1996 (8) TMI 75 - HC - Income Tax

Summary

Issues Involved:
1. Jurisdiction of the Commissioner of Income-tax under Section 263 when notice under Section 148 has been issued.
2. Effect of issuance of notice under Sections 147/148 on the original assessment order.
3. Interaction between Sections 147/148 and Section 263 of the Income-tax Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the Commissioner of Income-tax under Section 263 when notice under Section 148 has been issued:
The primary question addressed was whether the issuance of notice under Section 148 of the Income-tax Act, 1961, removes the jurisdiction of the Commissioner of Income-tax under Section 263 to revise an assessment order. The Tribunal initially held that the Commissioner was not justified in invoking jurisdiction under Section 263 when the Income-tax Officer had already issued a notice under Sections 147/148. However, the High Court, referencing the Supreme Court's decision in Sun Engineering Works P. Ltd. [1992] 198 ITR 297, clarified that the issuance of a notice under Section 148 does not wipe out the original assessment order but keeps it in a state of suspended animation. Therefore, the Commissioner retains the power to revise the assessment under Section 263 even after a notice under Section 148 has been issued.

2. Effect of issuance of notice under Sections 147/148 on the original assessment order:
The court examined the effect of a notice issued under Sections 147/148 on the original assessment order. The Supreme Court in Sun Engineering Works' case clarified that the issuance of a notice under Section 148 does not nullify the original assessment order. Instead, it allows for the reassessment of income that has escaped assessment. The original assessment order remains operative and retains its character and identity unless and until it is modified or replaced by a reassessment order. Thus, the original assessment is not entirely set aside but remains in a fluid state pending the outcome of the reassessment proceedings.

3. Interaction between Sections 147/148 and Section 263 of the Income-tax Act:
The court analyzed the interplay between Sections 147/148 and Section 263. It was noted that both provisions serve to reopen assessments but operate at different levels-Sections 147/148 at the Income-tax Officer level and Section 263 at the Commissioner level. The Delhi High Court's decision in Sharda Trading Co. v. CIT [1984] 149 ITR 19 was referenced, which held that the jurisdiction of the Commissioner under Section 263 is not nullified by the issuance of a notice under Section 148. The High Court concurred with this view, stating that both provisions can coexist without conflict. The Commissioner's power under Section 263 to revise an assessment order remains intact even if a notice under Section 148 has been issued by the Income-tax Officer.

Conclusion:
The High Court concluded that the issuance of a notice under Sections 147/148 does not denude the power of the Commissioner under Section 263. Both provisions can be invoked concurrently, and the Commissioner retains the jurisdiction to revise an assessment order under Section 263 despite the issuance of a notice under Section 148. The court answered the question in favor of the Revenue and against the assessee, affirming that the Commissioner's jurisdiction under Section 263 is not affected by the notice under Section 148. The Tribunal was directed to reconsider the matter in light of this judgment and decide accordingly.