ACIT, CENTRAL CIRCLE-1(4), HYDERABAD vs. UMAMAHESWAR RAO LAGADAPATI, HYDERABAD

The Revenue has raised the following grounds of appeal:

Brief facts of the case are that the assessee is an individual who filed his return of income for Assessment Year 2019-20 on 16.06.2020 declaring total income of Rs.1,72,96,730/-. A search and seizure operation under section 132 of the Income-tax Act, 1961 (“the Act”) was conducted in the case of Shri Y. Kartheek in the group cases of Subhagruha Projects India Pvt. Ltd. During the course of search proceedings, an affidavit was found wherein the assessee had admitted long-term capital gain of Rs.4,30,23,434/- for Assessment Year 2019-20. On verification of the return of income filed by the assessee, the Learned Assessing Officer (“Ld. AO”) observed that the assessee had offered long-term capital gain of only Rs.1,55,29,370/- in the return of income. Accordingly, the Ld. AO formed a belief that income to the extent of Rs.2,74,94,064/- had escaped assessment. Consequently, proceedings under section 147 of the Act were initiated in the case of the assessee and notice under section 148 of the Act was issued by the Ld. AO on 24.02.2021. However, the assessee neither furnished any return of income in response to the notice issued under section 148 of the Act nor complied with the notices issued by the Ld. AO during the reassessment proceedings. Accordingly, the Ld. AO completed the reassessment under section 147 read with section 144 of the Act vide order dated 26.03.2022 by making an addition of Rs.2,74,94,064/- on account of long-term capital gain and assessed the total income of the assessee at Rs.4,47,90,794/-. 5. Aggrieved by the reassessment order, the assessee preferred an appeal before the Ld. CIT(A). The learned CIT(A) partly allowed the appeal of the assessee.

Aggrieved by the relief granted by the Ld. CIT(A), the Revenue is in appeal before us. The assessee has also filed a Cross Objection raising various legal grounds challenging the validity of the reassessment proceedings. Since the assessee has challenged the very assumption of jurisdiction under section 147 of the Act, we deem it appropriate to adjudicate the legal grounds raised in the Cross Objection first. Under Ground No.2 of the Cross Objection, the assessee has challenged the validity of the notice issued under section 148 of the Act. The Learned Authorized Representative (“Ld. AR”) submitted that the assessee had filed his return of income under section 139(4) of the Act on 16.06.2020. Therefore, the time limit available with the Ld. AO for issuance of notice under section 143(2) of the Act was available upto 30.09.2021. He submitted that the notice under section 148 of the Act was issued by the Ld. AO on 24.02.2021, i.e., at a point of time when the Ld. AO still had statutory power to scrutinize the return under section 143(2) and complete regular assessment under section 143(3) of the Act. The Ld. AR contended that when the regular assessment machinery under section 143(2)/143(3) of the Act was available to the Ld. A.O, recourse could not have been taken to the extraordinary provisions of reassessment contained under section 147 of the Act. According to him, the Ld. AO was statutorily obliged to proceed under the normal assessment provisions and could not bypass the same by invoking reassessment jurisdiction. Accordingly, it was submitted that the notice issued under section 148 of the Act is invalid in law and the reassessment order passed pursuant thereto deserves to be quashed. In support of his contentions, the Ld. AR relied upon various judicial precedents including

On a perusal of the above, we find The Hon’ble Bombay High Court has held that where the regular assessment procedure under section 143(3) of the Act is available to the Ld. AO, recourse cannot be taken to the extraordinary provisions of section 147 of the Act. The Hon’ble High Court observed that reassessment proceedings cannot be resorted to so as to bypass the normal assessment procedure prescribed under the Act. We have also gone through para nos.

On a perusal of the above, we find that the Hon’ble Punjab & Haryana High Court has held that the provisions of section 147 of the Act can be invoked not only after the order has been passed under section 143(3) of the Act, but even otherwise. Thus, we find that divergent views have been expressed by two different High Courts on the issue under consideration. In such circumstances, useful guidance can be derived from the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. reported in 88 ITR 192, wherein, the Hon’ble Apex Court has held that where two reasonable constructions of a taxing provision are possible, the construction favourable to the assessee should be adopted. Respectfully following the ratio laid down by the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products Ltd. (supra), we are inclined to adopt the view expressed by the Hon’ble Bombay High Court in the case of Smt. Suman Vs. ITO (supra), which is favourable to the assessee. Accordingly, we hold that when the statutory period available for issuance of notice under section 143(2) of the Act had not expired on the date of issuance of notice under section 148 of the Act, initiation of reassessment proceedings under section 147 of the Act was not sustainable in law. Consequently, the notice issued