Commissioner of Income Tax and Another vs Jora Singh

Prakash Krishna, J.—Present appeal has been filed under s. 260A of the IT Act, 1961 (hereinafter referred to as ''the Act'') against the order dt. 30th June, 2010 passed by the income tax Appellate Tribunal, B-Bench, Lucknow (hereinafter referred to as ''the Tribunal'') in ITA No. 308/Luck/2009 connected with ITA No. 312/Luck/2009 for the asst. yr. 2005-06. In the memo of appeal the following substantial question of law has been framed:

Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in quashing the reassessment proceeding and the reassessment made under s. 148 of the Act on the ground that the notice issued under s. 147 of the Act was invalid as the time available for issuing notice under s. 143(2) of the Act had not expired?

The background facts may be noticed in brief.

The return of income had originally been filed on 31st Oct., 2005 in the status of individual showing income of Rs. 1,88,090 and was duly processed under s. 143(1) of the Act. Subsequently, on 4th July, 2006, notice under s. 148 of the Act was issued and the assessee stated that the return already filed on 31st October, 2005 may be treated in response to notice under s. 148 of the Act. The AO concluded the reassessment proceeding by making certain additions in the income of assessee-respondent by the order dt. 27th Dec, 2007. The matter was carried in appeal before the CIT(A). Besides challenging the additions made in the income on various grounds, it was submitted that the issuance of notice under s. 148 of the Act is not valid. The proceedings should have been taken under s. 143(3) of the Act instead. Argument was repelled on the ground that during assessment proceeding, no such specific objection was raised by the assessee or his counsel challenging the initiation of proceeding under s. 147 of the Act. However, the CIT(A) has allowed the appeal in part by deleting certain additions. He confirmed the other part of assessment order. Both the parties carried the matter by way of cross appeals before the Tribunal. The Tribunal has allowed the appeal filed by the assessee and dismissed the appeal of the Revenue by the order under appeal on short ground that the notice under s. 148 of the Act dt. 4th July, 2006 is not valid.

Heard Sri Dhananjay Awasthi, learned counsel for the Department and Sri S.K. Garg and Sri Ashish Bansal, learned counsel for the respondent-assessee.

The appeal was admitted on the following substantial question of law:

Whether on the facts and in the circumstances of the case, the Tribunal is justified in law in quashing the reassessment proceeding and the reassessment made under s. 148 of the Act on the ground that the notice issued under s. 147 of the Act was invalid as the time available for issuing notice under s. 143(2) of the Act had not expired?

The only point mooted in the present appeal as is apparent from the substantial question of law is whether the initiation of reassessment proceeding on the facts and circumstances of the case, was valid or not.

The material facts are not in dispute. Learned counsel for the Department submits that the controversy on hand is not res integra so far this Court is concerned and it stands concluded against the assessee in view of the decision Pradeep Kumar Har Saran Lal Vs. Assessing Officer, .

(1997) 141 CTR (All) 37 : (1998) 7. In reply, the learned counsel for the assessee-respondent has placed reliance on the following cases.

(i) Trustees of H.E.H. The Nizam''s Supplemental Family Trust Vs. Commissioner of Income Tax, ;

(ii) Commissioner of Income Tax Vs. K.M. Pachayappan, ; and

(iii) Commissioner of Income Tax Vs. TCP Ltd., .

Considered the respective submissions of the learned counsel for the parties and perused the record. Sec. 143 of the Act provides that where a return of income has been made under s. 139, or in response to a notice under sub-s. (1) of s. 142, such return shall be processed in the manner as provided therein. The assessment order shows the return filed by the assessee was processed under s. 143(1) of the Act. Subsequently, on checking of audited accounts annexed with return revealed that in the trading account of M/s. Khaira Filling Station, the assessee has deducted, from total purchase value of Rs. 35,816,299.34, an amount of Rs. 7,54,080 relating to commission on sales received from Reliance Petro Marketing Ltd. The AO was of the view that as the expenses are duly debited in P & L a/c, there remains no scope for further deduction on account of expenses resulting into short computation in income which escaped assessment.

Submission of the assessee is that on such transpiration, the proper course for the AO was to issue notice under sub-s. (3) of s. 143 for regular assessment and AO could not have recourse to s. 147 and 148 of the Act. Submission is that there was still time to complete the assessment proceeding by taking recourse to regular assessment proceedings.

Strong reliance was placed on the judgment of apex Court on the case of Trustees of H.E.H. The Nizam''s Supplemental Family Trust (supra). There the decision given by the apex Court relates to the asst. yr. 1962-63. The decision was rendered on the peculiar facts of that case. Along with return of income, an application under s. 237 of the Act for refund of tax deducted at source on interest on Government Security and dividend was filed. Since there was no response from the ITO the assessee reminded him for disposal of refund application. ITO gave reply stating that the refund could not be granted to the trustees unless the reference on the same question for the preceding assessment years filed by the assessee were disposed of. A reminder was again sent by the assessee to the ITO for grant of refund but no refund was given by the ITO Thereafter, a notice under s. 148 of the Act was received by the assessee. In this fact situation, the apex Court has held that the assessment proceeding was pending and as such, recourse to s. 147 of the Act was not justified. Para 4 of the aforesaid judgment is reproduced below:

It is settled law that unless the return of income already filed is disposed of notice for reassessments under s. 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated. According to the Revenue it is immaterial whether the order is communicated or not and that the only bar to the reassessment proceedings is that proceedings on the return already filed should have been terminated. In support of this contention reference was made to certain decisions of the High Courts and some observations made by this Court in a case, which we note as under.

