High Court Of Gujarat
Instruments And Control Co. VS. CCIT-I & 2
Assessment Year : 1988-89
Section : 153
Akil Kureshi And Harsha Devani, JJ.
Special Civil Application No. 10330 Of 2003
June 18, 2012
JUDGMENT
Akil Kureshi, J. – The petitioner has prayed for a refund of an amount of Rs. 9,62,976/- with interest from the respondents. By way of amendment, an additional prayer was made to quash and set aside the assessment proceedings initiated by the respondents pursuant to the order of Income Tax Appellate Tribunal (“the Tribunal” for short) as being barred by limitation.
2. We may notice facts in brief. The petitioner is a Company registered under the Companies Act and is regularly assessed to tax under the provisions of Income Tax Act, 1961 (“the Act” for short). For the assessment year 1988-89, the petitioner filed its return of income declaring a total income of Rs. 2,09,106/-. Such return was taken in scrutiny. The Assessing Officer framed scrutiny assessment on 31.3.1989 determining a total income of the petitioner at Rs. 13,22,030/-. This order of assessment was not filed along with the petition. Counsel for the petitioner tendered a copy thereof which we take on record to enable us to appreciate the controversies arising in the petition more closely.
3. Upon perusal of the assessment order, we notice that the Assessing Officer had questioned two separate amounts of commission paid by the petitioner to two different agencies and claimed deduction thereof from its total income. The Assessing Officer held that a sum of Rs. 9,27,672/-paid by way of commission to one Shri Kishor N. Amarchand and a sum of Rs. 1,85,000/- paid by way of service charges to M/s Alloy Metal Traders, should be disallowed. It was on this basis, therefore, the Assessing Officer computed total income of the assessee at Rs. 13,22,030/- as against returned income of Rs. 2,09,106/-.
4. The assessee carried the matter in appeal. The CIT (Appeals), dismissed the appeal, upon which the assessee preferred further appeal before the Tribunal. The Tribunal, by a judgement and order dated 5.7.1994, remanded this issue before the Assessing Officer. While doing so, the Tribunal noted the contention of the counsel for the assessee that the Appellate Commissioner should have remanded the matter to the file of the Assessing Officer with a direction to summon the two parties (recipients of commission from the assessee) to permit their cross-examination at the hands of the assessee. The Tribunal upheld this contention and passed the following order:
“3. Upon going through the material on record and keeping in mind the submissions made before us by the assessee’s counsel, we deem it fit and proper in order to do substantial justice to the assessee, we remit the matter to the file of the AO with a direction to summon those two parties again and allow the assessee an opportunity to cross-examine them so that true facts emerge in relation to the payment of commission by the assessee company to those two persons. However, on remand the AO shall be at liberty to probe into the matter further by way of inquiry and investigation into the alleged payment of commission to the two parties aggregating to nearly Rs. 11.27 lacs (approx.). We order and direct accordingly.”
5. Before the Tribunal passed the said order, two separate orders imposing penalties upon the petitioner, one under section 271(1)(c) of the Act and another under section 273(2)(aa) of the Act came to be passed. The Commissioner (Appeals) passed an order dated 24.1.1995 deleting penalty of Rs. 5,62,365/- imposed under section 271(1)(c) of the Act. He separately passed another order also on the same date deleting penalty of Rs. 44,450/- under section 273(2)(aa) of the Act. These orders were passed on the premise that the Tribunal had set aside the assessment order itself with a direction to Assessing Officer to pass fresh assessment. The Commissioner while cancelling the penalties, granted liberty to the Assessing Officer to initiate fresh proceedings for penalty in the fresh assessment order, if situation so warranted.
6. Though the Tribunal remanded the proceedings before the Assessing Officer vide order dated 5.7.1994, for a long time thereafter, the Assessing Officer did not take any steps pursuant to such an order of the Tribunal. It is the case of the petitioner that such order was also served on the Income Tax Commissioner on 3.8.1994. Even the refund of the penalties which were rescinded by the Appellate Commissioner by its two separate orders dated 24.1.1995, was not granted. The petitioner, therefore, wrote a letter dated 28.6.2001 to the Commissioner of Income Tax and demanded not only the amounts of penalties already collected from him, also prayed for refund of Rs. 3,56,161/- towards the tax he had paid to the department pursuant to the assessment framed by the Assessing Officer, but which was reopened by the Tribunal by its order dated 5.7.1994.
