Meaning of findings and directions for limitation period of reopening notice u/s 150(1)

Meaning of findings and directions for limitation period of reopening notice u/s 150(1). ITAT quashed re-assessment as CIT-A made an observation not gave direction  

In the instant appeal the appellant assessee had challenged the proceedings initiated under section 147/148 of the Income Tax Act, 1961 (the Act) and consequential order passed under section 147/143(3) of the Act since being without jurisdiction and that the notice issued under section 148 of the Act was beyond the statutory time of six years from the end of the assessment year as prescribed under the Act.

ABCAUS Case Law Citation:
ABCAUS 2325 (2018) (05) ITAT

Important Case Laws Cited/relied upon by the parties:
Rajinder Nath vs. CIT [1979] 2 Taxman 204 (SC)
K.M. Sharma vs. ITO [2002] 122 Taxman 426 (SC)

Meaning of findings and directions for reopening limitation period

A notice u/s 148 was issued to the assessee for assessment year 2005-06 on 14/1/2016. In response to that notice, assessee had submitted a written reply stating that notice under section 148 was barred by limitation in view of the provisions of section 149 of the Act.

However, rejecting the submission of the assessee re-assessment order was framed pursuant to notice under section 148 of the Act and demand had been raised by the Assessing Officer (AO).

The ITAT observed that the case of the Revenue was that the said notice issued under section 148 of the Act had been issued as per provisions of section 150(1) of the Act wherein it is provided that where an assessment is in pursuance of an order of appeal, the notice under section 148 can be issued at any time in consequence of or to give effect to any finding or direction contained in an order passed by any appellate authority.

It was further observed that the finding/direction which was relied upon by the Revenue was the observation of the CIT(A) in an appeal relating to AY 2008-09 wherein the CIT(A) opined that since the property in question stood transferred in the F.Y. 2004-05, and not in A.Y. 2008-09, no no liability for capital gains tax had arisen during the year under consideration. However, the AO may consider the computation of Capital Gains in A. Y. 2005-06″. Against the said order of CIT(A), the Revenue had filed an appeal before the ITAT which also held that capital gain did not arise in the impugned assessment year, but in AY 2005-06 and the AO may consider computation of capital gain in that assessment year. On further appeal, the Hon’ble High Court observed that the long term capital gains could only be computed in the year when the property was transferred, namely, in the financial year 2004-05 that is assessment year 2005-06.

Thus the Revenue stated that in all the orders of the appellate authorities, there was a clear finding that the AO may consider computation of capital gain in assessment year 2005-06. Accordingly, notice under section 148 was issued to the assessee.

The assessee argued that a bare reading of section 148 along with 149 of the Act reveals that notice could have been issued in time within six years from the end of the assessment year i.e. till 31/03/2012. It was further stated that the embargo can be done away with section 150(1) if there was any finding or direction by an authority but there was no such finding or direction and in the absence of that embargo, section 149 of the Act was applicable in the case of the assessee and within 31/3/2012 at the maximum notice under section 148 could have been issued, but here in this case assessment order itself was passed on 28/2/2013. Similarly, ITAT order was passed on 5/6/2015 and the order of the Hon’ble High Court was passed on 28/10/2015. By the time appeal orders were passed, period of limitation i.e. 31/3/2012 has already expired.

The Tribunal noted that the section 148 of the Act states that before making any assessment or reassessment, notice under section 148 has to be issued for the purpose of such assessment or re-assessment under section 147 of the Act. Thereafter, section 149 provides time limit for issue of notice under section 148, which is either four years or six years as per conditions stated in the provision. Therefore, to the maximum, within six years notice under section 148 has to be issued. However, this embargo or restriction of 149 ceases to exist with application of section 150(1) wherein it is stated that notwithstanding anything contained in section 149, such notice under section 148 may be issued at any time in order to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, etc. Therefore, the basic time limit prescribed under section 149, which is of six years and if there is any finding or direction for which effect has to be given, in such case this embargo of 149 is lifted up and as per section 150(1) notice under section 148 could be issued at any time.

The Tribunal observed that the Hon’ble Supreme Court had clearly brought out and discussed the expression of “finding” and “direction” by observing that the expressions “finding” and “direction” in section 153(3) are limited in meaning. A finding given in an appeal, revision or reference arising out of an assessment must be a finding necessary for the disposal of the particular case, that is to say, in respect of the particular assessee and in relation to the particular assessment year. To be a necessary finding, it must be directly involved in the disposal of the case. As regards the expression “direction” in section 153(3)(ii) of the Act, it is well settled that it must be an express direction necessary for the disposal of the case before the authority or court. It must also be a direction which the authority or court is empowered to give while deciding the case before it.

Therefore the Tribunal observed that as per the law laid by the Hon’ble Apex Court, the term “finding” and “direction” has to be a specific finding and direction. They cannot be incidental; rather finding and direction should be of the case and of the order which is before the authority adjudicating the same.

It was observed that in the case of the assessee, the order passed by the CIT(A) simply stated that the Assessing Officer may consider computation of capital gains in assessment year 2005-06. Had the word “may” been used as “shall”, it would have a specific direction or finding. With the word “may” it was an observation, a plausible view of the CIT(A). By the time appellate order was passed, the period of limitation had already expired. Section 150(1) was not applicable since the CIT(A) had merely stated his view and opinion. In the case, the embargo of section 149 was operative and notice was to be issued within six years. Therefore, the notice issued u/s 148 was beyond the period of limitation.  

The Tribunal went on to observed that as per the Law laid by the Supreme Court, the fiscal statute more particularly on a provision such as the present one regulating period of limitation must receive strict construction. Law of limitation is intended to give certainty and finality to legal proceedings and to avoid exposure to risk of litigation to litigant. Proceedings, which have attained finality under existing law due to bar of limitation cannot be held to be open for revival unless the amended provision is clearly given retrospective operation so as to allow upsetting of proceedings, which had already been concluded and attained finality.

It was observed that the amendment to sub-section (1) of Section 150 was not expressed to be retrospective and, therefore, had to be held as only prospective. The amendment made to sub-section (1) of Section 150 which intends to lift embargo of period of limitation under Section 149 to enable Authorities to reopen assessments not only on the basis of Orders passed in proceedings under the Act but also on Order of a Court in any proceedings under any law had to be applied prospectively. Therefore, even as per rule, strict construction and limitation of section 149 applies until and unless ingredients of section 150(1) is fulfilled.

The ITAT opined that in the case, the ingredients of section 150(1), was not satisfied, therefore, issuance of notice under section 148 was directly hit by the provisions of section 149 limitation. Therefore, since issuance of 148 notice was barred by limitation, serving of notice itself was invalid and bad in law and, therefore, any consequent assessment or re-assessment was obviously null and void.

Accordingly, the ITAT set aside the order of the CIT(A) and directed quashing of the re-assessment proceedings.

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