Allahabad H.C : reassessment not correct if assessee furnished all details for deduction under section 36(1)(iii) during assessment proceeding

High Court Of Allahabad

CIT-I Vs. Pradeshiya Industrial & Investment Corpn. Of U.P. Ltd.

Assessment Year : 1996-97

Section : 147

Rajes Kumar And Vedpal, JJ.

IT Appeal No. 92 Of 2007

September 8, 2009

JUDGMENT

Rajes Kumar, J. – The present appeal at the instance of the revenue under section 260A of the Income-tax Act (hereinafter referred to as the “Act”) is against the order of the Tribunal dated 16-3-2007 in Income-tax Appeal No. 138/LUCK./2005 for the assessment year 1996-97.

2. The brief facts of the case are that the assessee-opposite party (hereinafter referred to as the “Assessee”) was a Company and was a recognized financial institution. The assessee derived income from interest on finances and financial assistance given to medium and large scale industries in U.P. It also derived income from dividend, securities, deposits, leasing operations, sale of shares and office premises, etc. The assessee filed return of income on 29-11-1996 declaring total income at Rs. 2,07,07,980. The return was processed under section 143 (1)(a) of the Act on 17-11-1997 determining income at Rs. 2,13,88,621 after making certain adjustments. Subsequently, assessment order under section 143(3) of the Act was passed on 4-1-1999 assessing total income at Rs. 3,93,64,880. It is relevant to state that assessee claimed deduction under section 36(1)(iii) of the Act and the same was allowed to the extent of Rs. 1,54,10,800. The assessee filed appeal before the first appellate authority and the learned CIT(A) partly allowed the appeal of the assessee vide order dated 2-2-2000. It is relevant to state that the issue of deduction allowed under section 36(1)(iii) of the Act was not subject-matter of appeal filed by the assessee before the first appellate authority. The Assessing Officer gave effect to the appellate order dated 2-2-2000 vide order dated 16-2-2001 and assessed total income at Rs. 2,23,55,860.

3. Subsequently, the Assessing Officer initiated proceedings under section 147 of the Act and issued notice under section 148 of the Act dated 28-3-2003 on the ground that the assessee was allowed a deduction of Rs. 60,70,447 under the provisions of section 36(1)(viii) of the Act which was not allowed. He has a reason to believe that income of Rs. 60,70,447 has escaped assessment within the meaning of section 147 of the Act. A reason was recorded which is referred in the order of the Tribunal as follows:

“The assessment was completed on 16-2-2001 under section 143(3)/251/154 at total income of Rs. 2,23,55,860. It is noticed that while passing order the assessee was allowed a deduction of Rs. 60,70,447 under the provisions of section 36(1)(viii) of the Act on the business income of Rs. 1,51,76,118 at the rate of 40 per cent. The income from business or profession as arrived at as above while passing order on 16-2-2001 included the income from leasing operations amounting to Rs. 2,56,52,516. These incomes were not includible in the long-term finance as mentioned in the provisions of Act for computing deduction under section 36(1)(viii) of the Act. If the income of Rs. 3,59,98,984 (2,56,52,516 – 1,03,46,468) is reduced from the income determined, the income from the business of the long-term finance as required under the provisions of section 36(1)(viii) of the Act will arrive at in negative and there will be no deduction under section 36(1)(viii) of the Act. Therefore, deduction under the said section amounting to Rs. 60,70,447 was not allowable. As such I have reason to believe that an income of Rs. 60,70,447 has escaped assessment within the meaning of section 147.”

4. Pursuant thereto, the Assessing Officer completed assessment vide order dated 23-3-2004 denying deduction claimed by the assessee under section 36(1)(viii) of the Act. Being aggrieved by the assessment order, the assessee filed appeal before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) has confirmed the order of the Assessing Officer. Being further aggrieved, the assessee filed the appeal before the Tribunal. The Tribunal by the impugned order allowed the appeal and set aside the reassessment order passed under section 147 read with section 143(3) of the Act. The Tribunal held that reopening of the proceeding was barred by limitation. The findings of the Tribunal are as follows:

“It is evident from the proviso to section 147 of the Act that if an assessment is made under section 143(3) of the Act for relevant assessment year, no action can be taken for reopening of such assessment after expiry of four years from the end of relevant assessment year unless any income chargeable to tax has escaped assessment for such assessment year by reason of failure on the part of the assessee to disclose fully and truly all material facts necessary for that assessment year. There is no dispute that assessment in this case was made under section 143(3) of the Act. Therefore, the only question is whether the assessee at the time of original assessment disclosed fully and truly all material facts necessary for its assessment for the assessment year under consideration. We have already extracted reasons which have been recorded by the Assessing Officer. On perusal of the reasons recorded, it is evident that it is not the case of the Assessing Officer that any income had escaped assessment on account of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for assessment year 1996-97. We find substance in the submission of the learned authorized representative of the assessee that the Assessing Officer has re-initiated assessment proceedings on the basis that there was a mistake in allowing deduction to the assessee under section 36(1)(viii) of the Act in respect of income on leasing transaction and upfront fee which had resulted under assessment. We are of the considered view that there is no failure on the part of the assessee to disclose truly and fully all material facts at the time of assessment proceedings in regard to claim of deduction under section 36(1)(viii) of the Act. We observe that assessee furnished requisite details in respect of leasing income and upfront fee as received in assessment year under consideration and the same was duly disclosed in the audited profit and loss account, as is evident from pages 4 and 5 of the paper book read with page 23 of the paper book and also computation of income filed along with return, a copy of which is placed at pages 33 to 35 of the paper book.

