2005 (1) TMI 590 - AT - Income Tax

Summary

Issues Involved:
1. Deletion of additions made under section 41(1) of the I.T. Act, 1961.
2. Whether the orders passed under section 256/143(3) were barred by limitation.

Issue-wise Detailed Analysis:

1. Deletion of Additions Made Under Section 41(1) of the I.T. Act, 1961:

The assessee company had transferred its cement factories in Pakistan to a Pakistani vendee post-partition. During the accounting years 1959-60 to 1961-62, the company purchased coke and hard coke worth Rs. 13,52,952 but paid only Rs. 5,11,438, leaving a balance of Rs. 8,46,529 as a liability. This liability was not adjusted in the books for the assessment year 1974-75. The CIT(A) initially upheld the cessation of liability under section 41(1) but restored the issue for verification of whether an allowance or deduction had been availed of in earlier assessments. The Tribunal upheld the CIT(A)'s view and directed the ITO to ascertain the allowance or deduction in earlier years. The Assessing Officer, unable to verify due to lack of records, brought the amount to tax under section 41(1). The CIT(A) later deleted the addition, citing the Department's failure to discharge the onus of proving the allowance or deduction in earlier years, referencing the Delhi High Court decision in Steel & General Mills Co. Ltd. v. CIT.

2. Whether the Orders Passed Under Section 256/143(3) Were Barred by Limitation:

The Tribunal had set aside the assessments for verification, but the Assessing Officer delayed the verification process for over ten years. The CIT(A) held that the orders were barred by limitation under section 153(2A) of the Act, which mandates a two-year period for completing fresh assessments following an appellate order. The CIT(A) interpreted that the case fell under section 153(2A) rather than section 153(3), which deals with assessments made in consequence of appellate orders without a specific time limit. The Tribunal concurred, noting that sub-section (2A) takes precedence over sub-section (3) due to its non obstante clause, thus requiring adherence to the two-year limitation. The Department's reliance on earlier cases was deemed inapplicable as they predated the insertion of sub-section (2A). Consequently, the Tribunal annulled the fresh assessments as barred by limitation, rendering further merit-based discussion unnecessary.

Separate Judgment by N.K. Karhail, Judicial Member:

N.K. Karhail agreed with the final conclusion but provided a separate analysis. He emphasized that the appellate authority's directions required the Assessing Officer to verify specific facts, thus falling under section 153(3)(ii), which allows assessments at any time. However, he noted that even without a statutory time limit, actions must occur within a reasonable period. The Assessing Officer's 16-year delay was deemed unreasonable, rendering the orders legally unsustainable. Thus, he concurred with dismissing the revenue's appeals.