JENNY ELTON VALES,DONA PAULA vs. ITO, WARD - 5, MARGAO

These two appeals by the assessee against the common order dated 27-02-2020 passed by the Commissioner of Income Tax (Appeals)-1, Panaji [‘CIT(A)’] for assessment years 2007-08 and 2009-10.

Since, the issues raised in both the appeals are similar basing on the same identical facts, I proceed to hear both the appeals together and to pass a consolidated order for the sake of convenience.

First, I shall take up appeal in A.Y. 2007-08.

The assessee raised two grounds of appeal amongst which the only issue emanates for my consideration is as to whether the CIT(A) justified in confirming the addition made by the AO u/s. 5A of the Act.

The ld. AR, Shri D. E. Robinson vehemently argued that the CIT(A) did not appreciate the non-issuance of any notice during the rectification proceedings and having acknowledging the order passed u/s. 155 of the Act is not valid, confirmed the order of AO which is not at all justified.

Further, he argued that the AO added an amount of Rs.6,87,582/- in the hands of the assessee taking into account the assessment passed in the case of Vales Elton Gregory, who is the spouse of the assessee where the income of Rs.13,75,164/- was equally divided between the assessee and spouse as they are governed by the Portuguese Civil Code. He argued that there was no mistake apparent in the intimation u/s. 143(1) of the Act passed in the case of assessee to rectify the same and it is only the AO made addition being 50% of share in the hands of assessee’s spouse u/s. 5A of the Act. He argued that the AO has no jurisdiction passed rectification order and there is no mistake apparent on record and making addition deriving 50% share from the assessee’s spouse does not constitute the mistake apparent from the record in the case of assessee.

In the result, the appeal of assessee is allowed.

Ground No. 1 raised by the assessee challenging the action of CIT(A) in concluding the assessment was subjected to proceedings u/s. 148 of the Act on valid grounds.

I note that the assessee filed return of income on 30-09-2009 and refund was granted through an intimation dated 21-03-2011. The time limit for completion of assessment is provided u/s. 153(1)(a) i.e. two years from the end of the assessment year in which the income was first assessable. The present assessment year is A.Y. 2009-10 i.e. 31-03-2010 and the time limit to complete assessment u/s. 143(3) or 144 of the Act is available up to 31-03-2012 i.e. after two years from the end of the assessment year in which the income was first assessable. The AO issued notice u/s. 148 of the Act on 18-02-2013 and the assessee in response to the said notice requested the AO to treat the original return filed as return filed u/s. 148 of the Act vide letter dated 07-03-2013 which is evident from page 2 of the assessment order. I note that the assessee challenged the validity of reopening proceedings before the CIT(A), the contentions of which are reproduced at page 5 of the impugned order. On perusal of the same, I note that the assessee primarily placed reliance on the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. DCIT reported as 259 ITR 19 and contended that reopening is bad under law. I note that the AO provided the copy of reasons recorded to the assessee vide letter dated 15-03-2013 which is evident from page 2 of the assessment order. The assessee also filed objections to the reasons recorded for which no dispute raised for non-passing of speaking order by the AO. Therefore, the AO passed speaking order in terms of the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. (supra) and found the objections raised by the assessee are not acceptable.

