TMI Blog2012 (6) TMI 258X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Ms. Urvashi Shodhan for the Appellant. S.K. Jha for the Respondent. ORDER Bhavnesh Saini, Judicial Member. This appeal of the assessee is directed against the order of the learned CIT(A)-XIV, Ahmedabad dated 26-11-2008 for assessment year 1994-95, challenging reopening of the assessment under section 147 read with section 150(1) of the Income-tax Act and further confirmation of addition of Rs. 80,00,000 has been challenged on various grounds of appeal. 2. The facts of the case are that the original assessment for assessment year 1992-93 was completed in this case on 31-3-1995 by making addition of Rs. 80 lakhs received by the assessee from Neumatic Marketing Company in lieu of allowing that company to market and sell its products in certain states. The learned CIT(A) deleted the said addition by holding that the receipt did not accrue to the assessee in assessment year 1992-93 as the agreement came into force in assessment year 1994-95 and that the receipt was capital in nature. In further appeal, the ITAT held that the receipt pertained to assessment year 1994-95 and not to assessment year 1992-93, but the ITAT did not give any finding on the nature of rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that : "the word 'finding' has not been defined in the Act and also dictionary meaning of the word has to be referred to". The Assessing Officer also relied upon the decision in the case of S. P. Gupta v. President of India AIR 1982 (SC) 149 and CIT v. Ajax Products Ltd. [1965] 55 ITR 741 (SC) wherein it has been emphasized that the golden rule of interpretation is the literal rule of interpretation which states that the words of a statute must be given its ordinary meaning. The Assessing Officer further observed that in the assessee's case, as a result of the inquiry and investigation by the appellate authorities, it was established that the agreement with Neumatic Marketing Company Ltd. had commenced from 1-4-1993 i.e., from assessment year 1994-95 and, therefore, this conclusion reached was finding within the meaning of section 150(1) of the Income-tax Act and, therefore, the objection of the assessee that there was no finding in the order of the Hon'ble Gujarat High Court was rejected. 3. The assessee during the course of appellate proceedings before the learned CIT(A) almost submitted the same arguments as taken during the assessment proceedings and submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... into force in the assessment year 1994-95 and, therefore, the receipt pertained to assessment year 1994-95. Even though the ITAT did not give any finding with regard to the nature of this receipt, whether revenue/capital, it had held that the receipt pertained to assessment year 1994-95 I am not agreeable to the contention of the AR, that there was no finding that this amount was taxable in assessment year 1994-95, as the appellate authorities have held that the receipt of this amount pertained to assessment year 1994-95 and it was clearly a 'finding'. The case law as relied upon by the A.R. is not applicable in the appellant's case. 4.3 I rely on decision of DCIT v. Spences Hotels (P.) Ltd. 289 ITR 145 (Kar.) wherein decision of Single Judge in the same case 263 ITR 263 (Kar.) was set aside and it was held that the notice issued to the assessee was pursuant to the finding of the Tribunal regarding income that had escaped assessment. The AR, has relied upon the decision of Court in case of ITO v. Muralidhar Bhagwan Das 52 ITR 355 (SC) to contend that the incidental finding of appellate authority that the income belonged to an year other than the year under appeal is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot enlarge the scope of the finding or direction mentioned in the provision. The finding must be in respect of a particular person or persons and in respect of the particular assessment year. It is to be noted that the decision in Murlidhar's case [1964] 52 ITR 335 (SC) was rendered in relation to section 34(3) (second proviso) of the 1922 Act. Though section 153(3)( ii ) is modelled on the lines of the earlier provisions, Explanations 2 and 3 have enlarged the scope. Explanation 2 creates a fiction. Explanation 3 erodes the iron jacket of any person contemplated in Murlidhar's case [1964] 52 ITR 335 (SC). It can be a person unconnected with the appellant." 4.5 It has been held in Ambaji Traders (P.) Ltd. v. ITO (105 ITR 273) (Bom.) while explaining the significance of Explanation 2 in section 153(3) of the Act as under; "The effect of second Explanation is that where the income of an assessee has been excluded from one assessment year and it has to be included in another assessment year, this has been fictionally treated for the purpose of section 150 as a proceeding in consequent of or to give effect to any finding or direction contained in an order. Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elp to the appellant. Further when the assessment order for assessment year 1992-93 was passed by the Assessing Officer on 31-3-1995 and when the order of CIT(A) was passed for assessment year 1992-93 i.e., on 24-4-1996 the Assessing Officer had time to reopen assessment in case of assessment year 1994-95 as six year time-limit to reopen the assessment of assessment year 1994-95 was available till 31-3-2001. Therefore when such reassessment could have been made for assessment year 1994-95 at the time of passing the CIT(A)'s order for assessment year 1992-93 i.e., 24-4-1996, which is the subject-matter of appeal wherein such direction or finding has been given, provisions of section 150(2) would not be attracted and the time-limit for issue of notice under section 148 will not apply as per provisions of section 150(1) of the Income-tax Act. In view of above observations, the ground No. 3 is dismissed." The learned CIT(A) on merit also confirmed the addition of Rs. 80 lakhs holding it to be trading receipt and taxable income under the Act. 5. The learned Counsel for the assessee reiterated the submissions made before the authorities below and submitted that the learned CIT( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for assessment year 1994-95 under appeal. Therefore, it is clearly time-barred as per the provisions of section 149 of the Income-tax Act because reassessment can be initiated within the period of six years from the end of the relevant assessment year. The learned Counsel for the assessee also submitted that since the learned CIT(A) held that the receipt in question is capital receipt, therefore, no income chargeable to tax has escaped assessment within the meaning of section 147 of the Income-tax Act and reopening of the assessment is based on non-existing reasons and as such reopening of the assessment is bad in law. The learned Counsel relied upon the following decisions : (1) In the case of Gangadhar Baijnath v. CIT [1968] 69 ITR 500 (All.) wherein it has been held as under : " Held , that the proviso to section 34(3) does not enable the Income-tax Officer to ignore the bar of limitation in respect of an assessment of escaped income for any assessment year but it enables him to do so only in respect of that assessment year which was the subject-matter of appeal or revision in which the finding or direction was given, and the reassessment proceedings taken by the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and as such period of limitation would be excluded as provided under section 149 of the Income-tax Act. The learned DR heavily relied upon the observation of the learned CIT(A) in assessment year 1992-93 to show that findings and directions have been issued that income is taxable in the assessment year under appeal. 