Income Tax Appellate Tribunal - Cochin
Dy. Cit vs Cochin, Malabar Estates & Industries ... on 26 April, 2005
Equivalent citations: [2006]5SOT497(COCH)
ORDER
R.S. Padvekar, J.M. The revenue has filed these seven appeals in ITA Nos. 175 to 181/Coch./2003 for the assessment years 1987-88 to 1993-94 challenging the common order of the CIT (Appeals)-II, Kochi dated 16-12-2002. Since the issues involved in all these appeals are identical, these appeals are disposed of by this common order for the sake of brevity and convenience.
2. The assessee-company is in the business of growing and cultivating rubber trees and is also in the business of performance of centrifuging the field latex collected by tapping the rubber trees. The assessee-company filed all its return of income for the assessment years 1987-88, 1988-89, 1989-90, 1990-91, 1991-92, 1992-93 and 1993-94 under section 139 of the Income Tax Act on different dates. The assessments of the assessee were completed initially under section 143(3), but subsequently proceedings were initiated against the assessee under section 147 of the Income Tax Act, as the assessing officer after considering the process used by the assessee for making centrifuged latex found that it was different from the field latex in many aspects. The assessing officer was of the opinion that the process used was of complex nature and part of the income derived would be taxable as non-agricultural income. The assessing officer also relied on the judgment of the Hon'ble Kerala High Court in the case of Kanan Latex Industries (P.) Ltd. v. CIT ( 1996) 221 ITR 1 (Ker.) and thereafter he decided to initiate proceedings under section 147 of the Income Tax Act as per his own reasons that the non-agricultural part of the profits from the sale of the value added grades of rubber required to be assessed to income-tax. Moreover, he was also influenced by rule 7A added to the I.T. Rules with effect from 1-4-2002 and the said rule is specifically included to determine the computation of income in case of the rubber manufacturing. Accordingly, the assessing officer initiated action under section 147 of the Income Tax Act and issued notice to the assessee-company under section 148 of the Act. As we are disposing of these seven appeals by this common order, the summary showing the details are given, separately. In all the years in question, the assessments were completed under section 143(3) read with section 147 by making the addition in respect of the sale of centrifuged latex, as provided in rule 7A of the Income-tax Rules and reassessments were completed.
3. The summary of the date of filing of the returns, dates of assessment, total income, date of issue of notice under section 148, etc. etc. are given as under:
Asst. year.
1987-88 1988-89 1989-90 1990-91 1991-92 1992-93 1993-94 Date of original Return/total Income returned 8-9-87 677080 4-9-88 1657160 27-12-89 644930 31-12-90 2713930 31-12-91 1666370 11-1-93 Nil 31-12-93 1336990 Date of asst. u/s 143(3) Total income Assessed 10-1-90 27-3-89 19-3-92 15-3-93 28-2-94 29-11-94 12-2-96 1562620 1657160 1558140 3063930 2182170 Nil 1534560 Date of issue of notice u/s 148/date of service of notice u/s 148 1-1-98 19-1-98 22-1-99 2-2-99 2-3-00 13-3-00 13-11-00 24-11-00 14-11-00 24-11-00 13-11-00 24-11-00 13-11-00 24-11-00 Date of filing of return u/s 148 T.I. returned Ltr. dt, 6-3-02 on 8-3-02 to treat original return as revised return Ltr. dt. 6-3-02 on 8-3-02 to treat original return as revised return 20-4-00 644930 9-3-01 2713930 9-3-01 1666370 9-3-01 Nil 9-3-01 1336990 Date of notice u/s 143(2) 12-3-02 12-3-02 27-2-02 16-1-02 16-1-02 16-1-02 16 1-02 Date of asst. U/s 143(3) r.w.s. 147/TI assessed 18-3-2002 3398010 18-3-2002 2870090 18-3-2002 4881450 18-3-2002 25970173 2879960 1843190 7566180 Addition made in the asst.
