VS, 2009 PTD-INCOME-TAX-APPELLATE-TRIBUNAL-PAKISTAN 749 (2009)

(a) Income Tax Ordinance (XLIX of 2001)---

----S.122(5A)---Amendment of assessment---Taxation of accumulated profits---Business of Association of Persons was taken over by limited company/assessee including pre-incorporation accumulated profits---Proceedings were started to amend the assessment under S.122(5A) of the Income Tax Ordinance, .2001 on the ground that assessment was erroneous in so far as being prejudicial to the interest of Revenue for the reason that a huge amount of accumulated profits for the last many' years, remained untaxed,--Validity---Assessee-company had been regularly filing its returns and assessments were completed on the basis of accounts submitted along with return after proper consideration of relevant details---Department had no case to prove that assessee concealed true particulars of its income/profits---If the argument of department that "at the time of taking over AOP's' business, the company also became owner of the entire amount of accumulated profits and in this manner, this amount became company's income chargeable to tax" accepted, then departmental action was legally flawed because the so called income could be taxed in relevant year(s) only---Proceedings for taxing the pre-incorporation receipts had already been dropped by department and action in this regard had attained finality---Accumulated profit worked out included profits pertaining to pre-incorporation period---Such assessments had become barred by time and income declared/assessed already for three years could not be taxed again under the garb of action under S.122(5A) of the Income Tax Ordinance, 2001--Provisions of S.122(5A) of the Income Tax Ordinance, 2001 required that an assessment order should be erroneous in so far as it is prejudicial to the interests of revenue but the accumulated profits pertaining to many years, had not been established at all that deemed assessment order under consideration was erroneous and prejudicial to the interest of Revenue---Assessments for preceding years were also framed on agreed basis and income assessed for such years had attained finality and profit/income assessed for such years could not be made basis for any action under S.122(5A) of the Income Tax Ordinance, 2001---Income in question had already been taxed in the hands of `Association of Persons' and it could not be taxed again in the hands of company/assessee in the shape of accumulated profits---First Appellate Authority had rightly annulled the assessment---Order of First Appellate Authority was confirmed by the Appellate Tribunal and the departmental appeal being devoid of any merit was rejected.

2003 PTD 1762; (1995) 79 Taxman 184 (Guj) and PLD 1992 SC 549 = 1992 PTD 932 rel.

Black's Law Dictionary Eight Edition p.23 ref.

(b) Income Tax Ordinance (XLIX of 2001)---

----S.114(6)---Return of income---Revision of the return---"Omission" or "wrong statement"---Scope---Scope of "omission" or "wrong statement" was very wide and all encompassing---If a taxpayer, after filing his return, discovers that it was not correct and any part of taxable income had been omitted and not included in taxable income or a "wrong statement" including "wrong statement of accounts" had been filed, he was legally entitled to correct such "omission" or "wrong statement"---Contrary to provisions of Income Tax Ordinance, 1979 the right of revision of return did not abate (during statutory limitation) even after the completion of deemed assessment or amended assessment---Such right continues to remain legally due, even after pointation of any "omission" or "wrong statement" from the department---Law did not stop any taxpayer from revising his return---No bar could be put against the rights of a taxpayer granted to him by the statute---Powers of assessment of income, conferred upon the tax authorities by law, could nevertheless be exercised, in relation to the return so revised by a taxpayer and they were also empowered to declare a return as invalid, if it did not fulfil all legal requirements-Tax authorities could not refuse to accept a revised return, under any circumstances---Additional Commissioner's action of refusal to accept the revised return was legally not correct.

1996 PTD (Trib.) 759; 1986 PTD (Trib.) 446; 1991 PTD (Trib.) 319; 1992 PTD (Trib.) 713 and 2007 PTD 1810 ref.

M. Asif, IAC/DR for Appellant.

Hafiz M. Idrees and Abdul Basit, FCA for Respondent.

ORDER

This appeal has been filed by the department against order, dated 31-3-2008 passed by CIT(A) Islamabad.

