1982 (10) TMI 92 - AT - Income Tax

Summary

Issues Involved:
1. Timeliness and validity of the income tax returns filed by the assessee.
2. Legitimacy of the Income Tax Officer's (ITO) actions under section 148 of the Income-tax Act, 1961.
3. Commissioner's invocation of section 263 and its implications.
4. Tribunal's jurisdiction to consider grounds not raised by the Commissioner.

Detailed Analysis:

1. Timeliness and Validity of the Income Tax Returns Filed by the Assessee:
The assessee, a firm, filed income tax returns for the assessment years 1974-75 and 1975-76 on 2-1-1979. The returns were marked "Under section 139(1)" but were filed beyond the permissible time limits under section 139(4). For 1974-75, the return was due by 31-3-1977, and for 1975-76, by 31-3-1978. The ITO noted the returns as voluntary and took steps to regularize them under section 148.

2. Legitimacy of the ITO's Actions Under Section 148:
The ITO issued notices under section 148 to regularize the late returns. The Commissioner later contended that the ITO should not have taken action under section 148 as there was no escapement of income due to tax already deducted at source. However, the Tribunal found that the ITO had recorded reasons for reopening the assessment, which is a mandatory requirement. The Tribunal emphasized that the mere reference to voluntary returns indicated the ITO's belief that income had escaped assessment, thus justifying the issuance of notices under section 148.

3. Commissioner's Invocation of Section 263 and Its Implications:
The Commissioner invoked section 263, arguing that the ITO's actions were erroneous and prejudicial to the interests of revenue. He cited that the refunds claimed were beyond the time limits under section 239 and that section 147 was intended for the benefit of the revenue, not the assessee. The Tribunal, however, disagreed, stating that the assessments were not erroneous or prejudicial to the revenue. The Tribunal highlighted that the firm was being assessed for the first time, and the ITO had examined the sources of capital introduced by the partners, which justified the assessments.

4. Tribunal's Jurisdiction to Consider Grounds Not Raised by the Commissioner:
The Tribunal considered whether it could decide the appeal on grounds not raised by the Commissioner. It cited the Punjab and Haryana High Court's decision in Jagadhri Electric Supply & Industrial Co., which held that the Tribunal could not uphold the Commissioner's order on any grounds other than those taken by the Commissioner. The Tribunal concluded that it could not transgress into the exclusive jurisdiction of the Commissioner, who must form the belief that the ITO's order was erroneous and prejudicial to revenue.

Conclusion:
The Tribunal set aside the Commissioner's order and restored the ITO's assessments for both years, concluding that the ITO's actions were not erroneous or prejudicial to the revenue. The appeals were allowed, and the ITO was directed to refund any amounts due to the assessee as a result of the Tribunal's decision.