Income Tax Appellate Tribunal - Ahmedabad
Videocon Leasing And Ind. Fin Ltd. vs Joint Commissioner Of Income Tax ... on 21 April, 2006
Equivalent citations: [2006]103ITD309(AHD)
ORDER
I.P. Bansal, Judicial Member
1. This is an appeal filed by the assessee and it is directed against the order of Commissioner of Income-tax dated 22-3-1999 under the provisions of Section 263 of Income-tax Act, 1961.
2. Grounds of appeal reads as under:
The Id. CIT, Gujarat-I, has erred in law and on facts while passing the order under Section 263 by treating the order passed by Id. Assessing Officer under Section 143(3), read with Section 147 for assessment year 1991-92.
In this respect we ought to have appreciated that order of Id. Assessing Officer passed under Section 143(3), read with Section 147 is not prejudicial to the interest of revenue as law is on account of unabsorbed depreciation which was otherwise is available for set off to the appellant.
3. For assessment year 1991-92, return of income was filed by the assessee on 23-12-1993 showing total loss of Rs. 19,17,080 along with a covering letter. The assessee requested to issue notice under Section 148 of the Income-tax Act and requested that the said return may be treated as filed in response to the said notice. It is recorded in the assessment order that accordingly the notice was issued under Section 148 on 27-3-1995 and in reply thereto the assessee submitted that the return has already been filed with the department by RPAD along with covering letter dated 13-10-1993. Thereafter the Assessing Officer issued notice under Section 142(1) of the Act calling for the details which were furnished vide letter dated 10-3-1997 and assessment was framed at a loss of Rs. 18,41,744 vide assessment order dated 17-3-1997 passed under the provisions of Section 143(3), read with Section 147 of the Act. In the said assessment order it has been mentioned that as the depreciation of Rs. 24,25,514 is more than the total business income, the balance amount of depreciation is also to be carried forward, even though the return has been filed late and loss allocated from trust is not allowed to be carried forward. Against such assessment order the CIT initiated proceedings under Section 263 of the Act by issue of notice dated 29-5-1998. According to the CIT assessee is not entitled for the benefit of carry forward of depreciation and loss as the return of income was filed beyond time-limit as prescribed under Section 139 and it was regularized by Assessing Officer by issuing notice under Section 148. He, therefore, inferred that assessment order dated 17-3-1997 was erroneous as well as prejudicial to the interest of revenue. According to the CIT provisions under Section 148 are intended for reopening of the assessment where there is an escapement of income from tax either on account of omission on the part of the assessee to disclose the income or on the basis of information received by the department. These provisions are not applicable to a case where the return reflects loss and the same is filed beyond time-limit prescribed under Section 139A contention was raised before CIT that provisions of Section 139(3) which deals with loss return does not apply to the case of assessee as negative figure shown in the return was entirely attributable to depreciation claim made by the assessee and loss cases are material different from the cases where the net declared figure is a negative figure on account of statutory claims in the nature of depreciation etc. Reliance was placed on the decision of Hon'ble Supreme Court in the case of CIT v. Jaipuria China Clay Mines (P.) Ltd. wherein it has been held that the unabsorbed depreciation of the past years should be added to the depreciation of current year and the aggregate of the unabsorbed depreciation and the current years depreciation should be deducted from the total income of the previous year. Thus, it was pleaded that procedure adopted by Assessing Officer for regularizing the return filed by the assessee and framing assessment thereon was justified, therefore, proceedings under Section 263 could not be invoked. Considering these submissions, Id. CIT has cancelled the assessment as per following observations:
4. I have considered the submissions on behalf of the assessee carefully. The issue in the present proceedings is not whether the case of the assessee related to a claim of a loss or otherwise. The issue here is whether the provisions of Section 148 were applicable to the case of the assessee or not. The reference to the provisions makes it amply clear that this section has no application to a case where there is no escapement of assessable income from the taxable net. This provision is intended for retrieval of revenue where there is escapement of income either on account of lapse on the part of the assessee or otherwise. In a case where there is no assessable income or tax, the provisions have no application to such a situation at all. In the case of the assessee the return as well as the assessed figure is a loss and there is no tax implication in the proceedings. The assessment framed under Section 148 is, therefore, absolutely erroneous as also prejudicial to the revenue inasmuch as it allow carry forward of loss which was not permissible in the situation.
5. In the result, the assessment framed under Section 148 on 17-3-1997 for assessment year 1991-92 is hereby cancelled. The Assessing Officer is directed to give effect to this order.
