2005 (12) TMI 81 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer to issue notice under section 142(1) of the Income-tax Act while the matter was sub judice.
2. Validity of a protective assessment being done separately from the original assessment.
3. Timeliness of the notice under section 142(1) of the Income-tax Act.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Issue Notice under Section 142(1):
The appellant argued that the Assessing Officer lacked jurisdiction to issue a notice under section 142(1) of the Income-tax Act on September 23, 1992, because the original assessment had been annulled by the Commissioner of Income-tax (Appeals) and the Department's appeal was pending before the Tribunal. The Department contended that since no stay order was issued by the Tribunal, the Assessing Officer was obligated to complete the assessment within the time-limit prescribed in section 153(2A) of the Act. The court examined section 153(2A) and Explanation 1(ii) and concluded that the Assessing Officer had jurisdiction to issue the notice because the fresh assessment had to be completed within two years from the end of the financial year in which the appellate order was received, and no stay was granted by the Tribunal. Thus, the first substantial question of law was answered in favor of the Department.

2. Validity of a Protective Assessment Being Done Separately:
The court noted that the Income-tax Act does not specify the manner in which a protective assessment should be conducted. Traditionally, when the Department is uncertain due to pending litigation, the Assessing Officer makes an assessment as he deems appropriate and a protective assessment to safeguard the Revenue's interests if the assessee's claim prevails. The court referenced the Supreme Court's judgment in Lalji Haridas v. ITO and the Gauhati High Court's judgment in Jagannath Bawri v. CIT, which recognized the practice of protective assessments. Therefore, the court held that the protective assessment could be done separately from the original assessment, answering the second substantial question of law in favor of the Department.

3. Timeliness of the Notice under Section 142(1):
The appellant raised a third substantial question of law, citing the Special Bench of the Income-tax Appellate Tribunal's decision in Motorola Inc. v. Deputy CIT, which held that a notice under section 142(1)(i) must be issued before the end of the relevant assessment year. The appellant argued that the notice issued on September 23, 1992, was time-barred. The Department countered that section 142(1)(i) applies only when no return has been filed, whereas the appellant had already filed a return. The court agreed with the Department, stating that section 142(1)(i) was not applicable since the appellant had filed a return under section 139(1). The notice issued was in compliance with the Commissioner of Income-tax (Appeals)'s direction to reassess the appellant as an association of persons. Consequently, the court found no merit in the appellant's argument and held that no substantial question of law arose regarding the timeliness of the notice under section 142(1)(i).

Conclusion:
The court dismissed the appeal, affirming the jurisdiction of the Assessing Officer to issue the notice under section 142(1), validating the practice of protective assessments being conducted separately, and rejecting the argument that the notice under section 142(1)(i) was time-barred.