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TMI Blog2014 (5) TMI 895X X X X Extracts X X X X X X X X Extracts X X X X ..... ne in the order dated 12th August, 2002, the reassessment could be made u/s 153 (3) (ii) – Decided in favour of revenue. The assessee is deemed to have accepted the finding or direction that “thus closing stock value of work in progress, will necessarily be enhanced in the preceding year i.e., AY 1996-97” - Relying upon Hope (India) Ltd. Vs. CIT reported in [1990 (11) TMI 12 - CALCUTTA High Court] - the Explanation to section 153 clearly provides that, in any case where income is excluded in appeal, reference or revision, or in any other legal proceeding, from the assessment for any year, an assessment of such income for another assessment year shall be deemed to be one made in consequence of, or to give effect to, any finding or direction by the authority hearing the case - This fiction of law removes the bar of limitation, irrespective of the question whether the authority has in fact given or can in law give a finding or direction that the income should be taxed in a specified assessment year other than the year for which the authority hears the case - if any income from an assessment by a higher forum on the ground that it is not the income of that year, the Income-tax Offic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Superior Courts including in the case of CIT Vs. Corporation Bank Ltd. 174 ITR 116, 602 (Km.) it has been held as under:- It is thus clear that irrespective of the basis adopted for valuation in the earlier year, the assessee has an option to change the method of valuation of closing stock at cost or market price whichever is lower at any time provided the change is bonafide and followed regularly thereafter. 3.7 If the assessee is free to change its method of valuation in a particular year irrespective of the method adopted in the earlier year, it is unfair to argue that while making the adjustment in the value of closing stock, the department should also make change in the opening stock accordingly. If this argument is accepted it will be a never ending process because the opening stock of one year is the closing stock of the earlier year and so on. 3.8 Since the methods of valuation adopted by the assessee has been clearly shown to be erroneous in the earlier paragraph of this order, the department has every justification to change the valuation of closing stock in accordance with the law. The assessee cannot be allowed to take advantage of its own omission/ commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of consequential adjustment made in the opening stock, if there is any escapement of income in any earlier previous year, the Assessing Officer may reopen the assessment for the purpose of bringing to the tax the income that has escaped assessment. With these observations, ground No.1.2 also stands disposed off. Pursuant to the order dated 12th August, 2002 an exercise was undertaken by the Assessing Officer once again, but he omitted to revalue the opening stock for the assessment year 1997-98 for the following reasons: iv. In the subsequent assessment year 1998-99 onwards, the assessee has himself followed the same yardstick as per directions of CIT (A) and the Assessing Officer while completing the assessment for assessment year 1998-99 u/s 143(3) on 12.01.2000, made the assessment at Rs.73,20,620/- as against the returned income of Rs.85,18,620/-. Thus, the Assessing Officer allowed a reduction of income to the extent of Rs.12,42,510/- due to over valuation of opening stock of workin- progress as on 01.04.1997 (on the basis of addition of Rs.41,03,008/- made in assessment year 1997-98). The relevant portion of assessment order at page 7 8 for the assessment year 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Act in my opinion has any power to lower the income of the appellant than returned one, except when whole or part of the income is assessable in some one else s hand. This incidentally proves that the reverse movement of the above said accounting principle of valuation has no sanction under the Income Tax Law. Accordingly, the Assessing Officer s order under section 154 dated 30.05.2003 is hereby confirmed (sic). Aggrieved by the order dated 20th November, 2003, the assessee preferred an appeal before the learned Tribunal which was disposed of by a judgment and order dated 20th October, 2006 by allowing the appeal of the assessee holding as follows: 6. After considering the rival submissions, we are inclined to agree with the submissions by Shri Rastogi. In the original direction the learned CIT (A) has held that not only the closing stock has to be reworked but the opening stock has also to be reworked on the same basis and even for the said purpose can revalue the closing stock of the immediately preceding year. In our opinion, this was a specific direction though worded in a peculiar manner. This direction has been confirmed by the Tribunal and hence in view of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the CIT (A) or the ITAT in their orders . The assessee once again preferred an appeal against the order dated 4th June, 2008 which was disposed of by an order dated 4th May, 2009 by which the CIT (Appeal) held as follows : 5. The issue involved and the submissions made by the appellant have been considered. The directions of the Hon'ble ITAT are categorical, clear and unambiguous. In view of the binding nature of the orders of the Higher Authorities on the lower authorities, as laid down by the Apex Court in the citations referred to by the appellant; the AO is bound to give effect to the directions of the Hon'ble ITAT so long as the orders of the Tribunal are not reversed by the Higher Judiciary, irrespective of the fact that the assessed income comes down below the returned income. In view of the aforesaid discussion the AO is directed to give effect to the directions of the Hon'ble ITAT; if he is not satisfied with the order of the Hon'ble ITAT, the proper course is to file an appeal before the High Court, but it is highly improper to defy the directions of the ITAT. The appeal of the appellant is allowed . Aggrieved by the order of the CIT (Appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 50(2) of the I.T. Act. The section 150(1) provides that the power to issue notice u/s. 148 in consequence of or giving effect to any finding or direction of the Appellate/Revisional Authority or the Court is subject to the provision contained in section 150(2). Section 150(2) provides that directions u/s. 150(1) cannot be given by the Appellate/Revisional Authority or the Court if on the date on which the order impugned in the appeal was passed, the re-assessment proceedings had become time barred. In other words, as per section 150(2), the Appellate Authority could give directions for the re-assessment only in respect of that assessment year in respect of which re-assessment proceedings could be initiated on the date of passing of order under appeal. In the case of appellant company, it is apparent that the order under appeal before the Hon ble ITAT was order of the CIT(A) dated 04.05.2009 which was passed against the order of the A.O. dated 04.06.2008 giving effect to the order of Tribunal. Thus, in this case, the order under appeal was A.O. s order dated 04.06.2008 and as on that date the time limit for reopening of assessment for A.Y. 1996-97 was already lapsed. Hence, as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on the condition that the closing stock of the assessment year 1996-97 would correspondingly be enhanced. He contended that it cannot be said that the order allowing revaluation of the opening stock of the assessment year 1997-98 is good but the other part of the order directing revaluation of the closing stock of the assessment year 1996-97 was bad. He contended that the assessee from the day one accepted the position that the order directing revaluation both of the opening stock of the 1997-98 and the closing stock of 1996-97 was a valid and legal order. It was no longer open to the assessee to turn round and challenge the legality of the order directing the revaluation of the closing stock of the assessment year 1996-97. He contended that the assessee is blowing hot and cold in the same breathe and the learned Tribunal erred in not appreciating the issue involved in the matter. Mr. Murarka, learned Advocate appearing for the assessee/respondent, submitted that the observation as regards revaluation of the closing stock or work in progress of the assessment year 1996-97 was made by the CIT(A) in his order dated 12th August, 2002 while hearing an appeal arising out of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dave Vs. CIT reported in 140 ITR 1035 (Cal) wherein the Division bench taking into consideration the views expressed by the Apex Court in the case of Rajinder Nath (supra) opined our attention was drawn by the learned advocate for the Revenue to Explanation 2 to Sub- Section (3) of Section 153. We may incidentally point out that explanation was introduced with effect from 6th October, 1964 by the Direct Tax (Amendment) Act, 1964 and the judgment of the Supreme Court in the above-mentioned case on 13th August, 1979. Indeed, though the Supreme Court was not concerned with the Explanation, the Supreme Court noted that though it was concerned with the Assessment years 1955-56 and 1956- 57, there was no change in the expression used in Sub-section (3) of Section 153 namely finding or direction and in spite of the same, the Supreme Court made the aforesaid observations. Mr. Murarka contended that the law declared in Murlidhar Bhagwan Das therefore continues to hold the field. The second submission advanced by Mr. Murarka was that in case the closing stock of the assessment year 1996-97 was to be revalued, a corresponding revaluation of the opening stock of the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken. Mr. Murarka drew our attention to the case of K. M. Sharma Vs. Income Tax Officer reported in 254 ITR 772 (SC) wherein their Lordships opined as follows:- Sub-section (2) aims at putting an embargo on reopening assessments, which have attained