ITA No.208 of 2007 1 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.208 of 2007 Date of decision: 28.3.2008 Smt. Anchi Devi, C/o M/s Vikas WSP, Siwani, Distt. Bhiwani ......Appellant Versus The Commissioner of Income tax, Hisar ......Respondent CORAM:- HON'BLE MR.JUSTICE SATISH KUMAR MITTAL HON'BLE MR.JUSTICE RAKESH KUMAR GARG * * * Present: Mr. Sanjay Bansal, Sr. Advocate instructed by Mr. Prashant Bansal, Advocate and Mr. Parvesh Saini, Advocate for the appellant Mr.Yogesh Putney, Advocate for the respondent. * * * Rakesh Kumar Garg, J . 1. The assessee filed return of income on 31.10.1998 for the assessment year 1998-99 declaring an income of Rs.46,220/- and an agricultural income of Rs.84,286/-. The return was processed under Section 143(1)(a) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act') on 18.5.1999. Subsequently, the assessment was reopened under Section 147 of the Act and a notice under Section 148 of the Act was issued on 8.1.2001 which was served upon the assessee on 11.1.2001. In respect thereto, the assessee filed a return of income on 28.2.2001 declaring the same income as shown in the original return and this return was also processed under Section 143(1)(a) on 30.3.2001 accepting the returned income. Thereafter, notices were issued under Section 143 (2) and Section 142(1) of the Act and the assessment under Section 143(3) read with Section 147 was completed on 14.2.2003 on a total income of ITA No.208 of 2007 2 Rs.17,01,235. Various additions and disallowances were made in this assessment. 2. The assessee filed an appeal before the CIT (Appeals) and besides contesting the disallowances made in the assessment, took up a ground that the assessment was time barred in view of section 153(2) of the I.T.Act and, therefore, the same should be quashed. It was contended that under section 153(2), the assessment proceedings have to be completed within one year from the end of the financial year in which the notice under section 148 was served. It was pointed out that the notice was served on the assessee on 11.01.2001, which is a day which fell before 01.06.2001 and, therefore, in such a case, the assessment ought to have been completed on or before 31.03.2002. Since it was completed only on 14.02.2003, the assessment, it was contended was beyond the period of limitation 3. The Commissioner of Income Tax (Appeals) held that since section 153(2) was amended with effect from 01.06.2001 to reduce the time limit available for completion of the assessment from two years to one year from the end of the financial year in which the notice under section 148 was served, the amended provision would operate in the present case, notwithstanding that the notice was served before 01.06.2001, and therefore the assessment ought to have been completed on or before 31.03.2002 and since it was completed only on 14.02.2003, it was beyond the period of limitation. Thus, the CIT (A) applied the amended Sections 153(2) to restrict the time limit available to the Assessing Officer to complete the assessment. 4. Feeling aggrieved against this order, the revenue filed an appeal before the Tribunal who vide impugned order dated 6.7.2005 held ITA No.208 of 2007 3 that the view taken by the CIT(A) that the assessment ought to have been completed on or before 31.3.2002 is correct in law and thus, dismissed the appeal. 5. It is relevant to mention at this stage that the Assessing Officer reopened the assessment proceedings again by serving a fresh notice under Section 148 of the Act on 24.3.2004. Reasons for reopening the assessment by the Assessing Officer are reproduced hereinafter:- Smt. Anchi Devi Jindal C/o M/s Viklas WSP Ltd. Siwani Assessment year 1998-99 Reasons for the belief that income has escaped assessment: From the perusal of the assessment records, the assessment was completed under section 143(3)/ 147 on 14.2.2003 on a total income of Rs.17,01,235/- and agriculture income of Rs.84,286/-. In the assessment an addition of Rs.16,79,717/- was made on account of deduction claimed by the assessee on account of interest paid of FDRs, the assessee had filed an appeal against this order and the ld. CIT(A) in his order in appeal No.11/9/BHW/CIT (A), KNL/2002-03 dated 20.6.2003 quashed the assessment on the ground that the assessment finalized on 14.2.2003 was barred by time. During the year under consideration the assessee has shown interest on FDRs at Rs.16,79,717/-. The case of the assessee has been processed under Section 143 ITA No.208 of 2007 4 (1)(a) on 18.5.1999 and the returned income has been accepted. It is noticed that the assessee has claimed the payment of interest to the bank at Rs.16,54,795/-. The assessee filed its return of income declaring following results. Income from other sources Interest on FDRs 16,79,717/- Less Interest paid to bank 16,54,795/- Balance income 24,922/- It is seen that the assessee has obtained loan against her FDRs with the bank on higher rate of interest, and gifted it for the construction of the College Building. The deduction on account of interest claimed to have been paid to the bank is not allowable. Keeping in view the facts that interest income is assessable under the head “Income from other sources”. I therefore, have reasons to believe that wrong deduction has been claimed and allowed on income from interest on FDR and income to the extent of Rs.16,54,795/-(1679717-249221) has escaped assessment. 