2007 (4) TMI 287 - AT - Income Tax

Validity Of initiation of reassessment proceedings during the pendency of rectification proceedings - notice issued u/s 148 for the same reasons as for which the notice u/s 154 was issued - HELD THAT - The fact that the intimation so issued by the AO is subjected to the rectification proceedings initiated by the AO himself only indicates that the assessment proceedings are not yet completed. The order passed by the AO u/s 154 is also an order which can be subject to appeal and revision. There is no evidence in the present case that the proceedings are concluded, and, in any event, communication to that effect was not sent to the assessee. Under these circumstances, it cannot indeed be said that the assessment proceedings were completed on the facts of the present case. Since the assessment proceeding, despite its limited effect as indeed was the case before the Hon'ble Supreme Court in the case of Trustees of H.E.H. Nizam Trust 2000 (2) TMI 4 - SUPREME COURT , were not concluded, it could not indeed be said that any income had escaped the assessment. The AO was thus indeed erroneous in holding the view that income has escaped assessment. The reassessment proceedings were thus vitiated in law and the very issuance of notice u/s 147 is thus liable to be set aside. The legal plea is well taken by the assessee and we approve the same. Thus, we quash the reassessment proceedings. The orders passed as a result of these reassessment proceedings are, therefore, set aside. The appeal is allowed.

Summary

Issues:
1. Permission to raise a question of law for the first time.
2. Validity of reassessment proceedings under section 147 during rectification proceedings under section 154.

Issue 1: Permission to raise a question of law for the first time:
The assessee sought permission to raise a question of law for the first time, supported by an affidavit. The question raised pertained to the validity of reassessment proceedings initiated under section 147 during rectification proceedings under section 154. The assessee's counsel argued that the question was crucial for the appeal's success, emphasizing that all relevant facts were on record, and the legal question arose from admitted facts. The Departmental Representative opposed, suggesting the issue was a new controversy. The Tribunal, after considering the contentions, upheld the assessee's right to raise the legal plea based on admitted facts, rejecting the Revenue's objections.

Issue 2: Validity of reassessment proceedings under section 147 during rectification proceedings under section 154:
The AO initiated reassessment proceedings under section 147 while rectification proceedings under section 154 were pending. The AO contended that the bad debt wrongly allowed in the original assessment should be treated differently. The assessee argued that reassessment during pending rectification proceedings was impermissible, citing legal precedents. The Tribunal agreed with the assessee, relying on the Supreme Court's decision that income cannot escape assessment until proceedings are completed. It noted that the order under section 154 was subject to appeal, indicating incomplete assessment proceedings. Consequently, the reassessment proceedings were deemed invalid, and the notice under section 147 was set aside. The Tribunal quashed the reassessment proceedings, rendering other grounds of appeal irrelevant.

In conclusion, the Tribunal allowed the appeal, pronouncing the judgment in favor of the assessee, highlighting the impermissibility of reassessment during pending rectification proceedings and setting aside the reassessment orders. The detailed analysis covered the permission to raise a legal question for the first time and the invalidity of reassessment proceedings under section 147 during ongoing rectification proceedings under section 154.