Case Law Details
Joseph Madathiparambil Michael Vs DCIT (Kerala High Court)
The Kerala High Court recently addressed an important issue regarding the time limit for passing consequential orders following a remand in income tax assessments. The case, Joseph Madathiparambil Michael Vs DCIT, centered around whether the one-year limit prescribed by Section 153(2A) of the Income Tax Act, 1961, applies when an appellate or revisional authority remands a case to the assessing authority on a specific issue.
The petitioner, an assessee under the Income Tax Act, challenged an order (Ext.P8) passed by the Assessing Authority, which purportedly gave effect to an order of the Income Tax Appellate Tribunal (ITAT). The petitioner contended that Ext.P8 was issued beyond the time limit specified under Section 153(2A) of the Act, prior to the amendments effective from June 1, 2016. The matter was referred to a Division Bench of the Kerala High Court for consideration.
The Court examined the relevant provisions of the Income Tax Act, specifically Section 153(2A), which mandates a time-bound completion of assessments in cases of remand by appellate or revisional authorities. The statutory intent was to ensure finality and certainty in taxation matters for the assessee. The Court noted that if an assessing authority is required to re-adjudicate an issue afresh, the consequential order must be passed within one year from the end of the financial year in which the appellate or revisional order was issued.
In this case, the Tribunal had directed the Assessing Authority to re-adjudicate the petitioner’s claim under Section 54F of the Income Tax Act. Despite the clear direction and the need for reassessment, the Assessing Authority failed to pass the consequential order within the stipulated time frame. The Court emphasized that the one-year limit applies even when only one issue is remanded for fresh consideration.
The Court also highlighted the importance of timely tax collection, noting that any delay in passing the consequential order could prejudice the assessee, who would be liable to pay interest for a longer period. Therefore, adherence to the statutory time limit is crucial to avoid such adverse consequences for the assessee.
Ultimately, the Court ruled in favor of the petitioner, quashing Ext.P8 order and providing consequential reliefs. The decision reaffirmed the importance of adhering to statutory time limits in income tax assessments, ensuring fairness and efficiency in the tax administration process.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
This Writ Petition has been placed before us by the order of the Chief Justice, pursuant to a Reference Order dated 03.11.2023 of a learned Single Judge in the Writ Petition.
2. The brief facts necessary for the disposal of the Writ Petition are as follows:
The petitioner, an assessee under the provisions of the Income Tax Act, 1961 (hereinafter referred to as the ‘IT Act’) approached this Court impugning Ext.P8 order dated 17.02.2023 passed by the Assessing Authority purportedly giving effect to an order dated 24.05.2016 of the Income Tax Appellate Tribunal, Cochin Bench, under Section 254 of the IT Act, 1961. The limited ground on which the Writ Petition was filed was that the consequential order (Ext.P8) passed by the assessing authority was beyond the time limit specified under Section 153(2A) of the IT Act as it stood prior to the amendments with effect from 01.06.2016. The learned Single Judge was referred to a judgment of another Single Judge of this Court in Patel R.P. (Dr.) v. Assistant Commissioner of Income Tax, Kottayam [2015 (4) KLT SN 97] where under almost identical circumstances, the learned Judge had found that even in a case where only one issue has been directed to be considered afresh by the Appellate Tribunal, the limitation under Section 153(2A) would apply. It was found on the facts of that case that the Appellate Tribunal had directed the assessing authority to consider afresh one of the issues that had arisen for consideration in the appeal, and the said remand was sufficient for attracting the provisions of Section 153 (2A) of the IT Act. The learned Single Judge at whose instance the issue has now been placed before us for consideration differed with the judgment in Dr. R.P. Patel (supra) and referred the following issue for consideration by the Division Bench:
“ Whether the limitation of one year for passing a fresh assessment order in pursuance to an order passed under Sections 250 or 254 or 263 or 264 of the Income Tax Act, would apply where the case has been remanded by the appellate or revisional authority on one particular issue and the assessment order has not been set aside or cancelled completely?”
3. We have heard Sri. Anil D. Nair, the learned counsel for the writ petitioner and the Sri. Jose Joseph, the learned Standing counsel for the Income Tax Department.
4. On a consideration of the facts and circumstances of the case and the submissions made across the bar, we find from the facts in the instant case that the petitioner assessee had filed his return for the assessment year 2007-2008 under Section 139(1) of the Income Tax Act returning a total income of Rs.41,75,640/-. The said return was scrutinized under Section 143(2) of the IT Act, and in the resultant assessment under Section 143(3) read with Section 147 of the IT Act, the petitioner was assessed, inter alia, to a long term capital gain of Rs.81,79,879/-. The assessment order was passed on 31.12.2010. In the appeal that was carried by the petitioner against the said order, the First Appellate Authority, by an order dated 28.12.2011, found in favour of the petitioner on the issue of indexed cost of acquisition and against the petitioner on the claim under Section 54F of the IT Act. The matter was, thereafter, remanded to the Assessing Officer for passing consequential orders. In the consequential orders that were passed by the Assessing Authority on 18.01.2012, the petitioner was assessed to an amount of Rs.39,12,924/-, which he paid.
