1996 (2) TMI 60 - HC - Income Tax

Summary

Issues:
Interpretation of sections 143(1) and 143(2)(b) of the Income-tax Act, 1961 in relation to the reopening of assessments. Validity and binding nature of Instruction No. 1617 issued by the Central Board of Direct Taxes.

Analysis:

The case involved a dispute regarding the reopening of an assessment under section 143(2)(b) of the Income-tax Act, 1961, despite the initial completion of assessment under section 143(1). The Tribunal had to determine whether the assessment completed under section 143(1) could be reopened under section 143(2)(b) in a manner other than the procedure for scrutiny of five per cent. cases as laid down in Instruction No. 1617 issued by the Central Board of Direct Taxes.

The assessee contended that the instructions were binding and clipped the power available under section 143(2)(b) of the Act. The counsel for the assessee relied on relevant case law and argued that the assessment had attained finality and could only be reopened through scrutiny in accordance with the instructions. On the other hand, the Department argued that the provision of law was not intended to be superseded by the instructions and that the additional provision for scrutiny did not render section 143(2)(b) ineffective.

The Court analyzed the provisions of section 143(2)(b) of the Act and noted that it had been amended over the years. It emphasized the need to interpret statutes in a manner that preserves the intent behind the law. The Court held that the instructions were issued to provide an extra check and scrutiny, but they did not interfere with the provision permitting the reopening of assessments under section 143(2)(b).

Referring to a Supreme Court decision, the Court reiterated that clarifications or circulars issued by the government regarding taxability were not binding on the courts. It concluded that the provision allowing for reopening of assessments remained operative despite the instructions and that both served different purposes without being mutually destructive.

Ultimately, the Court held that the Tribunal was justified in allowing the reopening of the assessment under section 143(2)(b) and rejected the contention that it could only be reopened through the procedure laid down in Instruction No. 1617. The judgment favored the Department over the assessee.

In conclusion, the Court answered the question posed in the affirmative, in favor of the Department and against the assessee. The reference application was answered accordingly, with no order as to costs, but with fixed counsel fees for each side. The Court directed the transmission of a copy of the order to the Tribunal for compliance.