2009 (6) TMI 119 - AT - Income Tax

Summary

Issues Involved:
1. Merits of the income escaping assessment.
2. Validity of reopening the assessment u/s 147.
3. Validity of notice issued u/s 148.

Summary:

Issue 1: Merits of the Income Escaping Assessment
The income escaping assessment was based on the discrepancy between the profits reported in the audited profit and loss account and balance-sheet filed with the bank and the income returned. The assessee argued that the higher profits reported to the bank were inflated estimates to secure loan facilities and not the actual profits. The Commissioner of Income-tax (Appeals) accepted this explanation, citing the judgment in CIT v. N. Swamy [2000] 241 ITR 363, and ruled that there was no undisclosed income. The Tribunal upheld this view, stating that the Assessing Officer did not judiciously consider the assessee's explanation and acted arbitrarily by favoring the Revenue without proper assessment of the documents' probative value.

Issue 2: Validity of Reopening the Assessment u/s 147
For the assessment year 1988-89, the Commissioner of Income-tax (Appeals) found that the reopening of the assessment was not justified as the notice u/s 148 was issued beyond the permissible time limit. The Tribunal agreed, noting that the provisions of section 147(b) applied, and the notice should have been issued within four years from the end of the relevant assessment year. The notice issued on March 29, 1999, was thus time-barred, rendering the income escaping assessment void.

Issue 3: Validity of Notice Issued u/s 148
For the assessment year 1994-95, the Commissioner of Income-tax (Appeals) invalidated the reassessment on the grounds that no original assessment was completed despite the service of notice u/s 143(2). The Tribunal upheld this decision, referencing judicial pronouncements that prohibit issuing a notice of reassessment before completing the original assessment. The Tribunal emphasized that once assessment proceedings are initiated, they must come to a logical conclusion, and issuing a notice u/s 148 during pending assessment proceedings is premature and unsustainable in law.

Conclusion:
The appeals filed by the Revenue for the assessment years 1988-89, 1989-90, and 1994-95 were dismissed. The appeal filed by the assessee for the assessment year 1989-90 was also dismissed as it became infructuous following the Tribunal's decision on the merits of the case.