2005 (4) TMI 259 - AT - Income Tax

Summary

Issues Involved:
1. Reopening of assessments under Section 147.
2. Validity of notices issued under Section 148.
3. Compliance with procedural requirements under Section 151(1).
4. Application of Rule 7A of the Income Tax Rules.
5. Payment of agricultural income tax and its impact on reassessment.

Detailed Analysis:

1. Reopening of Assessments under Section 147:
The Revenue initiated proceedings under Section 147 of the IT Act, asserting that the assessee's process of centrifuging latex transformed it into a non-agricultural product, thereby making part of the income taxable. The AO relied on the Kerala High Court judgment in CIT vs. Kanam Latex Industries (P) Ltd. and Rule 7A of the IT Rules to justify the reassessment. However, the CIT(A) found that the reopening was based on the same facts already on record and was therefore invalid as there was no failure on the part of the assessee to disclose material facts.

2. Validity of Notices Issued under Section 148:
The CIT(A) observed that the notices under Section 148 were issued beyond four years from the end of the relevant assessment years without any failure on the part of the assessee to disclose material facts. This made the reopening of assessments under Section 147 invalid. The AO's reliance on Rule 7A, introduced w.e.f. 1st April 2002, did not justify the reassessment for years prior to its introduction.

3. Compliance with Procedural Requirements under Section 151(1):
The assessee contended that the notices under Section 148 were issued without obtaining the requisite satisfaction of the CIT, as mandated by Section 151(1). The CIT(A) upheld this contention, noting that procedural requirements were not met, rendering the reassessments invalid.

4. Application of Rule 7A of the Income Tax Rules:
Rule 7A, introduced w.e.f. 1st April 2002, was cited by the AO to compute income from rubber manufacturing. However, the CBDT Circular No. 5 of 2003 clarified that no proceedings under Section 147 or 263 should be initiated for assessment years prior to 2002-03 if the assessee had paid agricultural income tax on the whole of such income. The Kerala High Court supported this view, stating that if agricultural income tax had been paid, reassessment under Rule 7A was not warranted.

5. Payment of Agricultural Income Tax and Its Impact on Reassessment:
The assessee provided proof of payment of agricultural income tax under both the Kerala and Karnataka Agricultural IT Acts for the relevant years. The CIT(A) and the Tribunal concluded that since the assessee had paid agricultural income tax, reassessment under Section 147 was not justified. The CBDT Circular No. 5 of 2003 further supported this position, indicating that no reassessment should occur for years prior to 2002-03 if agricultural income tax was paid.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, declaring the reassessments for all the years under consideration as invalid. It emphasized that the reopening of assessments beyond four years was not justified due to the absence of any failure by the assessee to disclose material facts. Additionally, the Tribunal noted that the CBDT Circular and the proof of payment of agricultural income tax negated the need for reassessment. Consequently, all appeals by the Revenue for the assessment years 1987-88 to 1993-94 were dismissed.