The Hindu Business Line : Justice denied in reassessment

The Supreme Court, in the Sun Engg. Works case, held that the income determined in reassessment cannot be less than the income determined in the original assessment.

V. K. Subramani

Reassessment proceedings are initiated when the assessing officer (AO) believes that any income chargeable to tax has escaped assessment. The mechanics for reassessment is contained in Sections 147 to 153 of the Income-Tax (I-T) Act.

Also, where the return filed by the assessee is beyond the legitimate time prescribed under Section 139(4), the AO, to regularise the return, may resort to reassessment proceedings by invoking the relevant provisions.

By this process, the AO gets extended time limit of one year from the end of the financial year for completing the assessment and this one year is reckoned from the year in which the notice under Section 148 is issued.

If a time-barred return could not be acted upon by the AO under other regular assessment provisions, it might encourage a taxpayer to file his return always after the expiry of time limit prescribed under the Act. To check these kinds of invalid returns, reassessment provisions could be activated with resultant consequences such as interest, penalty and prosecution.

The Supreme Court, in CIT vs Sun Engg. Works Ltd (1992 198 ITR 297 SC), analysed the scope of Sections 147 and 148 and held that the income determined in reassessment could not be less than the income determined in the original assessment. This dictum of the apex court was applied recently in Dr Vinay Bharat Ram vs Assistant CIT (2008 23 SOT 356 Delhi).

Facts of the case

The assessee, the managing director of DCM Ltd, received commission of Rs 25 lakh in addition to regular salary of Rs 5.58 lakh. The assessee admitted Rs 30.58 lakh as income and the return was processed under Section 143(1) of the Act.

Subsequently, the commission payment was objected to by the Registrar of Companies (RoC) hence the assessee refunded the Rs 25 lakh to the company and filed an application under Section 154 for excluding such amount from his total income and sought refund of tax already paid.

The AO issued a notice under Section 148 and reopened the assessment. The assessee filed a return in response to the notice and sought exclusion of Rs 25 lakh from the total income.

The AO held that the reassessment proceedings could not benefit the assessee by determining the income less than what was assessed in the original assessment, that is, the order passed under Section 143(1).

Verdict of the Tribunal

The tribunal cited the apex court decision in the Sun Engg. Works (supra) case and held the claim of the assessee during the course of reassessment proceeding must be limited to the extent of reducing the income to what was originally assessed. The taxable income in reassessment cannot be reduced beyond what was determined in the original assessment.

The tribunal held that the decision in the Atma Ram Properties (P) Ltd (IT Appeal No. 503 Delhi) case is not applicable for the reason that the issue decided in that case relates to claim of deduction relating to the subject matter for which reassessment proceedings were initiated. Whereas in the Vinay Bharat Ram case, the claim of the assessee is unrelated to the escaped income in respect of which the reassessment proceedings were initiated.

The tribunal hence held that the decision in the Atma Ram case is not applicable in the Vinay Bharat Ram case and also held that the decision in the Atma Ram case does not militate against the apex court decision in the Sun Engg. Works (supra) case.

Equity, justice ignored

The tribunal followed the apex court decision or the dictum that the reassessment proceedings are not to benefit the assessee. The facts of the case show glaringly that the taxpayer having refunded an income received earlier could not get relief under the I-T law because of the binding force of apex court decision. The technicalities of law have been applied and the principles of equity and justice have been obscured in the process.

The tribunal perhaps could not sail comfortably with its negative decision and, hence, consciously gave an obiter dictum that the plea of the assessee in this case deserves consideration at an appropriate forum and not before it.

As there is a question of law which merits consideration of a court for adjudication of the issue by putting justice ahead of technical interpretations, this case might go before the higher forums of judiciary for innovative and practical interpretation of law.

(The author is an Erode-based chartered accountant.)