2014 (5) TMI 895 - HC - Income Tax

Validity of assessment Bar of section 150(2) of the Act - Whether reopening of the assessment for the AY 1996-97 by the notice dated 10th June 2010 was barred by Subsection (2) of Section 150 of the Act Held that - Relying upon ITO Vs Eastern Coal Co. Ltd. 1973 (12) TMI 32 - CALCUTTA High Court - a notice would become barred even u/s 150(1) if on the date of the appellate order the time for taking action for assessment for that year had become barred by the other provisions of the Act - The correct date in this connection would be the date when the order which is the subject-matter of the appeal was passed - If on that date the reassessment proceedings could have been validly taken then because of subsequent lapse of time the said reassessment proceedings do not become barred by time - the reassessment of the escaped income of the assessment year 1996-97 without any express finding or direction can be made under Explanation (2) to Section 153 (3) and in a case where no express finding or direction is there like the one in the order dated 12th August 2002 the reassessment could be made u/s 153 (3) (ii) Decided in favour of revenue. The assessee is deemed to have accepted the finding or direction that thus closing stock value of work in progress will necessarily be enhanced in the preceding year i.e. AY 1996-97 - Relying upon Hope (India) Ltd. Vs. CIT reported in 1990 (11) TMI 12 - CALCUTTA High Court - the Explanation to section 153 clearly provides that in any case where income is excluded in appeal reference or revision or in any other legal proceeding from the assessment for any year an assessment of such income for another assessment year shall be deemed to be one made in consequence of or to give effect to any finding or direction by the authority hearing the case - This fiction of law removes the bar of limitation irrespective of the question whether the authority has in fact given or can in law give a finding or direction that the income should be taxed in a specified assessment year other than the year for which the authority hears the case - if any income from an assessment by a higher forum on the ground that it is not the income of that year the Income-tax Officer has jurisdiction to initiate proceedings u/s 147 to assess it as the income of another year without any limitation applying to the issue of the notice u/s 148 or to the completion of the assessment or reassessment Decided in favour of Revenue.

Summary

Issues Involved:
1. Valuation of closing stock without corresponding revaluation of opening stock.
2. Legality of reopening the assessment for the assessment year 1996-97.
3. Whether the reassessment was barred by limitation under Section 150(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Valuation of Closing Stock Without Corresponding Revaluation of Opening Stock:
The Assessing Officer (AO) initially added Rs. 63,23,501/- to the income of the assessee by revaluing the closing stock without considering the opening stock. The assessee argued that if the closing stock is revalued, the opening stock must also be revalued. The AO rejected this argument, stating that the assessee had been following an erroneous method of accounting. The CIT (Appeal) later accepted the assessee's contention and directed that the opening stock for the assessment year 1997-98 should be revised, which necessitated a corresponding revision of the closing stock for the assessment year 1996-97. The Tribunal upheld this view, directing the AO to consider the opening stock revaluation for the assessment year 1997-98 and the corresponding closing stock for 1996-97.

2. Legality of Reopening the Assessment for the Assessment Year 1996-97:
The AO issued a notice under Section 148 to reopen the assessment for the year 1996-97 based on the Tribunal's direction. The assessee challenged the reopening, arguing it was barred by limitation under Section 150(2). The CIT (Appeal) and the Tribunal held that the reopening was barred by limitation, as the reassessment proceedings for the year 1996-97 could not have been initiated on the date of the Tribunal's order due to the lapse of the statutory period.

3. Whether the Reassessment Was Barred by Limitation Under Section 150(2):
The Tribunal's direction to revalue the closing stock of 1996-97 was issued on 12th August 2002, and the notice under Section 148 was issued on 10th June 2010. The CIT (Appeal) and the Tribunal found this to be barred by limitation under Section 150(2), which restricts reopening assessments if the reassessment proceedings had become time-barred by the time the order was passed. The High Court examined whether the reassessment was lawful and whether the limitation period under Section 150(2) applied. The Court noted that the reassessment could be made under Explanation 2 to Section 153(3), which allows reassessment of income excluded from one year to be included in another year, thus overriding the limitation period.

Conclusion:
The High Court upheld the AO's action to revalue the closing stock for the assessment year 1996-97, stating that the reassessment was not barred by limitation under Section 150(2). The assessee's contention that the reassessment was time-barred was rejected. The Court emphasized that the assessee could not challenge the legality of the revaluation order after having benefited from it for the assessment year 1997-98. The appeal by the Revenue was allowed, and the cross-objection by the assessee was dismissed.