7. Despite such representation of the petitioner, the respondents took no steps pursuant to the order passed by the Tribunal. The petitioner, therefore, made further representations. It is not necessary to record all of them in this judgement. Suffice it to note that since despite such repeated representations, the respondents did not take any further steps, the petitioner moved this petition and made the prayers noted above.
8. During the pendency of the petition, two things happened. Firstly, since the respondents were in the process of activating the assessment proceedings which had remained dormant for number of years after the Tribunal placed the same before the Assessing Officer, the petitioner moved an amendment praying for necessary direction to set aside such assessment proceedings as time barred. The petitioner also produced a communication of 11th July, 2000 issued by the Assistant Registrar, Income Tax Appellate Tribunal certifying that the Tribunal’s order dated 5.7.1994 was served on the assessee on 3.8.1994 and also served by hand in the office of the Commissioner of Income Tax, Ahmedabad on the same day. Second development was recorded in the interim order dated 9.9.2003 passed by this Court which recorded that an amount of Rs. 14,66,750/- was remitted by the respondents to the petitioner, which included penalties already recovered along with interest for delayed refund.
9. Under the circumstances, the sole surviving question that calls for our consideration is whether the assessment proceedings for the assessment year 1988-89 in case of the present petitioner can still be processed by the Assessing Officer or that the same should be declared as having abated as time-barred. Consequently, the question of retention of tax of Rs. 3,56,161/- paid by the petitioner to the Department pursuant to the original assessment framed or its refund with interest would become relevant.
10. In this respect, learned Senior Counsel Shri Soparkar for the petitioner submitted that the assessment proceedings for the year 1988-89 have become hopelessly time-barred. After the Tribunal remanded the proceedings vide its order dated 5.7.1994, the Department took no steps to frame fresh assessment for years together. Nearly seven years passed after the Tribunal passed the said order before the petitioner filed the present petition questioning further continuation of such proceedings. In the mean time, the petitioner made series of representations. Though the order of the Tribunal was served on the Commissioner on 3.8.1994 as certified by the Assistant Registrar under his certificate dated 11th July 2000, the Assessing Officer took no steps whatsoever for framing fresh assessment.
11. Counsel drew our attention to the provisions contained in section 153 of the Act to contend that the present case would fall under sub-section (2A) of section 153 of the Act and that, therefore, the period of limitation for framing fresh assessment after the Tribunal passed the order was of one year from the end of financial year in which such an order was received by the Commissioner. This undisputably not having been done, the proceedings are hit by the limitation prescribed under the said sub-section.
12. In this respect, the counsel relied on the decision of the Delhi High Court in case of CIT v. Bhan Textile (P.) Ltd.[2008] 300 ITR 176 wherein the Delhi High Court was pleased to make a distinction between those cases which would fall under sub-section (2A) of section 153 and those which would fall under clause (ii) of sub-section (3) thereof. Counsel further submitted that even if it were to be accepted that the case would fall under sub-section (3)(ii) of section 153 of the Act, where the Legislature provided that such order of assessment or re-assessment can be passed at any time, such order should be passed within a reasonable period. He submitted that the period of seven years cannot be stated to be reasonable period under any circumstances.
13. On the other hand, learned counsel for the revenue relying on the affidavit in-reply filed on behalf of the respondents contended that the Tribunal having required the Assessing Officer to permit cross-examination of the two agencies to whom commission was paid by the petitioner and having further permitted the Assessing Officer to probe the issue, the case would be one covered under sub-section (3) of section 153 of the Act, where no period of limitation would apply for passing an order pursuant to the directions of the Tribunal.
14. Having heard the learned counsel for the parties and having perused the documents on record, what clearly emerges is that the return filed by the petitioner for the assessment year 1988-89 upon being taken in scrutiny, the Assessing Officer made disallowances of a total of Rs. 11,12,672/-. This comprised of Rs. 9,27,672/- which the assessee claimed by way of commission paid to Shri Kishor N. Amarchand and a sum of Rs. 1,85,000/- which the assessee claimed by way of service charges to M/s Alloy Metal Traders. On this basis, the Assessing Officer computed total income of Rs. 13,22,030/- and demanded tax and interest on such basis and ordered initiation of penalty proceedings under sections 271(1)(c) and 273(2)(aa) of the Act.
