By TIOL news Service

AHMEDABAD, OCT 25, 2016: THE issue is - Whether the legislature can intend to give rise to two parallel orders pertaining to the same period of assessment by two authorities, both may be competent at the time when they were passing the orders. NO IS THE VERDICT.

Facts of the case:

The assessee is a partnership firm, engaged in the business of development and construction of residential complexes, whose premises was subjected to search operations. A notice u/s 153A was issued in response to which, assessee filed a return of income. The assessment was to be framed latest by 31.3.2015, failing which, the same would become time barred. In respect of the proceedings AYs 2010-2011 to 2014-2015, assessee filed an application before SETCOM for settling all tax disputes. Substantial amount of tax was already paid by assessee. The partnership was facing financial crisis. It was thus requested to keep the assessment proceedings in abeyance. Ignoring the requests of assessee, AO passed the assessment orders for five AYs in question. When exactly were such orders passed and sought to be served on assessee was a matter of considerable dispute between the parties. According to AO, such orders were passed on 15.3.2016 and were also sought to be served on assessee through hand delivery on 15.3.2016. The partners of the assessee firm however, refused to accept such orders, upon which, the Inspector who had visited the office of assessee personally, placed before the Deputy Commissioner i.e. AO his report on 16.3.2016. Later on the assessee filed application for settlement before the SETCOM at Mumbai and made declaration in teh prescribed form. According to assessee, the orders of assessment were never communicated to him and such order was passed in great hurry.

Assessment orders were passed on 15.3.2016, tendered for service to assessee on the same day. The department pointed out that the draft orders of assessment were passed on 15.3.2016, sent to Joint Commissioner for his approval on 15.3.2016, who approved the same, sent back to the AO on the same day upon which the AO passed the orders of assessment on 15.3.2016 itself. The assessee however, refused to receive the orders when tendered. In this context, AO, the Deputy Commissioner of Income Tax, Baroda, in his affidavit dated 12.7.2016 had stated that the assessment orders were getting time barred on 31.3.2016. Though assessee had intimated under letter dated 1.2.2016 that he was contemplating to file settlement petition, there was no prohibition against AO passing the order of assessment and in any case, sufficient time passed after the said letter dated 1.2.2016 was written. AO therefore, finalised the assessments in accordance with law on 15.3.2016 and further stated that upon finalising the assessment on 15.3.2016, they were also sent for service personally, by deputing an Inspector of his office, to the partners of the assessee firm at its office on 15.3.2016, however, the partners refused to receive the orders. Thereafter, the assessment orders were dispatched through speed post on 16.3.2016 at the last known address of the assessee which was returned as unserved with an endorsement "left". The inspector had along with the affidavit produced a copy of envelope containing such orders and a copy of tracing record of the speed post. Finally, according to him, the assessment orders were served personally to a partner of the assessee firm on 21.3.2016.

AO had filed an affidavit in reply dated 1.9.2016 to the rejoinder of assessee in which he has stated that draft orders for the assessment years in question were sent to the Joint Commissioner on 15.3.2016 along with a covering letter. The Joint Commissioner gave his approval for passing the assessment orders also on 15.3.2016. The forwarding of the draft orders to the Joint Commissioner and receipt of the approval by the Joint Commissioner have been entered in the relevant registers, extracts of the relevant pages of the register have been produced along with this affidavit. Pursuant to the orders of the assessment, the same were also entered in the Demand and Collection register on 15.3.2016. Such orders were sent with an Inspector along with two assessment orders passed earlier in case of other assessees. As per the Inspector's report, the partners of the firm requested the officers to wait. After prolonged conversation with the authorised representatives, they refused to receive the orders late at night. The petitioner also refused to accept the envelope sent through speed post. Along with the affidavit, AO has produced a letter dated 15.3.2016 written by him to the Joint Commissioner forwarding the draft assessment orders in respect of assessee firm for the AYs 2010-2011 to 2014-2015. He also produced the extract of the register of Additional CIT, Central Range, Baroda, one would find the entry regarding draft assessment orders in case of M/s. Shanti Buildcon, assessee of connected petition and at serial no. 2794, one would find similar entry pertaining to M/s. Shalibhadra Developers. He had also produced a register of Assessment Approval u/s 153D for the FYs 2012-2013, to 2015-2016. At serial no.194, one would find the entry pertaining to M/s. Shanti Buildcon, and at serial no.195 concerning M/s. Shalibhadra Developers. As per this register, both were received by the approving authority on 15.3.2016 and approved also on the same day. Yet another document produced along with this affidavit is a copy of letter dated 15.3.2016 written by the Joint CIT to the AO, the Deputy Commissioner, under which he conveyed his approval to the draft assessment orders in case of M/s. Shalibhadra Developers. This is followed by the register of DCIT CC1, Baroda for financial year 2015-2016 starting from 3.3.2016. At serial no.2975, there is a reference to the approval in case of M/s. Shanti Buildcon and at serial no.2976, there is a reference to the approval in case of M/s. Shalibhadra Developers. Both these entires, according to the register, were made on 15.3.2016.

