Dismissed

Smt.Chandrabai, v. The Income Tax Officer

Madras HC2 Sept 2014WP/22965/2014

Case brief

AI extract

What is this about?

The Court dismissed writ petitions challenging reopening of tax assessments for AY 2003-04 under Section 148 after the six-year limit expired. The Court held that a Tribunal order directing the spread of unexplained investment constituted a necessary finding under Section 150(1), making the reopening valid.

What the court decided

AI extract

Smt.Chandrabai, Vs The Income Tax Officer — Income Tax | Madras HC (2014)

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In the High Court of Judicature at Madras

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Dated : 02-9-2014

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Coram:

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The Honourable Mr.Justice V.RAMASUBRAMANIAN Writ Petition Nos.22965 & 22966 of 2014 and MP.Nos.1 and 1 of 2014

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Smt.Chandrabai ...Petitioner in
WP.22965/2014
Sri.Jhumarlal …Petitioner in
WP.22966/2014
Vs
The Income Tax Officer, Business Ward
X(3), III Floor, Kannammai Building
No.611, Anna Salai, Chennai-2. …Respondent in
WP.22965/2014
The Income Tax Officer, Business Ward
X(2), III Floor, Kannammai Building
No.611, Anna Salai, Chennai-2. …Respondent in
WP.22966/2014

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PETITIONS under Article 226 of The Constitution of India praying for the issuance of Writs of Certiorari to call for the records on the file of the respondent and quash the notices issued under Section 148 of the Act respectively in (i) PAN= AADPC 6871E dated 21.3.2014 and consequential proceedings in F.No.BW-X(3)/ AADPC6871E/2003-04 dated 10.7.2014 and (ii) PAN=AAFPJ7980F dated 21.3.2014 and consequential proceedings in F.No.BW-X(2)/AAFPJ7980F/2003-04 dated 10.7.2014.

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For Petitioners : Mr.R.Sivaraman For Respondents : Mr.T.Pramod Kumar Chopda

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COMMON ORDER

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The petitioners have come up with the above writ petitions challenging the orders passed by the respondents, refusing to

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withdraw the notices for reopening the assessment in respect of the assessment year 2003-2004.

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Heard Mr.R.Sivaraman, learned counsel for the petitioners. Mr.T.Pramod Kumar Chopda, learned Standing counsel for the department takes notice.

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The petitioners, along with two others purchased land and building No.87, Mint Street, Sowcarpet, Chennai-1, during the assessment year 2000-2001. They demolished the existing building and started constructing a new building during the financial year 20012002. It appears that the petitioners showed a particular amount in the assessment year 2004-2005 as their share of investments towards the purchase of the land and the cost of construction. The petitioners accordingly filed their return of income for the assessment year 2004-2005.

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It also appears that in the course of assessment proceedings of one of the co owners by name Shivlal, the Assessing Officer concerned required details of the cost of construction and the assessee produced a detailed valuation report from a registered valuer. The registered valuer valued the building at Rs.72,22,621/-. Thereafter, a reference was made to the Departmental Valuation Officer. He valued the building at Rs.1,74,20,000/-, by his report dated 29.12.2006. Consequently, the Assessing Officer of that coowner, adopted 1/4th of the said value for that Assessee.

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Based upon the information provided by the Assessing Officer of that co-owner by name Shivlal, a notice under Section 148 was issued to the petitioners on 11.3.2008. The Assessing Officers passed an order dated 18.12.2008 under Section 143(3) read with Section 147 (a), determining a particular amount as unexplained investment under Section 69B.

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Aggrieved by the said order, the petitioners filed first appeals before the Commissioner of Income Tax (Appeals). By an order dated 15.6.2009, the Commissioner of Income Tax (Appeals) allowed the appeals on the ground that the reopening of assessment under Section 148 was not justified.

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As against the said orders, the respondents preferred two appeals before the Income Tax Appellate Tribunal in I.T.A.Nos.1370 and 1371/MDS/2009. The Tribunal allowed the appeals by an order dated 20.11.2009 and remitted the matter back to the Appellate Authority for a consideration on merits.

