Income Tax Appellate Tribunal - Delhi
Smt. Meenakshi Khosla vs Income-Tax Officer on 1 October, 1990
Equivalent citations: [1991]36ITD400(DELHI)
ORDER
M.A. Bakshi, Judicial Member
1. These three appeals filed by the assessee are directed against the orders of CIT(A)-VIII, New Delhi. Since the issue involved is common, the same are disposed of by this consolidated order for the sake of convenience. Assessments for the respective assessment years had been completed by the assessing officer under Section 143(3). The income from flats known an Ratanjyoti, 18, Rajendra Place, New Delhi was disclosed as well as assessed as income from "house property". The flats had not been transferred in favour of the assessee by a registered conveyance deed nor was it mutated in her name in municipal records. The CIT(A) on receiving a proposal from IAC(A) Range-VIII, New Delhi, passed orders under Section 263 for all the three assessment years and the assessments framed earlier were set aside and IAC was directed to frame assessments afresh in accordance with law and in the light of the observations made by CIT(Administration) and to assess the income from flats as income from other sources.
2. While framing fresh assessments assessing officer noticed that assessee had given the flat on rent w.e.f. 15th February, 1979 and accordingly for assessment year 1980-81, the income from flats ought to have been disclosed for 12 months from 1-4-1979 to 31-3-1980. In the original assessment assessee disclosed the income from flats from 15th February, 1979 to 30th April, 1979. The assessing officer had assessed the income as disclosed. For assessment years 1981-82 assessee had disclosed the income from 1-5-1979 to 30-4-1980 i.e. for 12 months. Similarly for assessment year 1982-83 assessee had disclosed the income from 1-5-1980 to 30-4-1981 and assessed as such. Considering the relevant provisions of law the Assessing Officer assessed the income from flats by adopting the financial year as previous year for all the three years. The income was assessed as income from other sources as directed by CIT. By this process the income from 15-2-1979 to 31-3-1979 got excluded from assessment. Part of the income assessed in 1981-82 was however assessed in the assessment year 1980-81.
3. Being aggrieved assessee appealed to CIT(A). The CIT(A) by following his own order in the case of Smt, Raj Khosla in appeal No. 47/86-87 for assessment year 1980-81 dismissed the appeals of the assessee.
4. The learned counsel for the assessee Shri R. Ganeshan stated that the orders passed by CIT under Section 263 have been accepted by the assessee and to that extent there is no dispute with the revenue. The issue as to whether the income is assessable under the head 'Income from house property or 'Income from other sources' is also conceded to be covered by the decision of the Delhi High Court in Sushil Ansal v. CIT [1986] 160 ITR 308. On that point also there is no dispute with the revenue. It is also admitted fact that in respect of the income from flats assessee has not maintained books of account. The only dispute, according to the learned counsel, is relating to adopting of the previous year. The learned counsel contended that the assessing officer while framing the original assessment has accepted the previous year of the assessee for income from "house property" as the year ending on 30th April, 1979. The CIT(Administration) initiated proceedings under Section 263 on the ground that the income was assessable under the head "income from other sources" as against income from house property assessed by the assessing officer. The CIT have not issued any directions relating to the previous year adopted by the assessee. According to the learned counsel once the assessing officer had accepted the previous year of the assessee, it was not open to him to change the same. The learned counsel invited our attention to Section 3 Sub-section (4) of the Income-tax Act, 1961 in support of his contention that once the assessee has been assessed in respect of any source of income he has no option in respect of that source of income to change the previous year except with the consent of the assessing officer. From the same analogy learned counsel contended assessing officer is precluded from adopting a different previous year in respect of the same source of income in respect of which previous year has once been adopted and accepted by the assessing officer. The learned counsel relied upon the decision of the Andhra Pradesh High Court in the case of Addl. CIT v. K. Ramachandra Rao [1981] 127 ITR 414 in support of his contention that it was open to the assessee to adopt any previous year in respect of any source of income. Learned counsel accordingly urged that the action of the revenue in adopting a different previous year of the assessee may be cancelled,
5. The learned D.R. Shri Subash Kumar contended that the orders passed by the assessing officer have been set aside by CIT under Section 263. Even for the first assessment year i.e. 1980-81 the order stands cancelled and is substituted by a fresh order. In these circumstances, according to the learned D.R., it was not open to the learned counsel for the assessee to argue that the previous year in respect of the income from flats had earlier been adopted and accepted by the assessing officer. The assessee has not appealed against the order of Commissioner under Section 263. As such cancellation of assessment and the direction for framing fresh assessment in accordance with law cannot be questioned by the assessee in these proceedings. According to the learned D.R. once an assessment is set aside for making it fresh, assessing officer is entitled to do what he could do while framing the original assessment. However, admittedly in doing so assessing officer is bound to follow the directions of the appellate authority, it was pleaded.
