Ita v. The Commissioner Of Income Tax,Hisar

ITA No.208 of 2007 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Smt. Anchi Devi, C/o M/s Vikas WSP, Siwani, Distt. Bhiwani ITA No.208 of 2007Date of decision: 28.3.2008 Versus The Commissioner of Income tax,Hisar......Respondent CORAM:-HON'BLE MR.JUSTICE SATISH KUMAR MITTALHON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present: Mr. Sanjay Bansal, Sr. Advocate instructed by Mr. Prashant Bansal, Advocate and Mr. Parvesh Saini, Advocate for the appellant Mr.Yogesh Putney, Advocate for the respondent. * * * Rakesh Kumar Garg, J . 1.The assessee filed return of income on 31.10.1998 for theassessment year 1998-99 declaring an income of Rs.46,220/- and anagricultural income of Rs.84,286/-. The return was processed underSection 143(1)(a) of the Income Tax Act, 1961 (hereinafter referred to asthe 'Act') on 18.5.1999. Subsequently, the assessment was reopenedunder Section 147 of the Act and a notice under Section 148 of the Act wasissued on 8.1.2001 which was served upon the assessee on 11.1.2001. Inrespect thereto, the assessee filed a return of income on 28.2.2001declaring the same income as shown in the original return and this returnwas also processed under Section 143(1)(a) on 30.3.2001 accepting thereturned income. Thereafter, notices were issued under Section 143 (2)and Section 142(1) of the Act and the assessment under Section 143(3)read with Section 147 was completed on 14.2.2003 on a total income of Rs.17,01,235. Various additions and disallowances were made in thisassessment. 2.The assessee filed an appeal before the CIT (Appeals) andbesides contesting the disallowances made in the assessment, took up aground that the assessment was time barred in view of section 153(2) ofthe I.T.Act and, therefore, the same should be quashed. It was contendedthat under section 153(2), the assessment proceedings have to becompleted within one year from the end of the financial year in which thenotice under section 148 was served. It was pointed out that the noticewas served on the assessee on 11.01.2001, which is a day which fellbefore 01.06.2001 and, therefore, in such a case, the assessment ought tohave been completed on or before 31.03.2002. Since it was completedonly on 14.02.2003, the assessment, it was contended was beyond theperiod of limitation 3.The Commissioner of Income Tax (Appeals) held that sincesection 153(2) was amended with effect from 01.06.2001 to reduce thetime limit available for completion of the assessment from two years to oneyear from the end of the financial year in which the notice under section148 was served, the amended provision would operate in the present case,notwithstanding that the notice was served before 01.06.2001, andtherefore the assessment ought to have been completed on or before31.03.2002 and since it was completed only on 14.02.2003, it was beyondthe period of limitation. Thus, the CIT (A) applied the amended Sections153(2) to restrict the time limit available to the Assessing Officer tocomplete the assessment. 4. Feeling aggrieved against this order, the revenue filed anappeal before the Tribunal who vide impugned order dated 6.7.2005 held that the view taken by the CIT(A) that the assessment ought to have beencompleted on or before 31.3.2002 is correct in law and thus, dismissed theappeal. 5. It is relevant to mention at this stage that the AssessingOfficer reopened the assessment proceedings again by serving a freshnotice under Section 148 of the Act on 24.3.2004. Reasons for reopeningthe assessment by the Assessing Officer are reproduced hereinafter:- Smt. Anchi Devi Jindal C/o M/s Viklas WSPLtd. Siwani Assessment year 1998-99 Reasons for the belief that income hasescaped assessment: 4. Feeling aggrieved against this order, the revenue filed anappeal before the Tribunal who vide impugned order dated 6.7.2005 held that the view taken by the CIT(A) that the assessment ought to have beencompleted on or before 31.3.2002 is correct in law and thus, dismissed theappeal. 5. It is relevant to mention at this stage that the AssessingOfficer reopened the assessment proceedings again by serving a freshnotice under Section 148 of the Act on 24.3.2004. Reasons for reopeningthe assessment by the Assessing Officer are reproduced hereinafter:- Smt. Anchi Devi Jindal C/o M/s Viklas WSPLtd. Siwani Assessment year 1998-99 Reasons for the belief that income hasescaped assessment: From the perusal of the assessment records, theassessment was completed under section 143(3)/147 on 14.2.2003 on a total income ofRs.17,01,235/- and agriculture income ofRs.84,286/-. In the assessment an addition ofRs.16,79,717/- was made on account of deductionclaimed by the assessee on account of interestpaid of FDRs, the assessee had filed an appealagainst this order and the ld. CIT(A) in his order inappeal No.11/9/BHW/CIT (A), KNL/2002-03 dated20.6.2003 quashed the assessment on the groundthat the assessment finalized on 14.2.2003 wasbarred by time. During the year underconsideration the assessee has shown interest onFDRs at Rs.16,79,717/-. The case of theassessee has been processed under Section 143 (1)(a) on 18.5.1999 and the returned income hasbeen accepted. It is noticed that the assesseehas claimed the payment of interest to the bank atRs.16,54,795/-. The assessee filed its return ofincome declaring following results. Income from other sources It is seen that the assessee has obtained loanagainst her FDRs with the bank on higher rate ofinterest, and gifted it for the construction of the CollegeBuilding. The deduction on account of interest claimedto have been paid to the bank is not allowable. Keepingin view the facts that interest income is assessableunder the head “Income from other sources”. I therefore, have reasons to believe that wrongdeduction has been claimed and allowed on incomefrom interest on FDR and income to the extent ofRs.16,54,795/-(1679717-249221)hasescapedassessment. 