2013 (10) TMI 1168 - HC - Income Tax

Reopening of finalized assessment u/s 147 after retrospective amendment to Section 80P - Exemption in respect of income earned on the sale of liquor in the hands of Co-operative society - Held that - From the decisions of the Hon ble Supreme Court and the discussions made therein, it is apparent that the amendment which was brought in 1999 has became as the Income-tax (Second Amendment) Act, 1999 (Act 11 of 1999), and on recording the submission made by the Solicitor General before the Delhi High Court when the amendment was impugned, it was made clear that the amendments would apply to the assessments which were yet to be finalized - In the present case, the assessments were of the year 1997, 1998 and 1999 and, admittedly the assessments were finalised in 1999 and it were reopened by issuing notice dated January 17, 2003, under section 148 of the Act. Therefore, the present case falls within the assessments finalised before the amendment and no doubt the assessee is entitled for deduction Decided in favor of Assessee. Deduction in respect of interest income - Held that - the deduction claimed in respect of sale of liquor does not fall under the categories stipulated in section 80P(2) of the Act and, therefore, the Tribunal has rightly rejected the claim of the assessee with regard to the sale of liquor. - Decided against the assessee. Deduction in respect of income from consumer goods sales and the income from liquor sales Held that - The Tribunal without assigning any reason has just upheld the order of the authorities. When it is not in dispute that the agricultural produce are grown by its members and fall within the category (iii) of section 80P(2) and, moreover, the goods are meant for public distribution we have been left with no other option than to set aside the order of the authorities as well as the Tribunal on this score. Decided against the Assessee.

Issues Involved:
1. Whether the Tribunal was right in holding that the claims made by the appellant in the return of income filed in response to the notice under section 148 of the Income-tax Act cannot be entertained since it amounts to a fresh claim.
2. Whether the Tribunal was right in holding that the deductions claimed are not allowable on the merits of the case, viz., (a) interest income is not allowable as deduction; (b) income on liquor sale and income from consumer goods.

Detailed Analysis:

Issue 1: Fresh Claims in Response to Section 148 Notice
The appellant-society, a co-operative society engaged in marketing agricultural produce, selling liquor, and consumer goods, filed returns for the assessment years 1997-98, 1998-99, and 1999-2000. Initially, these returns were processed under section 143(1) resulting in "nil" demand. The Assessing Officer (AO) later noticed that the exemptions claimed on income from liquor sales were not eligible under section 80P of the Income-tax Act, 1961, and issued a notice under section 148 to reassess the income. In response, the appellant made fresh claims for deductions under section 80P(2)(d) on interest income from investments in the Erode District Central Co-operative Bank. The AO rejected these fresh claims based on the Supreme Court decision in Sun Engineering Works [1992] 198 ITR 297 (SC), which was confirmed by the appellate authority and the Tribunal.

The Tribunal, following the Supreme Court's decision in Sun Engineering Works, held that fresh claims cannot be allowed in reassessment proceedings under section 147, as these proceedings are for the benefit of the Revenue. The Supreme Court in Sun Engineering Works stated that reassessment proceedings do not allow an assessee to seek relief on items not claimed in the original assessment unless related to "escaped income." Therefore, the first substantial question of law was answered in favor of the Revenue, confirming that the Tribunal was right in disallowing fresh claims made in response to the section 148 notice.

Issue 2: Deductions on Interest Income, Liquor Sales, and Consumer Goods Sales
The second issue was whether the deductions claimed by the appellant on interest income, liquor sales, and consumer goods sales were allowable under section 80P of the Act.

Interest Income and Liquor Sales:
The Tribunal held that the deduction on interest income and income from liquor sales were not allowable under section 80P. The appellant's claim for deduction on interest income from the Erode District Central Co-operative Bank was not included in the original return but was made in response to the section 148 notice. The Tribunal, relying on the Supreme Court's decision in Sun Engineering Works, rejected these claims, affirming that reassessment proceedings cannot be used to claim deductions not originally claimed. Additionally, the Tribunal found that the deduction claimed on liquor sales did not fall under the categories stipulated in section 80P(2) and thus was rightly rejected. Therefore, the second substantial question of law regarding interest income and liquor sales was answered in favor of the Revenue.

Consumer Goods Sales:
However, the Tribunal and the authorities erred in disallowing the deduction claimed on income from consumer goods sales. The appellant argued that the society was eligible for deduction under section 80P(2)(a) towards income from consumer goods sales. The AO had not provided reasons for rejecting this claim, merely showing a deduction of Rs. 20,000 under section 80P(2)(c). The Commissioner of Income-tax and the Tribunal upheld this without proper reasoning. The High Court noted that the agricultural produce grown by the society's members and the goods meant for public distribution fall within the category (iii) of section 80P(2). Consequently, the second substantial question of law relating to income from consumer goods was answered in favor of the assessee, setting aside the Tribunal's order on this score.

Conclusion:
The first substantial question of law was answered in favor of the Revenue, confirming that fresh claims in response to a section 148 notice cannot be entertained. The second substantial question of law was partly answered in favor of the Revenue regarding interest income and liquor sales, and partly in favor of the assessee concerning income from consumer goods sales. The tax case appeal was disposed of accordingly, with no costs.

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