Income Tax Appellate Tribunal - Nagpur
Balram Kapoor vs Income-Tax Officer on 10 July, 1990
Equivalent citations: [1990]35ITD1(NAG)
ORDER
--Refund allowed in proceeding under s. 148.
Ratio:
Refund allowed by assessing officer in proceeding under section 148 was not erroneous and prejudicial order.
Held:
In the present case the tax deducted at source was excessive and the completion of assessment under section 143(3) resulted in a refund becoming due to the assessee. There was no error in the assessing officer assessing such income to tax and issuing refund to the assessee in consequence of such assessment. It would not be correct to hold that merely because such assessment was completed by issue of notice under section 148 and merely because ultimately it resulted in a refund the proceedings should have been dropped by the assessing officer. If in this case no tax had been deducted at source or if the tax deducted at source was less than the tax finally determined, the assessment made under section 143(3) read with section 148 would have been considered to be perfectly normal, correct and refund of tax excessively deducted at source, such assessment does not, become erroneous. In the light of what is stated above, the Commissioner was not justified in holding that an assessment under section 148 which results in refund of tax deducted at source is erroneous.
Case Law Analysis:
CIT v. Indian Rare Earth Ltd. (1989) 181 ITR 22 (Bom)(FB) and Jagamohan Rao v. CIT (1970) 75 ITR 373 (SC) applied.
Note:
The Full Bench decision of Bombay High Court in CIT v. Indian Rare Earth Ltd. (1989) 181 ITR 22 (Bom)(FB) has since been overruled by Supreme Court in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC) Application:
Also to current assessment years.
Income Tax Act 1961 s.263 ORDER M.A. Ajinkya, Accountant Member
1. These are four appeals by the assessee against the orders of the Commissioner of Income-tax, Jabalpur, Under Section 263 of the Income-tax Act. The issues involved in appeals for the assessment years 1981-82, 1982-83-and 1983-84 are common and they are dealt with and disposed of together. In a consolidated order passed for these three years (1981-82 to 1983-84) the Commissioner held that the ITO had wrongly allowed depreciation on compressor machine at 30% and boring machine at 15% for each of these three years whereas the depreciation should have been allowed on these items of machinery at the normal rate of 10%. For rectifying these errors the Commissioner passed order Under Section 263 of the Act for these three years. He held that the ITO had erred in allowing depreciation at 30% and 15% on these assets as against 10% which was admissible and that, therefore, the assessment orders were erroneous and prejudicial to the interests of the revenue. He set aside the assessment orders with the directions to the ITO to pass fresh orders according to law.
2. Challenging these orders, Shri Dewani, the learned counsel for the assessee conceded that the observations of the Commissioner contained in para 3 of the order are correct and cannot be contested. Since Shri Dewani has conceded that the arguments of the assessee's counsel before the Commissioner which have been recorded at length in para 2 of the Commissioner's order have been rightly rejected by the Commissioner in para 3 of his order, we will not detain ourselves with dealing with these arguments. Shri Dewani, however, argued at some length about the merits of the case. He argued that the compressor machine and Boring machine which were used in the assessee's business qualified for depreciation at 30% because they could rightly be classified as earth-moving machinery. In this connection he drew our attention to the special rates prescribed for depreciation admissible on machinery and plant as per Part I of Appendix I which gives the table of rates at which depreciation is admissible. Shri Dewani, in particular, referred to Item (4) of Clause 'D' where the rate of depreciation is 30% and which item reads as under :
(4) Earth moving machinery employed in heavy construction works, such as dams, tunnels, canals, etc. (N.E.S.A.) Shri Dewani also relied on a decision of the Andhra Pradesh High Court in the case of CIT v. Super Drillers [1988] 174 ITR 64C/38 Taxman 5 where their Lordships observed that the description given in the Depreciation Schedule in item D(4) of Appendix I, Part I, to the Income-tax Rules, 1962, is not exhaustive but merely illustrative. What is specified there is earth-moving machinery employd in heavy construction work such as dams, tunnels, canals etc. The use of the expressions "such as" and "etc." shows that the description is illustrative. Shri Dewani pointed out that the assessee in that case was a partnership firm carrying on business in drilling borewells (tube-wells) which was also the business carried on by the assessee herein.
