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2009 (12) TMI 661 - AT - Income TaxValidity of the reopening of the assessment u/s 147- Income escaping assessment - Whether proceedings u/s 147 can be initiated or not when the time for issuance of notice u/s 143(2) has not expired - Third Member Appointment - Difference in the opinion of ld JM and ld AM - The appellant filed its return for the assessment year 2002-03 on October 30, 2002 declaring a taxable income. This return was accepted u/s 143(1)(a) vide intimation dated December 19, 2003. A revised return was filed on March 23, 2004. There was time to issue notice u/s 143(2) upto March 31, 2005 on the revised return. While proceedings on the return were pending, the AO issued a notice u/s 148 on July 9, 2004. The ld JM held that the proceedings u/s 147 can be initiated even when the time for issuing notice u/s 143(2) has not expired. The ld AM held that the proceedings u/s 147 cannot be initiated when the time available for issuing notice u/s 143(2) has not expired. HELD THAT:- Section 147 and the related provisions are basically machinery provisions. Section 147 has been explained in detail by the Special Bench of the Tribunal in the case of Smt. Mahesh Kumari Batra [2005 (5) TMI 240 - ITAT AMRITSAR]. The gist of the observations in the said decision is that section 147 deals with income escaping assessment. The process entails the reopening of a completed assessment. This infringes on the sanctity of a completed assessment. Therefore, it is incumbent upon the AO to act in a fair manner and not in a partisan manner. There is no jurisdictional fact in existence which straightaway empowers the AO to enter jurisdiction. He can assume jurisdiction to reopen a completed assessment only on the basis of his own honest belief. Therefore, though section 147, in essence, is a machinery section, it also affects the substantive right of the assessee which had accrued to him on completion of original assessment. This is an example of what Chief Justice Venkatachaliah said in the case of CWT v. Sharvan Kumar Swarup and Sons [1994 (9) TMI 2 - SUPREME COURT] that a substantive right can be found secreted in the interstices of procedure. This is one principle which we shall keep in mind while adjudicating the matter on hand. The tenth edition of Law of Income-tax by Sampath Iyengar (at page 8175) has also explained the expression “ escaped assessment”. According to the learned authors, it “ postulates the termination of certain earlier assessment proceedings in the course of which the income should have been, but has not been, assessed. Clearly, no income can be said to have escaped assessment so long as the earlier proceedings are pending. Such pending proceedings must have either resulted in an assessment or reached a point of termination in law before proceedings for back assessment can be initiated (emphasis supplied). Looked at from another angle, an additional assessment comes only when there is already a completed assessment ex-hypothesis insufficient” The Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd.[2007 (5) TMI 197 - SUPREME COURT], after elaborately considering the provisions of section 143 prior to and subsequent to amendment with effect from June 1, 1999, and having regard to Explanation 2 to section 147 observed : ''The scope and effect of section 147, as substituted with effect from April 1, 1989, as also section 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (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 u/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 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 u/s 148 r/w section 147(a). But under the substituted section 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. So long as the ingredients of section 147 are fulfilled, the AO, is free to initiate proceedings u/s 147 and failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued.'' In the case of Qatalys Software Technologies Ltd.[2008 (7) TMI 240 - MADRAS HIGH COURT], the AO’s action of initiating proceeding u/s 147 was not upheld, on the ground that the time for issuing notice u/s 143(2) had not expired. Coming to the three decisions of the jurisdictional High Court, there is indeed a divergence of opinion in the two judgments, viz., one in the case of ITO v. K. M. Pachiappan [2007 (8) TMI 329 - MADRAS HIGH COURT] and Qatalys Software Technologies Ltd. in which the decision in the case of K. M. Pachayappan [2007 (7) TMI 229 - MADRAS HIGH COURT] has been followed. I am of the view that in such a situation, the decision which appeals to one’s conscience more should be followed. The decision in the case of Qatalys Software Technologies Ltd. is in consonance with all the Supreme Court judgments on the issue including the one in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. Therefore, I am inclined to follow the said decision. In the light of the above discussion, I agree with the conclusion reached by the ld AM and quash the order dated March 15, 2006 passed u/s 143(3) r/w section 147.
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