CA Sandeep Kanoi
Extended period of limitation U/s. 153 and Us/. 267 not available to pass assessment order pursuant to finding/ direction of appellate authority not available if affected party not heard
Time limits set out under section 153, for completing the assessments, reassessments and recomputations, are concerned, is that these time limits do not apply in the cases “where the assessment, reassessment or recomputation is made on the assessee or any person in consequence of or to give effect to any finding or direction contained in an order, under sections 250, 254, 260, 262, 263 or 264 or in an order of any court in a proceeding otherwise than by way of appeal or reference under this Act”. These are the cases in which such assessments, reassessments and recomputations can be done at any time, subject only to the condition that these assessments, reassessments and recomputations can be done within the end of one year from the end of the financial year in which the said order, as a consequence of, or to give effect to findings or directions contained therein, is received by the Chief Commissioner or Commissioner concerned or. In the case of the order under section 263 or section 264, the order is passed. There are, however, three important riders to this legal position. One of these riders, set out in Explanation 3 to Section 153(3)- as set out above, provides that, “any income is excluded from the total income of one person and held to be the income of another person, then, an assessment of such income on such other person shall, for the purposes of section 150 and this section, be deemed to be one made in consequence of or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed.”. The net result of this enabling provision, and the rider thereto, is that when as a result of a ‘finding or direction’ in, inter alia, in an appellate order, income of one person (say ‘x’) is held to be income of another person (say ‘y’), the assessment of such another person (i.e. ‘y ‘) can be eligible for relaxation from time barring provisions only if “such other person was given an opportunity of being heard before the said order (i.e. appellate order) was passed”.
Of course, it is not on the unfettered discretion of the appellate authority to give any directions and there are strict legal provisions on the scope of what directions or findings can be given in the course of the appellate proceedings. Hon’ble Supreme Court, in the case of Rajinder Nath Vs CIT (120 ITR 14), has held that “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”. However, that aspect of the matter is academic since Section 267 specifically provides that, “Where as a result of an appeal under section 246 or section 246A or section 253, any change is made in the assessment of a body of individuals or an association of persons or a new assessment of a body of individuals or an association of persons is ordered to be made, Commissioner (Appeals) or the Appellate Tribunal, as the case may be, shall pass an order authorising the Assessing Officer either to amend the assessment made on any member of the body or association or make a fresh assessment on any member of the body or association”. In other words, the CIT(A), as also this Tribunal, does indeed have the powers to issue such directions. The powers to give such directions is one thing, but relaxation in time limit for completion of assessment under section 153(3) is quite another thing. That relaxation under section 153(3), as evident from Explanation 3 to Section 153(3), can only come into play when the person in whose hands income is to be added, as a result of these findings or directions, “was given an opportunity of being heard before the said order (i.e. appellate order) was passed”.
