2008 (11) TMI 233 - HC - Income Tax

Period of limitation draft assessment order depreciation held that - that when depredation is not claimed it cannot be allowed - When the original return is withdrawn and revised return is filed there is no basis on which depreciation can be taken note of. So the taxation is the consequence of imposition of depredation which is not permissible. So he cannot take advantage of something that he cannot do and then say that since this is prejudicial to the assessee he will take advantage of the extended period of limitation - Any variation which is illegal or impermissible will cause prejudice per se. No one can take advantage of one s own illegal act or an act which is not legally sustainable. - the invocation of section 144B is impermissible - if Parliament intended that imposition of any variation which is prejudicial to the assessee gave the ITO the power to invoke the provisions of section 144B then it need not have included the words in the income or loss returned . It would have been sufficient to merely say any variation which is prejudicial to the assessee .

Summary

Issues Involved:
1. Applicability of Section 144B of the Income-tax Act, 1961.
2. Whether the assessment was time-barred.

Issue-wise Detailed Analysis:

1. Applicability of Section 144B of the Income-tax Act, 1961:
The primary issue was whether the Tribunal was correct in holding that the provisions of Section 144B were applicable and the reference to the Inspecting Assistant Commissioner was in accordance with these provisions. The assessee filed a revised return showing "nil" income, withdrawing the depreciation initially claimed to benefit from the set-off of carry-forward business losses. The Department proposed a draft assessment order, thrusting depreciation not claimed by the assessee, and referred the matter to the Inspecting Assistant Commissioner under Section 144B(4), extending the time limit for completing the assessment.

The assessee argued that since there was no variation in the total income returned (both the original and revised returns showed "nil" income), Section 144B could not be invoked. The Tribunal, however, contended that the allowance of depreciation, which was withdrawn by the assessee, was prejudicial and justified the reference under Section 144B.

The court highlighted that the revised return was valid, and the depreciation could not be imposed if not claimed by the assessee, citing the Supreme Court's decision in Mahendra Mills' case [2000] 243 ITR 56 (SC). The court noted that any variation which is illegal or impermissible causes prejudice per se and cannot justify invoking Section 144B. The court also emphasized that the term "income or loss returned" refers to the total income or loss, not specific heads of income. Since both the assessee's revised return and the draft order showed "nil" income, Section 144B was inapplicable.

2. Whether the Assessment was Time-Barred:
The second issue was whether the assessment was time-barred. The assessee argued that the assessment for the year 1980-81 should have been completed by March 31, 1983, but was instead completed on August 24, 1983, making it time-barred. The Department contended that the reference to the Inspecting Assistant Commissioner under Section 144B extended the time limit.

The court concluded that since the invocation of Section 144B was impermissible, the extended time limit could not be applied. The assessment was indeed time-barred as it was completed beyond the statutory deadline.

Conclusion:
The court set aside the order of the Income-tax Appellate Tribunal and allowed the appeal, determining that the invocation of Section 144B was unjustified and the assessment was time-barred.