DEPUTY COMMISSIONER OF INCOME TAX CIRCLE-6(2)(1), BANGALORE vs. SRI C GANGADHARA MURTHY , BANGALORE

Per: L.P. Sahu, A.M.

This is an appeal filed by the Revenue against the order of the ld. CIT(A), 6, Bengaluru in appeal ITA No. 107/R-9/CIT(A)-6/2014-15 dated 26.04.2018 for AY 2012-13 of the following grounds of appeal: -

“1. The order of the CIT (Appeals) is opposed to law and the facts and circumstances of the case. 2. On the facts and circumstances of the case, whether the Ld CIT(A) is justified in quashing entire proceedings initiated u/s 147 as there was time available to issue notice u/s 143(2), whereas, the assessee has not raised any issue before the Ld. CIT(A) of selecting the case u/s

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147 instead of notice u/s 143(2) before the AO. The Allahabad High Court in the case of CIT vs Jora Singh 32 Taxmann.com 263 (2013) on an identical issue has held that issue of notice u/s 148 was valid even through time available for issuing notice u/s 143(2) has not expired. 3. For these and such other grounds that may be urged at the time of hearing, it is humbly prayed that the order of the CIT(A), in so far as it relates to the above grounds may be reversed and that of the Assessing Officer be restored.” 2. The brief facts of the case are that a letter dated 25.07.2013 from the office of the Deputy Commissioner of Income Tax, Circle 9(1), Bangalore was served on the assessee to file return of income for AY 2012-13. In response to the said communication the assessee filed a manual return of income on 06.11.2013 along with a covering letter dated 05.11.2013 and he declared total income of Rs.10,96,154/- comprising of Rs.3,48,933/- being house property income, Rs.3,12,000/- being income from business and Rs.5,35,21/- being income from other sources. Apart from these the assessee also offered agricultural income of Rs. 9,00,000/- for the rate purposes. Notice under Section 148 of the Income Tax Act, 1961 (the Act) was issued on 11.02.2014 as per the findings in the order sheet as below: -

“The assessee Sri C. Gangadhar Murthy filed a letter dated 5-11- 2013 in the office of the undersigned enclosing a copy of a manual return along with particulars as below: A.Y. Income Income Income Gross total Total Agricultural from from from income income income House Business Other declared declared declared Property Sources 2012-13 3,48,933 3,12,000 5,35,221 11,96,154 10,96,150 9,00,000

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As per the AIR information, the assessee has also received interest of Rs.1,03,462/., rental income of Rs. 35,05,290 and has paid Rs. 16,67,749 against expenditure on credit cards. The details of such cash deposits and the incomes/receipts there from are not declared in the letter/return copy filed by the assessee. 3. Considering the income declared by the assessee as per letter dated 5-11-2013 as above and on the facts and the circumstances of the case, I have reasons to believe that the taxable income of the assessee has escaped assessment. Issue notice u/s. 148 to initiate assessment proceedings, since I have reason to believe that income of the assessee has escaped assessment within the meaning and scope of Section 147 of the I T Act, 1961." 3. In response to notice under Section 148 of the Act issued, the assessee filed a letter dated 18.02.2014 stating that “with deference to your above cited notice I herewith submit that the Return of Income for the AY 2012-13, which was filed on 11/02/2014 to your office, vide acknowledgement No. 9000000001, be treated as the return filed in response to the said notice u/s. 148.” The assessee also asked for copy of the reasons recorded and it was provided to the ld. A.R. of the assessee on 06.03.2014. The assessee had not objected to the reopening of the assessment and further notices were also issued to the assessee. The return filed by the assessee on 11.02.2014 was processed under Section 143(1) of the Act. After filing return by the assessee in pursuance of notice issued under Section 148 of the Act the AO issued notice under Section 143(2) of the Act dated 11.03.2014 and notice under Section 142(1) of the Act was also issued calling for details. The case was not selected for scrutiny under Section 143(2) of the Act for regular assessment. After receipt of the notice the assessee filed a letter dated 20.03.2014 seeking time for collecting requisite details and sought time of 15 days. Again the same letter was sent on 21.03.2014, but the assessee did not appear. A summon under Section 131(1) of the Act dated 09.04.2014 was also issued to the assessee seeking the assessee to