finality on the expiry of the prescribed period of limitation. Sub-section (2) in putting such embargo refers to the whole of subsection (1) meaning thereby to insulate all assessments, which have become final and may have been found liable to reassessments or recomputation either on the basis of orders in proceedings under the Act or orders of courts passed under any other law. The High Court, therefore, was in error in not reading the whole of the amended sub-section (1) into sub-section (2) and coming to the conclusion that the reassessment proposed on the basis of the order of the court in proceedings under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pursuant to the aforesaid order dated 6th November, 2009 the opening stock for the assessment year 1997-98 and closing stock the assessment year 1996-97 were revalued giving the requisite benefit to the assessee and raising claim for the escaped income for the assessment year 1996-97. As a matter of fact, the reassessment of both the assessment years 1996-97 and 1997-98 was made on 31st December, 2010. A notice under Section 148 seeking to reopen the assessment for the assessment year 1996-97 had already been issued on 10th June, 2010. The scope of Section 150 (2) was considered by the Punjab Haryana High Court in the case of Parveen Kumari Vs. Commissioner of Income Tax reported in [1999] 237 ITR 339 wherein the following views were expressed:- Sub-section (2) of section 150 lays down an exception and, where such an exception exists, the provisions of sub-section (1) would not be applicable. Sub-section (1) of section 150 shall not apply where the notice for reassessment for an assessment year had become barred by limitation at the time when the order, which was the subject-matter of appeal, revision or reference, was passed. Generally, the time limits prescribed in S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order. The question was considered by this Court in the case of ITO Vs Eastern Coal Co. Ltd., reported in 101 ITR 477 wherein the following views were expressed:- The next question that requires consideration is whether under Section 150 of the Income Tax Act, 1961, this notice can be treated as valid. Counsel for the revenue contended that in view of sub-section (1) of section 150 the period of limitation prescribed under section 149 would not be a bar for taking action in this case. It was submitted that it was to give effect to the finding or direction contained in the order of the Appellate Tribunal that the present action was taken; the first question that requires consideration is whether it was to give effect to any finding or direction. As mentioned hereinbefore the Tribunal following the decision of the Supreme Court given under the provisions of the 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me tax Act, 1961, would apply on the facts of this case. Reference may also be made to the judgment in the case of Additional CIT Vs. Kamlapat Moti Lal reported in 110 ITR 769. In the aforesaid judgment the Allahabad High Court held that the views expressed by the Supreme Court in the case of Income Tax Officer Vs. Murlidhar Bhagwan Das were partly nullified by Explanation 2 added to Section 153 (3) of the Income Tax Act. We shall next deal with the contention of Shri Gupta that the reassessment for the year 1961-62 could not be said to be in consequence of or to give effect to any direction or finding of the Appellate Assistant Commissioner. No doubt, in Income tax Officer v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC), the Supreme Court held that in deciding an appeal relating to one assessment year the appellate authority cannot give a direction or a finding that a particular income which was not chargeable to tax in that assessment year, was chargeable to tax in another assessment year. But the effect of this decision of the Supreme Court has been partly nullified by the amendment of section 153 of the Act by adding Explanation 2 to sub-section (3) of that section. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding or direction contained in the said order. If there is no finding or direction in the order of a higher authority, then Explanation 2 to Section 153(3) of the Act will apply. On the other hand, if there is a finding or direction, the case would fall under Section 153 (3)(ii). In a case dealing with the corresponding provisions of the Indian Income-tax Act if 1922, the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das, [1964] 52 ITR 335 (SC) held that:- The jurisdiction of the Appellate Assistant Commissioner under section 31 was strictly confined to the assessment order of the particular year under appeal and that assessment or reassessment made in consequence of or to give effect to any finding or direction contained in an order under Sections 31, 33, 33A, 33B, 66 or Section 66 A, must necessarily relate to the assessment of the year under appeal, revision or reference, as the case may be. The Explanation in the 1961 Act partly gets over the above decision of the Supreme Court. Two arguments have been advanced by the