N.R.S. Ganesan Judicial Member - This appeal of the assessee is directed against the order of the Commissioner of Income Tax (Appeals)-14, Chennai, dated 10.03.2015 and pertains to assessment year 2001-02.
2. Shri D. Anand, the Ld. counsel for the assessee, submitted that the assessee filed the return of income for the assessment year 2001-02 on 25.04.2005 in response to notice issued under Section 148 of the Act, disclosing the total loss of Rs. 56,758/-. The Assessing Officer completed the assessment under Section 143(3) r.w.s. 147 of the Income-tax Act, 1961 (in short 'the Act') by an order dated 30.03.2006 determining the total loss at Rs. 2,442/-. Subsequently, the Assessing Officer issued another notice purported to be under Section 147 r.w.s. 150 of the Act on 10.06.2011. According to the Ld. counsel, the notice issued on 10.06.2011 was beyond the period of limitation for completing the assessment under Section 149 of the Act. Referring to the order of this Tribunal dated 31.05.2010 in I.T.A. Nos. 327 & 328/Mds/2010, the Ld. counsel submitted that there is no finding or direction by this Tribunal to assess the income.
3. According to the Ld. counsel, in fact, when the appeal came before this Tribunal for the assessment years 2003-04 and 2004-05, this Tribunal found that the transfer took place in the year 2000. Therefore, the capital gain cannot be taxed for the assessment years 2003-04 and 2004-05. There is neither a finding that the capital gain has to be taxed in the assessment year 2001-02 nor any direction to assess the same in the assessment year 2001-02. Therefore, according to the Ld. counsel, the Assessing Officer cannot take the benefit of Section 150(1) of the Act for reopening the completed assessment after expiry of limitation provided in Section 149 of the Act. Referring to Section 150(1) of the Act, the Ld. counsel pointed out that the Assessing Officer may reopen the assessment notwithstanding anything contained in Section 149 of the Act by issuing a notice under Section 148, for the purpose of making an assessment or reassessment or re-computation in consequence of any finding or direction contained in the order passed by any authority in a proceeding under this Act. The only proceeding under this Act is appeal by the assessee before this Tribunal for the assessment years 2003-04 and 2004-05 in I.T.A. Nos. 327 & 328/Mds/2010 and there is no finding or direction by this Tribunal to assess the capital gain arising out of transfer of the property in the assessment year 2001 -02.
4. Shri D. Anand, the Ld. counsel for the assessee, invited our attention to the order of this Tribunal dated 31.05.2010 and submitted that Section 150(1) of the Act should not be applied in a case where the assessment or reassessment or re-computation could not have been made at the time the order was passed by the Tribunal in view of limitation provided in Section 149 of the Act. In this case, according to the Ld. counsel, the order of the Tribunal was passed on 31.05.2010. The period of limitation for completing the assessment or the reassessment is two years from the end of the assessment year in which the income was first assessable. The income was first assessable in the assessment year 2001-02. Therefore, at the best, the assessment order can be passed on or before 31.03.2005. The Assessing Officer passed the initial assessment order, after reopening under Section 147 of the Act, on 30.03.2006. The assessment was reopened for the second time under Section 150 of the Act, consequent to the order of this Tribunal for assessment years 2003-04 and 2004-05 dated 30.05.2010. Referring to the judgment of the Apex Court in CIT v. Greenworld Corporation [2009] 314 ITR 81/181 Taxman 111, the Ld. counsel submitted that no notice under Section 148 should be issued since four years have elapsed from the end of the relevant assessment year. At the best, Assessing Officer can issue notice under Section 148 within a period of six years in case the income assessable to tax exceeded Rs. 1 lakh or more. In this case, even the six-year period expired on 31.03.2008. Therefore, the issue of notice under Section 147 r.w.s. 150 of the Act on 10.06.2011 is beyond the period of limitation.
5. The Ld. counsel for the assessee further submitted that Section 150(2) of the Act clearly says that if the time limit expired at the time of the order which was subject matter of appeal, then provisions of Section 150(1) of the Act is not applicable. In this case, according to the Ld. counsel, the order of the Tribunal was passed on 31.05.2010. The limitation period had already expired, therefore, no order can be passed under Section 150(1) of the Act in the guise of reopening under Section 147 of the Act. The Ld. counsel has also placed his reliance on the judgment of the Apex Court in K.M. Sharma v. ITO [2002] 254 ITR 772/122 Taxman 426. Therefore, according to the Ld. counsel, the Assessing Officer ought not to have reopened the assessment in the guise of giving effect to the order of the Tribunal for the assessment years 2003-04 and 2004-05.
6. The Ld. counsel further submitted that the CIT (Appeals), referring to the contention of the assessee that there was no specific finding or direction of the Tribunal in the order dated 31.05.2010, observed that there was an inference that the finding of the ITAT is that the capital gain is to be taxed in assessment year 2001-02. According to the Ld. counsel, on the basis of the inference there cannot be any assessment under Section 150(1) of the Act. The language used by the Parliament is "finding or direction" of any authority under the provisions of the Income-tax Act. In his case there was no finding or direction by the ITAT. Therefore, there cannot be any inference that the Tribunal intended to tax the capital gain in the assessment year 2001-02. The Ld. counsel has also advanced his argument on merit and submitted that Section 50C of the Act is applicable from assessment year 2003-04, and therefore, not applicable for the year under consideration. The Ld. counsel also placed his reliance in the judgment of Madras High Court in CIT v. Vellore Electric Corpn. [2006] 287 ITR 50.
7. On the contrary, Shri A.V. Sreekanth, the Ld. Departmental Representative, submitted that on appeal by the assessee for assessment years 2003-04 and 2004-05, this Tribunal found that there was an agreement for joint development of property on 25.12.2000 and the assessee had also handed over the possession of the property to the builder on the same day. Therefore, this Tribunal found that the capital gain cannot be taxed in the assessment years 2003-04 and 2004-05 since the transfer, took placed in the assessment year 2001-02. On the basis of this observation, the Assessing Officer reopened the assessment under Section 150(1) r.w.s. 147 of the Act. Therefore, according to the Ld. D.R., there was a clear observation by this Tribunal that capital gain has to be assessed in the assessment year 2001-02. Referring to the order of the CIT (Appeals), the Ld. D.R. pointed out that the CIT (Appeals), by placing reliance on the judgment of Karnataka High Court in Dy. CIT v. Spences Hotel (P.) Ltd. [2007] 289 ITR 145/160 Taxman 360, found that notice issued for assessment year 1976-77 on 17.11.1998, on the basis of the finding of the Tribunal for the assessment year 1980-81, was found to be in order. The Ld. D.R. submitted that the CIT (Appeals) also referred to the judgment of Andhra Pradesh High Court inB.A.R. Abdul Rahman Saheb v. ITO [1975] 100 ITR 541 and submitted that sub-section (3) of Section 153 wipes the limitation provided in Section 153(1) and 153(2) of the Act. Referring to sub-section (2) to Section 153, the Ld. D.R. pointed out that if any income was excluded from the total income of the assessee for an assessment year, then for assessing that income for another assessment year should be considered as one made consequent to the order giving effect to the finding or direction contained in the order the higher authority. Therefore, according to the Ld. D.R., when the Assessing Officer passed an order giving effect to the order of the Tribunal for assessment years 2003-04 and 2004-05, it has to be deemed that the order of the assessment was passed giving effect to the finding contained in the order of this Tribunal. Therefore, according to the Ld. D.R., the CIT (Appeals) has rightly confirmed the order of the Assessing Officer.
8. We have considered the rival submissions on either side and perused the relevant material on record. Initially the assessee filed the return of income for assessment year 2001-02 on 25.04.2005 consequent to the notice issued under Section 148 of the Act, disclosing the loss of Rs. 56,758/-. However, the Assessing Officer reopened the assessment under Section 147 of the Act and determined the loss at Rs. 2,442/- by an order dated 30.03.2006 instead of Rs. 56,758/- claimed by the assessee.
9. The assessee filed appeals before this Tribunal against the orders of the lower authority for assessment years 2003-04 and 2004-05 in IT.A. Nos. 327 & 328/Mds/2010. The main contention of the assessee before this Tribunal was that the capital gain arising out of the transfer of property cannot be taxed in the assessment years 2003-04 and 2004-05. This contention of the assessee was accepted by the Tribunal on the ground that the joint development agreement was entered into on 25.12.2000 and the possession of the property was also handed over on the very same day. Therefore, this Tribunal found that the capital gain cannot be taxed in assessment years 2003-04 and 2004-05. This order of the Tribunal was passed on 31.05.2010. We have carefully gone through the provisions of Section 150(2) of the Act, which reads as follows:—
"150 (1) ...............
(2) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken."
