Commissioner Of Income-Tax,Coimbatore v. K.m.pachayappan

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 04.07.2007 CORAM : THE HONOURABLE MR.JUSTICE P.D.DINAKARAN AND THE HONOURABLE MR.JUSTICE P.P.S.JANARTHANA RAJA Tax Case (Appeal) No.870 of 2007 Commissioner of Income-tax,Coimbatore. Vs. K.M.Pachayappan ..Appellant..Respondent Appeal under Section 260A of the Income-tax Act, 1961 against theorder of the Income Tax Appellate Tribunal, 'D' Bench, Chennai in I.T.A.No.228/Mds/2002 dated 28.10.2005 for the assessment year 1997-98 gainstthe order of the Commissioner of Income Tax [Appeals] I Coimbatore dated11.12.2001 in ITA.Nos.282 and 283 / 01-02 for the Assessment Year 1996-97and 1997-98 respectively against the Order of the Income Tax Officer,Ward I[5] Erode dated 20.2.2001 and made in PAN/GIR No.P.5028. For Appellant :Mr.T.Ravi Kumar, Standing Counsel forIncome-tax Department JUDGMENT (Judgment of the Court was delivered byP.P.S.Janarthana Raja, J.) This appeal is filed under Section 260A of the Income Tax Act, 1961 bythe Revenue, against the order of the Income Tax Appellate Tribunal, 'D'Bench, Chennai in I.T.A. No.228/Mds/2002 dated 28.10.2005, raising thefollowing substantial questions of law:- "1. Whether on the facts and circumstances of the case,the Tribunal was right in law in not considering theExplanation 2 to Section 147 which provides that theassessing officer can reopen the assessments even ifthe assessments have not been completed under Section143 and only intimation had been sent, if theconditions laid under Section 147 are fulfilled? https://hcservices.ecourts.gov.in/hcservices/ 2. Whether on the facts and circumstances of the case,the Tribunal is right in not considering that theaddition of incentive bonus to the total income isproper or not in view of the decision of the MadrasHigh Court reported in the case of CIT Vs.E.A.Rajendran reported in 235 ITR 514 in which it hasbeen held that no deduction except what has beenallowed under Section 16 is admissible?" 2.The facts leading to the above substantial questions of law areas under:- The assessee is a Development Officer in M/s.Life InsuranceCorporation of India, Gobichettipalayam Branch. The assessee filed hisReturn of income for the said assessment year on 30.03.1999 declaring atotal income of Rs.3,94,820/-. The Return was processed under Section 143(1) of the Income-tax Act ("Act" in short) on 15.03.2000. The assesseehas received additional conveyance allowance of Rs.1,66,957/- and claimedthe entire additional conveyance exempt under Section 10(14) of the Act.The assessee has also received incentive bonus of Rs.5,46,721/- andclaimed expenditure to the tune of Rs.2,61,849/- against that income.Later, the Assessing Officer issued notice under Section 148 of the Act onthe ground that the income has escaped assessment. The assessee repliedto the notice issued under Section 148 and contended that the AssessingOfficer has no jurisdiction to initiate reassessment proceedings when theReturn is pending. However, the Assessing Officer rejecting thecontention of the assessee, completed the assessment under Section 143(3)r/w 147 of the Act. Aggrieved by the order, the assessee filed an appealto the Commissioner of Income-tax (Appeals). The C.I.T.(A) allowed theappeal. Aggrieved, the Revenue filed an appeal to the Income-tax AppellateTribunal ("Tribunal" in short). The Tribunal dismissed the appeal andconfirmed the order of the C.I.T.(A). Hence the present appeal by theRevenue. 3.Learned Standing Counsel appearing for the Revenue submitted thatthe Assessing Officer has the power to reopen the assessments once theconditions are satisfied for the purpose of reopening the assessment underSection 147. It is also further submitted that the Assessing Officer hadrecorded his reasons for reopening the assessment and the present case iscovered by Explanation 2 of Section 147 which would clearly empower theassessment officer to pass orders. 3.Learned Standing Counsel appearing for the Revenue submitted thatthe Assessing Officer has the power to reopen the assessments once theconditions are satisfied for the purpose of reopening the assessment underSection 147. It is also further submitted that the Assessing Officer hadrecorded his reasons for reopening the assessment and the present case iscovered by Explanation 2 of Section 147 which would clearly empower theassessment officer to pass orders. 