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2009 (8) TMI 971

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..... as well as materials and evidence on record, for both the assessment years. Under these circumstances, in the interest of justice, we set aside the order of the Income-tax Appellate Tribunal with a direction to re-hear and decide these appeals afresh after giving opportunity to both the parties to raise all the contentions and produce materials and evidence, if any, to support their contention and pass orders in accordance with law, as early as possible. In view of the above directions of the hon ble Madras High Court, all the above appeals were posted for hearing again. The brief facts of the case are that on examination of the assessment records, the Commissioner of Income-tax was of the view that the assessment order was erroneous and prejudicial to the interest of the Revenue due to the reason that the amount of US $ 1 lakh and the value of Mercedes Benz amounting to Rs. 8,10,104 received by the assessee from M/s. Chesebrough Pond s Inc., USA (for short CPI ), were considered to be assessed for the assessment year 1987-88. The Commissioner of Income-tax further found that CPI was owning controlling interest of the company known as Ponds (India) Ltd., (for short PIL ) and after .....

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..... oyees and also to dismiss them. 9. It is also seen that in this capacity, the foreign company has also given him loans and other necessary advances. The foreign company has specifically advanced monies to him to obtain accommodation having status of the head of its representative office . In accordance with this scheme, the company provided costly foreign car and other facilities filling the status of the representative of the company. 10. The full details of these transactions are detailed in the assessment order for the year 1988-89. 11. From the above, it is clear that (1) There was a employeremployee relationship between Shri Narayanan and the foreign company, (2) Shri Narayanan had rendered services to the foreign company, (3) He was the power of attorney agent and representative of the company for he was required by the foreign company to maintain an office suiting its status. 12. He now performs the work as the head of the local office of the company. He was reporting to the foreign company about its affairs in India and its investments and taking instructions from them. 13. Lastly, there was a written contract between the assessee and the foreign company for all the above. .....

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..... arithmetical adjustments and nothing more. His second limb of argument was that under section 153, the assessment order cannot be passed after the lapse of two years from the end of the relevant assessment year. Therefore, even if it is argued that order was erroneous and the Assessing Officer was required to pass an order under section 143(3), such order should have been passed even before March 31, 1990, which is not possible, because revisionary order itself has been passed on March 22, 1991. This means that by this date, no assessment order could have been passed under section 143(3) of the Act. The learned Departmental representative, on the other hand, referred to the provisions of section 143 at the relevant point of time and pointed out that even if an order is passed under sub-section (1) of section 143, wherever the Income-tax Officer considers it necessary or to verify the correctness and completeness of the return, he could pass the assessment order after requiring the presence of the assessee under section 143(3). He argued that details regarding remittance were available because the assessee has shown interest income of such deposits then the Assessing Officer should .....

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..... y, he shall, (i) rectify any arithmetical errors in the return, accounts and documents, referred to in clause (a) …….. (iv) give due effect to the allowance referred to in sub-section (2) of section 32, the deduction referred to in clause (ii) of sub-section (3) of section 32A or clause (ii) of sub-section (2) of section 33 or clause (ii) of sub-section (2) of section 33A or clause (i) of sub-section (2) of section 35 or sub-section (1) of section 35A or sub-section (1) of section 35D or sub-section (1) of section 35E or the first proviso to clause (ix) of sub-section (1) of section 36, any loss carried forward under sub-section (1) of section 72 or sub-section (2) of section 73 or subsection (1) or sub-section (3) of section 74 or sub-section (3) of section 74A and the deficiency referred to in sub-section (3) of section 80J, as computed, in each case, in the regular assessment, if any, for the earlier assessment year or years. (2) Where a return has been made under section 139, and (a) an assessment having been made under sub-section (1), the assessee makes within one month from the date of service of the notice of demand issued in consequence of such assessment, an .....

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..... error committed by the Assessing Officer and, therefore, the order passed under section 143(1) of the Income-tax Act is erroneous. However, at the same time, we find force in the second limb of the argument made by learned counsel for the assessee. Section 153 of the Act prescribes timelimit for completion of assessment. This section reads as under : 153. (1) No order of assessment shall be made under section 143 or section 144 at any time after (a) the expiry of (i) four years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or before the 1st day of April, 1967; (ii) three years from the end of the assessment year in which the income was first assessable, where such assessment year is the assessment year commencing on the 1st day of April, 1968 ; (iii) two years from the end of the assessment year in which the income was first assessable where such assessment year is an assessment year commencing on or after the 1st day of April, 1969 ; or A perusal of clause (iii) which is applicable to the assessment commencing after April 1, 1969 makes it clear that no order could have been passed under .....