The aforesaid judgment has been followed by the Madras High Court in the case of CIT vs. K.M. Pachayappan (supra) and CIT vs. TCP Ltd. (supra). The fact that the judgment of the apex Court was delivered under s. 147 as it then stood in the asst. yr. 1962-63, apparently escaped the attention of the learned Judges of Madras High Court. The Madras High Court has relied upon a judgment of Delhi High Court in the case of KLM Royal Dutch Airlines Vs. Assistant Director of Income Tax, .

Coming to the facts of the case on hand, a bare perusal of the assessment order reveals that the return was finalized under s. 143(1) of the Act. Subsequently, on further examination, it was deduced that the income of the assessee has escaped to tax. Sec. 147 of the Act has been amended w.e.f. 1st April, 1989. Clause (b) of Expln. 2 which is relevant for our purposes is reproduced below:

where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the AO that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return.

It shall be deemed case where income chargeable to tax has escaped assessment.

In view of the above statutory provisions, the argument that no assessment order was framed, no reassessment proceeding can be initiated is not valid provided the other conditions of cl. (b) to Expln. 2 are specified. In any view of the matter, so far as the Allahabad High Court is concerned, the controversy stands concluded by the decision of this Court in the case of Pradeep Kumar Har Saran Lal (supra). The Allahabad High Court has followed the judgment of the Calcutta High Court and it extracted the relevant portion from the judgment of the Calcutta High Court in Jorawar Singh Baid Vs. Asst. Commissioner of Income Tax and Others, . The extracted portion is reproduced below:

Simply because the return of the assessee has been accepted without scrutiny and in good faith the AO is not precluded from initiating a proceeding satisfying the conditions therefore where the income has escaped assessment. There is nothing either in s. 143 or in s. 147 that can support such a view. The provisions of a tax statute should be interpreted in a manner leading to the result that everybody pays his due tax. ... In jour view, a return after its acceptance, whether in a summary manner or after scrutiny, may itself lead to reassessment proceedings provided the conditions for reassessment under s. 147 exist....... It is not the summary acceptance of the return under s. 143(1)(a) that can operate as a bar against reassessment. It is, rather, the further disclosure made by the assessee in the course of proceedings under s. 143(3) whereby the assessee may take out his case from the mischief of s. 147. Therefore, the scope for initiating reassessment proceedings in an assessment made under s. 143(1)(a) is far wider than in an assessment under s. 143(2) r/w s. 143(3). In our view, the power that can be exercised under s. 143(2) to correct the assessment made under s. 143(1) does not exclude the power of the AO to reopen the assessment under s. 147 if the ingredients of s. 147 are satisfied. It is open to the AO to invoke the jurisdiction under s. 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under s. 147 is vitiated because the AO failed to invoke his power to correct the assessment already completed under s. 143(1) by issuing a notice under s. 143(2) of the Act.

Thereafter, it has been held by this Court as follows:

We agree with the above reasoning of the Calcutta High Court, insofar as it has been held that so long as the ingredients of s. 147 are fulfilled, the AO is free to initiate reassessment proceedings and failure to take steps under s. 143(2) will not render the AO powerless to initiate the reassessment proceedings.

While preparing the judgment, we could lay our hands on a direct decision of the apex Court in the case of Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd., . In this case, the apex Court has noticed the unamended s. 143 and as it was amended w.e.f. April, 1989. It considered the relevant provisions relating to reassessment proceeding as it is existed prior to 1st April, 1989 and thereafter. It has been laid down that the scope and effect of s. 147 as substituted w.e.f. 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. The relevant portions from the said judgment are extracted below:

The scope and effect of s. 147 as substituted w.e.f. 1st April, 1989, as also ss. 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of s. 147, separate cls. (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under s. 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income tax have escaped assessment, and secondly he must also have reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147(a) But under the substituted s. 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to s. 147. The case at hand is covered by the main provision and not the proviso.

So long as the ingredients of s. 147 are fulfilled, the AO is free to initiate proceeding under s. 147 and failure to take steps under s. 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under s. 143(1) had been issued.

The view taken by us, in the present appeal is in consonance of the judgment in the case of Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) holding that failure to take steps under s. 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation under s. 143(1) had been issued.

Having regard to what has been said above, we are of the opinion that the order of the Tribunal holding that the notice under s. 147 of the Act dt. 4th July, 2006 is invalid is legally not correct.

On a query put by the Court, learned counsel for the assessee accepts if the recourse to s. 143(3) would have been barred by time, there would have been no restriction to initiate the reassessment proceeding under s. 147 of the Act. We may add that there is nothing on the plain language of s. 143 of the Act which may suggest that the recourse to s. 147 can be had only when the period of limitation to complete assessment proceeding has expired or the assessing authority should wait for the expiry of the said period. The said argument is ridiculous and not acceptable.

The ambit and scope of reassessment proceeding is limited and restricted and if the assessing authority in its wisdom proceeds to assess the income with the help of limited power, it does not lie in the mouth of the assessee to say that the assessing authority should have exercised wider jurisdiction i.e. the regular assessment proceeding instead. Viewed as above, the order of the Tribunal under appeal being contrary to law cannot be allowed to stand. The appeal succeeds and is allowed and the matter is remanded back to the Tribunal to rehear and re-decide the appeals on merits on other issues. No order as to costs.