2012 (9) TMI 540 - AT - Income Tax

Reassessment - section 150 - assessment in pursuance of an order on appeal AO added back amount written off by bank, which was payable by assessee by invoking Sec.41(1) High court accepted the fact that amount was not eligible for tax in the year of appeal but for subsequent years Hon ble Court held that if the same is not disclosed by the assessee in the subsequent year, it is open to Revenue to take action in accordance with law Assessee did not file any return in subsequent year for said income AO initiated proceedings u/s 147 to tax the said amount by issuing notice u/s 148 in accordance with Sec 150(1) Held that - Following the decision of Supreme Court in case of Rajinder Nath (1979 (8) TMI 3) in this case HC held (i) the High Court gives liberty to the assessee to show the said amount in the subsequent years, and (ii) If the same is not shown by the assessee in the subsequently years, it is open for the revenue to take action in accordance with law. Therefore, it is clear that the order passed by the Hon ble High Court in the assessee s case for the said Assessment Year was not in the nature of a direction hence the provision of Sec. 150(1) of the Act will not be applicable. Decision in favour of assessee.

Summary

Issues Involved:
1. Whether the order of the Hon'ble Karnataka High Court in ITA No.180 of 2002 for Assessment Year 1990-91 can be construed as an order giving a direction to the Assessing Officer.
2. Whether the notice under section 148 of the Income Tax Act, 1961 is a notice issued in accordance with law.

Issue-Wise Detailed Analysis:

1. Whether the order of the Hon'ble Karnataka High Court in ITA No.180 of 2002 for Assessment Year 1990-91 can be construed as an order giving a direction to the Assessing Officer:

The Tribunal examined the relevant portions of the High Court's order, particularly paras 9 and 11, and noted that the High Court granted liberty to the assessee to show the amount of Rs. 4,40,653 in subsequent years. The High Court also stated that if the amount is not shown by the assessee in subsequent years, it is open for the Revenue to take action in accordance with law.

The Tribunal referred to the Supreme Court's decision in Rajinder Nath Vs. Commissioner of Income Tax 120 ITR 14 (SC), which explained that a "direction" must be an express order requiring positive compliance and that what is left to the option and discretion of the ITO cannot be described as a direction. Applying this principle, the Tribunal concluded that the High Court's use of the words "it is open for the revenue" does not constitute a direction but merely grants the option to the Revenue to take action.

Further, the Tribunal noted that the High Court's order did not contain a specific finding that the amount of Rs. 4,40,653 constituted income for Assessment Year 1991-92. The High Court only found that the amount was not taxable in Assessment Year 1990-91, without specifying the subsequent year in which it should be taxed.

The Tribunal also referred to the Karnataka High Court's decision in Consolidated Coffee Ltd. Vs. ITO 155 ITR 729 (Kar), which held that a direction or finding must be in respect of the year under review, revision, or appeal. Since there was no specific finding or direction for Assessment Year 1991-92, the provisions of section 150(1) of the Act did not apply.

2. Whether the notice under section 148 of the Income Tax Act, 1961 is a notice issued in accordance with law:

The Tribunal considered the assessee's contention that the Assessing Officer did not independently record any reasons to believe that income had escaped assessment, as required under section 148. The reasons recorded by the Assessing Officer were based on the High Court's order granting liberty to examine whether the amount had been offered to tax, which the Tribunal found insufficient to constitute "reason to believe."

The Tribunal also noted that the notice under section 148 was issued without the prior sanction of the Joint Commissioner of Income Tax, as required under section 151(2) of the Act. Since the Tribunal held that the provisions of section 150(1) did not apply, the requirements of sections 147, 148, 149, and 151(2) were applicable, and the failure to comply with these provisions rendered the notice invalid.

Conclusion:
The Tribunal concluded that the High Court's order did not constitute a direction as defined by the Supreme Court in Rajinder Nath's case, and therefore, the provisions of section 150(1) did not apply. Consequently, the notice under section 148 was invalid due to non-compliance with the mandatory provisions of sections 147, 148, 149, and 151(2). The assessee's appeal was allowed, and the reassessment order was set aside.