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..... ddition amounting to Rs. 13,06,762. Since we have already annulled the assessment order passed under section 143(3) in pursuance of the order passed under section 263, this demand would automatically get nullified and there is no case for levy of penalty. Hence, consequent upon our order in I. T. A. No. 1956/Mds/93 above, the penalty stands deleted. Accordingly, we set aside the order of the Assessing Officer and delete the penalty. This appeal of the assessee is allowed. I. T. A. No. 1957/Mds/93 : The only issue for consideration in this appeal is whether the Commissioner of Income-tax (Appeals) is justified in confirming the addition of Rs. 9 lakhs made by the Assessing Officer being the value of Mercedes Benz car, as income of the assessee. After hearing both the parties we find that during the assessment proceedings the Assessing Officer noticed that the assessee has been given a Mercedes Benz car by CPI. Therefore, a show-cause notice was issued to explain why the value of this car should not be added to the income of the assessee. It was mainly argued as under : (i) that CPI had imported the car subject to the non-transferability of the same for a period of 5 years. (ii) that .....

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..... 142 ITR 826 (Delhi). The Commissioner Income-tax (Appeals) has confirmed the addition. He has observed that in so far as the query of Department of Company Affairs, Ministry of Industries, Government of India under No. F. No. 14/5/88 that for whose sake car was imported when independent representative office of CPI neither had any employees nor any business. Some reply was given but later it was withdrawn. Accordingly to the Commissioner of Income-tax (Appeals) this clearly shows that the car was mainly used by the assessee and was meant for him. He after going through the case law in detail, confirmed the addition. Before us, learned counsel for the assessee raised no argument in respect of taxability of the value of the car in the hands of the assessee. However, he objected to the value being taken at Rs. 9 lakhs. He submitted that when the car was imported only for Rs. 2,18,170 and import duty paid was Rs. 5,90,934 in the year 1984 and car must have undergone wear and tear by the time it was transferred to the assessee during the relevant assessment year, only the depreciated value of the car should have been taken as income of the assessee. The learned Departmental representati .....

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..... ve a difference of opinion, so not only I differ on the finding but also on final conclusion as drawn by the learned Accountant Member and my reasons are as under : It is an accepted fact that the assessment order under section 143(1) has been passed by the Assessing Officer on January 27, 1989 and revisional order in this case has undisputedly been passed on March 22, 1991 by the Commissioner of Income-tax for the assessment year under consideration, which order is within the time-limit as prescribed under section 263(2) and as regards, the second limb of argument of the assessee that time-limitation provided under section 153(1)(a) would come in the way of the learned Commissioner of Income-tax to pass an order under section 263 is found to be not correct because the provisions of section 153(1)(a) and those of section 263 are independent provisions, which have been invoked by two independent authorities, viz., the Assessing Officer and the learned Commissioner of Income-tax and the periods of limitation for exercise of powers by two independent authorities have been specified in the Act itself and as per the decision of the hon ble Calcutta High Court in the case of B.C. Nawn an .....

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..... sions of law and dictum as laid down by the hon ble Calcutta High Court, which is direct on the point, it is held that the order of the Assessing Officer passed under section 143(1) could be validly revised by the learned Commissioner of Income-tax while invoking the provisions of section 263 and time-limit provided under section 153(1)(a)(iii) could not come in his way in passing such order when separate time-limit is provided under section 263(2) and the impugned order has been passed within such time-limit provided. As such, the impugned order, which is liable to be upheld is confirmed and the appeal of the assessee, gets dismissed. As regards in I. T. A. No. 1956/Mds/1993, the learned Commissioner of Income-tax, consequent upon setting aside the orders of the Assessing Officer, while invoking the provision of section 263 restoring the matter to the file of the Assessing Officer, who after giving due opportunity has made an addition on account of remittance of US dollar 1,00,000 equivalent to Rs. 13,06,762 by CPI to the assessee which action of the Assessing Officer came to be confirmed by the learned Commissioner of Income-tax against which the assessee is in appeal and no argu .....

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..... depositing the due amount of advance tax on relevant dates, I do not find any ground to interfere in the impugned order, which is upheld and this appeal of the assessee is also dismissed. Order of reference to Third Member I. T. A. No. 1245/Mds/91, I. T. A. No. 1956/Mds/93 and I. T. A. No. 709/ Mds/94 As there is difference of opinion between the Members constituting the Bench, the following question is formulated and referred for nominating the Third Member : (i) Whether, the time-limit provided under section 153(1)(a) could come in the way of the Commissioner, while passing order under section 263 to set aside the order passed under section 143(1), having been held to be erroneous and prejudicial to the interests of the Revenue, to restore the matter back to the file of the Assessing Officer for making it afresh in terms of directions issued, when separate timelimit is provided under section 263(2) or not ? If not, whether the consequential assessment order and penalty order passed and confirmed by the first appellate authority and further challenged in I.T.A. No. 1956/Mds/93 and I. T. A. No. 709/Mds/94 respectively are liable to be confirmed or not ? Order of Third Member R. V. .....

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..... ssee was holding power of attorney for the American company authorising him to do several acts on its behalf and that he had the status of the head of its representative office in India and therefore, there was employer-employee relationship between the assessee and the foreign company, that he was looking after the investments of the American company and was also taking instructions from it and that in these circumstances the Indian rupee equivalent of US dollar 1 lakh and the value of the car were assessable as the assessee s income. The Commissioner of Income-tax thus held that the Assessing Officer not having taxed the amounts as the income of the assessee, the assessment order passed on January 27, 1989 under section 143(1) of the Act was erroneous and prejudicial to the Revenue. In this view of the matter he set aside the assessment and directed the Assessing Officer to redo the same after giving the assessee a reasonable opportunity of being heard in accordance with law. This order of the Commissioner of Income-tax was passed on March 22, 1991 and it is this order against which the assessee has filed an appeal to the Tribunal in I. T. A. No. 1245/Mds/1991. Pursuant to the or .....

