2011 (1) TMI 611 - HC - Income Tax

Rectification of mistakes - Income escaping assessment - Opening and assessment u/s 147 / 148 after issuance of notice u/s 154 for rectification of mistake - Held that - assessing Officer himself realised the mistake of initiating rectification proceedings and when he noticed that the correct recourse open to him under the Act is to make an income escaping assessment, he is entirely free to do it - decided in favor of revenue.

Summary

Issues:
1. Whether the Income-tax Officer can give up rectification proceedings under section 154 and then proceed to make an income escaping assessment under section 147 for the same assessment year.
2. Validity of reassessment under section 147 after dropping rectification proceedings under section 154 without issuing an express order.

Analysis:

Issue 1:
The question raised was whether the Income-tax Officer can abandon rectification proceedings under section 154 and proceed to conduct an income escaping assessment under section 147 for the same assessment year. Initially, rectification proceedings were initiated under section 154 due to excessive relief granted in the computation of deduction under section 80HHC. The Assessing Officer issued a notice under section 154(3) but dropped the proceedings after objections raised by the assessee. Subsequently, a notice under section 148 was issued to bring to tax the escaped income due to the excess relief. The Tribunal held that an intimation under section 143(1)(a) constitutes an assessment that can be revised through an income escaping assessment under section 147. The Tribunal upheld the initiation of income escaping assessment under section 147, despite objections raised by the assessee and the dropping of rectification proceedings under section 154. The High Court concluded that the Assessing Officer was within his rights to abandon rectification proceedings under section 154 and proceed with the income escaping assessment under section 147. The appeal was allowed, and the reassessment completed under section 147 was upheld.

Issue 2:
The second issue revolved around the validity of reassessment under section 147 after dropping rectification proceedings under section 154 without issuing an express order. The High Court examined the decision of the Madras High Court and concluded that the Assessing Officer has the discretion to choose between rectification under section 154 and income escaping assessment under section 147. The High Court rejected the application of constructive res judicata in income-tax proceedings, emphasizing that the Assessing Officer can abandon rectification proceedings if deemed inappropriate after objections from the assessee. The High Court clarified that the Assessing Officer's decision to drop rectification proceedings and proceed with income escaping assessment was valid. It was held that the Assessing Officer's actions were in accordance with the provisions of the Income-tax Act, and the reassessment under section 147 was deemed valid. Therefore, the appeal was allowed, and the reassessment completed under section 147 was upheld, restoring the withdrawal of excessive relief granted under section 80HHC.

In conclusion, the High Court ruled in favor of the Income-tax Officer's authority to abandon rectification proceedings under section 154 and proceed with an income escaping assessment under section 147. The validity of reassessment under section 147 after dropping rectification proceedings without an express order was upheld, emphasizing the Assessing Officer's discretion in choosing the appropriate course of action under the Income-tax Act.