Court Overturns Tribunal's Ruling on Tax Assessment Time Limit, Remands Case for Merit Review

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Case Name:

Commissioner of Income Tax (LTU) And Anr. Vs M/s Astra Zeneca Pharma India Ltd. (High Court of Karnataka)

ITA No.370 of 2011 C/w ITA No.37 of 2012

Date: 12th June 2020

Key Takeaways:

1. The court clarified the distinction between Section 153(2A) and Section 153(3) of the Income Tax Act regarding time limits for assessments.

2. Limited remand orders fall under Section 153(3), which doesn't prescribe a specific time limit for completion.

3. The court emphasized the importance of correctly interpreting tribunal orders to determine which section applies.

4. This decision highlights the complexities in tax law regarding assessment time limits and the need for careful analysis of remand orders.

Issue: 

Was the Income Tax Appellate Tribunal correct in holding that the Assessing Officer's order was barred by limitation under Section 153(2A) of the Income Tax Act, or should it have been considered under Section 153(3)?

Facts:

1. Astra Zeneca Pharma India Ltd. filed a tax return for the 1996-97 assessment year, declaring an income of Rs. 1,96,82,930 .

2. The Assessing Officer passed an assessment order on 26.03.1999, increasing the taxable income to Rs. 8,38,38,080 .

3. The assessee appealed to the Commissioner of Income Tax (Appeals), who provided partial relief .

4. The revenue department challenged this order before the Income Tax Appellate Tribunal .

5. The Tribunal, on 31.07.2006, remitted certain issues back to the Assessing Officer for fresh consideration .

6. The Assessing Officer passed a new order on 15.12.2009 .

7. This order was challenged up to the Tribunal, which held on 31.05.2011 that the assessment was barred by limitation under Section 153(2A) .

Arguments:

Revenue's Arguments:

1. The Tribunal's remand was limited, not an open remand, so Section 153(2A) shouldn't apply .

2. The Assessing Officer's order was giving effect to the Tribunal's findings, falling under Section 153(3)(ii) .

3. Even without a specific time limit, a reasonable time of four years should apply .

Assessee's Arguments:

1. The Tribunal's remand was effectively an open remand, even if not explicitly stated.

2. The assessment order was passed beyond the limitation period .

Key Legal Precedents:

1. 'RIKHABDAS JHAVERCHAND VS. COMMISSINOER OF INCOME-TAX', 2001 249 ITR 774 BOM

2. 'BASU DISTRIBUTORS (P.) LTD. VS. INCOME-TAX OFFICER, WARD 2(3), NEW DELHI', (2007) 159 TAXMAN 410 (DELHI)

3. 'COMMISSIONER OF INCOME-TAX VS. BHAN TEXTILE (P.) LTD.', (2008) 300 ITR 176 (DELHI)

4. 'INSTRUMENTS AND CONTROL CO. VS. CHIEF COMMISSIONER OF INCOME TAX-1 & 2', (2012) 25 TAXMANN.COM 16 (GUJARAT)

5. 'NOKIA INDIA (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX', (2018) 407 ITR 20 (DELHI)

6. 'GE T & D INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX', (2019) 105 TAXMANN.COM 286 (MADRAS)

These cases were cited by the revenue to support their arguments .

Judgement:

1. The High Court ruled in favor of the revenue department .

2. It held that the Tribunal's remand was on limited issues and did not set aside the entire assessment .

3. The court found that Section 153(3) of the Act applies to this case, not Section 153(2A) .

4. The Tribunal's orders dated 29.09.2011 and 31.05.2011 were quashed .

5. The matter was remitted back to the Tribunal to decide on merits .

FAQs:

1. Q: What's the main difference between Section 153(2A) and Section 153(3) of the Income Tax Act?

  A: Section 153(2A) prescribes a two-year time limit for fresh assessments in certain cases, while Section 153(3) doesn't specify a time limit for assessments made to give effect to certain orders or findings.

2. Q: Why did the High Court disagree with the Tribunal's decision?

  A: The High Court found that the Tribunal misinterpreted the nature of the remand order, applying Section 153(2A) when Section 153(3) was more appropriate.

3. Q: What happens next in this case?

  A: The case goes back to the Income Tax Appellate Tribunal, which must now decide on the merits of the assessment without the limitation issue.

4. Q: Does this decision set a precedent for other tax cases?

  A: Yes, it clarifies how courts should interpret remand orders to determine which section of the Income Tax Act applies to assessment time limits.

5. Q: What's the practical implication of this judgment for taxpayers?

  A: It suggests that in cases of limited remands, tax authorities may have more time to complete assessments than previously thought, as they may fall under Section 153(3) rather than 153(2A).

These appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’, for short) have been filed by the revenue. The subject matter of I.T.A.No.370/2011 & I.T.A.No.37/2012 pertains to Assessment year 1996-97. Since, appeals have been decided by two different judgments, though they pertain to the same Assessment year and since, common questions of law arise for consideration in both the appeals, they were heard analogously and are being decided by this common judgment. The appeals were admitted on following substantial questions of law:

(i) Whether the tribunal was correct in holding that the order passed by the Tribunal dated 31.07.2006 by the Tribunal dated 31.07.2006 was under Section 153(2A) of the Act and therefore barred by limitation and not under Section 153(3) of the Act, which permitted the Assessing Officer an extended period, as the original assessment was neither set aside in entirety or cancelled and only directed to examine two items?

(ii) Whether the Assessing Officer who passed an order dated 15.12.2009 was only giving effect to the order passed by the Tribunal dated 31.07.2006 and this order fell within Section 153(3) of the Act and not under Section 153(2A) of the Act as held by the Tribunal?

2. For the facility of reference, facts from ITA No.370/2011 are being referred to. The assessee is a manufacturer, seller and trader in pharmaceuticals. The assessee filed the return of income for Assessment year 1996-97 declaring the total income of Rs.1,96,82,930/-. The return was processed under Section 143(1A) of the Act and was rectified under Section 154 of the Act on 27.10.1998. The case was selected for scrutiny. Thereupon notices were issued under Section 143(2) and 143(1) to the assessee. The assessing officer by an order dated 26.03.1999 passed an order of assessment and inter alia quantified the total taxable income at Rs.8,38,38,080/-. 100% Depreciation claimed by the assessee on pollution control equipment worth Rs.4,93,00,000/- was disallowed and 80% interest on the amount advanced to Madhya Pradesh State Electricity Board to the tune of Rs.40 Lakhs was added. Deduction under Section 80I of the Act to the extent of Rs.1,17,18,570/- was disallowed. Similarly, the provision for leave encashment as well as claim for bonus to the tune of Rs.4,36,546/- as well as Rs.19,75,555/- respectively was disallowed.

3. Being aggrieved the assessee filed an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by order dated 06.05.1999 directed deletion of notional interest in respect of advance made to Madhya Pradesh State Electricity Board, which was added by the assessing officer. The revenue challenged the aforesaid order before the Income Tax Appellate Tribunal. The tribunal by an order dated 31.07.2006 set aside the findings of the assessing officer insofar as it granted the relief with regard to depreciation and notional interest and the matter was remitted to the assessing officer to consider the controversy afresh.

4. After remand, the assessing officer passed an order on 15.12.2009. The assessing officer disallowed 100% depreciation on pollution control equipments amounting to Rs.4,93,00,000/-. The assessing officer also taxed the notional income on the amount of loan advanced to Madhya Pradesh State Electricity Board. The said order was subject matter of challenge before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) by an order dated 30.08.2010 held that original order remanding the assessment was passed only to examine two issues viz., depreciation and notional interest, which would amount to setting aside the entire order of assessment. It was further held that since, there was no order to pass a fresh order of assessment, therefore, the order giving effect to the findings of the tribunal was not barred by limitation under Section 153(2A) of the Act.

5. The aforesaid order was challenged in appeal by the assessee. The Income Tax Appellate Tribunal by order dated 31.05.2011 inter alia held that from perusal of the order passed by the Income Tax Appellate Tribunal, it is evident that the direction issued by the tribunal as to call for complete information and to pass an appropriate order. Thus, the direction is not in the nature requiring positive compliance. It was further held that the order passed by the assessing officer is beyond the period of limitation as prescribed under Section 153(2A) of the Act and the order of assessment is barred by limitation. The tribunal did not decide the appeal on merits. Being aggrieved, the revenue is in appeal before us.

6. Learned counsel for the revenue submitted that provisions to Section 153 of the Act have been amended with effect from 01.06.2016. However, the pre amended Section would apply to the fact situation of the case. It is further submitted that the provisions of Section 153(2A) would apply if an order passed under Section 254 or Section 263 or Section 264 is either set aside or is canceled and a direction for fresh assessment is issued. It is further submitted that the order of remand in the instant case, was not an open remand but was a limited remand and therefore, the limitation prescribed under Section 153(2A) of the Act did not apply to fact situation of the case. However, the aforesaid aspect of the matter has not been appreciated by the tribunal. It is further submitted that it ought to have been appreciated that the order was passed by the tribunal to give effect to its finding and therefore, the provisions of Section 153(3)(ii) apply to the facts of the case. It is also urged that in case where no limitation is prescribed, four years time has been held to be a reasonable time. In support of aforesaid submissions, reliance has been placed by learned counsel on the decisions in ‘RIKHABDAS JHAVERCHAND VS. COMMISSINOER OF INCOME-TAX’, 2001 249 ITR 774 BOM, ‘BASU DISTRIBUTORS (P.) LTD. VS. INCOME-TAX OFFICER, WARD 2(3), NEW DELHI’, (2007) 159 TAXMAN 410 (DELHI, ‘COMMISSIONER OF INCOME-TAX VS. BHAN TEXTILE (P.) LTD.’, (2008) 300 ITR 176 (DELHI),’INSTRUMENTS AND CONTROL CO. VS. CHIEF COMMISSIONER OF INCOME TAX-1 & 2’, (2012) 25 TAXMANN.COM 16 (GUJARAT), ‘NOKIA INDIA (P.) LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX’, (2018) 407 ITR 20 (DELHI), and ‘GE T & D INDIA LTD. VS. DEPUTY COMMISSIONER OF INCOME-TAX’, (2019) 105 TAXMANN.COM 286 (MADRAS).

