Income Tax Appellate Tribunal - Chandigarh
Ramesh Chander Singla vs Income Tax Officer on 20 May, 2004
Equivalent citations: (2004)85TTJ(CHD)228
ORDER
D.R. Singh, J.M.
1. These five appeals filed by the assessee arising out of the consolidated order of the CIT(A), dt. 31st March, 2003 for the asst. yrs. 1994-95 and 1995-96, and consolidated order dt. 31st March, 2003 for the asst. yrs. 1996-97, 1997-98 and 1998-99 involving the identical facts and identical issue, were heard together and are being disposed of through this common order for the sake of convenience. The identical grounds taken by the assessee in its appeals are stated as under :
1. The learned CIT(A) has erred by not holding the reopening of the assessment under Section 148 of the IT Act to be bad in law and wrong on facts.
2. The learned CIT(A) has erred in law and facts by not holding the finality of the order of the Hon'ble Tribunal.
3. The learned CIT'(A) has erred in law and in facts by not cancelling the reassessment and additions made to the CIT(A) order and not to the returned income thereby maintaining two simultaneous proceedings of assessment on the same facts.
4. The learned CIT(A) has erred in law and facts by upholding the additions of Rs. 70,468, Rs. 70,743, Rs. 1,06,037, Rs. 91,532, Rs. 82,764 for asst. yrs. 1994-95, 1995-96, 1996-97, 1997-98 and 1998-99 respectively made by the learned AO on account of incentive bonus taking it to be a part of salary and not income from business or other sources.
5. The learned CIT(A) has erred in law and facts by upholding the addition of Rs. 5,963, Rs. 70,743, Rs. 30,000 and Rs. 88,861 for asst. yrs. 1994-95, 1995-96, 1996-97 and 1998-99 respectively made by the learned AO on account of: additional conveyance allowance under Section 10(14) of the IT Act.
2. The relevant and material facts for the disposal of the issue involved in these grounds of appeals are that the assessee is a Development Officer of LIC of India. He filed his returns of income for the asst. yrs. 1994-95 to 1998 99 and claimed rebate at the rate of 40 per cent from the incentive bonus received. He further claimed the entire additional conveyance allowance as exempt. The AO processed the return under Section 143(1)(a) and disallowed the rebate claimed from incentive bonus as well as the additional conveyance allowance in excess of what was certified by the DDO of LIC, as has been incurred in discharge of his duties. The rebate as well as the excess exemption claimed by the assessee was added back by the AO while processing the returns for these assessment years under Section 143(1)(a) of the Act.
2.1 On appeal, the assessee agitated the processing made by the AO for these assessment years and the CIT(A) allowed the appeals of the assessee on the ground that the relevant additions/disallowances cannot be made without affording an opportunity to the assessee. In other words, according to the CIT(A), these relevant additions/disallowances were beyond the purview of prima facie adjustment under Section 143(1)(a) of the Act. In asst. yrs. 1994-95 and 1995-96, the Department preferred second appeal before the Tribunal and the Tribunal dismissed the appeal of the Department by making following observations :
"I have gone through the relevant record. All the additions/disallowances deleted by the learned CIT(A) and impugned in appeals before me were made under Section 143(1)(a) of the IT Act. Specific deductions claimed have been disallowed through prima facie adjustment under Section 143(1)(a) of the Act. However, the AO in all the above cases went beyond his jurisdiction and considered debatable issues. It has now been accepted by almost all the High Courts that under Section 143(1)(a) debatable issues cannot be considered. Reference in this connection may be made to the Bombay High Court judgment in the case of Khatan Junkar and Anr. v. K.S. Pathania, Dy. CIT and Anr. (1992) 196 ITR 65 (Bom). The Hon'ble Punjab & Haryana High Court: also in the case of CIT v. Saurabh Kulsherestha (2001) 251 ITR 571 (P&H) held that under Section 143(1)(a), the AO has no power to disallow and add back specific deductions. Therefore, the additions/ disallowances made under Section 143(1)(a) were without jurisdiction and rightly deleted by the CIT(A)."