2. As per facts, the assessee, a private limited company, derives income from sale of developed plots, constructed houses and apartments. Previously this business was being done by an AOP under the name and style of Bahria Town. The company Messrs Bahria Town (Pvt.) Ltd. took over this business from the AOP w.e.f., 14-1-1997. Return filed by the company for the year under appeal was initially accepted under section 120 of the Income Tax Ordinance, 2001. Later on, scrutiny of assessment record revealed that assessment for the year under consideration was erroneous in so far being prejudicial to the interests of revenue for the reason that accumulated profits upto tax year, 2004 were declared at Rs.828,258,195 out of which only Rs.269,902,559 were offered for taxation and remaining profit of Rs.55,83,55,636 remained untaxed. Proceedings were started to amend the assessment under section 122(5A). Show-cause notice was issued under section 122(9) and the taxpayer was required to explain' its position on this point. The assessee claimed that these profits of AOP were not taxable in the hands of the company. During the currency/pendency of these proceedings for amendment of assessment the return for the year under consideration was revised to declare income at Rs.4,48,04,925 which was also deemed to have been accepted under section 120. The return was revised for the reason that in the original return profits were not shown in the light of new provisions of law contained in section 36 of the Income Tax Ordinance, 2001 regulating calculation of income of long term projects. Accordingly the assessee filed revised return in the light of these provisions of section 36 of the Income Tax Ordinance, 2001. However, the Assessing Officer observed that the assessment already made under section 120 was erroneous as well as prejudicial to the interests of revenue. For detailed reasons recorded in assessment order under section 122(5A), the revised return was not accepted and original assessment under section 120 was amended by way of taxing the balance amount of accumulated profits not offered for tax and taxable income was worked out as under:--

3. Feeling aggrieved, the assessee preferred appeal before CIT(A) Islamabad, who annulled the amended assessment made under section 122(5A) on the ground that in the light of ratio settled in cases reported as 2003 PTD 1762, (1995) 79 Taxman 184 (Guj) and PLD 1992 SC 549 = 1992 PTD 932 the Assessing Officer had failed to establish that orders already passed were erroneous and prejudicial to the interests of Revenue. Against the said decision of CIT(A) the department has preferred second appeal on the following grounds (reproduced verbatim):--

(i) That the learned CIT(A) was not justified to annul the amended order passed under section 122(5A) on account of addition of untaxed accumulated profit of Rs.558,355,636 for the year under consideration as the assessment of taxable income made under section 120 of the Income Tax Ordinance, 2001 was erroneous and prejudicial to the interests of Revenue.

(ii) That the learned CIT(A) was not justified to annul the order passed under section 122(5A) by holding that assessment order passed under section 120 for the year under consideration was neither erroneous nor prejudicial to the interest of revenue, as the issue of non-taxing of accumulated profit of Rs.558,355,636 duly satisfied both the conditions require for initiation of action under section 122(5A) of Income Tax Ordinance, 2001.

(iii) That the learned CIT(A) was not justified to annul the order passed under section 122(5A) by the holding that action could not be taken under section 122(5A) after filing of revised return as the said order was rightly passed as per provisions of subsection (5A) and (7) of section 122 of the Income Tax Ordinance, 2001.

(iv) That the learned CIT(A) was not justified to annul order passed under section 122(5A) by holding that un-taxed accumulated profits pertained to pre-incorporation period as the company declared accumulated profits by preparing accounts for the first time in tax year, 2004.

(v) That the learned CIT(A) was not justified to annul order passed under section 122(5A) by placing reliance on a case reported as 2003 PTD 1762 which is distinguishable as in the instant case assessment order was passed under section 120 of the Income Tax Ordinance, 2001 instead of on agreed basis.

4. It was stated by learned DR that revised return filed in the light of provisions contained in section 36 was not accompanied with computation of completion of projects vis-a-vis work in progress. This return cannot, therefore, be treated as a valid return under section 36. Learned DR stated that return for tax year, 2003 was not revised whereas provisions of section 36 were equally applicable for this year as well. He contended that the return for the tax year, 2004 revised in pursuance of provisions of section 36 is therefore not a valid return.