10. In view of Section 150(2) of the Act, the provisions of sub-section (1) of Section 150 of the Act is not applicable in respect of the assessment year in which the assessment, reassessment or re-computation could not have been made at the time the order, which was subject matter of the appeal, was passed by reason of any other provisions limiting the time within which the action for reassessment or re-computation should be taken. In the case before us, Section 149 of the Act provides maximum of six years from the end of the relevant assessment year in case the income chargeable to tax exceeds Rs. 1 lakh. The relevant assessment year is 2001-02 and the six years period from the end of the relevant assessment year expired on 31.03.2008. Therefore, the limitation for reopening under Section 147 of the Act expired on 31.03.2008 when the Tribunal passed the order on 31.05.2010. Therefore, this Tribunal is of the considered opinion that the Assessing Officer cannot take any advantage on the basis of the order of this Tribunal dated 31.05.2010 by invoking Section 150(1) of the Act. This Tribunal is of the considered opinion that the Assessing Officer can pass an order under Section 150(1) of the Act provided the appellate/revisional order was passed within the period of limitation available for reopening the assessment. In this case, on the date of appellate order, i.e. 31.05.2010, the limitation period had expired. Therefore, the order passed by the Assessing Officer by issuing notice for reopening the assessment on 10.06.2011 is barred by limitation.
11. We have carefully gone through the judgment of the Apex Court in K.M. Sharma (supra). The Apex Court, after considering the provisions of Section 150(2) of the Act, found that sub-section (2) of Section 150 puts embargo on reopening assessments, which have attained finality on expiry of period of limitation. The Apex Court also found that sub-section (2) of Section 150 makes it clear that reassessment permissible under Section 150(1) of the Act would not be available to Department when the period of limitation for such assessment or reassessment has expired at the time it is proposed to be reopened. In this case, the Revenue proposed to reopen the assessment on 10.06.2011 by issuing a notice under Section 148 of the Act, on which date, the period of limitation was admittedly expired. The Apex Court further found that sub-section (2) of Section 150 insulates all assessments, which have become final and may have been found liable to reassessments or re-computation either on the basis of orders in proceedings under the Act or orders of Courts passed under any other law. In fact, the Apex Court has observed as follows:—
'We do not find the above reasoning of the High Court is sound. The plain language of sub-section (2) of section 150 clearly restricts the application of sub-section (1) to enable the authority to reopen assessments which have not already become final on the expiry of the prescribed period of limitation under section 149. As is sought to be done by the High Court, sub-section (2) of section 150 cannot be held applicable only to reassessments based on orders "in proceedings under the Act" and not to orders of court "in proceedings under any other law". Such an interpretation would make the whole provision under section 150 discriminatory in its application to assessments sought to be reopened on the basis of orders under the Income-tax Act and other assessments proposed to be reopened on the basis of orders under any other law. The interpretation, which creates such unjust and discriminatory situation, has to be avoided. We do not find that sub-section (2) of section 150 has that result. Sub-section (2) intends to insulate all proceedings of assessments, which have attained finality due to the then existing bar of limitation. To achieve the desired result it was not necessary to make any amendment in sub-section (2) corresponding to sub-section (1), as is the reasoning adopted by the High Court.
Sub-section (2) aims at putting an embargo on reopening assessments, which have attained finality on the expiry of the prescribed period of limitation. Sub-section (2) in putting such embargo refers to the whole of sub-section (1) meaning thereby to insulate all assessments, which have become final and may have been found liable to reassessments or recomputation either on the basis of orders in proceedings under the Act or orders of courts passed under any other law. The High Court, therefore, was in error in not reading the whole of the amended sub-section (1) into sub-section (2) and coming to the conclusion that the reassessment proposed on the basis of the order of the court in proceedings under the Land Acquisition Act could be commenced even though the original assessments for the relevant years in question have attained finality on the expiry of the period of limitation under section 149 of the Act. On a combined reading of sub-section (1) as amended with effect from April 1, 1989, and sub-section (2) of section 150 as it stands, in our view, a fair and just interpretation would be that the authority under the Act has been empowered only to re-open assessments, which have not already been closed and attained finality due to the operation of the bar of limitation under section 149.'
12. We have also carefully gone through the judgment of Karnataka High Court in Spences Hotel (P.) Ltd.(supra). In the case before Karnataka High Court, it found that Section 150(1) of the Act begins with the words "notwithstanding anything contained in Section 149". Therefore, the notice issued to the assessee, pursuant to the finding of the Tribunal with regard to escaped income for assessment, was found to be valid. Referring to Section 150(2) of the Act, the Karnataka High Court found that placing reliance on Section 150(2) was misplaced. The Karnataka High Court had no benefit of going through the subsequent judgment of Apex Court in K.M. Sharma(supra). In view of finding of the Apex Court in K.M. Sharma (supra), as extracted above, the judgment of Karnataka High Court in Spences Hotel (P.) Ltd. (supra) may not be of any assistance to the Revenue.
13. Now coming to the judgment of Andhra Pradesh High Court in B.A.R. Abdul Rahman Saheb (supra), the assessee before the Andhra Pradesh High Court challenged the order of the Assessing Officer before the Appellate Assistant Commissioner, who allowed the appeal holding that the unexplained investment during the accounting years 1956-57 and 1957-58 should be brought to tax in the assessment years 1957-58 and 1958-59 and the addition made in the assessment year 1959-60 could not be sustained. Subsequent to the order of the Appellate Assistant Commissioner, the Income Tax Officer issued notice on 20.03.1969 to show cause why the assessments for assessment years 1957-58 and 1958-59 should not be reopened and unexplained investments in the respective accounting years added. The assessee challenged the action of the Assessing Officer on the ground that the notice issued on 20.03.1969 for reopening assessments for assessment years 1957-58 and 1958-59 were time barred and bad in law. The Andhra Pradesh High Court found that Explanation 2 to Section 153 of the Act provides for taking steps under Section 147 to assess the income of another year without any limitation prescribed by Section 149 as regards the issue of notice under Section 148 of the Act. The Andhra Pradesh High Court had also no occasion to consider the subsequent judgment of Apex Court in K.M. Sharma (supra).
14. We have also gone through the judgment of Allahabad High Court in Ashwani Dhingra v. Chief CIT [2005] 276 ITR 98/[2004] 141 Taxman 651. In the case before Allahabad High Court, the assessee's land was acquired by the Government of Punjab on 20.08.1973 under the Land Acquisition Act, 1894. The compensation was awarded on 12.09.1990 and 29.05.1993 by the orders of Punjab & Haryana High Court. Interest was also paid on 21.08.2001 from the date of taking over the possession of the land. Subsequently, the assessee shifted to Noida in the year 1991 and doing business there. After receiving the interest on the compensation amount on 21.08.2001, the assessee filed revised return on 14.01.2001 for assessment years 1995-96 to 2001-02. The Assessing Officer reopened the assessment by issuing notice under Section 148 for the assessment years 1989-90 to 1994-95. The assessee challenged the notice before the Allahabad High Court on the ground that the assessments cannot be reopened. The Allahabad High Court, by placing judgment of Apex Court in K.M. Sharma (supra), found that the words "or by a court in any proceeding under any other law" were inserted by Direct Tax Laws (Amendment) Act, 1987 with effect from 01.04.1989. The Allahabad High Court found that the notice was issued after 01.04.1989, i.e. after the amended Act came into effect from 01.04.1989 and accordingly, rejected the contention of the assessee.
15. We have also carefully gone through the judgment of Madras High Court in Vellore Electric Corporation(supra). In the case before the Madras High Court, the issue arose for consideration was whether the period of limitation prescribed for reopening the assessment was applicable even for an order passed by the Assessing Officer by invoking the provisions of Section 150 of the Act. The Madras High Court, by placing reliance on the judgment of the Apex Court in K.M. Sharma (supra) found that the plain language of sub-section (2) of Section 150 clearly restricts the application of sub-section (1) of Section 150 to enable the authorities to reopen the assessments which have not already become final on the expiry of the period of limitation prescribed under Section 149(2) of the Act. The Madras High Court further found that the whole sub-section (1) of Section 150 insulates all assessments which have become final and may have been found liable for reassessment or re-computation on the basis of orders of the authorities under Income-tax Act or orders of High Court or under any other law. The Madras High Court further found that Section 150(1) as amended with effect from 01.04.1989 did not enable the authorities to reopen assessments which have become final due to the bar of limitation prior to 01.04.1989 and this position was equally applicable to reassessments proposed on the basis of orders passed under the Act or under any other law.
16. In view of the above finding of the Madras High Court, this Tribunal is of the considered opinion that the judgment of Allahabad High Court in Ashwani Dhingra (supra), the judgment of Karnataka High Court inSpences Hotel (P.) Ltd. (supra) and the judgment of Andhra Pradesh High Court in B.A.R. Abdul Rahman Saheb(supra) would not be applicable to the facts of the case.
17. We have also carefully gone through the judgment of the Apex Court in Greenworld Corpn. (supra). After referring to Section 150 of the Act, the Apex Court observed that if no proceedings before the authority or if the assessment year in question is not a subject matter which would fall for consideration, Section 150 of the Act will have no application. In fact, the Apex Court has observed as follows at para 60 to 67 of its judgment:—
'60. The aforementioned provision although appears to be of a very wide amplitude, but would not mean that recourse to reopening of the proceedings in terms of sections 147 and 148 of the Act can be initiated at any point of time whatsoever. Such a proceeding can be initiated only within the period of limitation prescribed therefor as contained in section 149 of the Act.