4.Heard the counsel. In this case, Return of income was filedunder Section 139(4) of the Act on 15.03.2000 and notice under Section 143(2) for framing assessment under Section 143(3) could have been issuedupto 31.03.2000. Therefore, a valid Return of income was pending as on15.03.2000. The Assessing Officer issued notice under Section 148 on15.03.2000 when a valid Return under Section 139(4) was pending. In thiscase the Return was filed and the same is pending, which means that theproceeding is still pending. In such a situation, the Revenue could nothave issued notice for the purpose of reopening under Section 147 of the https://hcservices.ecourts.gov.in/hcservices/ Act. In the case of Trustees Of H.E.H. The Nizam's Supplemental FamilyTrust Vs. Commissioner of Income-tax [2000] 242 ITR 381 (SC), the SupremeCourt considered the scope of reopening the assessment and held asfollows:- "It is settled law that unless the return of incomealready filed is disposed of, notice for reassessmentunder section 148 cannot be issued, i.e., noreassessment proceedings can be initiated so long asassessment proceedings pending on the basis of thereturn already filed are not terminated. According tothe Revenue it is immaterial whether the order iscommunicated or not and the only bar to thereassessment proceedings is that proceedings on thereturn already filed should have been terminated."".... A mere glance at this note would show that itcould not be said that the Income-tax Officer gavefinality to the refund since no refund is grantedeither in the hands of the trust or in the hands of thebeneficiaries. It is an inconclusive note where theIncome-tax Officer left the matter at the stage ofconsideration even with regard to refund in the handsof the beneficiaries. This note was also notcommunicated to the trustees. When we examine the notedated November 10, 1965, on the file of 1963-64 nothingflows from that as well. In any case if it is anorder, it would be appealable under section 249 of theAct. Since the period of limitation starts from thedate of intimation of such an order, it is imperativethat such an order be communicated to the assessee. Hadthe Income-tax Officer passed any final order, it wouldhave been communicated to the assessee within areasonable period. In any case, what we find is thatthe note dated November 10, 1965, is merely an internalendorsement on the file without there being anindication if the refund application has been finallyrejected. By merely recording that in his opinion, nocredit for tax deducted at source is to be allowed, theIncome-tax Officer cannot be said to have closed theproceedings finally. The decisions referred to by theRevenue are of no help in the present case. We are,thus, of the opinion that during the pendency of thereturn filed under section 139 of the Act along withthe refund application under section 237 of the Act,action could not have been taken under section 147/148of the Act. Our answer to the question, therefore, isin the negative, i.e., against the Revenue."In the case of KLM Royal Dutch Airlines Vs. Assistant Director of Income-tax [2007] 292 ITR 49 (Delhi), the Delhi High Court, following the aboveSupreme Court judgment, considered the scope of provision of Sections 139and 147 of the Act and held as follows:- "Applying this line of decisions to the facts of thepresent case, the inescapable conclusion that wouldhave to be reached is that while assessment proceedingsremain inchoate, no "fresh evidence or material" couldpossibly be unearthed. If any such material orevidence is available, there would be no restrictionsor constraints on its being taken into consideration bythe Assessing Officer for framing the then currentassessment. If the assessment is not framed before theexpiry of the period of limitation for a particularassessment year, it would have to be assumed that sinceproceedings had not been opened under section 143(2),the return had been accepted as correct. It may beargued that thereafter recourse could be taken tosection 147, provided fresh material had been receivedby the Assessing Officer after the expiry of limitationfixed for framing the original assessment. So far asthe present case is concerned, we are of the view thatit is evident that, faced with severe paucity of time,the Assessing Officer had attempted to travel the pathof section 147 in the vain attempt to enlarge the timeavailable for framing the assessment. This is notpermissible in law." Applying the principles enunciated in the judgments of the Supreme Courtas well as the Delhi High Court, cited supra, the Tribunal is right incoming to a conclusion that no action could be initiated under Section 147of the Act, when there is a pendency of the Return before the AssessingOfficer. The reasons given by the Tribunal are based on valid materialsand evidence and we do not find any error or illegality in the order ofthe Tribunal so as to warrant interference. 5.In view of the foregoing reasons, no substantial questions of lawarise for consideration of this Court and accordingly the tax case isdismissed. No costs. /true copy/ km To 1. The Assistant Registrar, Income-tax Appellate Tribunal, 'D' Bench, Rajaji Bhavan, Shastri Nagar, Chennai. 2. The Commissioner of Income-tax (Appeals) I, Coimbatore. Coimbatore. 3. The Income Tax Officer, Ward-I(5), Erode.4. The Commissioner of Income Tax,Coimbatore.+ 1 CC To Mr.N.Muralikumran, Advocate SR NO.40387 T.C.(A) No.870 of 2007gg[co]gp/18.7.