2009 (10) TMI 233 - HC - Income Tax

Reassessment- Limitation- the partnership firm of which the respondent-assessees were partners did not maintain any books of account and therefore the original assessments the firm itself were completed on estimation basis. Following the said assessments of the firm income was assessed in the hands of the partners. However the Department later found that the firm had furnished balance- sheets for the period ended December 31 1985 and March 31 1993 before the bank which disclosed massive credit balances in the current and capital accounts of the partners. Based on this and other information the assessments of the firm were reopened and reassessments were completed under section 147 of the Income-tax Act 1961. Following the information collected from the firm s accounts and assessments later completed the assessments of the partners were also reopened and completed under section 147 of the Income-tax Act. The Commissioner (Appeals) cancelled the reassessment on the ground of limitation and this was upheld by the Tribunal. Held that- (i) according to Circular No. 5 of 2008 in respect of composite order under appeal if the tax involved at least in one of the assessment years in above the limit then the department is entitled to maintain the appeal for all the years. (ii) that the assessee had not disclosed all material facts required for completion of their original assessments. In fact admittedly the income of the assesee was in the form of withdrawal from the firm of which they were partners which admittedly carried on business without maintaining books of accounts. The reassessment completed under section 147 of the Income Tax Act 1961 in the case of assessee were within time.

Summary

Issues involved:
1. Time limitation for reopening assessments under section 147 of the Income-tax Act, 1961.
2. Maintainability of appeals based on tax effect criteria.
3. Challenge to the finding of the Commissioner of Income-tax (Appeals) regarding reassessments being time-barred.

Analysis:

Issue 1: Time limitation for reopening assessments under section 147 of the Income-tax Act, 1961
The case involves appeals related to income-tax assessments of respondent-assessees who were partners of a firm engaged in publication. The assessments were for the years 1988-89 to 1993-94. The firm did not maintain books of account, leading to original assessments being completed on an estimation basis. Subsequently, assessments were reopened under section 147 based on balance-sheets showing significant credit balances in partners' accounts. The Department contended that reassessments were within time due to non-disclosure of material facts by the assessees. The appellate authority initially canceled the assessments as time-barred, but the High Court, following a similar judgment in a connected case, held that the reassessments were within time as material facts necessary for assessment were not disclosed, allowing the appeals.

Issue 2: Maintainability of appeals based on tax effect criteria
The Department challenged the finding that reassessments were time-barred. The High Court addressed the maintainability of appeals based on the tax effect criteria. The Circular No. 5 of 2008 and a decision of the Bombay High Court were referred to regarding the tax effect being below Rs. 4 lakhs. The Court held that if tax involved in at least one assessment year exceeded the limit, the Department could maintain appeals for all years. As the tax effect was above the limit in relevant years, the appeals were deemed maintainable under the Circular, allowing the Court to proceed with the appeals.

Issue 3: Challenge to the finding of the Commissioner of Income-tax (Appeals) regarding reassessments being time-barred
The Department contested the finding that reassessments were time-barred, arguing that material facts were not disclosed for assessment completion. The High Court, based on a previous judgment in a similar case, held that reassessments were within time as necessary material facts were not disclosed. The Court vacated the orders of the Tribunal and the first appellate authority, remanding the matter to the first appellate authority for deciding on the merits of the additions made in the assessments. The Court emphasized the importance of considering the data gathered from the firm's accounts for the same years during the fresh assessment process.

This detailed analysis covers the key issues and the High Court's comprehensive judgment in the case.