2009 (8) TMI 971 - AT - Income Tax

Tribunal quashes tax order, reduces car value for income addition

The Tribunal quashed the Commissioner of Income-tax's order under Section 263 as it was passed beyond the statutory time limit. Consequently, the ... - Issues Involved:1. Validity of the Commissioner's order under Section 263 of the Income-tax Act.2. Legality of the assessment order passed under Section 143(3) read with Section 263.3. Levy of penalty under Section 273(2) of the Income-tax Act.4. Addition of the value of a Mercedes Benz car as income of the assessee.Detailed Analysis:1. Validity of the Commissioner's Order under Section 263:The primary issue was whether the Commissioner of Income-tax (CIT) could exercise jurisdiction under Section 263 to revise an assessment order passed under Section 143(1) of the Income-tax Act. The CIT's revision was based on the view that the assessment order was erroneous and prejudicial to the interests of the Revenue because it failed to include the US $1 lakh and the value of the Mercedes Benz car received by the assessee from M/s. Chesebrough Pond's Inc., USA (CPI).Arguments by the Assessee:- The assessment order was passed under Section 143(1), which only allows for rectification of arithmetical errors.- The CIT cannot direct the Assessing Officer (AO) to do something beyond the scope of Section 143(1).- The revisionary order was passed beyond the statutory time limit prescribed under Section 153.Tribunal's Findings:- The Tribunal agreed that under Section 143(1), the AO could only make adjustments for arithmetical errors, and the omission to include the amounts received from CPI did not constitute such an error.- However, the Tribunal also noted that the AO's failure to issue a notice under Section 143(2) to verify the correctness and completeness of the return was an error that the CIT could correct under Section 263.- Despite this, the Tribunal found that the CIT's order was invalid because the time limit for completing the assessment had expired on March 31, 1990, and the CIT's order was passed on March 22, 1991. Therefore, the AO could not pass a fresh assessment order beyond the statutory time limit.2. Legality of the Assessment Order Passed under Section 143(3) read with Section 263:The subsequent assessment order passed by the AO under Section 143(3) read with Section 263 was challenged on the grounds that it was passed after the statutory time limit.Tribunal's Findings:- The Tribunal annulled the assessment order passed on December 31, 1992, as it was based on the revisionary order under Section 263, which had already been quashed.- The Tribunal held that the AO could not pass an assessment order under Section 143(3) without issuing a notice under Section 143(2) within the prescribed time limit, which had expired on March 31, 1990.3. Levy of Penalty under Section 273(2) of the Income-tax Act:The penalty was levied for the shortfall in the payment of advance tax due to the non-inclusion of the US $1 lakh in the income.Tribunal's Findings:- Since the assessment order under Section 143(3) was annulled, the demand for additional tax became nullified.- Consequently, there was no basis for the levy of penalty, and the Tribunal deleted the penalty.4. Addition of the Value of a Mercedes Benz Car as Income of the Assessee:The issue was whether the value of the Mercedes Benz car provided by CPI should be added to the income of the assessee.Arguments by the Assessee:- The car was a gift and not a payment for services rendered.- CPI had filed a gift-tax return and paid gift-tax on it.- The value of the car should be depreciated due to wear and tear.Tribunal's Findings:- The Tribunal found that the car was provided to the assessee in the capacity of his employment with CPI.- However, the Tribunal agreed that the value of the car should be depreciated and reduced the value to Rs. 7.50 lakhs for the purpose of addition.Separate Judgments:The Judicial Member disagreed with the Accountant Member on certain aspects, particularly regarding the applicability of the time limit under Section 153(1)(a) in relation to the Commissioner's order under Section 263. The matter was referred to a Third Member, who agreed with the Accountant Member that the CIT's order under Section 263 was invalid due to the expiration of the statutory time limit for completing the assessment.Conclusion:- The Tribunal quashed the CIT's order under Section 263.- The subsequent assessment order and penalty were annulled.- The value of the Mercedes Benz car was reduced to Rs. 7.50 lakhs for the purpose of addition to the income.