6. In response to this notice, the assessee declared the sameincome as declared in the original return. During the reassessmentproceedings, the Assessing Officer noted that the assessee had receivedinterest of Rs.16,79,717/- against which interest of Rs.16,54,794/- hadbeen claimed as deduction as paid to the bank. 7.The Assessing Officer held that interest paid was not allowable as deduction as the income from investment out of the loan was nottaxable. He also held that the loans taken were for investment in theFDRs. The interest paid on the borrowings against which the FDRs werepledged, was not wholly and exclusively for earning of interest. He,therefore, disallowed the claim of deduction. 8.In appeal, the assessee submitted before CIT(A) that theissuance of fresh notice under Section 148 was not justified as on thesame issue, assessment had already been reopened and the assessmenthad been completed under Section 143(3). CIT(A) was however notsatisfied and it was observed by him that the earlier assessmentproceedings had been quashed by CIT(A) and, therefore, there was no baron reopening of assessment again. He relied upon the judgement of theHon'ble High Court of Allahabad in the case ofG.P. Agarwal v. Assistant Commissioner of Income-Tax(208 ITR 795) in which it was held thatthere was no bar on initiating reassessment proceeding in cases whererectification proceeding had already been dropped He, therefore, upheldthe reopening of the assessment. The addition was also upheld on meritsas payment of interest was not made for the purpose of making the earningof interest from FDR which had been assessed under the head 'othersources'. Commissioner of Income-Tax(208 ITR 795) in which it was held thatthere was no bar on initiating reassessment proceeding in cases whererectification proceeding had already been dropped He, therefore, upheldthe reopening of the assessment. The addition was also upheld on meritsas payment of interest was not made for the purpose of making the earningof interest from FDR which had been assessed under the head 'othersources'. 9.Aggrieved by the said decision of CIT(A), the assessee filed anappeal before the Tribunal in which he challenged the reopening of theassessment as well as the addition. The Tribunal after considering thearguments dismissed the appeal of the assessee and held as under:- “We have perused the record and have considered rivalcontentions carefully. The return for the relevantassessment year was processed under Section 143(1) (a) on 18.5.1999. Subsequent assessment made underSection 143(3)/147 on 14.2.2003 had been quashed byCIT(A) and therefore, this assessment became non-estthe effect of which was as if no assessment underSection 143(3) had been made. The reopening,therefore, could be made legally in this case after lapseof four years from the end of the relevant assessmentyear. The argument of the ld. A.R. For the assesseeand the reopening was bad in law, cannot be therefore,accepted. The reopening is thus held legally valid andthe order of CIT(A) is confirmed.” 10.Not satisfied with the order of the Tribunal, the assessee hasfurther come up in appeal before this Court challenging the order dated22.9.2006 passed by the Income Tax Appellate Tribunal, New Delhi in ITANo.3903/DEL/2005 raising the following substantial question of law:- “Whether the Assessing Officer has jurisdiction to initiatesubsequent proceedings under Section 147 of theIncome Tax Act, 1961 in a case where on same set offacts previous proceedings culminating in the passing ofassessment order under Section 143(3) read withSection 147 has been set aside on account of beingtime barred by the Income Tax Appellate Tribunal?” 11.Learned counsel for the appellant-assessee has argued thatthe assessment in the case was made under Section 143(3) on 14.2.2003and the same could not be reopened after a lapse of four years from theend of the relevant assessment year unless there was an escapement ofincome tax due to failure on the part of the assessee in declaring true and full material facts necessary for the assessment. It has been furtherargued by the learned counsel for the appellant that the Assessing Officerwith a view to circumvent the order of the Tribunal holding that theassessment framed by the Assessing Officer was barred by time andtherefore, not sustainable in law, again issued a notice under Section147/148 of the Act by recording the same reasons which had beenrecorded in the first instance and framed the assessment under Section143(3) read with Section 147 of the Act. 12.Ontheotherhand,Mr.YogeshPutneylearned counsel for the revenue has argued that the Assessing Officer wasjustified in initiating fresh proceedings under Section 147 of the Act as thenotice had been issued by the Assessing Officer within the periodprescribed under the Act as the earlier order of assessment dated14.2.2003 which was quashed by Commissioner of Income Tax (Appeals)and the Tribunal on technical grounds will not bar the Assessing Officerfrom initiating the reassessment proceedings against the assessee. 13.We have heard learned counsel for the parties and perusedthe record. 