High Court Of Karnataka
CIT, Central Circle vs. Mysore Cements Ltd.
Assessment Year : 1996-97
Section : 147, 48
N. Kumar And B. Manohar, JJ.
IT Appeal No. 53 Of 2007
April 9, 2013
N. Kumar, J. – The Revenue has preferred this appeal against the order dated 09-06-2006 passed by the Income Tax Appellate Tribunal (hereinafter referred to as ‘the Tribunal’) which has upheld the order of the First Appellate Authority which in turn has set aside the reassessment order on the ground of limitation.
2. The assessee is a Company engaged in the business of manufacturing of cements. The assessment under Section 143(3) of the Income Tax Act, 1961 (for short, hereinafter referred to as ‘the Act’) was completed on 28-3-1997 on basis of return of income filed on 28-11-1996 declaring the loss of Rs.34,60,75,700/- which included a sum of Rs.5,98,50,000/- being long term capital loss. The assessee’s case is that this capital loss is incurred on extinguishment of rights on warrants of M/s.Birla VXL Ind. The said capital loss was accepted in the scrutiny assessment and accordingly the assessment order was passed. Subsequently, the loss claimed as ‘long term capital loss’ was found to be incorrect and not in accordance with law, as there was no transfer of any capital asset as defined under the Income Tax Act, 1961. The loss incurred is in respect of the subscription money paid and not on account of capital asset that was acquired and the same having been transferred during the previous year. Therefore, a notice under Section 148 of the Act was issued on 28-3-2002 which was duly served on the assessee.
3. On receipt of the notice, the assessee appeared and contested the claim reiterating its stand which was earlier accepted by the Assessing Authority. Thereafter, the Assessing Authority was of the view that the money forfeited only represents loss of advance paid by the assessee. There was no case of holding any asset not to speak of a ‘long term capital asset’ under the Act. The so-called long term capital loss was wrongly claimed and wrongly allowed in the original assessment proceedings. Therefore, it requires to be withdrawn. Accordingly proceeded to pass an order disallowing the said long term capital loss. Aggrieved by the said order the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Appellate Authority was of the view that no new material or evidence came to the notice of the Assessing Officer warranting reopening of the assessment beyond 4 years from the end of the relevant assessment order. There was no failure on the part of the assessee to disclose any material facts during the original assessment proceedings and therefore, it was of the view that the reassessment proceedings were clearly barred by law of limitation. Aggrieved by the said order, the Revenue preferred an appeal to the Tribunal which has up held the order of the Appellate Authority. It is against these two orders, the Revenue is in appeal.
4. Learned counsel for the Revenue assailing the impugned order contends that the amount claiming as long term capital loss is the amount paid by the assessee for purchase of shares. Only share warrant has been issued and no asset in law had been acquired and therefore, any loss sustained in the transaction would not constitute a long term capital loss. Though in the original proceedings, this amount was mentioned and claimed as particulars had not been furnished, the Revenue was unable to apply its mind and record its finding. It is the case of the assessee that there was no failure on their part to disclose fully and truly all material facts necessary for assessment and therefore limitation of 4 years period is applicable. The case falls under the First part of the proviso to Section 147 of the Act. Therefore, he submits that the case for interference is made out.
5. Per contra, learned counsel appearing for the assessee supported the impugned order.
6. This appeal had been admitted to consider the following substantial questions of law on 23-08-2007:
(i) Whether the Appellate Authorities were right in holding that issuance of notice on 28-03-2003 under Section 148 of the I.T. Act was clearly barred by limitation, as the same is beyond the period of four years instead of taking extended period of six years as per Sec. 149(1)(b) of the Act?
(ii) Whether the Appellate Authorities were right in holding that excess loss allowed to be carried away cannot be disallowed in the assessment proceedings as it would amount to change of opinion?
7. The facts are not in dispute. The assessment order came to be passed under Section 143(3) of the Act on 28-3-1997. Before passing the assessment order, Assessing Authority had called for assessee to explain its claim for disallowance of the long term capital loss. The assessee had given its written explanation on being convinced about the explanation offered, the disallowance had been allowed. Therefore, it is not a case of the assessee’s failure to disclose fully and truly all material facts necessary for the assessment. Therefore, the case do not fall under. Part II of the proviso in order to escape from the limitation. If conditions stipulated in Part II of the proviso do not exist, then, when an assessment order is passed under sub-Section 3 of Section 143, no action can be taken under Section 147 of the Act after the expiry of 4 years from the end of relevant assessment year. End of the relevant assessment year is 31-3-1997 and four years therefrom expires on 31-01-2001. The reassessment proceedings were initiated on 28-3-2002 clearly beyond 4 years period. Therefore, the lower Appellate Authority as well the Tribunal were justified in passing the orders.
8. When the reassessment order was barred by law of limitation, the order passed by the authorities are in accordance with law. Therefore, the substantial questions of law are answered in favour of the assessee and against the Revenue.
No merits. Dismissed.
[Citation 355 ITR 136]