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The Commissioner of Income Tax (Appeals) thereafter considered the matter on merits and passed orders on 13.12.2011 and 15.12.2011 respectively holding that 20% deduction had to be given

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from the value determined by the Departmental Valuation Officer, to arrive at the State PWD rates. Accodingly, the Appellate Authority determined the cost of construction at a particular amount and held that the cost of construction could be apportioned or spread over between two years namely assessment years 2003-2004 and 2004-2005 in the ratio of 63.63% and 36.37% respectively. Aggrieved by the order of the Commissioner of Income Tax (Appeals), the Department filed appeals and the petitioners also filed cross objections. The Tribunal, by its order dated 11.10.2012, set aside the orders of the Appellate Authority and remitted the matter back to the file of the Assessing Officers for a fresh consideration on the aspect of cost of construction.

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It appears that the Department had taken up the matter further and filed a tax case appeal before this Court under Section 260A. It is now pending. At this stage, the respondents issued the notices under Sections 148 read with 150(1) of the Act on 21.3.2014. The petitioners filed objections requesting the respondents to furnish reasons for reopening the assessment. In reply, the respondents furnished reasons.

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Thereafter, the petitioners filed detailed objections on 11.6.2014. By the said objections, the petitioners requested the respondents to withdraw the notices, on the ground that the notice under Section 148 is barred by time and that it is not saved by Section 150(1). But, by the impugned orders dated 10.7.2014, the respondents refused to withdraw the notices. Therefore, the petitioners have come up with the above writ petitions.

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The short ground on which the petitioners challenge the initiation of proceedings for re-assessment is that the time limit stipulated under section 149 (1) for issuing a notice under Section 148 has already expired and that the case cannot come under section 150 (1). Under Clause (a) of Sub-Section (1) of Section 149, the time limit is normally four years unless the case falls under Clause (b) or Clause (c). The time limit is six years under Clause (b), if the income chargeable to tax, which has escaped assessment amounts to or is likely to amount to Rs.1 lakh or more for that year. We are not concerned with Clause (c), since it relates to an asset including financial interest in any entity located outside india. Under Section 150(1), a notice under Section 148 may be issued at any time, notwithstanding anything contained in Section 149, if it is for the purpose of making an assessment or re-assessment 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 the Act.

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Section 150 requires reproduction and hence, it is

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reproduced as follows:

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"150. Provision for cases where 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 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.

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(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."

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As seen from a bare reading of the provision, the requirement of Section 150(1) is that to escape the limitation stipulated in Section 149, the reopening of assessment should be in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under the Act. There are two limbs to Section 150(1), either of which should be satisfied for invoking Section 150(1). They are (i) reopening of assessment should be in consequence of an order passed by an authority in any proceeding under the Act by way of appeal, reference or revision or by a court in any proceeding under any other law; alternatively (ii) the reopening of assessment should be for the purpose of giving effect to any finding or direction contained in any order passed by any authority in any proceeding under the Act by way of appeal, reference or revision or by a court in any proceeding in any other law.

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In the case on hand, the reopening of assessment is proposed to be made in relation to the assessment year 2003-2004. Therefore, the period of six years prescribed under Section 149, is already over. Hence, the Department should establish that this case falls within anyone of the two requirements of Section 150(1).

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The respondents rely upon the order passed by the Income Tax Appellate Tribunal on 11.10.2012, setting aside the orders of the Appellate Authority and remitting the matter back to the Assessing Officers for a fresh consideration on the aspect of cost of construction. This was in relation to an order of assessment relating to the assessment year 2004-2005.

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A brief history of what happened in two rounds of litigation that went up to the Income Tax Appellate Tribunal may be necessary at this juncture. As stated earlier, the petitioners along with two others including a person by name Shivlal purchased land and building during the previous year relevant to the assessment year 2000-2001. All the co-owners demolished the building and started new construction in the financial year 2001-2002. The Assessing Officer concerned called upon the other co-owner Shivlal to furnish details of the cost of construction. Not satisfied with the valuation report given by him, the Assessing Officer concerned made a reference to the Departmental Valuation Officer. On the basis of the valuation made by the Departmental Valuation Officer, the Assessing Officer concerned arrived at the investment made by Shivlal. Based upon the assessment made in respect of Shivlal, the Assessing Officers of the petitioners herein reopened their assessments, for making an addition of unexplained investment in the house property. The orders of the Assessing Officers were challenged by the petitioners before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) allowed the appeals and held that the Assessing Officers ought not to have reopened the assessment, on the ground that the valuation report made by the Departmental Valuation Officer could not be a conclusive material.

