ITA No.978/2010 and connected matters Page 1 of 36 it* HIGH COURT OF DELHI AT NEW DELHI Judgment Reserved on: 10th August, 2010 % Judgment Pronounced on: 25th August, 2010 + ITA 978/2010 RITZ THEATRE ..... Appellant Through: Mr. Kannan Kapur, Adv. versus INCOME TAX OFFICER ..... Respondent Through: Ms. Sonia Mathur, Adv. AND ITA 980/2010 RITZ THEATRE ..... Appellant Through: Mr. Kannan Kapur, Adv. versus INCOME TAX OFFICER ..... Respondent Through: Ms. Sonia Mathur, Adv. AND ITA 981/2010 RITZ THEATRE ..... Appellant Through: Mr. Kannan Kapur, Adv. versus INCOME TAX OFFICER ..... Respondent Through: Ms. Sonia Mathur, Adv. AND ITA No.978/2010 and connected matters Page 2 of 36 ITA 982/2010 RITZ THEATRE ..... Appellant Through: Mr. Kannan Kapur, Adv. versus INCOME TAX OFFICER ..... Respondent Through: Ms. Sonia Mathur, Adv. AND ITA 984/2010 RITZ THEATRE ..... Appellant Through: Mr. Kannan Kapur, Adv. versus INCOME TAX OFFICER ..... Respondent Through: Ms. Sonia Mathur, Adv. CORAM: HON'BLE THE CHIEF JUSTICE HON'BLE MR. JUSTICE MANMOHAN 1. Whether reporters of the local papers be allowed to see the judgment? Yes 2. To be referred to the Reporter or not? Yes 3. Whether the judgment should be reported in the Digest? Yes DIPAK MISRA, CJ The controversy involved in this batch of appeals being similar, it was heard analogously and is disposed of by a common order. Be it noted, the appeals that are directed against the common order passed by the Income Tax Appellate Tribunal, Delhi Bench F, New Delhi on 19.6.2009 (for short „the tribunal‟) which disposed of ITA Nos.1779 to ITA No.978/2010 and connected matters Page 3 of 36 1783/Del/2009 pertaining to the Assessment Years 1990-91 to 1992-93 and 1995-96 & 1996-97, have been admitted on the following substantial questions of law: “(i) Whether in the facts and in the circumstances of the case, the impugned order of the Income Tax Appellate Tribunal in not acknowledging the jurisdictional infirmity in respect of the returns having never been regularised on account of non service of (jurisdictional) notice under Section 148 of the Act has caused the impugned order to be ridden with perversity and liable to be set aside by this Court? (ii) Whether in the facts and in the circumstances of the present case, the order of the tribunal having been passed in contravention to the settled judicial principles and binding judicial authorities of the Supreme Court as well as those of various High Court is perverse? (iii) Whether in the facts and in the circumstances of the present case, the re-assessment proceedings were barred by time as the same were issued beyond the statutory period of 6 years?” 2. The brief facts which are imperative to be exposited for adjudication of these appeals are that the assessee had filed returns of income for the assessment years in question on 2.12.1999 and the said returns were processed under Section 143(1) on 5.3.2002. The assessing officer noted that the assessee company had made disclosure of income under the VDIS, 1997. The assessee failed to deposit the taxes in accordance with the VDIS and, therefore, the declaration was held to be void in terms of Section 67(2) of the Scheme. Notices under Section 148 of the Act were issued on 24.12.1999. The assessing officer had issued notices under Section 143(2) / 142(1) along with the questionnaire. In ITA No.978/2010 and connected matters Page 4 of 36 response to the said notices, the Managing Director of the company appeared before the assessing officer from time to time and filed details as called for. The assessing officer found that the assessee had not made any payment of tax under self-assessment or under the provisions of VDIS, 1997. In this backdrop, he completed the assessment under Section 143(3) of the Act. 3. Being dissatisfied with the order of assessment, the assessee challenged the same in appeals and a number of grounds were urged. One of the grounds that was highlighted was that the notice under Section 148 dated 24.12.1999 was not served on the assessee and, therefore, the order of reassessment framed under Section 147 on 26.3.2002 was bad in law. 4. The CIT(A), while dealing with the said aspect, came to hold as follows: “I have considered the facts and circumstances of the case. Under Section 282 of the Income Tax Act, 1961, the Income Tax authorities can adopt any one of the alternative modes of service of notices, i.e. by post or in the manner provided in the code of Civil Procedure for the service of summons. The word “issue” and “service” are