9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2009 (12) TMI 661 - AT - Income TaxValidity of the reopening of the assessment u/s 147- Income escaping assessment - Whether proceedings u/s 147 can be initiated or not when the time for issuance of notice u/s 143(2) has not expired - Third Member Appointment - Difference in the opinion of ld JM and ld AM - The appellant filed its return for the assessment year 2002-03 on October 30, 2002 declaring a taxable income. This return was accepted u/s 143(1)(a) vide intimation dated December 19, 2003. A revised return was filed on March 23, 2004. There was time to issue notice u/s 143(2) upto March 31, 2005 on the revised return. While proceedings on the return were pending, the AO issued a notice u/s 148 on July 9, 2004. The ld JM held that the proceedings u/s 147 can be initiated even when the time for issuing notice u/s 143(2) has not expired. The ld AM held that the proceedings u/s 147 cannot be initiated when the time available for issuing notice u/s 143(2) has not expired. HELD THAT - Section 147 and the related provisions are basically machinery provisions. Section 147 has been explained in detail by the Special Bench of the Tribunal in the case of Smt. Mahesh Kumari Batra 2005 (5) TMI 240 - ITAT AMRITSAR . The gist of the observations in the said decision is that section 147 deals with income escaping assessment. The process entails the reopening of a completed assessment. This infringes on the sanctity of a completed assessment. Therefore, it is incumbent upon the AO to act in a fair manner and not in a partisan manner. There is no jurisdictional fact in existence which straightaway empowers the AO to enter jurisdiction. He can assume jurisdiction to reopen a completed assessment only on the basis of his own honest belief. Therefore, though section 147, in essence, is a machinery section, it also affects the substantive right of the assessee which had accrued to him on completion of original assessment. This is an example of what Chief Justice Venkatachaliah said in the case of CWT v. Sharvan Kumar Swarup and Sons 1994 (9) TMI 2 - SUPREME COURT that a substantive right can be found secreted in the interstices of procedure. This is one principle which we shall keep in mind while adjudicating the matter on hand. The tenth edition of Law of Income-tax by Sampath Iyengar (at page 8175) has also explained the expression escaped assessment . According to the learned authors, it postulates the termination of certain earlier assessment proceedings in the course of which the income should have been, but has not been, assessed. Clearly, no income can be said to have escaped assessment so long as the earlier proceedings are pending. Such pending proceedings must have either resulted in an assessment or reached a point of termination in law before proceedings for back assessment can be initiated (emphasis supplied). Looked at from another angle, an additional assessment comes only when there is already a completed assessment ex-hypothesis insufficient The Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 2007 (5) TMI 197 - SUPREME COURT , after elaborately considering the provisions of section 143 prior to and subsequent to amendment with effect from June 1, 1999, and having regard to Explanation 2 to section 147 observed ''The scope and effect of section 147, as substituted with effect from April 1, 1989, as also section 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction u/s 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment and, secondly, he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice u/s 148 r/w section 147(a). But under the substituted section 147 existence of only the first condition suffices. In other words, if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. So long as the ingredients of section 147 are fulfilled, the AO, is free to initiate proceedings u/s 147 and failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued.'' In the case of Qatalys Software Technologies Ltd. 2008 (7) TMI 240 - MADRAS HIGH COURT , the AO s action of initiating proceeding u/s 147 was not upheld, on the ground that the time for issuing notice u/s 143(2) had not expired. Coming to the three decisions of the jurisdictional High Court, there is indeed a divergence of opinion in the two judgments, viz., one in the case of ITO v. K. M. Pachiappan 2007 (8) TMI 329 - MADRAS HIGH COURT and Qatalys Software Technologies Ltd. in which the decision in the case of K. M. Pachayappan 2007 (7) TMI 229 - MADRAS HIGH COURT has been followed. I am of the view that in such a situation, the decision which appeals to one s conscience more should be followed. The decision in the case of Qatalys Software Technologies Ltd. is in consonance with all the Supreme Court judgments on the issue including the one in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. Therefore, I am inclined to follow the said decision. In the light of the above discussion, I agree with the conclusion reached by the ld AM and quash the order dated March 15, 2006 passed u/s 143(3) r/w section 147.