61. Section 150(1) of the Act is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the appropriate authority. It must examine the records of the proceedings. If there is no proceeding before it or if the assessment year in question is also not a matter which would fall for consideration before the higher authority, section 150 of the Act will have no application.
62. In ITO v. Murlidhar Bhagwan Das [1964] 52 ITR 335 (SC), it was held (page 339):
"The proceedings would be in time, if the second proviso to section 34(3) of the Act could be invoked. The question, therefore, is what is the true meaning of the terms of the second proviso to section 34(3) of the Act. It reads:
'Provided further that nothing in this section limiting the time within which any action may be taken, or any order, assessment or reassessment may be made, shall apply to a reassessment made under section 27 or to an assessment or reassessment 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 31, section 33, section 33A, section 33B, section 66 or section 66A.'
Prima facie this proviso lifts the ban of limitation imposed by the other provisions of the section in the matter of taking an action in respect of or making an order of assessment or reassessment falling within the scope of the said proviso. The scope of the proviso is con fined to an assessment or reassessment made on the assessee or any person in consequence of an order to give effect to any finding or direction contained in any order made under section 31, i.e., in an appeal before the Assistant Appellate Commissioner, under section 33, i.e., in an appeal before the Tribunal, under section 33A, i.e., in a revision before the Commissioner, under section 33B, i.e., in a revision before the Commissioner against an order of the Income-tax Officer, and under sections 66 and 66A, i.e., in a reference to the High Court and appeal against the High Court' s order to the Supreme Court. Learned counsel for the appellant contends that the scope of the proviso is only confined to the assessment of the year that is the subject-matter of the appeal or the revision, as the case may be. Learned counsel for the Department argues that the comprehensive phraseology used in the proviso takes in its broad sweep any finding given by the appropriate authority necessary for the disposal of the appeal or the revision, as the case may be, and to any direction given by the said authority to effectuate its finding and that the said finding or direction may be in respect of any year or any person. As the phraseology used in the proviso is not clear or unambiguous, the question raised cannot be satisfactorily resolved without having a precise appreciation of a brief history of section 34 of the Act culminating in the enactment of the proviso in the present form."
63. This court noticed the development of law as also the fact that the decision of the Income-tax Officer given in a, particular year does not operate as res judicata to opine (page 343):
"The lifting of the ban was only to give effect to the orders that may be made by the appellate, revisional or reviewing tribunal within the scope of its jurisdiction. If the intention was to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a proviso to sub-section (3) of section 34, which deals with completion of an assessment, but would have been added to sub-section (1) thereof."
64. In regard to the question that what would be the meaning of the term "finding" or "direction", it was held (page 345):
"A 'finding', therefore, can be only that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Appellate Assistant Commissioner may hold, on the evidence, that the income shown by the assessee is not the income for the relevant year and thereby exclude that income from the assessment of the year under appeal. The finding in that context is that that income does not belong to the relevant year. He may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the year of assessment in question. The expression 'direction' cannot be construed in vacuum, but must be collated to the directions which the Appellate Assistant Commissioner can give under section 31. Under that section he can give directions, inter alia, under section 31(3)(b), (c) or (e) or section 31(4). The expression directions' in the proviso could only refer to the directions which the Appellate Assistant Commissioner or other tribunals can issue under the powers conferred on him or them under the respective sections. Therefore, the expression ' finding' as well as the expression ' direction' can be given full meaning, namely, that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and the direction is a direction which the appellate or revisional authority, as the case may be, is empowered to give under the sections mentioned therein."
65. It was clarified that the words " any person" would refer to those who were not nominee parties to the appeal although the assessment of their income would depend upon the assessments of the assessee.
66. Mudholkar J., speaking for the minority, referred to this court' s decision in S.C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR 1 wherein the validity of the aforementioned provisions was questioned; read down the proviso appended to section 34(1) stating (page 349 of 52 ITR):
"No doubt, this court has recently held in S.C. Prashar v. Vasant sen Dwarkadas [1963] 49 ITR 1 that the proviso in so far as it removes the bar of limitation with respect to persons other than the assessee, is invalid as it infringes the provisions of article 14 of the Constitution. That, however, is a question apart. What we have to consider is the legislative intent, and for ascertaining it, it is legitimate to look also at that part of the enactment which has been held to be invalid."
67. To the similar effect are the decisions of this court in N.Kt. Sivalingam Chettiar v. CIT [1967] 66 ITR 586 and Rajinder Nath v. CIT [1979] 120 ITR 14 (SC)'.
In the case before us, the Tribunal has not examined the records for the assessment year under consideration. Moreover, no proceeding was before the Tribunal for the year under consideration. Therefore, as held by the Apex Court, Section 150 of the Act is not applicable for the year under consideration. In other words, the observation made by the Tribunal in the order dated 31.05.2010 cannot be considered either as "finding" or "direction".
18. We find that the Andhra Pradesh High Court in CIT v. G. Viswanadham [1988] 172 ITR 401/38 Taxman 142considered an identical issue and observed as follows at pages 408 & 409 of ITR:-
"'A reading of these Explanations clearly shows that they merely illustrate and clarify the meaning of the words "in consequence of or to give effect to any finding or direction" contained in an appellate, revisional or any other order. Explanation 2 says that where an appellate, revisional or other order excludes any income from the total income of the assessee for an assessment year, the assessment of such income for another assessment year shall, for the purposes of both section 150 and section 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the order. Similarly, Explanation 3 says that where by an appellate, revisional or other order any income is excluded from the total income of one person and held to be the income of another person, the assessment of income of such other person shall, both for the purposes of section 150 and section 153, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the order, provided, of course, such other person was given an opportunity of being heard before the said order was made. What is, however, clear is that Explanations 2 and 3 do not purport to obliterate or remove the restriction contained in sub-section (2) of section 150. They, no doubt, refer to section 150, but for a limited purpose, mentioned above.
A review of the above provisions makes it clear that the Act provides certain time limits both for initiation of proceedings under section 147 as well as for completion of such proceedings. The time limits for initiation of such proceedings are contained in sections 149 and 150, while the time limits for completion of such proceedings are mentioned in sub-sections (2) and (3) of section 153 just as section 150 is a proviso to section 149, sub-section (3) of section 153 is a proviso to sub-section (2) thereof. Explanations 2 and 3, no doubt, are relevant both for section 150 and section 153(3), but their purpose is merely to illustrate certain words occurring therein, and not to remove or obliterate the time limits prescribed in the several provisions referred to above.
Learned standing Counsel for the Revenue brought to our notice certain decisions, all of which appear to have been rendered with reference to Explanation 2 in section 153. In B. A.R. Abdul Rahman Saheb v. ITO[1975] 100 ITR 541, a Bench of this court held that the effect of section 150 and sub-section (3) of section 153 read with Explanation 2 is that, if any income is deleted from assessment by the order of a higher authority, on the ground that it is not the income of that year, steps may be taken under section 147 to assess it as the income of another year, without any limitation prescribed under section 149 as regards the issue of notice under section 148 or as to the completion of the assessment or reassessment prescribed by section 153. The Bench read sub-section (2) of section 150 as providing that the provisions of sub-section (1) thereof will not apply to a case of assessment, reassessment or recomputation of income, if it related to an assessment year in respect of which assessment, reassessment, etc., could not have been made at the time when the order, which was the subject-matter of appeal, reference or revision, was made, by reason of the time limits fixed under section 153 for making the assessment, reassessment, etc. (vide paragraph 2 at page 545). It would immediately be seen that sub-section (2) of section 150 does not refer to section 153. It only refers to "any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken". The word "taken" refers only to initiation of proceedings and not to completion. Similarly, at page 547, the Bench observed: " the effect of section 150 and this sub-section (section 153(3)) read with Explanation 2 is that if any income is deleted from assessment in a higher proceeding on the ground that it is not the income of that year, steps may be taken under section 147 to assess it as the income of another year, without any limitation applying to the issue of notice under section 148 or to the completion of the assessment or reassessment. . . . . "With great respect, we think that this observation overlooks the provisions contained in sub-section (2) of section 150. However, inasmuch as the case before us is not one falling under Explanation 2 to section 153, we do not think it necessary to refer the matter to a larger Bench."'
19. By respectfully following the judgment of the Apex Court in K.M. Sharma (supra) and the judgment of Madras High Court in Vellore Electric Corporation (supra), this Tribunal is of the considered opinion that the order of the Assessing Officer is barred by limitation, therefore, the same cannot stand in the eyes of law. Accordingly, the orders of the lower authorities are set aside.