6. In response to this notice, the assessee declared the same income as declared in the original return. During the reassessment proceedings, the Assessing Officer noted that the assessee had received interest of Rs.16,79,717/- against which interest of Rs.16,54,794/- had been claimed as deduction as paid to the bank. 7. The Assessing Officer held that interest paid was not allowable ITA No.208 of 2007 5 as deduction as the income from investment out of the loan was not taxable. He also held that the loans taken were for investment in the FDRs. The interest paid on the borrowings against which the FDRs were pledged, was not wholly and exclusively for earning of interest. He, therefore, disallowed the claim of deduction. 8. In appeal, the assessee submitted before CIT(A) that the issuance of fresh notice under Section 148 was not justified as on the same issue, assessment had already been reopened and the assessment had been completed under Section 143(3). CIT(A) was however not satisfied and it was observed by him that the earlier assessment proceedings had been quashed by CIT(A) and, therefore, there was no bar on reopening of assessment again. He relied upon the judgement of the Hon'ble High Court of Allahabad in the case of G.P. Agarwal v. Assistant Commissioner of Income-Tax (208 ITR 795) in which it was held that there was no bar on initiating reassessment proceeding in cases where rectification proceeding had already been dropped He, therefore, upheld the reopening of the assessment. The addition was also upheld on merits as payment of interest was not made for the purpose of making the earning of interest from FDR which had been assessed under the head 'other sources'. 9. Aggrieved by the said decision of CIT(A), the assessee filed an appeal before the Tribunal in which he challenged the reopening of the assessment as well as the addition. The Tribunal after considering the arguments dismissed the appeal of the assessee and held as under:- “We have perused the record and have considered rival contentions carefully. The return for the relevant assessment year was processed under Section 143(1) ITA No.208 of 2007 6 (a) on 18.5.1999. Subsequent assessment made under Section 143(3)/147 on 14.2.2003 had been quashed by CIT(A) and therefore, this assessment became non-est the effect of which was as if no assessment under Section 143(3) had been made. The reopening, therefore, could be made legally in this case after lapse of four years from the end of the relevant assessment year. The argument of the ld. A.R. For the assessee and the reopening was bad in law, cannot be therefore, accepted. The reopening is thus held legally valid and the order of CIT(A) is confirmed.” 10. Not satisfied with the order of the Tribunal, the assessee has further come up in appeal before this Court challenging the order dated 22.9.2006 passed by the Income Tax Appellate Tribunal, New Delhi in ITA No.3903/DEL/2005 raising the following substantial question of law:- “Whether the Assessing Officer has jurisdiction to initiate subsequent proceedings under Section 147 of the Income Tax Act, 1961 in a case where on same set of facts previous proceedings culminating in the passing of assessment order under Section 143(3) read with Section 147 has been set aside on account of being time barred by the Income Tax Appellate Tribunal?” 11. Learned counsel for the appellant-assessee has argued that the assessment in the case was made under Section 143(3) on 14.2.2003 and the same could not be reopened after a lapse of four years from the end of the relevant assessment year unless there was an escapement of income tax due to failure on the part of the assessee in declaring true and ITA No.208 of 2007 7 full material facts necessary for the assessment. It has been further argued by the learned counsel for the appellant that the Assessing Officer with a view to circumvent the order of the Tribunal holding that the assessment framed by the Assessing Officer was barred by time and therefore, not sustainable in law, again issued a notice under Section 147/148 of the Act by recording the same reasons which had been recorded in the first instance and framed the assessment under Section 143(3) read with Section 147 of the Act. 12. On the other hand, Mr. Yogesh Putney learned counsel for the revenue has argued that the Assessing Officer was justified in initiating fresh proceedings under Section 147 of the Act as the notice had been issued by the Assessing Officer within the period prescribed under the Act as the earlier order of assessment dated 14.2.2003 which was quashed by Commissioner of Income Tax (Appeals) and the Tribunal on technical grounds will not bar the Assessing Officer from initiating the reassessment proceedings against the assessee. 