6. In respect of the previous year, the learned D.R. contended that once it is admitted that books of accounts have not been maintained, the previous year of the assessee was bound to be the financial year preceding the assessment year. This is exactly what the assessing officer has done while framing the assessment According to the learned D.R. there is no infirmity either in the order of the assessing officer or in the order of CIT(A). It was accordingly urged that the appeals filed by the assessee may be dismissed.
7. We have given our careful consideration to the rival contentions and have perused the records. The issue before us is limited as to whether the assessing officer, while framing fresh assessments after the original assessments had been cancelled by CIT under Section 263 would proceed the previous year in accordance with law, in respect of such areas on which there is no finding of CIT in his order. If the answer to this is in affirmative then the question for our consideration is as to whether assessee had adopted a previous year in respect of income from flats it is permissible for the assessing officer to change the same while framing the fresh assessment,
8. It is not disputed that in the original assessment the income from flats was assessed from 15th February, 1979 to 30th April, 1979 in respect of assessment year 1980-81 under the head "income from house property". The CIT initiated proceedings under Section 263 as in his opinion assessment of income from flats which had not been registered in the name of the assessee was assessable under the head "income from other sources". He considered the orders passed by the assessing officer as erroneous and prejudicial to the interest of revenue. The assessments were accordingly set aside with a direction to frame fresh assessments in accordance with law. These orders under Section 263 of the CIT have been accepted by the assessee. Admittedly CIT has not noticed the mistake of the assessing officer in accepting the previous year disclosed by the assessee which was clearly in contravention of the provisions of the Act. Under Section 3 of the IT Act, 1961, previous year means the financial year immediately preceding the assessment year. However, if the accounts of the assessee are made up to a date within the said financial year then at the option of the assessee the 12 months ending on such date would be the previous year of the assessee. In the case of newly set up business or profession assessee is given an option to make up the accounts up to a date in respect of a period not exceeding 12 months from the date of such setting up and then for the year for the subsequent assessment years the previous year of the assessee would be the year ending such date. Sub-section (3) of Section 3 provides that the assessee may have different previous year in respect of separate sources of income. Sub-section (4) which has been heavily relied upon by the learned counsel for the assessee is reproduced hereunder for ready reference:
Where in respect of a particular source of income or in respect of a business or profession newly set up, an assessee has once exercised the option under Clause (b) or Sub-clause (ii) of Clause (i) or Sub-clause (i) of Clause (e) of Sub-section (1) or has once been assessed, then, he shall not, in respect of that source, or, as the case may be, business or profession be entitled to vary the meaning of the expression "previous year" as then applicable to him, except with the consent of the Assessing Officer and upon such conditions as the Assessing Officer may think fit to impose.
Is. is evident from Sub-section (4) of Section 3 quoted above that once the assessee has exercised the option of adopting a previous year or has once been assessed for any source of income then the assessee is not entitled to vary the meaning of the expression 'previous year' except with the consent of the assessing officer upon such conditions as the assessing officer may deem fit to impose.
In order to exercise the option of adopting a previous year different from the financial year, it is necessary for the assessee to maintain books of accounts. Unless the accounts of the assessee are made up up to a date assessee has no option but to adopt the financial year as the previous year for assessment. This is clear from the plain reading of Section 3 of the Act. Once it is admitted that the assessee has not maintained any books of account, there was, in our view, no option available to the assessee to adopt a different previous year than the financial year as provided in Section 3 of the Act. Once assessee had no option available for adopting the previous year other than the financial year, we have no hesitation to hold that the action of the assessee in disclosing the previous year for assessment year 1980-81 as the year ending 30th April, 1979 and for the subsequent assessment years on the same basis was contrary to law. Sub-section (4) of Section 3 refers to the option having once been exercised by the assessee. The option referred to in the said Sub-section cannot but be an option permissible under law. Since in this case no option was available to the assessee for adopting a different previous year than the financial year, in our view, Sub-section (4) of Section 3 is inapplicable to the facts of this case. Even otherwise under Sub-section (4) of Section 3 assessees are debarred from varying the meaning of the expression 'previous year' without the permission of the assessing officer. If the assessing officer grants the permission to the assessee with or without conditions it would be permissible for the assessee to change the previous year. There is no bar on the assessing officer to change the previous year wrongly adopted by the assessee. However, in any case, whether the assessing officer has the power to change the previous year of the assessee or not, is not very relevant in this case. Assessee not having maintained any books of account was not entitled to exercise the option in adopting a different previous year than the financial year, which is available to those who maintain books of account. Assessing officer had wrongly accepted the previous year of the assessee while framing the original assessment as the year ending on 30th April. This was clearly against the provision of Section 3 of Income-tax Act, 1961.
