Jenny Elton Vales, Dona Paula V. ITO, Ward - 5, Margao

ITA 64/PAN/2020

AI Insights

The case involves two appeals by the assessee, Jenny Elton Vales, against the common order passed by the Commissioner of Income Tax (Appeals)-1, Panaji, for the assessment years 2007-08 and 2009-10. The primary issue in both appeals was the addition made to the assessee's income, which was derived from her spouse's income, under section 5A of the Income Tax Act. The Tribunal found that the rectification order for A.Y. 2007-08 was invalid as it was passed without a mistake apparent from the record. However, for A.Y. 2009-10, the Tribunal upheld the reassessment and the addition, agreeing that the income was correctly apportioned between the spouses as per the provisions of section 5A.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 132807 (ITAT-PANAJI)
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Next Hearing Date: 20-11-2022
• Assessment Year: 2007-2008
• Appeal Filed On: 25-05-2020
• Other Referred Cases: GKN Driveshafts (India) Ltd. Vs. DCIT
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Rectification of order; Retrospective amendment; Set aside
• Section: 147; 148; 144; 154; 143(3); 143(1); 143(2); 64; 153

Judgement Text

आयकर अपीलीय अधिकरण “एक सदस्य मामला” न्यायपीठ पणजी में । IN THE INCOME TAX APPELLATE TRIBUNAL “SMC” BENCH, PANAJI (Through Virtual Court) श्री एस.एस. विश्वनेत्र रवि, न्याविक सदस्य के समक्ष । BEFORE SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER आिकर अपील सं. / ITA Nos.64 & 65/PAN/2020 वनर्ाारण िर्ा / Assessment Years : 2007-08 & 2009-10 Jenny Elton Vales, 2T2, Models Splendor, La Citadel Colony, Dona Paula, Goa -403004 PAN : ACEPV5612M .......अपीलार्थी / Appellant बनाम / V/s. The Income Tax Officer, Ward – 5, Margao ......प्रत्यर्थी / Respondent Assessee by : Shri D. E. Robinson Revenue by : Shri N. Shrikanth सुनवाई की तारीख / Date of Hearing : 21-11-2022 घोषणा की तारीख / Date of Pronouncement : 30-01-2023 आदेश / ORDER PER S.S. VISWANETHRA RAVI, JM : These two appeals by the assessee against the common order dated 27-02-2020 passed by the Commissioner of Income Tax (Appeals)-1, Panaji [‘CIT(A)’] for assessment years 2007-08 and 2009-10. 2 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 2. Since, the issues raised in both the appeals are similar basing on the same identical facts, I proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience. 3. First, I shall take up appeal in ITA No. 64/PAN/2020 for A.Y. 2007-08. 4. The assessee raised two grounds of appeal amongst which the only issue emanates for my consideration is as to whether the CIT(A) justified in confirming the addition made by the AO u/s. 5A of the Act. 5. Heard both the parties and perused the material available on record. I note that the total income of the assessee was determined by the AO at Rs.1,04,566/- under intimation u/s. 143(1) of the Act. The said total income was rectified by adding an amount of Rs.6,87,582/- being 50% share from the assessee’s spouse income vide order u/s. 155 of the Act. In challenge before the CIT(A), it was contended an order under intimation u/s. 143(1) of the Act can be modified by scrutiny proceedings u/s. 143(3) of the Act, further, no notice was issued to the assessee in passing the order u/s. 155 of the Act. The CIT(A) agreed with the contention of assessee that the order passed u/s. 155 is technically incorrect, but however, confirmed the order of AO by observing that the AO has already taken corrective measure in passing an order u/s. 154 of the Act on 30-07- 2010 which is evident from pages 4 and 5 of the impugned order. 6. The ld. AR, Shri D. E. Robinson vehemently argued that the CIT(A) did not appreciate the non-issuance of any notice during the rectification 3 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 proceedings and having acknowledging the order passed u/s. 155 of the Act is not valid, confirmed the order of AO which is not at all justified. 7. Further, he argued that the AO added an amount of Rs.6,87,582/- in the hands of the assessee taking into account the assessment passed in the case of Vales Elton Gregory, who is the spouse of the assessee where the income of Rs.13,75,164/- was equally divided between the assessee and spouse as they are governed by the Portuguese Civil Code. He argued that there was no mistake apparent in the intimation u/s. 143(1) of the Act passed in the case of assessee to rectify the same and it is only the AO made addition being 50% of share in the hands of assessee’s spouse u/s. 5A of the Act. He argued that the AO has no jurisdiction passed rectification order and there is no mistake apparent on record and making addition deriving 50% share from the assessee’s spouse does not constitute the mistake apparent from the record in the case of assessee. 