2.2 Meanwhile, the AO initiated proceedings under Section 147/148 of the Act to bring to tax the income escaped by claiming excess deduction and allowance by the assessee. These notices were issued with the prior approval of the Asstt. CIT wherever required. The claim of rebate from the incentive bonus and additional conveyance allowance claimed exempt in excess of the amount certified by the DDO was disallowed by the AO by passing an assessment order under Section 143(3) of the Act in asst. yrs. 1996-97 to 1998-99, whereas the claim of rebate from the incentive bonus and the excess exemption claimed from the additional conveyance allowance was disallowed by the AG on agreed basis in the asst. yr. 1996-97. However, the additions were made in other two assessment year, i.e., 1997-98 and 1998-99 on merits.
2.3 Aggrieved with these orders passed by the AO, the assesses filed appeals before the CIT(A) and firstly raised the issue that the action of the AO under Section 147/148 of the Act was not warranted as there was no escapement of income but the assessment was reopened due to change of the opinion because no new information came to the knowledge of the AO; secondly that once the AO has already made the addition on the basis of the assessment was reopened, there cannot be any underassessment of income and so reopening of the assessment was neither justified nor legal; thirdly once the appellate proceedings against the order of the CIT(A) were pending before the Tribunal, so the AO was not justified in reopening the assessment during that period; and lastly he challenged the addition made by the AO under Section 143(3) of the Act on merits.
2.4 After considering the submissions of the learned Authorised Representative for the assessee and also after considering the case law relied upon by the learned Authorised Representative for the assessee, the CIT(A) negated the contentions of the assessee by passing a detailed order mainly observing that it is a settled law that as per the decision of the Kerala High Court in the case of CIT v. K.V. Manka Ram and Co. (2000) 245 ITR 353 (Ker), the processing under Section 143(1) of the Act was not an assessment. So according to the CIT(A), as per Expln. 2(b) of Section 147 excessive claim of deduction/allowance was also deemed to be a case where the income chargeable to tax has escaped assessment. He further observed that the jurisdictional High Court of Punjab & Haryana in the case of B.M. Parmar v. CIT has held that the income from incentive bonus received by the Development Officer of LIC of India is to be taxed under the head salary and no deduction therefrom other than standard deduction will be allowed and similarly in the case of CIT v. H.S. Sandhu, the jurisdictional High Court of Punjab & Haryana following the judgment in the case of B.M. Parmar (supra) held that the additional conveyance allowance beyond what was certified by the DDO of LIC of India, was not exempt under Section 10(14) of the Act. So in view of law interpreted/laid down by the jurisdictional High Court, which is binding on the AO, it is apparent that the income chargeable to tax has escaped assessment due to claim of rebate from incentive bonus and claim of additional conveyance allowance in excess of certified by the DDO as exempt. He further observed that hence the reopening made by the AO was as per law as held in Punjab Tractors Ltd. v. Jt. CIT of the jurisdictional High Court:
"Reassessment--Notice under Section 148--Absence of notice under Section 143(2) and assessment under Section 143(3)--Condition precedent for proceeding under Section 147/148 is that the AO should have reason to believe that income has escaped assessment and nothing more--It is not necessary that assessment should have been finalised under Section 143(3) before it can be reopened--This is also clear from the language of the proviso to Section 147--It is the petitioner's own case as mentioned in its representation to the respondent that the assessment for the relevant year was completed vide intimation under Section 143(1) and even an appeal was filed thereagainst--Therefore, it cannot be said that assessment was not made--Intimation under Section 143(1) operates as an order of assessment unless the authority proceeds to give notice under Section 143(2) and passes an order under Section 143(3)--Impugned notice having been given almost a year before the date on which an order could be passed under Section 1.43(3), no prejudice has been caused to the petitioner--It is also not contended that the reasons for reopening were not relevant---Therefore, notice under Section 147/148 is not vitiated merely for the reason that a notice under Section 143(2) had not been issued to the petitioner."