It is against such order of CIT the assessee is aggrieved hence in appeal.
4. The Id. Counsel appearing on behalf of assessee after narrating the facts pleaded that assessment of loss is due to the claim of depreciation. He contended that according to the decision of Hon'ble jurisdictional High Court in the case of CIT v. Shri Shubhlaxmi Mills Ltd. loss and depreciation have to be considered on different footing. He further referred to Section 80 of Income-tax Act, 1961 which deals with the return for loss and pleaded that Section 79 does not find place therein. The loss is pertaining to depreciation only which is a statutory allowance. He further relied on the following decisions:
(i) Asstt. CIT v. Vigyan Prakashan (P.) Ltd. [1998] 64 ITD 166 (Pat.) Wherein it has been held that assessee cannot be denied the benefit of carry forward of depreciation under Section 32(2) even if the return had not been filed within the time-limit prescribed under Section 139(3).
(ii) Brahmavar Chemicals (P.) Ltd. v. CIT.
Wherein it has been held that there is no reference to the provisions for carry forward of depreciation or investment allowance in Section 80 and, therefore, unabsorbed depreciation or investment allowance, if claimed in return filed after time prescribed under Section 139(1), are entitled to be carried forward and set off.
5. On the validity of initiation of proceedings under Section 263 he pleaded that where the Assessing Officer has applied his mind, proceedings under Section 263 cannot be invoked and for this purpose he placed reliance on the following decisions :
(i) Kwalily Steel Suppliers v. CIT
(ii) CIT v. D.P. Karai
(iii) CIT v. Arvind Jewellers
(iv) Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 (SC) : 109 Taxman 66.
Thus he pleaded that the assessment order not being erroneous and prejudicial to the interest of revenue could not be subject-matter of proceedings under Section 263 and the same was wrongly invoked. Thus he pleaded that order of CIT under Section 263 should be vacated.
6. On the other hand, Id. DR referring to the assessment order pleaded that the return was filed by the assessee beyond the prescribed time-limit. The assessee himself requested the Assessing Officer for issuing of notice under Section 148. He contended that Section 148 cannot be used for conferring the benefit on the assessee. He in this regard referred to the following decision:
(i) CIT v. Sun Engg. Works (P.) Ltd.
Wherein it has been held that since the proceedings under Section 147 are for the benefit of the revenue and not for assessee. They are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as "revisional" or "review" proceedings at the instance of the assessee, thereby making the machinery unworkable.
(ii) Chettinad Corporation (P.) Ltd. v. CIT Wherein Hon'ble Supreme Court reiterated their decision in the case of Sun Engg. Works (P.) Ltd. (supra) to hold that re-opening of assessment could only be for the benefit of revenue. Subject-matter at the instance of the assessee not relevant to proceedings could not be considered at the state of reassessment. In the said case, their Lordships have affirmed the decision of Madras High Court in the case of Chettinad Corporation (P.) Ltd. (supra) wherein it was held that the reopening can only be for the benefit of the revenue. But this is subject to one exception. Where a particular item is sought to be brought to charge for the first time in the re-assessment proceedings, any allowance, deduction or other relief in relation to that item can be put forward by the assessee. All other items of disallowance or relief claimed by the assessee which are not relevant to the items which are the subject-matter of the enquiry during reassessment cannot be considered again by the Assessing Officer at the stage of reassessment. Thus in re-assessment proceedings the assessee cannot re-agitate question which has been decided in the original assessment.
7. Thus he pleaded that Id. CIT has rightly cancelled the assessment and his order should be upheld.
8. In rejoinder, Id. Counsel of the assessee reading from the decision in the case of Sun Engg. Works (P.) Ltd. (supra) pleaded that only prohibition put by the said decision is that Assessing Officer cannot make a re-assessment in-consistence with the original order of assessment. Thus he pleaded that to apply the said decision there must be original assessment proceedings and in the present case, the assessment made by Assessing Officer is the only assessment.