8. I note that admittedly, the AO did not bring on record whether any notice issued to the assessee before passing an order u/s. 154 of the Act. The ld. DR did not bring on record any evidence whatsoever to show that any notice issued to the assessee in the alleged rectification proceedings. Further, the CIT(A) categorically acknowledged the order passed u/s. 155 of the Act is not valid, inspite of which, confirmed the order of AO even recording a finding to the extent that the AO has taken corrective steps in passing another rectification order u/s. 154 of the Act, in my opinion is not justified. Further, admittedly, there is no mistake apparent from the record in the case of assessee to rectify the total income determined by the AO u/s. 143(1) of the Act and as rightly pointed by the ld. AR that making addition in the hands of the assessee by taking into account 50% share 4 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 from the assessment of assessee’s spouse is not a mistake apparent from the record. Therefore, the rectification order passed by the AO u/s. 155 of the Act as confirmed by the CIT(A) is invalid, liable to be quashed. Therefore, the order of CIT(A) is not justified in confirming the order of AO passed u/s. 155 of the Act and it is set aside. Thus, the grounds raised by the assessee are allowed. 9. In the result, the appeal of assessee is allowed. Now, I shall take up ITA No. 65/PAN/2020, A.Y. 2009-10 10. Ground No. 1 raised by the assessee challenging the action of CIT(A) in concluding the assessment was subjected to proceedings u/s. 148 of the Act on valid grounds. 11. I note that the assessee filed return of income on 30-09-2009 and refund was granted through an intimation dated 21-03-2011. The time limit for completion of assessment is provided u/s. 153(1)(a) i.e. two years from the end of the assessment year in which the income was first assessable. The present assessment year is A.Y. 2009-10 i.e. 31-03-2010 and the time limit to complete assessment u/s. 143(3) or 144 of the Act is available up to 31-03-2012 i.e. after two years from the end of the assessment year in which the income was first assessable. The AO issued notice u/s. 148 of the Act on 18-02-2013 and the assessee in response to the said notice requested the AO to treat the original return filed as return filed u/s. 148 of the Act vide letter dated 07-03-2013 which is evident from page 2 of the assessment order. I note that the assessee challenged the validity of reopening proceedings before the CIT(A), the contentions of which are reproduced at page 5 of the impugned order. On perusal of the 5 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 same, I note that the assessee primarily placed reliance on the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. DCIT reported as 259 ITR 19 and contended that reopening is bad under law. I note that the AO provided the copy of reasons recorded to the assessee vide letter dated 15-03-2013 which is evident from page 2 of the assessment order. The assessee also filed objections to the reasons recorded for which no dispute raised for non-passing of speaking order by the AO. Therefore, the AO passed speaking order in terms of the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and found the objections raised by the assessee are not acceptable. 12. Thereafter, the AO in order to complete the assessment proceedings, issued notice u/s. 143(2) of the Act. The only contention of the ld. AR before me is that there was no material in possession of AO warranting reassessment by issuing a notice u/s. 148 of the Act. In the present case the time limit to complete assessment u/s. 143 or 144 got expired from the end of two years of assessment year in which the income was assessable i.e. 31-03-2012 being A.Y. 2009-10. Therefore, the AO has no option except to reopen the assessment of intimation u/s. 143(1) of the Act by possessing assessment order of her spouse Shri Elton G. Vales by issuing a notice u/s. 148 of the Act in order to bring 50% share of income from assessee’s husband income in terms of provisions u/s. 5A of the Act. So, therefore, the AO has power to reopen the assessment u/s. 147 of the Act as to reopen the assessment already completed u/s. 143(1) of the Act in the hands of the assessee. No doubt the income of the husband and wife under any head of income except under the head salaries shall be apportioned equally between the husband and wife and the income so apportioned shall be included separately in the total income of the 6 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 husband and of the wife respectively u/s. 5A of the Act which was inserted by the Finance Act, 1994 with retrospective effect from 01-04-1963. I note admittedly, the scrutiny assessment u/s. 143(3) of the Act was completed in the case of assessee’s husband and the AO required to apportion 50% from the total income determined in the case of assessee’s husband to total income of the assessee. The said 50% income which was not