learned counsel, Sri S. Dasaratharama Reddy, for contending that Explanation 2 is invalid. His argument was that in Income-tax Officer v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment would be within his jurisdiction. The next argument is equally devoid of force. In Janapada Sabha, Chhindwara v. Central Provinces Syndicate Ltd. AIR 1971 SC 57, the Supreme Court laid down that, on the language used in the Act, it was plain that the legislature attempted to overrule or set aside the decision of the Supreme Court, which it cannot do. As we have already stated above, the legislature in this case has not attempted to overrule or set aside the decision of the Supreme Court. This decision is not, therefore, attracted to the facts of the case before us. Reference may also be made to the judgment of he Bombay High Court in the case of Ambaji Traders Pvt. Ltd. Vs. ITO reported in [1976] 105 ITR 273 wherein agreeing with the views expressed in A. R. Saheb ( B.A.R.) Vs. ITO the following views were expressed:- Now, what was contended by Mr. Ghate on behalf of the petitioner is that even assuming that by virtue of Explanation 2 to section 153 (3) the assessment of the income which was excluded in the assessment year 1958-59 and had, therefore, to be included in the assessment year 1959-60 could be fictionally included under section 150 and was deemed to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -section (3) as an order of any court in a proceeding otherwise than by way of appeal or reference under the Act. Thus, the substantive provisions of sub-section (3) of Section 153 have removed the bar of limitation prescribed in sub-section (2) in the cases contemplated by that section. Now, under Explanation 2 it is provided that where, by an order referred to in clause (ii) of subsection (3), any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another asessment year shall, for the purposes of section 150 and section 153 be deemed to be one made in consequence of or give effect to any finding or direction contained in the said order. This is a new provision and is a departure from the 1922 Act under which, for the purposes of the second proviso to sub-section (3) of section 34, the finding to which effect could be given without a bar of limitation had to be in respect of the same assessment year as held by the Supreme Court in Income-tax Officer v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC) and N. KT. Sivalingam Chettiar v. Commissioner of Income-tax [1967] 66 ITR 586 (SC). The effect of the second Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the assessment year 1966-67 was a revenue receipt. The deletion of that income by the Tribunal for that assessment year shall be deemed to be a direction, and to give effect to the direction, reassessment could be made under section 147(b) read with sections 150 and 153(3). The Tribunal, in our opinion, has correctly construed these provisions. Therefore the Division Bench judgment of this Court in the case of Mrs. R. H. Dave (supra) relied upon by Mr. Murarka is no longer binding. The reassessment of the escaped income of the assessment year 1996-97, without any express finding or direction can be made under Explanation (2) to Section 153 (3) and in a case where no express finding or direction is there, like the one in the order dated 12th August, 2002, the reassessment could be made under Section 153 (3) (ii). The judgment in the case of Murlidhar Bhagwan Das shall not stand in the way. Therefore both the questions formulated above are answered in the negative and in favour of the Revenue. The next question which falls for determination is whether closing stock of the assessment year 1996-97 can be revalued without correspondingly revaluing the opening stock for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1997-98. We are supported in our view by the following judgments:- In the case of Hope (India) Ltd. Vs. CIT reported in [1993] 203 ITR 118 a Division Bench of this Court held as follows:- It is on the basis of the submissions of the assessee that the Tribunal decided the issue in favour of the assessee and issued a direction that the Income-tax Officer should make proportionate addition for the period during which construction continued. The assessee cannot approbate and reprobate at the same time. It was on the basis of the contention of the assessee which was accepted by the Tribunal that the Tribunal gave the aforesaid direction. In our view, the direction which was given by the Tribunal in connection with the assessment for the assessment year 1966-67 was necessary for the disposal of the appeal on the basis of the submission made by the assessee. The assessee having taken the benefit cannot now ask for overturning the said decision. That apart, the Explanation to section 153 clearly provides that, in any case where income is excluded in appeal, reference or revision, or in any other legal proceeding, from the assessment for any year, an assessment of such income for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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