2011 (3) TMI 889 - HC - Income Tax

Reassessment u/s 147 - Book profits u/s 115J - Since the issue on jurisdiction and limitation touch on the very reopening of the assessment, we feel, the proper course herein would be to set aside the order of the Tribunal, remand the matter back to the Tribunal with a direction to consider the issue of limitation and the jurisdiction under Section 147 to reopen the assessment - It is open to the parties herein to raise such contentions as are available to them, before the Tribunal - Decided in the favour of the assessee by way of remand

Summary

Issues:
1. Validity of reassessment under Section 147 of the Income Tax Act.
2. Consideration of the conclusion of the Commissioner of Income Tax (Appeals) regarding the limitation under Section 147 of the Income Tax Act.
3. Inclusion of capital gain in computing book profits under Section 115J of the Income Tax Act.
4. Failure to disclose material fact leading to the reopening of assessment under Section 148 of the Income Tax Act.

Issue 1: Validity of reassessment under Section 147 of the Income Tax Act
The assessee challenged the reassessment under Section 147, contending that it was unwarranted after four years from the relevant assessment year. The Commissioner of Income Tax (Appeals) agreed, stating there was no failure to disclose material facts during the original assessment. However, the Income Tax Appellate Tribunal reversed this decision, justifying the reassessment due to the failure of the assessee to disclose the profit on the sale of land and building in the Profit and Loss Account. The Tribunal held that this non-disclosure was against the provisions of the Companies Act, leading to the restoration of the Assessing Authority's order.

Issue 2: Consideration of the conclusion of the Commissioner of Income Tax (Appeals) regarding the limitation under Section 147 of the Income Tax Act
The Tribunal, while considering the Revenue's appeal, focused on the merits of reopening the assessment but did not address the limitation aspect. The Tribunal upheld the reassessment based on the failure to disclose profits correctly, as required by the Companies Act. However, the High Court noted that the Tribunal should have also considered the issue of limitation and jurisdiction under Section 147 before reversing the Commissioner of Income Tax (Appeals) order. Thus, the High Court set aside the Tribunal's decision and remanded the matter back for a comprehensive review.

Issue 3: Inclusion of capital gain in computing book profits under Section 115J of the Income Tax Act
The Tribunal held that capital gains from the sale of a capital asset should be included in computing book profits under Section 115J of the Income Tax Act. The Tribunal relied on a decision of the Bombay High Court to support this conclusion. The High Court, while remanding the case, directed the Tribunal to reconsider this issue along with the aspects of limitation and jurisdiction.

Issue 4: Failure to disclose material fact leading to the reopening of assessment under Section 148 of the Income Tax Act
The Commissioner of Income Tax (Appeals) had initially ruled in favor of the assessee, stating there was no failure to disclose material facts during the original assessment. However, the Tribunal overturned this decision, emphasizing the importance of correctly disclosing profits, especially in the context of the Companies Act. The High Court, in its judgment, highlighted the need for a comprehensive review considering both the limitation and jurisdiction aspects before making a final decision on the reassessment.

In conclusion, the High Court remanded the case back to the Tribunal for a thorough review, directing a consideration of the issues of limitation, jurisdiction, and the inclusion of capital gains in computing book profits. The High Court emphasized the importance of addressing all relevant legal aspects before making a final determination in the matter.