9. The next issue for our consideration is as to whether in a case where CIT has cancelled the assessment for making it fresh in accordance with law it was permissible to the assessing officer to re-consider the issue in respect of which no direction had been issued by the Commissioner of Income-tax under Section 263. It is nobody's case that the assessing officer has acted against the direction of Commissioner of Income-tax under Section 263. The directions of the Commissioner of Income-tax which undoubtedly are binding on the assessing officer have not been violated. In fact the Assessing Officer has faithfully carried out the directions of the Commissioner of Income-tax related to assessment of income from flats under the head 'Income from Other Sources' as against 'Income from House Property'.
10. Under Section 263 the CIT is empowered to call for and examine the records of proceedings and if he considers, any order passed by the assessing officer, as erroneous insofar as it is prejudicial to the interest of revenue, to pass such orders thereon as the circumstances of the case justify including an order enhancing or modifying the assessment or cancelling the assessment and directing a fresh assessment. Once the order passed by the assessing officer is found to be erroneous and prejudicial to the interest of revenue, the CIT has vast powers of enhancing or modifying assessment or in the alternative cancelling the assessment and directing a fresh assessment. In this the CIT has neither enhanced the assessment nor modified the assessment. He has cancelled the assessment and has directed afresh assessment to be made in accordance with law. Once an assessment is cancelled it is open to the assessing officer to proceed afresh as if no assessment had been made. However, the assessing officer shall be bound to comply with the directions, if any, issued by the Commissioner in his order under Section 263. In this case assessing officer has passed an order in accordance with law and the directions of the CIT have been followed. The mere fact that the CIT has not detected the mistake while examining the records will not, in our view, debar the assessing officer to frame an assessment in accordance with law. The only restriction upon the assessing officer in framing fresh assessment, after his order has been cancelled by CIT under Section 263, is not to deviate from the directions, if any, of his superior authority. In so long as the direction of the superior authority are not overlooked or disobeyed the assessing officer has the same powers as in framing original assessment.
11. Under Section 147 of the Income-tax Act, 1961, assessing officer is empowered to re-assess the income that has escaped assessment. However, before proceedings can be re-opened for re-assessment, certain conditions are to be fulfilled which are necessary for validity of such proceedings. Once proceedings are validly initiated, it is well settled that the ITO not only has the jurisdiction but it is his duty to levy tax on the entire income that has escaped assessment during that year. Reference may be made to the Hon'ble Supreme Court's decision in the case of V. Jaganmohan Rao v. CIT [1970] 75 ITR 373. Similarly once assessment is found to be erroneous on any ground by the CIT he has the power either to modify the assessment and remove the infirmity in any order. Another option open to the CIT under Section 263 is to cancel the assessment and direct a fresh assessment. Once the CIT has exercised the option of cancelling the assessment and has directed a fresh assessment, in our view, it is the duty of the assessing officer while framing the fresh assessment to make the assessment in accordance with law, subject to only one rider that the direction of the CIT are not overlooked or ignored. The assessing authority has no power to review the orders of his superior authorities nor has he the power to ignore or by-pass the directions of the said authorities. But that is not to say that when the order of assessment has been set aside he cannot correct the errors of law made at the time of making the original assessment which have not been considered or adjudicated upon by the superior authorities. Thus we are of the considered view that the assessing officer has not exceeded his jurisdiction by adopting the previous year of the assessee in accordance with law while framing the fresh assessment even though the previous year adopted in the original assessment had wrongly been accepted different from the one adopted while framing the fresh assessments. The decision cited by the learned counsel for the assessee in the case of K. Ramachandra Rao (supra) is not relevant to the facts of this case.
12. For the aforementioned reasons, we do not find any merit in the appeals filed by the assessee.
13. In the result, appeals of the assessee are dismissed.