2009 (12) TMI 591 - HC - Income Tax

Maintainability of appeal - Assessment on agreement basis - However the violation on the side of the officer does not mean that the assessment is not made on an agreed basis - The Board has also decided that in cases involving substantial question of law of importance as well as in cases where the same question of law will repeatedly arise either in the case concerned or in similar cases appeal should be entertained and considered on the merits without being hindered by the monetary limits - Appeal allowed

Summary

Issues:
1. Maintainability of appeal based on tax effect above Rs. 4 lakhs.
2. Assessment made on agreed basis with conditional offer regarding interest income.
3. Validity of penalty proceedings initiated against the assessee.
4. Authority of the auditor to represent the assessee.
5. Decision on income-tax appeals and restoration of assessment confirmed in the first appeal.

Issue 1: The High Court addressed the maintainability of the appeal based on the tax effect above Rs. 4 lakhs as per the Board's circular. The circular allows exceptions for cases involving substantial questions of law or where the same question of law will repeatedly arise. In this case, the assessment was made based on the assessee's agreement regarding interest income in the financing business, despite discrepancies in the percentage adopted. The court emphasized that even if penalty proceedings were initiated contrary to the conditional offer, the assessment was completed on an agreed basis. The court held that the appeal was maintainable under the exceptions provided by the circular for cases involving significant legal questions.

Issue 2: The assessment was conducted based on the assessee's agreement regarding interest income, as confirmed by the Assessing Officer in the assessment order. The chartered accountant representing the assessee had committed to the assessment at a specific interest rate, subject to no penalty proceedings being initiated. Despite the initiation of penalty proceedings, the court noted that the assessment was made as agreed by the assessee and the auditor. The court emphasized that it was not fair for the assessee and the auditor to disown the commitments made during the assessment process.

Issue 3: The court acknowledged the contradiction in the initiation of penalty proceedings against the assessee despite the conditional offer made during the assessment. However, the court clarified that the violation of the conditional offer by the Assessing Officer did not invalidate the assessment made on an agreed basis. The court highlighted that any challenge to the penalty orders could be pursued separately by the assessee if issued contrary to the understanding with the officer.

Issue 4: The court addressed the contention regarding the authority of the auditor to represent the assessee during the assessment process. The court emphasized that once the assessee agreed to specific additions and disabled the Assessing Officer from conducting further inquiries, it was not appropriate for the assessee or the auditor to backtrack and disown the commitments made during the assessment.

Issue 5: The High Court allowed the income-tax appeals by reversing the Tribunal's order and restoring the assessment confirmed in the first appeal regarding the issue of interest income in the financing business. The court clarified that the assessee could challenge any penalty orders issued contrary to the understanding with the officer separately.