Thereafter, the AO in order to complete the assessment proceedings, issued notice u/s. 143(2) of the Act. The only contention of the ld. AR before me is that there was no material in possession of AO warranting reassessment by issuing a notice u/s. 148 of the Act. In the present case the time limit to complete assessment u/s. 143 or 144 got expired from the end of two years of assessment year in which the income was assessable i.e. 31-03-2012 being A.Y. 2009-10. Therefore, the AO has no option except to reopen the assessment of intimation u/s. 143(1) of the Act by possessing assessment order of her spouse Shri Elton G. Vales by issuing a notice u/s. 148 of the Act in order to bring 50% share of income from assessee’s husband income in terms of provisions u/s. 5A of the Act. So, therefore, the AO has power to reopen the assessment u/s. 147 of the Act as to reopen the assessment already completed u/s. 143(1) of the Act in the hands of the assessee. No doubt the income of the husband and wife under any head of income except under the head salaries shall be apportioned equally between the husband and wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively u/s. 5A of the Act which was inserted by the Finance Act, 1994 with retrospective effect from 01-04-1963. I note admittedly, the scrutiny assessment u/s. 143(3) of the Act was completed in the case of assessee’s husband and the AO required to apportion 50% from the total income determined in the case of assessee’s husband to total income of the assessee. The said 50% income which was not included in the original assessment and also not taken into consideration in the original assessment, in my opinion, is to be termed as income which has escaped assessment within the meaning of section 147 of the Act, such income cannot be brought to assessment and taxed except in accordance with the provisions thereof u/s. 147 of the Act. Thus, as discussed above, the AO by following the procedure contemplated u/s. 147 and 153 of the Act reopened the assessment concluded under intimation u/s. 143(1) of the Act and brought to tax in the hands of the assessee i.e. 50% share from the total income determined under scrutiny assessment proceedings in the case of assessee’s spouse. Thus, the reopening of assessment made u/s. 143(3)/147 of the Act is valid and ground No. 1 raised by the assessee is dismissed.

Ground Nos. 2 and 3 raised by the assessee challenging the action of CIT(A) in confirming the addition made in the hands of the assessee in terms of operation of provisions u/s. 5A of the Act.

I note that a new provisions u/s. 5A of the Act has been inserted by Finance Act, 1994 with retrospective effect from 01-04-1963 and the present year under consideration is being A.Y. 2009-10, the said provisions u/s. 5A is applicable to the facts on hand. The said new section was incorporated for determination of the income of persons governed by the Portuguese Civil Code, 1860 residing in the State of Goa, Union territories of Dadra and Nagar Haveli and Daman and Diu. Admittedly, the assessee and her spouse governed by the Portuguese Civil Code and therefore the provisions of section 5A is applicable. I note that the provisions u/s. 5A(1) provides that the income from all the sources except from the head “salaries” shall be apportioned equally between the husband and of the wife and such income should not be assessed as income of community property. The income so apportioned will be included separately in the total income of the husband and of the wife. I note that the CIT(A) discussed the issue in ground Nos. 1 and 2 in detail vide paras 7 and 8 of the impugned order and by following the provisions of sub-section (1) of section 5A of the Act confirmed the order passed by the AO in apportioning the 50% share of income from her spouse determined under scrutiny assessment proceedings. The relevant portion of paras 7 and 8 of the CIT(A) are reproduced as under for ready reference : “7. Ground of Appeal 1 I find that the appellant has raised questions on the validity of manner of determining income ix] s SA, by stating that, Income does not arise to spouses without following the process laid down in section SA and in particular without apportionment. Income arises only on apportionment and that by virtue of a fictional provision. By communion law that is operative no income arises to either spouse of the communion during the subsistence of the communion. If income does not arise to the spouses no notice could be issued to either spouse under section 147. If income does not arise in the absence of determination of the same and apportionment there can be no escapement of income. The reassessment notice is bad in law and the assessment is a nullity. The above submission does not find support from Income Tax Act, 1961 wherein section SA reads as under: 5A. Apportionment of income between spouses governed by Portuguese Civil Code.- (1) Where the husband and wife are governed by the system of community of property (known under the Portuguese Civil Code of 1860 as "COMMUNIAO DOS BENS') in force in the State of Goa and in the Union territories of Dadra and Nagar haveli and Daman and Diu, the income of the husband and of the wife under any head of income shall not be assessed as that of such community of property (whether treated as an association of person's or a body of, individuals), but such income of the husband and of the wife under each head of income (other than under the head "Salaries") shall be apportioned equally between the husband and the wife and the income so apportioned shall be included separately in the total income of the husband and of the wife respectively, and the remaining provisions of this Act shall apply accordingly.

In the result, the appeal of assessee in is dismissed.