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..... he above clause authorised the Assessing Officer to verify the correctness and completeness of the return by requiring the presence of the assessee or production of evidence, even after completion of the assessment under sub-section (1)(a), and for this purpose he was authorised to serve a notice on the assessee. According to the learned Accountant Member the Commissioner of Income-tax could consider the failure on the part of the Assessing Officer to issue such a notice to the assessee to be an error to the prejudicial of the interests of the Revenue and could take corrective action under section 263. The learned Judicial Member in his order, has agreed with these two conclusions of the learned Accountant Member. I may now refer to the precise point on which both the learned Members have differed. According to the learned Accountant Member the Assessing Officer has to complete the assessment within two years from the end of the assessment year in which the income is assessable as per section 153(1)(a)(iii) of the Act. For the assessment year 1987-88, the assessment ought to be completed on or before March 31, 1990. The Commissioner of Income-tax has passed the order under section .....

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..... as got no legs to stand and accordingly deleted the same, whereas the learned Judicial Member held that counsel for the assessee was unable to point out any reasonable cause for not revising the estimate of advance tax upwardly and accordingly upheld the penalty. I have heard both the sides elaborately. As regards the question as to whether the assessment order passed under section 143(1)(a) on January 27, 1989 can be held to be erroneous and prejudicial to the interests of the Revenue, both the learned Members are in agreement that it cannot be so held because section 143(1)(b) permits only certain arithmetical adjustments and adjustments for brought forward allowances to be made while making the assessment and that the taxability of the amount received from the US company and the value of the Benz car cannot fall in the category of those adjustments. They have also agreed that the failure to make an enquiry by the Assessing Officer under section 143(2)(b) is an error committed by the Assessing Officer which could be rectified by the Commissioner of Income-tax under section 263. The point of difference arises only with regard to the question whether the Commissioner of Income-tax .....

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..... since that date has elapsed when the Commissioner of Income-tax passed the order it is not possible to either issue such a notice or make an assessment under section 143(3). The position might have been different, as pointed out on behalf of the assessee, had the assessment been completed by the Assessing Officer in the first place under section 143(3) after issue of a notice under section 143(2). In that case, it was admitted on behalf of the assessee that the Assessing Officer can be directed by the Commissioner of Income-tax to make a fresh assessment, after setting aside the earlier assessment made under section 143(3) on the ground of error and prejudice to the interests of the Revenue. I am able to appreciate the difference between the two situations. In the present case the direction of the Commissioner of Income-tax to the Assessing Officer to redo the assessment is, with respect, contrary to the provisions of sections 143(2), 143(3) and section 153(1)(a) (iii). His direction would result in authorising the Assessing Officer to issue the notice under section 143(2) after the time-limit for making the assessment has expired and would also authorise the Assessing Officer to .....

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..... ground of limitation. This sub-section, in my humble opinion cannot apply to the present case because here it is not a mere question of the time-limit within which the fresh assessment order should be made, but it is a question of jurisdiction and power of the Assessing Officer to make the fresh assessment order under section 143(3), for which a notice under section 143(2) ought to have been issued on or before March 31, 1990. As noticed earlier, had such a notice been issued on or before the said date, the direction of the Commissioner of Income-tax to the Assessing Officer to make a fresh assessment cannot be challenged. Section 153(2A) cannot confer jurisdiction upon the Assessing Officer where it did not exist before the passing of the order under section 263. It merely removes the bar of limitation, but it does not confer jurisdiction or authority on the Assessing Officer which did not exist in him prior to passing of the order under section 263. I am therefore unable to accept this submission of the learned Commissioner of Income-tax-Departmental representative. I will now turn to the view expressed by the learned Judicial Member on the basis of the judgment of the Calcutta .....

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..... ected by the High Court holding that there is no merger and therefore the order of the Commissioner of Income-tax cannot be said to have been passed beyond the period of limitation. It was in this context that it was observed by the High Court that section 263(2) prescribes an independent period of limitation within which the Commissioner of Income-tax has to pass the order and it is that period of limitation which would apply and not the period for making an assessment. No such contention, that is to say, that the assessment order merged with the order of the Commissioner of Income-tax and since the Commissioner of Income-tax passed the order on March 22, 1991 it was beyond the period of limitation was advanced before me on behalf of the assessee. If I may say so with respect, no such contention would appear to have been advanced before the Bench which heard the appeal. It is in this context that I venture to say that the judgment of the Calcutta High Court is not apposite to the present case. For the aforesaid reasons, I agree with the learned Accountant Member that the order of the Commissioner of Income-tax passed under section 263 requires to be set aside. In this view of the .....

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