2. Commissioner of Income Tax vs. Laxman Das
Khandelwal (2019) 416 ITR 485 (SC)
Assessment – Entire
assessment proceedings stand vitiated as the AO lacks jurisdiction in absence
of notice u/s 143(2) of the Act – The scope of the provision of section 292BB
is to make service of notice having certain infirmities to be proper and valid
if there was requisite participation on part of the assessee but the section
does not save complete absence of notice
The assessee, an
individual, was carrying on a business of brokerage. Search and seizure operation
was conducted u/s 132 of the Act on 11th March, 2010 at his
residential premises. The assessee submitted return of income on 24th
August, 2011, declaring total income of Rs. 9,35,130. The assessment was
completed u/s 143(3) read with section 153(D) of the Act. A sum of Rs. 9,09,110
was added on account of unexplained cash u/s 69 of the 1961 Act. Another sum of
Rs. 15,09,672 was added on account of unexplained jewellery; Rs.45,00,000 was
added on account of unexplained hundies; and Rs. 29,53,631 was added on
account of unexplained cash receipts.
Aggrieved, the assessee
filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A)
deleted an amount of Rs. 7,48,463 holding that jewellery found in locker
weighing 686.4 grams stood explained in view of Circular No. 1916 and further
deleted the addition of Rs. 29,23,98,117 out of Rs. 29,53,52,631 holding that
the correct approach would be to apply the peak formula to determine in such
transaction which comes to Rs. 29,54,514 as on 5th March, 2010.
Aggrieved, Revenue filed
an appeal. The assessee filed cross-objection on the ground of jurisdiction of
the AO regarding non-issue of notice u/s 143(2) of the Act. The Tribunal upheld
the cross-objection and quashed the entire reassessment proceedings on the
finding that the same stood vitiated as the AO lacked jurisdiction in absence
of notice u/s 143(2) of the Act.
In an appeal arising
from the decision of the Tribunal, the issue that arose before the High Court
was the effect of absence of notice u/s 143(2) of the Act. The assessee relied
upon the decision of the Supreme Court in Assistant Commissioner of
Income Tax and Anr. vs. Hotel Blue Moon (2010) 321 ITR 362 (SC). On the
other hand, reliance was placed by the Revenue on the provisions of section
292BB of the Act to submit that the respondent having participated in the
proceedings, the defect, if any, stood completely cured.
The
High Court dismissed the appeal in view of the decision of the Supreme Court in
Hotel Blue Moon (Supra).
According to the Supreme
Court, the law on the point as regards applicability of the requirement of
notice u/s 143(2) of the Act was quite clear from the decision in the Blue
Moon case. However, the issue that needed to be considered was the
impact of section 292BB of the Act.
The Supreme Court
observed that according to section 292BB of the Act, if the assessee had
participated in the proceedings, by way of legal fiction, notice would be
deemed to be valid even if there be infractions as detailed in the said
section. The scope of the provision is to make service of notice having certain
infirmities to be proper and valid if there was requisite participation on part
of the assessee. According to the Supreme Court, the section does not save
complete absence of notice. For section 292BB to apply, the notice must have
emanated from the Department. It is only the infirmities in the manner of
service of notice that the section seeks to cure. The section is not intended
to cure complete absence of notice itself.
The
Supreme Court held that since the facts on record were clear that no notice u/s
143(2) of the Act was ever issued by the Department, the findings rendered by
the High Court and the Tribunal and the conclusion arrived at were correct.
Therefore, there was no reason to take a different view in the matter. The
appeal was, therefore, dismissed.
3. Prashanti Medical
Services and Research Foundation vs. Union of India (UOI) and Others (2019) 416
ITR 485 (SC)
Business Expenditure –
Donations to notified eligible projects and schemes – Neither the appellant nor
the assessee has any right to set up a plea of promissory estoppel
against the exercise of legislative power such as the one exercised while
inserting sub-section (7) in section 35AC of the Act, more so when it was made
applicable uniformly to all alike the appellant prospectively – No deduction
could be allowed to an assessee either for the period 2017-2018 or for any
subsequent period for any amount received by the appellant from such assessee
for their project
The appellant is a
charitable trust registered under the provisions of the Bombay Public Trust
Act, 1950. It set up a heart hospital in Ahmedabad. The project began in the
year 2014 (on 5th May, 2014).
