TMI Blog2009 (3) TMI 642X X X X Extracts X X X X X X X X Extracts X X X X ..... s pending thereafter and also no assessment is made in view of interpretation of the term intimation by Apex Court. This situation is directly covered in Explanation 2(b) to section 147 and, therefore, issuance of notice u/s 148(1) after processing is completed/acknowledgement issued would be covered by the deeming provision in Explanation 2(b). The argument of ld. AR that reassessment presupposes that assessment should have been framed and intimation is not an assessment, therefore, assessment is not framed and, therefore, reassessment could not be initiated is not acceptable because deeming provision of Explanation 2(b) to section 147 does not contemplate that an assessment of the nature as done u/s 143(3) should be completed for invoking that clause of the explanation. It only says that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. Thus, AO has to only point out, or it should come to his notice on the basis of examination of the return that assessee has under-stated the income or claimed excessive loss, deduction, allowance or relief. It nowhere presupposes that assessment of the type prescribed u/s 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the revenue and the other filed by the assessee against the order of the ld. CIT(A) dated 4-9-2008 for assessment year 2004-05. 2. In assessee s appeal, as many as nine grounds have been raised. The ld. AR, however, insisted that Ground No. 1 is a legal ground and goes to the root of the matter, therefore, it should be adjudicated first. If it is decided in favour of the assessee then entire assessment would become invalid and, therefore, there will not be any need to go into other issues raised either by the assessee or by the Department. 3. The ld. DR also agreed that this issue goes to the root of the matter and, therefore, it can be decided first. Accordingly, we proceed to consider Ground No. 1 in assessee s appeal which reads as under : "1. On facts, in law and in the peculiar circumstances of the present case, the learned Commissioner of Income-tax (Appeals)-I, Kanpur [hereinafter referred to as the ld. CIT(A)] erred in confirming the action of the Assessing Officer in initiating proceedings under section 147 of the Act which were illegal, bad in law and void ab initio because : ( a )On the date of issue of notice under section 147, i.e., 18-5-2005, a valid r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gular assessment after the enquiry. The legal position is settled as also held in the case of Elegant Chemical Enterprises (P.) Ltd. v. Asstt. CIT [2004] 271 ITR (AT) 56 (Hyd.) that "processing of return under section 143(1)( a ) cannot be equated to an assessment. Notice under section 143(2) was also not issued. The Assessing Officer has power under section 147 to initiate the assessment proceedings". In the case of Mahanagar Telephone Nigam Ltd. v. CBDT [2000] 246 ITR 173 Delhi (HC) it was held that the issue whether an intimation under section 143(1)( a ) is an assessment is not material for the purpose of issuing notice under section 147. It is enough, if a reasonable belief that income has escaped assessment exists, so as to justify issue of notice under section 148. 6. Thus, it can be seen that the argument of the appellant of change of opinion is misplaced. It is also argued that reason for reopening the case under section 147/148 are not sufficient. It is well-settled position that the "sufficiency of reason" is not justiciable. It was held in the case of ITO v. Lakhmani Mewalala Das that the existence of the belief can be challenged by the assessee but not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person does not fall in any of the clauses to Explanation 2, then it could not be said that deeming fiction would be applicable conferring jurisdiction on the Assessing Officer. 9. According to ld. AR, neither Explanation 2(a) nor Explanation 2(b) is applicable. Explanation 2(c) is also not applicable because section 147/148 relates to income escaping assessment and escaping assessment can only be considered once the power of making assessment under the statute is not available to the Assessing Officer. Therefore, till the time when period for making assessment is available, the Assessing Officer can use the material in his possession to make an assessment by issuing of notice under section 143(2) and completing the assessment under section 143(3). The notice under section 148(1) can only be issued after expiry of the period available for issuance of notice under section 143(2) which is presently twelve months from filing of the return. 