1996 (10) TMI 20 - HC - Income Tax

Summary

Issues:
1. Whether reassessment proceedings nullify the original assessment order?
2. Which decision, between CIT v. Onkar Saran and Sons [1992] 195 ITR 1 and CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC), should prevail in determining the impact of reassessment on the original assessment order?

Analysis:

The High Court of Kerala addressed the issue of whether reassessment proceedings would invalidate the original assessment order in the case at hand. The Income-tax Appellate Tribunal based its decision on the precedent set by the apex court in CIT v. Onkar Saran and Sons [1992] 195 ITR 1, concluding that reassessment would indeed nullify the original assessment. However, the Revenue challenged this interpretation, citing the subsequent ruling in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC), which held a different view. The court acknowledged the conflicting decisions and proceeded to analyze both judgments.

In CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC), the Supreme Court clarified that in cases of reassessment under section 147 of the Income Tax Act, the Income-tax Officer's jurisdiction is limited to addressing the specific income that had escaped assessment. The reassessment does not entail revisiting the entire assessment or allowing the assessee to challenge matters already settled in the original assessment. The court emphasized that only the under-assessed income is revisited, not the entirety of the assessment. The reassessment cannot be inconsistent with the original assessment on matters not related to the escaped income. The court highlighted the significance of "such income" referring specifically to the income chargeable to tax that was not assessed initially.

The court also revisited the earlier decision in Onkar Saran's case [1992] 195 ITR 1, emphasizing that reassessment proceedings aim to determine the correct total income for the relevant assessment year. The court referenced its previous ruling in V. Jaganmohan Rao v. CIT/CEPT [1970] 75 ITR 373 to underscore the purpose of reassessment proceedings. Ultimately, the court reconciled the conflicting decisions and provided a clear answer to the questions raised.

In conclusion, the High Court ruled in favor of the Revenue on both issues. The court held that the original assessment order does not become obsolete due to reassessment proceedings, aligning with the decision in CIT v. Sun Engineering Works P. Ltd. [1992] 198 ITR 297 (SC). The court's detailed analysis of the legal provisions and precedents led to a definitive resolution of the questions posed, providing clarity on the impact of reassessment on the original assessment order.