When our understanding of the legal position, as set out above, was put to the learned Departmental Representative, he submitted that an opportunity of hearing having been granted to the representatives of the trusts in question, as was admittedly given by the learned CIT(A) and in view of the position that no trusts existed in the eyes of the law, is required to be treated as hearing to the representatives of the trustees. On the basis of this reasoning, according to the learned Departmental Representative, conditions set out in Explanation 3 to Section 153(3) were satisfied and the order passed by the Assessing Officer, as a result of the findings in the course of the appellate proceedings of the trusts, is a legally valid order passed within the time limit set out in Section 153(2A). Learned Departmental Representative has also contended that the powers of the Commissioner (Appeals) are co terminus with the powers of the Assessing Officer, and, therefore, whatever Assessing Officer can do, the Commissioner (Appeals) can do as well. We are unable to uphold the stand so taken by the learned Departmental Representative. So far as the opportunity of hearing to the assessee in whose hands income of the assessee in appeal is to be added, is concerned, it is condition precedent for giving any finding adverse to such assessee vis-à-vis the time limits for completion of his assessment, reassessment or re computations are concerned. That is, in our considered view, unambiguous scheme of Explanation 3 to Section 153(3). When an appellate authority does not do so, the affected assessee can not be put to any disadvantage as far as the statutory time limits for completion of assessments, reassessment or re computations. An opportunity to be so given should be a specific opportunity and the affected assessee is required to be put to notice on that issue. A general hearing given to the representative of the trusts in question cannot, in our humble understanding, be equated with such specific opportunity to the affected assessee and the affected assessee being put to notice about the conclusions adversely affecting him. As for the powers of the learned Commissioner (Appeals) being co terminus with the powers of the Assessing Officer, this proposition holds good only vis-à-vis the assessee in appeal before the learned Commissioner (Appeals) and obviously it would not extend to all the assessee on whom the Assessing Officer may have jurisdiction. As regards the time limit under section 153(2A), this comes into play when fresh assessment for the same assessee and the same assessment year is to be made and all other fresh assessments as a result of the appellate order, including a fresh assessment in the case of that very assessee for another assessment year, by the virtue of deeming fictions set out in Explanation 2 and 3, are to be treated as deemed to be the assessments “made in consequence of or to give effect to any finding or direction contained in the said order”. In view of these discussions, as also bearing in mind entirety of the case, we are of the considered view that unless this assessee was given a specific opportunity of being heard, before the appellate order in the cases of Gurunanakdevji Trust, Guru Govind Singhji Trust and Guru Teg Bahadurji Trust was passed or unless the impugned order was passed within the time limits set out under section 153(1) or (2), the impugned order cannot be said to be sustainable in law. The time limit under section 153(1) and (2) are clearly not satisfied on the facts of this case since it is not a case of serving the notice under section 148, the assessment year before us is 2002-03, a valid return was duly filed and processed, and yet the impugned order was passed on 4th December 2006 ( i.e. well after two years from the end of the relevant assessment year). The scheme of the Income Tax Act fiercely guards the rule of finality to income tax proceedings, whether in assessment, reassessment, revisions, rectifications or any other proceedings, and once the time limit for that course of action is over, the finality thereto cannot be disturbed except under the specific provisions of the Act. The only thing which can help the cause of the revenue is thus a specific notice of hearing having been given to the assessee before us, as mandated by Explanation 3 to Section 153(3). It is only when the Assessing Officer can demonstrate that this assessee was given a specific opportunity of hearing, before the appellate order dated 3.10.2005 was passed in the cases of Gurunanakdevji Trust, Guru Govind Singhji Trust and Guru Teg Bahadurji Trust, that the impugned assessment order can be treated as legally valid.
In view of the above discussions and bearing in mind entirety of the case, we deem it and fit and proper to remit the matter to the file of the Assessing Officer for limited verification of this aspect of the matter. On the face of it, as evident from the material on record, no such opportunity was given to the assessee before us. However, as a measure of abundant caution, we are remitting verification of this factual aspect to the file of the Assessing Officer. In case it is found this assessee has not been given any such specific opportunity of hearing, the impugned assessment order shall stand quashed and the matter rests there. In the event, however, the Assessing Officer can demonstrate the fulfilment of this condition, the jurisdiction can be said to have been assumed legally but the Assessing Officer will still have to deal with the objections of the assessee on merits by way of a speaking order and in accordance with the law, rather than proceeding to add the assesseee’s share in trust income straight away without adjudicating upon such legal objections, as have been taken by the assessee, on merits of his case. Whatever directions the CIT(A) may have given in the course of the appellate proceedings on these trusts, these findings or directions can at best be a starting point for examining the taxability in the hands of the assessee and can enable the Assessing Officer, though subject to the conditions discussed above, to initiate that process, but these findings or directions cannot preclude the assessee from raising such legal pleas, as he deems appropriate, in the course of his assessment. These observations do not bind the assessee on merits and all such legal arguments, as this assessee may take, are to be anyway examined on merits. With these directions, the matter stands restored to the file of the Assessing Officer in the terms indicated above.