While The Assessee Pursued Appeal Against Assessment v. Commissioner Ofincome-Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE V.K.MOHANAN TUESDAY, THE 17TH NOVEMBER 2009 / 26TH KARTHIKA 1931 ITA.No. 721 of 2009() --------------------- ITA.671/2004 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/RESPONDENT: -------------------- THE COMMISSIONER OF INCOME TAX,COCHIN. BY ADV. SRI.P.K.R.MENON,SR.COUNSEL, GOI(TAXES) SRI.JOSE JOSEPH, SC, FOR INCOME TAX RESPONDENT(S): --------------- TCM LTD.,GLASS FACTORY ROAD,KALAMASSERY,ERNAKULAM. ADV. SRI.S.ARUN RAJ FOR R1 THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 17/11/2009, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: C.N.RAMACHANDRAN NAIR &V.K.MOHANAN, JJ. ....................................................................I.T. Appeal No.721 of 2009....................................................................Dated this the 17th day of November, 2009. C.R. JUDGMENT Ramachandran Nair, J. The question raised is whether the Tribunal was justified inholding that the revision of respondent's assessment for the year 1979-80 by the Assessing Officer under Section 150 of the Income Tax Act(hereinafter called "the Act") on 24.7.1998 is beyond the period oflimitation prescribed under Section 150(2) read with Section 149 of theAct. We have heard Standing Counsel appearing for the appellant andAdvocate Sri.S.Arun Raj, appearing for the respondent-assessee. Thefacts in this case are quite peculiar and unique because the very sameincome i.e. refund due to the assessee from K.S.E.B., though assessedin 1977-78, was offered for payment of tax by the assessee byvoluntarily filing return for the assessment year 1979-80. TheAssessing Officer initially took the stand that the amount wasassessable on accrual basis based on declaration of eligibility for refund by the Supreme Court in the Electricity Tariff case and therefore, it wasassessed for the assessment year 1977-78. However, the assesseecontested the assessment for 1977-78 on the ground that refund isassessable only for the assessment year 1979-80. The assesseeconsistent with their own stand filed return for the assessment year1979-80, wherein the refund received from KSEB of Rs.5,58,598/- wasreturned for assessment. However, by the time assessment for 1979-80 was taken up, the C.I.T. (Appeals) decided the appeal for 1977-78 infavour of the department i.e. by sustaining the assessment of the verysame amount for the assessment year 1977-78. This prevented theAssessing Officer from including the very same income in theassessment for 1979-80, even though assessee had returned the incomeand offered to pay the tax. It is pertinent to note that the assessment for1979-80 was completed by the Assessing Officer excluding the incomereturned by the assessee by stating as follows: "In the return, the assessee has added to the businessincome of the year, power charges refund of Rs.5,58,598/-for prior years. In the assessment for the assessment year1977-78 this amount has been included and assessed. Thatinclusion was disputed by the assessee but then theCommissioner of Income Tax (Appeals) upheld the Department's stand on the assessability in that year of thisamount. Hence Rs.5,58,598/- will be excluded in thisassessment. If this amount falls to be excluded from thetotal income (as a result of the vicissitude in the furtherproceedings for the assessment year 1977-78), it will beconsidered for inclusion here." 2. While the assessee pursued appeal against assessment "In the return, the assessee has added to the businessincome of the year, power charges refund of Rs.5,58,598/-for prior years. In the assessment for the assessment year1977-78 this amount has been included and assessed. Thatinclusion was disputed by the assessee but then theCommissioner of Income Tax (Appeals) upheld the Department's stand on the assessability in that year of thisamount. Hence Rs.5,58,598/- will be excluded in thisassessment. If this amount falls to be excluded from thetotal income (as a result of the vicissitude in the furtherproceedings for the assessment year 1977-78), it will beconsidered for inclusion here." 2. While the assessee pursued appeal against assessment sustained for the assessment year 1977-78 before the Tribunal, they didnot challenge the conditional order passed by the Assessing Officer for1979-80 wherein the Assessing Officer left freedom to himself torevise the assessment to include the very same income based on returnfiled by the assessee for the assessment year 1979-80 in caseassessment of the very same amount for 1977-78 gets cancelled in thecourse of proceedings under the statute. Ultimately, the assessee'sclaim for exclusion of the income for the assessment year 1977-78 wasupheld by this court in Reference Case decided on 22.5.1998 and thesaid decision is reported in 237 ITR 821 (TRAVANCORECHEMICAL AND MFG. CO. LTD. VS. COMMISSIONER OFINCOME-TAX). 3. After this court rendered the judgment on 22.5.1998, theAssessing Officer issued notice under Section 148 to the assessee on 24.7.1998 within the time prescribed under Section 149 with referenceto the judgment rendered by this court for the assessment year 1977-78.Even though revised assessment was passed based on the conditionstated in the original assessment order and based on the incomereturned by the assessee, assessee contested the revised assessment onthe ground that the same having been passed beyond four years fromthe end of the year, is time barred under Section 150(2) of the IncomeTax Act. The C.I.T.(Appeal) in first appeal dismissed the assessee'scontest on limitation by holding that the order of the Tribunal whichwas the subject matter of reference before this court for the assessmentyear 1977-78 was the first order dated 30.1.1982, with reference towhich, the revision of assessment for 1979-80 was within time.However, the final judgment of this court in the Reference Case was infact rendered against the Tribunal's revised order (second order) dated30.12.1992. Therefore, the assessee filed second appeal against theorder of the C.I.T.