20. In the result, the appeal of the assessee is allowed.
ORDER
Chandra Poojari, Accountant Member - I have gone through the draft order proposed by the learned Judicial Member. I am not able to persuade myself to agree with the findings therein. Therefore, I am constrained to pass a separate order as here under:
2. The assessee has raised the following grounds:
| "1. |
The order of the learned Commissioner of Income Tax (Appeals)-14 (CIT (A)-14) in upholding the re-opening of assessment is wrong, illegal and opposed to facts of the case. The learned CIT (A) ought to have seen that re-opening of the assessment for the assessment year 2001-02 on the basis of notice under section 148 dated 10.06.2011 is hopelessly barred by limitation. |
2. |
The learned Commissioner ought to have seen that there is no finding or direction given by the Hon'ble Income Tax Appellate Tribunal in appellants own case for the A.Y.2003-04 & 2004-05 in ITA No. 327 & 328 of 2010 to invoke jurisdiction under section 150(1) of the Income Tax Act. The learned Commissioner ought to have seen that the Hon'ble I TAT while passing the aforesaid orders has only given finding to the effect that the capital gains will not arise during the A.Y. 2003-04 & 2004-05 but however there is no specific finding or direction to the effect that capital gains will have to be assessed in the A.Y. 2001-02. |
3. |
The Learned Commissioner of Income Tax ought to have seen that the finding of the Hon'ble Tribunal that income does not belong to the relevant year may incidentally find that the income belongs to another year, but that is not a finding as envisaged section 150(1) of the Income Tax Act. |
4. |
The Learned Commissioner of Income Tax ought to have seen that the order of the Hon'ble IT AT is conspicuous with absence of any observation relevant to the A.Y. 2001-02 and therefore section 150(1) cannot be invoked by the assessing officer for the purpose of re-opening the assessment. |
5. |
The Learned Commissioner of Income Tax ought to have seen that the assessing officer does not get unbridled power under section 150(1) of the Income Tax Act to open any assessment order. The restrictive covenant for application of section 150(1) is clearly dealt with in section 150(2) of the Income Tax Act and that Section 150(2) deals with circumstances in which section 150(1) is not applicable. |
6. |
The Learned Commissioner of Income Tax ought to. have seen that the case of the appellant is squarely covered by the decision of the Apex court in CIT v. Green World Corporation in which the his Lordships have observed that Sec. 150(1) brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority and for the said purpose, the records of the proceedings must be before the appropriate authority and that It must examine the records of the proceedings. If there is no proceeding before it or if the assessment year in question is also not a matter which would fall for consideration before the higher authority, s. 150 of the Act will have no application. |
7. |
The learned CIT(A) erred in relying on the decision of B.A.R. Abdul Rahman Sahib v. ITO (100 ITR 541), Ambaji Traders v. ITO (105 ITR 273) & DCIT v. Spencers Hotel (208 CTR 224) to affirm the order of re-assessment. The learned CIT (A) ought to have seen that the fact of the aforesaid case is distinguishable in so far as the Tribunal has given a specific finding that the income will have to be assessed for a particular assessment year however in the instance case there is no such finding or direction. |
8. |
Assuming without conceding that the order of the Hon'ble Tribunal contains a finding/direction to assess the income for the A.Y.2001-02 the Learned Commissioner of Income Tax ought to have seen that the said order of the tribunal is passed after the time limit available for re-opening the assessment for the A.Y. 2001-02 has expired. Hence by operation of section 150(2) of the Income Tax Act the provision of section 150(1) cannot extend the period of limitation. |
9. |
The learned CIT (A) ought to have seen that even the computation of Capital Gains by the assessing officer is erroneous. |
10. |
The learned Commissioner of Income Tax failed to see that in computing the Capital Gains for the A.Y. 2001-02 the assessing officer erred in applying section 50C of the Income Tax Act. The learned Commissioner ought to have seen that section 50C is applicable only w.e.f A.Y.2003-04 and not for earlier years." |
3. The facts of the case are that the assessee is a limited company and was engaged in the business of film production and leasing film rights. Since 1994 there were no business activities, the assessee was deriving rental income from residential flat located at Old Door No. 9 (New No. 17), Dhandapani Street, T. Nagar, Chennai-600017.
3.1 The Company was the owner of 7 ½ grounds (approx. 18000 sq. feet) of land at Dandapani Street, T. Nagar, Chennai-600017. This property was under a deed of Sale dated 3.2.1970 registered as Document No. 159 of 1970 in the office of the Sub-Registrar, Theyagarayanagar from Executor of the Estate of Late Pasupuleti Kannambal.
3.2 In the assessment year 2001-02, the assessee company entered into a development agreement on 25th December 2000 with a builder, namely M/s. Doshi Housing Limited, Chennai. Under the said development agreement, the assessee agreed to transfer 40% undivided share of land in the above property to the builder or his nominees in consideration of the builder providing 60% of the building to be put up the said property and, a further sum of Rs. 10,00,000/-.
3.3 For assessment year 2001-02, the assessee company did not file return of income u/s 139(1). Consequent to a search conducted in the premises of Dr. Rajadurai, who happened to be the tenant of the assessee, it came to the notice of the department that assessee has not filed its return of income for the assessment year 2001-2002 although it had rental income on lease of Flat No. 3A, Doshi Apartments, Old Door No. 9 (New No. 17), Dhandapani Street, T. Nagar, Chennai-600017. Since there was escapement of income notice under section 148 of the Income Tax Act was served on the assessee calling upon the assessee to file its return of income for the A.Y.2001-02. In response to the aforesaid notice the assessee filed its return of income on 25.04.2005 admitting total loss of Rs. 2,442/- which included business loss of Rs. 56,758/-, lease rentals of Rs. 31,500/and claimed expenses amounting to Rs. 54,316/-. The Assessing Officer vide his orders dated 30.03.2006 completed the assessee's assessment under section 143(3) r.w.s 147 disallowing the expense of Rs. 54,316/- claimed by the assessee and determined the total income of the assessee at Rs. 2442/-.
3.4 An enquiry was conducted with Mrs. Nirmala Ravindran, one of the Directors of the assessee company by the Investigation Wing of the Income Tax Department. A statement u/s. 131 was recorded from her on 03.02.2005. The issue of Capital Gains Tax liability arose regarding sale of Company's property at No. 9, Dhandapani Street, T. Nagar, Chennai for Joint Development of the said property with M/s. Doshi Housing Ltd.
3.5 No income related to the capital gains was offered for this year. During the course of assessment proceedings for the assessment year 2001-02 u/s. 143(3) r.w.s. 147, the assessee vide letter of its authorized representative Shri C.G. Rameshbabu, CA, M/s K. Sriraman & Co. had submitted in regard to the receipt of Rs. 10 lakhs which is accounted in its books as building advance but not offered for taxation that-
"The Company owned about 7.5 grounds in T. Nagar. The Company was managed by one Mr. K. Ravindran [Late] till his sudden demise during 1991. Thereafter his wife Mrs. Nirmala Ravindran and her father Mr. K.P. Madhavan, who is about 80 years old, have been managing the show. But they both could not develop the business and hence resorted to the joint promotion of the said property with the builder, Mis Doshi Housing Ltd. The arrangement with the builder was to get Rs. 10.00 lakhs as cash compensation and 60% of the constructed area of residential apartments with proportionate share of undivided land area.
We refer clause 29 of the Joint development agreement dated 25th December 2000 wherein it was clearly stated that the owner shall remain in constructive possession of the said property for carrying out the project contemplated under the agreement.
Also the consideration for selling '40% of ' undivided share in the property is the cost of 60% of building area to be constructed and allotted to the company hence it was appropriate to return the capital gains income for the transfer of land under the JV Project only at the time of handling over of the 60% of the construction in the building and precisely that was happened only during the FY 2003-2004 and hence the company has returned the capital gains on the transfer of land in the A Y 2004-05 and paid taxes on the taxable income.
We refer clause 10 of JV agreement dated 25th December 2000 wherein the consideration for the transfer of 40% of undivided share of the land shall be in full settlement of the cost of 60% area constructed and allotted to the owner by the developer & part consideration of Rs. 10.00 lakhs paid by the developer to the owner".
The AO accepted the submissions of the assessee and the assessment was completed for AY 2001-02 on 30.03.2006.
3.6 A.Ys. 2003-04 and 2004-05: Upon completion of property and as per the joint development agreement the property was handed over to the assessee during the last quarter of 2003. Assessee received 9 flats (17442 sqft). Two flats were used as residence by Mrs. Nirmala Ravindran, one of the Directors of the assessee company, one flat was sold in March 2003 and remaining flats were sold during the Financial Year 2003-04.
3.7 Subsequently, assessee had filed the return of income for the assessment years 2001-02, 2003-04 & 2004-05 in response to the notices u/s 148 and 142(1) on 25.04.2005 respectively. In the returns filed, the assessee admitted LTCG of Rs. 13,70,752/- and Rs. 60,79,708/- for the assessment years 2003-04 and 2004-05 respectively and paid the tax on the Capital Gains as per return of income. The Long Term capital gains were related to the sale of land in a Joint venture.
