2015 (5) TMI 935 - HC - Income Tax

Necessity of prior approval of Deputy Commissioner for issue of notice u/s 143(2) for re-making an assessment in pursuance to direction given by CIT u/s 263 - Held that - It is well settled that once an assessment is re-opened by virtue of the order passed by CIT under Section 263, the initial order of assessment ceases to be operative. The effect of re-opening of assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made of re-assessment. Thus, in the present case, in our opinion, after the previous assessment, which was set aside by the CIT in exercise of his power under Section 263, the whole proceedings started afresh. Moreover, the assessment under Section 143 (1) of the Act was set aside by the Commissioner, the higher authority, in exercise of his powers under Section 263 of the Act, and therefore, it ceased to operate or in other words the Assessing Officer had to pass order under Section 143 (3) as if there was no assessment under Section 143 (1). In view thereof, it was open to the Assessing Officer to make assessment under sub-section (3) of Section 143 without seeking prior approval as contemplated by sub-section (2) thereof. In other words, this is not a case where the Assessing Officer chose to make reassessment under Section 143 (3) of the Act of his own. This being so, it was not necessary to seek previous approval of the Inspecting Assistant Commissioner before issuing notice under sub-section (2) of Section 143. - Decided in favour of the Revenue.

Summary

Issues:
1. Interpretation of Section 143 of the Income Tax Act, 1961 regarding the requirement of prior approval for issuing notice under Section 143(2).
2. Validity of assessment under Section 143(3) without prior approval in case of setting aside of assessment under Section 143(1) by the revisional authority.

Analysis:
1. The case involved an appeal under Section 260(A) of the Income Tax Act, challenging the order of the Income Tax Appellate Tribunal dismissing the appeal against the Deputy Commissioner's assessment order. The primary issue was whether the Tribunal was justified in holding that prior approval of the Deputy Commissioner for issuing a notice under Section 143(2) was unnecessary. The appellant contended that the notice issued under Section 143(3) without the Inspecting Assistant Commissioner's approval was invalid.

2. The facts revealed that the original assessment under Section 143(1) was set aside by the Commissioner under Section 263, leading to a fresh assessment under Section 143(3). The question arose whether the prior approval for issuing notice under Section 143(2) was required in such circumstances. The Court analyzed the relevant provisions of Section 143 and noted that the requirement of prior approval applies when the Assessing Officer chooses to make reassessment under Section 143(3) after an assessment under Section 143(1). However, in this case, since the original assessment under Section 143(1) was cancelled by the Commissioner, the Court held that the prior approval was not necessary as the initial assessment ceased to operate.

3. The Court also examined Section 263(1) of the Act, emphasizing that the revisional power is supervisory and aims to correct orders prejudicial to revenue. The Commissioner can cancel an assessment and direct a fresh assessment, as done in this case. It was established that once an assessment is reopened under Section 263, the initial assessment becomes inoperative, and the proceedings start afresh. Therefore, the Assessing Officer had the authority to proceed with the assessment under Section 143(3) without seeking prior approval, considering the original assessment was set aside by the higher authority.

4. In conclusion, the Court dismissed the appeal, upholding the validity of the assessment under Section 143(3) without prior approval in the context of the original assessment being cancelled by the Commissioner under Section 263. The decision favored the Revenue, emphasizing that in such cases, the Assessing Officer can proceed with the reassessment without the need for prior approval, as the original assessment no longer holds validity.

5. The judgment clarified the legal interpretation of Section 143 of the Income Tax Act, highlighting the significance of prior approval for issuing notices under different subsections based on the context of assessments being set aside or revised by higher authorities. The detailed analysis provided a clear understanding of the procedural requirements and implications of revisional powers in income tax assessments, ensuring a fair and lawful application of tax laws.