1835391 (35% of 5243973) 1212920 (35% of 3465487) 4203973 (35% of 12011353) 22873389 (35% of 65352524) 26967270 (35% of 77049334) 1843186 (35% of 5266244) 6031620 (35% of 17233198)
4. The assessee challenged the orders of the assessing officer passed for all those assessment years under consideration by filing appeals to the CIT (Appeals) and the assessee raised various grounds, both on procedure as well as on the merits of the case. Before the CIT (Appeals), the assessee strongly objected to the reopening of the assessments. The main substance of the argument of the assessee before the CIT (Appeals) was that the assessing officer acted illegally and without jurisdiction in issuing the notices under section 148. It was further contended that conditions precedent for valid exercise of the jurisdiction had not been complied with and the assumption of jurisdiction under section 148 of the Act by the assessing officer was illegal, void and invalid in law, as there was no failure on the part of the assessee to make a full and true disclosure of all the material facts necessary for assessment for all the above assessment years. It was further contended by the assessee before the CIT (Appeals) that initiation of the reassessment proceedings under section 147 were merely only on the basis of reconsideration and review of the same facts, which were already on the record of the assessing officer. The assesseecompany further challenged the notices issued by the assessing officer under Section 148 on the ground that those notices were issued more than four years after the end of the relevant assessment year without obtaining the satisfaction of the CIT, as required under the provisions of section 151 (1) of the Income Tax Act.
5. After considering the objections of the assessee and the record, the CIT (Appeals) was of the opinion that there was no omission or failure on the part of the assessee in filing any material particulars relating to the computation of the income and hence, reopening of the assessments under section 147 beyond the period of four years were bad in law. The CIT (Appeals) dealt with each assessment year separately in his common order, But the only issue decided by the CIT (Appeals) which found favour for the assessee was that the period of limitation fixed by the statute was violated and hence the Commissioner (Appeals) declared all the assessment orders framed by the assessing officer under section 143(3) read with section 147 as invalid and cancelled the same. The CIT (Appeals) observed that as he has only considered the objection of the assessee on the procedural aspect of the reassessments for all the years under consideration, he had not gone into the objection on the merits of the reassessments.
6. Being aggrieved by the order of the CIT (Appeals), the revenue is in appeal before us with the following grounds, which are common in all the appeals :
1. The order of the CIT (Appeals) in ITA Nos. 73, 74, 7 5, 7 6, 77 & 7 8 DC / R-1 / CIT-II / 02-03 dated 16-12-2002 is opposed to law, weight of evidence and facts and circumstances of the case.
2. The learned Commissioner (Appeals) erred in holding that the issue of notice under section 148 for assessment year 1987-88 is bad in law. The Commissioner (Appeals) ought to have found that as per the law as it stood before amendment with effect from 1-6-2001, reassessment proceedings could have been validly initiated up to a period of ten years from the end of the relevant assessment year subject to the monetary limits and consequently the issue of notice under section 148 is within the time limit allowed by the statute.
3. The learned Commissioner (Appeals) ought to have found that the assessment has been validly reopened following the ratio laid down by the jurisdictional High Courts in the case of Kanan Latex Industries (P) Ltd. reported in 221 ITR 1 and also looking to the quantum of escaped income exceeding Rs. 1 lakh. The learned Commissioner (Appeals) also ought to have noticed that the reasons for issue of notice under section 148 was also communicated to the assessee by a letter dated 16-2-1998. The learned Commissioner (Appeals) ought to have further found that in the light of Apex Court's decision in the case of Income Tax Officer v. Sarabhai M. Lakani & Another reported in 243 ITR 1, the notice under section 148 was validly issued.
4, For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the Commissioner (Appeals) may be set aside and that of the assessing officer restored."