3.8 The assessee had computed the capital gains and paid taxes as under:
| S. No. |
AY |
Computation of Capital Gains as per assessee's working |
Date of Payment |
Amount |
Remarks |
1. |
2003-04 |
13,66,883 |
22.11.2004 |
4,00,000 |
For sale of flat |
2. |
2004-05 |
53,19,925 |
22.11.2004 |
17,00,000 |
For sale of flat |
3- |
2004-05 |
60,158 |
|
|
For sale of 40% of undivided share in land |
3.9 In the Assessment Year 2003-04, the assessee company had computed the Long term capital gains as under:—
| Total consideration on the sale of one apartment owned by the company sold to Vijayavalli during the year |
|
40,79,675 |
Less: cost of construction of the above sale 2010 sq.ft. |
15,77,225 |
|
Less: Indexed value of land sold(Note below) |
11,31,698 |
27,08,923 |
Capital gains on the sale of owned construction |
|
13,70,752 |
In the assessment order made u/s 143(3) r.w.s. 147 on 30.03.2006, the AO applied the guideline value furnished by the Sub-Registrar as the fair market value as on 1.4.1981 at Rs. 25/- per sq.ft u/s 2(22B) of the Income-tax Act, 1961 and recomputed the Capital gains as under:—
| Total consideration on the sale of one Apartment owned by the company sold to Vijayavalli during the year |
|
40,79,675 |
Less: cost of construction of the above sale 2010 sq.ft |
15,77,225 |
|
Less: Indexed value of land sold (Note 1 Below) 1166.4fX Rs. 25X447/100 |
1,30,345 |
17,07,570 |
Capital gains on the sale of owned construction |
|
23,72,105 |
3.10 In the Assessment Year 2004-05, the assessee company had stated that the following portion of land were sold in the relevant previous year and computed the Long term capital gains at Rs. 60,79,708:- Construction Cost of the building (Note 1 below)
| Construction Cost of the building (Note 1 below) |
|
1,18,64,975 |
Initial cash component, non-refundable |
|
10,00,000 |
Monthly rentals given 7500x41 months |
|
3,07,500 |
Total consideration received |
|
1,31,72,475 |
Less: Indexed value of 40% of cost of land exchanged (Note 1) |
68,07,395 |
|
Less: Cost of construction of the area compensated to the lessee Mrs. Nirmala Sft 4010 |
|
|
Less: Improvement cost to building, that Stands demolished |
4,50,000 |
(1,24,11,974) |
Capital Gains on the sale of 40% of the land the developer |
A |
7,60,501 |
Total construction on the sale of 5 apartments owned by the company sold during the relevant previous year |
|
1,66,15,100 |
Less: cost of construction of the above sale 9,188 sq.ft |
59,16,950 |
|
Less: Indexed value of land sold (Note 1 below) 1166.4sfX Rs. 25X447 |
53,78,943 |
1,12,95,893 |
Capital gains on the sale of owned constructions |
B |
53,19,207 |
Total Capital Gains on which tax is payable |
A+B |
60,79,708 |
The AO assessed the taxable income as follows: Value as adopted
| Value as adopted |
|
2,02,98,911 |
Less: cost of construction of the flats sold |
59,16,950 |
|
Less: Indexed cost of land sold(5458.06x25x4.63) |
6,31,770 |
65,48,720 |
Long Term Capital gains at the time of sale of lands to allottee of flats |
|
1,37,50,191 |
Long Term Capital gains on sale of flats |
|
1,46,12,090 |
Total Capital Gains (1,146,12,090 + 1,37,50,191) |
|
2,83,62,281 |
3.11 The assessee filed appeals before the CIT (A). In regard to adoption of Guideline value on transfer of property u/s. 50C, the CIT (A) had upheld the order of the Assessing Officer but regarding adoption of guideline value for determining the Fair Market Value as on 1/4/1981, the CIT (A) has directed the AO to adopt a value of Rs. 143 per sq.ft.
3.12 For the AY 2004-05, the CIT (A) has directed the Assessing Officer to adopt the consideration at Rs. 1,40,32,800 for the 40% undivided share of land disposed of by the assessee and regarding full value he upheld the order of the Assessing Officer as provision 50C is binding.
3.13 While disposing the Revenue appeal, ITAT estimated the fair market value of the property as on 01/04/1981 at 85 sq.ft. as against 143 per sq.ft estimated by CIT (A).
3.14 However, the ITAT separately adjudicated the assessee's appeal for the assessment years 2003-04 & 2004-05, vide its order dated 31.05.2010. On the issue pertaining to capital gains arising on account of development of its property the Tribunal while adjudicating the said issue, on the basis of judgment rendered by the jurisdiction High Court in the case of D. Kasturi v. CIT [2001] 251 ITR 532/[2002] 121 Taxman 2 (Mad.) held that no capital gains would arise for the assessment years 2003-04 and 2004-05 since the assessee had entered into development agreement as early as 25.12.2000 and had also handed over possession of the property on the same date. Thus, the ITAT deleted entire addition.
3.15 Thereafter, the assessing officer issued notice under section 148 of the Act to the assessee on 10.06.2011 and re-opened the assessee's case for the assessment year 2001-02. The assessing officer re-opened the said assessment on the basis of observation in Para 6 of the order of the ITAT for the A.Ys. 2003-04 & 2004-05 in ITA Nos. 327 & 328/Mds/2010.
3.16 On the basis of the aforesaid reasons, the AO reopened the assessment for the aforesaid assessment year and completed the assessment vide his order dated 25.3.2013 assessing the entire capital gains in the assessment year 2001-02 on the basis of the development agreement dated 25.12.2000.
4. With regard to time limit for reopening the assessment, before the Commissioner of Income-tax (Appeals), the assessee submitted as follows:
"The appellant invites the attention of the learned Commissioner to section 149 of the Income Tax Act which deals with the time limit for issue of notice under section 148 of the Income Tax Act. Uncontroverted, the language used in the section 149 is without ambiguity and for determining the period of limitation what is considered in the said section is the relevant assessment year and not the year in which the assessment order is passed. Thus no notice under section 148 of the Income Tax Act would have legal sanctity if the same is issued after 31.3.2007 viz the maximum time of 6 years as mentioned in clause (2) to section 149 of the Income-tax Act."
4.1-4.2 The CIT (Appeals) observed that the AO had invoked the provisions of sec. 150 which reads as:
"Provision for case were assessment is in pursuance of an order on appeal, etc.-(1) Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law."
4.3 The CIT (Appeals) observed that the provisions of sec. 150(1) begins with the words "notwithstanding anything contained in sec. 149" and it states that "notice may be issued at any time" to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act. The notice issued to the assessee was pursuant to the finding of the Tribunal. Thus, the time limit set out in section 149 has no relevance to the present case.
4.4 Regarding the contention of the assessee that there is no specific direction of the Tribunal and hence, sec. 150 cannot be invoked, the Commissioner of Income-tax (Appeals) observed that the Tribunal in his order observed as under:
"Having observed the fact that the transfer of the asset has already taken place in the year 2000, capital gains cannot be taxed in the AY 2003-04 & 2004-05"
Thus, it is clearly inferred that the finding of the ITAT is that the capital gains is to be taxed in AY 2001-02 as the year of transfer of property is FY 2000-01.
4.5 Sec. 150 provides for special provisions for cases where the assessment is in pursuance of an order on appeal, etc. Sub-section reads as follows:
"(1) Notwithstanding anything contained in section 149, the notice under section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to, give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law."
Thus, section 150(1) provides that the time-limit set out in section 149 does not apply in the following situation:
| (a) |
any assessment or reassessment or recomputation is sought to be made |
(b) |
in consequence of or to give effect to any finding or direction |
(c) |
such finding or direction is contained in an order passed |
(d) |
this provision is however not applicable to independent time-limit of four years provided by the proviso to section 147 under some special circumstances. |
4.6 There is clear finding by the ITAT and AO is duty bound to follow it. He is justified in initiating proceedings u/s 147 in order to give effect to the observations and findings of the ITAT. Thus the CIT (Appeals) rejected the contentions of the assessee and dismissed this ground of appeal.
4.7 'Regarding the applicability of sec. 150(2) of the Act, the Commissioner of Income-tax (Appeals) observed that there are two Explanations to sec. 153, which are made applicable for sec. 150 also and the same are reproduced herein below:
"Explanation 2 - Where, by an order referred to in clause (ii) of sub-section (3), any income is excluded from the total income of the assesses for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of sec. 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order.
Explanation 3 - . . . . . . . . . . "
The CIT (Appeals) further observed that Explanation 2 to sec. 153 are applicable not only to sec. 153, but also for the purposes of sec. 150. Sec. 150 cannot be read in isolation but has to be read along with Explanations 2 and 3 to sec. 153, which set out the circumstances in which the assessment, reassessment, etc. is deemed to be one made in consequence of or to give effect to an order passed in an appeal, revision etc. Explanations 2 and 3 clearly illustrate and clarify the meaning of the words "in consequence of or to give effect to any finding or direction" contained in an appellate, revisional or any other order.
