1996 (3) TMI 176 - AT - Income Tax

Issues Involved:
1. Validity of assessment proceedings initiated without a notice under section 148.
2. Time limit for issuing notices under section 142(1)(i).
3. Interpretation of Explanation 2(a) to section 147.
4. Treatment of returns filed beyond the prescribed time limit under section 139(4).

Issue-wise Detailed Analysis:

1. Validity of Assessment Proceedings Initiated Without a Notice Under Section 148:
The main contention of the assessees was that the initiation of assessment proceedings without the issue of notice under section 148 was invalid, as it was a case of income escaping assessment. They argued that the provisions of section 148, being special provisions, would override the general provisions of section 142(1). The Tribunal noted that a notice under section 148 is required when an assessment, reassessment, or recomputation is made under section 147 to tax income that has escaped assessment. This case was not of reassessment or recomputation but of an initial assessment. Referring to the Privy Council's decision in Sir Rajendranath Mukerjee v. CIT, the Tribunal highlighted the distinction between "has escaped assessment" and "has not been assessed." The Tribunal concluded that the assessments completed without issuing a notice under section 148 were invalid and bad in law.

2. Time Limit for Issuing Notices Under Section 142(1)(i):
The revenue argued that no time limit is prescribed for issuing notices under section 142(1)(i). However, the Tribunal deduced that the outer limit for issuing such notices is one year from the end of the assessment year, as inferred from section 139(4). The Tribunal emphasized that the proceedings for assessment must be initiated within the assessment year, either by the assessee filing a return suo moto or by the Assessing Officer issuing a notice. If no such initiation occurs within the assessment year, it becomes a case of income escaping assessment, necessitating a notice under section 148.

3. Interpretation of Explanation 2(a) to Section 147:
Explanation 2(a) to section 147 includes non-filing of return in the expression "escaped assessment." The Tribunal opined that this scope should be restricted to cases where the assessee fails to file a return suo moto or voluntarily under section 139(1) or section 139(4) within the prescribed time limit. The Tribunal clarified that once a notice under section 142(1) is issued, the provisions of section 148 do not come into play, and the consequences of filing or non-filing of return in pursuance thereof follow. The Tribunal concluded that the assessments completed without issuing a notice under section 148 were invalid.

4. Treatment of Returns Filed Beyond the Prescribed Time Limit Under Section 139(4):
The assessees filed returns on 22-12-1993, which were treated as invalid by the Assessing Officer as they were filed beyond one year from the end of the assessment year (31-3-1991). The Tribunal agreed that the returns were rightly treated as invalid and concluded that these were cases of "escaped assessment" under section 147. Consequently, the assessments completed without issuing a notice under section 148 were invalid and bad in law.

Conclusion:
The Tribunal allowed all the appeals, quashing the assessments as invalid and bad in law due to the failure to issue notices under section 148. The Tribunal also noted that the time limit for issuing notices under section 148 of the Income-tax Act, 1961, and under section 17 of the Wealth-tax Act, 1957, was still available, allowing the department to proceed with the assessments if so advised. The Tribunal did not express any opinion on other issues raised in the appeals.

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