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TMI Blog1984 (9) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... " for brevity's sake) by an order dated March 18, 1974, passed under s. 143(1) of the Act, assessed the assessee's total income at Rs. 11,079 against the income of Rs. 9,556 declared by the assessee in its return. The ITO thereafter sought to reopen the assessment under s. 147 of the Act, by issuing a notice dated March 6, 1976, under s. 148. The Commissioner of Income-tax, Gujarat-II, Ahmedabad (hereinafter referred to as the " Commissioner "), on examining the records of the assessment proceedings in the case of the assessee for the assessment year 1971-72, was of the opinion that the assessment order of the ITO passed under s. 143(3) was erroneous and prejudicial to the interests of the Revenue. He, therefore, issued a notice dated March 10, 1976, under s. 263 calling upon the assessee to show cause why the assessment order for the assessment year 1971-72 should not be set aside and the ITO should not be directed to make a fresh assessment on the grounds stated in the notice. The Commissioner, after considering the explanation given by the assessee in response to the aforesaid notice, by his order dated March 17, 1976, set aside the assessment made by the ITO and directed the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, the only conclusion which can be reached is that the assessment order passed under s. 143 stands quashed and set aside. Section 147 empowers the ITO to assess the income which has escaped assessment in the relevant assessment year. Proceedings under s. 147 can be undertaken only if the conditions precedent mentioned either in clause (a) or clause (b) are satisfied. The ITO may, subject to the provisions of ss. 148 to 163, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned. There is no question of recomputation of loss or depreciation allowance in the instant case. Proceedings under s. 147 have been initiated against the assessee on the ground that the income chargeable to tax has escaped assessment for the assessment year in question. As pointed out above, what s. 147 empowers the ITO to do is to assess or reassess " such income " meaning thereby income which has escaped assessment. In other words, the only power which the ITO derives under s. 147 is to assess or reassess the income chargeable to tax which has escaped assessment. The section does not empower the ITO to reopen the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Legislature wanted the authorities concerned to follow the same procedure which is laid down for the assessment of income contained in s. 143 and it was for that reason that notice under s. 148 was deemed to be a notice under s. 139(2). We are, therefore, unable to accept the assessee's argument that the notice issued by the ITO under s. 148 becomes notice under s. 139(2) and consequently the assessment made under s. 143 stands set aside. The very premise on which the argument is advanced is wrong or fallacious. As pointed out above, the assessment or reassessment contemplated under s. 147 is confined to income which has escaped assessment. The section does not empower the ITO to reopen an assessment of income which is already assessed. In support of the contention that the assessment made under s. 143 stands set aside on issuance of notice under s. 148, reliance was sought to be placed on the decision of the Supreme Court in Jaganmohan Rao's case [19 70] 75 ITR 373 (SC), which was cited before the Tribunal. The assessee relied on the following observations made by the Supreme Court in that case (p. 380) : " ...once proceedings under section 34 are taken to be validly initiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e validly initiated, the assessment made under s. 144 did not stand set aside. We are unable to subscribe to this view. The assessment made under s. 143 does not depend upon the validity or otherwise of the proceedings under s. 147. The assessment which is described as original assessment made under s. 143 stands on its own and even if the proceedings under s. 147 are validly initiated, it does not get obliterated or wiped off. In other words, on valid initiation or completion of the proceedings under s. 147 for assessment or reassessment of income which has escaped assessment, the original assessment does not stand set aside. In our opinion, the Supreme Court has not expressed any such view in the context of section 34(1)(b) of the 1922 Act in the case of Jaganmohan Rao [1970] 75 ITR 373. If the contention raised on behalf of the assessee is accepted, it would mean that the assessment of total income made in the original assessment would be set at naught and the entire assessment including the assessment of income already assessed would be at large. In other words, all questions which were concluded in the original assessment would be reopened, for example, it would be open to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er s. 264, claim that the proceedings under s. 147 shall be dropped on his showing that he had been assessed on an amount or to a sum not lower than what lie would be rightly liable, for, even if the income alleged to have escaped assessment had been taken into account, or the assessment or computation had been properly made. Proviso to sub-s. (2) of s. 152 is not relevant for our purpose. Section 263 of the Act which confers revisional powers on the Commissioner provides that no order under sub-s. (1) of that section shall be made to revise an order of reassessment made under s. 147. There is no embargo to revise the