2018 (4) TMI 1828 - AT - Income Tax

Taxable Income Reassessment Ordered for 1984-85; AO to Reevaluate Based on New Settlement Terms and Allow Representation.

Inspecting Assistant Commissioner (Assessment) Versus Hydrocarbons India Ltd. And (Vice-Versa)

The ITAT allowed the appeal, directing the AO to reassess the taxable income for the assessment year 1984-85, considering the previous year ending ... Effective date of settlement agreement - determination of what is the taxable 'previous year' - HELD THAT:- We are unable to concur with Commissioner of Income-tax (DR) objection that the effective date of settlement agreement is not January 1, 1984. As in the case of CIT v. Patiala Sales Corporation Pvt. Ltd. [1970 (1) TMI 9 - PUNJAB AND HARYANA HIGH COURT] has held that the option given by the statutory provisions of section 3(1)(b) is to the assessee and not to the Department and once such an option is exercised the Department has no alternative but to assess the income in accordance with the option so exercised. AR has highlighted the facts of the case from the computation of income filed by the assessee. In the computation/s for the assessment years 1981-82 to 1984-85, the assessee has categorically mentioned its accounting year/previous year as ending with the calendar year. It is only with effect from the assessment year 1985-86 that the assessee has shifted to financial year being its previous year. Undisputedly, for the twelve month period relevant to assessment year 1984-85 the assessee has drawn up its accounts as year ending December 31, 1983 Assessee has validly, exercised its option as envisaged in section 3(1)(b) of the Act. We, therefore, find considerable merit in the additional ground of appeal and the same is, therefore, allowed. AO is accordingly directed to assess the taxable total income of the assessee for the assessment year 1984-85 with taking the 'previous year' as on January 1, 1983 to December 31, 1983 and considering the effective date of settlement agreement as January 1, 1984. Assessing Officer is given the liberty to take necessary remedial steps as per law for assessment of compensation flowing to the assessee under the settlement agreement in the appropriate assessment year - entire issues raised before us by both the parties will also have to be necessarily re- examined afresh by the Assessing Officer. Accordingly, all the issues raised by both the parties are also restored to the file of the Assessing Officer to be decided afresh in terms of our observations after giving due opportunity to the assessee. Issues Involved:1. Admission of Additional Ground of Appeal.2. Determination of the 'Previous Year' for Taxation.3. Effective Date of the Settlement Agreement.4. Taxability of Compensation Received under the Settlement Agreement.5. Remedial Steps for Assessment of Compensation in the Appropriate Assessment Year.Detailed Analysis:1. Admission of Additional Ground of Appeal:The primary issue was whether the Income-tax Appellate Tribunal (ITAT) should admit the additional ground of appeal raised by the assessee. The Hon’ble Delhi High Court had previously observed that the ITAT erred in not admitting and adjudicating upon the additional ground of appeal. The High Court stated, 'if the facts and material available with the Tribunal give rise to a pure question of law, then the Tribunal ought not have any difficulty in entertaining the additional ground.' The Tribunal was directed to consider the additional ground without allowing the assessee to rely on new material.2. Determination of the 'Previous Year' for Taxation:The moot issue was the determination of the taxable 'previous year.' The assessee contended that its previous year ended on December 31, 1983, as it had consistently prepared its accounts on a calendar year basis. Section 3 of the Income-tax Act, 1961, provided the option for the assessee to select a previous year different from the financial year. The Tribunal noted that the assessee had validly exercised this option, stating, 'the assessee has categorically mentioned its accounting year/previous year as ending with the calendar year.'3. Effective Date of the Settlement Agreement:The effective date of the settlement agreement was crucial for determining the taxable year. The Tribunal found that the effective date of the settlement agreement was January 1, 1984, as evidenced by a fax message and the audited financial statements. The Tribunal stated, 'the effective date of settlement agreement is January 1, 1984,' and this was undisputed even before the High Court.4. Taxability of Compensation Received under the Settlement Agreement:The compensation received under the settlement agreement was in question for its taxability in the assessment year 1984-85. The Tribunal directed that the taxable total income for the assessment year 1984-85 should be assessed with the previous year ending on December 31, 1983, and considering the effective date of the settlement agreement as January 1, 1984. The Tribunal emphasized, 'the Assessing Officer had erred in making the impugned additions in terms of settlement agreement in assessment year 1984-85.'5. Remedial Steps for Assessment of Compensation in the Appropriate Assessment Year:The Tribunal allowed the Assessing Officer (AO) to take necessary remedial steps for the assessment of compensation in the appropriate assessment year. It directed, 'the Assessing Officer is given the liberty to take necessary remedial steps as per law for assessment of compensation flowing to the assessee under the settlement agreement in the appropriate assessment year.'Conclusion:The Tribunal allowed the appeal filed by the assessee and the Department for statistical purposes. It directed the AO to reassess the taxable total income for the assessment year 1984-85, considering the previous year ending on December 31, 1983, and the effective date of the settlement agreement as January 1, 1984. All issues raised by both parties were restored to the file of the AO for re-examination afresh, ensuring due opportunity for the assessee. The order was pronounced in the open court on April 6, 2018.