Pradeep Sharma Vs. DCIT (ITAT Delhi)
It is settled law that unless the return of income already filed is disposed of, notice for reassessment under section 148 of the Income Tax Act, 1961, 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.
If the assessment is not framed before the expiry of the period of limitation for a particular assessment year, it would have to be assumed that since proceedings had not been opened under section 143(2), the return had been accepted as correct. It may be argued that thereafter recourse could be taken to section 147, provided fresh material had been received by the assessing officer after the expiry of limitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evident that, faced with severe paucity of time, the assessing officer had attempted to travel the path of section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law.
Full Text of the ITAT Order is as follows:-
This is an appeal filed by the assessee against the order of the learned Commissioner (Appeals)-II, New Delhi dated 31-3-2013 for the assessment year 2009-10.
2. The assessee has raised the following grounds of appeal: —
“1. The learned Commissioner (Appeals) erred in fact and in law confirming the addition of Rs. 12500000 which is not only bad in law but also against the facts and circumstances of the case.”
3. The assessee is an individual engaged in the business of architecture services field his return of income 30-9-2009 showing income of Rs. 3075312 Survey under section 133A was carried out on 20-10-2008 wherein the assessee made disclosure of income of Rs. 1.25 crores but did not disclose same in the return of income. Therefore, notice under section 148 of the Act was issued on 2-11-2010. The objections raised by the assessee were also rejected on 12-12-2011 and proceedings were initiated for assessing the above undisclosed income. The assessee objected that above disclosure was given under pressure and therefore, does not bind him. Learned assessing officer rejected the contention of the assessee and passed order under section 143(3) read with section 147 of the Act on 29-12-2011 at Rs. 15575312. The assessee objected the above assessment before the learned (Appeals) who confirmed the order of the learned assessing officer and dismissed the appeal of the assessee, hence, this appeal.
4. Before us the assessee submitted a letter dated 25-9-2014 raising additional ground of appeal wherein, the main ground raised in as under ‘that since proceedings under section 142(1)/143(2) of the Act were already pending, the proceedings initiated under section 147 of the Act during the pendency of proceedings under section 142(1)/143 of the Act is without jurisdiction and therefore, deserves to be quashed.
5. The assessee submitted that the additional ground is legal in nature and goes to the root of the matter and therefore, required to be admitted. He submitted that no new facts are required to be investigated. He relied upon the decision of NTPC v. CIT 229 ITR 383 of Hon’ble Supreme Court.
6. The learned Department Representative vehemently objected the admission of above ground and submitted that when the assessee has succumbed to be jurisdiction of the assessing officer now it cannot question the same.
7. We have carefully considered the rival contentions and as the ground raised by the assessee is legal in nature and does not require any investigation of the facts same deserves to be admitted and adjudicated. Hence, we admit the same.
8. The learned Authorized Representative submitted that at the time of issue of notice under section 148 of the Income Tax Act the notice under section 143(2) was already issued to the assessee on 29-9-2010 along with notice under section 142(1) of the Act of the even date. He further submitted that assessee has also submitted the reply to such notice on 15-10-2010. He therefore, submitted that despite the pendency of proceedings under section 143(2) of the Act initiation of reassessment proceedings is bad. For this he relied upon the decision of Hon’ble Supreme Court in case of Trustees of HEH the Nizam Family Trust v. CIT 242 ITR 381 and Hon’ble Delhi High Court in case of KLM Royal Dutch Airlines v. ADIT 292 ITR 49 (Del). In view of this, he submitted that jurisdiction assumed by the assessing officer is incorrect.
9. The learned Department Representative vehemently contested the arguments of the assessee and submitted that there is no bar in initiating proceedings under section 148 of the Act.
