2017 (2) TMI 516 - AT - Income Tax

Reopening of assessment - Determination of income chargeable to tax from and out of the Composite Income - whether miscellaneous income would form part of the composite income for the purpose of section 33AB of the Act was fully investigated by the AO while concluding the assessment proceedings u/s 143(3)? - Held that - Admittedly prior to the initiation of re-assessment proceedings u/s 147 of the Act an order of assessment for the relevant assessment year had been passed u/s 143(3) of the Act. The re-assessment proceedings were initiated admittedly beyond the period of four years from the end of the relevant assessment year. In these circumstances for valid initiation of re- assessment proceedings u/s 147 of the Act the conditions laid down in the proviso to section 147 of the Act had to be satisfied, viz., escapement of income should be as a result of the assessee s failure to disclose truly and fully material facts necessary for assessment/income for the relevant assessment year. Since this condition has not been satisfied in the present case, the CIT(A) was fully justified in concluding that re- assessment proceedings were not validly initiated. Since the initiation of re- assessment proceedings have been held to be invalid and therefore the reassessment order is liable to annulled, we do not wish to deal with other grounds with regard to the re-assessment proceedings having been initiated on a change of opinion and the arguments that no notice u/s 143(2) of the Act in the re-assessment proceedings were issued and therefore re-assessment proceedings are invalid. We also do not wish to go into the question as to whether the disputed items of income could form part of the composite income of the assessee or not for the purpose of Rule 8(1) of the Rules. - Decided against revenue

Issues Involved:

1. Legality and validity of re-assessment proceedings under Section 147 and issue of notice under Section 148 of the Income Tax Act.
2. Completion of assessment under Section 143(3) without issuing a statutory notice under Section 143(2).
3. Inclusion of miscellaneous income and liabilities no longer required written back in the composite income for the purpose of deduction under Section 33AB.
4. Whether the income from insurance claims, sale of scrap, guest house receipts, and liabilities written back should be considered part of the composite income for applying Rule 8(1).

Detailed Analysis:

1. Legality and Validity of Re-assessment Proceedings under Section 147 and Issue of Notice under Section 148:

The original assessment was completed under Section 143(3) on 27.03.2002. The reassessment notice under Section 148 was issued on 21.02.2005, which is beyond the four-year period stipulated by the first proviso to Section 147. The proviso requires that for reopening an assessment after four years, there should be a failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The CIT(A) found that the assessee had disclosed all material facts during the original assessment, and there was no new material that came to the AO's possession to justify the reassessment. The reassessment was initiated based on the same set of facts, indicating a change of opinion, which is not a valid ground for reopening an assessment.

2. Completion of Assessment under Section 143(3) without Issuing a Statutory Notice under Section 143(2):

The CIT(A) held that the reassessment proceedings were invalid due to the non-issuance of a notice under Section 143(2) after the assessee filed the return in response to the notice under Section 148. This non-issuance is not a procedural irregularity but a mandatory requirement for the validity of the reassessment order, as supported by the Supreme Court decision in ACIT vs. Hotel Blue Moon (321 ITR 362).

3. Inclusion of Miscellaneous Income and Liabilities No Longer Required Written Back in the Composite Income for the Purpose of Deduction under Section 33AB:

The assessee had claimed deduction under Section 33AB, considering miscellaneous income and liabilities no longer required written back as part of the composite income. The AO, in the original assessment, had excluded these incomes while computing the qualifying profits for deduction under Section 33AB. The reassessment was initiated on the grounds that these incomes should not have been considered part of the composite income. However, the CIT(A) found that the AO had already applied his mind to these incomes during the original assessment, and there was no failure on the part of the assessee to disclose these incomes.

4. Whether the Income from Insurance Claims, Sale of Scrap, Guest House Receipts, and Liabilities Written Back Should be Considered Part of the Composite Income for Applying Rule 8(1):

The CIT(A) held that these incomes had a nexus with the business of growing and manufacturing tea and should be considered part of the composite income. The AO had not conclusively proved that these incomes were unrelated to the tea business. The CIT(A) concluded that these incomes should be apportioned under Rule 8(1), which deals with the determination of income from the manufacture and sale of tea.

Conclusion:

The Tribunal upheld the CIT(A)'s decision, dismissing the revenue's appeal. The reassessment proceedings were deemed invalid due to the lack of new material and the reassessment being based on a change of opinion. Additionally, the non-issuance of a notice under Section 143(2) rendered the reassessment order invalid. The Tribunal did not address the specific inclusion of the disputed incomes in the composite income, as the reassessment proceedings themselves were found invalid. The appeal of the revenue was dismissed.

← Previous Next →