2012 (8) TMI 739 - HC - Income Tax

Rejection of application by AAR on barred u/s 245R (2) (1) - Objective of the mechanism of advance rulings - unless the assessing authority specifically raised a question, and issued notice calling the assessee to respond to it, the question would not arise, and consequently, the bar would not apply - the filing of a return of income did not automatically result in a question being pending before the Income Tax Authority - Held that - The proviso to Section 245R(2) creates a bar to the jurisdiction of the Authority if it is seen that any of the conditions are fulfilled as once the assessee proceeds to file a return, or take a similar step, the Authority s jurisdiction to entertain the application for advance ruling is taken away, because the Income Tax authority concerned would then be seized of the matter, and would potentially possess a multitude of statutory powers to examine and rule on the return. Conversely, if the authority is approached before an income tax return is filed, or any other income tax authority is approached, the application can be entertained, and the AAR would be exclusively dealing with the matter before it - thus AAR held that in the case of the applicants, keeping the dates of filing of return in mind, its jurisdiction to entertain the application was barred under Section 245R(2) Proviso (1) - that upon a return of income being filed, the matter is pending , in the sense that the Assessing Officer has the right to take such steps, including issuance of notice, etc, the further duty cast on the assessee to disclose all facts, including every potential income. The argument that the AAR erred in not following a so called past practice is unpersuasive as no practice, without its roots in the law, but based on an unchallenged understanding can be pursued, holding otherwise would be creating an estoppel against a statute - thus AAR was correct in rejecting the application for ruling.

Issues Involved:
1. Jurisdiction of the Authority on Advance Ruling (AAR) under Section 245R(2) of the Income Tax Act.
2. Interpretation of "question pending" before the Income Tax Authority.
3. Applicability of previous rulings and consistency in decisions by the AAR.
4. Legal implications of filing a return of income on the jurisdiction of the AAR.

Issue-Wise Detailed Analysis:

1. Jurisdiction of the Authority on Advance Ruling (AAR) under Section 245R(2) of the Income Tax Act:
The petitioners questioned the AAR's orders declining to entertain their applications for advance rulings. They argued that the mechanism of advance rulings aims to expedite dispute resolution, and the bar under Section 245R(2) should be strictly construed. The AAR, however, held that once returns are filed, all possible questions related to the transaction fall within the purview of the assessing authority, thereby ousting the AAR's jurisdiction. The AAR emphasized that applications should be made at the earliest opportunity, and the date of filing the return is crucial for determining the applicability of the proviso to Section 245R(2).

2. Interpretation of "question pending" before the Income Tax Authority:
The petitioners contended that a question is not "pending" unless specifically raised by the assessing authority. The AAR, however, concluded that merely filing a return brings all potential questions within the assessing authority's jurisdiction. The AAR reasoned that the filing of a return initiates the assessment process, making all questions related to the transaction subject to the assessing authority's examination. This interpretation aligns with the Supreme Court's view in Auto and Metal Engineers, where the assessment process commences with the filing of the return and continues until the issuance of the notice of demand.

3. Applicability of previous rulings and consistency in decisions by the AAR:
The petitioners argued that the AAR's restrictive interpretation was inconsistent with previous rulings, which favored the exercise of jurisdiction. They cited cases like Monte Hams and Rotem Co., where the AAR entertained applications despite the filing of returns. However, the AAR in the present cases distinguished these rulings, emphasizing that the filing of a return falls within the expression "question pending," thereby attracting the bar under Section 245R(2). The court supported the AAR's view, stating that no practice without legal roots can create an estoppel against a statute.

4. Legal implications of filing a return of income on the jurisdiction of the AAR:
The AAR held that the date of filing the return is the definitive point for determining jurisdiction. Once a return is filed, the assessing authority is seized of the matter, and the AAR's jurisdiction is ousted. The court upheld this reasoning, stating that the proviso to Section 245R(2) creates a jurisdictional bar if any of the conditions are fulfilled. The rationale is that once a return is filed, the Income Tax authority possesses statutory powers to examine and rule on it, precluding the AAR's jurisdiction.

Conclusion:
The court concluded that the petitions were without merit and rejected them. The AAR's interpretation that the filing of a return brings all potential questions within the assessing authority's jurisdiction was upheld. The court emphasized that no practice inconsistent with statutory provisions can be pursued, reinforcing the AAR's jurisdictional bar under Section 245R(2).

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