15. Such assessment order was confirmed by CIT (Appeals). Upon further appeal to the Tribunal, the Tribunal accepted the contention of the assessee that such additions were made without offering an opportunity to the assessee to cross-examine the representatives of the two agencies whose statements were recorded and relied upon behind the back of the petitioner. Principally on this basis, the Tribunal by its order dated 5th July 1994, remitted the matter to the file of the Assessing Officer with a direction to summon those two parties again and allow the assessee to cross-examine them so that true facts emerge in relation to the payment of commission by the assessee company to those two persons. While doing so, the Tribunal also granted liberty to the Assessing Officer to probe into the matter further by way of an inquiry or investigation into the alleged payment of commission to the two parties aggregating to nearly Rs.11.27 lakhs.
16. At this stage, we may refer to the statutory provisions applicable. Section 153 of the Act pertains to time limit for completion of assessments and reassessments. Sub-section (1) thereof provides for limitation for completing assessments under section 143 or section 144. Sub-section (2) thereof provides for limit for completion of assessment, reassessment or re-computation under section 147 of the Act.
16.1 Sub-section (2A) of section 153 provides inter alia limitation for completing fresh assessment under various sections including assessment in pursuance of an order besides other, under section 254 of the Act. Section (2A) of section 153 of the Act reads as under :
“Section 153 (2A) : Notwithstanding anything contained in sub-sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under section 146 or in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order under section 146 cancelling the assessment is passed by the Assessing Officer or the order under section 250 or section 254 is received by the Chief Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Chief Commissioner or Commissioner.”
16.2 Sub-section (3) of section 153, however, provides that the provisions of sub-sections (1) and (2) shall not apply to certain classes of assessments, reassessments and recomputations. Sub-section (3) of section 153 of the Act reads as under:
“Section 153(3) : The provisions of sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and re-computations which may, subject to the provisions of sub-section (2A), be completed at any time –
(i) where a fresh assessment is made under section 146;
(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act;
(iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147.”
16.3 We may notice that sub-section (2A) of section 153 was introduced by way of amendment by the Amendment Act, 1970 with effect from 1.4.1971. Correspondingly, the words “subject to the provisions of sub-section (2A)” were also added in sub-section (3) of section 153.
17. It can, thus, be seen that prior to introduction of subsection (2A) of section 153, the Legislature provided for limitation for completion of assessments under sub-section (1) and sub-section (2) of section 153. Sub-section (3) of section 153, however, provided that the provisions of sub-sections (1) and (2) shall not apply to classes of assessments, reassessments and re-computations provided in clauses (i) to (iii) of sub-section (3) of section 153. Such classes included a case of fresh assessment made under section 146; a case of assessment, reassessment or re-computation in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264, as also in case of a firm, where an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147.
18. Prior to introduction of sub-section (2A) of section 153 of the Act, it may have been open for the revenue to contend that all cases of assessments, reassessments or re-computations made in case of the assessee or any person in consequence of or to give effect to any finding or direction of the appellate orders passed in consequences mentioned in clause (ii) thereof, would not be governed by the limitation provided in sub-section (1) and sub-section (2) and in such cases, such assessment, reassessment or re-computation, as the case may be, could be completed at any time.
19. The situation, however, must be seen to have undergone a material change upon introduction of sub-section (2A) of section 153 of the Act, which provides inter alia that notwithstanding anything contained in sub-sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under section 146 or in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order under section 146 cancelling the assessment is passed by the Assessing Officer or the order under section 250 or section 254 is received by the Chief Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Chief Commissioner or Commissioner, as the case may be. As already noted, while introducing sub-section (2A) in section 153 of the Act, the Legislature simultaneously made a small change in sub-section (3) thereof by adding the words, “subject to the provisions of sub-section (2A)”.
20. We may notice that sub-section (2A) uses significantly different language from that used in sub-section (3) of section 153 inasmuch as, sub-section (2A) refers to an order of fresh assessment” in pursuance of an order, under section 250, section 254, section 263 or section 264, setting aside or cancelling an assessment, vis-a-vis clause (ii) of sub-section (3) using the expression assessments, reassessments or recomputation made in consequence of or to give effect to any finding or direction contained in an order under section 250, 254, 260, 262, 263 or 264 of the Act.
21. Sub-section (2A) of section 153 of the Act, therefore, in our view, would cover the cases where the Assessing Officer is required to pass a fresh order of assessment when such fresh assessment is necessitated on account of an order setting aside or cancelling the assessment. In comparison, clause (ii) of sub-section (3) of section 153 would apply where there is a need for an assessment, reassessment or re-computation in consequence of or to give effect to any finding or direction contained in an order passed under section 250 etc. Significantly, after 1.4.1971, the provisions of sub-section (3) of section 153 of the Act are made subject to the provisions of section (2A) of section 153 of the Act.
