2022 (8) TMI 1523 - AT - Income Tax

Reopening of assessment u/s 147 - period for issuing notice u/s 143(2) not expired - HELD THAT - The case cited by the DR is also applicable to the facts of the present case. While deciding the issue the ITAT Lucknow Bench, has concluded that the notice u/s 148 of the Act can be issued by the AO even if there is time limit for issuance of notice u/s 143(2) of the Act has not been expired in pursuance of return filed u/s 139 of the Act for completing regular assessment u/s 143(3) of the Act. AO has only to show that there is a case of under assessment as mentioned in either of the three clauses to Explanation 2 to section 147. Thus, whether return of income is filed or not, even if it is filed assessment is made or not, what has to be pointed out in the reasons recorded by the AO is that there is a case of under assessment. The argument of ld. AR that clause (b) to Explanation 2 will come into operation only when time period for issuance of notice u/s 143(2) is expired and assessment is not made, is not acceptable as this will put another condition in Explanation 2(b) which is otherwise not inserted by the Legislature. As pointed out earlier, statute provides commencement of assessment proceedings in at least three ways. They can merge into each other but they do not cancel each other. Ultimate object is to make assessment of correct income and, therefore, Legislature has thought it fit to consider commencement of assessment or reassessment proceedings in at least three streams which can subsequently merge into one, if they are pending at the same time. They will ultimately result in an order under section 143(3). A case where assessment proceeding is completed would fall in clause (c). In the present case, we are only concerned with the operation of clause (b) to Explanation 2 and this clearly provides that where assessment is not completed, still then there could be a case of deemed escapement of income and notice under section 148(1) can be issued irrespective of the fact whether assessment proceedings initiated by virtue of filing the return or assessment proceedings by way of issuance of notice u/s 143(2) are concluded or not. We also found substance in the submissions of the DR that the period of notice shall be counted from the relevant assessment year for the limitation of issuing notice under Section 148 of the Act which period also covers the period of notice to be issued as per Section 143(2) of the Act. We allow the appeal of Revenue and set aside the order of the CIT(A). Since the CIT(A) has not decided issue on merit, the issue on merits shall be considered by the CIT(A) and for this purpose, the case is remanded to the CIT(A) to decide merits of the appeal after due hearing afforded to the assessee. Appeal filed by the Revenue is allowed for statistical purpose.

Summary

Issues Involved:

1. Validity of proceedings initiated under Section 147 when the period for issuing notice under Section 143(2) had not expired.
2. Whether the Assessing Officer (AO) had sufficient reasons to believe that income had escaped assessment.
3. The correctness of the CIT(A)'s decision to quash the proceedings initiated under Section 147.

Detailed Analysis:

1. Validity of Proceedings Initiated Under Section 147:

The Revenue argued that the CIT(A) erred in quashing the proceedings initiated under Section 147 of the Income Tax Act, 1961, on the grounds that there was still time available to issue a notice under Section 143(2). The CIT(A) had held that the initiation of proceedings under Section 147 was premature and uncalled for since the time limit to issue a notice under Section 143(2) had not expired. The CIT(A) relied on several judicial decisions, including those of the Supreme Court and various High Courts, which held that re-assessment under Section 147 is not permissible when the time limit for regular assessment under Section 143(3) is still available.

However, the Tribunal referred to the judgment of the ITAT Lucknow Bench in the case of Kailash Auto Finance Ltd. vs. Assistant Commissioner of Income Tax-4, Kanpur, which elaborately discussed the issue of notice under Section 148 after satisfying the conditions of Section 147. The Tribunal concluded that the AO can issue a notice under Section 148 even if the time limit for issuing a notice under Section 143(2) has not expired. The Tribunal emphasized that the AO has to show that there is a case of under-assessment as mentioned in Explanation 2 to Section 147, which includes situations where no assessment has been made, or income has been understated.

2. Sufficient Reasons to Believe Income Had Escaped Assessment:

The AO had issued a notice under Section 148 based on information that the assessee had deposited significant cash amounts in savings bank accounts and received interest and rental income, which were not declared in the return filed. The AO believed that the taxable income had escaped assessment. The Tribunal noted that the AO had strong reasons to believe that income had escaped assessment within the meaning and scope of Section 147. The Tribunal referred to the judgment of the Supreme Court in ACIT vs. Rajesh Jhaveri Stock Broker(P) Ltd., which held that the AO is free to initiate proceedings under Section 147 as long as the ingredients of Section 147 are fulfilled, even if an intimation under Section 143(1) has been issued.

3. Correctness of CIT(A)'s Decision to Quash the Proceedings:

The CIT(A) had quashed the proceedings initiated under Section 147, holding that the AO should have issued a notice under Section 143(2) and completed the assessment under Section 143(3) since the time limit for issuing such a notice had not expired. The Tribunal disagreed with the CIT(A)'s decision, stating that the AO had sufficient reasons to believe that income had escaped assessment and that the AO could issue a notice under Section 148 even if the time limit for issuing a notice under Section 143(2) had not expired. The Tribunal allowed the appeal of the Revenue and set aside the order of the CIT(A). The Tribunal remanded the case to the CIT(A) to decide on the merits of the appeal after due hearing.

Conclusion:

The Tribunal concluded that the AO was justified in issuing a notice under Section 148 and initiating proceedings under Section 147, even though the time limit for issuing a notice under Section 143(2) had not expired. The Tribunal allowed the appeal of the Revenue and remanded the case to the CIT(A) for consideration on the merits. The Tribunal emphasized that the AO must demonstrate a case of under-assessment as per Explanation 2 to Section 147, and the issuance of a notice under Section 148 is valid if the conditions of Section 147 are satisfied.