1. The assessee has filed this appeal challenging the order of the Commissioner of Income-tax(Appeals)-IV, Kochi dated 22-3-2004 for the/Assessment Year 1979-80.
1. The CIT(A), in the facts and circumstances of the case, erred in holding that the re-opening of the assessment for the A.Y. 1979-80 under Section 147 read with Section 150(1) of the Income-tax Act is valid and is not hit by Section 150(2) of the Income-tax Act, 1961.
2. The CIT(A) erred in holding that the re-assessment made under section. 143(3) read with Section 147 and Section 150(1) is valid.
3. The CIT(A) ought to have noted that the notice issued Under Section 148 is thoroughly hit by Section 150(2) of the Income-tax Act.
2. The briefly stated facts are as under: For the assessment year 1979-80, the assessment of the assessee was completed originally Under Section 143(3) vide order dated 30-1-1980. There was a controversy in respect of the issue relating to the power charges amounting to Rs. 5,58,598/-. The assessee had offered the said amount in its income in the assessment year 1979-80. While completing the assessment for the assessment year 1977-78, the Assessing Officer included that amount of power charges in the said year as according to the AO, the said amount was liable to be taxed in the assessment year 1977-78. As the amount was included in the assessment year 1977-78, the amount declared by the assessee in the income for the assessment year 1979-80 was excluded by the AO. As far as the assessment year 1977-78 was concerned,; the assessee carried the matter in appeal before the CIT(Appeals) who confirmed the order of the AO. The assessee carried the matter further before the ITAT and by way of reference to the High Court. The Hon'ble Jurisdictional High Court vide judgment dated 22-5-1998 in ITR No. 86 of 1984 held that the amount of power charges of Rs. 5,58,.598/- cannot be brought to tax in the assessment for the assessment year 1977-78.
After the judgment of the Hon'ble High-Court in the reference, the AO initiated proceedings Under Section 147 in respect of assessment year 1979-80 read with Section 115 of the Income-tax Act and issued notice Under Section 148 to the assessee on 24-7-1998. The assessee filed the return but at the same time, objected to the reopening of the assessment Under Section 147. The AO rejected the objections raised by the assessee and completed the assessment by including the amount of the refund of power charges amounting to Rs. 5,58,598/- which was earlier offered by the assessee, but excluded by the AO.3. The assessee challenged the impugned order of the AO before the CIT(Appeals), Before the CIT(Appeals), the assessee strongly objected the issue of notice Under Section 148 and relied on the decisions in the case of Sukhdayal Panwar 140 ITR 206 (MP) and Vaikundam Rubber Co.
Ltd. 200 (1) KLT 134. The contention of the assessee that there is no finding given by the High Court in the judgment in respect of the assessability of the said amount was not accepted by the CIT(Appeals).
Now the assessee. has carried the matter in appeal before us.
4. We have heard the parties. The ld. counsel for the assessee reiterated the arguments which were advanced before the CIT(Appeals).
In addition to that, the ld. counsel also relied on. the following precedents:K.M. Sharma v. ITO (iii) Palakkad Shadi Mahal Trust v. ACIT - ITA Nos. 991 to 998(Coch)/2005 order dated 28-4-2006 (ITAT Cochin Bench).
5. Per contra, the ld. Departmental Representative submitted that in assessee's own case for the assessment year 1977-78, the Hon'ble Jurisdictional High Court has held that the said amount was not taxable in the assessment year 1977-78. It is further argued that there was a specific finding in the judgment of the Hon'ble High Court and hence by virtue of provisions of Section 150(1) of the Act, the time limit prescribed Under Section 149 is not applicable to the case of the assessee. The ld. DR further submitted that Section 150(1) is having overriding effect over Section 149 of the Act and if there is any finding or decision then there is a power vested in the AO to initiate assessment or reassessment proceedings Under Section 147. The ld. DR supported the order of the CIT(A).
6. We have heard the rival submissions of the parties. We have also carefully considered the facts of this case. The controversy before us is limited. The assessee has offered the refund of power charges as its income while filing the return for the assessment year 1979-80. The AO was of the opinion' that the said amount was taxable in the assessment year 1977-78. Hence, the amount of refund of power charges included by the assessee in its income for the assessment year 1979-80 was excluded. The assessee contested the matter up to the High Court and the Hon'ble High Court of Kerala in 237 ITR 821(Ker) reframed the following three questions for its opinion: 1. Was the Appellate Tribunal justified in holding that the amount of Rs. 5,58,697 received by the assessee by way of refund of electricity charges in the subsequent year is taxable in the year under consideration under Section 41(1) of the Income-tax Act, 1961? 2. Was the Appellate Tribunal justified in its view that the Supreme Court decision rendered during the accounting period relevant to the assessment year under consideration created a vested right in the assessee to claim refund and as per the system of accounting followed by the assessee make the amount received in the subsequent year would become taxable in the year under consideration 3. Was the Appellate Tribunal justified in its interpretation of the word 'obtained' in Section 41(1) of the Act is to be understood as 'capable of being obtained'? Is not the said interpretation contrary to the plain meaning of the word and the various decisions of the court Was the Appellate Tribunal justified in relying on Motilal Ambaldas v. CIT [1977] 108 ITR 136 (Guj) overruled in CIT v. Bharath Iron and Steel Industries , in support of the above view? After exhaustively dealing with the relevant facts as well as the case law on the subject including the decision of the Hon'ble Supreme Court in the case of CIT v. Moon Mills Ltd. 59 ITR 574 (SC), it was held as under: By applying the above principle, we are of the view that the term obtained" used in Sub-section (1) of Section 41 of the Income-tax Act, 1961, cannot be given a meaning "capable of being obtained".
