SAPTHAGIRI FINANCE AND INVESTMENTS Vs. INCOME TAX OFFICER

JUDGEMENT

(1.) THE assessee has preferred the appeal as against the order of the Income Tax Appellate Tribunal relating to assessment year 2000-01. The above Tax Case (Appeal) was admitted on the following substantial questions of law:-

(2.) THE assessee herein is a partnership firm consisting of seven partners engaged in the business of financing. It is seen from the facts projected in the case that the landed property at No.7B/ 7B-1 at Valakarutheeswarar Koil Street, Kanchipuram was purchased by all the seven parties in the individual capacity under three separate sale deeds for an amount of Rs.10,30,000/-. The funds for the purchase of said property was however drawn from the funds of the firm. The property was brought in as additional capital to the firm, for which each partner's current account was credited by Rs.1,08,692/- each as on 31.3.1997. The property was also shown on the asset side of the balance sheet as on 31.3.1997 for Rs.11,66,500/-. The return of income filed for the assessment years 1997-98 and 1998-99 referred to this state of affairs. On 16.7.1999 the property was sold to Kanchipuram Kamakshiamman Silk Handloom Weavers' Co-operative Society Limited, Kanchipuram by the partners in their individual capacity. Being a going concern, the property stood in the name of the firm could not be legally distributed without valid registered sale deeds. Considering the above legal position, the transferred landed property belonging to the firm was held to attract tax on the capital gains at the hands of the firm for the assessment year 2000-01. Thus, on a perusal of the balance sheet dated 31.3.99, on a finding that the property was not there in the balance sheet, the Officer questioned each of the partners and recorded their statements. The statement recorded from the Partner B.M.K. Viswanath Sah, was affirmed by other partners. They also signed the sworn statement. Thus, the capital gains was held liable to be assessed at the hands of the firm. Consequently, notice under Section 148 of the Income Tax Act was issued for the assessment year 2000-01 on 20.5.2002 for the reassessment of capital gains at the hands of the firm which had escaped assessment by reason of the assessee's failure to disclose the same. Since, there was no reply, further proceedings were taken. A Notice under Section 142(1) of the Act was issued on 22.10.2002 calling for return of income for the assessment year 2000-01. The assessee's representative appeared on 18.10.2002 and filed a reply dated 18.12.2002 wherein the assessee reiterated that the title over the property was held in the name of the partners individually; that the sale deed was executed by the partners in the individual capacity only; that the sale was made after obtaining certificate under Section 230A in the partners' individual capacity; that the property was owned in their individual capacity and they had also offered the taxable capital gain on their individual hands and that the advance tax due thereon had also been paid by the partners. Thus, the assessee stated that the original return filed be treated as one filed in response to Section 148 of the Act. After going through the records, the Officer came to the conclusion that the property being held by the firm till the date of transfer on 14.7.1999, the capital gains arising from the transfer was assessable only at the hands of the firm for the assessment year 2000-01. Aggrieved by the same, the assessee went on appeal before the Commissioner of Income Tax (Appeals), who agreed with the Assessing Officer and hence, the dismissed the appeal. The Commissioner of Income Tax (Appeals) pointed out that there was no evidence recorded for transfer of property from the firm to the partners. The protective assessment made at the hands of the individual partners was also cancelled by his order dated 30.12.2004 for the assessment year 1999-2000. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the assessee went on further appeal before the Income Tax Appellate Tribunal, which however dismissed the assessee's appeal. In paragraph 16 of the order, the Tribunal pointed out that the assessee appeared before the Assessing Officer on 18.12.2002 and made a submission regarding the assessability of the capital gains at the hands of the firm. The Assessing Officer for the technical reason treated the original return as the return filed for the notice issued under Section 148. Based on the finding that the assessee had made representation and given its submission, the Tribunal inferred that the requirement of issuance of notice under Section 143(2) could be waived. It further reasoned that but the appearance on the part of the assessee, it would not be possible for the Assessing Officer to treat the original return as the return filed under Section 148. Pointing out to the signature of the counsel in the order sheet and a note that "arguments are heard and the same will be considered for completion of assessment", the Tribunal held that there was conscious waiver of notice under Section 143(2). Thus, the Tribunal rejected the assessee's contention that there was no proper compliance of provisions of Section 143(2) by issuing a notice. As far as the facts of the present case is concerned, the Tribunal held that without registration, the transfer of the property from the firm to the individual partners could not be treated as valid transfer. Thus, the Assessing Officer was correct in treating the capital gains as exigible at the hands of the firm. Aggrieved by the same, the assessee has preferred the above appeal.

(3.) AS regards the reasoning of the Tribunal that there was waiver of notice under Section 143(2) of the Act, learned counsel placed reliance on the decision of the Supreme Court reported in 118 ITR 326 MOTILAL PADAMPAT SUGAR MILLS CO., v. STATE OF U.P. and pointed out that the basic requirement of waiver is that it must be an intentional act with knowledge. Thus, when the waiver of a notice, which is very fundamental to the assumption of jurisdiction is alleged, the Revenue is duty bound to show that the assessee had abondoned his right to the notice under Section 143(2). In the absence of any such material available with the Revenue, that the assessee had given up its right with full knowledge of such right, the finding of the Tribunal is baseless and without material.