Madhya Pradesh H.C : Whether, on the facts and in the circumstances, the Tribunal was right in holding that s. 153(2A) of the IT Act, 1961, was not applicable to the facts of these cases and the period of limitation prescribed under s. 153(2) was applicable to the reassessments ?

Sections 150, 153(2A)

Asst. Year 1971-72, 1972-73, 1973-74, 1974-75

Counsel Appeared

Chaphekar & Samvatsar, for the Assessee : R.C. Mukati, for the Revenue

G.G. SOHANI, J.:

By this reference under s. 256(1) of the IT Act, 1961 (hereinafter referred to as “the Act”), the Tribunal, Indore Bench, has referred the following question of law to this Court for its opinion:

“Whether, on the facts and in the circumstances, the Tribunal was right in holding that s. 153(2A) of the IT Act, 1961, was not applicable to the facts of these cases and the period of limitation prescribed under s. 153(2) was applicable to the reassessments ? ”

The material facts giving rise to this reference, briefly, are as follows:

The assessee is assessed in the status of an HUF and the assessment years in question are 1971-72 to 1974-75. While framing the assessment for the asst. yr. 1975-76, the ITO made an addition of Rs. 95,000 to the income of the assessee as income from undisclosed sources. On appeal, the CIT(A) held that the amount of income evaded by the assessee was Rs. 1,20,000 ; that the whole of that evaded income was not referable to the asst. yr. 1975-76 but related to the assessment years beginning with 1964-65 and the ITO was accordingly directed to initiate proceedings under s. 147 of the Act for all those assessment years. In pursuance of that order passed by the CIT(A), the assessments of the assessee for the asst. yrs. 1964-65 to 1974-75 were reopened under s. 147(a) r/w s. 150(1) of the Act and were completed by the ITO on 10th Sept., 1981. Aggrieved by these orders, the assessee preferred appeals before the AAC and contended that the reassessments made on 10th Sept., 1981, were barred by time. This contention was rejected by the AAC and the appeals were dismissed. On further appeal filed before the Tribunal, learned counsel for the assessee conceded that though the assessments for the assessment years up to 1970-71 would not be barred by limitation, the assessments for the asst. yrs. 1970-71 onwards would be barred by limitation, by virtue Of the provisions of sub-s. (2A) of s. 153 of the Act. This contention was rejected by the Tribunal. The Tribunal held that the provisions of sub-s. (2A) of s. 153 of the Act, were not attracted. In this view of the matter, the Tribunal dismissed the appeals. Aggrieved by the order passed by the Tribunal, the assessee sought a reference and it is at the instance of the assessee that the aforesaid question of law has been referred to this Court for its opinion.

Shri Chaphekar, learned counsel for the assessee, contended that by virtue of Expln. 2 to s. 153, reassessments made by the ITO for the asst. yrs. 1971-72 to 1974-75 would be deemed to be assessments made in consequence of, or to give effect to, the direction contained in the order under s. 250 passed in appeal, setting aside the assessments for the relevant assessment years and the provisions of sub-s. (2A) of s. 153 of the Act were, herefore, attracted. It was urged that as the assessments for the asst. yrs. 1971-72 to 1974-75 were made after the expiry of two years from the end of the financial year 1978-79, in which the order under s. 250 was passed in appeal, the assessments for these years were barred by limitation.

5. The short question for consideration in this case is whether the reassessment proceedings for the relevant assessment years were subject to the bar of limitation imposed by sub-s. (2A) of s. .153 of the Act. That provision reads as under : “Sec. 153(2A). Notwithstanding anything contained in sub-ss. (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 s. 146 or in pursuance of an order under s. 250, s. 254, s. 263 or s. 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 s. 146 cancelling the assessment is passed by the ITO or the order under s. 250 or s. 254 is received by the CIT or, as the case may be, the order under s. 263 or s. 264 is passed by the CIT.”