7. We have heard the learned departmental Representative Shri K.K. John, and the learned Authorised Representative of the assessee Shri R. Ramanarayanan, Advocate at length. The learned D.R. vehemently submitted that the CIT (Appeals) was totally wrong in cancelling all the assessment orders, as there is a change in law with effect from 1-6-2001 and before that reassessment proceedings would have been validly initiated up to a period of ten years from the end of the relevant assessment year subject to the monetary limit and hence, the issue of Notices to the assessee under section 148 is within the time limit allowed by the statute. He further submitted that the assessing officer assumed valid jurisdiction, in ivew of the decision of the jurisdictional High Court in the case of Kanan Latex Industries (P) Ltd (supra). He submitted that the reasons for issue of notices under section 148 were also communicated to the assessee and he relied on the decision of the Hon'ble Supreme Court in the case of Income Tax Officer v. Sarabhai M. Lakhani (2000) 243 ITR 1 (SC).
8. The learned counsel for the assessee filed a copy of the judgment of the Hon'ble jurisdictional High Court in assessee's own case in O.P. No. 13545 of 1999 dated 2-7-2004. It appears from the said judgment that notice issued under section 148 was challenged by the assessee-company before the Hon'ble Kerala High Court by filing Writ Petition. It further appears that there were other writ petitions before the Hon'ble High Court by different petitioners. The Hon'ble High Court has considered whether the Income-tax department had jurisdiction to redo the assessment already completed under section 143(3) of the Income Tax Act for the assessment years prior to 2002-03 in case of assessee earning income from the manufacture of rubber or coffee for determining the income liable to tax. The Hon'ble High Court has referred to the CBDT Circular No. 5 of 2003 dated 22-5-2003 which is relating to rules 7A and 7B of the I.T. Rules. The Hon'ble High Court has after considering the circular of the CBDT observed as under:
"As per paragraph 3 of the aforesaid circular, the Board had clarified that no proceedings under section 147 or 263 of the"Act should be initiated for the assessment years prior to assessment year 2002-03 in the case of assessee earning income from manufacture of rubber and/or coffee for determining the income liable to income-tax, if the assessee had already paid agricultural income tax for the whole of such income. Paragraph 3 above applies to the case of the petitioners in all these cases. However, in order to avail the benefit, they have to satisfy that they had already paid the Agricultural Income-tax on the whole of such income. Though the Counsel for some of the petitioners in some of the cases had submitted that the petitioners therein had remitted agricultural income-tax in respect of whole of such income, it is a matter for verification by the authorities concerned. If on verification it is found that they have complied with the above, there is no question of pursuing notices under section 147 or 263 of the Act and/or in proceeding with any assessment completed pursuant thereto." (Emphasis supplied)
9. We have asked the assessee to file proof of payment of the agricultural income-tax. As per the directions of the Bench, the assessee has filed two different compilations, one relating to his assessment under the Karnataka Agricultural Income Tax Act and another compilation in respect of assessment orders under the Kerala Agricultural Income Tax Act, which are relating to the previous years relevant for the assessment years 1987-88 to 1993-94.
10. We have considered the objections of the revenue and perused the records. Now, we are deciding ITA No. 175 (Coch.)/03 relating to assessment year 1987-88. The CIT (Appeals) held that the reopening of the assessment under section 147 in respect of assessment year 1987-88 after the expiry of four years is bad in law, and he observed as under:
"It is seen that for the assessment year 1987-88 the assessing officer had issued the notice under section 148 on 1-1-1998 and the same had been served on the appellant on 19-1-1998. The notice has been issued beyond a period of 4 years from the end of the assessment year 1987-88. The Income-tax assessment under section 143(3) for the assessment year 1987-88 had been completed in this case on 10- 1- 1990 on a total income of Rs. 15,62,620. Therefore, no action could be taken under section 147 after the expiry of four years from the end of the assessment year 1987-88 unless any income chargeable to tax had escaped assessment on account of the failure on the part of the appellant to make a return under section 139 or section 148 or to disclose fully and truly all material facts necessary for its assessment for that year. It is seen that in the instant case the assessing officer has reopened the assessment to assess the income arising from the sale of centrifuged latex. This income has been computed based on the figures contained in the P&L a/c. for the assessment year 1987-88. It is seen that the assessing officer has worked out the profit from the sale of centrifuged latex at Rs. 18,35,391 by taking 35 per cent of the profit of Rs. 5,23,43,973 from the sale of cenex. This profit has been worked out after deducting the expenditure of Rs. 3,52,28,740 relating to the rubber business from the sale of turnover of cenex of Rs. 4,04,72,713. All these figures have been taken from the printed accounts filed by the appellant along with the original return or income. Therefore, it cannot be said that there was any omission of failure on the part of the appellant in filing any material particulars relating to the computation of income. I therefore, hold that the reopening under section 148 beyond the period of four years is bad in law. Hence, the order under section 143(3) read with section 147 dated 18-3-2002 is invalid. Therefore, the same is cancalled."
