2016 (7) TMI 1418 - AT - Income Tax

Reopening of assessment - whether the plea that reopening of the assessment u/s 147 was invalid and bad in law, can be looked into the consequential assessment proceedings carried out as per the directions of the learned CIT in the order passed u/s 263 - CIT-A directed the AO to revise the assessment order considering the issue of grant of 80 IB deduction to the assessee in respect of DEPB receipts - Held that - The original assessment proceedings u/s 143(3) had already been completed and attained finality. At the time of search, the reopened assessment proceedings u/s 147 of the Act were pending. So, what were abated due to the search action were the reassessment proceedings u/s 147 of the Act (in which the issue of section 80IB deduction on DEPB receipt was pending) and not the original assessment proceedings u/s 143(3) of the Act. Now, subsequent to the search action, the fresh assessment order was passed by the AO u/s 153A of the Act. In this assessment order the AO did not consider the issue relating to the claim of deduction in relation to DEPB receipts. Admittedly, no incriminating material during the search action was found in relation to any of the issue and no additions were made. Under the circumstances, the learned CIT invoked his revision jurisdiction u/s 263 of the Act and directed the AO to consider the issues which were pending in the reassessment proceedings regarding the allowance of deduction of DEPB receipts. Clearly, independent of the reassessment proceedings under section 147, the AO could not have considered the issue of the claim of section 80IB on DEPB receipts in the section 153A proceedings as no incriminating material was found in the search on this issue. The very validity of reopening of the assessment proceedings strikes to the very base of such addition, the learned CIT(A) was supposed to decide the same. Admittedly, the AO had rejected the objections of the assessee regarding the validity of the reassessment proceedings u/s 147 of the Act during the fresh assessment proceedings u/s 153A of the Act. The assessee has raised this ground before the learned CIT (A), who has dismissed the said ground holding that the same cannot be taken by the assessee at this stage. The learned CIT (A) thus has wrongly taken a view that the assessee was estopped at this stage to raise this issue as he has not filed any appeal against the order of the CIT passed u/s 263 of the Act. As discussed above, such finding of the learned CIT (A) is not sustainable in the eyes of law. Hence, we direct the learned CIT (A) to consider the issue of the validity of the jurisdiction u/s 147 of the Act raised by the assessee and decide the same afresh. Needless to say that since it is a legal issue the assessee will be at liberty to challenge all aspects regarding validity and legality of the proceedings u/s 147 of the Act. The learned CIT (A) will consider the same and decide the said issue as per law. - Decided in favour of assessee for statistical purposes.

Summary

Issues Involved:

1. Validity of notice issued under Section 148 of the Income-tax Act.
2. Jurisdiction and legality of reassessment proceedings under Section 147.
3. Validity of the order passed under Section 153A r.w.s. 143(3) and Section 263.
4. Treatment of DEPB receipts for deduction under Section 80IB.

Detailed Analysis:

1. Validity of Notice Issued Under Section 148:

The assessee contended that the notice issued under Section 148 was invalid as it was issued after four years from the assessment year, and the original assessment was completed under Section 143(3). The Commissioner of Income Tax (Appeals) [CIT(A)] held that the validity of the notice under Section 148 could not be considered in the appeal. The Tribunal noted that the issue of jurisdiction could be raised at any stage, even in collateral proceedings, and directed the CIT(A) to consider the validity of the notice issued under Section 148 afresh.

2. Jurisdiction and Legality of Reassessment Proceedings Under Section 147:

The Tribunal examined whether the reassessment proceedings initiated by the notice under Section 148 were valid. The assessee argued that the reassessment proceedings were without jurisdiction and should be treated as non-est. The Tribunal referred to various case laws, including the Supreme Court's decision in Kiran Singh & Ors. v. Chaman Paswan & Ors., which held that a decree passed by a court without jurisdiction is a nullity. The Tribunal concluded that if the reassessment proceedings under Section 147 were held to be invalid, the original assessment proceedings would be deemed to be concluded and not abated as on the date of the search operation.

3. Validity of the Order Passed Under Section 153A r.w.s. 143(3) and Section 263:

The Tribunal considered whether the Assessing Officer (AO) was justified in making additions in respect of DEPB receipts during the fresh assessment proceedings under Section 153A, following the directions of the CIT under Section 263. The Tribunal noted that no incriminating material was found during the search action, and as per the decisions of various courts, including the Bombay High Court in All Cargo Logistics and Continental Warehousing Corporation, the AO could not make additions on any other issue except those related to incriminating material found during the search. The Tribunal held that the CIT(A) was wrong in dismissing the appeal without considering the validity of the reassessment proceedings under Section 147.

4. Treatment of DEPB Receipts for Deduction Under Section 80IB:

The Tribunal noted that the AO initially allowed the deduction under Section 80IB without excluding DEPB receipts but later formed the opinion that DEPB receipts should not qualify for the deduction. The CIT, in his order under Section 263, directed the AO to reconsider the issue in light of the Supreme Court's decision in Liberty India, which held that DEPB receipts are not derived from industrial undertakings and should not be considered for deduction under Section 80IB. The Tribunal directed the CIT(A) to re-examine the validity of the reassessment proceedings and, if found invalid, the AO would have no jurisdiction to make any addition in respect of DEPB receipts during the fresh assessment proceedings under Section 153A.

Conclusion:

The Tribunal allowed the appeal for statistical purposes, directing the CIT(A) to consider the validity of the reassessment proceedings under Section 147 and decide the issue afresh. If the reassessment proceedings are held to be without jurisdiction, the original assessment proceedings would be deemed concluded, and the AO would be precluded from making any additions in respect of DEPB receipts during the fresh assessment proceedings under Section 153A.