9. We have carefully considered the rival submissions in the light of material placed before us. The facts, as mentioned above are not in dispute. The return has been filed by the assessee beyond the time-limit prescribed under Section 139 of the Act. As admitted by the Id. Counsel of the assessee that return in the present case even according to the provisions of Section 139(4) could be filed latest by 31-3-1993. As against the said date the return was filed by the assessee on 23-12-1993. Thus the return was not a valid return in the eyes of law. The return was filed at a loss of Rs. 19,17,080 and it was accompanying a covering letter and a request was made to Assessing Officer for issue of notice under Section 148. The Assessing Officer issued notice under Section 148 and assessment has been framed vide order dated 17-3-1997 assessing a loss of Rs. 18,41,744 with the balance amount of carry forward amount of depreciation which was claimed at Rs. 24,25,514. Thus in fact there was no assessable income for the year under consideration which could escape assessment. While interpreting the provisions of Section 147 i.e., reopening of the assessment, their Lordships of Hon'ble Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra) have observed as under:
Although Section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that that construction should be preferred which makes the machinery workable. Since the proceedings under Section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as 'revisional' or 'review' proceedings at the instances of the assessee, thereby making the machinery unworkable.
Thus the law is well-settled that proceedings under Section 147 of the Act are for the benefit of the revenue and not for an assessee and are aimed at garnering the 'escaped income' of an assessee and the same cannot be allowed to be converted as "revisional" or "review" proceedings at the instance of the assessee. As pointed out earlier there is no income of assessee which can be said to be assessable for the year under consideration rather the assessee is getting benefit in the shape of assessed loss as well as unabsorbed depreciation which is to be carried forward to subsequent years in pursuance of the impugned assessment order. The subject-matter of dispute before us is the order of CIT passed under Section 263 of the Act. Therefore, we have to decide whether or not provisions of Section 263 were validly invoked by Id. CIT. For invoking Section 263, the order of Assessing Officer which is subject-matter of proceedings of Section 263 should be erroneous as well as prejudicial to the interest of revenue. Thus two simultaneous conditions were to be fulfilled to invoke Section 263 namely (1) the order passed by Assessing Officer should be erroneous; and (2) it should also be prejudicial to the interest of revenue. This has so been held by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. v. CIT [2000] 243 ITR 83 : 109 Taxman 66. It has been held by their Lordships that though proceedings under Section 263 cannot be invoked to correct each and every type of mistake or error committed by the Assessing Officer but if the order is erroneous the proceedings under Section 263 will be applicable. Defining the word "erroneous" their Lordships observed that an incorrect assumption of facts or an incorrect application of law will satisfy the requirement of the order being erroneous and in this category the order passed without applying the principle of natural justice or without application of mind, also will fall. Defining the phrase "prejudicial to the interest of revenue" they observed that it is not an expression of art and as the same is not defined in the Act it should be understood in its ordinary meaning which is of wide import and is not confined to loss of tax. The scheme of the Act is to levy and collect tax in accordance with the provisions of the Act and this task is entrusted to the revenue. If due to an erroneous order of the Assessing Officer the revenue is losing tax lawfully payable by a person it will certainly be prejudicial to the interest of revenue. However, it is held that when Assessing Officer adopted one of the courses permissible in law and it has resulted in the loss of revenue or where two views are possible and Assessing Officer has taken one view with which the CIT does not agree then it cannot be treated as an erroneous order prejudicial to the interest of revenue unless the view taken by Assessing Officer is unsustainable by law.
10. In the light of aforementioned principle of law laid down by Hon'ble Supreme Court in the aforementioned case, we have to examine the validity or otherwise of the order passed under Section 263.
11. As pointed out earlier, according to well-settled law proceedings under Section 147 are for the benefit of revenue and not for an assessee and also the fact that there is no income which could escape for the year under consideration, the Assessing Officer could not confer the benefit to the assessee by way of reassessment. Even if the notice was issued, the Assessing Officer was not within his right to complete the assessment to determine the loss thereby giving the assessee a right to claim set off of loss in subsequent years to the detriment of revenue.
