Commissioner of Income Tax vs S.M. Overseas P. Ltd.

Adarsh Kumar Goel, J.—This appeal has been preferred by the Revenue u/s 260A of the income tax Act, 1961 (for short, "the Act"), against the order of the income tax Appellate Tribunal, New Delhi, in I.T.A. No. 2580/(Del)/2004, dated January 16, 2009, for the assessment year 1995-96, proposing to raise the following substantial questions of law (i) Whether, on the facts and the circumstances of the case, the income tax Appellate Tribunal was right in law in quashing the assessment proceedings reopened u/s 148 of the Act by holding that the proceedings u/s 154 initiated against the assessee were pending, whereas, in fact, the notice u/s 154 having been issued beyond the period of limitation u/s 154(7) was non est and, hence, no proceeding u/s 154 was pending?

(ii) Whether the income tax Appellate Tribunal was justified in quashing the reassessment u/s 147/148 for the assessment year 1995-96 even when proceedings u/s 154 for the same year had become non est and which also find support from the decision of the hon''ble Allahabad High Court in the case of G.P. Agarwal Vs. Assistant Commissioner of Income Tax,

The assessee-company is engaged in export of welding electrodes, raw material spares and machines used in the manufacture of electrodes. It filed a return of nil income after claiming deduction u/s 80HHC of the Act amounting to Rs. 37,91,105. The return was processed u/s 143(1)(a) of the Act on September 18, 1996. Thereafter, the Assessing Officer noticed that the assessee had claimed bad debts amounting to Rs. 49,03,035 in a later year which included unrealized export sales of Rs. 47,29,255 pertaining to the assessment year in question. On that basis, the Assessing Officer was of the view that the claim u/s 80HHC of the Act was not permissible and, accordingly, initiated reassessment proceedings, vide notice dated March 22, 2002. The assessee challenged the said notice, inter alia, on the ground that during the pendency of the assessment proceedings, the same could not be invoked. It was submitted that notice u/s 154 of the Act had been issued on January 23, 2002, and, thus, the assessment proceedings were pending and in such a situation, reassessment was not permissible. This plea was rejected by the Assessing Officer and the Commissioner of income tax (Appeals) but was upheld by the Tribunal in the following terms:

...On the basis of this web of reasoning, it is contended that the proceedings u/s 154 are also part of the assessment proceedings and unless these proceedings are concluded, there cannot be any question of any income escaping the assessment. There is, thus, according to Shri Pal, no question of any income escaping the assessment. The very initiation of reassessment proceedings, on the facts of this case, is thus vitiated in law.

We have heard learned counsel for the parties.

Learned counsel for the Revenue submitted that there is no dispute with the proposition laid down by the hon''ble Supreme Court in Trustees of H.E.H. The Nizam''s Supplemental Family Trust Vs. Commissioner of Income Tax, that during the pendency of the assessment proceedings, reassessment notice could not be issued. He, however, urged that notice u/s 154 of the Act could not be treated to be at par with assessment proceedings. It was also submitted that on the date when reassessment notice was issued, the notice u/s 154 of the Act, was invalid, as the same was issued beyond the period of limitation prescribed u/s 154(7) of the Act. According to the learned counsel, the assessee had also taken the plea of limitation in reply dated February 21, 2002, filed in response to notice u/s 154 of the Act. Learned counsel for the Revenue relied upon the judgment of the Allahabad High court in G.P. Agarwal Vs. Assistant Commissioner of Income Tax, On the other hand, learned counsel for the assessee supported the view taken by the Tribunal.

The question for consideration is whether the Tribunal was justified in holding that reassessment proceedings were barred on account of pendency of notice u/s 154 of the Act.

We have considered the rival submissions. It is well settled that the power of rectification can be invoked only to correct a mistake apparent on the face of the record and cannot be exercised on a debatable issue. Reference may be made to the judgment of the hon''ble Supreme Court in T.S. Balaram, Income Tax Officer, Company Circle IV, Bombay Vs. Volkart Brothers, Bombay, . For the purpose of this case, we will assume that the Assessing Officer cannot simultaneously proceed under sections 147 and 154 of the Act.

Section 154(7) of the Act prescribes limitation for amending any order passed under the Act by rectifying any mistake apparent on the face of the record. According to the aforesaid provision, no amendment u/s 154 of the Act can be made in the assessment order after expiry of 4 years from the end of the financial year in which the order sought to be rectified was passed, except cases covered u/s 155 or section 186(4) of the Act. Admittedly, the return, in the present case, was processed on September 18, 1996, which order was sought to be rectified. The Assessing Officer could validly initiate action and pass an order u/s 154 of the Act prior to March 31, 2001. Notice u/s 154 of the Act having been issued on January 23, 2002, was clearly barred by time and thus, initiation of action was invalid. Once that is so, then there was no impediment before the Assessing Officer to initiate reassessment proceedings after complying with the requirements of sections 147 and 148 of the Act, for which notice was issued on March 22, 2002.

The Tribunal was, thus, in error in holding that the proceedings for reassessment were not permissible. Accordingly, we answer the substantial questions of law in favour of the Revenue and against the assessee and allow this appeal and set aside the order of the Tribunal and remand the matter to the Tribunal for fresh decision on the merits in accordance with law.

Parties are directed to appear before the Tribunal for further proceedings on November 15, 2010. The appeal is disposed of.