5. The facts in the Writ Petition would indicate that thereafter both the petitioner assessee and the Department preferred appeals against the order dated 28.12.2011 of the First Appellate Authority to the extent it had remanded the matters to the assessing authority. The Tribunal considered all the appeals together and by a common order dated 24.05.2016, found in favour of the petitioner assessee on the issue of claim of reduction under Section 54F of the IT Act and remanded the said issue for de novo consideration by the Assessing Authority after verification of certain factual aspects. Although the consequential order, pursuant to the remand, had to be passed by the assessing authority within a year thereafter, as contemplated by the provisions of Section 153(2A) of the IT Act as it then stood, the assessing authority did not pass any such order till 17.02.2023 on which date Ext.P8 order was passed. It is significant that in the meanwhile, finding that no consequential order had been passed by the Assessing Authority within the period of limitation prescribed under Section 153(2A) of the IT Act, the petitioner had preferred an application dated 08.07.2022 seeking a refund of alleged excess amounts paid by him, apparently in anticipation of a favourable order from the Assessing Authority consequent to the remand by the Tribunal.
6. As already noticed, it was on being served with Ext.P8 consequential order of the Assessing Authority that the petitioner approached this Court through the Writ Petition aforementioned, which led to the issue being referred for consideration by this bench.
7. The provisions of Section 153 (2), (2A), and (3) of the IT Act as it stood during the relevant time read as follows:
“Section 153(1)
(2) No order of assessment, reassessment or recomputation shall be made under section 147 after the expiry of one year from the end of the financial year in which the notice under section 148 was served :
Provided that where the notice under section 148 was served on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such assessment, reassessment or recomputation may be made at any time up to the 31st day of March, 2002 :
Provided further that where the notice under section 148 was served on or after the 1st day of April, 2005 but before the 1st day of April, 2011, the provisions of this subsection shall have effect as if for the words “one year”, the words “nine months” had been substituted :
Provided also that where the notice under section 148 was served on or after the 1st day of April, 2006 but before the 1st day of April, 2010 and during the course of the proceedings for the assessment or reassessment or recomputation of total income, a reference under subsection (1) of section 92CA-
(i) was made before the 1st day of June, 2007 but an order under sub-section (3) of that section has not been made before such date; or
(ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words “one year”, the words “twenty-one months” had been substituted:
Provided also that where the notice under section 148 was served on or after the 1st day of April, 2010 and during the course of the proceeding for the assessment or reassessment or recomputation of total income, a reference under sub-section (1) of section 92CA is made, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words “one year”, the words “two years” had been substituted.
(2A) Notwithstanding anything contained in sub-sections (1), (1A), (1B) and (2), in relation to the assessment year commencing on the 1st day of April, 1971, and any subsequent assessment year, an order of fresh assessment in pursuance of an order under section 250 or section 254 or section 263 or section 264, setting aside or cancelling an assessment, may be made at any time before the expiry of one year from the end of the financial year in which the order under section 250 or section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner:
Provided that where the order under section 250 or section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner, on or after the 1st day of April, 1999 but before the 1st day of April, 2000, such an order of fresh assessment may be made at any time up to the 31st day of March, 2002 :
Provided further that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of April, 2005 but before the 1st day of April, 2011, the provisions of this sub-section shall have effect as if for the words “one year”, the words “nine months” had been substituted:
Provided also that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of April, 2006 but before the 1st day of April, 2010, and during the course of the proceedings for the fresh assessment of total income, a reference under subsection (1) of section 92CA-
(i) was made before the 1st day of June, 2007 but an order under sub-section (3) of section 92CA has not been made before such date; or
(ii) is made on or after the 1st day of June, 2007, the provisions of this sub-section shall, notwithstanding anything contained in the second proviso, have effect as if for the words “one year”, the words “twenty-one months” had been substituted:
Provided also that where the order under section 254 is received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner or, as the case may be, the order under section 263 or section 264 is passed by the Principal Commissioner or Commissioner on or after the 1st day of April, 2010, and during the course of the proceeding for the fresh assessment of total income, a reference under sub-section (1) of section 92CA is made, the provisions of this subsection shall, notwithstanding anything contained in the second proviso, have effect as if for the words “one year”, the words “two years” had been substituted.
