Case Law Details
Smt. Suman Vs. ITO (Bombay High Court)
Where the period of issuing notice under section 143(2) of the Act has not expired, then reassessment notice under section 147/148 of the Act was invalid.
An Assessing officer cannot initiate reassessment proceedings, where intimation under section 143(1) has been issued and the Revenue failed to take steps to issue notice under section 143(2) and complete assessment under section 143(3) of the Act. The aforesaid contention was negatived in the above referred para on the ground that in the context of the facts before it, the time to issue notice under section 143(3) of the Act had expired. It is only thereafter that the assessing officer could have reason to believe that the income chargeable to tax has escaped assessment. It is in such cases that the assessing officer would not be prohibited under section 147/148 of the Act from seeking to recover tax on income which has escaped assessment. It is clear that no reassessment proceedings can be initiated so long assessment proceedings on the basis of return of income filed by the assessee is pending. The assessment proceedings would cease to be pending either by passing of an order under section 143(3) of the Act or by expiry of time to issue a notice under section 143(2) of the Act, to complete an assessment under section 143(3) of the Act. So long as the above event has not passed, the assessing officer cannot render the provision of section 143(2) of the Act redundant/otiose by issuing a notice for reopening an assessment under section 147/148 of the Act. Therefore, the above decision of the Apex Court in Rajesh Jhaveri’s Stock Brokers (P) Ltd. case have no application to the present facts, when admittedly the time to issue notice under section 143(2) of the Act to complete the regular assessment under section 143(3) of the Act has not expired.
JUDGMENT
M.S. Sanklecha, J.
This appeal under section 260-A of the Income Tax Act, 1961 (the Act) challenges the order dated 24-7-2003 passed by the Income Tax Appellate Tribunal, Nagpur (Tribunal). The impugned order relates to the assessment year 1999-2000.
2. This appeal was admitted on 4-4-2007 on the following substantial question of law:–
‘Whether assessing officer can proceeds with extraordinary power under section 147, particularly when normal procedure of assessment of Income under section 143(3) are available which are otherwise within time?’
3. On 14-12-1999 the appellant filed her return of income for the subject assessment year 1999-2000 declaring nil income. On 7-1-2000 the Revenue processed the return of income under section 143(1)(i) of the Act by Intimation.
3.1 On 25-1-2000 assessing officer issued a notice under section 148 of the Income Tax Act seeking to reopen the proceeding for the subject assessment year 1999-2000. Thereafter, in response respondent/assessee did not file any return of income, nor did she attend the hearing before assessing officer. This led to the assessing officer to passing an assessment order under section 144 read with section 147 of the Act determining the respondent/assessee’s total income of Rs. 4,49,667. This by holding that the income earned on account of fisheries business would not be agricultural income to be exempted under section 10 of the Act.
4. Being aggrieved appellant filed an appeal to the Commissioner (Appeals). However, by an order dated 3-10-2002 the Commissioner (Appeals) dismissed the respondent/assessee’s appeal.
5. On further appeal, the Tribunal by the impugned order held that as regular assessment has not been completed under section 143(3) of the Act, the assessing officer is not divested of his powers to reopen the issue under section 148 of the Act. This even if the time to issue notice under section 143(2) of the Act had not expired. Further reliance was placed upon the Explanation 2(b) to section 147 of the Act which empowers the assessing officer to issue a reopening notice where no assessment under section 143(3) of the Act has been made. Accordingly, the impugned order dismissed the respondent/assessee’s appeal.
6. Mr. Saket Bhattad, learned counsel appearing for the appellant, in support submits as under :–
(a) For the assessment year 1999-2000 the appellant filed her return of income on 14-12-1999. The return was processed by an intimation under section 143(1)(i) of the Act on 7-1-2000. This processing of return by an intimation was always subject to assessment and without prejudice to the rights of the assessing officer to proceed against the assessee under sub-section (2) of section 143 of the Act. In these circumstances, the exercise of jurisdiction under section 148 of the Act by the assessing officer is completely illegal.
(b) The reliance in the impugned order upon the Explanation 2(b) of the Act is misplaced. The Explanation it is submitted is a safeguard against an assessee taking up a stand that as no assessment has been done, it is not open to the assessing officer to reach a conclusion that income chargeable to tax has escaped assessment. The Explanation 2(b) of the Act deems various cases wherein it is deemed that income chargeable under the Act has escaped assessment including a case where no assessment has been done. However, this Explanation 2(b) to section 147 of the Act can only apply where the time to complete assessment has not expired on the date when the notice under section 148 of the Act was issued on 25-1-2000.
7. On the other hand, Mr. Bhoot, learned counsel appearing for the Revenue supports the impugned order. It is further submitted that the powers of the assessing officer under section 148 of the Act to issue reopening notice is not circumscribed/hedged in by the fact that the assessing officer has not completed the assessment under section 143(3) of the Act. In support, he placed reliance upon the decision of the Hon’ble Apex Court in Asst. CIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., (2007) 291 ITR 500.
8. Before dealing with the rival contentions, it may be useful to reproduce section 143 of the Act as existing, when notice dated 25-1-2000 was issued under section 147/148 of the Act and it read as under :–
“143((1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142,–
(i) if any tax or interest is found due on the basis of such return, after adjustment of any tax deducted at source, any advance tax paid, any tax paid on self-assessment and any amount paid otherwise by way of tax or interest, then, without prejudice to the provisions of sub-section (2), an intimation shall be sent to the assessee specifying the sum so payable, and such intimation shall be deemed to be a notice of demand issued under section 156 and all the provisions of this Act shall apply accordingly; and
(ii) ………………
Provided that except as otherwise provided in this sub-section, the acknowledgment of the return shall be deemed to be an intimation under this sub-section where either no sum is payable by the assessee or no refund is due to him:–
Provided further that no intimation under this sub-section shall be sent after the expiry of two years from the end of the assessment year in which the income was first assessable.)