12. We are unable to agree with the contention of Id. Counsel of the assessee that for the purpose of applying the ratio of decision of Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra), there should be earlier assessment proceedings (original assessment proceedings). The above mentioned decision in the case of Sun Engg. Works (P.) Ltd. (supra) was later on considered by the Jammu and Kashmir High Court in the case of CIT v. State Agro Development Corporation . It will be relevant to state briefly the facts therein. The assessec in that case did not file its return of income for assessment year 1975-76 within the time allowed under Section 139(1). No notice was issued under Section 139(2) of the Act. However, on February 27, 1978 a notice under Section 148 was issued and served on the assessee. In response to said notice the asscssee filed its return of income for said assessment year declaring a loss of Rs. 16,58,038 and the assessment was completed at a net loss of Rs. 16,54,626. The Assessing Officer, however, held that the loss determined by him could not be carried forward since the return was not filed voluntarily. In appeal filed before CIT(A) it was contended that the return was filed pursuant to notice under Section 148 of the Act and was also a return within the meaning of Section 139(4) read with Section 139(1) of the Act, therefore, Section 139(2) does not place any embargo on the carry forward of loss. In respect of this contention reliance was placed on the decision in the case of CIT v. Kulu Valley Transport Co. (P.) Ltd. . This contention of the assessee was accepted by the CIT(A) who held that the assessce-Corporation was entitled to carry forward the loss determined by the Assessing Officer. Against such order of CIT(A) an appeal was filed by the revenue which was dismissed by the Tribunal. Under these facts, it was held that if in pursuance of a notice under Section 148, the assessee submits a loss return and the ITO is satisfied that the income of the assessee during the relevant year was really negative as claimed by the assessee in his return, then he is entitled to close the proceedings. He could not complete the assessment to determine the loss thereby giving the assessee a right to claim set off of the losses in subsequent years to the detriment of the revenue. Thus it was held that the Tribunal was not justified in reversing the order of the ITO and allowing the assessee the benefit of carry forward of loss. For this purpose reliance was placed in the decision of Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra). The relevant observations are reproduced below:
The question that arises for consideration is whether in proceedings for reassessment of income, income can be reduced below the income originally assessed or in case where no assessment had been made earlier, income can he determined at a negative figure to the detriment of the Revenue. The real controversy, therefore, is about the scope and ambit of the power of the ITO in proceedings initiated under Section 147 of the Act for assessment of income which has escaped assessment.
5. Section 147 empowers the ITO to assess income which escaped assessment in the relevant assessment year. It is applicable only to a case where the ITO has reason to believe that the income of the assessee has escaped assessment. The power under this section can also be exercised in cases where excessive loss or depreciation allowance has been computed.
In the instant case, reassessment proceedings were initiated by the ITO for the assessment year 1975-76 by issue of notice under Section 148 of the Act because he was satisfied that the income of the petitioner-Corporation for that year had escaped assessment by reason of the non-submission of return by the assessee. In such a case, if at any stage of the proceedings, the ITO finds that income chargeable to tax has not escaped assessment, he is free not to take further action pursuant to the notice under Section 148 of the Act and drop the proceedings. He is not bound to conclude the proceedings and make assessment to the detriment of the Revenue. If pursuant to notice under Section 148 of the Act, the assessee submits a loss return, and the ITO is satisfied that the income of the assessee during the relevant year was really negative as claimed by the assessee in his return, he is entitled to close the proceedings. He cannot complete the assessment to determine the loss thereby giving the assessee a right to claim set off of the loss in subsequent years to the detriment of the Revenue. Such an act will be contrary to the object, scope and ambit of Section 147 of the Act. Proceedings under Section 147 of the Act being for the benefit of the Revenue and not the assessee, the assessee cannot be permitted to take advantage of the reassessment proceedings and seek relief which, in the absence of the proceedings for assessment of escaped income, he could not have claimed. Income for the purpose of assessment under Section 147 of the Act cannot be a negative figure. Similarly, in case of reassessment of income already assessed, the income cannot be reduced beyond the income originally assessed nor the loss originally determined can be redetermined at a higher figure.
6. The object, scope and ambit of Section 147 is now well-settled by the decision of the Supreme Court in CIT v. Sun Engg. Works (P.) Ltd. . Prior to that decision there was a sharp cleavage of opinion between different High Courts on the subject. The Supreme Court considered various decisions of different High Courts which had held that once valid proceedings under Section 147 of the Act are started, the ITO has the jurisdiction and duty to complete the whole assessment de novo. The Supreme Court also considered the observations in its earlier decision in V. Jaganmohan Rao v. CIT/CEPT to the effect that once an assessment is validly reopened by issuance of a notice under Sub-section (2) of Section 22, read with Section 34 of the Indian Income-tax Act, 1922 (corresponding to Section 148 of the 1961 Act), the previous underassessment is set aside and the ITO has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. The Supreme Court observed that an order made in relation to the escaped income does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. What is set aside is only the previous underassessment and not the original assessment proceedings. The Supreme Court made it clear that its earlier judgment in V. Jaganmohan Rao's case (supra) cannot be read to imply as laying down that in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. In the reassessment proceedings, it is of course open to an assessee to show that the income alleged to have escaped assessment has, in truth and in fact, not escaped assessment but that the same had been shown under some inappropriate head in the original return. The Supreme Court, therefore, said in clear terms that to read the judgment in V. Jaganmohan Rao's case (supra), as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to 'escaped assessment' or 'underassessment' but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of Section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case.
