NEHA AVIATION MANAGEMENT PVT LTD,DELHI vs. ACIT, CENTRAL CIRCLE-25, DELHI

Supervening these two requirements in the alternative, the initial condition is that the Assessing Officer has reason to believe that there is escapement of income. The first requirement regarding information is now dropped by 1989 amendment and therefore for reopening of assessment within a period of 4 years from the end of assessment year the only requirement is reason to believe". For a period beyond 4 years in case where an onginal assessment by was made u/s 143(3), further, requirement is the non-disclosure of material facts necessary for assessment by the assessee.

I have carefully perused the records for AY 2016-17 an no assessment u/s 143(3) was carried out in this case. So there is no need to establish that income chargeable to tax has escaped assessment by reason of failure on the part of the assessee to disclose fully and truly all material fact view of first provision of section 447 of ETAX RTM necessary for assessment in

In this case less than four years from the end of the assessment year under consideration have elapsed and income chargeable to tax which has escaped assessment is more than 1 Lakh. Necessary sanction to issue notice u/s 148 of the Act is being obtained separately from the Addl. CIT, Range-16, Delhi under amended provisions of section 151 of the Act w.e.f. 01.06.2015.”

The next question for our consideration is whether after initiating the proceedings under section 147 on the ground that the petitioner had claimed depreciation at a higher rate, the Assessing Officer would be justified in launching inquiry into the issues which were not connected with the claim of depreciation. During the course of arguments the petitioner has time and again emphasised that the original assessments for assessment years 1992-93 and 1993-94 had been framed under section 143(1)(a) on 31-3-1994 and 5-5-1994, respectively. At the outset we may mention that under the new procedure of assessment introduced with effect from 1-4-1989 the processing of a return under section 143(1)(a) cannot be equated with framing of an assessment. Prior to the amendment the Assessing Officer could frame an assessment under section 143(1) without requiring the presence of the assessee. Alternatively, he could issue a notice under sub-section (2) of section 143 and require the assessee to produce his books of account and other evidence in support of the return filed by him and thereafter frame an assessment under sub-section (3) of section 143. Therefore, it was necessary that an assessment order either under sub-section (1) or under sub-section (3) of section 143 had to be passed. However, after the amendment made with effect from 1-4-1989 the position has materially changed. Now the Assessing Officer initially processes the return under section 143(1)(a) and determines the amount payable or refundable on that basis. It is not necessary for him to frame an assessment in each and every case. However, in case he chooses to verify the return and frame an assessment, he has to issue a notice under sub-section (2) of section 143 and require the assessee to produce his books of account and other material in support of the return. Thereafter he can make an assessment under sub-section (3) of section 143. Another important change incorporated in sub-section (2) of section 143 is that the notice under this sub-section cannot be served on an assessee after the expiry of 12 months from the end of the month in which the return is furnished. Therefore, in a case where a return is filed and is processed under section 143(1)(a) and no notice under sub-section (2) of section 143 thereafter is served on the assessee within the stipulated period of 12 months, the assessment proceedings under section 143 come to an end and matter becomes final. Thus, although technically no assessment is framed in such a case, yet the proceedings for assessment stand terminated. The Central Board of Direct Taxes vide its Circular No. 549, dated 31-10-1989 [Taxmann’s Direct Taxes Circulars, Vol. 4, 1999 Edn. at p. 2.1297] has explained the new procedure of assessment in paras 5.12 and 5.13 as under :

Thus, it is evident that the Board itself concedes that if the assessee after furnishing the return of income does not receive a notice under section 143(2) within the stipulated period, he can take that the return filed by him has become final and no scrutiny proceedings are to be started in respect of that return. Here it needs to be clarified that in the Board circular (supra) the stipulated period has been referred to as six months as it was the period specified originally when new provision was introduced with effect from 1-4-1989. However, vide amendment made by the Finance (No. 2) Act, 1991, this period was enhanced to twelve months with effect from 1-10-1991. In the present case, it is an admitted position that no notice under section 143(2) has been served to the petitioner within the stipulated period and as such his return had become final.

