Rural Electrification Corporation Ltd. v. CIT

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The Tax Publishers2013 TaxPub(DT) 1747 (Del-HC) : (2013) 355 ITR 0345 : (2013) 260 CTR 0126 : (2013) 088 DTR 0153 Income Tax Act, 1961 --Reassessment--Applicability of Explanation 3 to section 153 Limitation--Assessee-company was a public financial company. By notice under section 148 reassessment proceedings were initiated. Reasons for issuing notice under section 148 was to the effect that assessee-company had advanced a loan to CES Society. This society had created a corpus of special fund amounting to Rs. 10 crores. Society earned interest on this special fund but did not disclose it in return of income for reasons that money belonged to assessee-company and any income earned was also on behalf of assessee-company. ITAT, in its consolidated order for assessment years 1999-00 to 2006-07, had held that this income was not taxable in hands of society but ought to be taxed in hands of assessee-company. Thus, on these reasons it was held by assessing officer that he has reasons to believe that income of Rs. 83,30,877 had escaped assessment within meaning of section 147 which warrants issue of notice under section 148 read with section 150. *Held:* Was not justified. Before notice under section 148 can be issued beyond time limits prescribed under section 149, ingredients of Explanation 3 to section 153 have to be satisfied. Fact that such an opportunity was not given, on had been recognized by revenue in the order disposing of the objections where it has been observed that there was no need to have afforded an opportunity to assessee. Even in counter affidavit, revenue had taken stand that it was not at all necessary for Tribunal to have allowed an opportunity of hearing to the assessee because that was in respect of assessment proceedings pertaining to said society. In view of fact that deeming provision provided in Explanation 3 to section 153 does not get attracted in present case because an opportunity of hearing had not been given to assessee provisions of section 150 would also not be attracted. Before a notice under section 148 can be issued beyond the time limits prescribed under section 149, the ingredients of Explanation 3 to section 153 have to be satisfied. Those ingredients require that there must be a finding that income which is excluded from the total income of one person must be held to be income of another person. The second ingredient being that before such a finding is recorded, such other person should be given an opportunity of being heard. In the context of the present case. When the Tribunal held in favour of the said society by concluding that the interest income was not taxable in its hands and held against the petitioner by concluding that the said interest income ought to have been taxed in the hands of the petitioner, an opportunity of hearing ought to have been given to the petitioner. Fact that such an opportunity was not given, has been recognized by the revenue in the order disposing of the objections dated 20-10-2011, where it has been observed that there was no need to have afforded an opportunity to the petitioner. Even in the counter affidavit, the revenue has taken the stand that it was not at all necessary for the Tribunal to have allowed an opportunity of hearing to the petitioner because that was in respect of the assessment proceedings pertaining to the said society. [Para 14] No opportunity of hearing was given to the petitioner prior to the passing of the order dated 13-1-2010 by the Tribunal, in the cases of the society. As such, one essential ingredient of Explanation 3 was missing and, therefore, the deeming clause would not get triggered. That being the position, section 150 would not apply and, therefore, the bar of limitation prescribed by section 149 is not lifted. [Para 15] Specific condition for attracting the deeming provision of Explanation 3 to section 153 requires that the person ought to be given an opportunity of being heard before an order is passed where under any income is excluded from the total income of one person and held to be the income of another person. It is not as if the revenue is being faulted or the Tribunal is being faulted for not granting an opportunity of hearing to the petitioner. The placing of a blame is not the issue. What is relevant is whether the petitioner had been given an opportunity of hearing before the Tribunal concluded that the interest income was taxable in its hands and not in the hands of the society. It is obvious that this flows from the general principle that no prejudice should be caused to anybody without that person having been heard. [Para 16] In view of the fact that the deeming provision provided in Explanation 3 to section 153 does not get attracted in the present case because an opportunity of hearing had not been given to the petitioner, the provisions of section 150 would also not be attracted. In such a situation, the normal provisions of limitation prescribed under section 149 of the said Act would apply. Those provisions restrict the time period for reopening to a maximum of six years from the end of the relevant assessment year. In the present writ petitions, the notices under section 148 have all been issued beyond the said period of six years. Therefore, the said notices are time barred. [Para 17] Consequently, the writ petitions are allowed. The impugned notices under section 148 are set aside and so, too, are all the proceedings pursuant thereto, including the assessment orders that have been passed. [Para 18] SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 1747 (Del-HC) : (2013) 355 ITR 0345 : (2013) 260 CTR 0126 : (2013) 088 DTR 0153

