TaxTMI 
TaxTMI 
2005 (4) TMI 259
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....ly under s. 143(3), but subsequently proceedings were initiated against the assessee under s. 147 of the IT Act, as the AO after considering the process used by the assessee for making centrifuged latex found that it was different from the field latex in many aspects. The AO was of the opinion that the process used was of complex nature and part of the income derived would be taxable as non-agricultural income. The AO also relied on the judgment of the Hon'ble Kerala High Court in the case of CIT vs. Kanam Latex Industries (P) Ltd. (1996) 132 CTR (Ker) 178 : (1996) 221 ITR 1 (Ker) and thereafter he decided to initiate proceedings under s. 147 of the IT Act as per his own reasons that the non-agricultural part of the profits from the sale of the value added grades of rubber required to be assessed to income-tax. Moreover, he was also influenced by r. 7A added to the IT Rules w.e.f. 1st April, 2002 and the said rule is specifically included to determine the computation of income in case of the rubber manufacturing. Accordingly, the AO initiated action under s. 147 of the IT Act and issued notice to the assessee-company under s. 148 of the Act. As we are disposing of these seven appea....
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.... original original return as return as revised revised return return Total income returned 644930 Date of notice 12-3-02 12-3-02 27-2-02 u/s 143(2) Date of assessment 18-3-02 18-3-02 18-3-02 ....
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....; 77049334) 5266244) 17233198) ---------------------------------------------- 4. The assessee challenged the orders of the AO passed for all those assessment years under consideration by filing appeals to the CIT(A) and the assessee raised various grounds, both on procedure as well as on the merits of the case. Before the CIT(A), the assessee strongly objected to the reopening of the assessments. The main substance of the argument of the assessee before the CIT(A) was that the AO acted illegally and without jurisdiction in issuing the notices under s. 148. It was further contended that conditions precedent for valid exercise of the jurisdiction had not been complied with and the assumption of jurisdiction under s. 148 of the Act by the AO was illegal, void and invalid in law, as there was no failure on the part of the assessee to make a full and true disclosure of all the material facts necessary for assessment for all the above assessment years. It was further contended by the assessee before the CIT(A) that initiation of the reassessment proceedings under s. 147 was merely only on the basis of reconsideration and review of the same facts,....
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....scaped income exceeding Rs. 1 lakh. The learned CIT(A) also ought to have noticed that the reasons for issue of notice under s. 148 were also communicated to the assessee by a letter dt. 16th Feb., 1998. The learned CIT(A) ought to have further found that in the light of apex Court's decision in the case of ITO vs. Saradbhai M. Lakhani & Anr. (2000) 161 CTR (SC) 298 : (2000) 243 ITR 1 (SC), the notice under s. 148 was validly issued. 4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) may be set aside and that of the AO restored." 7. We have heard the learned Departmental Representative Shri K.K. John, and the learned Authorised Representative of the assessee Shri R. Ramanarayanan, advocate at length. The learned Departmental Representative vehemently submitted that the CIT(A) was totally wrong in cancelling all the assessment orders, as there is a change in law w.e.f. 1st June, 2001 and before that reassessment proceedings would have been validly initiated upto a period of ten years from the end of the relevant assessment year subject to the monetary limit and hence, the issue of notices to the assessee under s. ....
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....cation it is found that they have complied with the above, there is no question of pursuing notices under s. 147 or 263 of the Act and/or in proceeding with any assessment completed pursuant thereto." 9. We have asked the assessee to file proof of payment of the agricultural income-tax. As per the directions of the Bench, the assessee has filed two different compilations, one relating to his assessment under the Karnataka Agrl. IT Act and another compilation in respect of assessment orders under the Kerala Agrl. IT Act, which are relating to the previous years relevant for the asst. yrs. 1987-88 to 1993-94. 10. We have considered the objections of the Revenue and perused the records. Now, we are deciding ITA No. 175/Coch/2003 relating to asst. yr. 1987-88. The CIT(A) held that the reopening of the assessment under s. 147 in respect of asst. yr. 1987-88 after the expiry of four years is bad in law, and he observed as under: "It is seen that for the asst. yr. 1987-88 the AO had issued the notice under s. 148 on 1st Jan., 1998 and the same had been served on the appellant on 19th Jan., 1998. The notice has been issued beyond a period of 4 years from the end of the asst. yr. 1....
