1984 (3) TMI 107 - AT - Income Tax

Assessment Proceedings, Assessment Year, Excess Profits Tax, High Court, Income Tax, Reassessment Proceedings, Reference Application, Tribunal s Order

Issues Involved:
1. Validity of reopening the excess profits tax assessment after a long delay.
2. Legality and equity of the reassessment.
3. Explanation for the delay provided by the department.
4. Prejudice caused to the assessee due to the delay.

Detailed Analysis:

1. Validity of Reopening the Excess Profits Tax Assessment After a Long Delay:
The Tribunal addressed the issue of whether the reopening of the excess profits tax assessment for the chargeable accounting period ending on 30-9-1943, which was initiated 22 years after the income-tax reassessment, was valid. The Tribunal noted that the original income-tax assessment and the excess profits tax assessment were both made on 31-7-1945. The income-tax assessment was reopened on 25-3-1949, and the excess profits tax assessment was reopened on the same day. A second reassessment under section 23(3) read with section 34 of the Indian Income-tax Act, 1922, was made on 15-2-1954, resulting in an addition of Rs. 6,35,938. The Tribunal upheld this addition on 3-12-1962. The EPTO reopened the excess profits tax assessment on 22-7-1976, 22 years after the income-tax reassessment, and completed it on 21-6-1978. The Tribunal found the delay inordinate and noted that the department did not provide a satisfactory explanation for it.

2. Legality and Equity of the Reassessment:
The Tribunal considered the legality and equity of the reassessment. The learned counsel for the department argued that there was no time limit for making an excess profits tax reassessment provided by law. The reassessment was deemed mandatory following the income-tax reassessment. The Tribunal, however, held that the delay caused substantial prejudice to the assessee and resulted in injustice. The Tribunal emphasized that even in the absence of a statutory limitation period, inordinate delay could invalidate the proceedings, citing various legal precedents.

3. Explanation for the Delay Provided by the Department:
The department attributed the delay to administrative reasons, including the retirement of the concerned officer and the complexity of dealing with an old legislation. The Tribunal found this explanation unsatisfactory, stating that the delay should have been explained in detail, and general explanations about departmental difficulties were insufficient. The Tribunal noted that the department's reason for waiting for the income-tax assessment to become final was not justified, as it still resulted in a 16-year delay.

4. Prejudice Caused to the Assessee Due to the Delay:
The Tribunal acknowledged the prejudice caused to the assessee due to the delay. The assessee argued that the long delay resulted in the loss of key personnel who could have clarified the situation, causing substantial prejudice. The Tribunal agreed, noting that the reassessment should have been made immediately after the income-tax reassessment to avoid such prejudice. The Tribunal also referenced the Bombay High Court's decision in Chimanram Moti Lal (P.) Ltd. v. CIT, which held that unexplained delay could invalidate proceedings.

Conclusion:
The Tribunal concluded that the reassessment was not justified due to the inordinate delay and lack of satisfactory explanation from the department. The Tribunal held that the delay caused substantial prejudice to the assessee and resulted in injustice. Consequently, the appeal was allowed, and the reassessment was invalidated. The Tribunal did not consider the alternative ground raised by the assessee or the other grounds of appeal regarding the reopening on merits, as the main arguments were accepted.

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