10. We have carefully considered the rival contentions. In the paper book submitted by the assessee at page No. 17 notice under section 142(1) of the Act is placed for assessment year 2009-10 dated 16-8-2010 asking the assessee to remain present on 27-8-2010. The page No. 18of PB is a notice under section 143(2) dated 29-9-2010 asking the assessee to remain present on 18-10-2010. On the same date the notice under section 142(1) was also issued. The assessee also replied the notice under section 142(1) which was submitted before the learned assessing officer on 15-10-2010. Meanwhile, without disposing off this notices or passing any order the learned assessing officer straightway proceeded to issue notice under section 148 of the Income Tax Act which is placed at page No. 32 of the paper book on 2-11-2010 and ultimately passed an order under section 147 of the Act. the issue is apparent that assessing officer has invoked the jurisdiction under section 147 of the Act without completing original enquiry initiated under section 143(2) of the Act. The above issue is squarely covered by the decision of the Hon’ble Delhi High Court in 292 ITR 49 holding that initiation of proceeding under section 147 under such situation is irregular and illegal as under: —
“11. In our opinion section 147/148 cannot be interpreted in isolation of the other provisions of Chapter-XIV of the Income Tax Act which is the fasciculus dealing with the procedure for assessment. Section 139 makes it mandatory for every person whose total income exceeds the maximum amount which is not chargeable to Income Tax, to furnish a return of income by the due date. Section 142 deals with the inquiry before assessment. The first Sub-Section thereof empowers the assessing officer to issue a notice to any person to file a return or to produce its accounts or any documents or to provide any information as the assessing officer may require. Sub-Section (2) empowers the assessing officer to make any inquiry he considers necessary. Sub-Section (3) incorporates the audi alteram partem rule of natural justice viz., providing to the affected party an opportunity of being heard. Section 143 deals with the dispatch of intimations specifying the sum payable as tax or interest that has been found by the assessing officer to be due on the basis of the return ; it deals with refunds payable to the assessee. The neat question which arises before us is whether on the commencement of assessment proceedings they must first be brought to their logical conclusion by framing an assessment before embarking on the proceedings as envisaged in section 147/148 of the Income Tax Act; or more precisely stated, can resort to section 147 be made even whilst the normal assessment proceedings are pending conclusion. To find the answer we must keep in perspective that every return of income filed under section 139 may not result in its active and in-depth perusal or consideration by the Assessing Officer as it may receive an automatic onward passage under section 143(1). However, once an inquiry has been initiated by the assessing officer, it cannot but result in either the return being accepted as having been correctly computed by the concerned assessee, or in an assessment being conducted and concluded thereon by the assessing officer. The provisions of section 147 would have no role to play at this stage of the proceedings. Once a return of income attracts the attention and scrutiny of the assessing officer, it is his bounden duty to delve into every aspect thereof. The assessing officer is sufficiently empowered to ask for all information necessary for framing the assessment. The only fetter on the amplitude of his discretion is that the assessment must be framed within the time limit set-down by section 153 which, in substance, is two years from the end of the assessment year in which the income was first asses sable or one year from the end of the financial year. A perusal of its second sub-section makes it clear that proceedings under section 147 are altogether different to those under section 143. This distinction appears to have escaped the attention of the Revenue. Sub-Section (2) stipulates that no order under section 147 shall be made after the expiry of one year from the end of the financial year in which notice under section 148 was served.
12. Section 147 of the Income Tax Act deals with the powers of the assessing officer to “ assess” or “reassess” the income chargeable to Tax, which has escaped assessment. Section 148 contemplates making the “ assessment”, reassessment or re computation under section 147. Keeping the factual matrix before us in perspective, it becomes critical to define the word assess since the assessing officer is avowedly not reassessing or recomposing the income presented by the assessee for taxation in the form of its return. It is trite that the words assess, reassess or recompute are not synonymous with each other. It seems to us that an assessment must entail a conscious and concerted calculation carried out by the concerned officer with a view to determine the amount of tax payable by any person. The exercise commencing with section 139 and ending at section 145A cannot be interpreted as identical to or overlapping section 147/148/149. They are predicated on different circumstances and operate in disparate dimensions. The Income-tax Act makes it incumbent upon every person whose total income exceeds the maximum amount which is not chargeable to income- tax to file a return of income in order to kick-start the normal assessment procedure. However, it may happen that a person fails to file a return of income, say for the assessment year 2000-01, even though he is liable to pay tax. It could also happen that a person may file a return of income incorrectly offering for purposes of taxation a sum lower than the correctly calculated income. Both these situations have been obviously kept in view in Explanation 2 to section 147 and in its clauses (a) and (b). In either event the assessing officer would invoke the powers conferred upon him by section 147 of the Income-tax Act culminating in the completion of the assessment. It is also conceivable that the incorrectness of the return may not be detected or noticed within the time period set down in section 153. In these circumstances if the assessing officer has reason to believe, predicated on information received by him, that income chargeable to tax has escaped assessment, he would invoke the powers under section 147. On the other hand, where a return of income has been filed but has been taken at its face value, without any proceedings under sections 143(2) and 143(3) having been conducted, no assessment exercise would obviously have been undertaken. After the expiry of the time period set down in section 153, this situation can be remedied by the assessing officer by invoking section 147. The word “ assessment” has been defined in the Act in a most unsatisfactory manner, merely by stating that it includes reassessment. A more comprehensive definition is readily available in the Australian decision titled Batagol v. Federal Commissioner of Taxation (1963) 109 CLR 243 in these words: —
“ Assessment means the completion of the process by which the provisions of the Act relating to liability to tax are given concrete application in a particular case with the consequence that a specified amount of money will become due and payable as the proper tax in that case”.