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The above decision of the Commissioner of Income Tax (Appeals) was challenged in two appeals by the Department in I.T.A.Nos.1370 and 1371/MDS/ 2009. The appeals were allowed by the Income Tax Appellate Tribunal by an order dated 20.11.2009 and the matter was remitted back to the Commissioner of Income Tax (Appeals) to be dealt with on merits.

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By orders dated 13.12.2011 and 15.12.2011, the Commissioner of Income Tax (Appeals) went into the merits of the case, compared the cost of construction as estimated by the Departmental Valuation Officer with the State PWD rates and arrived at the addition to be made towards unexplained investment. After doing so, the Commissioner of Income Tax (Appeals) directed the amounts to be spread over for two assessment years namely 2003-2004 and 2004-2005 in the ratio of 63.63% and 36.37% respectively. As against the orders of the Commissioner of Income Tax (Appeals), one set of appeals were filed by the Income Tax Officer and one set of cross objections were filed by the assessees. All the appeals and the cross objections were heard together and by a common order dated 11.10.2012, the Income Tax

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Appellate Tribunal remitted the matter back to the Assessing Officers for a fresh consideration regarding the cost of construction.

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It is seen from the order of the Income Tax Appellate Tribunal that the grievance of the Revenue was that the Commissioner of Income Tax (Appeals) should not have adopted the State PWD rates and should not have allowed spreading over of investment for two years. The grievance of the assessees was that the Commissioner of Income Tax (Appeals) ought not to have given any direction other than for the original assessment year and that the actual amount spent as reflected in the books of account should have been believed. After considering the materials before them and the law laid down by various courts, the Tribunal found that for determining the cost of construction, the matter required a re-visit by the Assessing Officers.

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On the second grievance of the Department that spreading over ought not to have been permitted, the Tribunal relied upon the decision of the Supreme Court in Rajinder Nath Vs. CIT [120 ITR 14] and held that when the assessees themselves claimed that the cost of construction was spread over to 2-3 years, the finding that the unexplained cost of construction should also be spread over cannot be found fault with. Therefore, the Tribunal rejected in paragraph 17, the objection of the Department that the Commissioner of Income Tax (Appeals) had no power to direct spreading of unexplained portion of investment.

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In the light of paragraph 17 of the order of the Income Tax Appellate Tribunal dated 11.10.2012, it is contended by Mr.T.Pramod Kumar Chopda that there was a finding/direction by an authority under the Act and that therefore, this case is covered by the requirements of Section 150(1).

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But, it is contended by Mr.R.Sivaraman, learned counsel for the petitioners that the appeals and the cross objections before the Income Tax Appellate Tribunal arose out of reopening of assessment for the year 2004-2005 and that eventually, the Tribunal set aside all the orders and remitted the matter back to the Assessing Officers for a fresh consideration on the cost of construction. Therefore, the learned counsel contends that once the orders of the Commissioner of Income Tax (Appeals) had been set aside and the matter remitted back with respect to the assessment year 2004-2005, there was no finding or direction that was available for the Department to invoke Section 150(1).

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I have carefully considered the above submissions.

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Since the question raised in these writ petitions revolves around the order of the Income Tax Appellate Tribunal and since the

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question as to whether the requirements of Section 150(1) are satisfied or not, has to be found out only from the order of the Tribunal, it is necessary to have a look at paragraphs 17 and 18 of the order of the Tribunal. Hence, they are extracted as follows :

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"In the result, we are not agreeing with the argument of learned D.R. that CIT (Appeals) had no such power to direct spreading of the unexplained portion of investment, if any, to the period of construction.

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Nevertheless, in view of the factual situation of the case, we are setting aside the orders of authorities below and remitting the issue back to the file of the A.O. for consideration afresh. The A.O. has to consider the aspect of cost of construction in accordance with law and he has to give an opportunity to the assessees to explain their case and justify the cost of construction as returned by them."

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From the operative portion of the order of the Income Tax Appellate Tribunal extracted above, it is seen that the Tribunal remitted the matter back to the Assessing Officers for a fresh consideration on the aspect of cost of construction. But at the same time, the Tribunal also rejected the stand taken by the Department that spreading over is not possible. Therefore, the Assessing Officers are now required to do two things namely (a) to arrive at the correct cost of construction and find out whether there is any unexplained portion of investment; and (b) to allow the assessees to have the benefit of spreading the unexplained portion of investment over two assessment years namely 2003-2004 and 2004-2005.

