2022 (12) TMI 702 - SCH - Income Tax

Validity of Reassessment proceedings - Earlier rectification of error proceedings initiated u/s 154 - notice u/s 154 was beyond the period of limitation - initiate the proceedings u/s 147/148 during the pendency of the proceedings u/s 154 - HELD THAT - We are of the opinion that the High Court has committed serious error in observing and holding that the notice under Section 154 was invalid as the same was beyond the period of limitation as prescribed/provided under Section 154(7) of the Act. It is required to be noted that the proceedings u/s 154 of the Act were not the subject-matter before the High Court. Nothing was on record that, in fact, the notice under Section 154 of the Act was withdrawn on the ground that the same was beyond the period of limitation prescribed under Section 154(7) of the Act. In the absence of any specific order of withdrawal of the proceedings u/s154 of the Act, the proceedings initiated under Section 154 of the Act can be said to have been pending. In that view of the matter, during the pendency of the proceedings u/s 154 of the Act, it was not permissible on the part of the Revenue to initiate the proceedings u/s 147/148 of the Act - The High Court has erred in presuming and observing that the proceedings u/s 154 were invalid because the same were beyond the period of limitation. The impugned judgment and order passed by the High Court is unsustainable and the same deserves to be quashed and set aside. The impugned judgment and order passed by the High Court is hereby quashed and set aside. The order passed by the ITAT is hereby restored.

Summary

Issues:
1. Validity of notice under Section 154 of the Income Tax Act.
2. Permissibility of initiating proceedings under Section 147/148 during pendency of Section 154 proceedings.

Analysis:
1. The case involved an appeal against the judgment and orders passed by the High Court regarding the Assessment Year 1995-96 under the Income Tax Act. The appellant claimed benefits under Section 80 HHC of the Act for the relevant year. Subsequently, a notice was issued under Section 154 of the Act due to the non-materialization of exports in the earlier year. The Department also initiated proceedings under Section 147/148 for the Assessment Year 1996-97. The ITAT quashed the assessment proceedings for 1995-96, leading to an appeal before the High Court. The High Court allowed the Revenue's appeal, stating that the notice under Section 154 was beyond the limitation period, making the reopening proceedings under Section 147/148 valid. The appellant's review application was dismissed, leading to the present Appeals before the Supreme Court.

2. The Supreme Court found serious errors in the High Court's judgment. The High Court wrongly concluded that the notice under Section 154 was invalid due to exceeding the limitation period without any evidence of withdrawal. As per the Supreme Court, in the absence of a specific withdrawal order, the Section 154 proceedings were considered pending. Therefore, it was impermissible for the Revenue to initiate Section 147/148 proceedings during the pendency of Section 154 proceedings. The High Court's presumption of invalidity based on limitation was deemed erroneous. Consequently, the Supreme Court quashed the High Court's judgment, reinstated the ITAT's order, and allowed the Appeals in favor of the assessee.

In conclusion, the Supreme Court's detailed analysis emphasized the importance of procedural correctness and the inadmissibility of initiating parallel proceedings under different sections of the Income Tax Act. The judgment clarified the significance of withdrawal orders and the need for proper legal reasoning in tax assessment matters.