Income Tax Act, 1961

--Reassessment--Applicability of Explanation 3 to section 153 Limitation--Assessee-company was a public financial company. By notice under section 148 reassessment proceedings were initiated. Reasons for issuing notice under section 148 was to the effect that assessee-company had advanced a loan to CES Society. This society had created a corpus of special fund amounting to Rs. 10 crores. Society earned interest on this special fund but did not disclose it in return of income for reasons that money belonged to assessee-company and any income earned was also on behalf of assessee-company. ITAT, in its consolidated order for assessment years 1999-00 to 2006-07, had held that this income was not taxable in hands of society but ought to be taxed in hands of assessee-company. Thus, on these reasons it was held by assessing officer that he has reasons to believe that income of Rs. 83,30,877 had escaped assessment within meaning of section 147 which warrants issue of notice under section 148 read with section 150. Held: Was not justified. Before notice under section 148 can be issued beyond time limits prescribed under section 149, ingredients of Explanation 3 to section 153 have to be satisfied. Fact that such an opportunity was not given, on had been recognized by revenue in the order disposing of the objections where it has been observed that there was no need to have afforded an opportunity to assessee. Even in counter affidavit, revenue had taken stand that it was not at all necessary for Tribunal to have allowed an opportunity of hearing to the assessee because that was in respect of assessment proceedings pertaining to said society. In view of fact that deeming provision provided in Explanation 3 to section 153 does not get attracted in present case because an opportunity of hearing had not been given to assessee provisions of section 150 would also not be attracted.

Before a notice under section 148 can be issued beyond the time limits prescribed under section 149, the ingredients of Explanation 3 to section 153 have to be satisfied. Those ingredients require that there must be a finding that income which is excluded from the total income of one person must be held to be income of another person. The second ingredient being that before such a finding is recorded, such other person should be given an opportunity of being heard. In the context of the present case. When the Tribunal held in favour of the said society by concluding that the interest income was not taxable in its hands and held against the petitioner by concluding that the said interest income ought to have been taxed in the hands of the petitioner, an opportunity of hearing ought to have been given to the petitioner. Fact that such an opportunity was not given, has been recognized by the revenue in the order disposing of the objections dated 20-10-2011, where it has been observed that there was no need to have afforded an opportunity to the petitioner. Even in the counter affidavit, the revenue has taken the stand that it was not at all necessary for the Tribunal to have allowed an opportunity of hearing to the petitioner because that was in respect of the assessment proceedings pertaining to the said society. [Para 14] No opportunity of hearing was given to the petitioner prior to the passing of the order dated 13-1-2010 by the Tribunal, in the cases of the society. As such, one essential ingredient of Explanation 3 was missing and, therefore, the deeming clause would not get triggered. That being the position, section 150 would not apply and, therefore, the bar of limitation prescribed by section 149 is not lifted. [Para 15] Specific condition for attracting the deeming provision of Explanation 3 to section 153 requires that the person ought to be given an opportunity of being heard before an order is passed where under any income is excluded from the total income of one person and held to be the income of another person. It is not as if the revenue is being faulted or the Tribunal is being faulted for not granting an opportunity of hearing to the petitioner. The placing of a blame is not the issue. What is relevant is whether the petitioner had been given an opportunity of hearing before the Tribunal concluded that the interest income was taxable in its hands and not in the hands of the society. It is obvious that this flows from the general principle that no prejudice should be caused to anybody without that person having been heard. [Para 16] In view of the fact that the deeming provision provided in Explanation 3 to section 153 does not get attracted in the present case because an opportunity of hearing had not been given to the petitioner, the provisions of section 150 would also not be attracted. In such a situation, the normal provisions of limitation prescribed under section 149 of the said Act would apply. Those provisions restrict the time period for reopening to a maximum of six years from the end of the relevant assessment year. In the present writ petitions, the notices under section 148 have all been issued beyond the said period of six years. Therefore, the said notices are time barred. [Para 17] Consequently, the writ petitions are allowed. The impugned notices under section 148 are set aside and so, too, are all the proceedings pursuant thereto, including the assessment orders that have been passed. [Para 18]