4.8 The CIT (Appeals) observed that sub-sec. (3) of sec. 153 wipes away the time limit prescribed by the Act in certain situations. The presence of such enabling provision was necessary as a pragmatic measure. For example, the AO may wrongly assess in the year X which ought to have been assessed in the year Y. This may come to ling in the appeal filed. If the AO wishes to proceed for the year Y, the time limit for making assessment or reassessment in Y prescribed by sub-ss. (1) and (2) of sec. 153 might have expired. It is in such a situation that sub-sec. (3) comes to the rescue of the Revenue. Explanation 2 to sec. 153 has the effect of enlarging the period of limitation for completion of an assessment or reassessment.
4.9 The CIT (Appeals), after relying on certain decisions, held that if any income is deleted from assessment by the order of a higher authority on the ground that it is not the income of that year, steps may be taken u/s. 147 to assess it as the income of another year without any limitation prescribed u/s. 149 as regards the issue of notice u/s. 148 or as to the completion of the assessment or reassessment prescribed by sec. 153. Accordingly, he rejected the grounds. As such, the assessee is in appeal before us.
5. It is seen from the above that the assessment for the year 2001-02 was reopened on the basis of the findings of the Tribunal in the assessment years 2003-04 and 2004-05 in ITA Nos. 327 & 328/Mds/10 dated 31.5.2010. As the Tribunal observed that transfer of asset has already taken in the year 2000, the capital gains cannot be taxed in the assessment years 2003-04 and 2004-05. In order to give effect to the above findings of the Tribunal, the Assessing Officer initiated proceedings u/s. 147 of the Act by duly issuing notice u/s. 148 of the Act on 10.2.2011. It is seen from the records that sec. 149 prescribed time limit for issue of notice u/s. 148 of the Act. This section was amended by the Finance Act, 2001 w.e.f. 1.6.2001 describing different time limits than those prescribed prior to the said date. Different time limits have been prescribed depending upon the amount, income chargeable to tax that has escaped assessment. Sec. 150 makes provision for cases where an assessment made in pursuance of an order on appeal, reference or revision or an order of a Court in any proceeding under any other law. Sub-sec. (1) of sec.150 says that the time limits prescribed in s.149 will not apply, which means that a notice u/s. 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in any order passed under the Act by way of appeal, reference or revision or by a Court in any proceedings under any other law. Having thus removed the time limits for issuing notice u/s. 148 in such cases, sub-sec. (2) of sec. 150 hastens to add that where any appeal, reference or revision or an order of a Court in any proceedings under any other law is sought to be made in respect of an assessment year where such an order of assessment, reassessment or recomputation could not have been made at the time the order, which was the subject matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken, then no notice u/s. 148 can be issued. The rationale behind this provisions is not to confer upon the AO the jurisdiction to reopen an assessment which the Act did not otherwise possess. It says that where the reassessment proceedings would have been barred by time even at the point of time when the order which became subject matter of the appeal, revision etc., was passed, resort cannot be made to sub-sec.(1) of sec.150.
6. An example may make the position clear. Supposing for the assessment year 1999-2000 the AO includes an item of income which on appeal is held to relate to the assessment year 1998-99. This finding on appeal can be utilized to reopen the assessment for the assessment year 1998-99 without any time limit by virtue of the provisions of sec. 150(1), the reason being that had the AO been aware even when he completed the assessment for the assessment year 1999-2000 that the income was assessable in the assessment year 1998-99, he would and could have included the income in that assessment year itself. This in turn postulates that an assessment or reassessment for the assessment year 1998-99 would have been permissible at the point of time when the assessment order for the assessment year 1999-2000 was passed. That is the reason why sub-sec.(2) of sec. 150 provides that the enlargement of time provided in sub-sec.(1) will not be available where, even on the date when the assessment was completed, an assessment or reassessment of the income for the assessment year 1998-99 (in this example) would have been barred by time.
7. Keeping in view of the above, let me examine the facts of the present case. The assessment for the assessment year 2001-02 completed u/s. 143(3) r.w.sec.147 vide order dated 30.3.2006. The assessment for the assessment years 2003-04 and 2004-05 was passed on 30.3.2006 and 28.12.2006 respectively (Ref. AO's order at page 12). The assessment for the assessment years 2003-04 and 2004-05 was subject matter of appeal before the Tribunal and the Tribunal in its order dated 31.5.2010 observed that transfer of capital has already took place in the year 2000, capital gains cannot be taxed in the assessment years 2003-04 and 2004-05.
8. The question for consideration is whether 28.12.2006, the date on which the assessment for the assessment years 2003-04 and 2004-05 was framed, the AO could have taken action by issue of notice u/s. 149(1)(b) of the Act. As it stood w.e.f. 1.6.2001, no notice u/s. 148 shall be issued for the relevant assessment year, if four years but not more than six years from the end of the relevant assessment year. Thus, on 28.12.2006, the AO could have issued notice u/s. 148 in respect of assessment year 2001-02. Therefore, the AO could have validly issued notice u/s. 148 on 10.6.2011 taking advantage of the direction issued by the Tribunal in the appeal for the assessment years 2003-04 and 2004-05. Such a notice is saved by sub-sec.(1) of sec.150 and the provisions of sub-sec.(2) of sec.150 are not applicable. The contention of the Id. AR is that the provisions of sec. 149(1)(b) is applicable, according to which assessment of six years would have been lapsed from the assessment year 2002-03 to the date of service of notice on 10.6.2011. I am unable to accept the contention of the Id. AR because sec. 150(2), the time limit within which notice u/s. 148 could be issued by the AO has to be reckoned, in the very nature of things, under the provisions of sec. 149, as they stood on 28.12.2006. As it clear from the words "assessment year in respect of which on assessment, reassessment or recomputation could not have been made at the time the order which was the subject matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the recomputation may be taken. In the very nature of things, such other provision limiting the time for issue of notice u/s. 149 has to be reckoned with only on the date on which the assessment order for the assessment years 2003-04 and 2004-05 was passed, which was on 30.3.2006 and 28.12.2006 respectively. The AO could have issued notice u/s. 148 within the time limit as provided by sec. 149(1)(b) of the Act as it stood on that date. Therefore, this contention of the Id. AR cannot be accepted. The AO is very well within the time limit to issue notice u/s. 148 of the Act for the AY 2001-02 as on the date of assessment for the AY 2004-05 i.e.28.12.2006 (being the latest date). Since there is a direction of the Tribunal in the AYs 2003-04 & 2004-05 that the transfer of asset took place in the year 2000, in view of the provisions of sec. 150(2) of the Act, the extended time is available to issue notice u/s. 148 for the AY 2001-02. Thus, notice for reopening of assessment issued on 10.6.2011 for the assessment year 2001-02 as the assessment order for AY 2004-05 passed on 28.12.2006 was justified. Reading of sec. 150(2) shows that such reopening of assessment is not barred by limitation and the provisions of sub-sec.(1) of sec. 150 came to the assistance of the department. Regarding the contention of the assessee that there is no finding or direction of Tribunal in his order cited supra, when the Tribunal observed that the transfer of capital asset has already taken place in 2000 and the capital gains cannot be taxed in the assessment year 2003-04 and 2004-05, is not correct. It implies that if the income is included from the total income for one assessment year under appeal then it is natural that it is open to the Assessing Officer to bring the deleted income by the appellate authority to taxation in another assessment year to which assessment year it is related.
9. Being so, when the Tribunal excluded the capital gains in assessment years 2003-04 and 2004-05 and observed that transfer of capital asset has taken place in the year 2000, the AO has rightly brought to tax capital gains in the assessment year 2001-02. This view of mine is supported by the judgment of the Karnataka High Court, relied on by the Id. DR, in the case of Spences Hotel (P.) Ltd. (supra), wherein it was held that Notice under s. 148 for asst. year 1976-77 issued on 17th Nov., 1998, on the basis of the finding of the Tribunal in its order for asst. year 1980-81 that certain income was assessable in asst. year 1976-77 was not barred by limitation under s. 149 in view of overriding provisions of s. 150(1). It was observed:
'The Tribunal in its order dt. 26th June, 1998 held that the escaped tax shall be assessed for the year 1976-77. That order has become final and the same was within the knowledge of the appellant. On the basis of this finding of the Tribunal in its order regarding escaped income of the assessee, notice under s. 148 was issued on 17th Nov., 1998. The provision of s. 150(1) begins with the words "notwithstanding anything contained in s. 149" and it states that "notice may be issued at any time" to give effect to any finding contained in any order passed by any authority in any proceeding under the Act. The notice issued to the assessee was pursuant to the finding, of the Tribunal referred to supra regarding the escaped income for assessment of income-tax. Therefore, the single Judge committed an error in law by quashing the same, as the same is contrary to the finding recorded by the Tribunal with regard to the escaped taxable income derived by the assessee. The legal submission made by the counsel placing reliance upon s. 150(2) in justification of the order of the single Judge is misplaced for the reason that the above provision is not applicable to the case on hand.'
