2024 (3) TMI 1080 - HC - Income Tax

Reopening of assessment u/s 147 consequent to revision proceedings u/s 263 pending - notice u/s 148 issued during the pendency of the assessment proceedings following the directions given by the PCIT - HELD THAT - Such a reopening notice in our view could not have been issued more particularly because the notice involved matters which were the subject matter of revision u/s 263 - when the order of assessment u/s 143(3) of the Act has been remanded to the AO to enquire into and make a fresh assessment the question of entertaining reasonable belief that the income chargeable to tax has escaped assessment does not arise much less the assessment when the assessment proceedings are still pending. The concept of reason to believe comes in picture if the income chargeable to tax has escaped assessment. So long as the assessment is pending the assessing authority cannot have any such reason to believe that income chargeable to tax for the assessment year in question has escaped assessment. Income cannot be said to have escaped assessment within the meaning of this section if the assessment proceedings in respect of that income and/or issue are still pending and have not culminated into a final order. The underlying principle is how can an escapement of income from an assessment be predicted before an assessment is complete. Thus it was not open for the AO to invoke powers u/s 147 and 148 - In our view so long as the assessment proceeding in respect of certain income subsists income cannot be said to have escaped assessment. Such proceedings if initiated will have to be held as invalid ab-initio void and illegal. We find support for this view in Ador Technopack Ltd. v. Dr. Zakir Hussein Deputy Commissioner 2004 (3) TMI 22 - BOMBAY HIGH COURT Also sanction granted u/s 151 as held by this Court in J M Financial and Investment Consultancy Services Private Limited 2022 (4) TMI 1446 - BOMBAY HIGH COURT is invalid. Decided in favour of assessee.

Summary

Issues involved: Validity of notice under Section 148 of the Income Tax Act, 1961 during pending assessment proceedings and the applicability of the third proviso to Section 147.

The judgment addresses the issue of a notice issued under Section 148 of the Act during pending assessment proceedings following directions from the Principal Commissioner of Income Tax (PCIT). The petitioner had filed a return of income for AY 2015-16, and an assessment was completed under Section 143(3) determining the total income. Subsequently, the PCIT set aside the assessment order under Section 143(3) directing the Assessing Officer (AO) to verify the issues. During this ongoing assessment, a notice under Section 148 was issued, based on reasons similar to those for the PCIT's order under Section 263. The petitioner argued that the notice was invalid as per the third proviso to Section 147, which prohibits assessing income involving matters subject to appeal, reference, or revision. The court agreed that the notice could not have been issued in this scenario.

Furthermore, the judgment highlights that the notice under Section 148 was inappropriate as it involved matters subject to revision under Section 263. The court emphasized that as long as assessment proceedings are pending, there cannot be a reasonable belief that income has escaped assessment. The court reasoned that income cannot be deemed to have escaped assessment while proceedings are ongoing, and initiating proceedings in such circumstances would be considered invalid, void, and illegal. The court cited the case of Ador Technopack Ltd. v. Dr. Zakir Hussein, Deputy Commissioner to support this stance.

Additionally, it was noted that the sanction granted under Section 151 of the Act was considered invalid, as previously held by the court in J M Financial and Investment Consultancy Services Private Limited v. Assistant Commissioner of Income Tax. The petition was disposed of in light of these findings.