included in the original assessment and also not taken into consideration in the original assessment, in my opinion, is to be termed as income which has escaped assessment within the meaning of section 147 of the Act, such income cannot be brought to assessment and taxed except in accordance with the provisions thereof u/s. 147 of the Act. Thus, as discussed above, the AO by following the procedure contemplated u/s. 147 and 153 of the Act reopened the assessment concluded under intimation u/s. 143(1) of the Act and brought to tax in the hands of the assessee i.e. 50% share from the total income determined under scrutiny assessment proceedings in the case of assessee’s spouse. Thus, the reopening of assessment made u/s. 143(3)/147 of the Act is valid and ground No. 1 raised by the assessee is dismissed. 13. Ground Nos. 2 and 3 raised by the assessee challenging the action of CIT(A) in confirming the addition made in the hands of the assessee in terms of operation of provisions u/s. 5A of the Act. 14. I note that a new provisions u/s. 5A of the Act has been inserted by Finance Act, 1994 with retrospective effect from 01-04-1963 and the present year under consideration is being A.Y. 2009-10, the said provisions u/s. 5A is applicable to the facts on hand. The said new section was incorporated for determination of the income of persons governed by the 7 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 Portuguese Civil Code, 1860 residing in the State of Goa, Union territories of Dadra and Nagar Haveli and Daman and Diu. Admittedly, the assessee and her spouse governed by the Portuguese Civil Code and therefore the provisions of section 5A is applicable. I note that the provisions u/s. 5A(1) provides that the income from all the sources except from the head “salaries” shall be apportioned equally between the husband and of the wife and such income should not be assessed as income of community property. The income so apportioned will be included separately in the total income of the husband and of the wife. I note that the CIT(A) discussed the issue in ground Nos. 1 and 2 in detail vide paras 7 and 8 of the impugned order and by following the provisions of sub-section (1) of section 5A of the Act confirmed the order passed by the AO in apportioning the 50% share of income from her spouse determined under scrutiny assessment proceedings. The relevant portion of paras 7 and 8 of the CIT(A) are reproduced as under for ready reference : “7. Ground of Appeal 1 I find that the appellant has raised questions on the validity of manner of determining income ix] s SA, by stating that, Income does not arise to spouses without following the process laid down in section SA and in particular without apportionment. Income arises only on apportionment and that by virtue of a fictional provision. By communion law that is operative no income arises to either spouse of the communion during the subsistence of the communion. If income does not arise to the spouses no notice could be issued to either spouse under section 147. If income does not arise in the absence of determination of the same and apportionment there can be no escapement of income. The reassessment notice is bad in law and the assessment is a nullity. The above submission does not find support from Income Tax Act, 1961 wherein section SA reads as under: 5A. Apportionment of income between spouses governed by Portuguese Civil Code.- (1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 8 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 1860 as "COMMUNIAO DOS BENS') in force in the State of Goa and in the Union territories of Dadra and Nagar haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of person's or a body of, individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly. (2) Where the husband or, as the case may be, the wife governed by the aforesaid system of community of property has any income under the head "Salaries", such income shall be included in the total income of the spouse who has actually earned it. In light of sub-section1 to section SA, it is clear that the income of husband and wife cannot be assessed as communion of property but has to be equally apportioned between husband and wife and has to be separately included in the total income of the husband and wife. In the given case, an assessment order was passed in the case of spouse Shri Elton Gregory Vales u/s 143(3) for A.Yr.2009-10 on 27.03.2011 and additions were made to the total income which included disallowance of depreciation and addition to house property income. As appellant is covered by section 5A, any change in the total income of the spouse will cause consequential change to her total income, as income so enhanced in husband's case has to be added to her income to be extent of 50%. In light of these circumstances the assessment of appellant was reopened. The A.O. has also dealt with the objections of