7. The Supreme Court observed:
... it is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat to be the complete "law" declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes it colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court to support their reasonings....
8. In view of the above legal position, in the case before it, the Supreme Court held:
... Since the original assessment had been concluded finally against the assessee, it was not permissible for the assessee in the reassessment proceedings to seek a review/revision of the concluded assessment for the purpose of computation of the escaped income. The High Court clearly fell in error in permitting the assessee to reagitate, in the reassessment proceedings under Section 147(a) of the Act, the finally concluded assessment proceedings and to grant to him relief in respect of items not only earlier rejected, but also unconnected with the escapement of income by assuming as if the original assessment had not been concluded or was "still open".
9. It is clear from the above decision of the Supreme Court that proceedings under Section 147 of the Act are for the benefit of the revenue and not of the assessee and the assessee cannot be permitted to convert the reassessment proceedings to his advantage. The assessee cannot claim that assessment should be completed and loss should be determined to enable him to claim the benefit of carry forward and set off against the income of subsequent years. In such a case, the proper course for the ITO would be to drop the proceedings under Section 147 of the Act.
10. In the instant case, by refusing to allow the assessee the benefit of carry forward of loss, the ITO had, in effect, dropped the proceedings under Section 148 of the Act. In our opinion he was right in doing so. In the proceedings under Section 147 of the Act, he could not have allowed the assessee the benefit of carry forward of loss of Rs. 16,58,038 which obviously was to the detriment of the revenue. The CIT(A) and the Tribunal were not justified in law in reversing the above action of the Income-tax Officer.
[Emphasis supplied] From the above observations of their Lordships it is clear that proceedings under Section 147/148 are for the benefit of the revenue and not for the assessee and the assessee could not be permitted to take advantage of the reassessment proceedings and seek relief which, in the absence of proceedings for assessment of escaped income, he could not have claimed. Income for the purpose of assessment under Section 147 of the Act cannot be a negative figure. In a case, even at any stage of these proceedings the Assessing Officer finds that income chargeable to tax has not escaped assessment, he is free not to take further action and drop the proceedings. He is not bound to conclude the proceedings and make the assessment to the detriment of revenue. If pursuant to notice under Section 148, the assessee submits a loss return and the Assessing Officer is satisfied with the return of income or it is really negative as claimed by the assessee in his return, he is entitled to close the proceedings. He cannot complete the assessment to determine the loss thereby giving the assessee a right to claim the set off in subsequent year to the detriment of revenue and such act will be contrary to the object, scope and ambit of Section 147 of the Act. Here in the present case facts are almost same. The return was submitted at a loss. It was regularized by issue of notice under Section 148 and according to the assessment framed the same was assessable at a loss of Rs. 18,71,744. In this view of the situation, the Assessing Officer should have dropped the proceedings instead of framing the assessment as he was not bound to conclude the proceedings and make assessment to the detriment of revenue. He could not complete the assessment to determine the loss thereby giving the assessee a right to claim set off of loss in subsequent years to the detriment of revenue. Thus the order of Assessing Officer was erroneous as well as prejudicial to the interest of revenue and thus the conditions laid down in Section 263 were fulfilled. Therefore, we hold that Id. CIT has rightly cancelled the assessment.
13. We have already held that acting under the provisions of Section 147/148, the Assessing Officer could not proceed to complete the assessment to determine the loss thereby giving the assessee a right to claim set off of loss in subsequent years, therefore, the assessment is invalid and cannot be sustained. For these reasons other arguments taken by the Id. Counsel have no bearings on the issue as whether the assessee can claim benefit of carry forward of depreciation no more survives. The assessment in the present case cannot be framed as the assessee did not file its return of income within the time-limit prescribed under Section 139 of the Act and thus return filed beyond that period was not a valid return in the eyes of law. Proceedings under Section 147/148 could not be utilized to give benefit to the assessee. Thus there is no question of giving any benefit to the assessee on account of carry forward of unabsorbed depreciation or loss for the subsequent years.
14. In view of above discussion, we hold that Id. CIT was right in cancelling the assessment. The appeal filed by the assessee is dismissed.