2013 (7) TMI 317 - HC - Income Tax

Reassessment u/s 147 - Notice for income escapement u/s 148 beyond 4 years Barred by limitation - whether the assesse had been given an opportunity of hearing - Held that - No opportunity of hearing was given to the assesse - bar of limitation prescribed by Section 149 is not lifted - the deeming provision provided in Explanation 3 to Section 153 does not get attracted in the present case because an opportunity of hearing had not been given to the assesse - the provisions of Section 150 would also not be attracted - In such a situation, the normal provisions of limitation prescribed under Section 149 would apply - Those provisions restrict the time period for reopening to a maximum of six years from the end of the relevant assessment year - In the present writ petitions, the notices under Section 148 have all been issued beyond the said period of six years. Therefore, we are of the view that the said notices are time barred- notices under Section 148 of the said Act are set aside and so, too, are all the proceedings pursuant thereto, including the assessment orders that have been passed petition allowed in the favor of the assessee.

Issues Involved:
1. Initiation of reassessment proceedings under Section 148 of the Income Tax Act, 1961.
2. Validity of notices issued beyond the period of six years stipulated in Section 149.
3. Applicability of Section 150 read with Explanation 3 to Section 153 of the Income Tax Act, 1961.
4. Requirement of opportunity of hearing before passing an order affecting another person's income.

Detailed Analysis:

1. Initiation of reassessment proceedings under Section 148 of the Income Tax Act, 1961:
The writ petitions pertain to the assessment years 1999-2000 to 2002-2003, where reassessment proceedings were initiated by issuing notices under Section 148 on 23.03.2011. The reasons for believing that income had escaped assessment were based on information received from the Additional CIT, Karimnagar Range, indicating that the interest income earned by a society on a special fund should be taxed in the hands of the petitioner. The Tribunal had held that this income was not taxable in the hands of the society but should be taxed in the hands of the petitioner. The Assessing Officer issued the notices under Section 148 based on this Tribunal order.

2. Validity of notices issued beyond the period of six years stipulated in Section 149:
The petitioner argued that the notices under Section 148 were issued beyond the six-year limitation period prescribed in Section 149. The bar of limitation would apply unless the revenue could establish that the cases fell within Section 150 read with Explanation 3 to Section 153.

3. Applicability of Section 150 read with Explanation 3 to Section 153 of the Income Tax Act, 1961:
Section 150 allows for the issuance of notices under Section 148 at any time if it is to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act. Explanation 3 to Section 153 deems that if any income is excluded from the total income of one person and held to be the income of another person, an assessment of such income on the other person shall be deemed to be one made in consequence of or to give effect to any finding or direction, provided such other person was given an opportunity of being heard before the order was passed.

4. Requirement of opportunity of hearing before passing an order affecting another person's income:
The petitioner contended that the Tribunal's order, which held that the interest income was taxable in the hands of the petitioner, was passed without giving the petitioner an opportunity of being heard. This was a condition precedent for invoking the deeming clause in Explanation 3 to Section 153. The Gujarat High Court's decision in A.B. Parikh vs. Income-tax Officer emphasized that the exclusion of time limits under Section 150 requires satisfaction of the ingredients of Explanation 3 to Section 153, including the opportunity of hearing.

Conclusion:
The court found that no opportunity of hearing was given to the petitioner before the Tribunal passed the order. Therefore, the deeming provision in Explanation 3 to Section 153 was not triggered, and Section 150 did not apply. Consequently, the normal limitation period under Section 149 applied, and the notices issued under Section 148 were time-barred. The writ petitions were allowed, and the impugned notices and subsequent assessment orders were set aside.

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