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personally appear on 24.04.2014 but the assessee did not appear and again notice under Section 142(1) was issued to the assessee giving last opportunity for substantiating his case, but the assessee did not appear. Accordingly the AO completed the assessment under Section 144 of the Act after considering the documents/material available before him and computed the gross total income at Rs.3,73,98,834/- as under: -

Income from House property Rs.3,48,933 Income from Business Rs.3,12,000 Add: Income from Other sources Rs.5,35,221 Add: Unexplained cash credits in bank accounts Rs.1,12,02,680 Add: Unexplained capital accretion Rs.2,50,00,000 Rs.3,67,37,901 Rs.3,73,98,834 Gross total income

“6. The grounds of appeal, appellant's statement of facts. AO's observations/ explanations, Remand Report dated 10/01/2017, and legal position have been duly considered. 7. The appellant in its Written submission has raised the issue that initiation of Proceeding u/s 147 and issue of notice u/s 148 is bad in law in as much as the time limit to issue a notice u/s 142(1) & 143(2) had not expired and AO could have done so & completed assessment u/s 143(3). 8. In this context it is seen that Return of income was filed on 11/02/2014, which is before expiry of the due date u/s 139(5) ie. 31/03/2014. In view of this fact, it may be noted that time limit for issue of notice u/s 143(2) would expire only on 30/06/2014. The

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AO had the power to issue a notice u/s 143(2) on or before 30/06/2014. The AO could have proceeded to assess the income u/s 143(3) accordingly. Instead he chose to issue a notice u/s 148 on 11/02/2014, the very day on which the return of income was filed by appellant. 9. It is clear from the judicial decisions relied upon by appellant that issue of notice u/s 148 was premature and uncalled for as the time limit to issue notice u/s 143(2) was very much available on the date proceeding was initiated u/s 147 & notice issued u/s 147. The appellant has placed reliance on the following decisions on the said issue which are decisions of the Hon'ble Supreme Court and several High Courts of the Country:- (i) Trustees of Nizam Supplementary Family trust vs CIT 242 ITR 381 (Supreme Court); (ii) CIT vs Ram Chettiar 55 ITR 630 (SC); (iii) CIT vs Krishna Kutty Menon 181 ITR 237 (Kerala HC); (iv) Indian Tube Co. Ltd vs ITO 272 ITR 439 (Calcutta HC); (v) CIT vs K.M.Pachayappan 304 ITR 264 {Madras HC); (vi) CIT vs Abad Fisheries 246 CTR 513 (Kerala HC); (vii) CIT vs Qatalys Software Software Technologies 308 ITR 249 (Madras HC); (viii) CIT vs TCP Ltd 323 ITR 346 (Madras HC); 10. In the case of Abad Fisheries 246 CTR 513 (Kerala),(2011) 16 taxman.com 398 (Kerala) 2012) 204 Taxman 267 (Kerala), the Hon'ble High Court of Kerala in its decision in IT Appeal Nos 243, 254, 258 & 263 of 201 dated September 2, 2011 held that within time provided for regular assessment under section 143(3) after issuing notice under section 143(2), no re- assessment is permissible under section 147. In the case of TCP Ltd (2010) 323 ITR 346 (Madras)/ (2010) 235 CTR (414) (Madras), the Hon'ble High Court of Madras in its decision in (Appeal) No 2427 of 2006 dated April 6, 2009 held that notice under section 148 cannot be issued for making an assessment under section 147 when time limit is available under section 143(3). In the case of Qatalys Software Technologies Ltd, (2010) 308 ITR 249 (Madras), the Hon'ble High Court of Madras in its decision in Appeal Nos 1026 and 1027 of 2008 dated July 29, 2008 held that in view of the decision in the case of CIT v KM Panchayappan (2008) 304 ITR 264 (Mad) , it was held that the Assessing Officer was barred in