22. Under the circumstances, the class of cases of fresh assessment to be made pursuant to order under section 250 etc. would fall under section (2A) of section 153 of the Act, and the period of limitation prescribed therein would operate. In those cases where there is no need for a fresh assessment and are not covered under section (2A) of section 153 of the Act, but are covered under clauses (i), (ii) and (iii) of section 153, the limitation prescribed under sub-section (2A) of section 153 would not apply and the expression “assessment, reassessment and re-computation be completed at any time” may enable the revenue to continue the proceedings of assessment even beyond the period prescribed under sub-sections (1) and (2) of section 153 of the Act and would also not be hindered by the prescription of limitation under section (2A) of section 153 of the Act.
23. We may notice that the Delhi High Court in the case of Bhan Textile (P.) Ltd. ( supra) also adopted a similar view. The High Court held as under:
“In so far as the applicability of section 153(3)(ii) of the Act is concerned, that relates to giving effect to a finding or direction, inter alia, by the Commissioner of Income-tax (Appeals). What this means is that the Assessing Officer must comply with the finding or direction given by the appellate authority without necessarily disturbing the assessment order. In so far as the present case is concerned, that is not the position because the Assessing Officer was directed by the Commissioner of Income-tax (Appeals) to pass a fresh order under section 144 of the Act meaning thereby that the assessment order to the extent that it is covered by ground No.2 of the appeal filed by the assessee was set aside or cancelled. There was no independent finding or direction which the Assessing Officer was required to comply with on the basis that the core of the assessment order has been sustained by the Commissioner of Income-tax (Appeals).”
24. With this background in mind, we may revert back to the facts of the case. The Tribunal on an appeal filed by the assessee, upheld the assessee’s contention that the commission was disallowed in case of two agencies, placing reliance on statements recorded behind the back of the assessee without affording the cross-examination of such witnesses. It was on this count that the Tribunal remitted the matter to the file of Assessing Officer with direction to summon those two parties again and allow the assessee an opportunity to cross-examine them so that true facts may emerge in relation to the payment of commission by the assessee company to these two agencies. While doing so, the Tribunal also granted liberty to the Assessing Officer to probe into the matter further by way of an inquiry and investigation into the alleged payment of commission to such parties.
25. To our mind, the case on hand would fall under subsection (2A) of section 153 of the Act. The Tribunal may not have used the words of “setting aside the assessment”, nevertheless, when it remitted the matter back to the Assessing Officer for summoning two witnesses again for cross-examination by the assessee and permitted further probe to the Assessing Officer, necessarily it must be understood to have set aside the assessment under challenge. The Tribunal. otherwise in law, could not have remitted the proceedings to the Assessing Officer for fresh consideration after summoning two witnesses and carrying out such probe as may be necessary. We may record that such commissions paid to the two agencies was the sole dispute between the assessee and the Department. In the original assessment, the Assessing Officer discussed only this issue and made corresponding disallowance. In essence, thus, the Assessing Officer was required to pass a fresh order of assessment which was necessary on account of an order passed by the Tribunal under section 254 of the Act cancelling the assessment framed by the Assessing Officer. The period of limitation prescribed in section 153(2A), therefore, would apply. While such an order was served on the Commissioner on 3.8.1994, within a period of two years of the end of such financial year, a fresh order of assessment had to be passed by the Assessing Officer. The same not having been done, in our view, such proceedings have become time-barred. The assessment placed before the Assessing Officer by the Tribunal’s order, therefore, must be treated as having abated. In that view of the matter, the declaration prayed for by the petitioner must be granted.
26. In the result, the petition is allowed. The assessment proceedings for the assessment year 1988-89 in case of the present assessee is declared to have abated as having become time-barred. The excess tax paid by the petitioner under original assessment framed by the Assessing Officer must be refunded with consequential effect. By way of abundant caution, it is clarified that the self-assessed tax paid by the petitioner despite no assessment having been framed, cannot be disturbed as held by the Apex Court in case of CIT v. Shelly Products[2003] 129 Taxman 271. We may recall that the disputed amounts of commission to two agencies was the sole issue before the Assessing Officer on which the disallowances were made. In other words, there was no other addition made by the Assessing Officer which would have survived despite the Tribunal’s order dated 5th July, 1994.
27. In the result, the petition is allowed and disposed of in above terms.
[Citation : 349 ITR 571]
