2006 (4) TMI 83 - HC - Income Tax

Appealable order competency of appeal - 1. Whether Tribunal was justified in holding that an appeal lay against the order under section 139(9) before the first appellate authority under section 246, by treating the order under section 139(9) as virtually an order under section 143(3)? 2. Whether Tribunal was justified in upholding the order of the Commissioner of Income-tax (Appeals) setting aside the order passed under section 139(9) and directing the Assessing Officer to frame an assessment? - that issuance of notice under section 143(2) of the Act has changed the entire complexion of the matter and the order though passed under section 139(9) would legitimately be termed as an order under section 143(3) and hence it was appealable - we answer both the questions referred to above accordingly in the affirmative, i.e., in favour of the assessee and against the Department

Summary

Issues:
1. Appealability of an order under section 139(9) of the Income-tax Act, 1961.
2. Validity of the order of the Commissioner of Income-tax (Appeals) setting aside the order passed under section 139(9) and directing the Assessing Officer to frame an assessment.

Analysis:

Issue 1:
The primary issue in this case revolves around the appealability of an order under section 139(9) of the Income-tax Act, 1961. The assessee had filed a return of loss for the assessment year 1989-90, which was subsequently held as invalid and non est by the Assessing Officer under section 139(9) due to unresolved defects. The Commissioner of Income-tax (Appeals) later set aside this order and directed the Assessing Officer to conduct a fresh assessment. The Department contended that the order under section 139(9) was not appealable, while the Tribunal upheld the appealability of the order. The Tribunal reasoned that since assessment proceedings had commenced with the issuance of a notice under section 143(2) of the Act, any subsequent order, even under section 139(9), was akin to an order under section 143(3) and hence appealable. The Tribunal's decision was supported by legal precedents emphasizing that the substance of an order should be considered over its form, especially when the power to pass the order can be traced under a different provision of the Act. Ultimately, the High Court concurred with the Tribunal's view, holding that the order under section 139(9) was indeed appealable in this context.

Issue 2:
The second issue pertains to the validity of the order of the Commissioner of Income-tax (Appeals) setting aside the order passed under section 139(9) and directing the Assessing Officer to frame an assessment. The High Court analyzed the sequence of events, noting that the issuance of a notice under section 143(2) marked the commencement of assessment proceedings, which required the Assessing Officer to make an assessment under section 143(3) or 143(4) of the Act. As such, any order determining the income, whether by accepting the returned income or making adjustments, fell under section 143 and was appealable. The High Court further highlighted that treating the return as invalid post the notice under section 143(2) would have adverse consequences for the assessee, such as losing the ability to carry forward losses. Therefore, the High Court upheld the decision of the Commissioner of Income-tax (Appeals) and ruled in favor of the assessee, emphasizing the significance of the notice under section 143(2) in altering the nature of the assessment proceedings and the appealability of subsequent orders under section 139(9) in such circumstances.

In conclusion, the High Court answered both questions in favor of the assessee, affirming the appealability of the order under section 139(9) and supporting the decision of the Commissioner of Income-tax (Appeals) in directing the Assessing Officer to frame an assessment.