Commissioner of Income Tax-I vs Sanghi Bros. (Indore)

The present appeal preferred u/s 260A of the income tax Act, 1961 was admitted on following two substantial questions of law:

Whether on the facts and in the circumstances of case and in law the Tribunal is justified in holding that while making the assessment u/s 16 (3)/17, the Assessing Officer is required to issue the notice u/s 16 within the prescribed time limit of 12 months from the end of month in which the returns is furnished ?

Whether in the facts and in the circumstances of case and in law the Tribunal is justified in holding that the assessment has illegally been made. Thus he same is annulled ?

The facts as evincible from the order passed by the Assessing Officer and other superior authorities including the income tax Appellate Tribunal (for short "the tribunal") are that the Assessee-Respondent filed a return declaring the wealth at Rs. 74,58,678. The assessment was completed u/s 16(1)(a) of the Wealth Tax Act, 1957 (for short "the Act") on 30-11-1995. The Assessing Officer on verification found that the wealth shown by the Assessee was not correct, and there has been escapement of wealth at he hands of the Assessee and accordingly a scrutiny was carried and notices were issued u/s 16(2) and 16(4) of the Act to the Assessee. In the proceedings of reassessment, the Wealth-tax determined at Rs. 2,55,79,658 and a penalty proceeding was initiated u/s 18(1)(c) of the Act.

Being aggrieved by the aforesaid order, the Assessee-Respondent preferred an appeal before the CIT at Indore, who allowed the same in part. The same led the Assessee to file an appeal before the Tribunal and the Tribunal accepted the contention of the Assessee that the notice u/s 16(2) of the Act was issued beyond the prescribed period of 12 months and hence, the Assessee was not entitled to proceed with the reassessment. Being of this view, the Tribunal allowed the appeal and annulled the reassessment.

As far as facts are concerned, as it perceived, there is no dispute, with regard to the dates. The question that has been raised, by the revenue fundamentally pertains to the stand that the prescription of limitation u/s 16(1) should not be made applicable when assessment is reopened u/s 17 of the Act.

It is submitted by Mr. Chaphekar, learned senior counsel for the Assessee-Respondent that Section 17 of the Act is to be governed by the language employed u/s 16(2) which prescribes the period, of limitation. It is contended that the assessment was reopened u/s 17 of the Act, but the notice for reassessment was issued after expiry of 12 months from the end of month in which return is furnished. Learned Senior Counsel has commended us to the decision rendered in The Commissioner of Wealth Tax Vs. Huf of H.H. Late Shri. J.M. Scindia, . It is further submitted by Mr. Chaphekar that the tax impact is less than Rs. 2 lakhs and in view of the circular issued by the Central Board of Direct Taxes, the appeal should not have been filed by the revenue.

In the case of J.M Scindia (supra) the Bombay High Court had an occasion to deal with the similar controversy. After referring to the proviso to Section 16(2) and Section 17 of the Act, the Division Bench of Bombay High Court has opined as under:

Even independently, we have examined the scope and effect of Sections 14 to 16 on the one hand and Section 17 on the other. In our opinion, there is no escape from arriving at the conclusion that when the Assessing Officer invokes Section 17, the provisions of Sections 14 and 16 to the extent applicable, for the purpose of making an order of reassessment will have to be followed which will include the time limit for notice u/s 16(2). Once the language of Section 17 itself requires that other provisions to the extent applicable would apply considering the return as filed u/s 14, it contemplates that both procedural and substantive provisions will apply. In our opinion, therefore, while invoking the powers u/s 17, the Assessing Officer is bound by the mandate of the proviso to Section 16(2) and on failure the order of reassessment will have to be set aside.

Be it noted, High Court of Bombay also took note of the provisions contained in Sections 143 and 148 of the income tax Act, 1961 and placed reliance on the decisions rendered by Madras High Court in The Commissioner of Income Tax Vs. M. Chellappan and P.L. Gandhi, ; and Gauhati High Court in Smt. Bandana Gogoi Vs. Commissioner of Income Tax and Another, to come to the conclusion that the Assessing Officer is bound to comply with the requirements of such provisions. As we have, state earlier, the Division Bench of Bombay High Court has also independently scanned anatomy of Sections 16 and 17 of the Act and expressed opinion. In view of the aforesaid, we have no hesitation in holding that the notice for the purposes of reassessment after expiry of 12 months is impermissible.

The factual matrix can be looked at from an another angle. Learned senior counsel has brought to our notice the circular dated 24-10-2005 whereby the Central Board of Direct Taxes has stipulated the monetary limits in filing appeals by the department. On a perusal of the assessment order and the recent circular, the tax impact, is less than Rupees Two Lakhs. The restriction issued by the Central Board of Direct Taxes as far as appeal is concerned, is Rs. 4 lakhs. After placing reliance on a circular, Bombay High Court in The Commissioner of Income Tax Vs. Pithwa Engg. Works, while dealing with the circular had expressed the view as under:

The above instructions dated March 27, 2000 reflect the policy decision taken by the Board not to raise questions of law where the tax effect is less than the amount prescribed in the above circular with a view to reduce litigations before the High Courts and the Supreme Court. The said circular is binding on the Revenue though Learned Counsel tried to contend that the said circular is not applicable to the old referred cases. However, he could not take his submission to a logical end.

One fails to understand how the Revenue, can contend that so far as new cases are concerned, the circular issued by the Board is binding on them and in compliance with the said instructions, they do not file references if the tax effect is less than Rs. 2 lakhs. But the same approach is not adopted with respect to the old referred cases even if the tax effect is less than Rs. 2 lakhs. In our view, there is no logic behind this approach.

This Court can very well take judicial notice of the fact that by passage of time money value has gone down, the cost of litigation expenses has gone up, the asses sees on the file of the Departments have increased, consequently, the burden on the Department has also increased to a tremendous extent. The corridors of the superior courts are choked with huge pendency of cases. In this view of the matter, the Board has rightly taker, a decision not to file references if the tax "effect is less than Rs. 2 lakhs. The same policy for old matters needs to be adopted by the Department. In our view, the Board'' s circular dated March 27, 2000, is very much applicable even to the old references which are still undecided. The Department is not justified in proceeding with the old references wherein the tax impact is minimal. Thus, there is no justification to proceed with decades old references having negligible tax effect.

In view of the aforesaid analysis, we do not find any merit in this appeal as the same does not involve any substantial question of law. Accordingly, it stands dismissed without any order as to costs.