Commissioner of Income Tax vs Guru Nanak Mercantile Co.

Rajesh Bindal, J.—The following question of law had been referred for the opinion of this Court by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as "the Tribunal"), arising out of its order dated 16-10-1992, passed in I. T. A. No. 42 (ASR)/1988, in respect of the assessment year 1978-79:

Whether, on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that the extended time limitation period of 180 days stipulated under Explanation l(iv) of Section 153 of the Income Tax Act, 1961, was not available to set aside assessment ?

Briefly the facts, as noticed in the statement of case, are that the assessee was deriving income from manufacture and sale of domestic appliances and machines tools. Return for the assessment year in question was filed declaring the same at Rs. 94,410. The assessment u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act"), was completed vide order dated 30-1-1981, at an income of Rs. 1,62,740. In appeal the order of assessment was set aside by the Commissioner of Income -tax (Appeals)(hereinafter referred to as, "the Commissioner (Appeals)"), vide order dated 10-9-1981. After remand, fresh order of assessment was passed by the assessing officer on 21-7-1984. Before passing the final assessment order, in terms of Section 144B of the Act, the draft assessment order was forwarded to the assessee on 23-1-1984, and received by the assessee on 24-1-1984. The directions u/s 144B of the Act from the Inspecting Assistant Commissioner were received on 19-7-1984. In appeal against the order of assessment after remand, the Commissioner (Appeals)partially deleted the additions, however, further appeal by the assessee before the Tribunal was accepted in toto. Relying upon an earlier order passed by the Tribunal in the case of Gheru Lai Bal Chand v. Income Tax Officer holding that in terms of Section 153(2A) of the Act, the assessment having not been completed within two years of the remand, the order was held to be barred by time. The Tribunal did not give the benefit of the extended period of limitation of 180 days as stipulated under Explanation l(iv) to Section 153 of the Act.

We have heard Shri Sanjiv Bansal, learned Counsel appearing for the revenue , and perused the paper book.

To appreciate the controversy in the present case, it would be relevant to refer to the provisions of Section 153 of the Act, which are as under:

153.(1)

(2A) Notwithstanding anything contained in Sub-sections (1) and (2), in relation to the assessment year commencing on the 1-4-1971, and any subsequent assessment year, an order of fresh assessment u/s 146 or in pursuance of an order u/s 250, Section 254, Section 263 or Section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of two years from the end of the financial year in which the order u/s 146 cancelling the assessment is passed by the Income Tax Officer or the order u/s 250 or Section 254 is received by the Commissioner or, as the case may be, the order u/s 263 or Section 264 is passed by the Commissioner.

(3) The provisions of Sub-sections (1) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of Sub-section (2A) be completed at any time

(i) where a fresh assessment is made u/s 146 ;

(ii) where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order under Sections 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act ;

(iii) where in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm u/s 147.

Explanation 1.In computing the period of limitation for the purposes of this section

(i) the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to Section 129, or

(ii) the period during which the assessment proceeding is stayed by an order or injunction of any court, or

(iii) the period commencing from the date on which the Income Tax Officer directs the assessee to get his accounts audited under Sub-section (2A) of Section 142 and ending with the date on which the assessee furnishes a report of such audit under that sub-section, or

(iv) the period (not exceeding one hundred and eighty days) commencing from the date on which the Income Tax Officer forwards the draft order under Sub-section (1) of Section 144B to the assessee and ending with the date on which the Income Tax Officer receives the directions from the Inspecting Assistant Commissioner under subsection (4) of that section, or, in a case where no objections to the draft order are received from the assessee, a period of thirty days, or

(v) in a case where an application made before the Income Tax Settlement Commission u/s 245C is rejected by it or is not allowed to be proceeded with by it, the period commencing from the date on which such application is made and ending with the date on which the order under Sub-section (1) of Section 245D is received by the Commissioner under Sub-section (2) of that section,

shall be excluded.

