TMI Blog2007 (4) TMI 397X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Without prejudice to the forgoing grounds of appeal, on the facts and in circumstances of the case, learned Commissioner of Income-tax erred in setting aside the assessment ignoring the fact that all the issues regarding gross profit ratios were duly examined in the course of assessment proceedings." 2. We set out the material facts first. The assessee is a partnership firm and is engaged in the business of trading in Iron Angles, Beams, Squares, MS Sheets, Iron Scrap. The assessment was completed under section 143(3) of the Act on 14th February, 2000 determining a taxable income of Rs. 7,83,530. This assessment was, however, reopened by the Assessing Officer by issuing a notice under section 148 of the Act, on 15th March, 2002. In the reassessment proceedings which followed, the Assessing Officer was satisfied by the submissions of the assessee to the effect that the objections raised are incorrect and that no addition is warranted. The assessment was accordingly retained at Rs. 7,83,530, though, even to retain the assessment at this original figure, a separate assessment order under section 143(3) read with section 147 was passed on 28th August, 2002. The ordeal of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee regarding the fall in G.P. ( i.e., gross profit) is not acceptable. It is also noticed that the assessee has not recorded full sales made during the year under consideration for our verification. This issue needs to be examined further. I, therefore, set aside the assessment order under section 263 of the Income-tax Act, and direct the Assessing Officer to re-examine the above issues in accordance with the law." Aggrieved by the order so passed by the Commissioner, the assessee is in appeal before us. 4. Shri K. Gopal, learned counsel for the assessee, submits that the impugned order is time-barred. It is submitted that so far the issue of the gross profit is concerned, it was addressed in the original assessment proceedings and which stood concluded by the virtue of Assessing Officer s dated 14th February, 2000. It is pointed out that the reassessment proceedings were confined only on the two issues of ( a ) non-disclosure of income on account of unaccounted stock of Rs. 10,88,638; and ( b ) deductibility of salaries of Rs. 2,16,000 paid to the partners. On both of these issues, the Assessing Officer was satisfied that no addition was called for. We were taken th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... account for computing the limitation period for exercise of reversionary powers of the Commissioner. Viewed in this perspective, and computing the time-limit from the date of original assessment, the Commissioner could not have revised the assessment after the expiry of two years from the end of the assessment year in which the assessment order was passed. The time-barring limit thus came into play on 31st March, 2002. For this reason also, according to learned counsel, the exercise of reversionary powers by the Commissioner are unsustainable in law. On the basis of these arguments, we are urged to quash the order passed by the Commissioner. On the other hand, Mrs. Srivastava, learned Senior Departmental Representative, vehemently supported the impugned order passed by the Commissioner. It was submitted that once an assessment order under section 147 read with section 143(3) is passed, and that order exists in the eyes of the law, the time-limit for exercise of Commissioner s powers under section 263 has to be computed with reference to the reassessment order. The original assessment order, according to the learned counsel, ceases to exists in the eyes of the law, and it is only th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at aspect we will take up a little later. As regards the validity of the reassessment order, in the light of the law laid by Hon ble Supreme Court in the case of GKN Driveshafts India Ltd. v. ITO [2003] 259 ITR 19, the Assessing Officer was under an obligation to furnish the reasons for reopening and to meet all objections thereto. In the present case when the Assessing Officer was satisfied that no income actually escaped assessment on account of the point raised in the reassessment notice, even remission of the matter to the Assessing Officer is not needed. The verdict is already given by the Assessing Officer, and the objections raised by the assessee are already accepted. Only if the Assessing Officer had followed the methodology laid down by the Hon ble Supreme Court, he had to drop the proceedings at the notice stage instead of de facto dropping the reassessment proceedings by adopting the same income as was finalized in the original assessment proceedings. The reassessment was only in form and not in substance, and, as we have stated above, it could not have been even in the form if the law laid down by the Hon ble Supreme Court was followed. The very reassessment wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings is glaring and easily discernible from the following observations made by the Assessing Officer in the said order : "The assessment was reopened vide issuance of notice under section 148, dated 15th March, 2002, due to an audit query . . . . Notices under sections 143(2) and 142(1) were issued on 8-8-2002. In response to the above notices, Shri Ajay Sekhri, CA attended and furnished various explanations/details called for and the case was discussed. ** ** ** During the re-assessment proceedings the query raised by Audit was verified and found that the assessee had complied with his declaration made during survey under section 133A and the taxes have been paid.... ** ** ** The assessee s submissions were verified from the records and enclosures to the return of income filed on 21-10-1997. It is explained during the re-assessment proceedings that the additional stock of Rs. 10,88,638 was offered and included in stock details in Annexure D filed along with return of income. The assessee has also filed copy of addendum to the partnership deed entered on 1-4-1996 which is on stamp paper. Considering ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuance of any of the provisions of the Income-tax Act shall be invalid, or shall be deemed to be invalid, merely by the reason of any mistake, defect or omission in the proceedings if such proceeding is "in substance and effect in conformity with or according to the intent and purpose of this Act". It would thus follow that what is to be really looked at is the substance and not the form alone, and that legal rights of the parties are to be settled as per substance of the proceedings irrespective of whatever nomenclature is assigned to the proceedings. This approach to interpretation of the Income-tax Act, which is embedded in the Act itself by the virtue of a specific provision to that effect, cannot be a one way traffic and merely operate in favour of the revenue. A fair and reasonable approach to interpretation of the Act requires the same equity to be read into provisions of the Act, in favour of the assessee. Seen in this right, what is termed as a reassessment order is really required to be viewed as an order dropping the reassessment proceedings. The assessee could not have been aggrieved of this order per se because it did not prejudice the assessee at that stage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i.e., raise an academic question about validity of reassessment proceedings when no additions are made to his income in the course of such reassessment proceedings. The time-limit for exercise of Commissioner s powers, therefore, must be computed with reference to the assessment order passed on 14th February, 2000. 8. We would arrive at this very destination even if we were to traverse along a different dialectic. Let us analyze these facts from another perspective. In order to exercise powers under section 263, two conditions are to be satisfied - first, the order sought to be revised should be erroneous; and - second, that the order sought to be revised should be prejudicial to the interest of the revenue. An order in accordance with the law can obviously not be said to be erroneous. Now, the fundamental question then arises whether the Assessing Officer could have, during the course of reassessment proceedings, made an addition for lower gross profit at all. If he could not have done so under the reassessment proceedings in question, and has not therefore done so, his action cannot be said to be erroneous - which is the fundamental condition for assume-ption of jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X
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