2007 (11) TMI 123 - HC - Income Tax

Assessment order passed when the interim order of suspension, (suspension of transferring order) was in force whether period when suspension order was operative will be excluded in calculating limitation for assessment or not held it is not excludible because suspension was for transferring the case not for assessment proceedings Comm(A) order, annulling the assessment order could not be said invalid assessment not time barred as per section 153(3)(ii)

Summary

Issues Involved:
1. Applicability of the extended time limit under Section 153(1)(b) of the Income Tax Act.
2. Necessity of serving a notice under Section 271(1)(C) before the expiry of the limitation period under Section 153(1)(a).
3. Whether the appellate order setting aside the assessment was a binding direction or a passing remark.
4. Exclusion of the period during which the assessment proceedings were stayed by the High Court under Explanation 1(ii) of Section 153(3).

Detailed Analysis:

1. Applicability of the Extended Time Limit under Section 153(1)(b):
The Tribunal held that the assessment order dated 07.05.1990 was barred by limitation and not saved by clause (ii) of Explanation 1 to Section 153(3) of the Income Tax Act. The Tribunal observed that the normal period prescribed under Section 153(1)(b) expired on 31.03.1989 and, even if any notice was issued under Section 271(1)(C) after the expiry of the period of limitation, it would be of no avail to the Revenue. The Tribunal relied on Commissioner of Income Tax Vs. Surjit Pal Singh [1991] 188 ITR 297 (SC) in this regard.

2. Necessity of Serving a Notice under Section 271(1)(C):
The Tribunal observed that the passing observations of the Commissioner, Income Tax (Appeals), Visakhapatnam in his appellate order could not be treated as a direction under Section 153(3)(ii) and his action of remitting the matter for de-novo consideration by the appropriate authority did not save limitation. This was supported by the ruling in Dy. Director of Inspection (Intelligence) Vs. Vinod Kumar Didwania [1986] 160 ITR 969 (SC).

3. Whether the Appellate Order Setting Aside the Assessment was a Binding Direction or a Passing Remark:
The Tribunal held that the appellate order dated 07.02.1990, annulling the assessment order and directing denovo consideration, was not a direction as contemplated under Section 153(3)(ii) and was merely a passing remark. However, the High Court reframed the question and concluded that the directions contained in the appellate order were indeed binding and not mere passing remarks. The High Court emphasized that the Commissioner (Appeals) had the power to annul the assessment and direct denovo consideration under Section 251(1)(a) of the Income Tax Act.

4. Exclusion of the Period During which the Assessment Proceedings were Stayed:
The High Court held that Explanation 1(ii) of Section 153(3) did not apply to the case at hand because the interim order of the Court dated 10.10.1988 did not amount to a stay of assessment proceedings. The Court clarified that the suspension of the transfer order did not prevent the Assistant Commissioner, Company Circle, Hyderabad from passing the assessment order within the period of limitation.

Conclusion:
The High Court answered question No.4 in favor of the assessee, holding that the interim order did not extend the period of limitation. However, the High Court reframed and answered question No.3 in favor of the Revenue, holding that the appellate order directing denovo consideration was a binding direction under Section 153(3)(ii). The reference was answered accordingly.