2007 (8) TMI 329 - HC - Income Tax

Assessee contend that during the pendency of a valid return reassessment proceedings cannot be initiated Whether Tribunal was right in law in not considering Explanation 2 to S. 147 which provides that the AO can reopen the assessments even if the assessments have not been completed u/s 143 and only intimation had been sent if the conditions laid u/s 147 are fulfilled - AO if has reason has reason to believe that income has escaped assessment it confers jurisdiction to reopen the assessment - order of the Tribunal is set aside held that notice can be issued u/s 147

Summary

Issues involved:
1. Validity of reopening assessment under section 147 of the Income-tax Act.
2. Consideration of incentive bonus addition to total income.

Issue 1: Validity of reopening assessment under section 147 of the Income-tax Act:

The case involved the appellant, a Development Officer at the Life Insurance Corporation of India, who filed a return for the assessment year 1994-95 claiming a deduction for incentive bonus. The Assessing Officer issued a notice under section 148 of the Income-tax Act and added the incentive bonus to the appellant's income. The appellant contended that reassessment proceedings could not be initiated during the pendency of a valid return. The Income-tax Appellate Tribunal accepted the appellant's contention, setting aside the order of the Commissioner of Income-tax (Appeals). The High Court analyzed section 147 of the Act, emphasizing that the Assessing Officer can reassess income if there is a reason to believe it has escaped assessment, even if the assessment under section 143(3) has not been completed. The court clarified that the absence of an order under section 143(3) does not bar the Assessing Officer from initiating reassessment proceedings. Various High Courts, including Kerala and Punjab, have upheld similar views, emphasizing that the Assessing Officer can proceed under section 147/148 if income has escaped assessment, irrespective of the completion of assessment under section 143(3).

Issue 2: Consideration of incentive bonus addition to total income:

The second issue pertained to whether the addition of incentive bonus to the total income was proper. The appellant argued that the incentive bonus should not be added to the income based on a decision of the Madras High Court in a previous case. However, the High Court did not delve into this issue as the Tribunal's decision on the validity of reassessment under section 147 was set aside. The High Court remitted the matter back to the Tribunal to consider this issue afresh after providing a reasonable opportunity for both parties to present their arguments.

In conclusion, the High Court set aside the Tribunal's decision and allowed the appeal, emphasizing the Assessing Officer's authority to reassess income under section 147 of the Income-tax Act, even without the completion of assessment under section 143(3). The court also directed the Tribunal to reconsider the issue of adding the incentive bonus to the total income in light of the judgment.