If time limit for issue of scrutiny notice not expired, Income escaping notice couldn’t be issued

Subhash Aggarwal and Vineet Jain for the Appellant. S.K. Mittal, DR for the Respondent.

ORDER

Rano Jain, Accountant Member – The cross appeals filed by the assessee and the Revenue are directed against the order of learned Commissioner of Income Tax (Appeals)-II, Ludhiana dated 29.4.2008 for assessment year 2002-03 passed under section 250(6) of the Income Tax Act, 1961 (in short ‘the Act) and the appeal of the assessee in ITA No. 1136/Chd/2011 is directed against the order of learned Commissioner of Income Tax (Appeals)-II, Ludhiana dated 14.9.2011 for assessment year 2002-03, challenging the action of the CIT (Appeals) in sustaining the levy of penalty under section 271(1)(c) of the Act.

2. We will first take up the cross appeals in ITA Nos. 523/Chd/2008 and ITA No. 621/Chd/2008.

ITA No. 523/Chd/2008 (Assessee’s appeal) :

3. In this case, though the assessee has raised a number of grounds, however, the legal issue is with regard to the issue of notice under section 148 of the Act instead of notice under section 143(2). Being a legal issue, we intend to take up that first. The facts of the case relevant to the extent of adjudicating this ground are that in this case pertaining to assessment year 2002-03, the assessee filed return of income as on 30.10.2002. This return got revised as on 31.3.2004 and the return was processed under section 143(1) of the Act as on 28.2.2004. A notice under section 148 of the Act was issued to the assessee as on 28.5.2004.

4. Before the learned CIT (Appeals), a objection was raised by the assessee that the Assessing Officer did not issue any notice under section 143(2) of the Act within the prescribed time instead within available time for issuing notice under section 143(2) of the Act, she voluntarily adopted the course of issuing notice under section 148 of the Act just with a view to extend the period of limitation for completing the assessment. The learned CIT (Appeals) dismissed this ground of the assessee stating that specific provisions of sections 147 and 148 of the Act have been laid down as under what circumstances return accepted under section 143(1) could be reopened. Therefore, it is not that the return processed under section 143(1) of the Act could be taken for scrutiny only by issuing notice under section 143(2) of the Act within the prescribed time of twelve months from the date of filing of return. In this way, he dismissed the ground raised by the assessee.

5. The learned counsel for the assessee during the course of hearing before us stated that the assessee had filed its return of income as on 30.10.2002, which got revised as on 31.3.2004. The revised return was within the time limit. The time available with the Assessing Officer for issue of notice under section 143(2) was upto 31.3.2005 i.e. within twelve months from the end of the month in which the return was filed by the assessee. The Assessing Officer has issued notice under section 148 of the Act as on 28.5.2004, which was before the last date upto which she could have issued notice under section 143(2) of the Act. It was argued that once the Assessing Officer had time available with her to issue notice under section 143(2) of the Act, she is not authorized to issue notice under section 148 of the Act. Reliance was placed on Third Member order of the Tribunal in the case of Super Spg. Mills Ltd. v. Asstt. CIT [2010] 38 SOT 14 (Chennai) (TM) and another order of the Tribunal in the case of Asstt. CIT v. Subhash Chand Goel [2005] 4 SOT 405 (Agra). Two judgments of Madras High Court in the cases of CIT v. Qatalys Software Technologies Ltd. [2009] 308 ITR 249 (Mad.) and CIT v. TCP Ltd. [2010] 323 ITR 346 (Mad.) for the proposition that the notice under section 148 of the Act cannot be issued for making assessment under section 147 of the Act when time limit is available for issuing of notice under section 143(2) of the Act for making an assessment under section 143(3) of the Act.

6. The learned D.R. relied on the order of the Assessing Officer as well as that of the learned CIT (Appeals) and further argued that even if the Assessing Officer has wrongly issued notice under section 148 in place of notice 143(2) of the Act, it was just an irregularity and is curable and not fatal to the formation of assessment order.

7. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that the assessee had filed return for assessment year 2002-03 as on 30.10.2002. The return was revised as on 31.3.2004. Undoubtedly, the revised return was with the time as per the provisions of section 139(5) of the Act, which read as under :

“[(5) If any person, having furnished a return under sub-section (1), or in pursuance of a notice issued under sub-section (1) of section 142, discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment, whichever is earlier :

Provided that where the return relates to the previous year relevant to the assessment year commencing on the 1st day of April, 1988, or any earlier assessment year, the reference to one year aforesaid shall be construed as a reference to two years from the end of the relevant assessment year.]”