not synonymous, yet in the light of the provisions of Section 114 of the Indian Evidence Act, 1872 and Section 27 of the General Clauses Act, 1897, a notice is deemed to have been served on the addressee if it has been sent through pre-paid registered post or letter. In the facts of the present case, it is a matter of record that the notices under Section 148 for all the impugned assessment years were sent by registered post. This has also been stated by the ITO, Ward 15(2), New Delhi in her report dated 28.8.2002 and postal receipt for issue of notices under Section 148 by registered post is pasted on the office copy of the notice. Hence there is a ITA No.978/2010 and connected matters Page 5 of 36 presumption regarding service of notices under Section 148 upon the assessee. The assessee has failed to rebut the presumption regarding service of notices. Apart from a mere averment that the notices had not been received, no evidence has been adduced by the assessee. Hon‟ble Punjab & Haryana High Court in Ramesh Khosla v. ITO 154 ITR 556 has held that mere averment by the assessee that notice of demand was not served while the assessee had responded to notices under Section 143(2) sent by registered post showed that presumption of service of notice of demand was not rebutted and recovery proceedings were valid. In the facts of the present case, also notices under Section 148 were sent by registered post and the Managing Director of the assessee company had duly attended the reassessment proceedings in compliance of notices under Section 143(2) & 142(1). Hence there is no valid ground to challenge the service of notices under Section 148.” 5. It is worth noting that the CIT(A) had also considered the other contentions of the assessee and dismissed the appeal. 6. Being grieved by the aforesaid order, the assessee carried the appeal to the tribunal and the tribunal decided the appeals on 25.2.2003 pertaining to the assessment years 1990-91, 1991-92 and 1992-93 and the appeals relating to the assessment years 1995-96 and 1996-1997 on the same day by a separate order. The tribunal took note of the submissions of the learned counsel for the appellant therein and proceeded to pass the following order: In these three appeals directed against the consolidate order passed by the CIT(A), common grounds have been raised and for purposes of deciding these appeals, which have been head together, we reproduce the grounds pertaining to A.Y. 1990-91 as under:- “On the facts and in the circumstances of the case and in law, the authorities below erred:- ITA No.978/2010 and connected matters Page 6 of 36 (1) In invoking provisions of section 147 of the Income Tax Act, 1961 and in thereafter assessing the income at Rs.4,91,400/-; (2) In framing reassessment u/s 147 of the Act ignoring the fact that the impugned notice u/s 148 of the Act issued by the Assessing Officer was never served at all; (3) In ignoring the fact that the notice u/s 148 dated 24.12.99 is without jurisdiction as the condition precedent to the exercise of jurisdiction u/s 148 viz. the „recording of reasons‟ is totally absent;” xxxx xxxx xxxx 4. As regards the first three common grounds pertaining to the invocation of the provisions of Section 147/148, the view about canvassed by both the parties was considered but as in our opinion, the views of the tax authorities in respect of the aforesaid provisions were correct, we decline to interfere. It is an accepted fact that the assessee itself asked the A.O. to regularize the returns and which he did by issue of notice under Section 148 and subsequently the assessee participated in the assessment proceeding. The learned counsel could not point out any infirmity in law vis-à-vis the views expressed by the tax authorities and we, therefore, have no option but to reject the first three common grounds in all these three appeals.” 7. After so holding, the tribunal remanded the matter to the assessing officer requiring him to re-examine the question of double taxation as also to examine on merits the assessee‟s contention that no addition/ disallowances could be made over and above the figure returned and which was also the figure shown in the VDIS declaration. 8. In pursuance of the order of remit, the assessing officer framed an order of assessment in respect of all the assessment years on 28.3.2005. ITA No.978/2010 and connected matters Page 7 of 36 He determined the taxable income at Rs.2,98,840/-, Rs.3,88,390/-, Rs.1,09,490/-, Rs.6,54,670/- and Rs.3,69,750 in respect of the assessment years 1990-91, 1991-92, 1992-93, 1995-96 and 1996-97 respectively. 