On
27th September, 2014, the appellant filed an application u/s 35AC of
the Act before the National Committee for Promotion of Social and Economic
Welfare, Department of Revenue, North Block, New Delhi (‘the Committee’) for
grant of approval to their hospital project as specified in section 35AC of the
Act so as to enable any ‘assessee’ to incur expenditure by way of making
payment of any amount to the appellant for construction of their approved
hospital project and accordingly claim appropriate deduction of such payment
from their total income during the previous year. Like the appellant, several
persons, as specified in section 35AC of the Act, also made applications to the
Committee for grant of approval to their hospital projects.
A notification was
issued by the Government of India on 7th December, 2015 mentioning
therein that the Committee has approved 28 projects as ‘eligible projects’ u/s
35AC of the Act. The name of the appellant appeared at serial No. 10 in the
said notification.
According to the
appellant, they received amounts by way of donation from several assessees
during the years 2015-2016, 2016-2017 and 2017-18. These assessees then claimed
deduction of the amounts, which they had donated for the hospital project, from
their total income.
The benefit of claiming
deduction was, however, discontinued from the assessment year 2018-2019 by
insertion of sub-section (7) in section 35AC of the Act by the Finance Act,
2016 with effect from 1st April, 2017.
The appellant in the petition
questioned the constitutional validity of sub-section (7) of section 35AC of
the Act inter alia on the ground that once the Committee granted
approval to the appellant’s hospital project for a period of three financial years,
the same could not be withdrawn qua the appellant on the strength of
insertion of sub-section (7) in section 35AC of the Act. In other words, the
challenge was on the ground that sub-section (7) of section 35AC was
essentially prospective in nature and, therefore, it would have no application
to those projects which were approved by the Committee prior to insertion of
sub-section (7), i.e., 1st April, 2017. The challenge was also on
the ground that the Revenue could not apply sub-section (7) retrospectively and
withdraw the benefits, whether fully or partially, which were approved to the
appellant. It was, therefore, contended that the appellant and the assessees
should be held entitled to avail the full benefit for the three financial years
in terms of the notification dated 7th December, 2015.
The High Court, in the
impugned order, repelled the challenge and while upholding the pleas raised by
the respondent (Revenue) dismissed the appellant’s petition, which gave rise to
filing of the appeal before the Supreme Court by the appellant after obtaining
special leave from the Court.
The Supreme Court noted
that one of the main objects for which section 35AC was enacted was to allow
the assessees to claim deduction of the amount paid by them to the appellant
for their project. It observed that none of the assessees (donees), who claimed
to have paid amounts to any eligible projects, came forward complaining that
despite their donating the amount to the appellant for his project they were
denied the benefit of claiming deduction of such amount from their total income
by virtue of sub-section (7) of section 35AC of the Act during the financial
year 2017-2018.
The Supreme Court noted
that the benefit of the deduction available u/s 35AC of the Act was duly
availed of by all the assessees for two financial years, namely, 2015-2016 and
2016-2017. The dispute was confined only to the third financial year, i.e.,
2017-2018, because for that year, the assessees were not allowed to claim
deduction of the amount paid by them to the appellant on account of insertion
of sub-section (7) in section 35AC of the Act with effect from 1st
April, 2017.
The Court was of the
view that sub-section (7) was prospective in its operation and, therefore, all
the assessees were rightly allowed to claim deduction of the amount paid by
them to eligible projects from their total income during two financial years,
namely, 2015-2016 and 2016-2017. If sub-section (7) had been retrospective in
its operation then the deduction for 2015-2016 and 2016-2017, too, would have
been disallowed.
The Supreme Court held
that a plea of promissory estoppel is not available to an assessee
against the exercise of legislative power, nor any vested right accrues to an
assessee in the matter of grant of any tax concession to him. In other words,
neither the appellant nor the assessee has any right to set up a plea of
promissory estoppel against the exercise of legislative power such as
the one exercised while inserting sub-section (7) in section 35AC of the Act,
more so when it was made applicable uniformly to all alike the appellant
prospectively.
According to the Supreme
Court no deduction could be allowed to an assessee either for the period
2017-2018 or for any subsequent period for any amount received by the appellant
from such assessee for their project.
The
Supreme Court observed that in a taxing statute, a plea based on equity or /
and hardship is not legally sustainable. The constitutional validity of any
provision and especially taxing provision cannot be struck down on such
reasoning.
The Supreme Court
dismissed the appeal finding it to be without any merit.
