2007 (5) TMI 197 - SC - Income Tax

So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) - revenue s appeal is allowed

Issues Involved:
1. Validity of the reassessment proceedings under section 148 of the Income-tax Act, 1961.
2. Applicability of the decision in Adani Exports v. Deputy CIT (Assessments) [1999] 240 ITR 224 (Guj) to the present case.
3. Distinction between sections 143(1) and 143(3) of the Income-tax Act, 1961.
4. Jurisdiction of the Assessing Officer to initiate reassessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of the reassessment proceedings under section 148 of the Income-tax Act, 1961:
The respondent, a private limited company, filed its return of income for the assessment year 2001-02, declaring a total loss of Rs. 2,70,85,105. The return was processed under section 143(1) of the Income-tax Act, 1961, accepting the declared loss. Subsequently, a notice under section 148 was issued on the ground that the claim of bad debts as expenditure was not acceptable. The respondent filed a return under protest and raised objections relating to jurisdiction and merits. The Assessing Officer disposed of these objections, holding that the initiation of reassessment proceedings was valid and within his jurisdiction. The Supreme Court noted that section 147 authorizes the Assessing Officer to assess or reassess income if he has "reason to believe" that income has escaped assessment. This "reason to believe" does not require final ascertainment by legal evidence but rather a cause or justification to suppose that income has escaped assessment. The court concluded that the ingredients of section 147 were fulfilled, and the failure to take steps under section 143(3) does not render the Assessing Officer powerless to initiate reassessment proceedings even when an intimation under section 143(1) had been issued.

2. Applicability of the decision in Adani Exports v. Deputy CIT (Assessments) [1999] 240 ITR 224 (Guj) to the present case:
The High Court allowed the writ petition by the respondent, relying on the decision in Adani Exports' case, which pertained to section 143(3) of the Act. The Supreme Court found this reliance misplaced as the factual position in Adani Exports' case was entirely different from the present case, which relates to section 143(1) of the Act. The court emphasized the conceptual difference between sections 143(1) and 143(3) of the Act, noting that Adani Exports' case had no application to the present case.

3. Distinction between sections 143(1) and 143(3) of the Income-tax Act, 1961:
The court explained that substantial changes were made to section 143(1) with effect from June 1, 1999. Prior to this amendment, the Assessing Officer could make an assessment under section 143(1) without requiring the presence of the assessee. However, with the new scheme introduced, an intimation under section 143(1)(a) is given without prejudice to the provisions of section 143(2), and the Assessing Officer proceeds on the basis of the return filed by the assessee without making any adjustments or adjudicating upon debatable issues. The court highlighted that an intimation under section 143(1)(a) cannot be treated as an assessment order, and the right of the Assessing Officer to proceed under section 143(2) is preserved. The court concluded that the High Court had wrongly applied Adani Exports' case, which pertained to section 143(3), to the present case involving section 143(1).

4. Jurisdiction of the Assessing Officer to initiate reassessment proceedings:
The Supreme Court reiterated that the jurisdiction of the Assessing Officer to initiate reassessment proceedings under section 147 is based on the "reason to believe" that income has escaped assessment. This belief does not require final evidence but rather a cause or justification. The court noted that the provisions of section 148 require the Assessing Officer to record reasons before issuing any notice for reassessment. The court found that the Assessing Officer had valid jurisdiction to initiate reassessment proceedings in the present case, and the High Court's reliance on Adani Exports' case was misplaced.

Conclusion:
The Supreme Court allowed the appeal filed by the Revenue, concluding that the High Court had wrongly applied Adani Exports' case to the present case. The court emphasized the conceptual difference between sections 143(1) and 143(3) of the Income-tax Act, 1961, and upheld the validity of the reassessment proceedings initiated by the Assessing Officer. The appeal was allowed without any orders as to costs.

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