This is the view taken by the Full Bench of the Gujarat High Court in CIT v. Bharat Iron, and. Steel Industries Ltd. .
While considering the provisions under, Section 41(1), the system of accounting followed by the assessee is of no relevance or consequence. As mentioned earlier, even though, the assessee had put forward a claim for refund of Rs. 8,50,282, what has been ultimately refunded was only Rs. 5,58,597. This would also show that quantification was not done simultaneously along with the judgment of the Supreme Court rendered on November 21, 1975. The quantification was done only in August, 1978. Therefore, we are of the view that the amount received as refund: of electricity charges cannot be added back to the total Income of the assessee during the year 1977-78.
This Tribunal gave effect to the judgment of the Hon'ble High Court of Kerala by passing order Under Section 260(1) of the Act.
Subsequently, the AG issued notice to the assessee Under Section 148 for the assessment year 1.979-80. Though the assessee objected by taking the contention that time limit prescribed Under Section 149 was over and AO has no jurisdiction to issue notice Under Section 149. The ld. counsel submitted that Section 147 is a machinery provision and Section 149 regulates the time limit for issuing notice Under Section 148. It is further argued that once the time limit is over for any reason, except as provided in Section 150(1), the AO has no power to issue notice Under Section 148. It is argued that as far as Section 149 is concerned, the maximum time limit is six years which is applicable when the notice Under Section 148 was issued by the AO. He further submitted that though Section 150 is having over-riding effect, it removes the barriers of limitation on the AO to issue notice Under Section 148 only for the limited purpose if there is any specific finding or direction contained in an order passed by any authority in any proceedings under the Income-tax Act or under any other law, but the crux of the matter is that the direction or finding should be specific. The ld. counsel also referred to the judgment of Hon'ble High Court in assessee's own case in 237 ITR 821 and submitted that there is no finding given by the Hon'ble High Court that this amount is assessable in the assessment year 1979-80. He further argued that even prior to 1-4-1989, when the assessment of the assessee is completed Under Section 143(3) and if there is no failure on the part of the assessee to disclose the particulars of his income, then after four years no action can be taken by the AO Under Section 147. The ld. counsel also referred to the judgment of the Hon'ble Supreme" Court in the case of K.M. Sharma (supra).
7. There is substance in the contention of the ld. counsel. On the careful perusal of the judgment of the Hon'ble Jurisdictional High Court in assessee's own case in reference reported in 237 ITR 821, no finding is given that the said amount is assessable in the assessment year 1979-80. There is no dispute that the provisions of Section 149 by way of limitation put a bar on the jurisdiction of the AO to issue notice Under Section 148. Except as provided in Section 150(1), the AO cannot issue notice once the time limit prescribed Under Section 149 is over." Section 150 reads as under: 150. (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.
(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.
It is clear from the language used by the Legislature that the provisions of Section 149 in respect of the period for issue of notice Under Section 148 are applicable only in a case where any finding or direction is contained in an order passed by any authority in any proceedings; under the Income-tax Act or any other law and to give effect 6r in consequence of said finding or direction the AO can issue notice Under Section 148. As we have already stated, there Is no specific finding or direction by the Hon'ble High Court of Kerala that the said amount is taxable in the assessment year 1979-80.
8. In the case of K.M. Sharma (supra), the Hon'ble Supreme Court has incorporated the scope of provisions of Section 150 in the context of Sub-section (2), of Section 150 and held as under: 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 subsection (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 Subsection (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.
9. In this case also, as far as the assessment year 1979-80 is concerned, in our opinion, as the original assessment was completed Under Section 143(3), the proviso to Section 147 is applicable and maximum time limit was four years, the AO cannot take shelter of Section 150(1) of the Act to initiate the re-assessment proceedings.
10. We have already held that there is no specific finding or direction in the judgment of the Hon'ble High Court of Kerala in assessee's own case cited supra. In our considered opinion, the notice issued by the AO Under Section 148 is illegal and without due authority of law. We, therefore, cancel the assessment proceedings and set aside the order of the CIT (Appeals).