(Appeal) contending that limitation has to bereckoned with reference to second order of the Tribunal. The Tribunalby relying on decision of this court in INCOME-TAX OFFICER VS. HATSU TAKAYANAGI AND OTHERS reported in (2001) 249 ITR19 and that of the Supreme Court in K.M.SHARMA VS. INCOMETAX OFFICER reported in 254 ITR 772 held that assessment is nottenable under Section 150(1) of the Act as the Officer has notestablished that the assessment was within time prescribed under sub-clause (2) of Section 150. It is against this order the Revenue has filedthis appeal. 4. During hearing Standing Counsel referred to the originalassessment order passed by the Assessing Officer for 1979-80 which isextracted above and contended that the officer had in fact made theoriginal assessment itself conditional and as and when the assessmentfor 1977-78 got finalised by judgment of this court in the ReferenceCase, the Assessing Officer was free to revise the assessment byapplying limitation under Section 149 with reference to the judgmentof this court. Counsel appearing for the respondent-assessee on theother hand relying on decision of this court and that of the SupremeCourt abovereferred contended that limitation for revision ofassessment under Section 149 should be reckoned with reference to the 4. During hearing Standing Counsel referred to the originalassessment order passed by the Assessing Officer for 1979-80 which isextracted above and contended that the officer had in fact made theoriginal assessment itself conditional and as and when the assessmentfor 1977-78 got finalised by judgment of this court in the ReferenceCase, the Assessing Officer was free to revise the assessment byapplying limitation under Section 149 with reference to the judgmentof this court. Counsel appearing for the respondent-assessee on theother hand relying on decision of this court and that of the SupremeCourt abovereferred contended that limitation for revision ofassessment under Section 149 should be reckoned with reference to the date of second order of the Tribunal against which reference was takento this court by the assessee. Even though the interpretation placed onsub-section (2) of Section 150 by the assessee's counsel is tenable, weare of the view that limitation has no application in this particular casebecause the original assessment itself was a conditional order passed bythe officer reserving right to revise it after the assessment for 1977-78attains finality. It is seen that assessee themselves offered the incomefor tax for the assessment year 1979-80 and inspite of inclusion of theamount in the return filed by the assessee, the officer could not assessthe same because he had already assessed the very same amount for1977-78, though contested by the assessee in appeal. In fact it isobvious from the observation of the officer in the original assessmentthat as on the date of completion of regular assessment for 1979-80, theassessment of the very same amount for the assessment year 1977-78was sustained in appeal by the first appellate authority. Therefore, ifthe assessee's return was to be accepted and the amount was included inthe original assessment for 1979-80, then it would have resulted indouble assessment leading to multiplicity of litigation necessitating the assessee to file appeal against the assessment for 1979-80 also as theircontention was that the income is to be assessed for 1979-80 and notfor 1977-78. We are of the view that the assessee cannot be permittedto contest the liability on technical ground of limitation after offeringthe income for assessment in the return filed for the year 1979-80. It isto be noted that the original assessment for 1979-80 was a conditionalorder passed by the Assessing Officer which require modificationdepending upon the result of proceedings that were pending against theassessment for 1977-78. When the High Court in the Reference Caseupheld the assessee's claim that the income is not assessable for theassessment year 1977-78, then the right reserved by the AssessingOfficer in the original assessment completed for 1979-80 could beexercised by him within the time limit provided for rectification ofassessment under Section 154. Even though counsel appearing for theassessee contended that time limit for rectification of mistake is fouryears from the date of order sought to be revised, we are of the viewthat limitation in this case has to be considered with reference to theoriginal assessment which was a conditional order made subject to the finality of assessment for 1977-78. In fact, by incorporating thecondition abovestated in the original assessment for 1979-80, theAssessing Officer has made the assessment of this amount for the year1977-78 also as part of this order. Therefore, once the assessment ofthe very same amount for 1977-78 is ultimately cancelled by this courtin the Reference Case, the exclusion of the amount in the originalassessment for 1979-80 becomes a mistake by virtue of the conditionimposed by the Assessing Officer. In other words, the originalassessment for 1979-80 on this issue gets finalised only when this courtdecided the Reference Case for the year 1977-78. Therefore, in ourview, the original assesment for 1979-80 becomes a mistaken order onaccount of operation of judgment of this court with regard to theassessment of the very same amount of refund of excess power chargesfrom KSEB for the assessment year 1977-78. We, therefore, hold thatwithin four years from the date of judgment of this court in theReference Case for 1977-78, the Assessing Officer is entitled to revisethe assessment for 1979-80 by virtue of the right reserved for revisionof assessment in the original assessment which is extracted above. Consequently we allow the departmental appeal by reversing the orderof the Tribunal and by restoring the revised assessment sustained infirst appeal. C.N.RAMACHANDRAN NAIRJudge pms V.K.MOHANANJudge