Issues Involved:
1. Validity of reopening of assessment. 2. Disallowance of bad debts. 3. Disallowance of unrealised interest. 4. Exclusion of 90 percent of insurance receipts, scrap sales, and interest income while computing deduction under section 80HHC. 5. Treatment of interest receipts as income from other sources. 6. Disallowance of claim under section 80-IA. Issue-wise Detailed Analysis: 1. Validity of Reopening of Assessment: The assessee contended that the reopening of the assessment was invalid as the notice under section 148 was issued while the time for issuing notice under section 143(2) was still available. The Assessing Officer (AO) had reason to believe that income had escaped assessment due to the non-inclusion of sales tax and excise duty in the total turnover and the incorrect classification of machinery purchases as revenue expenditure. The Commissioner of Income-tax (Appeals) upheld the AO's action, citing the Supreme Court's decision in Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, which held that an intimation under section 143(1) is not an assessment and does not debar the AO from issuing a notice under section 148. The Tribunal, after considering various judicial precedents, including conflicting decisions from the Madras High Court, concluded that the AO's action in reopening the assessment was justified, following the Supreme Court's ruling in Rajesh Jhaveri Stock Brokers P. Ltd. 2. Disallowance of Bad Debts: The AO disallowed the claim of bad debts amounting to Rs. 25 lakhs and Rs. 27 lakhs advanced to Mercantile Credit Corporation Ltd. and Alsa Constructions, respectively, on the grounds that these were capital investments and not trade debts. The Commissioner of Income-tax (Appeals) upheld this view. The Tribunal noted that the advances were not related to the assessee's ordinary business of manufacturing yarn and were not for business or commercial expediency. Hence, these advances were considered capital in nature, and the claim for bad debts was not allowable under section 36(2)(i) of the Income-tax Act, 1961. 3. Disallowance of Unrealised Interest: The AO allowed only Rs. 7,15,781 out of the total unrealised interest of Rs. 21,45,046, as only this amount was shown as due on March 31, 2001. The Commissioner of Income-tax (Appeals) confirmed this disallowance. The Tribunal found that if the entire amount of Rs. 21,45,046 was earlier offered as income and subsequently written off as unrealisable, it should be allowed as a deduction. The matter was remanded to the AO to verify the assessee's claim that the entire amount was offered as income in earlier years. 4. Exclusion of 90 Percent of Insurance Receipts, Scrap Sales, and Interest Income While Computing Deduction Under Section 80HHC: The issues were set aside to the AO to decide afresh after discussing each item individually, in light of the Supreme Court's decision in CIT v. K. Ravindranathan Nair [2007] 295 ITR 228. The Tribunal also noted that the issue of netting off interest expenditure against interest income was covered against the assessee by the Madras High Court's decision in CIT v. V. Chinnapandi [2006] 282 ITR 389. 5. Treatment of Interest Receipts as Income from Other Sources: The Tribunal held that this issue was covered against the assessee by the Madras High Court's decision in Dollar Apparels v. ITO [2007] 294 ITR 484, which stated that interest income from deposits made with banks, even if a pre-condition for sanctioning credit limits, could not be considered as income from export earnings. 6. Disallowance of Claim Under Section 80-IA: The AO did not discuss this issue, and the Commissioner of Income-tax (Appeals) disallowed the claim based on an earlier Tribunal order. The Tribunal remanded the issue to the AO for fresh consideration, taking into account the relevant Tribunal decisions and the agreement between the assessee and the Tamil Nadu Electricity Board. Separate Judgments Delivered: The Accountant Member dissented on the issue of the validity of reopening the assessment, highlighting that the Supreme Court's decision in Rajesh Jhaveri Stock Brokers P. Ltd. was distinguishable on facts. The Third Member, resolving the difference, agreed with the Accountant Member, quashing the reopening of the assessment as the notice under section 148 was issued before the expiry of the time available for issuing notice under section 143(2). The matter was then remitted to the regular Bench for disposal in accordance with the majority opinion.
|
