1995 (7) TMI 110 - AT - Income Tax

Tribunal rules reassessment orders invalid under Income-tax Act, restoring appeals for fresh disposal.

The Tribunal held that assessments completed under section 172(4) cannot be reopened under section 147(b) of the Income-tax Act. The reassessment orders ... Reassessment, Information Issues Involved:1. Validity of reopening assessments under section 147(b) for assessments completed under section 172(4).2. Proper and lawful execution of reassessment orders by the ITO.Detailed Analysis:Issue 1: Validity of Reopening Assessments under Section 147(b) for Assessments Completed under Section 172(4)The primary issue revolves around whether the Income Tax Officer (ITO) can reopen assessments under section 147(b) for assessments initially completed under section 172(4). The assessees, non-resident shipping companies, were originally assessed under section 172(4) using a telegraphic transfer rate certified by the State Bank of India. Subsequently, the ITO received a circular from the Central Board of Direct Taxes (CBDT) indicating a different exchange rate, prompting the reopening of assessments under section 147(b).The Commissioner of Income Tax (Appeals) [CIT(A)] held that section 147(b) could not be applied to assessments made under section 172(4) as section 147 pertains to returns filed under section 139. The CIT(A) thus invalidated the reassessments, restoring the original assessments under section 172(4).Upon appeal, the Tribunal's Accountant Member found merit in the Revenue's argument, emphasizing that section 172 is a self-contained section meant to ensure tax recovery from non-resident shipowners. The Accountant Member argued that the ITO retains the power to initiate reassessment proceedings under section 147 if income has escaped assessment, as section 172 does not preclude the application of other provisions of the Act.Conversely, the Judicial Member disagreed, stating that section 172 and sections 174 to 176 constitute exceptions to the concept of income of a previous year. He argued that section 147 applies only to cases involving returns filed under section 139, which is not the case for assessments under section 172(4). The Judicial Member concluded that section 147 is inapplicable to assessments under section 172(4), as these assessments do not involve a previous year or assessment year in the traditional sense.The Third Member, agreeing with the Judicial Member, emphasized that section 172 is a complete code independent of other provisions of the Income-tax Act. He noted that section 172 assessments are based on each visit of a ship, not on an annual basis, and thus do not align with the concept of reopening under section 147, which pertains to specific assessment years. The Third Member concluded that the reassessment machinery under section 147 cannot be applied to rectify mistakes in assessments completed under section 172(4).Issue 2: Proper and Lawful Execution of Reassessment Orders by the ITOThe second issue concerns whether the reassessment orders passed by the ITO were proper and valid in law. The ITO reopened the assessments based on a CBDT circular indicating a different exchange rate, which constituted 'information' under section 147(b).The Judicial Member argued that the basis for reopening was misconceived, as the original assessments used the telegraphic transfer rate prescribed by Rule 115, which aligns with the rate adopted by the State Bank of India. He suggested that erroneous assessments under section 172(4) should be addressed through rectification or revision, not reassessment under section 147.The Third Member supported this view, noting that Rule 115 had been declared ultra vires by the Bombay High Court. Consequently, reopening assessments based on this rule was unjustified. He concluded that even on merits, the issue favored the assessee, as the reassessment orders lacked a valid basis.Conclusion:The Tribunal, by majority opinion, held that assessments completed under section 172(4) cannot be reopened under section 147(b) of the Income-tax Act. The reassessment orders passed by the ITO were deemed improper and invalid in law. The appeals were restored to the file of the Commissioner (Appeals) for fresh disposal in accordance with the law, considering all grounds raised in the memo of appeal.