1. The present petition filed under Article 226 of the Constitution of India inter alia seeks issuance of a writ of certiorari for quashing the notice dated 25.03.2017 issued by the Respondent under section 148 of the Income Tax Act, 1961 (hereinafter 'the Act') in relation to Assessment Year (AY) 2009- 10 and the order dated 07.12.2017 passed by the Respondent disposing of the objections raised by the Petitioner in response to the aforesaid notice.
2. Petitioner has premised the challenge to the notice dated 25.03.2017 (hereinafter 'the impugned notice'), on the ground that the Assessment Officer (AO) did not have the jurisdiction to issue the impugned notice beyond six years from the end of relevant AY - 2009-10 i.e. the maximum time limit provided for issuance of notice under Section 148 of the Act.
3. Before delving into the merits of the case, we may note that the Petitioner has not addressed any arguments with respect to the merits of case, i.e. the assumption of jurisdiction by the AO under section 147/148 of the Act. This has been specifically averred in the note of arguments filed in the Court. Revenue, also asserts that there is no pleading or ground in the petition questioning the validity of reopening viz Section 147/148 of the Act. Thus, we are not venturing into the contest- whether, or not, the impugned notice fulfils the requirement of Section 147. Consequently, we have confined and restricted our scrutiny only to the issue of limitation, in the context of applicability of Section 150 of the Act. Since the scope of challenge has been curtailed, the judgments relied upon by the Petitioner and the Revenue, dealing with the scope of notice under Section 147 have not been dealt with in the present case.
4. Petitioner is engaged in the business of manufacturing and marketing of Roof Mounted Package Air Conditioners (RMPU's) and has a manufacturing unit in Kala Amb, H.P. (hereinafter referred as "Kala Amb Unit"). In order to expand its business, Petitioner set up a new unit at Selaqui in Uttarakhand (hereinafter 'the Selaqui Unit'), in the year 2006. Petitioner claimed to have started production of the RMPU's, in the Selaqui Unit during the financial year 2007-08, and claimed deduction of profits, under Section 80-IC of the Act, in the concerned AY, 2008-09. The claim filed by the Petitioner for deduction of profits was selected for scrutiny and rejected by the AO, inter alia, on the ground of violation of the conditions prescribed in Section 80-IC (4)(ii) of the Act. Petitioner preferred an appeal before the CIT (A), against the order of the AO and succeeded therein. As a result the deductions claimed by the Petitioner under Section 80-IC of the Act, were allowed. The order of CIT (A), was challenged by the Revenue, before the Income Tax Appellate Tribunal (hereinafter 'ITAT').
5. In the meanwhile, Petitioner's case for AY 2009-10 was also selected for scrutiny on the same ground i.e. deductions claimed under Section 80-IC of the Act. Petitioner requested the concerned AO to follow the order of CIT (A), as the same was binding upon him. The concerned AO acceded to Petitioners request and completed the assessment for the AY 2009-10 under Section 143(3) of the Act, without disallowing deduction under Section 80- IC of the Act.
6. Subsequently, vide order dated 16.01.2017, ITAT reversed the findings of the CIT (A) w.r.t. AY 2008-09 and allowed departmental appeal in favour of the Revenue.
7. In this background, the AO issued the impugned notice dated 25.03.2017, under Section 147 / 150 of the Act, for reassessment of the return filed by the Petitioner for the AY 2009-10, requiring the Petitioner to file the return for the said AY. Petitioner complied with the notice and sought reasons for re-opening the assessment, which were provided to it by the Revenue. Thereafter, the Petitioner vide letter dated 20.11.2017 raised objections against the reasons provided by the Revenue for reopening the assessment, which were rejected on 07.12.2017, reiterating that reopening of the assessment is necessary and obligatory in consequence of and in order to give effect to, the finding or direction contained in the order dated 16.07.2019, passed by the ITAT.
