WHEN NOTICE OF REASSESSMENT CAN BE ISSUED WITHOUT ANY TIME LIMIT
RATIO DECIDENDI
Where the Assessing Officer includes an item of income for the assessment year 1999-2000 which on appeal is held to relate to the assessment year 1998-99, that finding on appeal can be utilized to reopen the assessment for the assessment year 1998-99 without any time limit by virtue of the provisions of section 150(1)
IN THE ITAT, DELHI BENCH ‘D’, NEW DELHI
ACIT
v.
Rajendra Kumar
ITA No. 1396/Del/2004
March 14, 2008
RELEVANT EXTRACTS :
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5. Section 148 makes it mandatory for the Assessing Officer to issue and serve a notice on the assessee calling upon him to furnish a return of income within a specified period. Service upon the assessee of a valid notice under section 148 constitutes the foundation of the jurisdiction of the Assessing Officer to make re-assessment and this position was recognized and laid down by the Supreme Court for the first time in Y. Narayana Chetty and Anr. vs. ITO, Nellore & Ors. (1959) 35 ITR 388. In this case, it was observed as follows:
“…..The notice prescribed by section 34 cannot be regarded as a mere procedural requirement; it is only if the said notice is served on the assessee as required that the Income-tax Officer would be justified in taking proceedings against him. If no notice is issued or if the notice issued is shown to be invalid then the validity of the proceedings taken by the Income-tax Officer without a notice or in pursuance of an invalid notice would be illegal and void.”
The position is the same under the 1961 Act also. This is well settled position and does not require the citing of any authority. Before issue of notice, it is mandatory for the Assessing Officer to record his reasons for doing so. Section 149 prescribes the time limit for issue of the notice under section 148. This section has received amendments by the Finance Act, 2001, with effect from 1-6-2001 prescribing different time limits than those prescribed prior to the said date. Briefly stated, different time limits have been prescribed depending upon the amount of income chargeable to tax that has escaped assessment. Section 150 makes provision for cases where an assessment is made in pursuance of an order on appeal, reference or revision or an order of a court in any proceedings under any other law. Sub-section (1) says that the time limits prescribed in section 149 will not apply, which means that a notice under section 148 may be issued at any time 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 under the Income-tax Act by way of appeal, reference or revision or by a court in any proceeding under any other law. Having thus removed the time limits for issuing notice under section 148 in such cases, sub-section (2) hastens to add that where any assessment, re-assessment or recomputation pursuant to an order of appeal, reference or revision or an order of a court in any proceeding under any other law is sought to be made in respect of an assessment year such an order of 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, re-assessment or recomputation may be taken. The rationale behind this provision is not to confer upon the Assessing Officer the jurisdiction to reopen an assessment which the Assessing Officer did not otherwise possess. It says that where the reassessment proceedings would have been barred by time even at the point of time when the order, which became the subject matter of the appeal, revision, etc., was passed, resort cannot be made to sub-section (1) of section 150. An example may make the position clear. Supposing for the assessment year 1999-2000 the Assessing Officer includes an item of income which on appeal is held to relate to the assessment year 1998-99 (the earlier year). This finding on appeal can be utilized to reopen the assessment for the assessment year 1998-99 without any time limit by virtue of the provisions of section 150 (1), the reason being that had the Assessing Officer been aware even when he completed the assessment for the assessment year 1999-2000 that the income was assessable in the assessment year 1998-99, he would and could have included the income in that assessment year itself. This in turn postulates that an assessment or re-assessment for the assessment year 1998-99 would have been permissible at the point of time when the assessment order for the assessment year 1999-2000 was passed. That is the reason why sub-section (2) of section 150 provides that the enlargement of time provided in sub-section (1) will not be available where, even on the date when the assessment was completed, an assessment or reassessment of the income for the assessment year 1998-99 (in our example) would have been barred by time.
6. Keeping in view the above statutory provisions, let us examine the facts of the present case. The assessment order for the assessment year 1978-79 was passed on 22-3-1990 under section 144 of the Act. It was in this assessment order that the capital gains were first brought to assessment. There was an appeal against the aforesaid assessment order and the CIT (Appeals) upheld the assessment to capital gains by order dated 15-5-1991 in ITA No. 328/1991/MRT. It was this order of the Commissioner (Appeals) that was carried in further appeal to the Tribunal which passed the order on 14-6-2000 holding that the capital gains were assessable in the assessment year 1980-81. The question for consideration is whether on 22-3-1990, the date on which the assessment for the assessment year 1978-79 was framed, the Assessing Officer could have taken action by issue of notice under section 148 to reopen the assessment for the assessment year 1980-81. According to section 149(1)(b)(iii) as it stood with effect from 1-4-1989 but before being amended by the Finance Act, 2001, with effect from 1-6-2001, if seven years have elapsed from the end of the assessment year 1980-81, but not more than ten years have elapsed, the notice under section 148 can be issued for the assessment year 1980-81 provided the escaped income was likely to be Rs. 50,000 or more. Seven years from the end of the assessment year 1980-81 would have elapsed on 31-3-1988. Ten years would have elapsed on 31-3-1991. On 22-3-1990, seven years had elapsed but not ten years; further the income chargeable to tax was more than Rs.3 lacs. Thus, on 22-3-1990 the Assessing Officer could havew validly issued notice under section 148 in respect of the assessment year 1980-81. Therefore, the Assessing Officer could have validly issued notice under section 148 on 28-3-2003 taking advantage of the direction issued by the Tribunal in the appeal for the assessment year 1978-79. Such a notice is saved by sub-section (1) of section 150 and the provisions of sub-section (2) of section 150 are not applicable. The contention of the learned counsel for the assessee was that the law as on 28-3-2003 will govern the issue of notice under section 149(1)(b), according to which, the maximum period of six years would have elapsed from the assessment year 1980-81 on 31-3-1987 and, therefore, the Assessing Officer could not have issued the notice under section 148 on 22-3-1990. We are unable to accept the contention because under section 150(2), the time limit within which notice under section 148 could be issued by the Assessing Officer has to be reckoned, in the very nature of things, under the provisions of section 149 as they stood as on 22-3-1990 as is clear from the words “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, re-assessment or recomputation may be taken”. In the very nature of things, such other provision limiting the time for issue of notice under section 149 has to be reckoned with only on the date on which the assessment order for the assessment year 1978-79 was passed, which was on 22-3-1990. On this date, the Assessing Officer could have issued notice under section 148 within the time limit provided by section 149(1)(b)(iii) of the Act as it stood on that date. The contention of the learned counsel for the assessee to the contrary is rejected.
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