2010 (2) TMI 372 - HC - Income Tax

Court rules Assessing Officer cannot rectify original assessment based on subsequent law changes.

The High Court ruled in favor of the appellant, holding that the Assessing Officer was not permitted to rectify the original assessment order based on ... Rectification of Mistake- The appellant-company is a leading chit fund company. The dispute is in regard to the assessment year 1998-99. The return was processed under section 143(1) of the Act and ordered for refund of Rs. 19,52,528 (including interest of Rs.1,61,168) and the amount was adjusted towards the arrears of tax payable by the assessee for the earlier assessment years. A notice under section 143(2) was issued. After hearing, an order was passed directing the assessee to pay the balance of Rs. 74,56,355. This order was passed on January 29, 2001. Subsequently, a notice under section 154 was issued to the assessee by the Joint Commissioner of Income-tax on the ground that the order of assessment passed on January 29, 2001, has to be rectified on the ground that the interest payable under section 234B had not been levied while passing the order of assessment. An order under section 154 of the Income-tax Act was passed as per anneuxre B dated June 28, 2001. This order upheld by the Commissioner (Appeals) and Tribunal. Held that- in the light of the judgment of CIT v. Ranchi Club 2008 -TMI - 40255 - SUPREME Court, while passing order of assessment. Just because there was a subsequent amendment, the Assessing Officer could not reopen the file. Thus the order of rectification is not valid allow the appeal. Issues:Challenge to order of rectification under section 154 for assessment year 1998-99 regarding interest under section 234B.Analysis:The appellant, a chit fund company, challenged the order of rectification under section 154 for the assessment year 1998-99, regarding the levy of interest under section 234B. The Assessing Officer had initially passed an order of assessment without levying interest under section 234B, based on the judgment in Ranchi Club Ltd. The subsequent rectification order was issued due to a retrospective amendment to section 234B. The appellant contended that the original order was valid as per the judgment in CIT v. Max India Ltd., which held that if an Assessing Officer had taken a view based on existing law, subsequent amendments cannot render the original order invalid. The appellant argued that the judgment relied upon by the authorities was not applicable to the case. The Revenue, on the other hand, argued that the rectification was justified as the levy of interest under section 234B was mandatory, and the Assessing Officer rectified the error by issuing the order under section 154. The key question was whether the Assessing Officer could rectify the original assessment order based on subsequent amendments to the law.The High Court analyzed the sequence of events and the legal provisions involved. It noted that the order of assessment was passed before the amendment to section 234B came into effect. The Assessing Officer, in line with the judgment in Ranchi Club Ltd., did not levy interest under section 234B initially. The subsequent rectification order was based on the retrospective amendment to section 234B. The Court referred to the judgment in CIT v. Max India Ltd., emphasizing that if an Assessing Officer had correctly applied the law at the time of assessment, subsequent amendments cannot be a basis for rectification. The Court held that the Assessing Officer was justified in not levying interest under section 234B initially, based on existing law. Therefore, the rectification order was deemed invalid, and the appeal was allowed. The orders of rectification passed by the Assessing Officer, Commissioner of Income-tax (Appeals), and Income-tax Appellate Tribunal were set aside.In conclusion, the High Court ruled in favor of the appellant, holding that the Assessing Officer was not permitted to rectify the original assessment order based on subsequent amendments to the law. The Court relied on the principle that if an Assessing Officer had correctly applied the law at the time of assessment, subsequent changes to the law cannot invalidate the original order. The judgment in CIT v. Max India Ltd. was pivotal in determining the validity of the rectification order under section 154 for the assessment year 1998-99.