10. The ld. AR relied on the following decisions of the Lucknow Bench of the Tribunal : " Shri Sachidanand Gupta v. ITO in [IT Appeal No. 740/Luck./05 for the assessment year 2000-01 decided on 31-1-2007] Shri Chandra Prakash ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ) the decision rendered in other cases would not be applicable. As per Article 141 of the Constitution, the subordinate Courts are bound to follow the judgment of Hon ble Supreme Court. The ld. DR also pointed out that the Hon ble Madras High Court in the case of K.M. Pachayappan ( supra ) had also not considered the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ). The Hon ble Madras High Court had followed the case of Hon ble Supreme Court in the case of Trustees of H.E.H. The Nizam s Supplemental Family Trust v. CIT [2000] 242 ITR 381 where the return filed was pending. There was neither any assessment under section 143(1) or 143(3). In the present case, the proceedings for assessment were terminated by processing the return on 26-2-2005, therefore, it could not be said that the return is pending. The ld. DR then submitted that it is not necessary for the officer to issue notice under section 143(2) in each and every case and issuance of notice under section 143(2) is under the administrative control of the CBDT and Chief Commissioner and only when the conditi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Asstt. CIT [1992] 198 ITR 47 (Cal.). 15. We have considered the rival submissions and perused the material on record. In our considered view, the ld. AR is proceeding on the presumption that a proceeding will continue to be pending by virtue of return filed and such proceedings can only be terminated by issuance of notice under section 143(2) and passing of order under section 143(3) or after expiry of time of twelve months from the date of filing of the return. The reasoning advanced by the ld. AR is that a proceeding is pending by virtue of return filed and unless such proceedings are concluded, the Assessing Officer could not issue notice under section 148(1). Further, a processing or sending of intimation is not an assessment, therefore, proceedings initiated because of filing of return remain pending. Once proceedings are pending, the Assessing Officer cannot initiate reassessment proceedings. This is the gist of argument. In this connection, we examine the concept of pendency of proceedings as under : 16. The term pending means undecided , i.e., something which is not concluded. An action is considered as pending from the time of commencement of the proceedin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer could not be said to be pending before him as he is not statutorily required to conclude those proceedings. It would have been a different matter if after filing of the return of income, the Assessing Officer does not process the return. Such return which has commenced a proceeding before the Assessing Officer would be said to be pending, but when return is processed or even where acknowledgement of return is treated as intimation, in that situation, the Assessing Officer is not required to conclude the assessment proceedings necessarily. Therefore, it could not be said that a proceeding is pending because of the return filed by the assessee. A fresh proceedings would commence and be pending when notice under section 143(2) is issued. Thus, proceedings cannot be deemed to be pending before the Assessing Officer by virtue of return filed after Assessing Officer has processed the return, determined the tax payable including the interest on the returned income and also where return filed by the assessee is accepted by way of issuing acknowledgement. Merely because the Assessing Officer is prohibited from issuing notice under section 143(2) after twelve months of filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lieve that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer is that there is a case of under assessment. The argument of ld. AR that clause ( b ) to Explanation 2 will come into operation only when time period for issuance of notice under section 143(2) is expired and assessment is not made, is not acceptable as this will put another condition in Explanation 2(b) which is otherwise not inserted by the Legislature. As pointed out earlier, statute provides commencement of assessment proceedings in at least three ways. They can merge into each other but they do not cancel each other. Ultimate object is to make assessment of correct income and, therefore, Legislature has thought it fit to consider commencement of assessment or reassessment proceedings in at least three streams which can subsequently merge into one, if they are pending at the same time. They will ultimately result in an order under section 143(3). A case where assessment proceeding is completed would fall in clause ( c ). In the present case, we are only concerned with the operation of clause ( b ) to Explanation 2 and this clearly provides that where assessment is not completed, still then there could be a case of deemed escapement of income and notice under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, we refer to authorities relied on by the parties. The ld. AR has relied on the decision of Hon ble Madras High Court in the case of K.M. Pachayappan ( supra ) wherein for the assessment year 1997-98, return of income was filed on 30-3-1999, the return was processed under section 143(1) on 15-3-2000 and, therefore, the Assessing Officer had issued notice under section 148(1) on 15-3-2000. It was claimed that Assessing Officer could have issued notice under section 143(2) up to 31-3-2000, therefore, issuance of notice under section 148(1) on 15-3-2000 was not valid as proceedings were pending. The Hon ble Madras High Court relied on the decision of Hon ble Supreme Court in the case of Trustees of H.E.H. The Nizam s Supplemental Family Trust ( supra ), wherein it was held that if concerned return of income is not disposed of then notice under section 148 could not be issued and no reassessment proceedings can be initiated. 