5. Learned DR stated that section 36 of the Income Tax Ordinance, 2001 contains substantive provisions of law. It cannot be applied retrospectively. Concept of "income year" has not been provided in the new Income Tax Ordinance, 2001. Therefore, if income of any previous year was not taxed in that year, it has automatically to be assessed in the current year. Learned DR stated that section 114 requires that return of a tax year should be filed. Tax year has been defined in section 74(1) whereas charging provisions are contained in section 4. He stated that amount of accumulated profits now subjected to tax was not offered for tax by the assessee company in the relevant assessment/tax year(s). In these circumstances, it is deemed that entire amount of accumulated profits is income of the current year because relevant year in which these profits were earned, is neither known nor clear. Learned DR stated that section 36 is relevant only when mercantile system of accounts is followed and income is worked out on accrual basis and not on cash basis. He stated that it is not clear from record to establish that the erstwhile AOP from whom this company took over the business (in running condition), was maintaining records on mercantile basis. The company was incorporated on 14-1-1997. Two returns were therefore due in this case during assessment year 1997-98; one from the AOP and the other from the company. He stated that erstwhile AOP did not file any return. Rather it filed a statement under section 143 showing income from bank profit only. Return was filed only by the company for the period of its operation i.e. 14-1-1997 to 30-6-1997. If no return was filed for the first period of the assessment year (AOP's period), it will mean that there was no untaxed profit for the said year/period. Return for the period of company's operation was filed at "Nil" income. Only advances were shown from the customers. Regular assessment was made by the Assessing Officer and these advances were taxed and G.P. @ 18% was applied on it. However, this assessment was set aside in first appeal and re-assessment was made on agreed basis by way of working out net profit @2.5% of receipts (advances). Assessment upto assessment year 2002-2003 were made on the same lines settled in the said agreement and income was worked out @ 2.5% of receipts. Returns for tax year, 2003 and 2004 were filed showing net loss and these returns were deemed as assessment orders under section 120. When return for tax year, 2005 was filed, it was accompanied by properly audited accounts. After filing of return for tax year, 2005 return for tax year, 2004 was also revised showing income of Rs.44,804,925. Learned DR contended that in these circumstances, the revised return for tax year, 2004 could not be treated as legally valid return specially because the untaxed profits of previous years which kept on accumulating in the personal accounts of the company were not offered for tax.

6. Learned DR stated that section 114(6) provides that return can be revised by any person, who having furnished a return discovers any "omission" or "wrong statement" therein. He stated that revision of return after pointation from the department cannot be treated as discovery of "omission" or "wrong statement". He contended that law about revision of returns is very clear and it helps only those who furnish revised returns only by way of correcting "bona fide mistakes". He stated that the word "discover" as per Concise Oxford dictionary 9th edition means "to be the first to find or find out". He stated that section 114(6) does not talk about "revision of income". It simply talks about revision of return after making correction of any "omission" or "wrong statement". He contended that if revised return of the company is accepted/treated as good as original return, it will be tantamount to circumventing the penalty proceedings for concealment of income. He stated that higher Courts have clearly settled that if an issue is supported by substantive provisions and is legally well merited only then legal benefits can be achieved. No one can be allowed to circumvent the law. One who seeks equity should come with clean hands. No one can be allowed to take benefits of his mistakes. He asserted that this assessee revised the "income". It did not make correct of any "omission" or "wrong statement". The entire working of income was changed in the revised return. Therefore, this revised return cannot be treated as a valid return. The Assessing Officer was, therefore, fully justified to reject the revised return.

6A. Learned DR stated that accumulated profits of the erstwhile AOP became income of the company on the eye of taking over the business. This income was taxable in the eyes of law. The company had deliberately concealed this income because it was never offered for tax. Therefore, the Assessing Officer was fully justified to charge it to tax.

