2009 (1) TMI 96 - HC - Income Tax

Addition, in respect of withdrawal of IDBI deposit u/s 32AB income escaping assessment - AO initiated proceedings u/s 147 for the second time in respect of the same income - Tribunal is justified in holding that as the amount has already been taxed in the hands of the partners, same is not taxable in the hands of the assessee-firm, which stood dissolved AO not giving reasons for reopening of assessment - Tribunal is justified in holding that the second assessment was impermissible

Summary

Issues:
1. Taxation of amount withdrawn from Investment Deposit Account under Section 32AB of the Income Tax Act.
2. Validity of reopening assessment under Section 147 of the Income Tax Act.

Analysis:
1. The case involved the taxation of an amount of Rs.30.50 lakhs withdrawn from the Investment Deposit Account of the IDBI Bank under Section 32AB of the Income Tax Act. The Income Tax Appellate Tribunal had concluded that this amount should be taxed in the hands of the partners and not the partnership firm. The appellant-Revenue challenged this decision, arguing that the amount should be taxed as income of the partnership firm, not the partners. The Tribunal, however, held that since the amount had already been taxed in the hands of the partners, it was not taxable in the hands of the dissolved partnership firm. The Tribunal also noted that the reasons for reopening the assessment under Section 147 were not produced, and as the same income had been subject to earlier assessment, the second round of assessment was deemed impermissible.

2. The second issue pertained to the validity of reopening the assessment under Section 147 of the Income Tax Act. The appellant contended that the reopening of the assessment was lawful as it was done within the permissible four-year period. However, the Tribunal found that the reasons for initiating the re-assessment were not produced despite multiple opportunities. The Tribunal concluded that since the income had already been taxed in the hands of the partners and there were no valid reasons for the re-opening of the assessment, the second assessment was not permissible. The Tribunal's decision was supported by the fact that the same income had been the subject of an earlier assessment and the absence of recorded reasons for the re-assessment.

In conclusion, the High Court dismissed the appeal, stating that no substantial question of law arose from the Tribunal's order. The Court upheld the Tribunal's decision that the amount in question had already been taxed in the hands of the partners, making it non-taxable in the hands of the dissolved partnership firm. The Court also agreed with the Tribunal's reasoning that the second assessment was impermissible due to the lack of valid reasons for reopening the assessment and the income being subject to an earlier assessment.