1986 (1) TMI 60 - HC - Income Tax

Invalid reassessment order due to statutory limitation period violation

The court held that the reassessment order made by the Income-tax Officer was barred by limitation under the Indian Income-tax Act, 1922. The Appellate ... Appeal To AAC, Limitation For Completing Assessment Issues:Interpretation of the second proviso to section 34(3) of the Indian Income-tax Act, 1922; Jurisdiction of the Income-tax Officer to pass an assessment order on an application for refund; Assessment being barred by limitation; Applicability of the saving provision in the second proviso to section 34(3) of the Indian Income-tax Act, 1922.Analysis:The judgment dealt with the interpretation of the second proviso to section 34(3) of the Indian Income-tax Act, 1922. The case involved a charitable trust that received commission/brokerage and sought a refund of the tax deducted at the source. The Income-tax Officer brought the amount to tax based on an order and raised a demand. The Appellate Assistant Commissioner set aside the order, directing a fresh assessment according to law. Subsequently, the Income-tax Officer made an assessment to the best of his judgment, determining the income as taxable business income. The Appellate Assistant Commissioner held the assessment was barred by limitation, canceling it. The Tribunal upheld this decision, leading to the reference question on the applicability of the saving provision in the second proviso to section 34(3) regarding limitation for reassessment.The key issue was whether the remand order by the Appellate Assistant Commissioner allowed for the reassessment to be exempt from the limitation period under section 34(3). The court analyzed the intent and scope of the remand order, emphasizing that it left the assessment matter open for a fresh assessment according to law. The Appellate Assistant Commissioner's order directed the Income-tax Officer to follow proper procedures and make a fresh assessment, including considerations of substantive law and procedural aspects, without explicitly addressing the limitation issue.The court highlighted that the Appellate Assistant Commissioner's order did not absolve the reassessment from the limitation period prescribed by section 34(3) of the Act. As the reassessment order was made well after the expiration of the limitation period, the Tribunal's decision that the reassessment was barred by limitation was deemed justified. The court answered the reference question affirmatively in favor of the assessee, emphasizing the importance of adhering to statutory limitations in reassessment proceedings.In conclusion, the judgment clarified the significance of procedural compliance and adherence to statutory limitations in reassessment proceedings under the Indian Income-tax Act, 1922. The court upheld the decision that the reassessment order was barred by limitation, emphasizing the need for authorities to follow due process and statutory timelines in tax assessments.