2004 (8) TMI 75 - HC - Income Tax

High Court Invalidates Assessment for Exceeding Time Limit

The High Court held that the assessment based on the revised return was invalid due to exceeding the two-year time limit under section 153(1) of the ... Assessment - 'Whether Tribunal was right in law in holding that the assessment made by the Income-tax Officer on the basis of the revised return was vitiated under law and the very order of assessment was liable to be quashed?' - Tribunal accepted the plea taken by the respondent that the return was revised under section 139(5) and as per the provisions of law applicable for the year under consideration, the assessment having been completed beyond two years, was vitiated under law and consequently it quashed the assessment order. - As the Tribunal had not considered the implication of clause (iv) of Explanation 1 to section 153 and had quashed the assessment order as barred by limitation, it is not possible for us to give our opinion to the question of law referred to us and accordingly we return the reference unanswered. In the interest of justice, we direct the Tribunal to reconsider the matter Issues:1. Validity of assessment based on revised return2. Interpretation of time limit for completion of assessments and reassessments under section 153 of the Income-tax Act, 1961Issue 1: Validity of assessment based on revised returnThe case involved a co-operative society assessed for the year 1974-75. The society filed its return of income under section 139(1) after the due date, showing income from various sources. Subsequently, a revised return was filed under section 139(5) claiming exemption under section 80P of the Act. The Assessing Officer disallowed the exemption but allowed a deduction under section 80P(2)(c), resulting in a revised total income. The Tribunal held that since the assessment was completed beyond two years, it was vitiated under law and quashed the assessment order. The High Court noted that the original return was filed under section 139(4) and the revised return was invalid. As per section 153(1) of the Act, an assessment order had to be made within two years from the end of the assessment year. The Tribunal's decision was set aside, and it was directed to reconsider the matter.Issue 2: Interpretation of time limit under section 153 of the ActThe High Court analyzed section 153(1) of the Income-tax Act, 1961, which sets the time limit for completion of assessments and reassessments. The section specifies different time frames based on the assessment year. The Court highlighted clause (iv) of Explanation 1 to section 153, which excludes a specific period when computing the limitation. In this case, the assessment order was passed after obtaining approval under section 144B of the Act. The Tribunal failed to consider the implications of clause (iv) of the Explanation, leading to an incorrect decision on the plea of limitation. The High Court directed the Tribunal to reconsider the matter in light of the observations made and returned the reference unanswered due to the Tribunal's oversight. The Court emphasized the need for a proper assessment of the time limit provisions for assessments and reassessments under the Act.This detailed analysis of the judgment addresses the issues involved in the case, providing a comprehensive understanding of the legal reasoning and implications of the High Court's decision.