2013 (10) TMI 284 - HC - Income Tax

Re-opening of assessment u/s 147 of the Income Tax Act - Basis of re-opening of assessment that excise duty refund received by the assessee should be brought to tax under section 41(1) of the Act Held that - The legal liabilities whether remitted or not could have been claimed as deductions. But with the incorporation of sections 41 to 43(B), the proposition has undergone a thorough change insofar as legal liability is payable to Statutory Authority or the Government. No deduction was permitted until the said amounts are actually paid and remitted, and the accounting on annual basis in Mercantile system in respect of the said liabilities stood expressly excluded by law. In the instant case, for the assessment year in question, Section 43(B) applies. The ratio laid down by the Hon ble Supreme Court in Thirumalaswamy Naidu 1997 (8) TMI 7 - SUPREME Court case would justify the act of the Assessing Officer in assessing the refund of amount in the hands of the assessee as trade-in-receipts until it was paid back to the Government or distributed to the beneficiaries. In the present case, it appears that the assessee after dismissal of the writ petition has remitted the refund amount to the Excise Department as per law. The fact that the assessee had refunded the amount does not exonerate his accountability under charging Section 41(1) and 43(B) read with Section 147 of the I.T. Act Decided in favor of Revenue.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to reopen the assessment without prior sanction from the Commissioner or Chief Commissioner of Income Tax.
2. Validity of the notice issued under Section 148 regarding the failure to disclose all material facts fully and truly.
3. Consideration of the excise duty refund as income during the assessment year in question.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Reopen the Assessment:
The primary issue was whether the Assessing Officer had the jurisdiction to reopen the assessment without the prior sanction from the Commissioner or Chief Commissioner of Income Tax as mandated under Section 151 of the Income Tax Act. The court noted that the Assessing Officer, being the Deputy Commissioner, issued the notice for reopening the assessment after four years without the required approval, rendering the notice invalid. The court referred to the provisions of Section 151 both before and after the amendment effective from 1.4.1990, concluding that the notice issued was bad in law, as it lacked the necessary approval. Therefore, the first question of law was answered against the revenue.

2. Validity of the Notice Issued under Section 148:
The second issue was whether the notice issued under Section 148 was valid, given that it did not specifically allege that the assessee failed to disclose all material facts fully and truly. The court examined the requirements under Section 147 and the proviso to Section 148(2), emphasizing that the Assessing Officer must record reasons indicating the failure to disclose material facts. The court found that the notice only mentioned the refund as a trade-in-receipt without sufficiently establishing non-disclosure. However, the court also considered the Supreme Court's ruling in Calcutta Discount Company Limited v. Income Tax Officer, which highlighted the duty of the assessee to disclose all primary facts. The court concluded that the assessee had not distinctly stated different types of deductions under current liabilities, thereby failing to disclose all material facts. Consequently, the second question of law was answered in favor of the revenue.

3. Consideration of the Excise Duty Refund as Income:
The third issue revolved around whether the excise duty refund, which was under dispute, should be considered as income for the assessment year. The court referred to the Supreme Court's decision in J.K. Synthetics Ltd., which stated that the liability to tax under Section 41 of the Act depends on the final outcome of the dispute. The court also considered the rulings in Commissioner of Income Tax v. Thirumalaswamy Naidu & Sons and Polyflex (India) (P) Limited v. Commissioner of Income Tax, which clarified that refunds of statutory levies should be treated as income unless repaid. The court concluded that the refund amount should be considered as income until it is paid back to the Government or distributed to the beneficiaries. Therefore, the third question of law was answered in favor of the revenue.

Conclusion:
Despite the second and third questions being answered in favor of the revenue, the appeal was dismissed because the first question, which invalidated the notice for reopening the assessment due to lack of jurisdiction, was answered against the revenue.