Case of Petitioner:
8. Mr. M.S. Syali, learned Senior counsel for the Petitioner, contends that as per Section 149, notice under Section 147 could have been issued within a maximum period of 6 years from the end of the relevant assessment year. The period of six year in the present case i.e. for AY 2009-10 ended on 31.03.2016. Invocation of Section 150 of the Act, on the premise of giving effect to finding/direction contained in the order passed by the ITAT, w.r.t. AY 2008-09, is not valid and does not justify the extension of limitation of six years to re-open an assessment. He contends, it is trite law that the principle of res judicata is not applicable to income tax proceedings, and assessment for each year is a distinct and independent proceeding. The finding recorded in one assessment year is not required to be mandatorily followed in subsequent years, and the AO is duty bound to consider new facts placed on record by the assessee. Further, he contends that in its order dated 16.07.2019, the ITAT has not given any finding or direction with respect to the AY 2009-10. Thus, Section 150 of the Act cannot be invoked for re-opening the assessment for AY 2009-10 on the basis of the aforesaid order. Concomitantly, he submits that the ITAT could not have given any material finding or direction in respect of an assessment year, of which the assessment was not under challenge before it. He further submitted that the word "effect" used in Section 150(1) would mean "final effect" and the term "finding/direction" would mean "final finding/direction". Since, the order of the ITAT is subject to final adjudication by the High Court or Supreme Court, and also for the fact that Petitioner's Miscellaneous Application under Section 254(2) of the Act, seeking rectification of mistakes in the order of the ITAT is pending until today, the order of the ITAT cannot be given effect to, until it has attained finality, one way or the other. In support of his submissions, he has relied upon several precedents on various legal propositions that have been taken into account and dealt with appropriately while giving our analysis and findings.
Case of the Respondent:
9. Per contra, Mr. Zoheb Hussain, learned senior standing counsel for the Revenue, contends that the order passed by the ITAT, holding the Petitioner not eligible to claim benefit of deduction under Section 80-IC of the Act, is binding for the AY 2009-10 as well, and reopening of the assessment under Section 148 read with Section 150 is valid and proper. He contends that the provision of Section 150(1) and 153(3) are clear and unambiguous as to the power of Revenue to reopen assessments, in consequence of, or to give effect to, any finding or direction of an appellate authority. The assessee is not eligible for any benefit under Section 80-IC and as per its own submissions during the course of assessment proceedings in the relevant year, the assessee agreed that the order of the ITAT for AY 2008-09 will be binding for AY 2009-10. Thus, the reopening under section 148 read with 150 is in accordance with law. Moreover, Section 150 does not contemplate finality of orders and has a non-obstante clause specifically excluding applicability of section 149.
Analysis and Findings
10. Before adverting to the merits of the contentions raised by learned counsel for both the parties, the relevant extracts of the provisions of law are reproduced hereunder for ready reference:
“147. If the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) :
Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ;
(ba) where the assessee has failed to furnish a report in respect of any international transaction which he was so required under section 92E;
(c) where an assessment has been made, but—
(i) income chargeable to tax has been underassessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed;
(ca) where a return of income has not been furnished by the assessee or a return of income has been furnished by him and on the basis of information or document received from the prescribed income-tax authority, under sub-section (2) of section 133C, it is noticed by the Assessing Officer that the income of the assessee exceeds the maximum amount not chargeable to tax, or as the case may be, the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139 :
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.
153. (1) No order of assessment shall be made under section 143 or section 144 at any time after the expiry of twenty-one months from the end of the assessment year in which the income was first assessable:
Explanation 2.—For the purposes of this section, where, by an order referred to in clause (i) of sub-section (6),—
(a) any income is excluded from the total income of the assessee for an assessment year, then, an assessment of such income for another assessment year shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order; or
(b) any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, if such other person was given an opportunity of being heard before the said order was passed.”
11. The present case pertains to AY 2009-10. In terms of Section 149(1) (b) of the Act, the case can be reopened within six years from the end of the relevant assessment year. The Revenue has relied upon Section 150 to reopen the assessment for AY 2009-10, in light of the order of ITAT pertaining to the AY 2008-09. The reasons as provided to the Petitioner are indicated in the letter dated 15.09.2017. Reference thereto is essential for deciding the present petition and the same is extracted herein below:-
18. Assessee stated to have purchased the machinery from M/s. Grip Engineers Pvt. Ltd., BaUabhgarh and ABB, Faridabad on 23.04.2007 and 28.04.2007 respectively but stated to have stored the same at Kala Amb unit for want of non-availability of the transit form to be issued by Uttarakhand Government. When assessee alleged to have started manufacturing at Selaqui unit in the month of June 2007, it is difficult to believe as to why the order was placed 5 months in advance without getting the necessary transit form issued, which to our mind, does not require any extensive exercise, particularly when the Government is providing exemption to the new unit u/s 80-IC, it cannot take five months to issue transit form.