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....unts filed by the appellant along with the original return filed on 4th Sept., 1988. Thus, it is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original assessment under s. 143(3) had been completed in the case on 27th March, 1989 on a total income of Rs. 16,57,160. Under these circumstances the reopening of assessment under s. 147 after the expiry of 4 years is bad in law. Therefore, the order under s. 143(3) r/w s. 147 dt. 18th March, 2002 is held to be invalid and is hence cancelled." 12. For the asst. yr. 1989-90 (ITA No. 177/Coch/2003), the CIT(A) has held as under: "The AO issued notice under s. 148 on 2nd March, 2000 for the similar reasons as in the asst. yr. 1987-88. The AO thereafter completed the assessment under s. 143(3) r/w s. 147 on a total income of Rs. 48,81,450 on 18th March, 2002. In the assessment, an addition of Rs. 42,03,973 was made being income from the sale of cenex worked out at 35 per cent of Rs. 1,20,11,353 representing the profit from the sale of cenex. The profit has been worked out by deducting the expenditure of Rs. 5,28,85,787 of rubber busi....
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....income of Rs. 2,87,93,960 on 18th March, 2002. In the assessment, an addition of Rs. 2,69,67,270 was made, being income from the sale of cenex, worked out at 35 per cent of the amount of Rs. 7,70,49,334. The amount of Rs. 7,70,49,334 represents the sales turnover of the appellant from the sale of cenex. The AO omitted to deduct the expenditure of rubber business for arriving at the profit of the business. I note that the figure of sales turnover has been taken from the printed accounts filed by the appellant along with the original return filed on 31st Dec., 1991. It is seen that there was no omission or failure on the part of the appellant to file any material particulars in the course of the original assessment. The original income-tax assessment under s. 143(3) had been completed in this case on 28th Feb., 1994 on a total income of Rs. 21,82,170. Under these circumstances the reopening of assessment under s. 147 after the expiry of 4 years is bad in law. Therefore, the order under s. 143(3) r/w s. 147 dt. 18th March, 2002 is held to be invalid and is hence cancelled." 15. For the asst. yr. 1992-93 (ITA No. 180/Coch/2003), the CIT(A) has held as under: "The AO issued the no....
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....at nil. Under these circumstances the reopening of assessment under s. 147 after the expiry of 4 years is bad in law. Therefore, the order under s. 143(3) r/w s. 147 dt. 18th March, 2002 is held to be invalid and is hence cancelled." 17. The argument of the learned Departmental Representative that there is a substantial change in the period of limitation introduced w.e.f. 1st June, 2001 by the Finance Act, 2001 and hence reassessment proceedings can be initiated even after four years is having no substance. As far as s. 147 is concerned, there are certain mandatory conditions for reopening of assessment and no amendment has been brought in s. 147 as far as period of limitation is concerned. When the assessments of the assessee are completed under s. 143(3) of the IT Act, then no action can be taken under that section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for any assessment year, (i) by reason of the failure on the part of the assessee to make a return under s. 139, or (ii) in response to notice issued under sub-s. (1) of s. 142, the assessee failed to file a return, or (iii) if the ....
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....so gone through the compilation filed by the Authorised Representative in respect of the assessment orders under the Karnataka Agrl. IT Act as well as the Kerala Agrl. IT Act. We have also considered Circular No. 5 dt. 22nd May, 2003 issued by the CBDT. It is pertinent to note that the said circular is issued by the CBDT after introduction of r. 7A which is relevant to us in these appeals. The IT (Second Amendment) Rules, 2001 introduced r. 7A w.e.f. 1st April, 2002 providing the computation of income from the sale of centrifuged latex or cenex or latex based crepes or brown crepes, etc. obtained from rubber plants grown by the seller in India. After the introduction of r. 7A representations were made to the CBDT, whether the IT authorities on the basis of the said r. 7A or 7B, as the case may be, can initiate proceedings under s. 147 or under s. 263 of the IT Act for the assessment years prior to 2002-03 to determine the income liable to income-tax even if the assessee had already paid agricultural income-tax on such income. The CBDT has clarified in the said circular that no proceedings under s. 147 or under s. 263 of the Act should be initiated for the assessment years prior to ....