(2) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, the assessing Office shall, if he) considers it necessary or expedient to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence on which the assessee may rely in support of the return :–
Provided that no notice under this sub-section shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.)
3. ……………….
4. ……………….. “
9. It is an undisputed position before us that on 25-1-2000 when the assessing officer issued a notice under section 148 of the Act to reopen the assessment for assessment year 1999-2000, even before the time to issue notice under section 143(2) of the Act to assess under section 143(3) of the Act had expired. It is clear from section 143(1)(i) of the Act as in force at the relevant time that the intimation there under is without prejudice to the right of the Revenue to proceed under section 143(2) of the Act. Thus, issue of intimation by itself does not bring to an end an assessment proceeding. It comes to an end only when the time to issue a notice under section 143(2) of the Act expires/come to an end.
10. On the other hand, section 147/148 of the Act empowers an assessing officer to reopen an assessment wherever he has reason to believe that income chargeable to tax has escaped assessment. This power under section 147/148 of the Act is subject to various limitation provided therein. The power of reopening of assessment can be exercised where assessment has not been completed under section 143(3) of the Act or even where intimation under section 143(1)(i) of the Act has been issued provided the time to take further proceeding by issuing notice under section 143(2) of the Act to complete assessment under section 143(3) have already expired. So long the time is available to complete an assessment under section 143(3) of the Act after having issued intimation under section 143(1) of the Act, there can be no occasion for the assessing officer to have reason to believe the income chargeable had escaped assessment, for the reason that the assessing officer can issue notice under section 143(2) of the Act, to complete assessment under section 143(3) of the Act. Thus, it is a power vested in the assessing officer to disturb a concluded issue within a specified period by reopening an assessment. Therefore, it cannot be exercised till the period for completion of assessment has expired. Section 147/148 of the Act is not a power to be exercised to abort the regular assessment proceeding by issuing notice for reopening an assessment. The proceedings under section 147/148 are not parallel to regular assessment proceedings under section 143(2) & (3) of the Act.
11. The impugned order relies upon Explanation 2(b) to section 147 of the Act to sustain the reopening notice. Explanation 2(b) to section 147 reads as under :–
“Section 147 …………..
2. Explanation : For the purpose of this section, the following shall also be deemed to be cases where income chargeable to tax has been escaped assessment, namely :–
(a) ………….
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;”
The aforesaid explanation deals with case where income chargeable to tax escapes assessment including a case where a return of income has been filed, but no assessment has been made. The aforesaid explanation seeks to clarify that merely because no assessment has been made even after filing a return, it will not be open to suggest that no income chargeable to tax has escaped assessment. This covers issue where there is no possibility of making an assessment on the date when the notice under section 147/148 of the Act is issued. So long as the time to issue notice under section 143(2) of the Act is available, it cannot be said that no assessment has been made as the possibility of making an assessment is always available. The assessing officer is obliged to complete assessment under section 143(3) of the Act by issuing a notice under section 143(2) of the Act, if he is of the view that the assessee has understated his income or computed excessive loss or understated his tax to the prejudice of the Revenue. Therefore, we are clear that in view of the provisions of section 143(1)(i) of the Act is in force at the relevant time, no notice under section 148 of the Act can be issued, till the period to issue notice under section 143(2) of the Act has expired.
12. Reliance is placed upon the decision of the Apex Court in Rajesh Jhaveri Stock Brokers (P) Ltd. (supra) by the Revenue and in particular upon paragraph 18 thereof which reads as under :–
“18. So long as the ingredients of section 147 are fulfilled, the assessing officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the assessing officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued.”
The aforesaid observation by the Apex Court is made in the context of the contention of the assessee that an Assessing officer cannot initiate reassessment proceedings, where intimation under section 143(1) has been issued and the Revenue failed to take steps to issue notice under section 143(2) and complete assessment under section 143(3) of the Act. The aforesaid contention was negatived in the above referred para on the ground that in the context of the facts before it, the time to issue notice under section 143(3) of the Act had expired. It is only thereafter that the assessing officer could have reason to believe that the income chargeable to tax has escaped assessment. It is in such cases that the assessing officer would not be prohibited under section 147/148 of the Act from seeking to recover tax on income which has escaped assessment. It is clear that no reassessment proceedings can be initiated so long assessment proceedings on the basis of return of income filed by the assessee is pending. The assessment proceedings would cease to be pending either by passing of an order under section 143(3) of the Act or by expiry of time to issue a notice under section 143(2) of the Act, to complete an assessment under section 143(3) of the Act. So long as the above event has not passed, the assessing officer cannot render the provision of section 143(2) of the Act redundant/otiose by issuing a notice for reopening an assessment under section 147/148 of the Act. Therefore, the above decision of the Apex Court in Rajesh Jhaveri’s Stock Brokers (P) Ltd. case have no application to the present facts, when admittedly the time to issue notice under section 143(2) of the Act to complete the regular assessment under section 143(3) of the Act has not expired.
13. Further, we note that the Hon’ble Madras High Court in CIT v. Qatalys Software Technologies Ltd., (2009) 308 ITR 249 in identical fact situation dismissed the Revenue’s appeal by holding that where the period of issuing notice under section 143(2) of the Act has not expired, then reassessment notice under section 147/148 of the Act was invalid. Nothing has been shown to us as to why the view taken by the Hon’ble Madras High Court is required to be differed from.
14. In the above view, the substantial question of law framed for our consideration is answered in the negative i.e., in favour of the appellant/assessee and against the respondent/Revenue.
15. Accordingly, appeal allowed. No order as to costs.
