2008 (5) TMI 200 - HC - Income Tax

Tribunal was justified in holding that the proceedings for re-assessment u/s 148/147 were initiated by the Assessing Officer on non-existing facts because ultimately, the assessee has been able to explain the income which the AO believed to have escaped assessment tribunal was justified in holding that as the proceedings were based on non-existing facts so they were not valid - revenue s appeal dismissed

Summary

Issues Involved:
1. Validity of reassessment proceedings under Section 148/147 of the Income Tax Act.
2. Jurisdiction of the Assessing Officer to assess other incomes discovered during reassessment proceedings.

Issue-wise Detailed Analysis:

1. Validity of Reassessment Proceedings under Section 148/147 of the Income Tax Act:
The appeal by the Revenue challenges the Tribunal's decision to quash the reassessment proceedings initiated by the Assessing Officer. The Tribunal held that the reassessment proceedings were based on non-existing facts, as the income believed to have escaped assessment was later explained by the assessee. The Tribunal's decision was influenced by previous judgments, specifically citing the case of M/s. Maruti Guar Gum (P) Ltd., and I.T.O. Vs. Bhanwar Lal Murawatiya, where it was established that if the basis for reopening the assessment is invalidated, the entire reassessment proceedings become void.

2. Jurisdiction of the Assessing Officer to Assess Other Incomes Discovered During Reassessment Proceedings:
The Revenue argued that under Section 147, if the Assessing Officer has reason to believe that any income has escaped assessment, he may reassess such income and any other income discovered during the proceedings. This interpretation was supported by the Supreme Court's judgments in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers P. Ltd. and Jagan Nath Singhal Vs. Deputy Commissioner of Income Tax. These cases emphasized that the Assessing Officer's jurisdiction to reassess is valid if there is a reasonable belief that income has escaped assessment.

Conversely, the assessee contended that the Assessing Officer's jurisdiction to reassess other incomes is contingent upon the initial reason for reassessment being valid. If the initial reason is found to be invalid, the Assessing Officer loses jurisdiction to reassess any other income discovered during the proceedings. This argument was supported by the Punjab and Haryana High Court's decision in CIT Vs. Atlas Cycle Industries and the Supreme Court's judgment in Bankipur Club Ltd. Vs. CIT.

Judgment Analysis:
The court examined the language of Section 147, emphasizing the conjunctive nature of the word "also" in the phrase "assess or reassess such income and also any other income chargeable to tax." This indicates that the Assessing Officer can only assess other incomes if the initial income believed to have escaped assessment is found to have indeed escaped assessment. If the initial reason for reassessment is invalidated, the Assessing Officer's jurisdiction to reassess other incomes ceases.

The court agreed with the Tribunal's reliance on the Atlas Cycle Industries case, which held that if the grounds for reassessment are invalid, the Assessing Officer loses jurisdiction to reassess other incomes. Consequently, the court concluded that while the Assessing Officer was justified in initiating proceedings under Section 147/148, his jurisdiction ended once the initial reason for reassessment was found to be invalid.

Conclusion:
The court dismissed the appeal, affirming that the Tribunal was correct in quashing the reassessment proceedings. The Assessing Officer's jurisdiction to assess other incomes discovered during reassessment proceedings is contingent upon the validity of the initial reason for reassessment. If the initial reason is invalid, the entire reassessment proceedings become void.