2006 (1) TMI 103 - HC - Income Tax

Amendment in section 148 validity of notice issued u/s 148 - While filing the returns of the firm, gold was not included either in the capital account or as a stock of the firm. - assessing authority, issued notice u/s 148 for reopening of the assessment on the ground that the income has escaped assessment - said notice directed the assessee to file a return within 30 days time. amended provision came into force w.e.f. April 1, 1989. - Admittedly, the notice under section 148 is issued on March 28,1990, which stipulated thirty days time within which the returns had to be filed. Though the Amendment Act came into force from 1996 the amended provision by virtue of the retrospective operation came into effect from April 1, 1989, which equally applies to the facts of the case. - therefore conclusion reached by the Tribunal that the notice under section 148 is vitiated for not giving thirty days clear notice, is unsustainable in law and accordingly, it is set aside. Further, Tribunal was right in holding that the reassessments made for these years were invalid in law because of the defective notice

Summary

Issues:
1. Validity of notice issued under section 148 for filing a return within 30 days.
2. Validity of reassessments made due to the defective notice.
3. Classification of 18.621 kgs. of gold brought into the firm as stock-in-trade.

Analysis:
1. The case involved a firm, Rajatha Jewellers, where partner K.V. Jayaprakash brought 18.621 kgs. of gold from a dissolved firm. The assessing authority issued a notice under section 148 for reopening the assessment due to the omission of this gold stock in the firm's returns. The Tribunal held the notice invalid as it did not specify a clear 30-day period, citing a previous court judgment. However, the High Court found the notice valid, as an amendment made the provision effective from April 1, 1989, allowing authorities to specify the time. The Tribunal's decision on the notice's validity was overturned.

2. The Commissioner of Income-tax (Appeals) confirmed the assessment, stating the gold constituted part of the firm's closing stock. The Tribunal disagreed, stating the gold was not merged with the trading stock and its value was not considered for taxation. The High Court found that the gold's value was not factored into the assessment, leading to an escape of income tax. The Tribunal's decision to set aside the reassessment was deemed erroneous, and the Revenue's claim of escaped assessment was upheld.

3. The Tribunal's finding that the gold did not constitute stock-in-trade was challenged. The High Court disagreed with the Tribunal, noting that the gold was included in the firm's excise register and returns as part of the closing stock. The gold was also shown in the partner's capital account in subsequent years. Therefore, the High Court concluded that the gold was indeed stock-in-trade, contrary to the Tribunal's decision. The High Court ruled in favor of the Revenue, setting aside the Tribunal's decisions and directing correction of the opening stock for the relevant years based on the valuation of the previous year's closing stock.