19. Moreover, when this fact is examined in the light of the fact that no travelling allowance has been debited by the assessee to the P&L account during the year under assessment, it is difficult to believe that any manufacturing activities have been carried out at the Selaqui unit. Because earning the turnover of Rs.11.11 crores with profit of Rs. 3.13 crores from the assembling / manufacturing unit is humanly not feasible without supervision of senior / junior functionaries of the ,assessee either from Kala Amb unit or from Head Office, Delhi nor any skilled worker has ever visited the Selaqui unit or proyed to be engaged. So, all these facts strengthen the findings returned by the AO' which have been overturned by the CIT (A) on the basis of whims and fancies. Since the assessee has transferred tools and machinery more than 20% of the total machinery employed' at Selaqui unit from Kala Amb unit it is violation of section 80- IC (4)(ii) of the Act.
20. The factum of transfer of machinery by Grip Engineers Pvt. Ltd. Balabhgarh and ABB, Faridabad to the Kala Amb unit of the assessee on 23.04.2007 and 28.04.2007 respectively with which the assessee has alleged to have started manufacturing in the month of June 2007 is not to be seen in isolation, rather it is to be seen in the light of the connected facts and circumstances that the assessee has debited only amount of Rs. 1,35,388/- under the head wages, bonus, PF, ESI, etc, with which at the most only one worker can be hired and no expenditure has been debited to P&L account on account of travelling expense nor telephone, tele-fax and internet facility is proved to have been established at Selaqui unit. So we are of the considered view that new plant and machinery, even if assumed to be transferred by the assessee from Kala Amb unit to Selaqui unit, it was never put to use to carry out the manufacturing activities to qualify for exemption under Section 80-IC.”
20. We may note that the aforesaid order has been upheld by this Court in ITA No. 72/2019, decided on 28th January 2019, and the matter is stated to be pending challenge before the Supreme Court.
21. Petitioner has argued that since the deduction under Section 80-IC of the Act has to be claimed on year to year basis, it is possible for the Assessee to be denied deduction in one year, but to be allowed deduction in another year. In support of this submission reliance has been placed on, CIT v. Seeyan Plywoods, 190 ITR 564 (Ker), CIT v. Satellite Engineering Ltd., 113 ITR 208 (Guj), CIT v. Suessin Textile Bearing Ltd., 135 ITR 443 (Guj), HCL Technologies v. ACIT, 377 ITR 483 (Del), Deputy Commissioner of Income Tax, Circle-11(1) Bangalore v. Ace Multiaxes Systems Ltd., 400 ITR 141. While, this position may be correct, however, one cannot ignore the fact that the finding given by ITAT strikes at the foundation of the claim of the Petitioner that Selaqui unit is entitled to deduction under Section 80-IC of the Act for the immediate succeeding year in question. Since ITAT categorically observed that Petitioner cannot claim deduction under Section 80-IC of the Act, as it did not commence production at the Selaqui unit for the AY 2008-09, Petitioner cannot claim deduction under the same proviso without satisfying the AO that for the AY 2009-10, he had in fact commenced production at the Selaqui unit. Moreover, one cannot also lose sight of the fact that during scrutiny proceedings before the AO for the year 2009-10, the Assessee took benefit of the order of the CIT (A) by submitting that its case for the present year is covered by the decision of the CIT (A) for AY 2008-09. The Petitioner in its reply dated 22.12.2011 stated that any order passed by ITAT will be binding as on that date. The relevant portion is recorded in the following words:
"At the very outset, we would like to bring on record that the directions given by the Additional Commissioner of Income Tax, Range-23, New Delhi (Copy of which has not been enclosed with your notice under reply) are prejudicial to the assessee in as much as the same are beyond the scope of the Act and the application under Section 144A dated 30.11.2011 filed by the assessee. However, we assume that this must be in response to our application dated 30.11.2011 to him under Section 144A of the Income Tax Act, 1961 seeking directions to you to follow the order of the Ld. CIT(A) XXIII, New Delhi (Copy of which has been already placed on your record) in the assessee's own case for assessment year 2008-09. That, as such, the CIT(A) order before you till date the same is binding upon you. Your reason given to us for not following the said order being that you will be preferring an appeal to the Tribunal is academic in nature and as and when you do so the decision of the Tribunal would be binding as on that date"
22. In pursuance to the aforesaid reply and on consideration thereof, the AO allowed the deduction of the Assessee for AY 2009-10 and accepted the return of income filed by the Assessee. The acceptance of the deduction claimed by the Assessee in the relevant assessment year was a direct consequence of the order passed by CIT (A) in the preceding AY, and the undertaking given by the Petitioner to be bound by the order of the ITAT for the AY 2008-09. Pertinently, at that stage the Petitioner did not claim that each year is to be assessed separately and, therefore, the finding of the CIT (A) for AY 2008-09 is not relevant for assessment of income for AY 2009- 10. The Petitioner is now somersaulting in its submission and is clearly approbating and reprobating, which is not permissible. Thus, in view of the facts in the present case, where the Petitioner categorically agreed to be bound by the order of the ITAT, the finding rendered by the ITAT is sufficient and Revenue would be entitled to avail the benefit of Section 150.