3. The learned Departmental Representative relied on the order of the CIT. He particularly referred to para 5 of the Commissioner's order. The Commissioner had observed that the 'earth moving machinery' clearly shows that the focus is on the purpose of the machinery and the object should be the moving of earth from one place to another. Although the Commissioner accepted that when the moving of the earth is an objective the earth moving machinery would comprise not only the trucks which actually move the earth but also the excavating machinery which are required for digging the earth out from the ground. He felt that this did not mean there is any activity of the nature of excavation it must be considered to be earth moving activity. The learned Departmental Representative relied solely on this agrument of the Commissioner.
4. We have heard both the sides and we are satisfied that the stand taken by the learned counsel for the assessee is correct and must succeed. It is not disputed that the assessee was engaged in boring tube-wells. It is also not disputed that the type of machinery, namely, compressor machine and boring machine were engaged in earth moving activity. Such machinery, in out opinion, comes within the description of earth moving machinery given in D(4) described as above. We are also satisfied that the rationale of the decision of the Andhra Pradesh High Court in Super Drillers' case (supra) is clearly applicable to the facts of the case. We would, therefore, reverse the order of the Commissioner and allow the appeals for the assessment years 1981-82 to 1983-84.
5. For the assessment year 1979-80 (ITA No. 488/Nag/86) the issue is slightly different Here again the Commissioner started proceedings Under Section 263 of the Act for the assessment year 1979-80 because he felt that the assessment order passed by the ITO Under Section 143(3) of the Act read with 148 on 27-3-1984 was prejudicial to the interests of the revenue because consequent to the passing of such order, the ITO had granted refund to the assessee and according to the Commissioner provisions of Section 148 cannot be utilised for the purpose of granting refund to an assessee which the assessee has failed to submit within the prescribed time limit. The circumstances under which the Commissioner resorted to action Under Section 263 may briefly be stated. For this year (assessment year 1979-80) the return of income was filed by the assessee on 21-10-1982, that is after the prescribed time limit for filing the return for that year had elapsed. The ITO issued a notice Under Section 148 on 1-12-82 and treated the return as filed in response to the notice under that section. This was done to regularise the return that was filed late. The assessment was completed Under Section 143(3) on 27-3-84 and resulted in a refund of Rs. 7,917. According to the Commissioner the ITO should not have completed such assessment Under Section 148 when he found that it would result in the granting of refund. Even if the ITO had issued notice Under Section 148 to bring to tax income which according to the ITO was taxable, when it became clear that the assessment was likely to result in a refund, the ITO should have dropped proceedings Under Section 148. The Commissioner relied on a decision of the Bombay High Court in the case of Kevaldas Ranchhodas v. CIT [1968] 68 ITR 842. He also extracted certain observations of the learned authors Kanga and Palkhivala's Income-tax, Volume I, (Seventh Edition) at page 906 in support of his case.