7. We have considered the rival submissions and material on record. Section 147 of the Income-tax Act reads as under: "[Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.]" 7.1 Section 149 of the Income-tax Act reads as under: "Time-limit for notice 149. [(1) No notice under section 148 shall be issued for the relevant assessment year, [( a ) if four years have elapsed from the end of the relevant assessment year, unless the case falls under clause ( b ); ( b ) if four years, but not more than six years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment amounts to or is likely to amount to one lakh rupees or more for that year.] Explanation. In determining income chargeable to tax which has escaped assessment for the purposes of this sub-section, the provisions of Explanation 2 of section 147 shall apply as they apply for the purposes of that section.] (2) The provisions of sub-section (1) as to the issue of notice shall be subject to the provisions of section 151. (3) If the person on whom a notice under section 148 is to be served is a person treated as the agent of a non-resident under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the assessee for the assessment year 1992-93. The assessee contested the above addition in appeal before the CIT(A). 3. The CIT(A) deleted the above addition for the reasons contained in Para 8 of his order as under: "8. I have considered the facts and gone through the copies of agreements. The agreement with Vadilal Enterprise Ltd. mentions that the agreement for the period of three years from 1-1-1990. In para 2 of agreement with Neumatic Marketing Co., it is mentioned that the agreement shall come into force from 31-12-1992 or from the date as may be agreed by the assessee and as requested by Vadilal Enterprise Limited to enable to handover the business to Neumatic Marketing Co. after completion of all legal statutory formalities and shall remain in force for a period of five years from the effective date. It is, therefore, clear that the assessee will receive Rs. 80 lakhs for giving the marketing rights after the agreement comes into force and Vadilal Enterprise Ltd. hands over the relevant papers and completes the formalities for the transfer of business to Neumatic Marketing Co. Subsequently, the agreement with Vadilal Enterprise Ltd. was to expire on 31-12-1992 but it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n incorporated by the Assessing Officer in the reasons for reopening of the assessment ( supra ) which would show that the learned CIT(A) has not given any finding or direction that the income is taxable in the assessment year under appeal i.e., 1994-95. With regard to the issue whether the same receipt is capital receipt or revenue receipt, the learned CIT(A) gave the findings in the same order in Paras 14 and 18 of the appellate order which read as under: "14. Regarding the income as held by the Assessing Officer, I find that the receipt is not covered under the head "Business income" under section 28(2) of the Act. It is not a receipt in the ordinary course of business because the selling of rights is not the business of the assessee and the assessee is engaged in manufacture and sale of particular items. The selling of territories is a capital asset like tenancy rights, route permits, goodwill and cannot be covered under the business income. I also find that the condition for termination of rights, sale of business, cash compensation for export, will not covered such a receipt as business income. It can only be covered under the capital asset which is intangible in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w that no finding or directions have been issued that such an income is taxable in the assessment year 1994-95 under appeal. The same are the findings of the Hon'ble Gujarat High Court in which departmental appeal was dismissed holding the absence of any substantial question of law. It was noted by the Hon'ble Gujarat High Court that the agreement had never come into operation in the accounting year under appeal. It would also show that the Hon'ble High Court has not given any finding or direction in the order that such income is taxable in the assessment year under appeal (1994-95). We may also note here that the revenue raised two questions of law before the Hon'ble High Court challenging the accrual of the receipt in question in the assessment year under appeal and whether the receipt was capital in nature. It would show that when the Tribunal and the Hon'ble High Court dismissed the appeals of the revenue, the order of the learned CIT(A) became final on facts that the receipt in question is capital receipt. The order of the learned CIT(A) has thus reached finality between both the parties and is binding upon the revenue department. Considering the above facts, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt in question that it is capital receipt. Therefore, there is no question of the Assessing Officer having any reason to believe that any income, on the same issue and same facts, chargeable to tax has escaped assessment in the assessment year under appeal. The reopening of the assessment is initiated on 14-3-2007 for assessment year 1994-95 under appeal and on that day the reassessment proceedings have become time-barred because the same have been initiated after six years from the end of the relevant assessment year under section 149(1)( b ) of the Income-tax Act. Therefore, the provisions of section 150(2) of the Income-tax Act would not apply to such a situation. Further, there was no direction or finding given in any of the appellate orders for assessment year 1992-93 that such income is taxable in the assessment year under appeal i.e., 1994-95. Mere remarks or observation by the Assessing Officer from the appellate orders cannot be taken as a finding or direction of the appellate authorities within the meaning of section 150(1) of the Income-tax Act. The learned CIT(A) referred to Explanation (2) to section 153 of the Income-tax Act in order to cover the case under ..... X X X X Extracts X X X X X X X X Extracts X X X X
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