A notice of demand u/s 156 was also issued against the assessee on 15.3.2016 and a notice for penalty proceedings u/s 271(1)(c) was also issued on the same date. In addition to the affidavits of AO noted above, in which the stand of the department is stated and reiterated, we have several other documents supporting such stand. First of all, the draft orders were sent by AO to the Joint Commissioner for approval along with a covering letter dated 15.3.2016. The Additional CIT Central Range, Baroda, register from 1.4.2016 contained entries in case of M/s. Shanti Buildcon, and M/s. Shalibhadra Developers at serial nos. 2793 and 2794 respectively. This register also contains continuous sequential entries. Yet another register, copy of which is produced on record and original for our perusal, is the register of Assessment Approval u/s 153D. This register contains various approvals granted by the approving authority from the financial year 2012-2013 onwards. At serial nos. 194 and 195, in this register, we find, entries pertaining to M/s. Shanti Buildcon, and M/s. Shalibhadra Developers respectively. The years of assessment for which such approval was granted are mentioned. The date of receipt of the draft orders and the date of approval, both have been recorded as 15.3.2016. This register also contains chronological sequential entries of various draft orders which were received and in respect of which approvals were granted. The DCIT CC1 register Baroda, contained corresponding entries of forwarding of two sets of orders for approval in case of M/s. Shanti Buildcon, and M/s. Shalibhadra Developers respectively at serial nos. 2975 and 2976. These entries were made on 15.3.2016. The register contains sequential entries date wise and contains several other entries for a period before and after 15.3.2016.

The registers which were maintained by the department in the ordinary course of business, thus contain various entries contemporaneously made. The outward movement of the draft orders, the receipt of such draft orders by the approving authority, the approval by the approving authority and forwarding and receipt of such approvals by AO were all thus documented. In addition to the affidavits filed by AO and the Joint Commissioner as approving authority, we therefore, have considerable supporting evidences from the registers maintained by department establishing the movement of the assessment proceedings and the events closely connected with it. The assertion of the petitioner therefore, that no orders of assessment were passed on 15.3.2016 therefore, cannot be accepted. Even according to the department, draft orders were passed on 15.3.2016, forwarded for approval to the Joint Commissioner on the same day, the Joint Commissioner approved the draft orders also on the same day, upon which, the AO passed his orders of assessment on 15.3.2016. This may exhibit a certain anxiety or urgency shown by the department in passing orders of assessment and may also have the angle of thwarting the petitioner from approaching SETCOM. However, this would not necessarily mean that no orders of assessment were actually passed and in fact, the department had predated such orders. Had there been any attempt of predating the orders, there would have been some trace of such attempt in some register or the other betraying the truth which despite minute scrutiny, we have not detected. In so far as approval is concerned, we find from the register that in large number of cases approval is granted on the same day or at best in a day or two. We must therefore, accept the department's version that the orders of assessment were actually passed on 15.3.2016.

Revenue also have on record a report made by such visiting officers of having attempted to tender the orders of assessment which the assessee refused to accept. This report of was dated 16.3.2016, since in the report itself it was mentioned that officers were made to wait for long time and it was only at about 9 O' clock at night that they were informed that assessee would not be accepting the assessment orders. In case of the assessee, documents on record and preponderance of possibilities would convince us that the department was correct on both counts that the assessment orders were actually passed on 15.3.2016 and were sought to be served on assessee through personal messengers on the same date. The fact that the register referred to the date of service of the assessment order as 21.3.2016 would not be a clinching factor. It was not in dispute that the orders were actually delivered on the petitioners on 21.3.2016. Earlier attempt on part of the departmental authority to serve the orders did not materialise, since according to the department, the petitioners did not accept such service. The speech post dispatch also returned unclaimed upon which it was finally served personally on 21.3.2016. An entry in the register therefore, referring to 21.3.2016 as the date of service of the orders would not perse falsify the department's stand that no previous failed attempts of serving the orders were made.

Held that,

++ in context of the limitation for passing the assessment or penalty orders, the Courts have consistently taken a view that it would be sufficient for the AO to pass the order of assessment or penalty. Neither its dispatch nor service would be needed to save the order from being treated as timebarred. The Courts have emphasized on the expression "assessment made" and equated with the order of assessment being passed. In context of the settlement proceedings, identical expression has been used. An assessment would be deemed to be concluded on the date on which the assessment is made. We do not see any reason to interpret this expression any differently. It is true that both the expressions are used in different context. Nevertheless, there are other reasons why even otherwise, we would not depart from what has been adopted by the Courts in the context of time limit provisions for assessment contained in the Act. A case means any proceeding for assessment or reassessment which may be pending before AO on the date of making an application for settlement. Thus, upon making of an application before SETCOM, the AO would be, divested of his jurisdiction over the case which would vest exclusively in SETCOM. Subsection( 7) of section 245D however, provides that where a settlement becomes void, proceedings with respect to the matters covered by the settlement shall be deemed to have been revived from the stage where the application was allowed to be proceeded with by the SETCOM and the incometax authority concerned, may, notwithstanding anything contained in the provisions of the Act, complete such proceedings at any time before the expiry of two years from the end of the financial year in which the settlement became void;

