2009 (10) TMI 950 - HC - Income Tax

Summary

Issues Involved:
1. Validity of the assessment order u/s 143(3) due to non-service of notice u/s 143(2) within the prescribed time.
2. Legality of reopening the assessment u/s 148 after the Tribunal quashed the original assessment.
3. Applicability of the proviso to section 147 in the context of the reopening of the assessment.

Summary:

1. Validity of the Assessment Order u/s 143(3):
The petitioner company filed its return of income for the assessment year 2001-02, claiming a deduction u/s 80-IA. The AO disallowed this deduction and computed the total income at Rs. 79,99,709. The petitioner challenged this disallowance before the CIT(A), raising an additional ground that the assessment was without jurisdiction as no notice u/s 143(2)(i) was served within twelve months from the end of the month of filing the return. The CIT(A) confirmed the disallowance and refused to admit the additional ground. The Tribunal, however, quashed the assessment order, holding that the mandatory requirement of service of notice u/s 143(2) within one year was not satisfied, rendering the assessment invalid.

2. Legality of Reopening the Assessment u/s 148:
After the Tribunal's order, the AO issued a notice u/s 148 to reopen the assessment. The petitioner challenged this notice, arguing that the Tribunal's order had attained finality and the AO could not reopen the case without fresh material. The respondent contended that the assessment was a nullity and could be rectified. The court noted that the Tribunal's basis for setting aside the assessment was the non-service of notice u/s 143(2) within the prescribed time, making the assessment a nullity in law.

3. Applicability of the Proviso to Section 147:
The court referred to the Supreme Court's judgment in Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd., which clarified that for initiating action u/s 147, the AO must have "reason to believe" that income has escaped assessment. The court held that since the original assessment u/s 143(3) was a nullity, the proviso to section 147 was not applicable. The AO's reasons for reopening the assessment indicated a failure on the part of the assessee to disclose material facts fully and truly, justifying the reopening under the main provision of section 147.

Conclusion:
The court dismissed the petition, stating that the initiation of proceedings u/s 148 was not illegal despite the AO's incorrect reference to the proviso to section 147. The petitioner was given the liberty to present its case before the AO to show that the claim u/s 147 was rightly made and allowed. The court also referred to the decision in Consolidated Photo & Finvest Ltd. v. Asstt. CIT, which supported the AO's action based on the material already on record.