8. In said circumstances, we also observe that time available with the Assessing Officer for issuing notice under section 143(2) of the Act is up to 31.3.2005 i.e. within twelve months from the end of the month in which the return has been filed by the assessee.

9. The provisions of section 143(2) as it stood for the relevant assessment year read as under :

“Provided that no notice under clause (ii) shall be served on the assessee after the expiry of twelve months from the end of the month in which the return is furnished.”

10. From the bare perusal of the above provisions, it is quite clear that in the facts of the present case, the time was available to the Assessing Officer upto 31.3.2005 for issuing of notice under section 143((2) of the Act. This period is computed as twelve months from end of the month in which the assessee had filed revised return. Since we observe that in the provisions of section 143(2) of the Act as is stood at the relevant time was twelve months from the end of the month, in which the return is furnished. Since the term ‘return’ has not been stated to be under any particular head whether regular return, belated return or revised return. Therefore, we take it as to be computed from the end of the month in which the assessee in the present case had filed the revised return, the same being within the prescribed time. Admittedly, from the chronology of events, it appears that notice under section 148 of the Act has been issued within the time limit available to the Assessing Officer for issuing notice under section 143(2) of the Act. Now, the issue to be decided is whether under the said circumstances, the Assessing Officer could have voluntarily issued notice under section 148 of the Act or not.

11. We do not find the act of the Assessing Officer in issuing notice under section 148 of the Act, within the time limit available for issue of notice under section 143(2) of the Act being as per law. The Income Tax Act is a self contained Act, whereby provisions are made for different situations. Every section, sub-section, clause, proviso, Explanation, etc. are put in the Act at their respective places with some specific intention of the Legislature behind such placement. The provision of section 143(2) and Section 148 are placed on a totally different trajectories in the sense that notice under section 143(2) is issued in order to make regular assessment of an assessee on yearly basis, while notice under section 148 is to be issued on satisfaction of certain conditions prescribed therein where the income of the assessee escaped assessment. The escapement of income is not one of the conditions for issue of notice under section 143(2) of the Act. A limited time is available for issue of notice under section 143(2) of the Act and also to complete assessment under section 143(3) of the Act initiated through notice under section 143(2). While an extended period is available for issue of notice under section 148 of the Act and to make assessment initiated by issue of such notice. Apart from this, we also feel that every provision of the Act has a sanctity attached to it, which has to be maintained at any cost. By allowing such leverage to the Department to enter into the territory of any other provision while intending to remain on a specific provision will only lead to a chaotic situation. If the Assessing Officer has time in his hands to issue notice under section 143(2), why is he issuing notice under section 148 of the Act, we do not understand, specifically in the background of the legal position that the scope of assessment made on issue of notice under section 148 of the Act has limited as against the wide scope of assessment available to him by issuing notice under section 143(2) of the Act. Reliance placed by the learned counsel for the assessee on the judgment of Madras High Court in the case of Qatalys Software Technologies Ltd. (supra) is not out of place, whereby the Hon’ble Court, in the similar circumstances, allowed the appeal of the assessee, relying on another decision of the Madras High Court in the case of CIT v. K.M. Pachaiyappan [2008] 304 ITR 264 (Mad.), wherein the Court has held that no reassessment proceedings could be initiated so long as the assessment proceedings pending on the basis of return already filed are not terminated. Respectfully following the above case, we hold that the notice issued under section 148 of the Act by the Assessing Officer in the present case is not as per law and the consequential order made is hereby quashed.

12. Since we have quashed the order of the Assessing Officer, we do not find any need to adjudicate the other issues raised by the assessee on the merits of the case.

13. The appeal of the assessee is allowed.

ITA No. 621/Chd/2008 (Revenue’s appeal) :

13.1 Since we have already quashed the order of the Assessing Officer, the appeal of the Revenue becomes infructuous.

13.2 The appeal of the Revenue is dismissed.

ITA No. 1136/Chd/2011 (Assessee’s appeal) :

14. The appeal pertains to the penalty under section 271(1)(c) levied on the addition made by the Assessing Officer for assessment year 2002-03. Since we have already quashed the order of the Assessing Officer, the penalty is also deleted.

15. The appeal of the assessee is allowed.

16. In the result;

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