In the background of this settled position we may now examine the validity of the letter dated 30-7-1998 (Annexure P-5) issued by the Assistant Commissioner which has been upheld by the Dy. Commissioner vide his order dated 26-10-1998 (Annexure P-7). There can be no dispute about the argument advanced on behalf of the revenue that in view of the amendment made in section 147 with effect from 1-4-1989, the Assessing Officer could not only assess or reassess the escaped income in respect of which proceedings under section 147 have been initiated but also any other income chargeable to tax which may have escaped assessment and which comes to his knowledge subsequently in the course of such proceedings. This proposition is not even disputed by the learned counsel for the petitioner. However, what is disputed is the action of the Assessing Officer in embarking upon fresh inquiries on issues which are unconnected with the issue which forms the basis of proceedings under section 147. From the letter dated 30-7-1998 it is evident that the Assessing Officer was seeking general information on other issues merely to verify the return. As already observed such general inquiry could only be made by issuing a notice under sub-section (2) of section 143 within the stipulated period which in the present case had already expired. Admittedly it is not the case of the revenue that during the course of proceedings under section 147 it had come across any material relating to the item mentioned in the impugned letter dated 30-7-1998 suggesting escapement of income under any of those heads. In this view of the matter the petitioner would be justified in claiming that the letter dated 30-7-1998 issued by the Assistant Commissioner tantamounts to making fishing inquiries on concluded matters unconnected with the issue on the basis of which proceedings under section 147 had been initiated. This indeed is not permissible under the law. The petitioner has rightly relied on the decision of the Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra) to contend that the jurisdiction of the ITO in proceedings under section 147 is confined only to such income which has escaped tax or has been underassessed and does not extend to revising, reopening or re-considering the whole assessment. In the present case, the impugned letter dated 30-7-1998 requiring the petitioner to furnish information on issues in respect of which there is no allegation of any escapement or underassessment of income either in the reasons recorded or during the course of proceedings under section 147 tantamounts to reviewing the whole assessment. This could not be done. The returns filed in response to notices under section 148 were the same as filed originally. The Assessing Officer had the option to issue a notice under section 143(2) requiring the assessee to produce evidence in support of the returns if he considered it necessary to ensure that the assessee had not understated the income or had not computed excessive loss or had not under paid the tax in any manner. Such a notice could be issued only within twelve months from the end of the month in which the respective returns had been filed originally. Admittedly, no such notice had been served on the petitioner within the stipulated period and, therefore, it has to be held that the Assessing Officer had not found it necessary to require the petitioner to produce any evidence in support of the returns. Thus, the returns filed by the petitioner had become final. This finality could not be disturbed even in proceedings under section 147 in respect of issues on which there is no material on record suggesting any escapement of income. In the present case except for excessive claim of depreciation there is no material to suggest any underassessment or escapement of income under any {other item. There is no gainsaying the fact that in proceedings under section 147 it is only the escaped income which has to be assessed or reassessed. Thus, we are of the considered view that as per the law laid down by the Apex Court in the case of Sun Engg. Works (P.) Ltd. (supra) when proceedings under section 147 are initiated, the proceedings are open only qua items of underassessment. The finality of assessment proceedings on other issues remains undisturbed. According to us it makes no difference whether the assessment proceedings have become final on account of framing of an assessment under section 143(3) or on account of non-issue of a notice under section 143(2) within the stipulated period. The amendments made in sections 143 and 147 with effect from 1-4-1989 do not in any manner negate this proposition of law as enunciated by the Supreme Court in the case of Sun Engg. Works (P.) Ltd. (supra).

We may also mention that the interpretation placed on the observations of the Supreme Court of V. Jaganmohan Rao’s case (supra) by the Dy. Commissioner in his order dated 26-10-1998 is not correct. He was not correct in holding that once valid proceedings under section 147 are started the whole assessment proceedings start afresh. This has been explained by the Apex Court itself in Sun Engg. Works (P.) Ltd.’s case (supra) as under : "The principle laid down by this Court in V. Jaganmohan Rao’s case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act), the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of ‘underassessment’ based on clauses (a) to (d ) of Explanation 1 to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Rao’s case [1970] 75 ITR 373 (SC), therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee 8 cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in V. Jaganmohan Rao’s case [1970] 75 ITR 373 (SC), as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to ‘escaped assessment’ or ‘underassessment’ but to the entire assessment for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decisions to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. . . ." [Emphasis supplied] (p. 319)

In view of the above discussion, we are satisfied that the letter dated 30-7- 1998 issued by the Assessing Officer insofar as it relates to matters unconnected with the issue of depreciation as also the directions issued by the Dy. Commissioner under section 144A of the Act dated 26-10-1998 cannot be sustained. The same are hereby vacated. The Assessing Officer will now proceed with the assessment under section 147 in accordance with law. For the sake of clarification, we may repeat that nothing observed by us in this case would debar the Assessing Officer to bring to tax any other item of income which may have escaped assessment and which comes to his notice during the course of the proceedings under section 147. However, for this purpose he cannot be allowed to make fishing inquiries to probe if any other income had escaped assessment or not. Such inquiries can only be permitted if in the first instance some material comes to his notice to suggest that some other item of income may have escaped assessment or had been underassessed. In that event he would be perfectly justified in requiring the petitioner to furnish the requisite information on such other issue as well.

The writ petition is, therefore, allowed in the above terms. However, in the circumstances of the case, there will be no order as to costs. Petition allowed. (emphasis supplied by us)