7. On the other hand, learned counsel for the revenue submitted that from perusal of the order of the tribunal it is evident that it is open remand though not specifically stated to be so in the order. It is submitted that the matter has been remitted for consideration afresh and therefore, the tribunal has rightly held that the order of assessment has been passed beyond the period of limitation. Alternatively it is submitted that in case, this court does not agree with the submissions made on behalf of the assessee on the issue of limitation, the matter may be remitted to the tribunal for decision afresh in accordance with law as it has not dealt with the controversy on merits. In support of aforesaid submissions reliance has been placed on the decisions in ‘DEPUTY COMMISSIONER OF INCOME TAX & ORS. VS. SANJAY JAISWAL & ORS.’, (2016) 158 ITD 0397 (KOLKATA) and ’COMMISSIONER OF INCOME TAX VS. PAUL NOEL RODRIGUES’, (2015) 231 TAXMAN 0811 (KARNATAKA).

8. We have considered the submissions made on both the sides and have perused the record. Before proceeding further, it is apposite to take note of the relevant extract of Section 153 of the Act as it existed at the relevant point of time. The relevant extract reads as under:

153.Time limit for completion of assessment and reassessment:

(2A) Notwithstanding anything contained in sub-sections (1) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment under Section 146 or in pursuance of an order, under Section 250, Section 254, Section 263 or Section 264, setting aside or canceling an assessment, maybe made at any time before the expiry of two years from the end of the financial year in which the order under Section 146 canceling the assessment is passed by the assessing officer or the order under Section 250 or Section 254 is received by the Chief Commissioner or Commissioner or, as the case may be, the order under Section 263 or Section 264 is passed by the Chief Commissioner or Commissioner.

3. The provisions of sub-Sections (1) and (2) shall not apply to the following classes of assessments., reassessmnents and recomputations which may, subject to the provisions of sub-Section (2A), be completed at any time-

(ii) where the assessment, reassessment or recomputation is 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 250, 254, 260, 262, 263 and 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act.

9. Thus it is evident that if a matter falls under Section 153(2A) of the Act, the fresh order of assessment has to be passed within the prescribed period of two years, whereas, under Section 153(3) of the Act, the assessment, reassessment or recomputation has to be made on the assessee or any person in consequence, or to give effect to any finding or direction contained in an order under Section 250, 254, 260,262, 263 and 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act, for which no period of limitation is prescribed. However, it is trite law that even when no limitation is prescribed, the Act has to be performed within a reasonable time.

10. In view of aforesaid well settled legal position, we may advert to the facts of the case. The tribunal in para 12 of the order has held as follows: We have perused the submissions of the assessee, the paper book etc. from which it could not derived whether the assessee has received from MPSEB an amount to the extent of 85% of the cost of the equipment. Therefore, obviously, the Commissioner of Income Tax (A) has accepted the arguments of the assessee of its face value. The various circumstances as existing in the instant case go to raise a lot of doubt in the entire transaction. However, one aspect that is absent in the instant case is the enquiry from the State Electricity Board with reference to the sale invoice raised on the assessee, the lease agreement entered into with the assessee payment of 20% of Rs.4.93 Crores to the assessee and the answer to the question whether the assessee received 85% of Rs.4.93 Crores or not. We are therefore, of the view that the matter requires reexamination at the level of the assessing officer. The decisions of the special Bench (supra) and the jurisdictional High Court (supra) would have to be examined with reference to the facts of that case and whether the fats of the case are identical or otherwise. Likewise, the decision of the Orissa High Court (supra) would also have to be examined in parallel with the facts of the case of the assessee.

11. From perusal of para 12 of the order it is evident that the order of remand has been issued with a view to give effect to the findings of the tribunal and neither the order of assessment has been set aside nor the assessing officer has been directed to carry out fresh assessment. In other words, the order passed by the tribunal is a remand on a limited issue as indicated in para 12 of the order. Therefore, the provisions of Section 153(3) of the Act apply to the fact situation of the case and the tribunal therefore, committed an error of law in holding that the order passed by the Commissioner of Income Tax (Appeals) was passed under Section 153(2A) of the Act.

12. In view of the preceding analysis, the substantial questions of law framed by bench of this court are answered in favour of revenue and against assessee. In the result, the order passed by the tribunal dated 29.09.2011 and order dated 31.05.2011 passed by the tribunal are hereby quashed and the matter is remitted to the tribunal to decide the same on merits.

In the result, the appeals are allowed.

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JUDGE

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JUDGE