7. Learned AR stated that Bahria Town (AOP) came into being vide joint venture agreement, dated 16-11-1995 between Bahria Founda tion, Hussain Global Associates (Pvt.) Ltd., and Bahria Housing-II (Pvt.) Ltd. Bahria Town (Private) Limited was incorporated on 14-1-1997. As per clause III(1)(a) of the agreement the company took over running business of Bahria Town (AOP) with all its assets and liabilities. The entire property of that business including land, building, machinery, contracts, privileges, rights, licenses and concessions were taken over by the company. Learned AR stated that business of sale of developed plots and constructed houses and apartments under the name and style of Bahria Town can be bifurcated in two periods i.e. business carried on by AOP between 16-11-1995 to 13-1-1997 and business carried on by private limited company since 14-1-1997 to date. Similarly, income earned during the above two periods is to be taxed in the hands of AOP or company accordingly. Bahria Town (Pvt.) Ltd is filing its income tax returns on the basis of project completion method from assessment year 1997-98 to tax year, 2004 by offering income on provisional basis and the assessment from the assessment years 1997-98 to 2002-2003 were made on agreed basis at net income worked out @ 2.5% of gross receipts. Assessment for tax years, 2003 and 2004 were finalized under the deeming provisions of section 120 of the Income Tax Ordinance, 2001. From tax year, 2005, for the first time, the company has filed its income tax return on the basis of percentage of completion of long term project/contracts in compliance with the provisions of section 36 of the Income Tax Ordinance, 2001. The company has also prepared and filed for the first time profit and loss account also containing comparative figures of income year, 2004 along with its income tax return for tax year, 2005.

8. Learned AR stated that the Additional Commissioner, while carrying examination of income tax return for tax year, 2005 and accounts filed along with it observed that accumulated profits for tax year, 2004 have been shown in the said accounts at Rs.828,258,195 out of which only Rs.269,902,559 have so far been offered for taxation as per detail given below:---

9. Learned AR stated that on the basis of above observation learned Additional Commissioner showed his intention to tax untaxed accumulated profit of Rs.558,355,636 by adding the same to income for tax year, 2004 by way of treating the deemed assessment under section 120 of the Income Tax Ordinance, 2001 as erroneous as well as prejudicial to the interests of revenue by invoking the provisions of section 122(5A) of the Income Tax Ordinance, 2001. For this purpose Additional Commissioner confronted the company vide show-cause notice, dated 14-7-2007. Finally, by refusing to accept revised income tax return filed by the company for tax year, 2004 and terming the explanation given as unsatisfactory, income for tax year, 2004 was assessed as follows vide assessment order, dated 30-10-2007 under section 122(5A) of the Income Tax Ordinance, 2001:--

10. Learned AR emphasized that the Taxation Officer cannot refuse to accept a revised return. Moreover profit pertaining to pre-incorporation period cannot be taxed in the hands of the company. Above all income pertaining to previous assessment years which became barred by limitation and attained finality cannot be taxed in the year under appeal.

11. Learned AR stated that the company filed original income tax return for tax year, 2004 on the basis of project completion method declaring loss of Rs.(144,915,202). Subsequently, return was revised declaring income of Rs.44,804,925 computed on the basis of percentage of completion of long term project/contracts in the light of provisions of section 36 of the Income Tax Ordinance, 2001. Comparative figures of accounts ware prepared and filed along with the return for tax year, 2005. He stated that the term "accumulated profits" has been defined in section 2(1) of the Income Tax Ordinance, 2001 only for the purposes of and in relation to distribution or payment of dividend; whereas this term has not been defined in repealed Income Tax Ordinance, 1979. It is well settled law that when a word or phrase is not defined in the statute then the normal dictionary meanings will be taken for the purposes of interpretation. The term "accumulated profit" is combination of two words i.e. "accumulated" and "profits". To understand the meaning of the phrase we have to study the definition of both the words. According to Black's Law Dictionary Eight Edition (page 23) word accumulated is defined as "the increase of a thing by repeated addition to it; especially the increase of a fund by repeated addition of the income that it creates".

