Limitation u/s 153-Period between vacation of stay and receipt of order not covered. Only the period during which the assessment proceeding is stayed by an order is covered by the Explanation 1 to Section 153- High Court
ABCAUS Case Law Citation:
ABCAUS 2072 (2017) (09) HC
The Petitioner assessee challenged the assessment order passed under Section 147 read with Section 143(3) by the Income Tax Officer, the consequential notice of demand and the penalty order u/s 271 (1) (c) of the Income Tax Act, 1961 (‘Act’).
Assessment Year : 2006-07
Important Case Laws Cited/relied upon by the parties:
Commissioner of Income-tax-1, Agra v. Chandra Bhan Bansal (2015) 273 CTR (All) 450
Income Tax Officer v. Mahesh Chandra Agrawal  43 SOT 9 (Luck)
Income-tax Officer-I, Bijnor v. Atul Agarwal  172 Taxmann 170 (Del)
Deputy Commissioner of Income-tax, Circle-Tinsukia v. Steels Worth (P.) Ltd.  58 taxmann.com 262 (Guwahati – Trib)
India Ferro Alloy Industry Pvt. Ltd. v. Commissioner of Income-Tax  202 ITR 671 (Cal)
Madras High Court in Thanthi Trust v. Income Tax Officer  177 ITR 307 (Mad)
Brief Facts of the Case:
The return of income of the assessee for the relevant assessment year was picked up for scrutiny. The Assessing Officer (AO) issued a notice to the Assessee under Section 142 (1) of the Act asking the Assessee to furnish certain particulars and documents. A detailed questionnaire was issued in regard to the share application money-cum-share premium received from several parties. The AO also issued notice under Section 133 (6) of the Act to the parties who filed their respective responses and confirmed that they had subscribed to the share capital of the Assessee. Thereafter the AO passed a final assessment order.
However, around three years thereafterbased on DIT(Inv) report the AO issued a notice under Section 148 of the Act proposing to reopen the assessment.
The Assessee filed objections to the reopening of assessment. These objections were rejected by the AO by order.
The Assessee then filed a writ petition in High Court seeking the quashing of the notice issued under Section 148 of the Act as also the order passed by the AO rejecting the Assessee’s objections to the reopening of the assessment. By an interim order, High Court stayed all further proceedings pursuant to the said notice . The Writ was ultimately dismissed as withdrawn on 9th December 2016 with liberty to the Assessee to urge the grounds raised in the petition on merits in the re-assessment proceedings.
In relation to the re-assessment proceedings the stay granted by High Court in favour of the Assessee continued during the period between 18th March, 2013 and 9th November 2016.
The AO passed the assessment order in the re-assessment proceedings only on 30th January 2017. On the same date, the AO issued a demand notice. A notice under Section 274 read with Section 271 of the Act was also issued on the same date for initiation of penalty proceedings under Section 271(1) (c) of the Act. Thereafter, on 26th July 2017, a penalty order was passed by the AO under Section 271 (1) (c) of the Act.
Contention of the appellant Assessee:
According to the Assessee, on the date of the stay order being vacated, there were only 13 days left for expiry of the limitation period within which the AO was to complete the re-assessment in terms of Section 153 (2) of the Act. However, under the first proviso to Explanation-1 to Section 153 read with Section 153 (2) of the Act, the period of 13 days got extended to 60 days from 9th November 2016. Consequently the re-assessment had to be completed and an order must have been passed on or before 9th January 2017. However, the AO passed the assessment order in the re-assessment proceedings only on 30th January 2017.
Accordingly, it was contended that the impugned assessment order was barred by limitation.
Contentions of the Respondent Revenue.
The Revenue submitted that the order of the High Court dated 9th November 2016 dismissing the assessee’s writ petition was received in the office of Principal CIT only on 2nd December 2016. Thereafter notice was issued to the Assessee on 6th December 2016 under Section 142(1) of the Act. It was submitted that after the receipt of the order of the High Court, the impugned assessment order was passed within 60 days, on 30th January 2017. It was accordingly submitted that the assessment order was not issued beyond the period stipulated under Section 153 (2) of the Act read with the proviso to Explanation 1 thereof.
Observations made by the High Court:
The High Court observed that s per the Revenue, copy of the order of the High Court dated 9th November 2016 was received in the office of the Principal CIT only on 2nd December 2016. However, there is no document substantiate the assertion. The High Court opined that this could have been substantiated by producing the relevant extract from the dispatch and receipt register maintained in the said office or even a copy of the order of the High Court with the date stamp of the receipt of such order in the office of the Principal CIT.
It was further observed that clause (ii) to Explanation 1 only excludes from the computation of limitation “the period during which the assessment proceeding is stayed by an order or an injunction of any court.” It does not exclude the period between the date of the order of vacation of stay by the Court and the date of receipt of such order by the Department. Therefore, the Revenue could not take advantage of the fact that it received a copy of the order only on 2nd December 2016.
The High Court observed that the submission that the 60 day period in terms of the first proviso to Explanation 1 to Section 153 of the Act should begin to run from the date on which the Revenue received a copy of the order of vacation of stay could not be accepted. According to the High Court, such an interpretation was not supported by the plain language of the proviso to Explanation 1. In fact, Circular No. 621 dated 19th December 1991 issued by the Central Board of Direct Taxes, while explaining the reasons for introduction of the proviso under Explanation 1, acknowledged that the time remaining after vacation of stay in terms of Section 153 (2) of the Act may not be sufficient to complete the re-assessment proceedings which is why the language used in the first proviso is that the period “shall be extended to 60 days” for passing the assessment order in terms of Section 153 (2) of the Act if the period remaining within limitation after the excluded period has elapsed is less than 60 days.
The High Court observed that in the instant case, on the date that the stay order stood vacated only 13 days were left for completion of the proceedings. Since this period was less than 60 days, the period of limitation got extended to 60 days from the date of such vacation of stay, i.e. 60 days from 9th November 2016. This, therefore, meant that the order in the re-assessment proceedings had to be necessarily passed on or before 8th January 2017. This is the only interpretation that is possible on a collective reading of Section 153 (2), Explanation 1, clause (ii) and the first proviso thereto.
The High Court noted that even otherwise, the assertion that the Revenue was aware of the order only on 2nd December 2016 did not appear to be correct. A notice was issued by the AO on 30th November 2016 to the Assessee under Section 142 (1) of the Act and this was pursuant to the order passed by this Court on 9th November 2016. Clearly, therefore, on the date that such notice was issued, the AO was aware of the order dated 9th November 2016 of this Court. Also, the order dated 9th November 2016 was passed in the presence of counsel for the Revenue and, therefore, the Revenue clearly was aware of the said order on that date itself.
It was held that the impugned assessment order dated 30th January 2017 was time barred and it was accordingly set aside. Consequently, demand notice and the penalty order passed by the AO under Section 271(1) (c) of the Act, was also set aside.