2.5 Relying upon the following decisions :
(i) Decision of apex Court in the case of ALA Firm v. CIT (1991) 189 ITR 285 (SC);
(ii) Decision of Andhra Pradesh High Court in the case of CIT v. Novapan India Ltd. (1999) 236 ITR 746. (AP);
(iii) Decision of Bombay High Court in the case of Kotumal Ghanshyamdas v. CIT (1995) 214 ITR 629 (Bom);
the CIT(A) held that reopening made to implement the law as clarified by the Hon'ble High Court/Supreme Court is also termed to be an information and so it cannot be said that no new information came to the knowledge of the AO. He further observed that this plea of the assessee that due to the orders of the CIT(A) and the Tribunal passed in favour of the assessee while allowing the appeals of the assessee against processing of assessment under Section 143(1)(a), the reopening cannot be done as this issue has become final has no merits because in those orders, it was held that the disallowance made by the AO cannot be made under Section 143(1)(a) without affording an opportunity to the assessee but in view of the law laid down by the jurisdictional High Court in the case of Development Officers that the incentive bonus received by them was taxable and the additional conveyance allowance was exempt up to the extent of the amount certified by the DDO, the action of the AO in reopening the assessment under Section 147/148 of the Act was as per law. He further observed that the judgment of the Tribunal cannot be said to be final in as far as the disallowance of these items cannot be made under Section 143(1)(a) of the Act but the allowability or disallowability of these allowances would certainly be considered under Section 143(3). He further observed that as far as the merits of the case are concerned, the assessment of the assessee for the asst. yr. 1993-94 was completed under Section 143(3) of the Act by disallowing the claim of rebate from incentive bonus and of additional conveyance allowance in excess of the certified amount by the DDO and the same has been confirmed by the Tribunal, Chandigarh Bench by placing reliance in the case of CIT v. H.S. Sandhu (supra) and in the case of CIT v. Chaman Lal Chandhok (2000) 241 ITR 442 (P&H). Thereafter, the CIT(A) after placing reliance on the decision of the Tribunal passed in asst. yr. 1993-94 and on the decision of the jurisdictional High Court in the case of B.M. Parmar v. CIT (supra), and on the cases (supra) referred to in his order, came to the conclusion that the AO has rightly reopened the assessment under Section 147/148 of the Act and has rightly disallowed the rebate from the receipt of incentive bonus and has rightly allowed the additional conveyance allowance only to the extent of the amount certified to have been incurred in discharge of the duties by the DDO while passing an order on merits under Section 143(3).
2.6 Aggrieved with the order of the CIT(A), the assessee is now in appeal before us. The assessee has filed written submissions and advanced oral arguments and conceded to the extent that as per the decision of the jurisdictional High Court of Punjab & Haryana in the case of Punjab Tractors Ltd. v. Jt. CIT (supra), intimation under Section 143(1) operates as an order of assessment unless the authority proceeds to give notice under Section 143(2) and passes an order under Section 143(3). He further conceded in his written submissions that in the normal course, the processing under Section 143(1) may not be a bar to operation of Section 148 of the Act but the grievance of the assessee projected before us by the learned Authorised Representative for the assessee is on the issue that since the same items were already added to the returned income by the AO and the matter was pending before the Tribunal in appeal of the Revenue, as on the date of reopening of the assessment, so the items on the basis of which the opinion was formed by the AO, was neither hidden nor passed unnoticed and so it was not the case of escaped assessment and so reopening of the assessment by the AO was neither legal nor justified.
2.7 Learned Departmental Representative for the Revenue contesting the arguments advanced by the learned Authorised Representative for the assessee submitted that as these assessments were reopened by the AO for deciding the same on merits by passing an order under Section 143(3), so the orders passed under Section 143(1)(a) or the orders passed by the CIT(A) reversing those orders of the AO or pendency of the appeals against the orders of the CIT(A) before the Tribunal is not a bar for deciding the claims of the assessee on merits by reopening the assessment under Section 147/148 and by passing an order under Section 143(3) of the Act on merits.
