The Commissioner Of Income Tax v. M/S S.m. Overseas Pvt. Ltd

IN THE HIGH COURT OF PUNJAB AND HARYANA ATCHANDIGARH. I.T.A. No.556 of 2009Date of decision: 27.7.2010 The Commissioner of Income Tax. Vs. M/s S.M. Overseas Pvt. Ltd. -----Appellant. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOELHON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:-Mr. Sukant Gupta, Standing Counselfor the Revenue. for the Revenue. Mr. K.L. Goyal, Sr. Advocate withMr. Sandeep Goyal, Advocate for the Assessee. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the Revenue underSection 260A of the Income Tax Act, 1961 (for short, “the Act”)against the order of Income Tax Appellate Tribunal, New Delhi inI.T.A. No.2580/(del)/2004 dated 16.01.2009 for the assessmentyear 1995-96, proposing to raise following substantial questionsof law:- “i)Whether on the facts and the circumstances of thecase, the ITAT was right in law in quashing theassessment proceedings reopened u/s 148 of the Actby holding that the proceedings u/s 154 initiatedcase, the ITAT was right in law in quashing theassessment proceedings reopened u/s 148 of the Actby holding that the proceedings u/s 154 initiated against the assessee were pending, whereas, in fact,the notice u/s 154 having been issued beyond theperiod of limitation u/s 154(7) was non-est and henceno proceeding u/s 154 were pending? Whether the ITAT was justified in quashing thereassessment u/s 147/148 for A.Y. 1995-96 evenwhen proceedings u/s 154 for the same year hadbecome non-est and which also find support from thedecision of Hon’ble Allahabad High Court in the caseof G.P. Aggarwal Vs. ACIT (208) ITR 795?” 2. The Assessee-Company is engaged in export ofwelding electrodes, raw material spares and machines used inthe manufacture of electrodes. It filed return of nil income afterclaiming deduction under Section 80 HHC of the Act amounting toRs.37,91,105/-. The return was processed under Section 143(1)(a) of the Act on 18.9.1996. Thereafter, the Assessing Officernoticed that the Assessee had claimed bad debts amounting toRs.49,03,035/- in a later year which included unrealized exportsales of Rs.47,29,255/- pertaining to the assessment year inquestion. On that basis, the Assessing Officer was of the viewthat claim under Section 80 HHC of the Act was not permissibleand accordingly, initiated reassessment proceedings vide noticedated 22.3.2002. The assessee challenged the said notice, inter-alia, on the ground that during pendency of the assessment proceedings, the same could not be invoked. It was submittedthat Notice under Section 154 of the Act had been issued on23.1.2002 and thus, assessment proceedings were pending andin such a situation, reassessment was not permissible. This pleawas rejected by the Assessing Officer and the CIT(A) but wasupheld by the Tribunal in following terms:- “.......On the basis of this web of reasoning, it iscontended that the proceedings under Section 154are also part of the assessment proceedings andunless these proceedings are concluded, there cannotbe any question of any income escaping theassessment. There is, thus, according to Shri Pal, noquestion of any income escaping the assessment.The very initiation of reassessment proceedings, onthe facts of this case, is thus vitiated in law.” contended that the proceedings under Section 154are also part of the assessment proceedings andunless these proceedings are concluded, there cannotbe any question of any income escaping theassessment. There is, thus, according to Shri Pal, noquestion of any income escaping the assessment.The very initiation of reassessment proceedings, onthe facts of this case, is thus vitiated in law.” 3. We have heard learned counsel for the parties. 3. We have heard learned counsel for the parties. 4. Learned counsel for the Revenue submitted that thereis no dispute with the proposition laid down by the Hon’bleSupreme Court in H.E.H. Nizam Trustv. CIT (2000) 159 CTR114 that during pendency of the assessment proceedings,reassessment notice could not be issued. He, however, urgedthat notice under Section 154 of the Act could not be treated tobe at par with assessment proceedings. It was also submittedthat on the date when reassessment notice was issued, thenotice under Section 154 of the Act, was invalid, as the same wasissued beyond the period of limitation prescribed under Section154(7) of the Act. According to the learned counsel, theassessee had also taken the plea of limitation in reply dated21.2.2002 filed in response to notice under Section 154 of the Act. Learned counsel for the Revenue relied upon judgment ofthe Allahabad High court inG.P. Aggarwalv. ACIT208 ITR 795.On the other hand, learned counsel for the Assessee supportedthe view taken by the Tribunal. 5. The question for consideration is whether the Tribunalwas justified in holding that reassessment proceedings werebarred on account of pendency of notice under Section 154 of theAct. 6. We have considered the rival submissions. It is wellsettled that power of rectification can be invoked only to correctthe mistake apparent on the face of the record and cannot beexercised on a debatable issue. Reference may be made tojudgment of the Hon’ble Supreme Court inT.S. Bala Ram I.T.O.Co. Circle IV, Bombayv. Volkart Brothers and others[1971]82 ITR 50. For the purpose of this case, we will assume that theAssessing Officer cannot simultaneously proceed under Sections147 and 154 of the Act. 7. Section 154(7) of the Act prescribes limitation foramending any order passed under the Act by rectifying anymistake apparent on the face of the record. According to theaforesaid provision, no amendment under Section 154 of the Actcan be made in the assessment order after expiry of 4 years fromthe end of the financial year in which the order sought to berectified was passed, except cases covered under Section 155 or186(4) of the Act. Admittedly, the return, in the present case, was processed on 18.9.1996, which order was sought to be rectified.The Assessing Officer could validly initiate action and pass anorder under Section 154 of the Act prior to 31.3.2001. Noticeunder Section 154 of the Act, having been issued on 23.1.2002,was clearly barred by time and thus, initiation of action wasinvalid. Once that is so, then there was no impediment before theAssessing Officer to initiate reassessment proceedings aftercomplying with the requirements of Section 147 and 148 of theAct, for which notice was issued on 22.3.2002. 8. The Tribunal was, thus, in error in holding thatproceedings for reassessment were not permissible. Accordingly,we answer the substantial questions of law in favour of therevenue and against the assessee and allow this appeal and setaside the order of the Tribunal and remand the matter to theTribunal for fresh decision on merits in accordance with law. 9. Parties are directed to appear before the Tribunal forfurther proceedings on 15.11.2010. 10. The appeal is disposed of. (ADARSH KUMAR GOEL) JUDGE July 27, 2010ashwani ( AJAY KUMAR MITTAL ) JUDGE