1971 (1) TMI 48 - SC - Income Tax

Whether an order was made under section 10A of the Excess Profits Tax Act in a pending proceeding for assessment of excess profits tax? Held that - In the interests of justice, it is necessary that a supplementary statement of the case should be called for on the question whether there was any proceeding pending under section 15. On the question whether the proceeding under section 15, if pending, was valid, we express no opinion at this stage. We direct the Tribunal to submit a supplementary statement of the case on the question whether the proceeding under section 10A was started in the course of assessment or reassessment proceeding commenced under section 15.

Summary

Issues:
1. Validity of reopening the excess profits tax assessment under section 15
2. Competence of the Excess Profits Tax Officer to apply section 10A and make adjustments in the revised assessment under section 15

Analysis:
The case involved the assessment of tax under the Excess Profits Tax Act, 1940, for the chargeable accounting periods of July 4, 1943, to June 21, 1944, and June 22, 1944, to July 10, 1945, for a registered firm engaged in piece-goods and commission agency business. The dispute arose when the Income-tax Officer rejected the claim of partition made by the assessee regarding the business reconstitution post-family partition. This led to the Excess Profits Tax Officer assessing the entire income of both the Kanpur and Farrukhabad businesses in the hands of the assessee-firm. The Appellate Assistant Commissioner acknowledged a partial partition but the Excess Profits Tax Officer initiated proceedings under section 10A to adjust the excess profits tax liability due to alleged avoidance. The Tribunal upheld the Officer's actions, leading to the High Court being approached with questions on the competence of reopening the assessment and applying section 10A for adjustments.

The High Court of Allahabad ruled that the Excess Profits Tax Officer lacked the authority to reopen the assessment under section 15 based on existing information and thus could not apply section 10A for adjustments. The Court emphasized that the Officer did not discover new information warranting reassessment. The High Court's decision was appealed, arguing that the Officer's actions were valid under section 10A. Another related case dealt with a similar issue where the High Court had previously held that a transaction could be avoided under section 10A. However, the High Court's judgment in the present case was specific to the competence of the Excess Profits Tax Officer under sections 15 and 10A.

The Supreme Court analyzed the provisions of sections 10A and 15 of the Excess Profits Tax Act. It concurred with the High Court that section 10A did not allow for an independent proceeding but empowered adjustments during the original assessment or reassessment. The Court noted the necessity to establish the existence of a valid pending proceeding under section 15 for section 10A to apply. As doubts were raised about the validity of the proceeding under section 15, the Court directed the Tribunal to provide a supplementary statement on whether the section 10A proceeding was initiated during a valid assessment or reassessment under section 15. The Court refrained from expressing a final opinion on the validity of the section 15 proceeding, emphasizing the need for further clarification.

In conclusion, the Supreme Court directed the Tribunal to furnish additional details to ascertain the validity of the proceedings under sections 10A and 15. The Court refrained from making a definitive ruling until the supplementary statement clarified the timeline and validity of the proceedings. The judgment highlighted the importance of procedural adherence and the requirement for a valid pending proceeding for section 10A adjustments to be applicable, pending further clarification from the Tribunal.