6. From a perusal of the aforesaid provision, it is clear that to attract the bar of limitation prescribed by that provision, the order of assessment in question should be an order of fresh assessment under s. 146 or in pursuance of an order under s. 250, s. 254, s. 263 or s. 264, setting aside or cancelling an assessment. Prior to the insertion of sub-s. (2A) in s. 153 by the Taxation Laws (Amendment) Act, 1970, where an assessment was set aside or cancelled under s. 146 or on appeal, revision or reference, the ITO could complete the fresh assessment any time because such a case was governed by sub-s. (3) of s. 153, which provides that the provisions of sub-ss. (1) and (2) of s. 153 would not apply to cases covered by s. 153(3) of the Act. This resulted in delay and harassment to the assessee and hence, sub-s. (2A) was inserted in s. 153 by the Taxation Laws (Amendment) Act, 1970, introducing a time limit. By virtue of sub-s. (2A) of s. 153 of the Act, assessments covered by sub-s. (2A) of s. 153 have to be completed within the time limit prescribed by that provision. It was not disputed before us that in case the provisions of sub-s. (2A) of s. 153 of the Act were attracted, then the assessments made for the asst. yrs. 1971-72 to 1974-75 were beyond the period prescribed by sub-s. (2A) of s. 153 of the Act.

7. Now, the Tribunal has held that in the instant case, the provisions of sub-s. (2A) of s. 153 of the Act are not attracted because the CIT(A) had neither set aside nor cancelled the assessments for the years in question. The Tribunal, however, lost sight of the fact that it was only on account of the operation of Expln. 2 to s. 153 that assessments for the asst. yrs. 1964-65 to 1974-75 could be reopened by the ITO. That Explanation provides that where, by an order referred to in cl. (ii) of sub-s. (3) of s. 153, any income is excluded in appeal, reference or revision or in other legal proceeding, from the assessment for any year, then, an assessment of such income for another assessment year shall be deemed to be one made in consequence of, or to give effect to, any finding or direction by the authority contained in the said order. The object of introducing this fiction was to partially supersede the Supreme Court decisions in ITO vs. Murlidhar Bhagwan Das (1964) 52 ITR 335 and Sivalingam Chettiar vs. CIT (1967) 66 ITR 586, holding that the “finding” and “direction” referred to in the second proviso to s. 34(3) of the Indian IT Act, 1922, corresponding to s. 153(3)(ii) of the IT Act, 1961, should be such as the authority is empowered to give for the assessment year under appeal, revision or reference and that the authority could not give a finding in respect of the assessment relating to a year, which is not the subject-matter of the appeal, revision or reference. It is well settled that in interpreting a provision creating a legal fiction, the Court, after ascertaining the purpose for which the fiction is created, has to assume all those facts and consequences, which are incidental or inevitable corollaries to the giving effect to the fiction. It, therefore, follows that to give full effect to the fiction introduced by Expln. 2 to s. 153, and to the object of insertion of sub-s. (2A) in s. 153 of the Act, it must be held that where fresh assessment is being made for a particular assessment year, in pursuance of a finding or direction incorporated in an order under s. 250, s. 254, s. 263 or s. 264, passed in proceedings relating to another assessment year, then the fresh assessment would be deemed to have been made, for the purpose of s. 150 and s. 153, in consequence of, or to give effect to, any finding or direction setting aside or cancelling the assessment for that particular year. That is how full effect can be given to the statutory fiction created by Expln. 2 to s. 153. If the provisions of sub-s. (2A) in s. 153 of the Act are held to be inapplicable to a case where a fresh assessment is made in consequence of a fiction introduced by Expln. 2 to s. 153, the effect would be that though subsequent to the asst. yr. 1970-71, there would be a time-limit for making a fresh assessment in pursuance of an appellate or revisional order setting aside or cancelling an assessment to give effect to a finding or direction contained in that order, there would be no such time-limit for making a fresh assessment for any assessment year to give effect to a finding or direction contained in any appellate or revisional order passed in proceedings relating to any other assessment year. Such an interpretation would frustrate the object of insertion of sub-s. (2A) in s. 153 of the Act and would also result in not giving full effect to the legal fiction introduced by Expln. 2 to s. 153 of the Act. In our opinion, therefore, on the facts and in the circumstances of the case, the Tribunal was not right in holding that s. 153(2A) of the Act was not attracted in the instant case.

8. For all these reasons, our answer to the question referred to this Court is in the negative and in favour of the assessee. In the circumstances of the case, parties shall bear their own costs of this reference.

[Citation : 174 ITR 117]