Assessment Order Barred by 180-Day Rule in Income Tax Case

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Case Name

Dharampal Premchand vs Commissioner of Income Tax (High Court of Delhi)

ITR No. 107/1988

Date: 14th January 2008

Key Takeaways

1. The 180-day time limit for issuing assessment orders under Section 153 of the Income Tax Act is strict and must be adhered to.

2. Even a one-day delay can render an assessment order invalid.

3. The time period is calculated from when the Assessing Officer submits the draft order to the Inspecting Assistant Commissioner (IAC) until the IAC's directions are received.

Issue

Was the assessment order passed on September 26, 1983, barred by time according to the provisions of the Income Tax Act, 1961?

Facts

1. The Assessing Officer (AO) forwarded a draft assessment order to the Inspecting Assistant Commissioner (IAC) on March 28, 1983. 

2. Normally, the assessment order should have been made by March 31, 1983. 

3. However, there's a provision in the law (Explanation I(iv) of Section 153(3) of the Income Tax Act) that allows for an extension of up to 180 days. This extension covers the period from when the AO sends the draft order to the IAC until the IAC's directions are received. 

4. The IAC's directions were received on September 24, 1983. 

5. The final assessment order was passed on September 26, 1983. 

Arguments

The main argument revolved around whether the assessment order was passed within the allowed time frame. The taxpayer (Dharampal Premchand) likely argued that the order was time-barred, while the tax department probably contended that it was within the permissible limits.

Key Legal Precedents

The judgment doesn't mention specific legal precedents. Instead, it focuses on interpreting Section 153 of the Income Tax Act, 1961, particularly Explanation I(iv) to Section 153(3). 

Judgement

The High Court ruled in favor of Dharampal Premchand. Here's the breakdown:

1. The court calculated that 181 days had elapsed between March 28, 1983 (when the draft order was sent) and September 24, 1983 (when the IAC's directions were received). 

2. This exceeded the 180-day limit allowed by the law. 

3. The court concluded that on September 24, 1983, when the IAC gave directions, the time for making the assessment had already expired. 

4. Therefore, the assessment order passed on September 26, 1983, was barred by time. 

5. The court answered the referred question in the negative, favoring the assessee (Dharampal Premchand) and against the Revenue department. 

FAQs

1. Q: Why is the 180-day limit so important?

  A: The 180-day limit is a statutory provision designed to ensure timely completion of assessments. Exceeding this limit, even by a day, can invalidate the assessment order.

2. Q: What would have happened if the IAC had given directions on the 180th day?

  A: If the IAC had given directions on the 180th day, the assessment order would likely have been considered valid if passed immediately after receiving the directions.

3. Q: Does this judgment set a precedent for future cases?

  A: Yes, this judgment emphasizes the strict interpretation of time limits in tax assessment cases and could be cited in similar future disputes.

4. Q: What are the implications for the tax department?

  A: This ruling underscores the need for the tax department to strictly adhere to statutory time limits when processing assessments.

5. Q: Could the tax department appeal this decision?

  A: While the judgment doesn't mention it, the tax department could potentially appeal to a higher court if they believe there are grounds for challenging this interpretation of the law.

The following question has been referred for our opinion under Section 256 (1) of the Income Tax Act, 1961:

Whether on the facts and in the circumstances of the case and on a true and correct interpretation of the expression ?date on which the I.T.O. forwards the draft order under sub-section (I) of Section 144B to the assessee? and ending with ?the date on which the I.T.O. receives the directions from the IAC? appearing in Explanation I(iv) of section 153 of the Income-Tax, Act, 1961, the Appellate Tribunal was justified in law in holding that the final assessment order passed by the I.T.O. on 26.9.1983 was not barred by time?? 2. Essentially, the question referred for our consideration is whether the assessment order made on 26th September, 1983 was barred by time.

3. The admitted position is that the Assessing Officer had forwarded the

draft assessment order to the Inspecting Assistant Commissioner (IAC) on 28th March, 1983, as found by the Commissioner of Income Tax (Appeals) [CIT (A)]as well as the Income Tax Appellate Tribunal.

In the normal course, the assessment order was required to be made up to 31st March, 1983, but in view of Explanation I (iv) of Section 153(3) of the Act, a period of 180 days could be added being the period between the date when Income Tax Officer forwards the draft order to the IAC and the date when the directions of the IAC are received. In other words, a maximum period of 180 days is available to the IAC to issue directions to the Assessing Officer under Section 144 B of the Income tax Act, 1961.

4. The CIT (A) noted in his order that the ITO, in fact, received the directions of the IAC on 24th September, 1983. The period from 28th March, 1983 to 24th September, 1983, as noted by the CIT(A), is 181 days, which is a day above the available period of 180 days, under Explanation I (iv) to Section 153(3) of the Act. Therefore, on the day on which the IAC gave his direction, that is, 24th September, 1983, the time for making the assessment order had already expired. The assessment order, in fact, was made on 26th September, 1983.

5. These being the dates, it is quite clear that the assessment order, when it was passed on 26th September, 1983, was already barred by time since on that date more than 180 days had elapsed from the date on which the draft order was submitted by the Assessing Officer to the IAC on 28th March, 1983.

6. The Tribunal was, therefore, not justified in coming to the conclusion that the assessment order was passed within a period of 180 days and not thereafter.

On the facts mentioned above, we answer the question referred to us in the negative, in favour of the Assessee and against the Revenue.

The reference is disposed of accordingly. MADAN B. LOKUR, J V.B. GUPTA, J

JANUARY 14, 2008