++ the statutory provisions noted above manifest intention of the legislature to vest the jurisdiction to process a case of the assessee either in the SETCOM or in AO. No sooner an application for settlement is filed under sub section (1) of section 245C, AO would be divested of his jurisdiction to assess the return further. The jurisdiction would vest solely and exclusively in SETCOM. If for some reason as envisaged u/s 245D, proceeding for settlement becomes void, under subsection( 7) thereof, the proceedings before AO would be deemed to have revived upon which he would complete the assessment within the extended time frame provided therein. The overwhelming intention of the legislature thus is that there can be only one order concerning an assessment, be it by AO termed as order of assessment or by SETCOM termed as settlement order. There cannot be one order of assessment by AO for the same period for which the Commission would also pass the order of settlement. Accepting the contention of assessee that even if the order of assessment has been passed by the AO , his case may still be deemed to be pending since such order was not dispatched or served, would lead to a conflicting situation. For the purpose of settlement, assessment would be deemed to be pending. For the purpose of section 143 or section 147 as the case may be, the order of assessment would be deemed to have been passed. SETCOM thereafter, would be authorised to proceed and process the application for settlement and as a natural consequence, pass an order of settlement. There is no provision, to our mind, under which the order of assessment already passed by AO under such a situation would be obliterated. Surely, the legislature would never bring about a situation where an order of assessment would remain on record in respect of same period for which the SETCOM would pass a settlement order. We are conscious that the situation has been viewed somewhat differently by some of the HCs. Bombay HCs in case of Income Tax SETCOM considered a situation where the order of assessment was signed on 18.3.2013 and was also dispatched to the assessee on the same day in the morning. Such post returned as unserved as refused. However, such refusal was after the date on which the application for settlement was presented before the Commission. In such background, the Court upheld the view of SETCOM that the word 'issued' should be interpreted as served and that delivery of envelope to the postal authority on 18.3.2013 cannot be termed as service to the applicant. One of the factors which weighed with the Bombay HC in the said decision was a circular of CBDT dated 12.8.2008, in which it was clarified that the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant. We may record that subsequently the circular was superseded by a circular of the Board dated 17.11.2014, in which it was clarified that the assessment shall be deemed to have been completed on the date on which the assessment order is passed;

++ thus between the views of Bombay HC and Delhi HC also there is divergence. Bombay HC holds, the date of service of assessment order is the crucial date only after which application for settlement could not be filed. According to Delhi HC the crucial date would be the date of dispatch of the order and not the date of its service. Even for the sake of consistency and comity, we would have persuaded ourselves to follow the line adopted by either of the High Courts in above noted decisions, our own reading of the situation differently notwithstanding. However, in our opinion, if such interpretation is accepted, it would lead to grave conflict. As noted, in a situation where an order of assessment is already passed, but neither dispatched nor served to the assessee, application for settlement would be maintainable, upon which, SETCOM would have the exclusive jurisdiction to pass appropriate order in terms of section 245D and other provisions of the Act. At the same time order of assessment which has been passed would survive without any mechanism for either annulling such order or providing for primacy of the order of SETCOM. The legislature cannot and has not intended to give rise to two parallel orders pertaining to the same period of assessment by two authorities, both may be competent at the time when they were passing the orders. We have not based our conclusions on the CBDT circular dated 17.11.2014. Prior to this, earlier circular dated 1.6.2007 provided that the assessment shall be deemed to have been completed only on the date of service of assessment order to the applicant. In the circular dated 17.11.2014, it has been provided that the assessment shall be deemed to have been completed on the date on which the assessment order is passed. At best, this circular neutralised the earlier clarification of the Board that assessment shall be deemed to be complete only upon the order of assessment being served on the applicant. It was ordered that the orders of assessment were passed by the AO on 15.3.2016. They were also tendered for service to the partners of the assessee firm on the same day who refused to receive them and thus service was complete. For the purpose of application u/s 245C(1), a case would be pending only as long as the order of assessment is not passed. Once the assessment is made by the AO by passing the order of assessment, the case can no longer be stated to be pending. Application for settlement would be maintainable only if filed before the said date. Date of dispatch of service of the order on the assessee would not be material for such purpose. The petitions are dismissed. At the request of counsel for the petitioners, stay granted previously which continued during the pendency of these petitions, shall continue till 15.12.2016.

(See 2016-TIOL-2592-HC-AHM-IT)