9. The assessee, being dissatisfied, assailed the said orders before the CIT(A). The first appellate authority, as is evincible from his order, instead of dwelling upon the merits of the additions, investigated the issue whether reopening of assessment by issuance of a notice under Section 148 is in accordance with law or not. He arrived at the conclusion that notice under Section 148 of the Act had not been served on the assessee. Being of this view, he opined that the returns submitted were invalid and, hence, no assessment could be framed on the basis of invalid returns. 10. Grieved with the aforesaid order of the CIT(A), the revenue preferred appeals before the tribunal and in appeal, it was contended that the issue regarding reopening of assessment had attained finality by the tribunal in the first round of litigation and if the assessee was grieved, it was open to attack the same by preferring a further appeal before the superior court and the authorities below being bound by the terms of the order of remand could not have looked into other grounds, especially which had been put to rest. It was urged that the CIT(A) cannot sit over the judgment of the tribunal as that would lead to anarchy and create a dent in the hierarchy of adjudicatory system. ITA No.978/2010 and connected matters Page 8 of 36 11. The said stand and stance was opposed by the learned counsel for the assessee contending, inter alia, that valid service of notice under Section 148 of the Act confers jurisdiction on the assessing officer to frame an assessment order and if no valid notice was served upon the assessee, then the proceedings were totally without jurisdiction. It was urged that in the second round of litigation, the CIT(A) had specifically recorded a finding that no notice was served and, hence, the order of assessment was without jurisdiction and thereby a nullity. The counsel for the assessee pressed into service the decisions rendered in Barada Kanta Mishra v. High Court of Orissa, AIR 1976 (SC) 1899, State of UP v. Mohd. Nooh, 1958 I SCR 595, P.V. Doshi v. CIT, 113 ITR 22, Rawatmal Harak Chand v. CIT, 125 ITR 346, CIT v. Rane Break Lining, 272 ITR 405, Pun Kunnam Traders v. Additional ITO, Kotayam, 83 ITR 508, Deep Chand Kothari v. Commissioner of Income Tax, (1988) 171 ITR 381 (Raj.) and CIT v. Avtar Singh, 304 ITR 333. 12. The tribunal distinguished the decisions cited by the learned counsel for the appellant and after placing reliance on CIT v. Sun Engineering, 198 ITR 297 came to hold that the CIT(A) could not have delved into the issue of limitation as the same was put to rest by him as well as by the tribunal and, in fact, had no right to look into the matter because a matter of remand was specific in nature. It has been observed by the tribunal that if the lower authorities are allowed to examine all the issues which have attained finality, then there will be no end to litigation ITA No.978/2010 and connected matters Page 9 of 36 and a chaos would be created in the administration of tax litigation. Being of this view, the tribunal set aside the order passed by the CIT(A) and directed the first appellate authority to adjudicate the matter on merits in compliance with the directions of the tribunal passed on the earlier occasion. 13. We have heard Mr. Kaanan Kapur, learned counsel for the assessee – appellant, and Ms. Sonia Mathur, learned counsel for the revenue – respondent. 14. Calling in question the vulnerability and legal acceptability of the order of the tribunal, Mr. Kapur has raised the following proponements: A. When there is non-service of notice under Section 148 of the Act within the time stipulated therein, the same renders the entire proceeding a nullity and makes the whole action ab initio void. B. The finding recorded by the first appellate authority goes to the heart of the matter, i.e., non-service of the notice dated 24.12.1999 and the same being a jurisdictional issue, it could have been addressed to by the CIT(A) irrespective of the scope of remand by the order of the tribunal on 25.2.2003. C. The Commissioner has appositely expressed the view that when there has been no notice, the assessment proceedings have been initiated without there being a jurisdictional foundation. The assessing officer had ITA No.978/2010 and connected matters Page 10 of 36 erroneously assumed that the jurisdiction to reassess the assessee cannot be found fault with as the first appellate authority had scrutinised