2010 (10) TMI 805 - HC - Income Tax

Change of opinion - power of reassessment - Income escaping assessment by initiating proceedings under s. 147 of the IT Act - addition on account of capital gains - Under the old provisions of s. 147 separate cls. (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under s. 147(a) two conditions were required to be satisfied firstly the AO must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment and secondly he must also have reason to believe that such escapement has occurred by reason of either omission or failure on the part of the assessee to disclose fully or truly all material facts necessary for his assessment of that year. Both these conditions were conditions precedent to be satisfied before the AO could have jurisdiction to issue notice under s. 148 r/w s. 147(a). But under the substituted s. 147 existence of only the first condition suffices. In other words if the AO for whatever reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment. It is however to be noted that both the conditions must be fulfilled if the case falls within the ambit of the proviso to s. 147. The case at hand is covered by the main provision and not the proviso Held that - we allow this appeal set aside the impugned order of the Tribunal and remit the matter to the Tribunal for fresh decision on merits in accordance with law

Summary

Issues:
1. Interpretation of provisions under the IT Act, 1961 regarding assessment proceedings and reassessment.
2. Validity of invoking s. 147 of the Act without resorting to s. 143(2) of the Act.
3. Applicability of judgments by various High Courts and the Supreme Court in similar cases.

Issue 1: Interpretation of provisions under the IT Act, 1961 regarding assessment proceedings and reassessment:
The appeal was filed by the Revenue under s. 260A of the IT Act, 1961 against the Tribunal's order proposing a substantial question of law. The assessee's return for the assessment year 2004-05 was processed under s. 143(1) of the Act. However, upon finding that some income had escaped assessment, a notice under s. 148 of the Act was issued, and the assessment was completed under s. 143(3) of the Act, with an addition on account of capital gains. The Tribunal held that the notice under s. 148 was not maintainable as the AO had not resorted to s. 143(2) of the Act. The Tribunal referred to the judgment in Trustees of H.E.H. The Nizam's Supplemental Family Trust vs. CIT, emphasizing that reassessment cannot be initiated when the assessment remains pending under s. 143(2) of the Act.

Issue 2: Validity of invoking s. 147 of the Act without resorting to s. 143(2) of the Act:
The Revenue contended that the power under s. 147 of the Act is independent and wide, not mandating recourse to s. 143(2) of the Act before invoking s. 147. Citing the judgment in Asstt. CIT vs. Rajesh Jhaveri Stock Brokers (P) Ltd., it was argued that the conditions of s. 147 being fulfilled, there is no legal bar to proceeding under s. 147 without resorting to s. 143(2) of the Act. The judgment highlighted the difference between the old and substituted provisions of s. 147, emphasizing that the AO can initiate proceedings under s. 147 even if steps under s. 143(3) have not been taken.

Issue 3: Applicability of judgments by various High Courts and the Supreme Court in similar cases:
The assessee relied on the judgment of the Madras High Court and other High Courts, arguing that the view taken by the Tribunal was correct. However, the High Court opined in favor of the Revenue, citing the judgment in Rajesh Jhaveri Stock Brokers (P) Ltd. as supporting the Revenue's stance. The High Court distinguished the judgments cited by the assessee, emphasizing that the matter is covered by the provisions of s. 147 and the Supreme Court's decision. Consequently, the High Court allowed the appeal, set aside the Tribunal's order, and remitted the matter for fresh decision in accordance with the law.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the High Court's decision regarding the interpretation of relevant provisions under the IT Act, 1961.