2022 (7) TMI 1572 - AT - Income Tax

Reopening of assessment u/s 147 as barred by limitation - HELD THAT - As per section 153(2) of the Act as was then available on the statute the assessment u/ss. 147/143(3) could have been framed by the A.O. latest by 31.12.2008 i.e. upto 9 months from the end of financial year in which notice u/s. 148 of the Act was served. In the present case the assessment had been framed by the A.O order passed u/s.143(3)/147 dated 24.11.2009 therefore the same as claimed by the assessee and rightly so is much beyond the time limitation prescribed in sub-section (2) of Section 153 of the Act. We thus in terms of our aforesaid observations quash the assessment framed by the A.O vide his order passed u/s.143(3)/147 dated 24.11.2009 as having been passed beyond the prescribed time limit. Decided in favour of assessee.

1. ISSUES PRESENTED and CONSIDERED

The legal judgment involves several core issues:

Whether the re-assessment proceedings initiated under Section 147 of the Income-tax Act, 1961, were barred by limitation.
The validity of the jurisdiction assumed by the Assessing Officer (A.O) for reopening the case under Section 147.
The appropriateness of the protective assessment made during the re-assessment proceedings.
The validity of the income estimation method used by the CIT(Appeals) to determine the assessee's income.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation of Re-assessment Proceedings

Relevant Legal Framework and Precedents: Section 153(2) of the Income-tax Act, 1961, prescribes the time limit for completing re-assessment proceedings under Section 147. At the relevant time, it allowed nine months from the end of the financial year in which the notice under Section 148 was served.
Court's Interpretation and Reasoning: The Tribunal found that the notice under Section 148 was issued on 26.02.2008 and served in March 2008. Therefore, the re-assessment order should have been completed by 31.12.2008. However, the order was passed on 24.11.2009, which was beyond the prescribed time limit.
Key Evidence and Findings: The Tribunal examined the assessment records and confirmed the issuance date of the notice under Section 148. The contradiction in the A.O's order regarding the date of notice issuance was noted, but the Tribunal relied on the actual records.
Application of Law to Facts: The Tribunal applied Section 153(2) and concluded that the re-assessment was time-barred, leading to the quashing of the assessment order.
Treatment of Competing Arguments: The Tribunal did not find any evidence or argument from the Revenue to counter the assessee's claim regarding the notice issuance date.
Conclusions: The re-assessment order was quashed as it was passed beyond the statutory time limit.

Issue 2: Validity of Jurisdiction for Reopening under Section 147

Relevant Legal Framework and Precedents: Section 147 of the Income-tax Act allows for reopening assessments if there is a reason to believe that income has escaped assessment.
Court's Interpretation and Reasoning: The Tribunal did not delve into this issue in detail, as the re-assessment order was already quashed on the ground of being time-barred.
Key Evidence and Findings: The Tribunal noted the assessee's argument that the reopening was based on "dumb reasons" without a nexus to the material on record.
Application of Law to Facts: The Tribunal refrained from adjudicating this issue due to the quashing of the assessment order on limitation grounds.
Treatment of Competing Arguments: The Tribunal left the arguments regarding jurisdiction open, as they were not necessary for the decision.
Conclusions: The issue was not decided due to the quashing of the order on other grounds.

Issue 3: Protective Assessment

Relevant Legal Framework and Precedents: Protective assessments are made to safeguard revenue interests when there is uncertainty about the correct entity to be assessed.
Court's Interpretation and Reasoning: The Tribunal did not specifically address the validity of the protective assessment, as the main assessment was quashed.
Key Evidence and Findings: The A.O had made a protective addition to the assessee's income, suspecting future income escapement.
Application of Law to Facts: The Tribunal did not need to apply the law on protective assessments due to the quashing of the main assessment order.
Treatment of Competing Arguments: The Tribunal left this issue open for future consideration if necessary.
Conclusions: The issue was not resolved due to the quashing of the assessment order on limitation grounds.

Issue 4: Income Estimation Method

Relevant Legal Framework and Precedents: Income estimation in re-assessment proceedings should be based on reasonable and justifiable methods.
Court's Interpretation and Reasoning: The Tribunal did not address this issue in detail due to the quashing of the assessment order.
Key Evidence and Findings: The CIT(Appeals) had estimated the assessee's income at 32% of undisclosed turnover, which was contested by the assessee.
Application of Law to Facts: The Tribunal did not need to apply the law on income estimation due to the quashing of the main assessment order.
Treatment of Competing Arguments: The Tribunal left this issue open for future consideration if necessary.
Conclusions: The issue was not resolved due to the quashing of the assessment order on limitation grounds.

3. SIGNIFICANT HOLDINGS

Verbatim Quotes of Crucial Legal Reasoning: "We, thus, in terms of our aforesaid observations, quash the assessment framed by the A.O vide his order passed u/s.143(3)/147 dated 24.11.2009 as having been passed beyond the prescribed time limit."
Core Principles Established: The importance of adhering to statutory time limits in re-assessment proceedings under the Income-tax Act.
Final Determinations on Each Issue: The Tribunal quashed the re-assessment orders for both assessment years 2005-06 and 2006-07 due to being time-barred, without addressing other issues on merits.

In conclusion, the Tribunal allowed the appeals for both assessment years, primarily on the ground that the re-assessment proceedings were barred by limitation. Other issues raised were not adjudicated due to this primary finding.

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