23. Additionally, Petitioner has harped that there was no ground for reassessment of the AY 2009-10 and the subject matter of the appeal before ITAT was confined to AY 2008-09. The grounds of appeal, discussion and decisions relied upon before the ITAT, all concentrate on the said year only. Reliance was placed on CIT vs. Greenworld Corporation, (2009) 314 ITR 81 (SC), wherein issue arose with respect to giving effect to directions of CIT under Section 263 of the Act. While, deciding the said question, the Court held, “a finding is held to be one, to which effect needs to be given, to comply with the order of the authority concerned”. The relevant portion of the said decision reads as under:-
“Section 150(1) of the Act is an exception to the aforementioned provision. It brings within its ambit only such cases where reopening of the proceedings may be necessary to comply with an order of the higher authority. For the said purpose, the records of the proceedings must be before the appropriate authority. It must examine the records of the proceedings. If there is no proceeding before it or if the assessment year in question is also not a matter which would fall for consideration before the higher authority, section 150 of the Act will have no application.
This Court noticed the development of law as also the fact that the decision of the Income-tax Officer given in a particular year does not operate as res judicata to opine :
"The lifting of the ban was only to give effect to the orders that may be made by the appellate, revisional or reviewing Tribunal within the scope of its jurisdiction. If the intention was to remove the period of limitation in respect of any assessment against any person, the proviso would not have been added as a proviso to sub-section (3) of section 34, which deals with completion of an assessment, but would have been added to sub section (1) thereof."
24. Further, reference has been made to the decision of Marubeni India v. Commissioner of Income Tax, 328 ITR 306 (Del), to submit that the ITAT could not have given a finding in respect of an AY which is not the subjectmatter of the appeal before it. However, Petitioner lost sight of the fact that it is not a finding in respect of AY 2009-10, rather the aforesaid finding has a direct bearing on the assessment for AY 2009-10. While it is true that in terms of Section 254, while dealing with the proceedings arising out of AY 2008-09, ITAT did not have the jurisdiction to adjudicate on the ground not before it, however, the finding in this case cannot be considered as relevant and limited only to AY 2008-09. The aforenoted findings would also be relevant for AY 2009-10.
25. We are also conscious of the fact that it is only such findings - which are material to decide the subject matter of the appeal that can form the basis of reopening under Section 147. The bar of limitation would be lifted and Section 150 can be invoked, only if there is such a finding. Reopening could be done ‘in consequence of or to give effect to’ such a ‘finding’. The findings of the ITAT in the aforenoted order are not incidental observations. These are categorical findings of fact which are germane for determination of the claim of the Assessee, for deduction under Section 80-IC of the Act. Section 150 also uses the expression "in consequence of", which means that there may be a situation that warrants reopening in view of the finding given by the Appellate/Revisional authority. These findings fall within the scope of Section 150, as it is a finding, which was necessary for disposal of the appeal before the Appellate authority for AY 2008-09.
