TMI Blog2011 (3) TMI 589X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appellate Tribunal was right in law in holding that the reopening of the assessment under Section 147 and completion of assessment without issue of notice under Section 43(2) within 12 months is not valid? (ii) Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in law in holding that non-furnishing of the copies of the reasons by the Assessing Officer for reopening the case under Section 147, even though the assessee has not applied for certified copies of the reasons recorded by the Assessing Officer and paying the necessary charges is valid? 2. Even though T.C.Nos.672 to 675 of 2009 were filed along with T.C.Nos.886 to 889 of 2005, they got numbered long after the admission of T.C.Nos.886 to 889 of 2005 and are yet to be admitted. As the issues arise out of the common order of the Tribunal dated 18.08.2004 relating to the assessee and other co-owners and the learned counsel appearing for the assessee in the above said appeals are one and the same, these appeals are formally admitted on the questions of law raised as above. 3. T.C.Nos.672 to 675 of 2009 relate to assessment years 1996-97, 1993-94, 1994-95 and 1995- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment years, the assessee admitted his net share income from the said property under the head "income from house property" based on the consolidated profit and loss account maintained by the co-owners in respect of the said building, year after year. One of the major items of expenditure appearing in the building account was "interest on borrowed capital". The original assessment in respect of the assessment years 1989-90 to 1996-97 was completed, accepting the returned income, thereby the claim for deduction under Section 24(vi) of the Income Tax Act (hereinafter referred to as 'the Act') on the proportionate share of interest payable on the capital borrowed from numerous parties aggregating Rs.1,78,09,878.91 towards the cost of construction of the building Kannammai Buildings was granted to the assessee. However, on information coming to his possession that the cost of construction of the building was about Rs.60,00,000/- in 1965, carried on entirely through borrowed funds and that the co-owners had withdrawn huge amounts of the borrowed funds for purposes other than for payment of creditors who lent money for the construction of the building, the Assessing Officer found that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion in the case of M.Chellappan and yet another co-owner, the Commissioner of Income Tax (Appeals) rejected the claim of the assessee as inadmissible. Like all other co-owners, the assessee preferred an appeal before the Income Tax Appellate Tribunal. In the course of the proceedings before the Tribunal as well as before the Commissioner of Income Tax (Appeals), the assessee took a specific objection as regards the limitation on reopening the assessment, apart from the Assessing Authority not furnishing the copies of the reasons recorded for reopening the assessment under Section 148 of the Act. As regards the non-furnishing of the copies of the reasons recorded for reopening of the case, in spite of the request made by the assessee, the Tribunal pointed out that as admitted by the Revenue, the Assessing Authority furnished the gist of the reasons recorded and not the entire reasons recorded by the Assessing Officer. The Revenue's contention that the assessee had to apply for certified copies along with the copying fee, however, was rejected by the Tribunal, since there was no confidentiality attached to the reasons recorded for reopening the case. Consequently, the Tribunal held t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er in Rupees Tax as per Revision Order giving effect to CIT(A) Order in Rupees Difference being the Tax Effect in Rupees (a) (b) ( C) (d) (e) (f) (g) 1 1996-1997 146970 31302 321110 100946 69644 2 1995-1996 106920 17578 264220 79190 61612 3 1994-1995 96770 16533 246290 85140 68607 4 1993-1994 79022 13106 190330 62196 49090 5 1992-1993 146795 55622 233350 103910 48288 6 1991-1992 144569 54373 190820 81771 27398 7 1990-1991 79842 22503 112540 37984 15481 8 1989-1990 62119 14803 100410 30928 16125 Considering the circulars issued by the Board setting the monetary limit for filing the appeal under Section 260-A of the Act, learned counsel appearing for the respondent submitted that the Department's appeals have to be, in limine, rejected. Secondly, this Court had alrea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to the return under Section 139 of the Act, and the Officer has to comply with the requirement under Section 143(2) and (3) of the Act as the case may be to issue notice thereon, yet, for the purpose of limitation, whatever might have been the relevancy of the limitation given under Section 143(2) of the Act which prescribes the period of six months or one year, as the case may be, to cases prior to the amendment, the retrospective amended limitation, as given under the proviso to Section 148 of the Act, alone has to be looked into; as such, limitation provided for under Section 143(2) of the Act has no relevance at all in the matter of assessments under Section 148 of the Act. In sum and substance, he submitted that the amended provisions under the proviso to Section 148(1) of the Act is exclusive to a case of escaped assessment or reassessment or recomputation under Section 148 of