11. For the assessment year 1998-99 (ITA No. 176 (Coch.)/031, the CIT (Appeals) has held as under:
"The assessing officer issued notice under section 148 on 22-1-1999 for similar reasons as in the assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) r.w.s. 147 on a total income of Rs. 28,70,000 on 18-3-2002. In the assessment an addition, of Rs. 12,12,920 was made, being income from the sale or cenex worked out at 35 per cent of Rs. 34,65,487 representing the profit from the sale of cenex. The profit has been worked out by deducting the expenditure of Rs. 4,41,13,035 of rubber business from the sale turnover of cenex of Rs. 4,75,78,522.I note that the figures of sales turnoverand the expenditure relating to cenex have all been taken from the printed accounts filed by the appellant along with the original return filed,on 4-9-1988. Thus, it is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original assessment under section 143(3) had been completed in the case on 27-3-1989 on a total income of Rs. 16,57,160. Under these circumstances the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) read with section 147 dated 18-3-2002 is held to be invalid and is hence cancelled."
12. For the assessment year 1989-90 (ITA No. 177 (Coch.)/03), the CIT(Appeals) has held as under -.
"The assessing officer issued notice under section 148 on 2-3-2000 for the similar reasons as in the assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) r.w.s. 147 on a total income of Rs. 48,81,450 on 18-3-2002. In the assessment, an addition of Rs. 42,03,973 was made being income from the sale of cenex worked out at 35 per cent of Rs. 1,20,11,353 representing the profit from the sale of cenex. The profit has been worked out by deducting the expenditure of Rs. 5,28,85,787 of rubber business from the sales turnover of cenex of Rs. 6,48,97,140. I note that the figures of sales turnover and the expenditure relating to cenex have all been taken from the printed accounts filed by the appellant along with the original return filed on 27-12-1989. It is seen that there was no omission of failure on the part of the appellant to file any material particulars in the course of the original assessment. The original assessment under section 143(3) had been completed in this case on 19-3-1992 on a total income of Rs. 15,58,140. Under these circumstances, the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) r.w.s. 147 dated 18-3-2002 is held to be invalid and is hence cancelled."
13. For the assessment year 1990-91 (ITA No. 178(Coch.)/031, the CIT(Appeals) has held as under:
"The assessing officer issued notice under section 148 on 13-11-2000 for similar reasons as in assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) r.w.s. 147 on a total income of Rs. 2,59,70,173 on 18-3-2002. In the assessment, an addition of Rs. 2,28,73,338 was made, being income from the sale of cenex, worked out at 35 per cent of the amount of Rs. 6,53,52,524, The amount of Rs. 6,53,52,524 represents the sales turnover of the appellant from the sale of cenex. The assessing officer omitted to deduct the expenditure of rubber business for arriving at the profit of the business. I note that the figure of sales turnover has been taken from the printed accounts filed by the appellant along with the original return filed on 31-12-1990. It is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original income-tax assessment under section 143(3) had been completed in this case on 15-3-1993 on a total income of Rs. 30,63,930. Under these circumstances, the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) read with section 147 dated 18-3-2002 is held to be invatid and is hence cancelled."