the record in a minutest manner and such a finding could not have been dislodged by the tribunal solely on the ground that the CIT(A) could not have delved into the same because of the scope of remand. The tribunal has fallen into serious error by unsettling the order of the CIT(A) despite plethora of decisions to the effect that when an order is passed without jurisdiction, the same is a nullity and its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon even at the stage of execution or even in a collateral proceeding. D. The tribunal has failed to appreciate the ratio laid down by the Gujarat High Court in CIT Gujarat II v. Nanalal Tribhovandas and Anr., (1975) 100 ITR 734 though the same is squarely applicable to the case at hand. E. The tribunal on the earlier occasion had decided the factum of service of notice upholding it as deemed service and not as an actual factum of service on the assessee and, therefore, the same was available for scrutiny by the CIT(A) and there was no impediment in law. F. The concept of attachment of finality to an order as has been pressed into service by the tribunal is fallacious inasmuch as a finality or conclusiveness of an order could only arise in respect of orders which are ITA No.978/2010 and connected matters Page 11 of 36 competent orders with jurisdiction and if an order has been passed without valid initiation, the same cannot be treated as a final or conclusive order. To buttress the aforesaid submissions, the learned counsel for the assessee has pressed into service the decisions rendered in Y. Narayana Chetty and Anr. V. The Income Tax Officer, Nellore and Ors., (1959) 35 ITR 388 SC, Jindal Photo Films Ltd. V. The Deputy Commissioner of Income Tax, (1998) 234 ITR 170 Delhi, Commissioner of Income Tax v. Hotline International Pvt. Ltd., 296 ITR 333 Delhi, Commissioner of Income Tax v. Shitalal Prasad Kharag Prasad, (2006) 280 ITR 541 (All), Commissioner of Income Tax v. Sh. Ashok Kumar Bharti and Anr., (2006) 282 ITR 496, State of Uttar Pradesh v. Mohammad Noah, (1958) 1 SCR 595, Koran Singh and ors. V. Chaman Paswan and ors., AIR 1954 SC 340, Rane Break Lining (supra) and Nanalal Tribhovandas and Anr. (supra). 15. Ms. Sonia Mathur, learned counsel for the revenue, in impugnation of the aforesaid submissions, has advanced the following submissions: (a) The tribunal while passing the earlier order had taken note of the fact that the assessee had asked the assessing officer to regularise the return which was filed on the basis of issuance of notice under Section 148 of the Act and, thereafter, had participated in the assessment and, hence, the service of notice under Section 148 was not available. ITA No.978/2010 and connected matters Page 12 of 36 (b) The assumption of jurisdiction by the CIT(A) on the second occasion is totally uncalled for since the issue pertaining to service of notice under Section 148 had attained finality at the level of the tribunal. (c) Service of notice on the assessee is a question of fact which had been put to rest by the tribunal and it could not have been delved into by the CIT(A) as if the same related to the sphere of inherent jurisdiction. To bolster the aforesaid submissions, the learned counsel for the revenue has placed reliance on Bhupinder Singh Bharti v. Commissioner of Gift-tax, (2001) 117 TAXMAN 234 (Delhi). 16. At the very outset, it is obligatory on our part to state that though the appeal was admitted on the three substantial questions of law, yet basically it relates to one singular question, i.e., whether the CIT(A), after the remand by the tribunal to the assessing officer to adjudicate in a particular manner in a limited compass, could have dwelled upon the issue relating to non-service of a notice under Section 148 of the Act on the ground that such non-service makes the original order of assessment which has already travelled to the tribunal a nullity. 