According to Black's Law Dictionary Eigth Edition at page 1246 word profit is defined as "the excess of revenues over expenditure in a business transaction". From these normal dictionary meanings of the words "accumulated" and "profits" and phrase "accumulated profit" defined in section 2(1) of the Income Tax Ordinance, 2001 means profits which are accumulated over a period of time. Learned AR stated that charge on taxable income is created under section 4 which reads as under:--

"4. Tax on taxable income.--(1) Subject to this Ordinance, income tax shall be imposed for each tax year at the rate or rates specified in Division I or II of Part-I of the First Schedule, as the case may be, on every person who has taxable income for the year."

12. Learned AR further stated that the words "each tax year" and "taxable income" used in the said section is to be viewed in the light of definition of given in the Ordinance. Under section 2(68) `tax year' means the tax year as defined in subsection (1) of section 74 and it shall be a period of twelve months ending on the 30th day of June. Under section 2(64) `taxable income' means taxable income as defined in section 9 and it shall be the total income of a person for the year reduced by the total of any deductible allowances for the year. Learned AR emphasized that accumulated profits pertaining to so many income years cannot be charged to tax in any one tax year. On the other hand according to provisions of repealed Income Tax Ordinance of 1979 as well as Income Ordinance, 2001 income for the year (twelve months period) is to be charged to tax. Therefore, action of the Additional Commissioner to add alleged untaxed accumulated profit of Rs.558,355,636 in the declared income of tax year, 2004 is illegal, unjustified and void.

13. Learned AR stated that the company filed revised return for tax year, 2004 under section 114(6) of the Income Tax Ordinance, 2001 which has been rejected by the Additional Commissioner for the reason that after issuance of show-cause notice under section 122(5A) it is not acceptable under the law. He contended that in the light of ratio settled in cases reported as 1996 PTD (Trib.) 759, 1986 PTD (Trib.) 446, 1991 PTD (Trib.) 319, 1992 PTD (Trib.) 713 and 2007 PTD 1810 the income tax authorities cannot refuse to accept any return, whether original or revised. They can declare a return as invalid if it did not fulfil conditions provided in subsections (3) and (4) of section 120 of the Income Tax Ordinance, 2001 and not on personal whims. In this case both the original as well as revised returns were not declared invalid in the light of provisions contained in subsections (3) and (4) of section 120 of the Income Tax Ordinance, 2001. The Additional Commissioner amended the assessment, which was deemed to be issued under the provisions of subsection (1) of section 120 of the Income Tax Ordinance, 2001 by not accepting the revised income tax return for the year under appeal. He stated that original deemed assessment order issued under section 120(1) has lost its existence and merged into the fresh deemed assessment order under section 120(1) based on revised income tax return filed by the company. He stated that there is an in-built contradiction in the impugned assessment order because on the one hand the Additional Commissioner is not accepting the revised income tax return but on the other he is adding the balance of untaxed accumulated profit to the amount of income declared as per the same revised return for the year under appeal.