14. For the assessment year 1991-92, (ITA No. 179(Coch.)/03), the CIT(Appeals) held as under:
"The assessing officer issued notice under section 148 on 14-11-2000 for similar reasons as in assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) r.w.s. 147 on a total income of Rs. 2,87,93,960 on 18-3-2002. In the assessment, an addition of Rs. 2,69,67,270 was made, being income from the sale of cenex, worked out at 35 per cent of the amount of Rs. 7,70,49,334. The amount of Rs. 7,70,49,334 represents the sales turnover of the appellant from the sale of cenex. The assessing officer omitted to deduct the expenditure of rubber business for arriving at the profit of the business. I note that the figure of sales turnover has been taken from the printed accounts filed by the appellant along with tile original return filed on 31-12-1991. It is seen that there was no omission or failure oil the part of the appellant to file any material particulars in the course of' the original assessment. The original income-tax assessment under section 143(3) had been completed in this case on 28-2-1994 on a total income of Rs. 21,82,170. Under these circumstances the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) read with section 147 dated 18-3-2002 is held to be invalid and is hence cancelled."
15. For the assessment year 1992-93 (ITA No. 180(Coch.)/03), the CIT(Appeals) has held as under:
"The assessing officer issued the notice under section 148 on 13-11-2000 for similar reasons as in the assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) read with section 147 on a total income of Rs. 18,43,190 on 18-3-2002. In the assessment, an addition of Rs. 18,43,186 was made, being income from the sale of cenex, worked out at 35 percent of Rs.52,66,244 representing the profit from the sale of cenex. The profit has been worked out by deducting the expenditure of Rs. 7,58,66,266 of rubber business from the sales turnover of cenex of Rs. 8,11,32,5 10. 1 note that the figures of sales turnover and the expenditure relating to cenex have all been taken from the printed accounts filed by the appellant along with the original return filed on 11-1-1993. It is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original income-tax assessment under section 143(3) had been completed in this case on 29-11-1994 on a total income at NIL. Under these circumstances the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) read with section 147 dated 18-3-2002 is held to be invalid and hence cancelled."
16. For the assessment year 1993-94 (ITA No. 181 (Coch.)/30), the CIT(Appeals) has held as under:
"The assessing officer issued the notice under section 148 on 13 -11-2000 for similar reasons as in the assessment year 1987-88. The assessing officer thereafter completed the assessment under section 143(3) r.w.s. 147 on a total income of Rs. 75,66,180 on 18-3-2002. In the assessment, an addition of Rs. 60,31,620 was made being income from the sale of cenex, worked out at 35 per cent of Rs. 1,72,33,198 representing the profit from the sale of cenex. The profit has been worked out by deducting the expenditure of Rs. 7,83,00,362 of rubber business from the sales turnover of cenex of Rs. 9,55,33,549. I note, that the figures of sales turnover and the expenditure relating to cenex have all been taken from the printed accounts filed by the appellant along with the original return filed on 11-1-1993. It is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original income tax assessment under section 143(3) had been completed in this case on 29-11-1994 on a total income of NIL.Under these circumstances the reopening of assessment under section 147 after the expiry of 4 years is bad in law. Therefore, the order under section 143(3) r.w.s. 147 dated 18-3-2002 is held to be invalid and is hence cancelled."
17. The argument of the learned D.R. that there is a substantial change in the period of limitation introduced with effect from 1-6-2001 by the Finance Act, 2001 and hence reassessment proceedings can be initiated even after four years is having no substance. As far as section 147 is concerned, there are certain mandatory conditions for reopening of assessment and no amendment has been brought in section 147 as far as period of limitation is concerned. When the assessments of the assessee are completed under section 143(3) of the Income Tax Act, then no action can be taken under that section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for any assessment year, (i) by reason of the failure on the part of the assessee to make a return under section 139, or (ii) in response to Notice issued under sub-section (1) of' section 142 the assessee failed to file a return, or (iii) if the assessee failed to file the return in response to Notice under section 148, or (iv) in case of failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the assessment year. In this case, the, CIT(Appeals) has rightly observed that every material was before the assessing officer and from that material only the assessing officer recomputed the income of the assessee. Moreover, the Finance Act, 2001 has introduced the changes in section 149, which regulates section 148 of the Income Tax Act. In the circumstances mentioned in section 147, the only time limit for the revenue is 4 years and considering the facts and circumstances of the present case, the CIT(Appeals) has rightly come to the conclusion that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. Moreover, from the summary account given herein above, it is clear that the original assessments of the assessee were completed under section 143(3).
