2005 (12) TMI 249 - AT - Income Tax

Summary

Issues:
Reopening of assessment under section 147 of the Income-tax Act, 1961 based on a change in judicial interpretation and the question of limitation.

Analysis:
The appeal challenged the reopening of the assessment for the assessment year 1990-91 under section 147 of the Income-tax Act, 1961, based on a change in interpretation by the Apex Court regarding the set-off of unabsorbed losses before allowing deductions under Chapter VI-A. The main contention was whether the different interpretation by the Apex Court could be considered a failure on the part of the assessee, justifying the reopening beyond the limitation period.

The assessee argued that there was no failure on their part as the limitation for reopening the case had expired, and the proviso to section 147 restricts action after four years unless there is a failure to disclose material facts necessary for assessment. Reference was made to the decision in Parashuram Pottery Works Co. Ltd. v. ITO, emphasizing that the absence of omission or failure by the assessee should prevent reopening after the limitation period.

The departmental representative relied on precedents such as Maharaj Kumar Kamal Singh v. CIT and Beverley Estates Ltd. v. CIT to argue that information about judicial decisions could constitute a valid reason for reopening assessments. However, the Tribunal noted that these cases dealt with different contexts of information and did not directly address the issue of failure on the part of the assessee in the context of income escapement.

The Tribunal considered the decision in Precot Mills Ltd. v. CIT, highlighting that under-assessment or excessive relief could be deemed as income escape assessment. However, the key question remained whether the reopening could be justified beyond four years, especially in the absence of circumstances warranting an extension of the limitation period.

The Tribunal emphasized that the change in judicial interpretation by the Apex Court should not be equated with a failure on the part of the assessee. It was noted that the law evolves dynamically, and the assessee's compliance with the law as interpreted at the time of assessment should not be penalized due to subsequent judicial developments. Therefore, the Tribunal concluded that the reopening of the assessment based on the changed interpretation did not constitute a failure on the part of the assessee, leading to the reversal of the Commissioner (Appeals) order in favor of the assessee.

In conclusion, the Tribunal allowed the assessee's appeal, highlighting that the change in judicial interpretation should not be considered a failure on the part of the assessee, thereby ruling in favor of the assessee in the context of the reopening of the assessment beyond the limitation period under section 147 of the Income-tax Act, 1961.