2005 (11) TMI 165 - AT - Income Tax

Validity of assessment u/s 153 - Time limit for completion of assessments and reassessments - whether the assessment passed by AO is barred by limitation of time in terms of section 153(2A)? - HELD THAT - In our opinion it is not essential that the word set aside should be written in the order where the order has been set aside the order has been set aside must be borne out of the facts and context of the order. The provisions of s. 153(2A) and 153(3) are to be interpreted harmoniously. The word set aside is defined in Webister 3rd New International Dictionary as to put to one side to discard to set apart for a purpose overrule. Going to the order of the CIT(A) relating to the ground Nos. 7 and 8 we find that the CIT(A) noted that the AO has not given credit of the instalment received by the assessee for working out the total investment made in moneylending business therefore he directed the AO to give allowance for the same for working out the total investment and also directed that for this purpose peak credit should be worked out and allowance must be given for the past savings made by the assessee. For working out the interest income CIT(A) directed that the rate of 24 per cent should be applied and the business expenditure for earning such income should be deducted for working out the net income from interest. Thus direction was given that the interest income should be worked out only after working out the total investment. These directions are not the ones which can be followed by the AO without calling the assessee and without appreciating the various evidences/documents which are required for working out instalments received by the assessee peak credit computation of total investment working out the expenditure incurred for by the AO by applying its mind. This will also tantamount to restoring the issue to the file of the AO to be decided afresh after giving the hearing to the party and following the direction of the CIT(A). This also implies that the assessment relating to these issues stand set aside and to be decided afresh in accordance with the directions of the CIT(A). We are of the view that the setting aside the assessment will include therein even the assessment which has been set aside on some of the issues because an assessment can be regarded to be completed only when the total taxable income is determined and tax to be paid by the assessee is worked out. Until and unless part of the issues are not decided the total income of the assessee cannot be determined and the AO cannot raise the demand for the tax payable by the assessee. The setting aside the assessment could be borne out of the order of the authorities. We therefore hold that the orders passed by the AO are barred by limitation as the limitation as laid down u/s 153(2A) will apply to the facts of the case before us. Accordingly we quash the orders passed by the AO for the AY s 1984-85 to 1986-87. Since the orders passed by the AO stand quashed the other grounds taken by the assessee on merit do not survive. In the result all these appeals of the assessee are allowed.

Issues Involved:
1. Whether the assessments framed by the AO were barred by limitation as per provisions of s. 153(2A) of the IT Act.
2. Determination of unexplained investment and income from pawning business.
3. Imposition of penalty under s. 271(1)(c) for concealment of income.

Issue-wise Detailed Analysis:

1. Whether the assessments framed by the AO were barred by limitation as per provisions of s. 153(2A) of the IT Act:

The primary contention was whether the assessments made by the AO were barred by limitation under s. 153(2A). The appellant argued that the assessments should have been completed within two years from the end of the financial year in which the CIT(A)'s order was received. The CIT(A) had issued an order on 1st June 1989, and thus, the assessments should have been completed by 31st March 1992. The appellant relied on several case laws and interpretations, emphasizing that the directions given by the CIT(A) to the AO to re-evaluate certain issues implied that the assessments were set aside and should be completed within the specified period.

The Department contended that the CIT(A)'s order did not explicitly set aside the assessments but merely provided directions for recalculating certain aspects, thus falling under s. 153(3), which does not prescribe a time limit for passing consequential orders.

The Tribunal analyzed the provisions of s. 153(2A) and s. 153(3), concluding that the directions given by the CIT(A) necessitated a fresh assessment, implying that the assessments were set aside. Therefore, the assessments should have been completed within the prescribed period under s. 153(2A). Since the AO passed the orders on 30th Aug 1995, well beyond the stipulated period, the Tribunal held that the assessments were barred by limitation and quashed the orders.

2. Determination of unexplained investment and income from pawning business:

In the original assessments, the AO had added unexplained investments and estimated income from pawning business. The CIT(A) had directed the AO to re-evaluate these aspects, considering the instalments received by the appellant and past savings, and to ascertain whether the pawning business belonged to the appellant.

The Tribunal noted that the CIT(A)'s directions required the AO to make fresh inquiries and appreciate new evidence, which effectively meant setting aside the assessments on these issues. The Tribunal held that these directions necessitated a complete re-assessment of the issues, thereby falling under the purview of s. 153(2A).

3. Imposition of penalty under s. 271(1)(c) for concealment of income:

The appellant challenged the penalty imposed by the AO for alleged concealment of income. The Tribunal found that the additions made by the AO were based on estimates and not on concrete evidence. Since the assessments were quashed due to being time-barred, the basis for the penalty also ceased to exist.

The Tribunal held that the penalty under s. 271(1)(c) could not be sustained as the additions were made on an estimated basis and the assessments themselves were invalid. Consequently, the Tribunal set aside the orders imposing the penalty.

Conclusion:

The Tribunal allowed all the appeals of the appellant, quashing the assessments for being barred by limitation under s. 153(2A) and setting aside the penalties imposed under s. 271(1)(c).

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