(3) The provisions of sub-sections (1), (1A), (1B) and (2) shall not apply to the following classes of assessments, reassessments and recomputations which may, subject to the provisions of sub-section (2A), be completed at any time-
(i) [***]
(ii) 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 section 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;
(iii) where, in the case of a firm, an assessment is made on a partner of the firm in consequence of an assessment made on the firm under section 147.”
8. It can be seen from a perusal of the aforesaid statutory provisions that a specific provision was made under the statute for a time-bound completion of an assessment in relation to an assessee, pursuant to an order of remand by an Appellate Authority. In other words, the statutory mandate under the IT Act is that consequential orders pursuant to a remand by an Appellate or Revisional Authority should be passed within a period of one year from the end of the financial year in which the order of the Appellate /Revisional Authority was passed. This was apparently with a view to ensuring finality and certainty in matters of taxation so far as an assessee was concerned. Section 153(3) qualifies the provisions of Section 153(2A) by clarifying that where the assessment, reassessment, or re-computation is made on the assessee or any person in consequence of, or to give effect to, any finding or direction contained in any order passed by an Appellate/Revisional authority or of any court in a proceeding otherwise than by way of appeal or reference under the Act, the provisions of Section 153(2A) would not apply. In other words, the Scheme of the statutory provisions is that, where a consequential order of assessment that is required to be passed by the Assessing Authority to whom the matter has been remanded by an Appellate/Revisional Authority or by a Court, requires the said authority to apply his mind and re-adjudicate the issue afresh then, such exercise by the Assessing Authority is required to be completed within the time limit specified under Section 153(2A) of the Act. On the other hand, if all that the Assessing Authority is required to do, consequent to a remand by the Appellate/Revisional authority or the court, is to incorporate the effect of the directions issued by such higher authority without application of its judicial mind to the issue at hand, then the provisions of Section 153 (2A) of the Act would not apply.
9. On the facts of the instant case, we find that the order of the Tribunal dated 24.05.2016 specifically directed the Assessing Authority to re-adjudicate the issue with regard to the claims made by the petitioner assessee under Section 54F of the IT Act. In accordance with the provisions of Section 153(2A) of the IT Act, the Assessing Authority ought to have passed the consequential order by 31.03.2018 i.e., before the expiry of one year from 31.03.2017. However, Ext.P8 consequential order of the Assessing Authority is dated 17.02.2023 and proceeds on the assumption that there was more than one issue that was remanded to him for de novo adjudication. While it is the submission of the learned Standing counsel for the Income Tax Department that only the issue under Section 54F of the IT Act was remanded for de novo adjudication, we do not find it to be of much relevance to the issue that we are called upon to decide, namely, whether on a limited remand for de novo adjudication of one of many issues that arise for consideration in an assessment, the consequential order passed by the Assessing Authority can be seen as one that would attract the provisions of Section 153(2A) of the IT Act. Taking note of the Scheme of the statutory provisions as referred to above, as also the inherent object behind those provisions, which is to ensure an expeditious finality to assessments, we are of the view that the consequential orders passed by the Assessing Authority pursuant to the remand had necessarily to be passed within the time prescribed under Section 153(2A) of the IT Act. It is significant in this context that the definition of assessment under the IT Act includes a re-assessment and in the case of the petitioner assessee the remand by the Tribunal warranted a reassessment of the issue in relation to the deductions claimed under Section 54F of the IT Act and the substitution of the revised finding, in place of the original finding on the said issue, in the assessment order that was originally passed. We see no reason to take a different view from what was decided by the learned Single Judge of this Court in Dr. R.P. Patel (supra), and we approve the same. In taking the above view, we are also fortified by the decisions of the Delhi High Court in Nokia India P. Ltd v. Deputy commissioner of Income Tax[2018 407 ITR 20 (Delhi)] and the Bombay High Court in Shelf Drilling Ron Tappmeyer Limited v. Assistant Commissioner of Income Tax and Others [457 ITR 161] as also the Madras High Court in Commissioner of Income-Tax and Another v. Roca Bathroom Products P. Ltd. [2022 445 ITR 537 Madras].
10. There is yet another aspect of the matter. The time limit specified in Section 153(2A) of the IT Act is also intended to ensure that amounts due to the Government, if any, are received at the earliest point in time after the remand. If an assessee defaults in payment of the tax dues after the passing of the consequential order giving effect to the terms of the remand, he becomes liable to pay statutory interest from the date on which he ought to have paid the tax in the first instance i.e., along with his return. Thus, an Assessing Authority, who is called upon to adjudicate an issue afresh pursuant to a remand from an Appellate Authority, cannot ignore the time limit specified in the statute for passing the consequential order because any delay would operate to the prejudice of the assessee who would be called upon to pay interest for a longer time period corresponding to the delay.
In the result, the issue referred to us is answered in favour of the petitioner assessee, and the Writ Petition is allowed by quashing Ext.P8 order with consequential reliefs to the petitioner.
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