2007 (1) TMI 138 - HC - Income Tax

Challenged the initiation of reassessment proceedings u/s 147 - notice issued u/s 148 - escaped income notices u/s 143(3) - reasons to believe - HELD THAT - 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 assessable or one year from the end of the financial year. A perusal of its second sub-section makes it clear that proceedings u/s 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 u/s 147 shall be made after the expiry of one year from the end of the financial year in which notice u/s 148 was served. 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 u/s 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. Suffice it to state that wherever and whenever it appears to the High Court that proceedings have been initiated or are continuing without the authority of the law the High Court would be in dereliction of duty if it hesitated in exercising the extraordinary powers contained under article 226/227 of the Constitution of India. In the present case since the Assessing Officer was duty-bound to conclude the assessment before resorting to section 147 of the Income-tax Act it is our bounden duty to issue a writ of certiorari so as to bring these legal proceedings to a definitive halt. The dicta in GKN Drive Shafts 2002 (11) TMI 7 - SUPREME COURT have been not duly followed since the objections filed by the petitioners in our view have been disposed of contrary to law. In this analysis the writ petitions are allowed. The initiation of proceeding u/s 147 of the Income-tax Act was irregular and illegal on the short ground that returns of income having been filed and since no order of assessment had been finalised by the Assessing Officer there was no scope for invoking section 147. The pending proceedings are quashed.

Issues Involved:
1. Challenge to the initiation of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961.
2. Validity of the notice under Section 148 of the Income-tax Act, 1961.
3. Jurisdictional aspects of the reassessment proceedings.
4. Application of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands.
5. Legal propriety of the writ proceedings.

Issue-wise Detailed Analysis:

1. Challenge to the initiation of reassessment proceedings under Section 147/148 of the Income-tax Act, 1961:
The petitioner challenged the initiation of reassessment proceedings claiming that the returns of income were filed and no order of assessment had been finalized by the Assessing Officer. The court noted that the Assessing Officer must first complete the assessment proceedings under Section 143 before initiating reassessment under Section 147. The court held that the initiation of reassessment proceedings was irregular and illegal as the original assessment proceedings were still pending.

2. Validity of the notice under Section 148 of the Income-tax Act, 1961:
The petitioner sought to quash the notice issued under Section 148 dated March 8, 2006, for the assessment years 2001-02 and 2003-04. The court observed that the notice was issued without completing the original assessment proceedings. The court emphasized that the issuance of notice under Section 148 requires the Assessing Officer to have "reasons to believe" that income has escaped assessment, which must be based on new information or material. The court found that no such new information was available, and the notice was issued merely to extend the time for assessment, which is not permissible.

3. Jurisdictional aspects of the reassessment proceedings:
The court examined whether the reassessment proceedings were within the jurisdiction of the Assessing Officer. It was noted that reassessment proceedings can only be initiated if the original assessment has been concluded. The court referred to various precedents, including Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT, which established that reassessment cannot be initiated while the original assessment is pending. The court held that the Assessing Officer acted beyond his jurisdiction by initiating reassessment without concluding the original assessment proceedings.

4. Application of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands:
The petitioner claimed exemption under Article 8 of the DTAA for income earned from "technical handling." The court noted the distinction between the cases of British Airways Plc. and Lufthansa German Airlines, where different interpretations of the DTAA were applied. The court did not delve into the merits of the DTAA application but emphasized that the reassessment proceedings were invalid due to procedural irregularities.

5. Legal propriety of the writ proceedings:
The respondent challenged the maintainability of the writ petition. The court reiterated its stance from previous judgments, stating that the High Court has the duty to exercise its extraordinary powers under Article 226/227 of the Constitution of India whenever it appears that proceedings have been initiated or continued without the authority of law. The court found that the objections filed by the petitioner were disposed of contrary to law and allowed the writ petitions.

Conclusion:
The court allowed the writ petitions, quashing the initiation of proceedings under Section 147 of the Income-tax Act on the grounds that the returns of income were filed and no order of assessment had been finalized by the Assessing Officer. The pending reassessment proceedings were quashed, and the petitioner was awarded costs of Rs. 25,000 to be paid within six weeks.

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