13. We have heard learned counsel for the parties and perused the record. 14. In R.Kakkar Glass and Crockery House v. Commissioner of Income-Tax 254 ITR 273, this Court held as under:- “When a notice for reassessment is quashed on some technical ground, it would be in order to issue a fresh notice under section 148 of the Income-tax Act, 1961, provided all other legal requirements of law are complied with. For instance, it a notice under Section 148 is quashed on the ground that no reasons had been recorded, a second notice after recording the reasons ITA No.208 of 2007 8 would be in order. Similarly, if a notice is quashed on the ground that it has been issued without the requisite sanction of the higher authority, fresh notice can be issued after obtaining the necessary sanction. However, if a notice under section 148 is quashed after examining the material relied on by the Assessing Officer and after recording a finding that on the basis of such material the additional income cannot be said to have escaped assessment, it would not be permissible for the Assessing Officer to issue a fresh notice on the basis of the same material in respect of the same item of income. In case some fresh material comes into the possession of the Assessing Officer subsequently suggesting escapement of income under the same head or some other head, there are no fetters on the power of the Asssessing Officer to issue a fresh notice under section 148. All such notices, however, have to conform to the parameters prescribed under the law including the provisions regarding limitation.” 15. In Commissioner of Income-Tax v. Mrs. Manjula Sood, 227ITR 873 a Division Bench of this Court held as under:- “The law prescribing the period of limitation is to be considered as procedural rather than substantive. This proposition of law would have only one exception, i.e., if under the existing law of limitation the right to initiate a proceeding has already become time-barred then a subsequent enlargement of time by an amendment of ITA No.208 of 2007 9 law cannot be availed of. In such a case, the matter having attained finality, would vest a party with substantive right which has already accrued. This accrued right cannot be taken away by a subsequent amendment. Substantive laws determine the rights and liabilities of the parties concerned, whereas procedural laws govern the manner in which such rights or obligations are to be enforced or realised.” 16. In Commissioner of Income-Tax v. Air Craft Radio Corporation (2007) 292 ITR 64 (P&H) this Court held that after the reassessment had been set aside by the Appellate Court, the Assessing Officer had no jurisdiction to once again embark upon the same proceedings. 17. The Hon'ble Supreme Court in the case of CIT v. Rao Thakur Narayan Singh (1965) 56 ITR 234 observed as under: “....The Tribunal held in the earlier proceedings that the Income-tax Officer knew all the facts at the time he made the original assessment in regard to the income he later on sought to tax. The said finding necessarily implies that the Income-tax Officer had no reason to believe that because of the assessee's failure to disclose the facts income has escaped assessment. The earlier finding is comprehensive enough to negative 'any such reason' on the part of the Income-tax Officer. That finding is binding on him. He could not on the same facts reopen the proceedings on the ground that he had new information. If he did so, it would be a clear attempt ITA No.208 of 2007 10 to circumvent the said order, which had become final....” 18. It may be seen that the Assessing Officer had no fresh material before him. A perusal of the reasons recorded by him for reopening the assessment proceedings vide notice dated 22.3.2004 shows that the same reasons have been recorded which were stated in the earlier notice served under Section 148 of the Act on the basis of which the assessment was made on 14.2.2003 and which was quashed being barred by limitation. Thus, from the facts itself, it is crystal clear that though the present proceedings were initiated by the Assessing Officer within the prescribed period of limitation yet it is clear that the same were initiated only to circumvent the earlier order of the Tribunal vide which the assessment dated 14.2.2003 was held to be time barred. Thus, the Assessing Officer cannot be allowed to initiate fresh proceedings on identical facts as the first assessment proceedings had failed to result in a valid assessment due to lapse on the part of the Income-Tax Authority. 19. In view of the settled proposition of law, the question of law raised by the appellant is answered in the negative i.e. against the revenue and in favour of the assessee. Resultantly, the appeal is allowed and the order of the Tribunal is set aside. (RAKESH KUMAR GARG) JUDGE March 28, 2008 (SATISH KUMAR MITTAL) ps JUDGE