2.8 We find force in the contention of the learned Departmental Representative for the Revenue that pending appellate proceedings against the order passed by the AO under Section 1.43(1)(a) was not a bar for the operation of Section 148 of the Act because the CIT(A) in his order has mentioned that without affording an opportunity to the assessee, no disallowance of the items involved in the instant case of the assessee, can be made under Section 143(1) of the Act which means that the AO in appropriate circumstances, could have made the disallowance after affording an opportunity of being heard to the assessee by reopening the assessment under Section 147/148 and passing an order under Section 143(3) on merits after affording reasonable opportunity of being heard to the assessee. Now merely because the Revenue's appeal against the order of the CIT(A) was pending before the Tribunal, so it cannot be a bar for reopening of the assessment by the AO in view of the orders passed by the CIT(A) because he was not again disallowing the claims of the assessee by passing an order under Section 143(1) but was deciding the claim of the assessee on merits after reopening the assessment under Section 147/148 of the Act by passing an order under Section 143(3) of the Act. The Tribunal asked the assessee to give any case law in support of his contention but the learned Authorised Representative for the assessee was fair enough to concede that on this point, there is no case law in his favour. Hence, we are of the opinion that this argument of the learned Authorised Representative for the assessee has no force and accordingly the same is rejected.
2.8A Now, the next issue requires to be resolved by us is whether the reopening of the assessment by the AO under Section 147/148 is valid or not. 2.9 We have already given a finding in this order that the orders passed under Section 143(1)(a) of the Act by the AO or the orders passed by the CIT(A) reversing those orders of the AO or the pendency of the appeals against the orders of the CIT(A) before the Tribunal, is not a bar for deciding the claims of the assessee on merits by reopening the assessment under Section 147/148 of the Act by passing an order under Section 143(3) of the Act, after affording an opportunity of being heard to the assessee.
2.10 Now, we proceed to decide the next issue as to whether in the existing facts and circumstances of the cases of the assessee, the reopening of the assessments by the AO under Section 147/148 of the Act and passing an order under Section 14.3(3) of the Act is valid or not. In the instant case, the assessment for the relevant assessment year was reopened by the AO under Section 143(1)(a) admitting the claim of the assessee in respect of incentive bonus and additional conveyance allowance. Later on, after reopening the assessment, the AO disallowed the claim of rebate from incentive bonus and additional conveyance allowance in excess of the certified amount by the DDO of LIC of India, by placing reliance on the decisions of the jurisdictional High Court of Punjab & Haryana delivered in the case of CIT v. B.M. Parmar (supra); in the case of CIT v. H.S. Sandhu (supra) and in the case of CIT v. Chaman Lal Chandhok (supra).
2.11 Upon reading of Section 147 of the Act, we find that in view of the Expln. 2(c)(i), wherein it has been clearly mentioned that where the income chargeable to tax has been underassessed, it will be deemed to be a case where income chargeable to tax has escaped assessment. In the instant cases, this fact that income chargeable to tax has escaped assessment, came to the knowledge of the AO when the jurisdictional High Court of Punjab & Haryana in the cases (supra) held that the incentive bonus is assessable under the head 'salary' and not tinder the head 'profits and gains of business or profession' and therefore, deduction under Section 16(1) of the Act is admissible under the head 'salary' and no separate deduction on account of expenditure is permissible and that deduction claimed by the Development Officer of LIC of India in respect of the additional conveyance allowance is only allowable to the assessee to the extent of the amount certified to have been incurred by the Development Officer in discharge of his duties, by the DDO of LIC of India. These decisions of the jurisdictional High Court of Punjab & Haryana were binding on the AO and were the law for the AO working under the jurisdiction of Punjab & Haryana. It was this knowledge and information which led to the formation of the belief of the AO that the income of the assessee has been underassessed and so as per Expln. 2(c)(i) of Section 147 of the Act, the income of the assessee has escaped assessment and hence, we are of the opinion that as per provisions of Section 147/148 of the Act, the assessment reopened by the AO and the additions made by framing the assessment under Section 147 r/w Section 143(3) was valid and legal, as it was based on the decisions (supra) of the jurisdictional High Court of Punjab & Haryana on the basis of which the claim already allowed by the AO under Section 143(1)(a) of the Act was required to be disallowed by the AO by reopening the assessment under Section 147 and by passing an order under Section 147 r/w Section 143(3) of the Act.
2.12 For the reasons stated above, the well-reasoned and well-discussed impugned orders of the CIT(A) are upheld and the grounds of appeals taken by the assessee in his respective appeals are rejected.
3. In the result, all the five appeals filed by the assessee are dismissed.