13. A “ clearance” or notice or intimation under section 143(1) of the Act clearly falls beyond the parameters of this definition. In Punjab Tractors Ltd. v. Joint CIT (2002) 254 ITR 242 (P&H) it was opined that it is not necessary that assessment should have been finalised under section 143(3) before it can be “reopened”under section 147, since an intimation under section 143(1) operates as an order of assessment unless the assessing officer proceeds to give notice under section 143(2) and passes an order under section 143(3). This very understanding of the law has been articulated by the Division Bench of the Allahabad High Court in Pradeep Kumar Har Saran Lal v. assessing officer (1998) 229 ITR 46 which, in turn, followed the view of the Calcutta High Court in Jorawar Singh Baid v. CIT (Assessment) (1992) 198 ITR 47, wherein it has been observed that (page 52): “ the power that can be exercised under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the assessing officer to reopen the assessment under section 147 if the ingredients of section 147 are satisfied. It is open to the assessing officer to invoke the jurisdiction under section 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under section 147 is vitiated because the assessing officer failed to invoke his power to correct the assessment already completed under section 143(1) by issuing a notice under section 143(2) of the Act”. However, in the present case since inquiries had been initiated under section 143(2), it became mandatory that they should have culminated in an order under section 143(3).
14. In Trustees of H. E. H. the Nizam’ s Supplemental Family Trust v. CIT (2000) 242 ITR 381 the apex court has observed that it is (page 387) “ settled law that unless the return of income already filed is disposed of, notice for reassessment under section 148 of the Income Tax Act, 1961, 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 the only bar to the reassessment proceedings is that proceedings on the return already filed should have been terminated”. The following concluding passage from the said judgment is self-explanatory (page 390) : —
“A return of income filed in the form prescribed along with an application for refund under section 237 of the Act is a valid return. There is no stopping the Income Tax Officer to complete the assessment on the basis of the return so filed. It may be that the Income Tax Officer may limit the scope of examination of the return to satisfy himself regarding the correctness of the amount claimed as refund. For that purpose, he will examine if the tax paid by the assessee exceeds the amount of tax with which he is chargeable. If it is found that the income was “nil”, he will direct that refund be granted to the assessee of any amount of tax paid. That will certainly be assessment. The filing of a return in the form prescribed under section 139 of the Act along with the application for refund is not an empty formality. It assumes importance if such return had not been filed earlier. We have reproduced the note/order dated 10-11-1965, on the file per taining to the assessment year 1963-64. In the file for the assessment year 1962-63 there is another note which is as under: —
‘Please see my note in 1963-64 file. Refund to be considered in the hands of the beneficiaries’.