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In case the assessees do not want the benefit of spreading over, the Assessing Officers may simply arrive at the cost of construction and load the unexplained portion of investment on the declared income of the assessment year 2004-2005. In case the assessees choose to have the spread over, the Assessing Officers are now bound to grant the benefit, in view of the observations made by the Tribunal in paragraph 17 of its order. In such circumstances, what is recorded in paragraph 17 of the order of the Tribunal, is actually a finding. As I have pointed out earlier, the necessity to reopen the assessment beyond the period of six years may arise, by invoking Section 150(1), either as a consequence of an order passed or in pursuance of a finding or direction by an authority.

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In Rajinder Nath Vs CIT, the Supreme Court was concerned with the definition of the expressions 'finding' and 'direction'. The Supreme Court held that a finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary

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for the disposal of the particular case that is to say in respect of the particular assessee and in relation to the particular assessment year. The Supreme Court pointed out that to be a necessary finding, it must be directly involved in the disposal of the case. If, in order to render a finding in respect of A, a finding in respect of B is also called for, such a finding may only be an incidental finding.

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But, in so far as the case on hand is concerned, what was observed by the Tribunal in paragraph 17 is not merely incidental, but is actually consequential. It may be seen from the observations of the Tribunal in paragraph 15 of its order that the assessee himself appears to have claimed that the construction was spread over to 2-3 years. This is why the Tribunal upheld the orders of the Commissioner of Income Tax (Appeals) granting the benefit of spread over.

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If we go back once again to the order of the Commissioner of Income Tax (Appeals) dated 13.12.2011 and 15.12.2011 respectively, the assessees themselves claimed that the construction was spread over for two years namely during the assessment years 2003-2004 and 2004-2005 as per the valuation report in a particular proportion. This is why the Commissioner of Income Tax (Appeals) directed the spreading over at the ratio of 63.63% and 36.37%. The petitioners herein are the beneficiaries of this finding rendered by the Commissioner of Income Tax (Appeals). This finding has been upheld by the Income Tax Appellate Tribunal. Therefore, the contention of the learned counsel for the petitioners that there was no finding or direction and that the Tribunal had set aside the orders of the Commissioner of Income Tax (Appeals), cannot be accepted.

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In I.T.O. Vs. Murlidhar Bhagwan Das [AIR 1965 SC 342], the Supreme Court held that the expressions 'finding' and 'direction' can be given full meaning and that the finding is a finding necessary for giving relief in respect of the assessment of the year in question and a direction is a direction, which the Appellate or Revisional Authority is empowered to give. In so far as the words 'in consequence of and to give effect to' are concerned, the Supreme Court pointed out that they have to be collated with and cannot enlarge the scope of the finding or direction under the Second Proviso to Section 34(2) of the 1922 Act. Similarly, in Bhanji Bhagwandas Vs. CIT [AIR 1968 SC 139], the Supreme Court reiterated the very same principles and held that a finding could only be that which was necessary for the disposal of an appeal in respect of an assessment of a particular year. Again in Daffadar Bhagar Singh Vs. I.T.O [AIR 1969 SC 340], and in CIT Vs. Md.Shakoor [AIR 1973 SC 2359], the Supreme Court reiterated the same principles.

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If we have a look at the orders of the Commissioner of Income Tax (Appeals), a portion of which alone was set aside by the

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Tribunal, it could be seen that the Commissioner of Income Tax (Appeals) rendered a finding that the unexplained investment should be allowed to be spread over. That finding is upheld by the Tribunal, though the ultimate conclusion of the Commissioner of Income Tax (Appeals) was set aside on a different aspect.

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Therefore, the contention of Mr.T.Pramod Kumar Chopda, learned Standing Counsel for the Department that there was a finding and that this has lead to the reopening of the assessment, has to be upheld. As a matter of fact, the reopening of assessment is a natural consequence of the claim for spread over. Suppose the Assessing Officers arrive at a cost of construction in pursuance of the order of remand now passed by the Income Tax Appellate Tribunal, the Assessing Officers are obliged, by virtue of the orders of the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal, to allow the assessees to spread it over. At that stage, the reopening becomes inevitable. Hence, I do not find any justification to interfere with the impugned orders.

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