2016 (10) TMI 395 - HC - Income Tax

Reopening of assessment - Held that - In an instance where the Department comes to a conclusion that the tax has escaped assessment for any assessment year, it is well within the powers of the Department to issue notice under Section 148 within the specified time. Insofar as the petitioners are concerned, notices had been issued within the specified time on the basis that there is reason to believe that the tax has escaped assessment. Under such circumstances, there is no jurisdictional error on the part of the Department in issuing notice under Section 147 r/w. Section 148 of the Act. Entitlement for any exemption as provided under Section 88 for the entire amount of arrears of salary received and deposited with the Provident Fund - Held that - Apparently, the petitioners could have preferred an appeal against the impugned orders. But they have not chosen to do so and had approached this Court. The law is now well settled as held by this Court in Kerala Electricity Officers Federation and Others v. Central Board of Direct Taxes and Others 2005 (7) TMI 87 - KERALA High Court , which squarely applies to the facts of the present case in which this Court after considering the question of exemption under Section 88 of the Act in similar situations held that the amount received as arrears of salary, even if deposited in the PF account, is not entitled for full exemption whereas exemption will be available for the arrears of salary received in respect of the particular year for which the assessment is being made.

Summary

Issues:
Challenge to assessment orders invoking Section 147 and 148 of the Income Tax Act, 1961; Claim for exemption under Section 88 of the Act for arrears of salary deposited in Provident Fund; Applicability of previous judgments on reopening assessments; Entitlement to challenge assessment orders based on exemption claims.

Analysis:
The writ petitions challenge assessment orders and demands by the Income Tax Department under Section 147 and 148 of the Income Tax Act, 1961. The petitioners received arrears of salary deposited in the Provident Fund and claimed exemption under Section 88 of the Act. Initially, they were granted benefits, but later, assessments were reopened through notices under Section 148 r/w. Section 147, limiting exemption to the particular year of receipt without spread-over benefits for other years.

The main contention is based on similar cases where appellate authorities and the Court held that assessments cannot be reopened under Section 147 and 148. The petitioners rely on a specific judgment, arguing for consistency in treatment. However, the respondents argue factual distinctions, citing precedents like Kerala Electricity Officers Federation case, which limited exemption to the specific year of arrears received, not spread-over years.

The Court analyzes the arguments and concludes that the petitioners' case involves reopening assessments before appellate decisions, distinguishing it from previous judgments. The critical issue is whether the petitioners can challenge assessment orders based on exemption claims or contest the legality of reopening assessments under Section 147 and 148.

Section 147 empowers the Assessing Officer to reassess income if tax has escaped assessment, allowing notice issuance within the specified time. The Court finds no jurisdictional error in the Department's actions, issuing notices to the petitioners under Section 147 r/w. Section 148. The question of exemption under Section 88 for the entire arrears of salary deposited in Provident Fund is addressed, emphasizing the petitioners' option to appeal against the orders, which they did not exercise.

Considering the settled law from previous cases like Kerala Electricity Officers Federation, the Court dismisses the writ petitions, finding no merit in the contentions raised. The judgment underscores the limited scope of exemption for arrears of salary, rejecting the petitioners' claims for broader benefits beyond the specific year of receipt.