6. Objecting to the order of the Commissioner, Shri Dewani firstly pointed out that action Under Section 148 was taken by the ITO to bring to tax income shown in the return which was filed beyond the prescribed time. In that sense this was the first assessment made and the notice Under Section 148 was issued to regularise the return that was filed beyond the prescribed time limit. This fact distinguished this case from the case decided by the Bombay High Court in Kevaldas Ranchhodas case (supra). Shri Dewani further argued that the Bombay High Court itself in a later decision 181 ITR 22, in the case of CIT v. Indian Rare Earth Ltd. [1989] 181 ITR 22 (Bom.) FB, had observed that once valid proceedings Under Section 147 of the I.T.Act are started, the ITO has not only the jurisdiction but has the duty to complete the whole assessment de novo. What is true of an assessment must also be true of a reassessment but reassessment is nothing but a fresh assessment. Shri Dewani also relied on the decision of the Rajasthan High Court in the case of CIT v. Rangnath Bangur [1984] 149 ITR 487, where the Rajasthan High Court, inter alia, held that the assessee cannot be estopped from claiming rebate in the course of reassessment proceedings or in the appeal in the reassessment order merely on the ground that no such objection was raised by the assessee in the original assessment proceedings or in the appeal filed therefrom. The court also held that the recomputation of the total income of the assessee has to be made in the course of the reassessment proceedings. Shri Dewani then relied on the decision of the Supreme Court in the case of V. JaganmohanRao v. CIT [1910] 75 ITR 373. Here also the Supreme Court held that once valid proceedings are started Under Section 34(1)(b) of the Indian Income-tax Act, 1922, the ITO not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. Shri Dewani then relied on the decision of the Kerala High Court in CIT v. K. Kesava Reddiar [1989] 178 ITR 457/44 Taxman 146. In this case the Kerala High Court held that the effect of reopening of an assessment is to vacate or set aside the initial order of assessment and substitute in its place the order made in reassessment proceedings. The result of reopening the assessment is that a fresh order of assessment should be made. Finally Shri Dewani relied on a Circular of the Board dated 6-2-1988 bearing Circular No. 503 [(F.No. 203/201/87-IT(A-II)]. In the said circular the Board had authorised the ITO to admit belated refund claims in respect of amounts upto Rs. 10,000 provided certain conditions laid down in that circular are fulfilled. This circular became effective from 10-2-1988. It was Shri Dewani's case that the conditions prescribed in this circular were fulfilled in the assessee's case and although the circular became effective from 10-2-88, it should be deemed to be operative in the cases of delayed claims of refunds, like that of the assessee because if the assessee had made similar claim for refund after 6-2-88 the circular would have become operative since the conditions prescribed in those circulars were all satisfied in the case of the assessee.
7. The learned Departmental Representative relied on the order of the CIT and in particular the observations of the learned authors in Palkhivala's Income-tax Vol.I, page 906, quoted by the CIT in his order.
8. We have carefully considered the submissions made on either side, have gone through the order of the CIT and the various authorities cited. On a perusal of the assessment order originally passed we find that the assessee was a contractor. He was assessed on his income from contract work, commission income and income from house property on a total income of Rs. 37,158. Even the agricultural income earned by him was added in determining finally the total income of Rs. 30,130. The assessee got the benefit of the tax deducted at source amounting to Rs. 13,237 for which he filed the certiticates and it was in these circumstances that he became entitled to the refund of Rs. 7,000 and odd because the tax deducted at source was more than the actual tax liability determined by the ITO on completion of the assessment. Admittedly these were not proceedings to reassess an income which had escaped assessment in the original assessment. The ITO had taken action Under Section 148 with the ostensible reason of bringing to tax income declared by the assessee in his return which was prima facie above the taxable minimum and attracted tax liability. The fact that the assessment resulted in a refund was incidental. Such refund arose by virtue of excess tax deducted at source from the assessee's income. In such circumstances, it is patently inequitous for the CIT to hold that the reassessment proceedings are erroneous and prejudicial to the interests of the revenue merely because such proceedings have resulted in the ITO having to refund excess tax deducted at source. The observations from Palkhivala's Income-tax, quoted by the CIT in the body of the order themselves distinguish the assessee's case from the type of case which the authors had in mind when they made those observations. What the authors have contemplated is a situation where in a reassessment proceeding Under Section 148 the assessee's total income is found to be actually less than the income already assessed which means that there has already been an original assessment and on reassessment the total income is found to be less than what is already assessed. In such circumstances, the authors have said that the assessee would not be entitled to have the assessment revised under this section or in order to get a refund or it is found that actually there is a loss which the assessee could have carried forward, the assessee would not be entitled to claim that the ITO should assess under this section, i.e., Section 148 and pass an order Under Section 157 notifying the loss. In the present case the assessee is not making any such claim. Further in the present case, there is no original assessment where income has been determined and on reassessment it is found that the income is less than what is originally assessed. In the present case, the refund arises on a proper assessment of total income and proper application of the provisions of the Act which require that the tax deducted at source should be adjusted against the finally determined tax liability. This is precisely what the Board had in mind when it issued the circular dated 6-2-88. The conditions prescribed by the Board contained in para 2 of the said circular are as under :
(i) the refund arising as a result of tax deducted at source in respect of assessment year under the provisions of Sections 192, 193,194, 194A, 194B, 194C, 194D and 195 does not exceed Rs. 10,000;
(ii) the returned income is not a loss where the assessee claims the benefit of carry forward of the loss;
(iii) the refund claimed is not supplementary in nature, i.e., a claim for additional amount of refund after the completion of the original assessment for the same assessment year ; and
(iv) the income of the assessee is not assessable in the hands of any other person under any provisions of the Act.
