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TMI Blog2010 (4) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... elected for a scrutiny assessment. The assessment was concluded upon the passing of an order on 27th December 2006. By a notice dated 7th April 2008, the assessment was sought to be reopened, in exercise of the powers conferred by Sections 147 and 148 of the Income Tax Act, 1961. 3. Four reasons have been furnished for reopening the assessment in the disclosure made by the Assistant Commissioner of Income Tax on 17th September 2008. For convenience of reference, it would be appropriate to extract from the reasons which have been furnished to the assessee, which are as follows: "On perusal of the records, it is noticed that in the computation of income enclosed with the return of income filed by the assessee along with the return of income, the assessee has claimed deduction of Rs.10,84,07,449/as loss of Plantation division deductible under Rule 8 and the same was allowed in the assessment order passed u/s.143(3) of the Act. As per Rule 8 of Income Tax Rules, 1962, income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business and forty per cent of such income shall be deemed to be income liable to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than the capital gain arising from the transfer of the original asset, so much of the capital gain as bears to the whole of the capital gain the same proportion as the cost of acquisition of the longterm specified asset bears to the whole of the capital gain, shall not be charged under section 45 of the Act. On perusal of the NHB Capital Bonds Certificates dated 9th June 2004, it is seen that the date of allotment of the said bond is 31.3.2004. The date of allotment of the bond is the record date for all other purposes (date of redemption is 31.3.2009). Thus, the assessee has not invested the gain in specified asset within a period of six months after the date of transfer of the capital asset (date of sale 29.9.2003). Hence, the assessee is not eligible for the exemption u/s.54EC of the Act of Rs.3,07,50,000/on sale of Bhandup land. Thus, the assessee's income from long term capital gain to the extent of Rs. 3,07,50,000/has escaped the assessment. On perusal of the records, it is also noticed that in the computation of income enclosed with the return of income filed by the assessee, the assessee has claimed deduction of Rs. 14,53,98,193/u/s.10B in respect of four 100 per cent ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a part of the statement, showing computation of the total income, the total business income was reflected as Rs.1826.43 crores. The assessee reported a loss on the Plantation division, described as the Doom Dooma division and the Tea estates, in the amount of Rs.10.84 crores. After deducting the loss of Rs.10.84 crores from the business income, the profits attributable to the business carried on by the assessee were computed at Rs.1815.59 crores. 8. The assessee, as a part of its plantation business carries on a composite activity of growing tea leaves which are then utilized for the manufacture and sale of tea. Rule 8 of the Income Tax Rules, 1962 provides that income derived from the sale of tea grown and manufactured by the seller in India shall be computed as if it were income derived from business and 40 per cent. of such income is deemed to be the income liable to tax. Rule 8, in other words, enacts a legal fiction for segregation of agricultural income from business income, where an assessee grows tea, which constitutes an agricultural activity and also manufactures and sells tea, which is a nonagricultural and business activity. By virtue of Section 10, agricul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt held that since agricultural income is neither chargeable nor includible in the total income, Rule 8(1) segregates the agricultural income from business income in the ratio of 60:40. Consequently, chargeability and computability under the Act would be confined to the extent of 40 per cent. of the income. If this distinction is kept in mind, the assessee would not be entitled to claim a deduction under Section 80HHC against the entire or composite tea income but only against a proportionate part thereof, which is attributable to business income in the ratio which is set out in Rule 8. 10. In the present case, the ground on which the assessment is sought to be reopened is that the assessee had claimed a deduction of Rs. 10.84 crores as the loss sustained by the Plantation division under Rule 8, which came to be allowed. According to the notice issued to the assessee, the deeming provisions of Rule 8 are applicable only in the case of agricultural income and the claim of the assessee to set off 40 per cent. of the losses against normal business profits was not allowable. 11. The submission which has been urged on behalf of the assessee is that the ground on which the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... against a notice issued under Section 148 seeking to reopen an assessment on the ground that income chargeable to tax has escaped assessment. The condition precedent for a valid exercise of power under Section 147 is the formation of a reason to believe on the part of the Assessing officer that income chargeable to tax had escaped assessment. Now, it cannot be disputed, as it has not been during the course of the submissions, that the assessee had sought to adjust 40 per cent. of the overall loss which was sustained as the loss that was attributable to the business activity of the manufacture and sale of tea at its two plantation units. This is evident from the computation of the profits and gains of business made by the assessee in respect of its Tea estates and Doom Dooma unit. In other words, the material on record clearly demonstrates that the adjustment that was sought was not in respect of the entire loss that was sustained by the assessee in the composite activity of the growing of tea leaves and the manufacture and sale of tea but only to the extent of 40 per cent. which represented the segregation of the income attributable to the sale of tea under Rule 8. 