Thus, in my opinion, when by an order of the Tribunal, the income is excluded from the total income of the assessee for assessment years 2003-04 and 2004-05, then the assessment of such income for the assessment year 2001-02 shall be deemed to be one made in consequence of, or to give effect to any finding or direction in that order (in appeal) for the purpose of lifting the ban of limitation under Explanation 2 to sec. 153(3). Reliance is placed on the following judgments :
| (i) |
Kamlapath Moti Lal v. Addl. CIT [1992] 193 ITR 338 (SC) |
(ii) |
Mahadeo Prasad Bais v. ITO [1991] 192 ITR 402/[1992] 60 Taxman 388 (SC) |
(iii) |
Ashwani Dhingra (supra). |
In view of the above, in my opinion, the provisions of sec. 150(1) are applicable. Thus, ground Nos. 1 to 8 are dismissed.
10. Now, the assessee has raised ground Nos. 9 & 10 for the first time before us, which are not before the Commissioner of Income-tax (Appeals) and he had no occasion to consider the same. Being so, in the interest of justice, I remit the issues relating to ground Nos. 9 & 10 to the file of the Commissioner of Income-tax (Appeals) for fresh consideration.
11. In the result, the appeal of the assessee is partly allowed for statistical purposes.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
Since there is a difference of opinion between the Members, the following questions are referred to Third Member, who may be nominated by the Hon'ble President under Section 255(4) of the Income-tax Act, 1961 (in short 'the Act').
| (1) |
In the facts and circumstances of the case, in the absence of any specific finding/direction to assess the income for the assessment year 2001-02 in the order of this Tribunal dated 31.05.2010, can there be an inference/presumption, especially, when no proceeding for the assessment year 2001 -02 was before the Tribunal, as held by Apex Court in CIT v. Green World Corporation [2009] 314 ITR 81? |
(2) |
In the facts and circumstances of the case, when admittedly, the assessment for the assessment year 2001-02 was not subject matter of appeal before this Tribunal, can the observation, if any, made by the Tribunal, be considered as finding/direction to assess the income for the assessment year 2001-02 in view of the decision of this Tribunal in Sun Metal Factor (I) (P.) Ltd. v. ACIT [2010] 124 ITD 14, especially when this Bench of the Tribunal in Sriram Capital Ltd. v. DCIT in I.T.A. Nos. 512 & 513/Mds/2015 dated 26.06.2015 (the very same Ld. Accountant Member is a party/author) found that the Appellate authority cannot travel beyond the assessment year in appeal and expunge the directions (to refer p.63 & 64 at para 19.3 of the Tribunal order in I.T.A. Nos. 512 & 513/Mds/2015 dated 26.06.2015)? |
(3) |
In the facts and circumstances of the case, whether the reopening made under Section 147 of the Act and consequent order of assessment are barred by limitation? |
The Registry is directed to place the appeal folder before the Hon'ble President with a request to nominate Third Member to resolve the above questions.
REFERENCE UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961.
I have gone through the questions framed by the Id. Judicial Member. In my opinion, the questions framed by Id. Judicial Member do not project the true issues in dispute, before us. Being so, I am framing separate questions for reference to Third Member by the Hon'ble President as follows:
| (1) |
Whether, on the facts and circumstances of the case, the notice issued is barred by limitation as provided under sections 149(1)(b), 150(1) and 150(2) of the IT. Act, 1961, as the same has been issued in consequence to the order passed by the Tribunal for the assessment years 2003-04 & 2004-05? |
(2) |
Whether, on the facts and circumstances of the case, the ratio laid down by the Supreme Court in the case of Greenworld Corporation (supra) is applicable to the present case which is delivered on different context? |
(3) |
Whether, on the facts and circumstances of the case, the ratio laid down by the Chennai Bench of the Tribunal in the cases of Sun Metal Factory (1) (P.) Ltd. v. Asstt. CIT [2010] 124 ITD 14 and Sriram Capital Ltd. v. Dy. CIT [IT Appeal Nos. 512 & 513/Mds/2015 dated 26.6.2015] is applicable to the facts of the present case, as the above orders are delivered on different context? |
THIRD MEMBER ORDER
D. Manmohan, Vice-President (As A Third Member) - On account of difference of opinion between the learned Accountant Member and learned Judicial Member, the matter was referred to the Hon'ble President for nominating a Third Member under section 255(4) of the Income Tax Act, 1961, to resolve the points of difference. It may be noted that even while framing the points of difference, there was a difference of opinion. According to the learned Judicial Member, the following questions need to be resolved:
| (1) |
In the facts and circumstances of the case, in the absence of any specific finding/direction to assess the income for the assessment year 2001-02 in the order of this Tribunal dated 31.05.2010, can there be an inference/presumption, especially, when no proceeding for the assessment year 2001-02 was before the Tribunal, as held by Apex Court in CIT v. Green World Corporation [2009] 314 ITR 81? |
(2) |
In the facts and circumstances of the case, when admittedly, the assessment for the assessment year 2001-02 was not subject matter of appeal before this Tribunal, can the observation, if any, made by the Tribunal, be considered as finding/direction to assess the income for the assessment year 2001-02 in view of the decision of this Tribunal in Sun Metal Factor (I) (P.) Ltd. v. ACIT [2010] 124 ITD 14, especially when this Bench of the Tribunal in Sriram Capital Ltd. v. DCIT in I.T.A. Nos. 512 & 513/Mds/2015 dated 26.06.2015 (the very same Ld. Accountant Member is a party/author) found that the Appellate authority cannot travel beyond the assessment year in appeal and expunge the directions (to refer p.63 & 64 at para 19.3 of the Tribunal order in I.T.A. Nos. 512 & 513/Mds/2015 dated 26.06.2015)? |
(3) |
In the facts and circumstances of the case, whether the reopening made under Section 147 of the Act and consequent order of assessment are barred by limitation? |
2. On the other hand, the learned Accountant Member, formulated the following three questions while referring the matter to the Hon'ble President u/s 255(4) of the Act:
| (1) |
Whether, on the facts and circumstances of the case, the notice issued is barred by limitation as provided under sections 149(1)(b), 150(1) and 150(2) of the I.T. Act, 1961, as the same has been issued in consequence to the order passed by the Tribunal for the assessment years 2003-04 & 2004-05? |
(2) |
Whether, on the facts and circumstances of the case, the ratio laid down by the Supreme Court in the case of CIT v. Green World Corpn. [2009] 314 ITR 81 is applicable to the present case which is delivered on different context? |
(3) |
Whether, on the facts and circumstances of the case, the ratio laid down by the Chennai Bench of the Tribunal in the cases of Sun Metal Factor (I) (P.) Ltd. v. ACIT [2010] 124 ITD 14 and Sriram Capital Ltd. v. DCIT in 1TA Nos. 512 & 513/Mds/2015 dated 26.6.2015 is applicable to the facts of the present case, as the above orders are delivered on different context? |
3. At the time of hearing, the parties were directed to examine the points of difference and to bring forth appropriate/common points of dispute so as to enable the Third Member to resolve the issues. Accordingly, the learned Counsel as well as the learned Departmental Representative formulated the points of difference emerging out of the respective orders of Hon'ble Members. On going through the same, and after discussing the matter with the parties, I have reframed the points of difference as under:
1. Whether the notice issued u/s 148 r.w.s 150(1) of the Act dated 10.6.2011 for the assessment year 2001-02 is based on any finding or direction issued by the ITAT in I.T.A. Nos. 327 & 328/Mds/2010?
2. In the event of holding that there is a finding or direction, whether the notice issued u/s 148 of the Act dated 10.6.2011 is barred by limitation or not?
4. Since both the parties have agreed to the reframed questions, I have proceeded to dispose of the points of difference accordingly.
5. Facts necessary in this context are referred to in brief. In respect of the assessment year 2001-02, the assessee disclosed total loss of Rs. 56,758/- in response to notice u/s 148 of the Act whereas the assessment was completed by determining the total loss at Rs. 2,442/- by an order dated 30.3.2006.
6. It is to be noticed that there was an agreement for joint development of property on 25.12.2000 and the assessee handed over the possession of the property to the builder on the same date. The assessee offered to tax the capital gains thereon in the assessment years 2003-04 and 2004-05, but at a later stage, it was contended that no transfer took place in the respective assessment years and hence, it is not assessable to tax on capital gains in assessment years 2003-04 and 2004-05. The ITAT, in its order dated 31.5.2010 (I.T.A. Nos. 327 & 328/Mds/2010), while disposing of the appeals for assessment years 2003-04 and 2004-05, observed that the capital gains, arising out of transfer of the property, cannot be taxed in assessment years 2003-04 and 2004-05. Relevant observation of the Tribunal, as extracted in para 4.4 of the order passed by the learned Accountant Member, is extracted below for immediate reference:
"Having observed the fact that the transfer of the asset has already taken place in the year 2000, capital gains cannot be taxed in the AY 2003-04 and 2004-05."
