appeal the assessee has raised the following grounds :–

“1. Because the reassessment framed under sectionl44/147 of the Act 1961, is without jurisdiction, bad in law and be quashed.

2. Because no notice under section 148 having being issued or served on the assessee, the reassessment framed is void ab initio and be quashed.

3. Because no notice under section 143(2) having been issued and served on the assessee, the Commissioner (Appeals) has failed to appreciate that no variation can be made to the income returned and as such the assessment framed determining the income at Rs. 16,32,000 be modified/deleted.

4. Because the Commissioner (Appeals) as well as the assessing officer has erred in treating the assessee an ‘agent’ of the non-resident Indian Rajeev Hakeem, which treatment is contrary to the provisions of the section and bad in law, as no order under section 163(1)(d) has been passed treating the assessee as an ‘agent’, only show-cause notice has been given, whereas a separate order treating the assessee as ‘agent’ should ought have been passed. The entire reassessment framed is bad in law.

5. Because the assessee is not an ‘agent’ in terms of section 163(1) (d) as treated by the assessing officer and the order passed determining a tax liability of Rs. 9,71,081 as such is without jurisdic­tion, bad in law be quashed.

6. Because the Commissioner (Appeals) has erred on facts and in law in upholding the addition of Rs. 16,63,000 made by the assessing officer as long-term capital gains, which computation of capital gain as well as determination of tax liability is not only erro­neous but at Rs. 9,17,081 is totally unjustified.

7. Because without prejudice to the above, the Commissioner (Appeals) has failed to appreciate the facts and circum­stances of the case as well as the written submissions filed and has arbitrary proceeded to dismiss the appeal, holding that there was a liability to pay capital gains tax, which dismissal of appeal is totally unwarranted, unjustified, the order of the Commissioner (Appeals) be quashed.”

4. Briefly stated, the facts as culled out from the record are that the assessee is a non-resident Indian, living in U. S. A. During the financial year 2006-07 he sold his immovable property situated at 62A, Civil Lines, Bareilly at Rs. 33,26,000. As per the information received by the Income Tax Department from Sub-Registrar-I, Bareilly, this property was sold on 3-7-2006 effected by two persons namely Shri Akram Shah and Shri Muzarraf Shah holding power of attorney (POA) on behalf of the assessee. Subsequently, notice under section 142(1) of the Act dated 28-1-2015 was issued fixing the date of hearing on 6-2-2015. This notice was served on 31-1-2016 however, none attended on behalf of the assessee as well as the agent. As the matter was getting time barred, the assessing officer passed an order under section 144 making a protective addition of Rs.16,63,000 in the hands of the agent Shri Muzarraf Shah.

5. Aggrieved, the assessee went in appeal before the Commissioner (Appeals) but could not succeed. Now the matter has travelled before the Tribunal. The learned counsel for the assessee submitted that the impugned order under section 144/147 is void ab initio for the follow­ing reasons :–

(i) No notice under section 148 has been issued which Is must for framing assessment under section 147.

(ii) No order has been passed under section 163(2) of the Act by the assessing officer for treating Shri Muzarraf Shah as an agent of non­resident Indian.

(iii) No substantive addition has been made as both the additions made in the case of Shri Muzarraf Shah and Shri Akram Shah are protective assessments.

The learned counsel for the assessee further submitted that the assessing officer has not provided any opportunity to the agents before treating them as non-resident thereby violating the provisions of section 163(2) of the Act. It was further contended that the assessing officer has made the protective addition being 50 per cent, of the value shown in the registered sale deed without assessing the fair market value of the property under section 50C by referring it to a valuation officer for the very reason that the property was having many tenants and was very old building in dilapidated condition and covered under the Rent Control Act. Further no deduction was provided for cost of acquisition.

6. On the other hand the learned Departmental Representative vehemently argued supporting the orders of the lower authorities and added that in case the assessee has not filed the return of income then the assessing officer can proceed for framing the assessment by issuing notice under section 142 of the Act. The learned Departmental Representative further requested that the issue may be set aside to the file of the assessing officer for fresh adjudication. The assessee has raised two fold contention; firstly, raising a legal ground about the validity of the assessment order passed under section 144/147 and secondly, on the merits of the case for alleged protective addition for sale consideration from sale of property.

7. We have heard rival contentions and perused the records placed before us. First we will take up the legal ground challenging the validity of the assessing officer. We observe that the assessee Mohammad Rajiv Hakeem is a non-resident Indian living in U.S.A. On the basis of information received from the Sub-Registrar-I, Bareilly, the assessing officer came to know that the assessee has sold a property at 62A, Civil Lines, Bareilly for a sum of Rs. 33,26,000 by registered sale deed. Accordingly, almost after a lapse of 9 years, the assessing officer issued notice under section 142(1) dated 28-1-2015 to the power of attorney holders whom names were mentioned in the sale deed and who actually effected the transaction of sale of impugned property. None attended in compliance with this notice and the assessing officer proceeded to frame an assessment-under section 144/147 making protective addition of Rs. 16,33,000 in the hands of the agent Shri Muzarraf Shah.

7.1 We observe that the assessing officer has mentioned two sections framing the assessment i.e., 144/147. For proceeding ahead to frame an assessment under section 147, the assessing officer is bound to issue notice under section 148 of the Act. As per the available record, no such notice was issued and this fact is accepted by the Revenue also. We further observe that as per the provisions of section 163(2) of the Act, which deals with the procedure to examine as to who may be regarded as an agent in relation to a non-resident and the provision specifically mentions that “no person shall be treated as the agent of a non-resident unless he has had an opportunity of being heard by the assessing officer as to his liability to be treated as such”. It contemplates that in the case of a non-resident, if a person is having an authority to receive any income directly or indirectly, which in this case is sale consideration, then the assessing officer before proceeding ahead to make any assessment has to first give an opportunity to that person before treating him as an agent of non-resident and to examine as to whether this person can uphold liability to pay tax on behalf of the non-resident. From a perusal of the record we observe that since the beginning of the proceeding on 28-1-2015 nothing has been brought on record to prove that any such opportunity of being heard was provided to Shri Muzarraf Shah and Shri Akram Shah who were holding power of attorney on behalf of the assessee. This is a clear non-compliance with section 163(2) of the Act. We also observe that the assessing officer has made protective addition in the hands of both the agents namely Shri Muzarraf Shah and Shri Akram Shah at Rs. 16,63,000 and no substantive addition has been made. For a protective addition to stand for, there has to be a substantive addition. From going through all the above series of events which clearly shows that the assessing officer has proceeded in this matter in a haste and without complying with the necessary provisions of law and not providing any opportunity of being heard by merely observing that he had no other option except to pass the order under section 144 as the matter was getting time barred. We are of the considered opinion that limitation of time in the hands of the assessing officer to frame the assess­ment cannot give him the power to make high pitched assessment without providing proper opportunity of being heard and not complying with the necessary provisions of the Act. We are therefore, of the view that the order passed under section 144/147 is not valid and needs to be quashed. We accordingly do so. This ground of the assessee is allowed.

8. Now we take up I.T.A. No. 779/Lkw/2016. As the facts and issues are verbatim similar to those in the case of I.T.A. No. 777/Lkw/2016, we apply our decision and quash the assessment order framed on 3-3-2015 under section 144/147 of the Act in the case of Mohammad Rajiv Hakeem through the agent Shri Akram Shah. This ground of the assessee chal­lenging the validity of assessment proceedings is allowed.

8.1 As we have quashed the assessment proceedings, we find no reason to deal with the merits of the case as it will be just academic in nature.

9. In the result, both the appeals are allowed.

NF

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