14. Learned AR stated that the company prepared for the first time statements of accounts on the basis of percentage of completion of long term projects/contracts according to the provisions of section 36 of the Income Tax Ordinance, 2001. This statement of accounts was filed with the income tax return for tax years, 2005. Similarly statement of accounts was drawn for tax year, 2004. Return for tax year, 2004 was accordingly revised. The balance sheet and statement of accounts filed with the revised return for the tax year, 2004 also includes the figures of accumulated profits of pre-incorporation period. This feature of the case was explained to the Additional Commissioner during the assessment proceedings under section 122(5A) and for this purpose details were also furnished (which are reproduced in the body of assessment order) containing year-wise break-up of accumulated profits. It indicated that accumulated profits pertained to the pre-incorporation period. But the Additional Commissioner did not accept this actual and factual position. The Additional Commissioner did not properly confront the taxpayer to explain/reconcile the so-called difference he observed. Nor did he himself make any effort to unearth the facts, which can be proved with the help of concrete and uncontroversial evidence that the entire amount of accumulated profits pertained to the pre-incorporation period. If it was taxable in the opinion of the Additional Commissioner, action could/ should have been taken in the relevant year through re-opening of assessment. The Additional Commissioner however, misdirected himself and illegally added the entire amount to company's income for tax year, 2004. Learned AR further stated that previously an attempt was made to tax the profits pertaining to pre-incorporation but the proceedings were dropped vide assessment order, dated July, 30, 2007 under section 122(5A) of the Income Tax Ordinance, 2001 for the reasons recorded in the said order. Therefore, action of the Additional Commissioner is illegal, and unjustified to add alleged untaxed accumulated profit of Rs.558,355,636 in the declared income of year, 2004 through an amendment under section 122(5A) without bifurcating accumulated profit into pre-incorporation period and post-incorporation and taxing the same in the hands of the company.

17. Learned AR contended that accumulated profits in question can only be charged to tax under section 4 of the Income Tax Ordinance, 2001. The Additional Commissioner should have assessed the alleged untaxed accumulated profits pertaining to relevant assessment or tax year as the case may be by invoking provisions of section 122(5A). Assessments for the assessment year 1997-98 to 2002-2003 and profit pertaining to pre-incorporation period cannot be assessed at this point of time for the reason that these assessments or periods have become barred by time and assessment proceedings cannot be reopened under any provision of law. Action of the Additional Commissioner to tax alleged untaxed profits accumulated upto tax year, 2003 by adding the same in the income of tax year, 2004 itself proves that he had no option to reopen the previous assessment years as the same had already become barred by time. Therefore, action of the Additional Commissioner is illegal and unjustified to add alleged untaxed accumulated profits of Rs.558,35,636 in the declared income of tax year, 2004 through an amendment made under section 122(5A) without separately bifurcating accumulated profit for each year and adding the same in the relevant assessment year or tax year for the purpose of charging tax.

15. Learned AR stated that the "accumulated profit" in fact represents the undistributed share of profit of members of AOP relating to pre-incorporation period. He stated that this amount has already been subjected to tax. He furnished year-wise details of profit as per accounts and stated that net income was assessed on agreed basis as per following details:--

16. Learned AR stated that complete data based on break up of head-wise receipts and expenses was also made available to the Assessing Officer which contains details cost of land, development cost, adjustments, work in progress, G.P., administrative expenses and other items etc. He contended profit earned by the AOP was not distributed among the members and it was shown as accumulated profit in the books of accounts. Similarly, after conversion of AOP into limited company the profit taken over by the company from the erstwhile AOP was not distributed among the shareholders. This undistributed profit kept on accumulating and was shown in the account books as "accumulated profits". He stated that major part of this amount relates to the pre-incorporation period. Since, assets and liabilities of the erstwhile AOP were taken over by the company, the "accumulated profits" were also taken over by the company. As the profits were not distributed among the members/shareholders, the same were shown accordingly in the balance sheet. He vehemently pressed that this amount of "accumulated profits" has already been taxed and so-called addition made by the Assessing Officer tantamounts to double taxation.

18. Learned AR stated that in the assessment order total receipts of pre-incorporation as well as post-incorporation period were discussed and no P&L Account was drawn for the period during which agreed assessments were made. However, balance sheet was prepared and accordingly filed by the company for tax year, 2005. He stated that P&L Account was prepared for the first time for tax year, 2005 in the light of provisions of section 36 and income was accordingly worked out. At this point of time P&L Account was also prepared for the period relating to tax year, 2004 and income was accordingly shown by way of filing revised return. Accumulated profit of Rs.828 million was shown in the balance sheet for tax year, 2004. Accumulated profit upto tax year, 2003 amounted to Rs.792 million and these figures also appear in the balance sheet. On pointation from the department year-wise break up was filed and income for pre-incorporation and post-incorporation period was shown as per aforementioned details. He stated that entire untaxed income relates to the pre-incorporation period when business was being done by the AOP. He stated that in these conditions the corrective action could be taken only for the accounting period relating to AOP. Action of amendment of assessment for tax year, 2004 was totally illegal. He stated that accounts for tax year, 2003 have already been revised by the company in the light of provisions of section 36 and department has already initiated action under section 122(5A). He contended that action for any corrective measure with respect to the period of business operated by AOP had already become barred by time. He contended that relevant provisions of law wherein limitation has been prescribed have their own sanctity. In this case proceedings for relevant period of assessment year, 1997-98 had attained finality. The assessment in question has become past and closed transaction and is therefore protected by the provisions of law regulating limitation.