22. The ld. DR sought to distinguish this judgment by submitting that the Hon ble Madras High Court did not consider the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ), wherein it is held that failur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of notice under section 143(2). Therefore, we are not able to persuade ourselves to follow those decisions. 25. The ld. DR, on the other hand, referred to the decision of Hon ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. ( supra ) wherein the Hon ble Supreme Court has held as under : "So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued." 26. This view was also held by the Hon ble Punjab and Haryana High Court in the case of Aditya Co. ( supra ). In this case, it was held that where Assessing Officer has sent only an intimation under section 143(1) then issuance of notice under section 148(1) would be valid. 27. In the case of Elegent Chemicals Enterprises (P.) Ltd. ( supra ), the Tribunal, relying on the decision of Hon ble Andhra Pradesh High Court in the case of A. Pusa Lal ( supra ), held as under : "The Legislature in its wisdom has given two options to the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jurisdiction to make adjustment under the provisions of section 143(1)( a ) is co-extensive and coterminous with the jurisdiction vested in the Assessing Officer under section 154 for making obvious corrections, as no item of debatable nature can be corrected under section 154 of the Act. Similarly, the Assessing Officer cannot enter into any controversial item to make permissible adjustments under the proviso to section 143(1)( a ). The only requirement of section 147 is that Assessing Officer must have good reason to believe that some income had escaped assessment. One this belief is well-founded, recourse to reassessment proceedings cannot be said to be illegal. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps under section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings." 30. The Hon ble Patna High Court (Ranchi Bench) in the case of Deepak Kumar Poddar ( supra ), has held as under : "Following the filing of returns by the assessees for the assessment year 1992-93, notices were issued to them under section 143(2) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." 33. In the case of Mahanagar Telephone Nigam Ltd. ( supra ), it was held as under : "Another plea taken by the petitioner was that within that prescribed time-limit action for assessment under section 143(3) was not taken. We find no substance in this plea. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate to proceed under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. A similar view has been taken in A. Pusa Lal v. CIT [1988] 169 ITR 215 (AP) ; Jorawar Singh Baid v. Asstt. CIT [1992] 198 ITR 47 (Cal.) and Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 (All.)." 34. The decision of the Hon ble Madras High Court (Single Member) in the case of Sri Krishna Mahal v. Asstt. CIT [2001] 250 ITR 333 was affirmed by Division Bench in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d come to his notice on the basis of examination of the return that assessee has under-stated the income or claimed excessive loss, deduction, allowance or relief. It nowhere presupposes that assessment of the type prescribed under section 143(3) should have been completed for deeming escapement of income. The word assessment has not been used at all in Explanation 2(b), therefore, it will over all the situations where assessment is not framed. This situation will include the situation where only intimation is sent or processing is done or even nothing is done after filing the return. The opening words of section 147 "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped the assessment for any assessment year....." cannot be read without considering Explanation 2 which defines and prescribes the scope and limit of all deemed escapement of income under the situation mentioned in three clauses. 37. Thus, we reject the contention of the ld. AR for the assessee that Assessing Officer could not have issued the notice under section 148(1) within twelve months of filing of the return which is the period when Assessing Officer should have is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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