Explanation 2. Where, by an order referred to in Clause (ii) of Sub-section (3), 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.

Explanation 3. Where, by an order referred to in Clause (ii) ofSub-section (3), 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 thesaid order, provided such other person was given an opportunity of being heard before the said order was passed.

The primary contention raised by learned Counsel for the revenue is that in terms of Sub-section (2A) of Section 153 of the Act, notwithstanding any other period of limitation provided for Sub-sections (1) and (2) of Section 153 of the Act, any subsequent assessment in pursuance of an order u/s 250 of the Act may be made at any time before the expiry of the period of two years from the end of the financial year in which the order u/s 250 is received by the Commissioner. Clause (iv) of Explanation 1 to Section 153 of the Act clearly provides that while computing the period of limitation for the purposes of the section, the period not exceeding 180 days commencing from the date on which the Income Tax Officer forwards the draft order under Sub-section (1) of Section 144B of the Act to the assessee and ending with the date on which the Income Tax Officer receives the direction from the Inspecting Assistant Commissioner under Sub-section (4) of Section 144B of the Act, is to be excluded.

It is further contended by learned Counsel for the revenue that the Tribunal had gone wrong in interpreting the provisions of Section 153 of the Act. It has completely failed to take notice of the provisions in its entirety. An Explanation attached to a section is part thereof and has to be read along with the provisions.

It is not in dispute in the present case that the order u/s 250 of the Act was passed by the Commissioner (Appeals) on 10-9-1981. If normal period of limitation is counted, in terms of Sub-section (2A) of Section 153 of the Act, fresh order of assessment could be passed up to 31-3-1984. However, the extended period of limitation to the extent of 180 days is available in terms of Clause (iv) of Explanation 1 to Section 153 of the Act as admittedly, draft order was sent to the assessee u/s 144B of the Act on 23-1-1984, which was duly received by the assessee on 24-1-1984, directions in terms of Section 144B of the Act were received back from the Inspecting Assistant Commissioner by the assessing officer on 19-7-1984 ; if this period of 173 days, as spent in proceedings u/s 144B of the Act, is added in the normal period of limitation, the fresh order passed after the remand by the Commissioner (Appeals) would clearly fall within the period of limitation as provided for under the Act.

The Tribunal had gone wrong in not giving due effect to Clause (iv) of Explanation 1 to Section 153 of the Act. The hon''ble Supreme Court in M/s. K.P. Madhusudhanan Vs. Commissioner of Income Tax, Cochin, , has held that an Explanation is part of the section. The relevant paragraph thereof is extracted below (headnote):

The Explanation to Section 271(l)(c) is a part of Section 271. When the assessing officer or the Appellate Assistant Commissioner issues a notice u/s 271, he makes the assessee aware that the provisions thereof are to be used against him. These provisions include the Explanation. By virtue of the notice u/s 271 the assessee is put to notice that, if he does not prove, in the circumstances stated in the Explanation, that his failure to return his correct income was not due to fraud or neglect, he shall be deemed to have concealed the particulars of his income or furnished inaccurate particulars thereof, and, consequently, be liable to the penalty under the section. No express invocation of the Explanation to Section 271 in the notice u/s 271 is necessary before the provisions of the Explanation are applied.

It has also come to our notice that the matter in the case of Gheru Lal Bal Chand, as referred to and relied upon by the Tribunal while deciding the present appeal in favour of the assessee, was the subject-matter of proceedings u/s 256(2) of the Act before this Court and while dealing with the issue, this Court in Commissioner of Income Tax Vs. Gheru Lal Bal Chand, , held that the extended period of limitation would be available. The same view was followed in Commissioner of Income Tax Vs. Suri Sons, and Commissioner of Income Tax Vs. Soccer International, .

For the reasons stated above, the question referred is answered in favour of the revenue and against the assessee.

The reference is disposed of, accordingly.