CIT, KARNAL V. M/S S.M.OVERSEAS PVT. LTD.

ITA/556/2009

AI Insights

The case involves the Commissioner of Income Tax as the appellant and M/s S.M. Overseas Pvt. Ltd. as the respondent, concerning a dispute over reassessment proceedings for the assessment year 1995-96. The core issue was whether the reassessment under Sections 147 and 148 of the Income Tax Act was barred due to the pendency of a notice under Section 154, which was later found to be issued beyond the statutory limitation period. The Tribunal had initially quashed the reassessment proceedings, holding that the ongoing Section 154 proceedings precluded any reassessment. However, the High Court overturned this decision, emphasizing that the invalidity of the Section 154 notice removed any legal impediment to proceeding with the reassessment.

• Counselvise Citation: [2010] 140 COUNSELVISE.COM (IT) 720633 (HC-MISC)
• Appeal Type: Others
• Pronouncement Date: 27-07-2010
• Assessment Year: misc
• Other Referred Cases: G.P. Aggarwal Vs. ACIT (208) ITR 795, H.E.H. Nizam Trust v. CIT (2000) 159 CTR 114, T.S. Bala Ram I.T.O. Co. Circle IV, Bombay v. Volkart Brothers and others [1971] 82 ITR 50
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: K L GOYAL; SANDEEP GOYAL
• Assessee Lawyers: SUKANT GUPTA
• Keywords: Bad debts; Export; Limitation; Reassessment; Rectification; Unrealized export sales
• Section: 147; 148; 154; 260A; 143(1)(a); 154(7)

Judgement Text

"IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. I.T.A. No.556 of 2009 Date of decision: 27.7.2010 The Commissioner of Income Tax. -----Appellant. Vs. M/s S.M. Overseas Pvt. Ltd. -----Respondent CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL HON'BLE MR. JUSTICE AJAY KUMAR MITTAL Present:- Mr. Sukant Gupta, Standing Counsel for the Revenue. Mr. K.L. Goyal, Sr. Advocate with Mr. Sandeep Goyal, Advocate for the Assessee. --- ADARSH KUMAR GOEL, J. 1. This appeal has been preferred by the Revenue under Section 260A of the Income Tax Act, 1961 (for short, “the Act”) against the order of Income Tax Appellate Tribunal, New Delhi in I.T.A. No.2580/(del)/2004 dated 16.01.2009 for the assessment year 1995-96, proposing to raise following substantial questions of law:- “i) Whether on the facts and the circumstances of the case, the ITAT 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 I.T.A. No.556 of 2009 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 were pending? ii) Whether the ITAT was justified in quashing the reassessment u/s 147/148 for A.Y. 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 Hon’ble Allahabad High Court in the case of G.P. Aggarwal Vs. ACIT (208) ITR 795?” 2. The Assessee-Company is engaged in export of welding electrodes, raw material spares and machines used in the manufacture of electrodes. It filed return of nil income after claiming deduction under Section 80 HHC of the Act amounting to Rs.37,91,105/-. The return was processed under Section 143(1) (a) of the Act on 18.9.1996. 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 claim under Section 80 HHC of the Act was not permissible and accordingly, initiated reassessment proceedings vide notice dated 22.3.2002. The assessee challenged the said notice, inter- alia, on the ground that during pendency of the assessment 2 I.T.A. No.556 of 2009 proceedings, the same could not be invoked. It was submitted that Notice under Section 154 of the Act had been issued on 23.1.2002 and thus, assessment proceedings were pending and in such a situation, reassessment was not permissible. This plea was rejected by the Assessing Officer and the CIT(A) but was upheld by the Tribunal in following terms:- “.......On the basis of this web of reasoning, it is contended that the proceedings under Section 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.” 3. We have heard learned counsel for the parties. 4. Learned counsel for the Revenue submitted that there is no dispute with the proposition laid down by the Hon’ble Supreme Court in H.E.H. Nizam Trust v. CIT (2000) 159 CTR 114 that during pendency of the assessment proceedings, reassessment notice could not be issued. He, however, urged that notice under Section 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 under Section 154 of the Act, was invalid, as the same was issued beyond the period of limitation prescribed under Section 154(7) of the Act. According to the learned counsel, the assessee had also taken the plea of limitation in reply dated 21.2.2002 filed in response to notice under Section 154 of the 3 I.T.A. No.556 of 2009 Act. Learned counsel for the Revenue relied upon judgment of the Allahabad High court in G.P. Aggarwal v. ACIT 208 ITR 795. On the other hand, learned counsel for the Assessee supported the view taken by the Tribunal. 5. The question for consideration is whether the Tribunal was justified in holding that reassessment proceedings were barred on account of pendency of notice under Section 154 of the Act. 6. We have considered the rival submissions. It is well settled that power of rectification can be invoked only to correct the mistake apparent on the face of the record and cannot be exercised on a debatable issue. Reference may be made to judgment of the Hon’ble Supreme Court in T.S. Bala Ram I.T.O. Co. Circle IV, Bombay v. Volkart Brothers and others [1971] 82 ITR 50. For the purpose of this case, we will assume that the Assessing Officer cannot simultaneously proceed under Sections 147 and 154 of the Act. 7. 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 under Section 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 under Section 155 or 186(4) of the Act. Admittedly, the return, in the present case, was 4 I.T.A. No.556 of 2009 processed on 18.9.1996, which order was sought to be rectified. The Assessing Officer could validly initiate action and pass an order under Section 154 of the Act prior to 31.3.2001. Notice under Section 154 of the Act, having been issued on 23.1.2002, 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 Section 147 and 148 of the Act, for which notice was issued on 22.3.2002. 8. The Tribunal was, thus, in error in holding that 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 merits in accordance with law. 9. Parties are directed to appear before the Tribunal for further proceedings on 15.11.2010. 10. The appeal is disposed of. (ADARSH KUMAR GOEL) JUDGE July 27, 2010 ( AJAY KUMAR MITTAL ) ashwani JUDGE 5 "