1992 (9) TMI 1 - SC - Income Tax

Where an item unconnected with the escapement of income has been concluded finally, how far in reassessment on an escaped item of income is it open to the assessee to seek a review of the concluded item - HC clearly fell in error in permitting the assessee to reagitate, in the reassessment proceedings u/s 147(a), the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income

Summary

Issues Involved:
1. Whether an assessee can seek a review of a concluded item unconnected with the escapement of income during reassessment proceedings under Section 147 of the Income-tax Act, 1961.

Detailed Analysis:

Background and Facts:
The High Court of Calcutta formulated the question of whether an item unconnected with the escapement of income, which has been concluded finally against the assessee, can be reviewed during reassessment to compute escaped income. The assessee filed returns showing losses for the assessment years 1960-61 and 1961-62, which were filed beyond time and thus dismissed by the Income-tax Officer (ITO). The Appellate Assistant Commissioner upheld the ITO's decision, and no further appeal was made by the assessee, making the orders final. Subsequently, the assessee disclosed some hundi loans, leading to reassessment notices under Section 147(a) of the Act for escaped income. The reassessment proceedings led to a dispute over whether the original losses could be reconsidered.

Tribunal's Findings:
The Tribunal concluded that the original assessment proceedings had been finalized and could not be reopened in reassessment proceedings under Section 147(a). The Tribunal held that the Appellate Assistant Commissioner erred in directing the computation of losses and set-off against the "escaped income."

High Court's Decision:
The High Court opined that in reassessment proceedings under Section 147, the original "loss returns" could not be ignored and had to be computed to determine the escaped income. However, it clarified that any unabsorbed loss could not be carried forward to subsequent years.

Supreme Court's Analysis:
The Supreme Court examined the status and character of the original assessment orders, which had become final as the assessee did not challenge them further. The court referred to the judgments in Anglo French Textile Co. Ltd. v. CIT [1953] 23 ITR 82 (SC) and Esthuri Aswathiah v. ITO [1961] 41 ITR 539 (SC), which established that once an assessment is concluded, it cannot be reopened unless specific conditions under Section 147 are met.

Legal Precedents:
The court discussed various High Court judgments, noting a divergence of opinion on whether reassessment under Section 147 allows reopening of the entire assessment or is confined to the escaped income. The court referred to V. Jaganmohan Rao v. CIT [1970] 75 ITR 373 (SC), clarifying that reassessment proceedings set aside only the underassessment and not the entire original assessment.

Conclusion:
The Supreme Court held that in reassessment proceedings under Section 147, the ITO's jurisdiction is confined to the escaped income and does not extend to revising or reopening the entire assessment. The assessee cannot seek to review or revise concluded items unconnected with the escapement of income. The court emphasized that reassessment proceedings are for the benefit of the Revenue and not the assessee. The High Court's decision allowing the assessee to reopen concluded items was erroneous.

Final Judgment:
The Supreme Court answered the formulated question in the negative, stating that in reassessment proceedings, it is not open to an assessee to seek a review of a concluded item unconnected with the escapement of income for the purpose of computing the escaped income. The appeals were allowed, the High Court's orders were set aside, and the Tribunal's orders were restored. No costs were awarded as the assessee did not appear.