original assessment order in case re assessment is made under s. 147. The embargo is only with regard to revision of the order of reassessment made under s. 147. Thus the scheme of the Act clearly indicates that the assessment order made under s. 143 and reassessment order made under s. 147 are distinct and independent of each other. Section 147 contemplates a separate order and such an order is not and cannot be said to have been made under s. 143. The original assessment order made under s. 143 and reassessment order made under s. 147 can co-exist. The assessee ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings undertaken by the Income-tax Officer under section 34(1) of the Act, if the provisions of section 18A(9) are read in the context of the last portion of section 34(1)." It was submitted that the view taken by the Bombay High Court was that the proceedings that are undertaken upon issuance of notice under s. 34(1) are de novo proceedings as if undertaken under s. 23 of the 1922 Act. Section 23 of the 1922 Act corresponds to s. 143 of the Act and there fore, the proceedings which are taken on the basis of a notice under s. 148 which is deemed to be a notice under s. 139(2) of the Act are de novo proceeding as if undertaken under s. 143 of the Act. Consequently, it must be held that the original assessment order would stand set aside on initiation of proceedings under s. 147. We are unable to accept the above sub mission. As pointed out above, the observations of the Bombay High Court on which reliance was placed on behalf of the assessee were made in different context. The Bombay High Court was not called upon to decide whether or not assessment or original assessment made under s. 23 of the 1922 Act stands set aside on initiation of proceedings under s. 34(1) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of which there is initiation proceedings. It was observed that Jaganmohan's case [1970] 75 ITR 373 (SC) and other cases laid down that once an assessment is reopened, the ITO will not only have the jurisdiction but it will also be his duty to determine the taxable liability of the assessee and, for the said purpose, he will have necessarily to take into account not only the escaped income in respect of which a notice under s. 148 read with s. 147 has been issued but also the entire income that has escaped assessment during that year. In other words, according to the Delhi High Court, once an assessment is validly reopened and the ITO proceeds to make reassessment, the initial order of assessment stands automatically cancelled. The order of assessment would take the place of the original order of assessment and till that is done, the initial order of assessment would still be operative. None of the authorities cited by the counsel for the petitioner in that case, observed the Delhi High Court, laid down that mere reopening of the assessment has the automatic effect of the cancellation of the assessment orders. The Delhi High Court, however, observed that if the reassessment is m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his proposition. How ever, as pointed out above, the decision of the Delhi High Court supports the view canvassed on behalf of the Revenue to the extent that mere initiation of proceedings under s. 147 and 148 would not take away the jurisdiction of the Commissioner to revise the assessment order. Since in the present case, where the Commissioner revised the assessment order, re assessment proceedings were not concluded, the view taken by the Delhi High Court supports the stand taken by the Revenue. We now proceed to refer to some of the decisions which clearly indicate that reassessment proceedings do not set aside the original assessment. In Anglo-French Textile Co. Ltd. v. C.I.T [1950] 18 ITR 906, the Madras High Court held that when an assessment has been made under s. 23(1) of the 1922 Act, determining an assessee's income as " nil " and when proceedings under s. 34 were subsequently started to assess the income which the ITO believed to have escaped assessment, the assessee was not entitled to claim that the loss of profits and gains (including depreciation allowance) sustained by it in the previous year should be determined in the course of such proceedings. It was observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion, the Allahabad High Court observed that it is settled law that on reassessment, the entire assessment is not opened. Thus, claims which had been disallowed during the original assessment cannot be reagitated on the assessment being reopened for bringing to tax certain income which has escaped assessment. The controversy on reassessment is confined to matters which are relevant in respect of the income which had not been brought to tax during the course of the original assessment. It had not been contended that the disallowance of expenditure made during the course of the original assessment, which the assessee wanted to be reconsidered during reassessment, was relevant for the enquiry on which the ITO had re-embarked on reassessment. The disallowance of these expenses in the original assessment had become final, and that being so, it was not open for the assessee to make a claim for these items of expenditure. It should thus be clear that the matters which had become final at the time of the original assessment cannot be reopened in the course of reassessment proceedings. Similar view was taken by the Kerala High Court in CWT v. C. Ravindran [1977] 107 ITR 547, in the conte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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