Court Quashes Reassessment Notice, Upholds Limitation Period in Tax Case

Get the full picture - access the original judgement of the court order here

Case Name:

Commissioner of Income Tax Vs Pradeep Iron Industries (P) Ltd. (High Court of Jharkhand)

T.A. No. 31 of 2002 with T.A. No. 10 of 2003 with T.A. No. 11 of 2003

Date: 19th September 2012

Key Takeaways:

1. Issuing a reassessment notice under Section 148 (of Income Tax Act, 1961) is unnecessary if the AO already has relevant materials and time to complete the assessment.

2. The court emphasized the importance of adhering to limitation periods in tax assessments.

3. The judgment reinforces the principle that tax authorities cannot use procedural tactics to extend limitation periods arbitrarily.

Issue: 

Was the Income Tax Appellate Tribunal (ITAT) justified in cancelling the Assessing Officer's order under Sections 143(3) (of Income Tax Act, 1961)/147/251 of the Income Tax Act, 1961, for the Assessment Years 1979-80 to 1982-83 by holding that the issuance of notice under Section 148 (of Income Tax Act, 1961) was beyond the provisions of the Act?

Facts:

1. A search and seizure operation was conducted on 04.12.1981, during which incriminating materials were found .

2. Initial assessment orders were passed on 30.11.1978, 30.11.1979, 30.11.1980, and 30.11.1981 .

3. The CIT(A) set aside these orders on 18.3.1988 and restored the matter to the AO for fresh assessment .

4. The limitation for fresh assessment expired on 31.3.1990 .

5. The AO issued a notice under Section 148 (of Income Tax Act, 1961) on 9.3.1990, just 22 days before the expiry of the limitation period .

6. A reassessment order was made under Sections 143(3) (of Income Tax Act, 1961)/147/251 on 30.3.1992.

Arguments:

Appellant (Revenue):

- Argued that under Section 150(1) (of Income Tax Act, 1961) read with Section 153(2) (of Income Tax Act, 1961), the limitation period doesn't apply when the AO is complying with appellate directions.

- Claimed the AO had jurisdiction to issue notice under Section 148 (of Income Tax Act, 1961) for reassessment to give effect to appellate directions.

Respondent (Assessee):

- Contended that the notice under Section 148 (of Income Tax Act, 1961) was unnecessary and issued only to extend the limitation period.

- Argued that all relevant materials were already with the tax authorities due to the search and seizure operation.

Key Legal Precedents:

1. Hemraj Munshi Ram Vs. Union of India and Ors. (2000) 245 ITR 155:

The court cited this case, which held that issuing a notice under Section 148 (of Income Tax Act, 1961) is without basis if relevant material was already seized and in possession of the revenue .

Judgement:

The court dismissed the appeal, agreeing with the ITAT's decision. Key points of the judgment include:

1. The AO had two years and all relevant materials to complete the assessment.

2. Issuing a notice under Section 148 (of Income Tax Act, 1961) was unnecessary and appeared to be a pretext to extend the limitation period.

3. The court found no error in the ITAT's ruling that the notice under Section 147 (of Income Tax Act, 1961) was given beyond the provision of law.

FAQs:

Q1: Why did the court dismiss the appeal?

A1: The court found that the AO's issuance of notice under Section 148 (of Income Tax Act, 1961) was unnecessary and appeared to be a tactic to extend the limitation period.

Q2: What was the significance of the Hemraj Munshi Ram case?

A2: It established that issuing a notice under Section 148 (of Income Tax Act, 1961) is unjustified if the revenue already possesses the relevant material from a search and seizure operation.

Q3: Could the AO have completed the assessment without issuing the Section 148 (of Income Tax Act, 1961) notice?

A3: Yes, the court noted that the AO had two years and all necessary materials to complete the assessment without resorting to Section 148 (of Income Tax Act, 1961).

Q4: What does this judgment mean for tax authorities?

A4: It emphasizes that tax authorities should adhere to limitation periods and not use procedural tactics to extend these periods arbitrarily.

Q5: How does this case impact taxpayers?

A5: It provides protection against unnecessary reassessment notices when tax authorities already possess relevant information and have had sufficient time to complete assessments.

1. Heard learned counsel for the parties.

2. The following substantial question of law has been framed in these appeals:

“Whether the I.T.A.T. Is justified on the facts and in circumstances of the case in cancelling the order passed by the Assessing Officer U/s 143(3) (of Income Tax Act, 1961)/147/251 of the I.T. Act, 61 for the Assessment Years 1979-80 to 1982-83 by holding that issuance of notice U/s 148 (of Income Tax Act, 1961) was beyond the provisions of the Act ?”

3. In these three appeals, though the assessment years are different but the question is the same and these are being decided by a common order.

4. Raising the same issue, another Tax Appeal No. 08 of 2003 against the same respondent has been preferred by the revenue, which was dismissed vide order dated 3.04.2006 on the ground of its being barred by time.