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initiating proceedings under section 148 where time limit for issuance of notice under section 143(2) had not expired. In the case of K.M Panchayappan (2008) 304 ITR 264 (Madras) in its decision in Appeal No 870 of 2007 dated July 4, 2007 held that where, for AY 1997-98 return of income was filed under section 139(4) on March 15 , 2000, and notice under section 143(2) for framing assessment under section 143(3) could have been issued upto March 31, 2000 and AO issued notice under section 148 when a valid return under section 139(4) was pending, such notice was invalid as no action could have been initiated under section 147 in view of pendency of return before AO. In the case of Trustees of H. E.H. the Nizam's Supplemental Family Trust (2000) 109 Taxman 193 (SC)/(2000) 242 ITR 381 (SC)/(2000) 159 CTR 114 (SC), the Hon'ble Supreme Court of India in Civil Appeal No 5395 of 1993 dated February 16, 2000 held that where a return filed along with refund application being a valid return, and no assessment order had been communicated to assessee, no action under section 147/148 could have been taken. The decisions brought out herein apply to the facts in the instant appeal. The AO had issued notice u/s 148 when time limit for issuing notice u/s 143(2) had not yet expired. In view of the same, one is constrained to hold assessment order passed u/s 143(3) rws 147 for AY 2012-13 as unsustainable.” 5. Aggrieved by the order of the CIT(A) the assessee filed appeal before the Tribunal

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issued notice under Section 148 of the Act.. The reasons has been reproduced by the AO in his assessment order and there was escapement of income and the AO had strong reasons to believe that income of the assessee has escaped assessment within the meaning and scope of Section 147 of the Act. He further submitted that the learned CIT(A) has wrongly accepted the plea of the assessee that notice under Section 148 of the Act cannot be issued if the period of notice under Section 143(2) of the Act has not expired in case of filing return under Section 139 of the Act. The return was processed under Section 143(1) of the Act and the AO had sufficient reason for assessing escapement of income as per AIR and CIB information. He further submitted that once the provisions of Section 147 of the Act is satisfied then the AO can issue notice under Section 148 of the Act at any time within the time period as prescribed in Section 147 of the Act. It is well established law that two independent proceedings cannot be initiated simultaneously for making assessment for the same assessment year, He also submitted that the period of issuing notice under Section 148 of the Act is to be counted from the relevant assessment year and not from the period of expiry of notice to be issued under Section 143(2) r.w.s. 143(3) of the Act for regular assessment. He also submitted that the intimation under Section 143(1)(a) of the Act is not an assessment order, it is merely intimation issued by the ministerial staff of the Department. Once the AO has reason to believe for escapement of income he can issue notice under Section 148 of the Act as per the judgement of the Hon’ble Supreme Court in the case of ACIT vs. Rajesh Jhaveri Stock Broker(P) Ltd. (2007) 291 ITR 500 (SC) and he also strongly relied on para 18 of the said judgment which reads as under:- “18. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate proceedings under section 147 and failure to take steps under section 143(3) will not render the

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Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) has been issued.” 7. Further he also strongly relied on the judgement of the Hon'ble Allahabad High Court in the case of CIT vs. Jora Singh (2013) 32 taxmann.com 263 (Allahabad) and submitted that the assessee’s case is also squarely covered by this judgement and the facts are similar. The CIT (A) while deciding the legal issue has ignored these two judgements whereas it was available on public domain.