the appellant by passing a speaking order dated 05.12.2013 and the same is reproduced below: "With reference to your letter dated 22/03/2013, I wish to highlight some of the aspects of your case. First of all, the assessment is re-opened to tax that 50% addition in the business income which was a result of Scrutiny Assessment of your spouse case u/ s 143(3). No additional ground will be taken up during this assessment. You are aware that the assessment in the case of your spouse Shri Elton Vales was re-opened after obtaining due approval from Honourable Commissioner of Income-Tax, Panaji. The fact is made known to you. The reasons for re-opening the assessment were also been duly served upon both of you vide this office letter dated 15.03.2013. You have refered to Honourable Supreme Court judgement in the case of GKN Driueshaft (India)-Ltd. Wherein it facilitate the assessee to file an objection to issuance of notice u/ s. 148 and Assessing Officer is bound to dispose off the same by passing a speaking Order. The reasons for re-opening the assessment are fairly discussed in the above paragraph. The assessment is not re-opened due to change in the opinion of the A. O. but to be taxed with the balance 50% of total additional income detected as a result of Scrutiny completed in the 9 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 case of Shri Elton G Vales for the A Y 2009-10. Clause II of your letter: there was a full and true disclosure of material facts, and assessment u/ s. 143(1) is already completed. i) The argument that there was a full and true disclosure of material facts is not acceptable because the regular assessment is pending in your case. The term "failure" on the part of the assessee is not restricted only to the income-tax return but extends also to the assessment proceedings. If the assessee does not disclose or furnish to the AO complete and correct information and details it is required and under an obligation to disclose, there is a failure on its part (Honda Siel Power Products vs. DCIT followed). ii) The assessment u/ s. 143(1) is not an assessment, it is only the intimation of processing of the return of income filed. Clause III of your letter: I object to the reassessment. It is very vague statement, "I object to the reassessment", when no reason is provided. From the above mentioned facts it is clear that there is no mistake on part of Assessing Officer for reopening of the case. Therefore, the "OBJECTION FOR RE-OPENING THE ASSESSMENT" for consideration of taxing the income by revoking section 147 is hereby dismissed. Further to state that the dismissal of revoking section 117 of the IT Act is subject to outcome result of the appeal of your spouse. Shri Elton G. Vales pending before the CIT(Appeals), Panaji". In view of the above, the objections to reopening of assessment are not valid and held to be frivolous and ground of appeal is hereby dismissed. 8. Ground of appeal no. 2 and 3 : The additions referred to in these grounds relate to the accounts of and business of the spouse Shri Elton Vales. The substantive additions to income have been made in his case by examining his books of accounts and supporting material. Only by virtue of operation of section SA the income determined in his case is apportioned @50% to the appellant as spouse. Thus this apportionment can change only when the substantive addition/ income in case of spouse changes on account of rectification/ assessment/ appeal effect. These issues do not pertain to the accounts of appellant and the income is added herein only as a consequence to operation of section 5A, hence these issues cannot be taken up for substantive examination in the case of appellant. These issues can only be dealt in substantive manner in the appeal filed in respect of the spouse Shri Elton Vales. Therefore the grounds of appeal cannot be entertained and are hereby dismissed.” 10 ITA Nos. 64 & 65/PAN/2020, A.Ys.2007-08 & 2009-10 15. On an examination of above findings rendered by the CIT(A), I totally agree with the reasons recorded by the CIT(A) in confirming the order of AO and I do not find any infirmity in the order of CIT(A), it is justified. Thus, the ground Nos. 2 and 3 raised by the assessee are dismissed. 16. In the result, the appeal of assessee in ITA No. 64/PAN/2020 is allowed and ITA No. 65/PAN/2020 is dismissed. Order pronounced in the open court on 30 th January, 2023. Sd/- (S.S. Viswanethra Ravi) JUDICIAL MEMBER पुणे / Pune; दिनाांक / Dated : 30 th January, 2023. रदव आदेश की प्रविवलवप अग्रेवर्ि / Copy of the Order forwarded to : 1. अपीलार्थी / The Appellant. 2. प्रत्यर्थी / The Respondent. 3. The CIT(A)-1, Panaji 4. The Pr. CIT, Panaji 5. धिभागीय प्रधिधिधि, आयकर अपीलीय अधिकरण, पणजी, / DR, ITAT, Panaji. 6. गार्ड फ़ाइल / Guard File. //सत्यादपत प्रदत// True Copy// आिेशानुसार / BY ORDER, वररष्ठ दनजी सदिव / Sr. Private Secretary आयकर अपीलीय अदिकरण ,पुणे / ITAT, Pune