13. Now, what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, wherever it becomes material, in the same mode of the taxable income of the assessee. Although section 6 classifies income under six heads, the main charging provision is section 3 which levies income-tax, on the "total income" of the assessee as defined in section 2(15). An income in order to come within the purview of that definition must satisfy two conditions. Firstly, it must comprise the "total amount of income, profits and gains referred to in section 4(1)". Secondly, it must be "computed in the manner laid down in the Act". If either of these conditions fails, the income will not be a part of the total income that can be brought to charge." The Supreme Court held that if the capital was not chargeable to tax during the period between 1 April 1948 to 1 April 1957, the assessee did not possess an independent right to carry forward his capital loss even if it could not be set off, owing to the non-taxability of the capital gains, against profits in subsequent years. The decision of the Supreme Court emphasizes that under the charging provisions of the Act, income must be comprehensively understood as including a loss. The principle that income would include a loss ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit. The Assessing Officer while passing his order of assessment dated 27th December 2006 adopted the business income of Rs.1815.59 crores which was in terms of the computation made by the assessee. While making deductions from the business income, the Assessing officer deducted an amount of Rs.10.84 crores as a loss arising from the Plantation division. This was a plain computational error on the part of the Assessing Officer because the figure of Rs.1815.59 crores disclosed as business income by the assessee in the computation of income was after the adjustment of the loss from the Plantation division of Rs.10.84 crores. The Assessing Officer, therefore, plainly made a computational error in once again deducting an amount of Rs. 10.84 which had already been accounted for in the computation of business income at Rs.1815.59 crores. 17. Counsel appearing on behalf of the assessee submitted that the error which took place in the computation of income by the Assessing Officer can and ought to be rectified under Section 154. The submission which was urged before the Court is that if the Assessing Officer would proceed to rectify the error, which is obvious, the assessee would have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of Explanation (2) incorporates a situation where an assessment has been made, but income chargeable to tax has been under assessed; or assessed at too low a rate; or where such income has been made the subject of excessive relief under the Act. Where the power to rectify an order of assessment under Section 154(1) is adequate to meet a mistake or error in the order of assessment, the Assessing Officer must take recourse to that power as opposed to the wider power to reopen the assessment. The assessee cannot be penalized for a fault of the Assessing officer. We must emphasize that we are not dealing with a case where the error in the order of assessment is attributable to a lapse or omission on the part of the assessee. The provisions of the statute lay down overlapping remedies which are available to the Revenue but the exercise of these remedies must be commensurate with the purpose that is sought to be achieved by the legislature. The reopening of an assessment under Section 147 has serious ramifications. Explanation (3) to Section 147 provides that for the purposes of assessment or reassessment, the Assessing Officer may assess or reassess the income in respect of any issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stice M.C. Chagla, speaking for a Division Bench of the Court in J.C. Thakkar V/s. Commissioner of Income tax, Central, Bombay{(1955) XXVII ITR 658 (Bom)}. The principle which was laid down by the Division Bench is that when one or more modes of assessment or remedies are available to the taxing Authority, the Authority must adopt that remedy which is a matter of the least prejudice to the assessee. The principle has been put in the felicitous words of the learned Chief Justice, which are as follows: "……. It would still be open to the assessee to contend that by adopting one mode of assessment rather than another a prejudice has been caused to him or that he has been deprived of some right to which he would have been entitled if the unregistered firm had been assessed first or that the burden of taxation has been increased because he has been assessed without the unregistered firm being assessed. It is needless to say that if one or more modes of assessment are open to the taxing authorities, the taxing authorities must adopt that mode which is more beneficial to the assessee. The Indian Income-tax Act is a taxing statute and therefore the Courts must be zealous to see that no rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a period of six months from the date of the transfer of the asset. Consequently, the provisions of Section 54EC were complied with by the assessee. There is absolutely no basis in the ground for reopening the assessment. (iv) The loss incurred by the eligible unit under Section 10B: 23. The fourth and final ground which has weighed with the Assessing Officer in reopening the assessment is that the assessee claimed a deduction of Rs.14.53 crores under Section 10B. The deduction was restricted to Rs.11.11 crores in the order. While reopening the assessment, the Assessing Officer has proceeded on the basis that Section 10B provides an exemption and that in respect of the Crab Stick Unit the assessee had suffered a loss of Rs.1.33 crores. The Assessing Officer has observed that since the income of the unit was exempt from taxation, the loss of the unit could not have been set off against the normal business income. However, this was allowed by the assessment order and it is opined that the assessee's income to the extent of Rs.1.33 crores has escaped assessment. 24. There is merit in the submission which has been urged on behalf of the assessee that the Assessing Officer has while ..... X X X X Extracts X X X X X X X X Extracts X X X X
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