A mere glance at this note would show that it could not be said that the Income Tax Officer gave finality to the refund since no refund is granted either in the hands of the trust or in the hands of the beneficiaries. It is an inconclusive note where the Income Tax Officer left the matter at the stage of consideration even with regard to refund in the hands of the beneficiaries. This note was also not communicated to the trustees. When we examine the note dated 10-11-1965, on the file of 1963-64 nothing flows from that as well. In any case if it is an order, it would be appeal able under section 249 of the Act. Since the period of limitation starts from the date of intimation of such an order, it is imperative that such an order be communicated to the assessee. Had the Income Tax Officer passed any final order, it would have been communicated to the assessee within a reasonable period. In any case, what we find is that the note dated 10-11-1965, is merely an internal endorsement on the file without there being an indication if the refund application has been finally rejected. By merely recording that in his opinion, no credit for tax deducted at source is to be allowed, the Income Tax Officer cannot be said to have closed the proceedings finally. The decisions referred to by the Revenue are of no help in the present case. We are, thus, of the opinion that during the pendency of the return filed under section 139 of the Act along with the refund application under section 237 of the Act, action could not have been taken under section 147/148 of the Act. Our answer to the question, therefore, is in the negative, i.e., against the Revenue.”
15. We would arrive at this very destination even if we were to traverse along a different dialectic, namely, if we were to analyze the circumstances in which section 147 of the Income-tax Act could be invoked. There is plenitude of precedents on this aspect of the law; hence only some of them shall be discussed. The question that had arisen before the Bombay High Court in Western Outdoor Interactive (P) Ltd. v. A.K. Phute, ITO (2006) 286 ITR 620 was whether, upon the rectification being set aside by the Commissioner (Appeals), notice for reassessment on the same grounds could validly be initiated; there was no failure on the part of the assessee to disclose material facts and no fresh information had been received by the assessing officer. At best, it was possible to say that two views were available and in such a situation it was held that the said provision was not available. In particular, the Bench noted the following enunciation of the law in Indian Oil Corporation v. ITO (1986) 159 ITR 956, 967, 970 (SC): —
“ The principles on this branch of law are well-settled.
To confer jurisdiction under clause (a) of section 147 of the Act beyond the period of four years but within a period of eight years from the end of the relevant year under section 148, two conditions were required to be fulfilled : the first is that the Income Tax Officer must have reason to believe that the income, profits or gains chargeable to tax had been under assessed or escaped assessment ; the second is that he must have reason to believe that such escapement or under assessment was occasioned by reason, so far as relevant for the present purpose, to disclose fully and truly all material facts necessary for the assessment of that year. Both these conditions are conditions precedent to be satisfied. See, in this connection, the observations of this court in Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191.
As is well-settled now by the several authorities of this court and of several High Courts, there must be materials to come to the conclusion that there was ‘ omission or failure to disclose fully and truly all material facts necessary for the assessment of the year’. It postulates a duty on every assessee to disclose fully and truly all material facts necessary for the assessment. Therefore, an obligation is to disclose facts ; secondly, those which are material ; thirdly, the disclosure must be full and fourthly, true. What facts are material and necessary for assessment will differ from case to case. In every assessment proceeding, for computing or determining the proper tax due from the assessee, it is necessary to know all the facts which help the assessing authority in coming to the correct conclusion. From the primary facts in his possession, whether on disclosure by the assessee, or dis covered by him on the basis of the facts disclosed, or otherwise, the assessing authority has to draw inferences as to certain other facts. But on the primary facts, it is for the taxing authority to draw inferences. It is not necessary for the assessee to draw inferences for him. See, in this connection, the observations in Calcutta Discount (1961) 41 ITR 191 (SC)”.