14.In R.Kakkar Glass and Crockery House v. Commissioner of Income-Tax254 ITR 273, this Court held as under:- “When a notice for reassessment is quashed onsome technical ground, it would be in order to issue afresh notice under section 148 of the Income-tax Act,1961, provided all other legal requirements of law arecomplied with. For instance, it a notice under Section148 is quashed on the ground that no reasons had beenrecorded, a second notice after recording the reasons 13.We have heard learned counsel for the parties and perusedthe record. 14.In R.Kakkar Glass and Crockery House v. Commissioner of Income-Tax254 ITR 273, this Court held as under:- “When a notice for reassessment is quashed onsome technical ground, it would be in order to issue afresh notice under section 148 of the Income-tax Act,1961, provided all other legal requirements of law arecomplied with. For instance, it a notice under Section148 is quashed on the ground that no reasons had beenrecorded, a second notice after recording the reasons would be in order. Similarly, if a notice is quashed onthe ground that it has been issued without the requisitesanction of the higher authority, fresh notice can beissued after obtaining the necessary sanction. However,if a notice under section 148 is quashed after examiningthe material relied on by the Assessing Officer and afterrecording a finding that on the basis of such material theadditional income cannot be said to have escapedassessment, it would not be permissible for theAssessing Officer to issue a fresh notice on the basis ofthe same material in respect of the same item of income.In case some fresh material comes into the possessionof the Assessing Officer subsequently suggestingescapement of income under the same head or someother head, there are no fetters on the power of theAsssessing Officer to issue a fresh notice under section148. All such notices, however, have to conform to theparameters prescribed under the law including theprovisions regarding limitation.” 15.In Commissioner of Income-Tax v. Mrs. Manjula Sood, 227ITR 873 a Division Bench of this Court held as under:- “The law prescribing the period of limitation is to beconsidered as procedural rather than substantive. Thisproposition of law would have only one exception, i.e., ifunder the existing law of limitation the right to initiate aproceeding has already become time-barred then asubsequent enlargement of time by an amendment of law cannot be availed of. In such a case, the matterhaving attained finality, would vest a party withsubstantive right which has already accrued. Thisaccrued right cannot be taken away by a subsequentamendment. Substantive laws determine the rights andliabilities of the parties concerned, whereas procedurallaws govern the manner in which such rights orobligations are to be enforced or realised.” 16. In Commissioner of Income-Tax v. Air Craft RadioCorporation (2007) 292 ITR 64 (P&H) this Court held that after thereassessment had been set aside by the Appellate Court, the AssessingOfficer had no jurisdiction to once again embark upon the sameproceedings. 17. The Hon'ble Supreme Court in the case ofCIT v. Rao ThakurNarayan Singh(1965) 56 ITR 234 observed as under: “....The Tribunal held in the earlier proceedings that theIncome-tax Officer knew all the facts at the time hemade the original assessment in regard to the incomehe later on sought to tax. The said finding necessarilyimplies that the Income-tax Officer had no reason tobelieve that because of the assessee's failure todisclose the facts income has escaped assessment.The earlier finding is comprehensive enough to negative'any such reason' on the part of the Income-tax Officer.That finding is binding on him. He could not on the samefacts reopen the proceedings on the ground that he hadnew information. If he did so, it would be a clear attempt 17. The Hon'ble Supreme Court in the case ofCIT v. Rao ThakurNarayan Singh(1965) 56 ITR 234 observed as under: “....The Tribunal held in the earlier proceedings that theIncome-tax Officer knew all the facts at the time hemade the original assessment in regard to the incomehe later on sought to tax. The said finding necessarilyimplies that the Income-tax Officer had no reason tobelieve that because of the assessee's failure todisclose the facts income has escaped assessment.The earlier finding is comprehensive enough to negative'any such reason' on the part of the Income-tax Officer.That finding is binding on him. He could not on the samefacts reopen the proceedings on the ground that he hadnew information. If he did so, it would be a clear attempt 18.It may be seen that the Assessing Officer had no freshmaterial before him. A perusal of the reasons recorded by him forreopening the assessment proceedings vide notice dated 22.3.2004 showsthat the same reasons have been recorded which were stated in the earliernotice served under Section 148 of the Act on the basis of which theassessment was made on 14.2.2003 and which was quashed being barredby limitation. Thus, from the facts itself, it is crystal clear that though thepresent proceedings were initiated by the Assessing Officer within theprescribed period of limitation yet it is clear that the same were initiatedonly to circumvent the earlier order of the Tribunal vide which theassessment dated 14.2.2003 was held to be time barred. Thus, theAssessing Officer cannot be allowed to initiate fresh proceedings onidentical facts as the first assessment proceedings had failed to result in avalid assessment due to lapse on the part of the Income-Tax Authority. 19.In view of the settled proposition of law, the question of lawraised by the appellant is answered in the negative i.e. against the revenueand in favour of the assessee. Resultantly, the appeal is allowed and theorder of the Tribunal is set aside. (RAKESH KUMAR GARG) JUDGE March 28, 2008ps (SATISH KUMAR MITTAL) JUDGE