19. We have analyzed the facts of this case in the light of arguments of both the parties. Learned DR tried to argue that scope of revision of return is very limited. It can be revised only for correction of any "omission" or "wrong statement". Moreover, it cannot be revised after pointation of any discrepancy from the department. We are not inclined to accept this argument. In our opinion, scope of "omission" or "wrong statement" is very wide and all encompassing. If a taxpayer, after filing his return discovers that it is not correct and any part of taxable income has been omitted and not included in taxable income or a "wrong statement" including "wrong statement of accounts" has been filed, he is legally entitled to correct such "omission" or "wrong statement". Contrary to the provisions of repealed Ordinance of 1979 the right of f revision of return does not abate (during statutory limitation) even after the completion of deemed assessment or amended assessment. Similarly, this right continues to remain legally due, even after pointation of any "omission" or "wrong statement" from the department. The law does not stop any taxpayer from revising his return. No bar can be put on the rights of a taxpayer granted to him by the statute. Powers of assessment of income, conferred upon the tax authorities by law, can nevertheless be exercised, in relation to the return so revised by a taxpayer and they are also empowered to declare a return as invalid, if it does not fulfil all legal requirements. But tax authorities cannot refuse to accept a revised return, under any circumstances. In this case, Additional Commissioner's action of refusal to accept the revised return was, therefore, legally not correct.

20. There is no doubt that assessee-company has been regularly filing its returns all along these years and assessments were completed on the basis of accounts submitted along with return after proper consideration of relevant details. The department has no case to prove that assessee concealed true particulars of its income/profits. DR argued that at the time of taking over AOP's business, the company also became owner of the entire amount of accumulated profits and in this manner, this amount became company' income chargeable to tax. If this argument is accepted, even then departmental action is legally flawed because the so-called income could be taxed in relevant year(s) only. Moreover, proceedings for taxing the pre-incorporation receipts have already been dropped by Department and action in this regard has attained finality. Besides, accumulated profit worked out by the Additional Commissioner also includes profits pertaining to pre-incorporation period (for assessment years 1997-98 to 2002-03). These assessments have become barred by time and income declared/assessed already for these years cannot be taxed again under the garb of action under section 122(5A).

It would be relevant to bring on record that the provisions of section 122(5A) require that an assessment order should be erroneous in so far as it is prejudicial to the interests of revenue. In the instant case by referring to accumulated profits pertaining to many years, it has not been established at all that deemed assessment order for tax year, 2004 was erroneous and prejudicial to the interests of revenue. It may be added that assessments for preceding years i.e. 1997-98 to 2002-2003 were framed on agreed basis. Therefore, income assessed for these years has attained finality and profit/income assessed for these years cannot be made basis for any action under section 122(5A) for the year under appeal as adjudicated by higher appellate authorities in different decisions. Moreover, the income in question has already been taxed in the hands of AOP. It cannot be taxed again in the hands of the company in the shape of accumulated profits.

21. We have found that learned CIT(A) has rightly annulled the impugned assessment. We have not been able to find any flaw in the orders of learned CIT(A). We therefore, decline to interfere with his order which are hereby confirmed. Consequently the departmental appeal being devoid of any merit is hereby rejected.

C.M.A./21/Tax (Trib.)Appeal rejected.