18. The learned D.R. relied on the judgment of the Hon'ble Supreme Court in the case of Sarabhai M. Lakhani (supra). In the said decision, the Hon'ble Supreme Court has held that even in case of the decision of any High Court, the assessing officer can initiate proceedings under section 147(b) of the Income Tax Act. With due respect to the legal principles laid down by the Hon'ble Supreme Court, which are not disputed, in this particular case subsequently even after the introduction of rule 7A to the I.T. Rules, the C.B.D.T has issued specific circular on the basis of which the jurisdictional High Court has issued some directions that in cases where rule 7A is applicable, no action can be initiated either under section 147 or 263 of the Income Tax Act prior to assessment year 2002-03 if the assessee has paid Agricultural Income-tax under the relevant statute of the States. Moreover, the time limit put by section 147 is mandatory in nature and hence, the judgment relied on by the learned D.R. is not helpful to the revenue, because Notices under section 147 were issued beyond the mandatory time limit prescribed under the Act. Hence, in our opinion considering the facts and materials on record, the CIT(Appeals) is right in declaring all the assessment orders for all the assessment years under consideration as invalid, and hence we uphold his order cancelling the assessments for all the assessment years under consideration.
19. We have also gone through the compilation filed by the A.R. in respect of the assessment orders under the Karnataka Agricultural Income Tax Act as well as the Kerala Agricultural Income Tax Act. We have also considered Circular No. 5 dated 22-5-2003 issued by the CBDT. It is pertinent to note that the said circular is issued by the CBDT after introduction of rule 7A which is relevant to us in these appeals. The Income-tax (Second Amendment) Rules, 2001 introduced rule 7A with effect from 1-4-2002 providing the computation of income f rom the sale of centrifuged latex or cenex or latex based crepes or brown crepes etc. obtained from rubber plants grown by the seller in India. After the introduction of rule 7A representations were made to the CBDT, whether the income-tax authorities on the basis of the said rule 7A or 7B, as the case may be, can initiate proceedings under section 147 or under section 263 of the Income Tax Act for the assessment years prior to 2002-2003 to determine the income liable to income-tax even if the assessee had already paid agricultural income-tax on such income. The CBDT has clarified in the said circular that no proceedings under section 147 or under section 263 of the Act should be initiated for the assessment years prior to 2002-03 in the cases of assessees earning income from manufacture of rubber or coffee for determining the income liable to income-tax if the assessee had already paid agricultural income-tax on the whole of such income. After considering the Board's circular No. 5 dated 22-5-2003 it is very clear that no proceedings can be initiated under section 147 against any assessee to which rule 7A is applicable prior to the assessment year 2002-03. The assessment years for consideration before us are from 1987-88 to 1993-94. As the circulars issued by the CBDT are binding on the lower Income-tax authorities, and on merit also from the compilation filed by the assessee it is seen that the assessee had paid agricultural income-tax under Kerala Agricultural Income Tax Act and also under the Karnataka Agricultural Income Tax Act, and hence, in our considered opinion the assessee is not liable to pay any income-tax from the product obtained from rubber plants grown by the assessee-company. Hence, on merit also, the reassessment proceedings are not justified.
20. In the result, we uphold the orders of the CIT(Appeals) and all the appeals of the revenue for all the assessment years 1987-88 to 1993-94 are dismissed.