2007 (5) TMI 280 - AT - Income Tax

Reopening of assessment u/s 147 - Validity of Direction of CIT(A) u/s 150 - period of limitation - limitation provided u/s 149 - HELD THAT - Respectfully following the decision of Supreme Courtin the case of Rajinder Nath vs. CIT 1979 (8) TMI 3 - SUPREME COURT , in the instant case, it can be safely held that the learned CIT(A) has not given any direction to the AO to initiate reassessment proceedings for the asst. yr. 1997-98. Therefore, the notice issued under s. 148 on 16th Nov., 2004 is beyond the time limit as per IT Act, 1961, therefore, reassessment order dt. 13th March, 2006 is not tenable in law. In the instant case, initiation of reassessment proceedings was barred by other provision of the Act on 10th June, 2004 when the appellate order for asst. yr. 1998-99 was passed. It is observed that the asst. yr. 1997-98 has ended on 31st March, 1998. Reopening of the assessment for asst. yr. 1997-98 was permissible under the IT Act upto 31st March, 2004. However, the appellate order, on the basis of which reassessment was initiated, has been passed on 10th June, 2004. On the said date initiation of reassessment for asst. yr. 1997-98 was prohibited by law, and hence reassessment proceeding initiated after 31st March, 2004 is clearly barred by limitation in view of the decision of Hon'ble High Court of Karnataka. The Hon'ble Karnataka High Court further held that sub-s. (2), however, is again in the nature of a proviso to sub-s. (1). It says that the provisions of sub-s. (1) shall not apply where, by virtue of any other provision limiting the time within which action for assessment, reassessment or recomputation may be taken on the date of the order which is the subject-matter of the appeal, reference or revision in which the finding or direction is contained. In view of the judgment of Hon'ble Karnataka High Court in the case of Spences Hotels (P) Ltd. vs. Dy. CIT 2003 (6) TMI 18 - KARNATAKA HIGH COURT also, the reassessment proceeding initiated, vide notice u/s 148 dt. 16th Nov., 2004, is barred by limitation. Viewed from any angle, the reassessment proceeding order framed by the AO is time barred by limitation and, therefore, the same is quashed. No findings are required on merits since I have already quashed the assessment order - In the result, the appeal is allowed.

Summary

Issues:
1. Time limitation of reassessment proceedings under s. 148 of the IT Act.
2. Validity of the initiation of proceedings under s. 148 and subsequent assessment orders.
3. Compliance with directions from the CIT(A) in relation to reassessment.

Issue 1: Time Limitation of Reassessment Proceedings:
The case involved the reassessment proceedings under s. 148 of the IT Act for the assessment year 1997-98. The initial assessment for the following year, 1998-99, included an addition of Rs. 1,50,000 as unexplained investment under s. 69. However, the CIT(A) deleted this addition, stating that the investment was received in the previous year relevant to the assessment year 1997-98. The AO then issued a notice under s. 148 for reassessment of the unexplained investment for the 1997-98 assessment year. The key contention was whether the reassessment proceedings were time-barred by limitation. The Tribunal held that the notice issued under s. 148 on 16th Nov., 2004, was beyond the time limit prescribed by the IT Act, as the assessment year ended on 31st March, 1998, and no notice under s. 148 could have been issued after 31st March, 2004. The reassessment order dated 13th March, 2006, was deemed not tenable in law due to being time-barred.

Issue 2: Validity of Initiation of Proceedings and Assessment Orders:
The appellant contended that the reassessment proceedings were barred by limitation, as the notice under s. 148 for the 1997-98 assessment year was issued on 16th Nov., 2004, without approval from higher authorities. The CIT(A) held that the AO's action under s. 148 for the 1997-98 assessment year was permissible under s. 150(1) of the IT Act. However, the Tribunal disagreed, citing a decision by the Hon'ble Supreme Court that observations allowing the AO to take action did not constitute a direction. The Tribunal concluded that the reassessment proceedings were indeed time-barred by limitation and quashed the assessment order.

Issue 3: Compliance with CIT(A) Directions for Reassessment:
The Tribunal analyzed whether the CIT(A) provided directions regarding reassessment during the appeal for the 1998-99 assessment year. The Tribunal noted that the CIT(A) had not issued a clear direction to initiate reassessment proceedings for the 1997-98 assessment year. Referring to legal precedents, the Tribunal emphasized that the initiation of reassessment proceedings was prohibited by law after 31st March, 2004, based on the appellate order for the 1998-99 assessment year. The reassessment proceedings initiated after this date were considered time-barred by limitation. Ultimately, the Tribunal allowed the appeal, quashing the assessment order due to being time-barred.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the reassessment proceedings under s. 148 for the 1997-98 assessment year were time-barred by limitation and therefore quashed the assessment order.