2002 (7) TMI 14 - HC - Income Tax

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the assessment made in the case was not barred by limitation? - Since we are in agreement with the Tribunal that the action under section 144B was rightly taken, there can be no doubt that the Income-tax Officer would be entitled to get the time in obtaining the order by the Inspecting Assistant Commissioner and that period has to be ignored for the purpose of limitation. We are, therefore, of the clear opinion that the Tribunal was absolutely right in treating the assessment order to be within time

Summary

Issues:
- Interpretation of section 144B of the Income-tax Act, 1961 regarding the variation in income or loss returned by the assessee.
- Determining whether the assessment made in the case was barred by limitation.
- Validity of the action taken under section 144B by the Income-tax Officer.

Analysis:

The judgment of the High Court of MADRAS involved the interpretation of section 144B of the Income-tax Act, 1961, regarding the variation in income or loss returned by the assessee. The case revolved around the question of whether the assessment made in the case was barred by limitation. The assessee, a company, filed a return of income for the assessment year 1978-79, admitting a total income of Rs. 4,03,800. Subsequently, the assessee wrote a letter to the Income-tax Officer stating that a sum of Rs. 31,061 was wrongly included in the total income shown in the return and requested the exclusion of this amount. The Assessment Officer determined the assessee's income to be Rs. 4,77,000, leading to a difference of more than Rs. 1,00,000. The assessment was completed on May 19, 1981, after obtaining directions from the Inspecting Assistant Commissioner.

The assessee contended that the assessment made on May 19, 1981, was barred by limitation since the addition to the total income prejudicial to the assessee was less than Rs. 1,00,000. However, both the Commissioner of Income-tax (Appeals) and the Tribunal upheld the assessment, stating that the time limit for assessment extension applied under section 153 read with clause (iv) of Explanation 1. The Tribunal correctly interpreted the provisions of section 144B, emphasizing that when the Assessing Officer proposes a substantial variation in the returned income, a reference must be made to the Inspecting Assistant Commissioner. The Court agreed with the Tribunal's interpretation, stating that the returned income is not limited to the pro forma return amount but includes the income claimed by the assessee for the year.

The Court rejected the assessee's argument that the subsequent letters should be ignored and emphasized that the assessee cannot change its stand as communicated in the letters to the Income-tax Officer. Therefore, the action taken under section 144B was deemed valid, and the time taken for obtaining directions from the Inspecting Assistant Commissioner was to be disregarded for the purpose of limitation. Consequently, the Court concluded that the assessment order was within time, ruling in favor of the Revenue. The judgment highlighted the importance of adhering to the provisions of the Income-tax Act and ensuring that assessments are conducted in accordance with the statutory requirements.