the Act. Considering the above-said aspects, the Tribunal is not correct in holding that the notice issued under Section 148 of the Act has to fail, by reason of the limitation prescribed under Section 143(2) of the Act. 11. He pointed out that that apart from the procedure to be followed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy in the language or to set right a mischief otherwise found in the Section. Apart from that, learned counsel for the assessee placed reliance on the decision of the Apex Court reported in [2007] 295 ITR 282 (SC ) (CIT Vs. Max India Ltd.), followed by the Karnataka High Court in the decision reported in [2010] 325 ITR 219 (KAR) (Shriram Chits (Bangalore) Limited Vs. The Joint Commissioner of Income-tax), that the amended provision cannot be made use of at the stage when an appeal under Section 260A of the Act is filed, to accept the claim of the Revenue that by reason of the amended provision, the limitation plea, as given under Section 143(1) of the Act, is not available. In any event, having regard to the finding of the Tribunal that the reasons for reopening of assessment were not given to the assessee and that the proceedings were not in conformity with Section 143(2) of the Act, the question of even saving the proceedings by referring to the proviso under Section 148 of the Act, does not arise. He further emphasized that going by the Board's circular, fixing the monetary limit for filing tax cases applicable herein, when the other co-owners' appeals were dismissed by this Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Act shall, so ar as may be, apply accordingly as if such return were a return required to be furnished under section 139: Provided that in a case -- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005 in response to a notice served under this Section, and (b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in sub-section (2) of section 153, every such notice preferred to in this clause shall be deemed to be a valid notice: Provided further that in a case -- (a) where a return has been furnished during the period commencing on the 1st day of October, 1991 and ending on the 30th day of September, 2005, in response to a notice served under this section, and (b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years 1989-90 to 1996-97. Thus a reading of Section 148 of the Act, along with the proviso, shows that while resorting to an assessment as an escaped assessment or a reassessment or a recomputation under Section 147 of the Act, when a notice is issued under Section 148 of the Act, requiring the assessee to file the revised return of his income or income of any other person in respect of which he is assessable under the Act during the previous year corresponding to the relevant assessment year in the prescribed form and verified in the prescribed manner and setting forth particulars as may be prescribed, then the return filed shall be treated as if such a return is one required to be filed under Section 139 of the Act, to follow the other provisions of the Act. Chapter XIV of the Act deals with the procedure for assessment. 18. Leaving aside the other provisions on the filing of the return and self-assessment which are not relevant for the purpose of our case, the next relevant provision herein is Section 143 of the Act, dealing with assessment. Where a return has been furnished under Section 139 of the Act or in response to a notice under Section 142(1) of the Act, in ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5, in response to a notice served under Section 148 of the Act and subsequently a notice has been served under Sub-Section (2) of Section 143 of the Act, but after the expiry of twelve months specified in the proviso to Sub Section (2) of Section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002), but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in Sub-Section (2) of Section 153 of the Act, every such notice issued is deemed to be a valid notice. The explanation appended therein pointed out to the limited scope of the newly inserted provisos that the same would not be available to a return filed on or after 1st day of October, 2005, in response to a notice served under Section 148 of the Act. Thus the substantive provision on limitation in a case of filing a return on a notice issued under Section 148 of the Act would be the one provided under the proviso to Section 148 and limitation available for making an assessment or reassessment or recomputation, as specified under Section 153(2) of the Act and nothing beyond. Hence, in respect of the returns filed between the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act after the filing of the return. However, the order of the Tribunal shows that the said issue was taken up more from the angle of limitation issue, that the notice had been issued after a period of 12 months from the end of the month, in which the return was filed. In paragraph 26 of the Tribunal's order, it held that the proviso to Section 143(2) of the Act is squarely applicable to the proceedings under Section 148 of the Act. In the circumstances, the Assessing Authority was under an obligation to issue a notice, if he considered that there was under-statement of income in the return, within twelve months from the end of the month in which the return was filed. Since the notice was issued beyond the period of 12 months, the order was null and void. As already pointed