7. Based on the observation made by the ITAT, the Assessing Officer sought to invoke the provisions of sec. 148, r.w.s 150 of the Act, for the assessment year 2001-02 and accordingly, issued a notice on 10.6.2011. The case of the assessee that. the proceedings for the assessment year 2001-02 are barred by limitation and hence notice issued u/s 148 r.w.s 150 is beyond the period of limitation, was not accepted by the Assessing Officer as well as the CIT (A) and accordingly assessment was made wherein the amount receivable on transfer of asset was brought to tax. Before the Tribunal, the case of the assessee was that there was no finding or direction by the ITAT while disposing of the appeals for assessment years 2003-04 and 2004-05 with regard to taxability of the capital gains in assessment year 2001-02 and hence, on the basis of mere observation, the proceedings for the assessment year 2001-02 cannot be reopened; the Assessing Officer cannot take the benefit of sec. 150 of the Act for reopening the completed assessment after expiry of limitation provided u/s 149 of the Act. . It was also contended that even if the observation of the Tribunal is considered as a finding or direction, the Assessing Officer is entitled to reopen the assessment only when it is not barred by limitation period of maximum six years, reckoned from the end of the assessment year. In this case limitation period expired on 31.3.2008 and so the Assessing Officer is not entitled to reopen the assessment since the Tribunal while disposing of the appeals in assessment years 2003-04 and 2004-05 had made the relevant observation only in the year 2010. Reliance was placed upon several judgments including the judgment of the Apex Court in K.M. Sharma (supra).
8. The learned" Judicial Member has observed that while disposing of the appeals for assessment years 2003-04 and 2004-05, the limited contention of the assessee was that the capital gains arising out of the transfer of asset cannot be taxed in assessment years 2003-04 and 2004-05 which was ultimately accepted on the ground that the joint development agreement was entered into on 25.12.2000 and the possession of the property was also handed over on the same date. This cannot be equated to a finding or direction. He also analysed the provisions of sec. 150(1) and 150(2) of the Act to highlight that the provisions of sec. 150(1) are not applicable in respect of assessment year in which the assessment, re-assessment or re-computation could not have been made if the proceedings are already barred by limitation by the date the Tribunal passed the order and the AO initiated proceedings. He further observed that sec. 149 of the Act provides for maximum period of six years from the end of the relevant assessment year in case the income chargeable to tax exceeds Rs. 1 lakh. By applying this formula, the limitation expired on 31.3.2008, whereas the Tribunal passed the order on 31.5.2010 in which event the Assessing Officer cannot make any addition on the basis of a later order of the Tribunal by invoking the provisions of section 150(1) of the Act.
9. He also referred to the judgment of the Apex Court in the case of K.M. Sharma (supra) to highlight that sec. 150(2) of the Act puts an embargo on reopening of assessments which have attained finality on expiry of period of limitation and in the light of the binding judgment of the Apex Court and the facts of this case, the Assessing Officer is not justified in reopening the assessment by issuing notice u/s 148 r.w.s 150 of the Act. He also referred to various judgments of High Courts to highlight that either they are not directly applicable or rendered without taking into consideration the binding judgment of the Apex Court in the case of K.M. Sharma (supra).
10. He also referred to the judgment of the Apex Court in the case of Greenworld Corporation (supra), to emphasise that if no proceedings were pending before the authority before the expiry of limitation period, such proceedings cannot be reactivated merely on the basis of a subsequent order passed by the appellate authority. In conclusion, the learned Judicial Member observed that even if it is assumed that there is a finding or direction, still the provisions of section 150(2) of the Act comes into play in which event the proceedings which were already barred by limitation cannot be reactivated. He thus, set aside the orders passed by the lower authorities.
11. The learned Accountant Member, on the other hand, observed that the assessee has not offered any income related to capital gains in the assessment year 2001-02 and only during appellate proceedings it was submitted that by virtue of the joint development agreement, the transfer took place in December 2000. It was thus observed that only based upon a finding by the Tribunal, while adjudicating the assessee's appeals for assessment years 2003-04 and 2004-05, the issue has come to light that the amount is taxable in assessment year 2001-02 and thus, the Assessing Officer was justified in reopening the assessment by issuing notice u/s 148 r.w.s 150 of the Act since it amounts to a direction or finding by the Tribunal.
12. With regard to time limit for reopening of assessment, the learned Accountant Member was of the opinion that the provisions of sec. 150 of the Act enable the Assessing Officer to issue notice. This section clearly says that "Notwithstanding anything contained in section 149" . . . . . "notice may be issued at any time" and thus, there is no time limit for reopening the assessment in the instant case. He was thus, of the opinion that the Assessing Officer was justified in reopening the assessment and it is not barred by limitation in view of the overriding provisions of sec. 150(1) of the Act.
13. On account of difference of opinion, the matter was referred to the Hon'ble President u/s 255(4) of the Act and the Hon'ble President, in turn, was pleased to nominate me as Third 'Member to resolve the points of difference. As already stated hereinabove, the precise points of difference were reframed and placed before both the parties who have accepted that the points of difference as reframed would correctly focus the issues. Arguments were advanced accordingly.
14. The learned Counsel appearing for the assessee submitted that apart from the two judgments of the Apex Court cited by the learned Judicial Member, the issue is squarely covered by the unreported judgment of the Hon'ble Madras High Court in the case of Goldmine Investments [Tax Case (Appeal) No. 215 of 2008 dated 29.11.2015], wherein on identical circumstances, the Hon'ble Court observed that even if it is treated as a finding or direction, assessment cannot be reopened beyond the period of limitation. He has referred to various other decisions/judgments to submit that even if no time limit is prescribed (as assumed by the learned AM), still a reasonable time frame has to be assumed, as otherwise, the Assessing Officer will get unlimited time to reopen the assessment at his own will which is not permitted in law. In this regard, he relied upon the decision of ITAT, Hyderabad, in the case of S. Sankara Reddy, In re [2005] 92 ITD 84.
15. In the instant case, the period of limitation expired in 2008 whereas the Tribunal has passed an order, while disposing of the appeals for assessment years 2003-04 and 2004-05, in 2010, by which date no proceedings can be said to have been pending and hence, even if it is assumed that the order of the Tribunal contains a finding or direction, still reopening of assessment is bad in law because it is beyond the period of limitation, as held by the Hon'ble Madras High Court in the case of Goldmine Investments (supra).
16. The learned Departmental Representative, on the other hand, strongly relied upon the order passed by the learned Accountant Member and submitted that the order of the Tribunal should be treated as a finding or direction based on which the Assessing Officer is entitled to reopen the assessment. With regard to interpretation placed by the learned Accountant Member, vis-a-vis the non-applicability of limitation period prescribed in sec. 150(2) of the Act - in the backdrop of the language employed in sec. 149 and 150(1) of the Act - the Id. Departmental Representative fairly admitted that the decision of the Hon'ble Madras High court in the case ofGoldmine Investments (supra) squarely covers the issue in hand.
17. I have carefully considered the rival submissions and perused the record. As could be noticed from the observations made by the Tribunal, while disposing of the appeals for assessment years 2003-04 and 2004-05, a casual observation was made to deal with the issue before them as to whether the capital gains is attracted in assessment year 2003-04 and 2004-05; but there is no specific finding or direction that it is assessable to tax in assessment year 2001-02. Even if it is assumed that there is a finding or direction, in my humble opinion, the Hon'ble Madras High Court, in the case of Goldmine Investments (supra), has considered an identical issue wherein it was held that in respect of any assessment year wherein further proceedings are barred by limitation, the same cannot be reopened merely by virtue of an opinion expressed by any higher forum at a later date i.e. subsequent to the date of limitation period. In fact, the judgments of the Apex Court are also on the same lines. Having regard to the circumstances of the case, I am of the view that the reopening of assessment is bad in law since the proceedings u/s 148 of the Act are sought to be initiated by issuing a notice after the period of limitation. In the light of the above findings, the reframed questions are answered as follows:
| (1) |
The notice issued u/s 148 r.w.s 150(1) of the Act, cannot be said to be based on any finding or direction issued by the ITAT in I.T.A. Nos. 327 & 328/Mds/2010. |
(2) |
Even otherwise the notice issued u/s 148 of the Act is barred by limitation. |
18. Now, the case will be placed before the Regular Bench for passing a concluding order in accordance with the majority view.
ORDER
N.R.S. Ganesan, Judicial Member - Since there was a difference of opinion between the Members constituting the Bench, the issue was referred to the Third Member for resolving the dispute. The Third Member found that the notice issued by the Assessing Officer u/s 148 r.w.s 150(1) of the Act cannot be said to be based on any finding or direction of the Tribunal in I.T.A. Nos. 327 & 328/Mds/2010. The Third Member also held that the notice issued by the Assessing Officer u/s 148 of the Act is barred by limitation. In view of the majority opinion, the orders of the lower authorities are quashed and the appeal of the assessee is allowed.
2. In the result, the appeal of the assessee is allowed.