We are of the considered view that the Assessing Officer while completing assessment proceedings under section 143(3) of the Act had allowed the claim of the assessee with due application of mind and subsequent action of the Assessing Officer by issuing notice under section 148 of the Act is a change of opinion.

The Hon’ble Full Bench of Delhi High Court has also held in the case of CIT v. Kelvinator India Limited (supra) that when a regular order of assessment is passed under section 143(3) of the Act, a presumption could be raised that such an assessment order has been passed with due application of mind. We are of the considered view that same analogy is applicable in the case before us that the Assessing Officer, when passed assessment order under section 143 of the Act, had considered with due application of mind the claim of the assessee under section 36(1)(viii) of the Act. Not only this, we observe, as mentioned hereinabove, that there is no averments by the Department in the reasons recorded that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment for that assessment year and hence we are of the considered view that proviso to section 147 of the Act will be applicable. Since notice issued under section 148 of the Act has been issued after expiry of four years from the end of relevant assessment year under consideration, we are inclined to accept the contention of the assessee that the said notice was barred by limitation and thus subsequent proceedings are also bad in law. In view of the above, we hold that initiation of reassessment proceedings by the Assessing Officer under section 148 of the Act is not a valid assessment being barred by limitation and consequently the assessment order passed pursuant to the said notice is also not valid in law.”

5. By means of present appeal, the following questions have been claimed to be a substantial questions of law:

“1. Whether on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal was right in law in holding the reassessment proceedings as unsustainable failing to appreciate the fact that the re-opening was legally covered under the Explanation 1 of the section 147 of the Income-tax Act, 1961?

2. Whether on the facts and in the circumstances of the case, the learned Income-tax Appellate Tribunal has erred in law in not deciding the case on merits despite admitting the submissions of the assessee for hearing?”

6. We have heard Sri D.D. Chopra, learned counsel for the appellant and perused the impugned order. We do not find any error in the order of the Tribunal. Section 147 of the Act reads as follows:

“Section 147. Income escaping assessment – If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :

Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year:

Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject- matter of any appeal, reference or revision, which is chargeable to tax and has escaped assessment.”

7. Admittedly, notice under section 148 of the Act was issued after the expiry of four years. The notice under the proviso of section 147 of the Act can be issued after the expiry of four years only in case where income chargeable to tax has escaped assessment by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. From the perusal of the reason recorded it is apparent that no case has been made out that the assessee had failed to disclose fully and truly all material facts necessary for his assessment and no observation has been made in this regard. On the basis of the same material which was available on record, the Assessing Authority was of the view that the deduction had been wrongly allowed under section 36(1)(viii) of the Act. Tribunal observed that the assessee had furnished the requisite details in respect of leasing income and upfront fee as received in assessment year under consideration and the same was duly disclosed in the audited profit and loss account, as is evident from pages 4 and 5 of the paper book read with page 23 of the paper book and also computation of income filed along with return, a copy of which is placed at pages 33 to 35 of the paper book. This finding of the Tribunal has not been disputed by raising any question and during the course of the argument by the learned counsel for the appellant. Therefore, we are of the view that on the facts and circumstances, no substantial question of law arises for consideration by this Court.

8. Learned counsel for the appellant cited a decision of the Bombay High Court in the case of Dr. Amin’s Pathology Laboratory v. P.N. Prasad, Joint CIT [2001] 252 ITR 673 . We have gone through the decision of Bombay High Court. We are of the view that said decision is not applicable to the facts of the present case. In the said case, the Bombay High Court has held that the Assessing Authority has overlooked the disputed item which he has noticed subsequently and at the time of passing the original order of assessment, he could not be said to have opined on the above item. Therefore, there was no change of opinion. While in the present case, complete details were furnished along with the return and during the course of the assessment proceedings and after an application of mind, the deduction under section 36(1)(viii) of the Act was allowed. In the reason recorded no case has been made out that there was failure to disclose any material particular on the part of the assessee. Therefore, limitation beyond the period of four years was not available to the assessing authority. Admittedly, notice was issued after four years, therefore, the proceeding was barred by time and Tribunal has rightly held so.

9. For the reasons stated above, the appeal fails and is dismissed.

[Citation : 332 ITR 324]

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