Notice can not be issued u/s 148 unless original return filed u/s 139(1) is processed – ITAT
In a recent judgment, ITAT Delhi has quashed notice issued u/s 148 confirming the view that where the original return file u/s 139(1) was pending and not yet processed.
ABCAUS Case Law Citation:
4199 (2024) (08) abcaus.in ITAT
In the instant case, the assessee had challenged the order passed by the CIT(A) in confirming the action of the Assessing Officer (AO) of initiating the proceeding u/s 147 of the Act as valid when the original return file u/s 139(1) was not yet processed.
The appellant assessee had filed his return of income u/s 139(1) of the Income Tax Act, 1961 (the Act) through e-mode. Thereafter, a survey operation u/s 133A of the Act, was carried out at the business premises of the assessee and the AO re-opened the assessment by issue of A notice u/s 148 of the Act on the basis of material found and impounded during the course of survey operation.
In response to the notice u/s 148, the assessee filed return of income and also filed objections against validity of notice u/s 148 for re-opening of the assessment. However, the AO rejected the objections and completed the re-assessment u/s 147 by making several additions to the income of the assessee.
Before the Tribunal, the assessee submitted that re-opening of proceedings and continuation of such proceedings by the AO was ex-facie, illegal and contrary to the settled principles of law. It was stated that the assessment was re-opened despite the fact that the original return filed by the assessee u/s 139(1) of the Act, was not yet processed and therefore, there was time for taking up the assessment for scrutiny u/s 143(3) of the Act. In support of his contentions, the assessee relied upon the various judgments of the Hon’ble Supreme Court, Hon’ble High Court.
It was submitted that the Hon’ble Supreme Court had held that unless the return of income already filed is disposed of notice for reassessments under Section 148 cannot be issued, i.e., no reassessment proceedings can be initiated so long as assessment proceedings pending on the basis of the return already filed are not terminated. Further, in a similar case, the Hon’ble Delhi High Court rejected the appeal of the Revenue by observing that if no assessment had been made, there was no occasion for the AO to conclude that income had already escaped assessment. Similarly, the Hon’ble Madras High Court has upheld the decision of the ITAT in coming to a conclusion that no action could be initiated under section 147 of the Act, when there is a pendency of the Return before the Assessing Officer.
In another case the Co-ordinate Bench had an occasion for interpretation of clause (b) to explanation 2 of section 147 of the Act. The Bench held that reassessment proceedings cannot be initiated if time limit for issue of notice u/s 143(2) has not expired. The Co-ordinate Bench observed that as per the principles laid down by the Supreme Court in several cases:
(a) the proceedings are said to have commenced once the return is filed, and
(b) the proceedings terminate when,
(i) the return is processed u /s.143(1) and the time to issue notice u /s 143(2) is over,
(ii) assessment is made u/s 143(3) or,
(iii) assessment is no longer possible u/s. 143(3).
Proceedings u/s.147 can be initiated only after the earlier proceedings have terminated as mentioned in (b) above.
The Co-ordinate Bench observed that observation of the Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P) Ltd. has to be understood in the right perspective. It was mentioned that failure to take steps u/s 143(3) will not render the AO powerless to initiate reassessment proceedings even when intimation u/s 143(1) had been issued. The failure of the AO which the Court was talking about will be deemed to have occurred only when the hands of the AO are tied down by law and he is unable to initiate the proceedings u/s 143(3).
The Revenue contended that there is no prohibition under law for invoking the provisions of section 147 of the Act, the only condition is that if the AO has reason to believe that any chargeable to tax has escaped assessment. Further, the CIT(A) referred to Explanation 2 to section 147 of the Act. Sub-clause (b) of explanation (2) makes it clear that even where return of income has been furnished but no assessment is made, the AO would be empowered for invoking the provisions of section 147 of the Act.
The question before the Tribunal was whether the action of the AO was justified for re-opening of the assessment when the original return filed by the assessee u/s 139(1) of the Act, was not yet processed and no assessment u/s 143(3) of the Act was made?
Following the binding precedents, the Tribunal held that the impugned assessment cannot be sustained and same deserved to be quashed,
Accordingly, the appeal filed by the assessee was allowed.
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