26. Adverting now to the ground of limitation raised by the Petitioner, a plain reading of Section 150 reveals that it deals with a situation where an assessment or re-assessment for a particular year or for a particular person is necessitated by an order passed by appellate or revisional authority or on a reference. In such cases, it may not be possible for the Revenue to adhere to the time limits prescribed under Section 149, as the order of appeal, reference or revision or by a Court, proceeding under any other law may be passed beyond the period contemplated under section 149. It is for this reason, the legislature has not placed any time limit for making the assessment or re-assessment in such circumstances and for this reason, Section 150 begins with the non-obstante clause. At the same time, it does not mean that the power under Section 150(1) is uncanalised or unrestricted. The safeguard has been built under Sub-section (2) of Section 150. The entire object of Section 150 (2) is to bar the proceedings under Sub-Section (1) in the matter of assessment/re-assessment or re-computation, which has become the subject matter of the reference or revision by reasons of any other provisions limiting the time limit. Section 150 (1) provides that the power to issue notice under Section 148 in consequence of or giving effect to any finding or direction of the Appellate/Revisional Authority or the Court, is subject to the provision contained in Section 150(2), which provides that directions under Section 150(1) cannot be given by the Appellate/Revisional Authority or the Court if on the date on which the order impugned in the appeal/revision was passed, the re-assessment proceedings had become time barred. In other words, as per section 150(2), the Appellate Authority could give directions for the re-assessment only in respect of an assessment year, which was within the limitation stipulated under Section 148 in respect of which re-assessment proceedings could be initiated on the date of passing of order under appeal. In this regard, it would be profitable to refer to the decision of Praveen Kumari v. CIT (1999) 237 ITR 339 and Sharma (KM) v. ITO (2002) 254 ITR 772 (SC), wherein the Court held as under:
“20. According to sub-section (2) of section 150 the provisions of sub-section (1) of that section shall not apply where, by virtue of any other provision limiting the time within which action for assessment or reassessment may be initiated, issuance of notice for such assessment or reassessment is barred on the date of the order, which is the subject-matter of appeal, reference or revision, in which the finding or direction is contained. It would, thus, mean that an appellate or revisional authority cannot give a direction for assessment or reassessment which goes to the extent of conferring jurisdiction upon the Assessing Officer if his jurisdiction had ceased due to the bar of limitation. If the issuing of a notice for assessment or reassessment for a particular assessment year had become time-barred at the time of the order, which was the subjectmatter of the appeal, the provisions of section 150(1) cannot be invoked to the aid of the Revenue for making an assessment or reassessment.
25. In the light of the provisions contained in sub-section (2) of section 150, it cannot be said that the notices issued by the Assessing Officer to the petitioners under section 148 of the Act on March 1, 1996, were within the period of limitation. Even if it is assumed that the order of assessment was the subjectmatter of appeal before the Tribunal, that would also not help the Revenue. The orders of assessment in the cases of both the assessees for the assessment year 1978-79 were passed on January 30, 1989. Thus, the relevant date on which the period of limitation must be available is January 30, 1989. However, sub-section (2) of section 150 refers to the subject-matter of the appeal, reference or revision. In that light, it is actually the appellate order of the Commissioner which can be said to be the subject-matter of appeal before the Tribunal. In that view of the matter, the order of the Commissioner dated March 29, 1990, is the order which was the subject-matter of appeal before the Tribunal. The period of limitation should have been available on the date of the appellate order of the Commissioner. Since the notices under section 148 have been issued by the Assessing Officer to both the petitioners on March 1, 1996, these notices are beyond the period of limitation as laid down in section 149(1)(b) read with section 150(2) of the Act.”
27. The legislature has designedly not placed any time limit under Section 150, and reading a period of limitation into it, would be incorrect approach. In the present case, the date relevant for deciding the question of limitation in terms of Section 150(2), and the observations in Praveen Kumari (supra), would be the date of the order of the CIT (A), which was passed on 05.10.2011 and was the subject matter of appeal. Thus, the limitation of six years under Section 149, must be alive on the date of passing of the order of CIT (A). In the present case since, as on 05.10.2011, the time limit for reopening of assessment for A.Y. 2009-10 had not lapsed, the order of the ITAT was well within the limitation.
28. In view of the forgoing decision, we are of the view that the reopening of the assessment under Section 147, read with Section 150, was within the period of limitation.
29. Needless to say that during the reassessment proceedings, the Asseessee will be entitled to lead fresh material and evidence to prove his entitlement to claim deduction under Section 80-IC for the AY 2009-10, before the AO, and this order does not in any way abrogate or limit his rights to justify his claim before the AO.
30. The present petition is dismissed in the above terms. The interim order made absolute vide order dated 8th May 2019, stands vacated.
Cases Referred to
1. Income Tax officer v. Murlidhar Bhagwan Das, (1964) 52 ITR 335 (SC)
2. Rajender Nath v. CIT, (1979) 120 ITR 14 (SC)
3. Gujarat Power Corporation Ltd. vs. ACIT, (2013) 350 ITR 266,
4. Commissioner of Income Tax v. P.P. Engineering Works, (2014) 369 ITR 433 (Delhi)
5. Rural Electrification Corpn. Ltd. v. CIT (2013) 355 ITR 345/34 taxmann.com 197 (Delhi)
6. ITO v. Murlidhar Bhagwan Das (1964) 52 ITR 335 (SC)
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