2014 (9) TMI 286 - HC - Income Tax

Rejection of application of withdrawal of notice for reopening of assessment u/s 148 Extended period of limitation - Notice time barred or not Invocation of section 150(1) to be made or not Held that - The reopening of assessment is proposed to be made in relation to the AY 2003-2004 - the period of six years prescribed u/s 149, is already over - the Department should establish that this case falls within anyone of the two requirements of Section 150(1) - the Tribunal had remitted the matter back to the AO for a fresh consideration on the aspect of cost of construction - But at the same time, the Tribunal also rejected the stand taken by the Department that spreading over is not possible also in Rajinder Nath Vs CIT 1979 (8) TMI 3 - SUPREME Court it has been decided that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case that is to say in respect of the particular assessee and in relation to the particular assessment year - the assessee himself appears to have claimed that the construction was spread over to 2-3 years CIT(A) rendered a finding that the unexplained investment should be allowed to be spread over - That finding is upheld by the Tribunal thus, the contention of the revenue that there was a finding and that this lead to the reopening of the assessment, has to be upheld - As a matter of fact, the reopening of assessment is a natural consequence of the claim for spread over thus, the order fo the Tribunal is to be upheld Decided against assessee.

Issues Involved:
1. Challenge to the reopening of assessment for the year 2003-2004.
2. Validity of the notices issued under Section 148 read with Section 150(1) of the Income Tax Act.
3. Interpretation and applicability of Sections 149 and 150 of the Income Tax Act.
4. Determination of cost of construction and unexplained investment.
5. Spreading of cost of construction over multiple assessment years.

Issue-wise Detailed Analysis:

1. Challenge to the reopening of assessment for the year 2003-2004:
The petitioners challenged the reopening of their assessment for the year 2003-2004, arguing that the time limit for issuing a notice under Section 148 had expired. The Department issued the notice based on information from the assessment of a co-owner, Shivlal, leading to the determination of unexplained investment under Section 69B. The petitioners contended that the reopening was not justified as per the statutory time limits.

2. Validity of the notices issued under Section 148 read with Section 150(1) of the Income Tax Act:
The petitioners argued that the notice under Section 148 was barred by time and not saved by Section 150(1). Section 149(1) stipulates a four-year limit for issuing a notice under Section 148, extended to six years if the escaped income exceeds Rs. 1 lakh. Section 150(1) allows reopening at any time if it is to give effect to a finding or direction in an order passed by an authority under the Act. The court had to determine whether the requirements of Section 150(1) were met to bypass the limitation period under Section 149.

3. Interpretation and applicability of Sections 149 and 150 of the Income Tax Act:
The court examined the provisions of Sections 149 and 150. Section 150(1) requires the reopening of assessment to be in consequence of or to give effect to any finding or direction in an order passed by an authority under the Act. The court noted that for the Department to invoke Section 150(1), it must establish that the reopening was a consequence of an order or to give effect to a finding or direction.

4. Determination of cost of construction and unexplained investment:
The case involved determining the cost of construction of a building purchased by the petitioners and others. The Departmental Valuation Officer valued the building significantly higher than the registered valuer's report, leading to the addition of unexplained investment. The Commissioner of Income Tax (Appeals) initially allowed the appeals, stating the reopening was unjustified. However, the Income Tax Appellate Tribunal remitted the matter back for fresh consideration of the cost of construction.

5. Spreading of cost of construction over multiple assessment years:
The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision to spread the cost of construction over two assessment years (2003-2004 and 2004-2005) in the ratio of 63.63% and 36.37%. The Tribunal rejected the Department's objection to spreading the cost and remitted the matter back to the Assessing Officers for fresh consideration. The court found that the Tribunal's order constituted a finding, necessitating the reopening of assessment to give effect to the spread over.

Conclusion:
The court concluded that the reopening of assessment was justified under Section 150(1) as it was in consequence of a finding by the Tribunal. The Tribunal's decision to allow spreading the unexplained investment over two years was upheld, and the Assessing Officers were required to determine the correct cost of construction and allow the spread over. Consequently, the writ petitions challenging the reopening were dismissed.

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