No Review on Original Assessment Order is permissible in the Reassessment proceedings initiated: Madras HC [Read Judgment]

Madras High Court held that no review on the original assessment order is permissible in the reassessment proceedings initiated under Section 147 of the Income Tax Act, 1961.

The respondent assessee, M/s. Safe Corrugated Containers Pvt Ltd incurred loss of a sum of Rs.26,51,684 out of sale of shares and the said loss was debited by the assessee in the profit and loss account of the previous year, relevant to assessment year 2006-07, as revenue expenditure.

Whereas, the same assessee incurred a profit out of the sale of shares in the previous assessment year 2005-2006 and claimed the said profit as “capital gains” and paid tax at the rate of 10%.

This aspect was not considered by the Assessing Officer, while making the assessment and therefore, reassessment was made by the Deputy Commissioner of Income Tax under Section 147 of the Act and an order was passed holding that the assessee company cannot claim loss on sale of shares as revenue loss for the assessment year 2006-07, when the same assessee had claimed the profit on sale of shares as “capital gains” for the assessment year 2005-06 and paid the tax only at the rate of 10%.

The respondent assessee claimed that they have been dealing with the shares for several years and therefore, the loss on sale of shares could be treated as “business loss”.

However, the CIT(A) rejected the contentions of the respondent/assessee and confirmed the action of the Assessing Officer in initiating the proceedings under Section 147 of the Act, as there was no opinion formed by the Assessing Officer in the original assessment proceedings and accordingly, dismissed the appeal.

The respondent assessee preferred an appeal before the ITAT, which passed a detailed order holding that the details of loss on sale of shares have been clearly disclosed in the profit and loss account by the assessee, while filing the original return of income and that the Assessing Authority made a thorough scrutiny after issuing scrutiny notice and thereafter, passed the original assessment order and therefore, the department cannot say now that no material was disclosed by the assessee and hence, the reassessment order passed under Section 147 of the Act was not proper and thus, allowed the appeal of the assessee.

The appellant authority submitted that since no opinion was formed by the Assessing Officer in the original assessment order, reassessment proceeding was initiated under Section 147 and that the Assessing Officer is empowered to form an opinion by initiating reassessment proceeding under Section 147 of the Act.

The division bench of Justice Dr. VIneet Kothari and Justice Krishanan Ramaswamy held that in the reassessment proceedings under Section 147, the original assessment order cannot be reviewed. Further, the proceedings also cannot be initiated merely because there is a possibility of change of opinion.

“We are of the view that the Tribunal had rightly set aside the impugned reassessment made under Section 147 of the Act,” the court said.