COMMISSIONER OF INCOME TAX COCHIN Vs. ABAD FISHERIES

JUDGEMENT

(1.) These are appeals filed by the Revenue challenging the orders of the Income Tax Appellate Tribunal declaring the re-assessments completed on the respondent-assessee under Section 147 of the Income Tax Act (hereinafter called "the Act") for the assessment years 1999-2000, 2000-2001, 2002-2003 and 2003-2004 as invalid. We have heard Senior counsel Sri. P.K.R. Menon appearing for the Revenue and Senior counsel Sri. G. Sarangan along with Adv. Sri. P. Balakrishnan appearing for the respondent-assessee. The facts leading to the controversy are the following. The assessee filed income tax return for all the above assessment years in time and the returns were processed and intimations were also sent by the Assessing Officer under Section 143(1) of the Act. However, when the Assessing Officer noticed escapement of income, he issued notice under Section 148 proposing to make income escaping assessment under Section 147 of the Act. Even though the assessee objected the proposal mainly by stating that in the absence of a regular assessment under Section 143(3) of the Act re-assessment under Section 147 cannot be made, overruling the objections assessments were completed under Section 147 of the Act, against which respondent-assessee filed appeals. In the appeals filed before the C.I.T.(Appeals), assessee raised the very same technical contention that without making regular assessment under Section 143(3), re-assessment cannot be made under Section 147 of the Act. The CIT(Appeals) who heard the appeals for the first two years, following the judgment of the Honourable Supreme Court in Commissioner Of Income Tax v. Rajesh Jhaveri Stock Brokers Pvt. Ltd., 2007 291 ITR 500 upheld the re-assessments and dismissed the assessee's appeals. However, another C.I.T. (Appeals) who heard the appeals for the next two years declared the reassessments invalid and allowed assessee's appeals. On second appeals filed by the assessee and the Department, the Income Tax Appellate Tribunal following two decisions of the Madras High Court, one in CIT v. TCP Ltd., 323 ITR 346 and another in CIT v. Qatalys Software Technologies Ltd., 2009 308 ITR 249and the decision of the Delhi High Court in KLM Royal Dutch Airlines v. Asst. Director of Income Tax, 2007 292 ITR 49upheld the contention of the assessee that within the time provided for regular assessment under Section 143(3) after issuing notice under Section 143(2), no re-assessment is permissible under Section 147 of the Act. It is against these orders Revenue has filed these appeals before us.

(2.) When Senior counsel appearing for the Revenue brought to our notice that the assumption made by the Tribunal that re-assessments initiated for the assessment years 1999-2000, 2000-2001 and 2002-2003 were within the time provided for issuing notice under Section 143(2) of the Act for completion of regular assessment under Section 143(3) was factually wrong and the time was in fact over for regular assessment, Senior counsel for the assessee fairly conceded that the Tribunal committed a factual error in this regard because time for issuing notice under Section 143(2) was over for all the three years and so much so, the assumption of the Tribunal that regular assessments under Section 143(3) could have been completed for those years based on which Section 147 orders were cancelled is wrong. It is clearly stated in the decision of the Supreme Court in ASSISTANT COMMISSIONER OF INCOME-TAX V/S Rajesh Jhaveri Stock Brokers case, 2007 291 ITR 500 relied on by the Revenue that absence of a regular assessment under Section 143(3) of the Act does not bar re-assessment under Section 147 of the Act. Applying the actual factual position i.e. issuance of notice for reassessment under Section 147 after expiry of the period provided for issuing notice under Section 143(2) for making regular assessment under Section 143(3), the two decisions of the Madras High Court and that of the Delhi High Court relied on by the Tribunal have no application. On the other hand, the decision of the Supreme Court squarely applies to the factual position and, therefore, the Tribunal's orders for these three years cannot be sustained. We accordingly allow the first three appeals, ITA Nos. 243, 258 and 263 of 2010 by setting aside the orders of the Tribunal and that of the C.I.T.(Appeals) for 2002-2003 and by restoring the appeals back to the Tribunal for considering whether the reasons recorded pursuant to which reassessments were made under Section 147 justify the same. Assessee is free to argue appeals on merit before the Tribunal on re-posting of the appeals by the Tribunal pursuant to this judgment.

(3.) This leaves us with the question whether the Tribunal was justified in cancelling the re-assessment completed under Section 147 for the assessment year 2003-2004 which was admittedly within the period provided for issuing notice under Section 143(2) and for completing the regular assessment under Section 143(3) of the Act. Senior counsel appearing for the Revenue contended that once escapement of income is noticed by the department after issuing intimation under Section 143(1), the Assessing Officer is free to initiate proceedings under Section 147 by issuing notice under Section 148 or in other words, according to him, even within the time provided for regular assessment under Section 143(3) which is to be made after issuing notice under Section 143(2), the Assessing Officer can make income escaping assessment under Section 147. Senior counsel for the Revenue relied on the following passage from the decision of the Supreme Court above referred: