PR. COMMISSIONER INCOME TAX SURAT 1 vs. GOVIND GOPAL GOYAL

Facts

The Directorate of Revenue Intelligence (DRI) informed the Assessing Officer (AO) that the respondent-assessee, Govind Gopal Goyal, had undervalued imported polyester films by Rs. 13,11,73,783 during FY 2010-11. As the assessee had not filed his return for AY 2011-12, a notice under Section 142(1) was issued on December 1, 2011. The assessee responded on January 3, 2012, stating his records were seized by DRI and he would file the return upon receiving them. While the Section 142(1) proceedings were pending, the AO issued a notice under Section 148 on January 16, 2013, for reassessment. The assessment was completed with additions of Rs. 13,11,73,783 under Section 69C and Rs. 1,00,69,710 as estimated net profit. The CIT(A) dismissed the assessee's appeal. The ITAT quashed the assessment order, holding it bad in law due to the pending Section 142(1) proceedings when the Section 148 notice was issued.

Held

The High Court held that the Tribunal committed no error in passing the impugned order. It affirmed the settled law that a notice for reassessment under Section 148 cannot be issued while assessment proceedings based on a filed return are pending, citing Trustees of H.E.H. The Nizam's Supplemental Family Trust v. Commissioner of Income-Tax. The Court reiterated that if assessment proceedings (original or reassessment) are pending, a Section 148 notice cannot be issued. The High Court found that Section 142(1) and Section 148 of the Act cannot operate simultaneously, as per the Supreme Court decision in Commissioner of Income Tax, Bombay City, I, Bombay v. M/s.Narsee Nagsee and Co. Bombay. The Court reasoned that issuing a Section 148 notice when Section 142(1) proceedings are pending is absurd and bad in law, as income cannot be said to have escaped assessment when proceedings are already underway. Section 124(3)(b) was held not to save the situation as it pertains to jurisdiction, not the illegality of issuing a notice during pending proceedings. The assessment order was quashed by the ITAT, and no other grounds were adjudicated on merit.

Key Issues

1. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in treating the assessment as bad in law? (Question of law) 2. Whether, on the facts and in the circumstances of the case and in law, the Income Tax Appellate Tribunal is right in its interpretation of Section 148 of the Income Tax Act? (Question of law) Assessee's Contention (before ITAT): The assessment order passed under Section 143(3) read with Section 147 of the Income Tax Act, 1961 (the Act) was illegal and erroneous because the assessment proceedings initiated under Section 142(1) of the Act were pending on the date the notice under Section 148 of the Act was issued. The ITAT relied on its coordinate bench's decision in Medapati Venkayamma vs. ITO (ITA No. 252/Vizag/2013). Revenue's Contention (before High Court): The ITAT committed a serious error in passing the impugned order. Section 142(1) of the Act does not preclude the AO from issuing a notice under Section 148. The High Court also considered Section 124(3)(b) of the Act, arguing the assessee could not question the AO's jurisdiction.