In the present case the refund arises as a result of tax deducted at source Under Section 194C of the Act. Further the refund does not exceed Rs. 10,000. Also the income returned is not a loss and the assessee is not claiming the benefit of carry forward of the loss. We also find that the refund claimed is not Supplementary in nature that is a claim for additional amount of refund after the completion of the original assessment of the same assessment year. Therefore, in our opinion, all the conditions prescribed in this circular are satisfied in the assessee's case and although the circular is made effective from 10-2-88, we see no reason why this circular should not be taken into consideration for deciding the validity of the arguments advanced in the present case.
9. Coming to the case law on the subject, the decision of the Bombay High Court in Kevaldas Ranchhodas case (supra), the decision refers to a situation where an assessment has already been completed and the Bombay High Court held that the recomputation Under Section 34(1)(a) can only take place with a view to garnering in the income escaping assessment und;r the first clause and in that context it further held that the provisions of Section 34 itself make it clear that it was not intended for the benefit of the assessee but only for the benefit of the revenue. In that case the proceedings were initiated Under Section 34(1)(a) on the ground that the loss had been overestimated in the original assessment and the High Court held that the ITO had no jurisdiction to reopen the entire assessment originally made and determine afresh the assessable profits. In our opinion, the facts of this case are clearly distinguishable. In the present case the notice Under Section 148 was passed not with the intention of bringing to tax any income which had escaped assessment and which could be brought within the purview of Section 147(1)(a). Secondly as decided by the Supreme Court in V. Jaganmohan Rao's case (supra), once an assessment is reopened or once valid proceedings are started Under Section 34(1)(b), the ITO not only had the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. In the present case what the ITO was doing was to bring to tax the total income of the assessee which was on facts taxable and had to be subjected to the process of assessment Under Section 143(3). Such process of assessment was validly started by issue of notice Under Section 148 and validly completed by passing an order Under Section 143(3) so as to bring to tax the total income of Rs. 30,130. There is nothing invalid or erroneous in such assessment. It so happens that in the present case the tax deducted at source was excessive and the completion of assessment Under Section 143(3) resulted in a refund becoming due to the assessee. We do not find any error in the ITO assessing such income to tax and issuing refund to the assessee in consequence of such assessment. It would not be correct to hold that merely because such assessment was completed by issue of notice Under Section 148 and merely because ultimately it resulted in a refund, the proceedings should have been dropped by the ITO. If in this case no tax had been deducted at source or if the tax deducted at source was less than the tax finally determined, the assessment made Under Section 143(3) read with Section 148 would have been considered to be perfectly normal, correct and legal by the CIT. Merely because the assessment so completed resulted in issue of refund of tax excessively deducted at source, such assessment does not, in our opinion, become erroneous. Even the Full Bench of the Bombay High Court also in a subsequent decision in Indian Rare Earth Ltd.' s case (supra) have stated what the Supreme Court had said in V. Jaganmohan Rao's case (supra), namely that once valid proceedings Under Section 147 are started, the ITO has not only the jurisdiction but it is his duty to complete the whole assessment de novo. What is true of an assessment must also be true of a reassessment because a reassessment is nothing but a fresh assessment. It is not necessary to discuss the other authorities cited by Shri Dewani, since, in our opinion, the decisions discussed above adequately cover the issue in favour of the assessee.
10. In the light of what is stated above, we are of the considered view that the CIT was not justified in holding that an assessment Under Section 148 which results in a refund of tax deducted at source is erroneous. We set aside the order of the CIT and allow the appeal of the assessee.