out, having regard to the proviso inserted to Section 148 of the Act under the Finance Act 2006, with the notice issued under Section 143(2) beyond 12 months and other requirements as regards the period covered and the limitation available for passing the order under Section 153 of the Act, we do not find any ground to uphold the order of the Tribunal on the aspect of limitation. We agree with the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d thereby limiting the scope of the deeming fiction as to the operation of the provisions relating to the filing of the return. It is well settled that legal fictions are created for some definite purpose and the same should be limited to the purpose for which it is created and cannot be extended beyond the expected and desired field. Thus in understanding the extent or scope of the operation of the legal fiction, one must ascertain the purpose for which the fiction is created. After ascertaining the purpose, the application of the fiction, if restricted by the provision by which the fiction is created, then the purpose for which it is created alone has to be acted upon and nothing beyond. Thus although full effect must be normally given to a legal fiction, yet, it cannot be extended beyond the purpose for which it is created (refer AIR 1955 SC 661 (The Bengal Immunity Company Ltd. Vs. The State of Bihar and others) and AIR 2007 SC 2129 (UCO Bank and Anr. Vs. Rajinder Lal Capoor). In so providing a specific treatment for cases falling under Section 148 of the Act, the question of considering the amendment as a curative legislation does not arise, or for that matter, the amendment f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 ITR 282 (SC ) (CIT Vs. Max India Ltd.) on the effect of the amendment, particularly with reference to the powers under Section 263 of the Act, was considered. A reading of the decision reported in [2007] 295 ITR 282 (SC) (CIT Vs. Max India Ltd.) shows that the powers of the Commissioner under Section 263 of the Act for revising the order of the Assessing Officer is available, where an order is prejudicial to the interest of the Revenue. The Apex Court pointed out to the phrase "prejudicial to the interests of the revenue" under Section 263 of the Act, holding that the same has to be read in conjunction with the expression "erroneous" order passed by the Assessing Officer. Thus, if on the date of passing the order, the same was with reference to the law then existing, the same, on revision under Section 263 of the Act, shall not be challenged on the score that the law had undergone a change thereafter, after the passing of the assessment order. The Karnataka High Court, in the decision reported in [2010] 325 ITR 219 (KAR) (Shriram Chits (Bangalore) Limited. v. The Joint Commissioner of Income-tax), applied the said decision. The said decision related to an order of rectification p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act are under challenge. In the absence of any such exception, this Court followed the earlier decision of this Court as regards the monetary limit fixed therein and held that having regard to the tax effect, which is less than Rs.2 lakhs - the limit prescribed, the circular dated 27.3.2000 would be applicable to the appeal filed on 1.7.2005. Hence, the appeal was dismissed. 26. As already pointed out, all these appeals are filed in the year 2004. The Revenue had raised a question of law, which is admitted by this Court, as to whether the non-furnishing of the copies of the reasons by the Assessing Officer for reopening of the case, even though asked for by the assessee, would be fatal to the proceedings under Section 148 of the Act. The ground on which the Revenue rakes up this issue is that the assessee had not applied for certified copies of the reasons recorded by the Assessing Officer by paying the necessary charges. 27. We do not appreciate this line of reasoning of the Revenue herein, particularly when the Revenue is duty bound to furnish the reasons on which the assessment proceedings are initiated. The Revenue contended that the gist of reasons were f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng from 1989-90 to 1996-97. At this distance of time, considering the tax effect, we feel that the proper course herein would be that, by answering the question of law in favour of the Revenue, no useful purpose would be served, since the tax effect in all these cases are at Rs.2 lakhs. We have considered the assessee's case based on the amendment brought forth under the Finance Act, 2006 to Section 148 of the Act, only to hold that the plea of limitation, as propounded by the order, no longer survives. That does not mean that this Court, on the merits of the assessment, has to agree with the Revenue's contention, particularly in the context of the Tribunal's finding on the non-furnishing of reasons for reopening of the assessment, and above all, the monetary limit in all these appeals. 29. In the circumstances, while agreeing with the assessee on the aspect of monetary limit and the non-furnishing of the reasons, no purpose would be served by remanding the matter back to the Assessing Officer to furnish the assessee with the reasons, which would take another few years for the issue to be settled and it would strike a discordant note as regards this particular assessee alone on t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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