5. The relevant dates as mentioned in the order passed by the Income Tax Appellate Tribunal, Patna Bench, Patna, Circuit Bench at Ranchi in its impugned order dated 27.05.2002 are as under:

(I) Date of Search 04.12.81

(ii) Date of order of the CIT(A) (Shri

B.C. Mohanty setting aside the restoring the matter to the file of A.O. to be done afresh with certain direction 18.3.88

(iii) Date of service of the order dated 18.3.88 on I.T. Deptt. 22.3.88

(iv) Limitation of fresh assessment expired on 31.3.90

(v) Date of notice u/s 148 (of Income Tax Act, 1961) 9.3.1990

(vi) Letter for filing of return u/s 148 (of Income Tax Act, 1961) 3.12.1991

(vii) Date of reassessment order u/s 143(3) (of Income Tax Act, 1961)/ 147/251 30.3.92

(viii) Date of order of ITAT(Departmental Appeal against CIT(A) order dated 18.3.88 15.02.93

6. From the above dates, it is clear that during the course of search and seizure operation, certain incriminating materials were found, on the basis of which assessment proceedings were concluded by passing an assessment order and the assessment order was set aside by the CIT(A) vide order dated 18.3.1988. Therefore, the proceeding of assessment stands reopened and this assessment could have been made up to 31.3.1990. Admittedly, no assessment was made till 31.3.1990. However, it appears from the facts of the case that to get extension of the period of limitation for assessment, the A.O. issued notice under Section 148 (of Income Tax Act, 1961), on 09.3.1990, about 22 days before the expiry of the period of limitation for assessment. On the basis of the above notice dated 09.3.1990, under Section 148 (of Income Tax Act, 1961), reassessment order was made under Section 147 (of Income Tax Act, 1961) read with Sections 143(3)/147/251 of the Act of 1961 on 03.12.1991. Learned counsel for the appellant submitted that in view of sub-section 1 (of Income Tax Act, 1961) of Section 150 (of Income Tax Act, 1961) read with Section 153(2) (of Income Tax Act, 1961), the period of limitation prescribed for making assessment in the Act of 1961, cannot have application in the cases where the A.O. proceeded to comply with the direction contained in the appellate order and, therefore, the A.O. had jurisdiction to issue notice under Section 148 (of Income Tax Act, 1961) for the purpose of making any assessment or reassessment or recomputation to give effect to any finding or direction contained in the order passed by the appellate authority.

However, the argument is self contradictory. If there was no bar of limitation in making the assessment after remand order, then what was necessity for opting for the mode by issuing notice under Sections 148 (of Income Tax Act, 1961) and 147 (of Income Tax Act, 1961) ?. Admittedly, in consequence of search and seizure operation, the assessment was completed by making the assessment orders on 30.11.1978, 30.11.1979, 30.11.1980 and 30.11.1981 in all these four matters (including the cases of Tax Appeal No. 08 of 2003 which has been dismissed vide order dated 03.04.2006). Therefore, the matters which were pending before the A.O. before making the assessment orders and against the above assessment orders,

the appeals were preferred and assessment orders were set aside by CIT(A) vide order dated 15.3.1988 and matters were remanded to the A.O. These proceedings could have been completed by or before 31.3.1990. The A.O. had two years time with it. The relevant materials were already lying with the officers as they were seized during the course of the search and seizure. The A.O. could have completed the assessment but it appears that in the present cases, a pretext has been taken by the A.O. and thereafter, only for the extension of period of limitation, the A.O. issued notice under Section 148 (of Income Tax Act, 1961).

Such intention is apparent from the facts mentioned in the order passed by the Tribunal as well as the stand taken by the Revenue. The other argument that, after remand order, if A.O. proceeds for assessment and there was no limitation, then there was no necessity of taking help of Section 148 (of Income Tax Act, 1961) and Section 147 (of Income Tax Act, 1961).

7. Otherwise also, there is a force in the submission of the learned senior counsel for the respondent, Mr. Poddar, that these cases are squarely covered by the judgment of Patna High Court delivered in the case of Hemraj Munshi Ram Vs. Union of India and Ors. reported in (2000) 245 ITR 155 wherein issuance of notice under Section 148 (of Income Tax Act, 1961) itself is found to be without any reason and basis as the relevant material was already seized and were in possession of the revenue itself and in that fact circumstances, particulars furnished could be generally verifiable by the revenue and there was no reason to hold that assessee had failed to disclose fully and truly material facts to the A.O. In these cases also, the facts are identical to that of the case of Hemraj Munshi Ram(supra). Therefore, in fact, in these appeals, no question of law involves and the Tribunal has not committed any error in holding that notice under Section 147 (of Income Tax Act, 1961) was given beyond the provision of law.

These appeals are, therefore, dismissed.

(Prakash Tatia,C.J.)

(Jaya Roy, J.)