2010 (10) TMI 630 - HC - Income Tax

Reopening - Income escaping assessment - Assessing Officer committed legal mistake by allowing deduction at the rate of 30 per cent of the rent under section 24(1) of the Act as well as the brokerage and commission - it is not correct contention of the appellant that the assessment had been made by the Assessing Officer under section 143(3) of the Act and, hence, he was not entitled to change his opinion and the proceedings under section 147 was invalid - The scope and effect of section 147 as substituted with effect from 1-4-1989, as also sections 148 to 152 are substantially different from the provisions as they stood prior to such substitution - It is true the principle of res judiciata has no application in the tax assessment but when it is found that on the same facts and point on earlier occasion without there being any change of position of law decides the matter there cannot be different decision in the subsequent year for the same assessee - Decided in favour of the assessee by way of remand

Issues Involved:
1. Whether the Tribunal was justified in not considering the legality of the proceedings under sections 147 and 148 of the Income-tax Act before deciding the merits of the case.
2. Whether the proceedings under section 147 can be reopened based on a mere change of opinion.
3. Whether the Tribunal committed a jurisdictional error by reversing the order of the CIT (Appeals) and restoring the order of the Assessing Officer, who reassessed the entire income based on limited recorded reasons.

Detailed Analysis:

Issue 1: Justification of Tribunal in Not Considering Legality of Proceedings under Sections 147 and 148
The appellant contended that the Tribunal failed to consider the legality of the proceedings under sections 147 and 148 before deciding the case on its merits. The appellant argued that the proceedings were invalid as the return was processed under section 143(1) and not assessed under section 143(3), thus no income could have escaped assessment. The Tribunal's failure to address this jurisdictional issue was challenged.

Issue 2: Reopening of Proceedings under Section 147 Based on Change of Opinion
The appellant argued that the reopening of the assessment under section 147 was based on a mere change of opinion, which is not permissible. The Assessing Officer had initially processed the return under section 143(1) and later issued a notice under section 148 to reassess the income. The appellant contended that since there was no assessment under section 143(3), the reopening was invalid. The Tribunal, however, upheld the reopening, stating that the intimation under section 143(1) did not constitute an assessment, and thus, the Assessing Officer had the jurisdiction to reassess.

Issue 3: Jurisdictional Error by Tribunal in Reversing CIT (Appeals) Order
The appellant claimed that the Tribunal committed a jurisdictional error by reversing the CIT (Appeals) order, which had allowed 50% of the administrative expenses related to real estate business. The CIT (Appeals) had followed the precedent set in the assessment year 1998-99, where similar expenses were allowed. The Tribunal, however, restored the Assessing Officer's order, disallowing the brokerage and commission expenses. The appellant argued that the Tribunal's decision was erroneous as it ignored the mixed nature of income from house property and real estate business, and the statutory deductions allowable under different heads.

Court's Decision:
The court held that the questions relating to the reopening of assessment under sections 147 and 148 were not raised before the lower authorities and thus did not need to be addressed. The court emphasized that pure questions of law, which go to the root of jurisdiction, can be raised at any stage, but in this case, the appellant had waived the right to question the validity of the notice by not raising it earlier.

On the merits, the court found that the Assessing Officer and the Tribunal erred in treating the income solely as income from house property and disallowing the brokerage and commission expenses. The court restored the CIT (Appeals) order, which had allowed 50% of the administrative expenses related to real estate business, following the precedent set in the assessment year 1998-99. The court emphasized the principle of quasi-judicial discipline, stating that decisions on identical facts and law should not differ in subsequent years.

Conclusion:
The court concluded that the Tribunal's decision was not sustainable and restored the CIT (Appeals) order, directing the Assessing Officer to reassess in accordance with the judgment. The appeal was disposed of without any order as to costs.

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