17. Mr. Kapur, as indicated hereinabove, has commended us to many a decision on the concept of nullity. We think it appropriate to refer to the decisions to understand the factual matrix and the principle rendered therein. In Mohammad Noah (supra), the State of Uttar Pradesh had filed an appeal after obtaining the certificate of fitness granted by the High ITA No.978/2010 and connected matters Page 13 of 36 Court of Allahabad against the judgment and order of the High Court in a writ petition quashing the departmental proceeding against the respondent who was a Constable in the Uttar Pradesh Police force. It was contended before the Apex Court that the High Court had erroneously exercised the writ jurisdiction. In that context, their Lordships have held thus: “On the authorities referred to above it appears to us that there may conceivably be cases - and the instant case is in point - where the error, irregularity or illegality touching jurisdiction or procedure committed by an inferior court or tribunal of first instance is so patent and loudly obtrusive that it leaves on its decision an indelible stamp of infirmity or vice which cannot be obliterated or cured on appeal or revision. If an inferior court or tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior court may, we think, quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the court or tribunal of first instance, even if an appeal to another inferior court or tribunal was available and recourse was not had to it or if recourse was had to it, it confirmed what ex facie was a nullity for reasons aforementioned.” 18. In Kiran Singh and Ors. v. Chaman Paswan and Ors. AIR 1954 SC 340, the Apex Court, while discussing about the principle of nullity, held thus: “The answer to these contentions must depend on what the position in law is when a Court entertains a suit or an appeal over which it has no jurisdiction, and ITA No.978/2010 and connected matters Page 14 of 36 what the effect of section 11 of the Suits Valuation Act is on that position. It is a fundamental principle well-established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of parties. If the question now under consideration fell to be determined only on the application of general principles governing the matter, there can be no doubt that the District Court of Monghyr was „coram non-judice‟, and that its judgment and decree would be nullities. The question is what is the effect of section 11 of the Suits Valuation Act on this position.” 19. It is worth noting that in the said decision, their Lordships took note of Section 11 of the Suits Valuation Act and held that it is a self-contained provision and no objection to jurisdiction based on over-valuation or under-valuation can be raised otherwise in accordance with it. Their Lordships with regard to territorial jurisdiction took note of Section 21 of the Code of Civil Procedure and opined that the objection relating to the place of suing should not be entertained by an appellate Court or revisional Court unless there was a consequent failure of justice and eventually held the objection to jurisdiction, both territorial and pecuniary, as technical. 20. In Baradakanta Mishra (supra), the Supreme Court held as follows: ITA No.978/2010 and connected matters Page 15 of 36 “The High Court within the power and control vested under Article 235 could hold disciplinary proceedings against the appellant and could recommend the imposition of punishment of reduction in rank on the appellant. The actual power of imposition of one of the major punishments, viz., reduction in rank is exercisable by the Governor who is the appointing authority. The order passed by the High Court on 8 December, 1972 reducing the appellant in rank is unconstitutional and is quashed. The two orders of dismissal dated 3 December, 1973 are based on the order of 8 December, 1972. The substratum of the orders of dismissal being unconstitutional the orders of dismissal cannot have any legal force. Further, the contention of the High Court that the orders of dismissal passed by the High Court merged in the orders passed by the Governor cannot be accepted. If the order of the initial authority is void an order of the appellate authority cannot make it valid. The order of the Governor used the word "confirm". The appellant filed appeals to the Government. The appeals were dismissed. The confirmation by the Governor cannot have any legal effect because that which is valid can be confirmed and not that which is void.” 21. On a perusal of the aforesaid paragraph, it is noticeable that their Lordships have held that the High Court lacks inherent jurisdiction to impose the punishment and hence, the order was void and, therefore, the same could not have been affirmed by the appellate authority, and in those circumstances, the doctrine of merger would not apply. It is worth noting that in the said case, the exercise of power was not dependent on any determination of fact but the assail pertained to the power vested with the High Court under the rules. ITA No.978/2010 and connected matters Page 16 of 36 22. In Y. Narayana Chetty and Anr. (supra), the Apex Court