1983 (1) TMI 57 - HC - Income Tax

Summary

Issues:
1. Validity of reassessment under section 147 of the Income-tax Act, 1961.

Detailed Analysis:
The judgment of the High Court of Andhra Pradesh pertained to the validity of reassessment under section 147 of the Income-tax Act, 1961. The case involved an assessee who was a firm engaged in the ready and speculation business on commission. The Income Tax Officer (ITO) had separately assessed the income from speculation and ready business, allowing the set-off of losses from speculation against profits from the ready business. Subsequently, the ITO issued a notice under section 148 read with section 147(a) of the Act, alleging that certain payments made by the assessee were not genuine. However, in the reassessment order, the ITO did not address the genuineness of the payments but relied on a Supreme Court decision to disallow the set-off of losses from speculation against income from commission business.

The assessee contended that the reassessment was invalid as the ITO had shifted to a different ground not alleged in the notice under section 148. The Appellate Authority Commission (AAC) upheld the power of the ITO to complete reassessment on grounds falling under section 147(b) even if the notice was issued under section 147(a). The Income-tax Appellate Tribunal allowed the appeal, citing a decision of the Madras High Court that the reassessment completed with reference to section 147(b) beyond the prescribed period was not valid. However, the High Court, relying on a Full Bench decision, held that completion of reassessment on the basis of grounds falling under section 147(b) was permissible even if made beyond four years, as long as the notice under section 147(a) was validly issued.

The assessee argued that the notice under section 147(a) was a colorable exercise of power by the ITO, but the High Court rejected this argument as the validity of the notice had not been questioned by the assessee before the appellate authorities. The High Court emphasized that the assessee had withdrawn the ground challenging the legality of reopening the assessment before the AAC, and therefore, could not impugn the notice as a colorable exercise of power at a later stage. The High Court declined to leave the aspect open for the Tribunal to reconsider, as the assessee had repeatedly given up the ground relating to the validity of the notice before the appellate authorities.

In conclusion, the High Court answered the question referred in the affirmative, in favor of the Revenue and against the assessee, emphasizing that the completion of reassessment on the basis of grounds under section 147(b) was competent even if made beyond the prescribed period, as long as the notice under section 147(a) was validly issued.