16. The Full Bench of this court in CIT v. Kelvinator of India Ltd. (2002) 256 ITR 1 had opined that the amendments introduced into section 147 with effect from 1-4-1989, have not altered the position that a mere change of opinion of the assessing officer was not sufficient ground for embarking on a reassessment. Calcutta Discount Co. Ltd. (1961) 41 ITR 191 (SC) was duly considered and applied by the Full Bench. The Full Bench further observed that an order of assessment must be presumed to have been passed by the assessing officer concerned after due and proper application of mind. In these circumstances the decision of the Division Bench in Consolidated Photo and Finvest Ltd. v. CIT (Asst.) (2006) 281 ITR 394 (Delhi), inasmuch as it is irreconcilable with the views of the Full Bench, must be held not to lay down the correct law. This is especially so since the assessment proceedings had not come to an end under the first sub-section of section 143, but under the third Sub-Section. A Division Bench of a particular High Court is fully bound by the view preferred by a larger Bench of that court, regardless of the fact that another High Court prefers a different view (in this case that of the Gujarat High Court as in Gruh Finance Ltd. v. Joint CIT (Assessment) (2000) 243 ITR 482, Praful Chunilal Patel v. M. J. Makwana, Assistant CIT (1999) 236 ITR 832 (Guj) and Garden Silk Mills Ltd. v. Deputy CIT (Assessment) (No. 1) (1996) 222 ITR 27 (Guj)). The Full Bench of this court has taken into consideration both Praful Chunilal Patel (1999) 236 ITR 832 (Guj) as well as Garden Silk Mills (1996) 222 ITR 27 (Guj). In Kelvinator (2002) 256 ITR 1 (Delhi) the Full Bench had also analyzed the earlier Division Bench decisions, namely, Jindal Photo Films Ltd. v. CIT (Deputy) (1998) 234 ITR 170 presided over by R. C. Lahoti J. (as the learned Chief Justice of India then was) and Bawa Abhai Singh v. CIT (Deputy) (2002) 253 ITR 83 comprising Arijit Pasayat and D. K. Jain JJ. (as their Lordships then were). It is quite possible that had the court in Consolidated Photo (2006) 281 ITR 394 (Delhi) been made aware of the consistent opinion of this court in Jindal Photo (1998) 234 ITR 170 and Bawa Abhai Singh (2002) 253 ITR 83, their conclusion may have been totally different, notwithstanding the alternative view of the Gujarat High Court.
17. It also needs to be clarified that in Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT (2000) 246 ITR 173, the Division Bench of this court opined that an intimation under section 143(1)(a) cannot be treated to be an order of assessment. Therefore, although the assessment had been completed under section 143(1)(a), recourse could be taken to section 147. In that case while finalising the assessment for the assessment year 1996-97 under section 143 it was found that the claim of licence fee made by the assessee was erroneous and should have been disallowed.
18. The diametrically opposite position had arisen in CIT v. Sun Engineering Works (P) Ltd. (1992) 198 ITR 297 (SC). It was held that “ in the reassessment proceedings, it is not open to an assessee to seek a review of the concluded item, unconnected with the escapement of income, for the purpose of computation of the income escaping assessment ; and, therefore, the Tribunal was right in holding that the respondent was not entitled to re agitate the question of the set-off of losses in the reassessment proceedings”. In other words, reassessment must invariably be preceded by conclusion of the original proceedings. The decision of the Supreme Court in Esthuri Aswathiah v. ITO (1961) 41 ITR 539; (1961) 2 SCR 911 was applied by the Division Bench of the Madras High Court in M.Ct.
Muthuraman v. CIT (1963) 50 ITR 656, in reaching the conclusion that for the assessment years 1953-54 and 1954-55 the proceedings were lawfully terminated by the remark “N.A” on the assessment file and notices under section 34 of the Indian Income Tax Act, 1922 were not invalid. With regard to the assessment years 1950-51 and 1951-52 the assessment proceedings had not been closed in any manner and as they were pending, the notices under section 34 were invalid. Finally, the notice for the assessment year 1952-53 was invalid as the notice was issued before the date on which the appeal in respect of that year was disposed of.
19. Applying this line of decisions to the facts of the present case, the inescapable conclusion that would have to be reached is that while assessment proceedings remain inchoate, no “ fresh evidence or material” could possibly be unearthed. If any such material or evidence is available, there would be no restrictions or constraints on its being taken into consideration by the assessing officer for framing the then current assessment. If the assessment is not framed before the expiry of the period of limitation for a particular assessment year, it would have to be assumed that since proceedings had not been opened under section 143(2), the return had been accepted as correct. It may be argued that thereafter recourse could be taken to section 147, provided fresh material had been received by the assessing officer after the expiry of limitation fixed for framing the original assessment. So far as the present case is concerned we are of the view that it is evident that, faced with severe paucity of time, the assessing officer had attempted to travel the path of section 147 in the vain attempt to enlarge the time available for framing the assessment. This is not permissible in law.”
11. Therefore, respectfully following the order of the Hon’ble Delhi High Court we also held that order passed by the learned assessing officer is irregular and invalid and hence, quashed. In the result, additional ground filed by the assessee is allowed.
12. As the assessment order passed by the assessing officer is quashed on the additional ground we do not adjudicate the original ground raised in the appeal.
13. In the result, appeal filed by the assessee is allowed.