2013 (9) TMI 754 - HC - Income Tax

Amendment of assessment u/s 155 - Assessment of a partner of a firm - any reduction or enhancement made in the income of the firm - whether I.T.A.T. was justified to hold that on cancellation of order u/s. 143 (3) (b) the original order u/s. 143 (1) did not survive and order passed u/s. 155 amending the assessment u/s. 143 (1) was invalid? Held that - The orders under Section 155 have been passed after the assessment was framed. Once the assessment under Section 143 (3) (b) has been framed and was subsequently set aside by the appellate authority, it cannot be said that there was any completed assessment and thus any income escaping assessment can be subject to tax in proceedings under Section 155 of the Act

Summary

Issues:
Validity of assessment under Section 143 (3) (b) and subsequent order under Section 155 - Whether the original assessment under Section 143 (1) survived after the cancellation of the assessment under Section 143 (3) (b)?

Analysis:
The case involved a reference made by the Commissioner of Income Tax regarding the validity of an assessment under Section 143 (3) (b) of the Income Tax Act for the assessment year 1980-81. The Appellate Assessment Commissioner (AAC) had held the assessment under Section 143 (3) (b) as invalid, stating that the original assessment under Section 143 (1) could be rectified under Section 155 of the Act. Both the department and the assessee appealed to the Income Tax Appellate Tribunal (ITAT), which confirmed the cancellation of the assessment under Section 143 (3) (b). The Tribunal noted that the issue of whether the original assessment under Section 143 (1) survived was debatable.

The income tax department relied on the judgment in Chatturam Horilram Ltd. v. CIT, (1955) 2 SCR 290, emphasizing that if assessment proceedings failed to result in a valid assessment due to legal lacunae, it would be a case of chargeable income escaping assessment. Additionally, the department cited the case of Asstt. Commissioner of Income tax v. Rajesh Jhaveri Stock Brokers Private Ltd., (2008) 14 SCC 208, which highlighted that the assessing officer could initiate reassessment proceedings under Section 147 if the conditions were met, regardless of the initial assessment under Section 143(1).

The High Court analyzed the situation and concluded that the assessment under Section 143 (3) (b) being set aside did not result in the original assessment under Section 143 (1) merging with it. Therefore, if income had escaped assessment due to the cancellation, a notice under Section 155 could be issued for amendment. The Court clarified that orders under Section 155 should be passed after the assessment was framed, and in this case, since the assessment under Section 143 (3) (b) was set aside, there was no completed assessment for any income to be taxed under Section 155.

Consequently, the Court answered the question of law in favor of the revenue and against the assessee, disposing of the income tax appeal accordingly.