Section 153(2) – Time limit for AO to complete assessment or reassessment – based on Case laws for calculating the time limit where writ is filed before High Court against re-opening

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1.Section 153 of the Income Tax Act provides the time limit to Assessing Officer within which the Assessing Officer has to complete the assessment or reassessment of the assessee. The matter will be time barred if it is not completed within the prescribed time limit and so the assessment can be objected as bad in law.

2. In order to complete the assessment/ reassessment u/s 147, the time limit as per sub-section (2) of section 153 shall be as follows:

Where notice u/s 148 is served on or before 31.03.2019, within 9 months from end of financial year in which notice is served.

Where notice u/s 148 is served on or after 01.04.2019, within 12 months from end of financial year in which notice is served.

3. However, there are exclusions to above mentioned time limit in certain circumstances. One such exclusion as per clause (ii) to Explanation 1 of Section 153 of the Act  is, when the assessee has filed writ petition before High Court, then the period during which the assessment proceedings is stayed by court or injunction of any court shall be excluded while calculating the time limit as per 153(2).

4. Further, as per 1st proviso to Explanation 1 to Section 153, if after vacation of stay the time period remaining to pass an order is less than sixty days it will be extended to sixty days. The relevant extract is as follows:

“Provided that where immediately after the exclusion of the aforesaid time or period, the period of limitation referred to in sub-sections (1), (2), (3) and sub-section (8) available to the Assessing Officer for making an order of assessment, reassessment or re-computation, as the case may be, is less than sixty days, such remaining period shall be extended to sixty days and the aforesaid period of limitation shall be deemed to be extended accordingly:”

5. The relevant portion of clause (ii) to Explanation 1 of Section 153 of the Act, 1961 is as follows:

(ii) the period during which the assessment proceeding is stayed by an order or injunction of any Court, or……………………………………………………………………………………. shall be excluded”.

On perusal of the same, it is clear that for computing the period of limitation, the period during which the assessment proceedings is stayed by High Court shall be excluded for calculating the time limit for completion of assessment/reassessment as there have been various cases where the counsel of the department was present when the High Court was giving decision.

Further, it can be contended that, in excluding the above period, the concept of communication of the order of the Court should not be imported because the intention is clear that when the limitation for assessment has started it can be stayed only by an order or injunction of any Court and as soon as the order or injunction of the Court is vacated, the period of limitation shall re-start since after the vacation of the order of the Court, there is no embargo on the authorities to proceed with the assessment.

6. Based on the said provisions of the I.T Act, Let us understand the chronology of events as an example as follows:

Sr. No. Particulars Dates
1. Date of issuing notice u/s 148 26.03.2015
2. Date on which notice u/s 148 was served on the Appellant 31.03.2015
3. End of the Financial Year in which the notice was served 31.03.2015
4. One year from the end of the Financial Year in which notice was served – Time limit given for Assessing Officer to pass order u/s. 147 (as per section 153(2)) 31.03.2016
5. Stay order passed by the  Gujarat  High Court against Writ Petition filed by the Appellant 08.03.2016
6. Final order passed by the Gujarat High Court and stay vacated against Writ Petition filed by the Appellant 13.06.2016
7. Number of days which will be excluded in computing the time limit (As per expl 1 to sec 153(4)) [6-5] 98
8. Days remaining for Assessing Officer to complete the assessment after HC order[4-5] 24
9. Since the time remaining is less than 60 days, time period is extended to 60 days [As per proviso to Expl 1 to Sec 153] 60
10. Date within which order u/s. 147 has to be passed and served upon the Assessee [ 6 + 9] 12.08.2016
11. Assessment order passed by the Assessing Officer u/s 143(3) r.w.s.147 30.08.2016

7. Further, there are various judgements where it is very clearly stated that the period of 60 days has to be calculated from the date of passing order of High Court and the concept of communication of the order of court cannot be imported:

  • CIT vs. Chandra Bhan Bansal [46 taxmann.com 108]
  • CIT vs. Drs. X-Ray & Pathology Institute (P.) Ltd. [40 taxmann.com 115]
  • Saheb Ram Om Prakash Marketing (P.) Ltd. vs. CIT [86 taxmann.com 155]
  • ACIT vs. M/s.Sun Pharmaceutical Industries Ltd. [ITA No.1688/Ahd/2015]

8. In CIT vs. Chandra Bhan Bansal [46 taxmann.com 108], the High Court of Allahabad held that

“the terms of provisions of Explanation 1(ii) to section 153, period of limitation for assessment can be stayed only by an order or injunction of any Court and as soon as said order or injunction of Court is vacated, period of limitation shall re-start even though order vacating injunction is not communicated to department.”

9. In CIT vs. Drs. X-Ray & Pathology Institute (P.) Ltd. [40 taxmann.com 115] , the High Court of Allahabad held that

In this case, search was conducted at the assessee’s address on September 14, 2002, and notice under section 158BC of the Act was issued on April 29, 2003. Consequent thereto the return was filed by the assessee on June 16, 2003. The search proceeding was challenged by the assessee before the High Court by filing writ petition. The assessment proceedings were stayed, vide interim order dated February 12, 2004. The interim order was vacated on August 26, 2009.Section 158BC provides to complete assessment proceedings within two years. It further provides that period during which the proceedings have been stayed shall be excluded. In the present case, the stay was vacated by the High Court on August 26, 2009. The Assessing Officer took the date of vacation of the interim order to be the date, when it was received by him on November 9, 2009, and passed the assessment order on June 22, 2010, which was clearly beyond two years as limitation would restart from August 26, 2009, and ended on April 15, 2010. Apart from the fact that the Assessing Officer had sufficient time the Tribunal has held that there is no procedure in the High Court to communicate the order to the party to make it effective. The provisions of the Income-tax Act for filing of the appeal from the date of service of the order will not be attracted to calculate the period of limitation to complete the assessment. In the present case, we are not concerned with limitation for any particular act to be performed, but the arrest of the limitation by an interim order passed by the High Court. As soon as the order was vacated, the limitation will restart and will exhaust itself on the period of limitation provided under the Act.

We do not find any error of law in the judgment of the Tribunal holding that the assessment was clearly barred by limitation. The questions of law as framed are not substantial questions of law, which may arise for consideration from the facts of the case.

10. In Saheb Ram Om Prakash Marketing (P.) Ltd. vs. CIT [86 taxmann.com 155] the High Court of Delhi held that

Where reassessment notice was issued on 27-3-2012 but High Court stayed all proceedings qua said notice, since stay had been vacated on 9-12-2016, order in re-assessment proceedings had to be necessarily passed within 60 days i.e., on or before 8-1-2017; order passed thereafter was time barred.

11.In recent case of ACIT vs. M/s. Sun Pharmaceutical Industries Ltd. [ITA No.1688/Ahd/2015] dated 05.05.2017, the Ahmedabad Tribunal Bench held that

The Hon’ble Allahabad High Court thereafter considered a large number of decisions rendered by various High Courts and arrived at a conclusion that concept of communication of order of the Court cannot be imported. The ld.CIT(A) has appreciated the controversy in right perspective. Dispute is squarely covered by the decision of the Hon’ble Allahabad High Courts as well by two orders of the ITAT, whose discussions have been reproduced by the ld.CIT(A) in the impugned order. Therefore, we do not see any reasons to interfere in the order of the ld.CIT(A). Accordingly, the appeal of the Revenue is dismissed.”

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