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assessee was not filing regularly his return of income and a communication was issued to the assessee for filing return of income, thereafter the assessee filed manual return which was treated by the AO as incorrect return. On going through the order of the CIT(A), he has accepted the plea of the assessee that notice under Section 148 of the Act cannot be issued if there was time available for issuing notice under Section 143(2) for regular assessment u/s 143(3) of the Act as per the return filed by the assessee under Section 139 of the Act. Similar issue has been decided by the coordinate Bench of the ITAT Lucknow reported in the case of Kailash Auto Finance Ltd. vs. Assistant Commissioner of Income Tax-4, Kanpur (2009) 32 SOT 80 (Lucknow). After going through this judgement, we would like to reproduce the relevant part as under: -

“4. The gist of this ground is that the Assessing Officer had issued notice under section 148(1) during the period when he could have issued notice under section 143(2) and as notice under section 143(2) was not issued till then i.e., (before the expiry of twelve months from the date of filing of the return) the notice under section 148(1) so issued was invalid and, therefore, entire assessment proceedings are required to be quashed. The facts relating to this ground are as under : 5. The assessee had filed return of income on 27-10-2004 for the assessment year 2004-05 declaring a loss of Rs. 20,22,200 and book profit under section 115JB at Rs. 12,27,900. The return was processed on 26-2-2005 under section 143(1). Subsequently, the Assessing Officer issued notice under section 148(1) on 18-5-2005 which was served on the assessee on 24-5-2005. Thereafter, reassessment proceedings were carried out by issuing notice under section 143(2). 6. This issue was also raised before the ld. CIT(A), who vide paras 5 and 6 of his order dismissed the relevant ground of the assessee as under : "5. As per ground No. 1 of appeal, the appellant has challenged the action taken by Assessing Officer under section 147 of the Income- tax Act, stating that "the notice was issued without proper and

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sufficient basis and also the reasons for issuing notice for withdrawing the depreciation allowed in earlier years by the Department is merely a change of own". The fact on this issue is that the original Return filed by the appellant was accepted under section 143(1) of the Income-tax Act, i.e., without examination and verification on various claims and Returned Income of the appellant was accepted by the Assessing Officer. The proceedings under section 143(1) are not at the same footing as under section 143(3) i.e., regular assessment after the enquiry. The legal position is settled as also held in the case of Elegant Chemical Enterprises (P.) Ltd. v. Asstt. CIT [2004] 271 ITR (AT) 56 (Hyd.) that "processing of return under section 143(1)(a) cannot be equated to an assessment. Notice under section 143(2) was also not issued. The Assessing Officer has power under section 147 to initiate the assessment proceedings". In the case of Mahanagar Telephone Nigam Ltd. v. CBDT [2000] 246 ITR 173 Delhi (HC) it was held that the issue whether an intimation under section 143(1)(a) is an assessment is not material for the purpose of issuing notice under section 147. It is enough, if a reasonable belief that income has escaped assessment exists, so as to justify issue of notice under section 148. 6. Thus, it can be seen that the argument of the appellant of 'change of opinion' is misplaced. It is also argued that reason for reopening the case under section 147/148 are not sufficient. It is well-settled position that the "sufficiency of reason" is not justiciable. It was held in the case of ITO v. Lakhmani Mewalala Das that the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons of the belief in 103 ITR (SC) (1976). Case laws cited by the ld. AR are not applicable to the fact of this case because no assessment proceedings were pending at the time of issue of notice under section 147/148. There is no infirmity or irregularity in the jurisdiction acquired by the Assessing Officer under section 147/148 of the Income-tax Act. As per the facts and circumstances of the case, hence ground No. 1 of appeal is 'dismissed'." 7. The ld. CIT(A), in fact relied on the decision of ITAT Hyderabad Bench in the case of Elegant Chemical Enterprises (P.) Ltd. v. Asstt. CIT [2004] 91 ITD 85 and the decision of Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. v. Chairman, CBDT [2000] 246 ITR 173, to hold that proceedings initiated by the Assessing Officer under section 148(1) during availability of time for issue of notice under section 143(2) are valid.

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"Shri Sachidanand Gupta v. ITO in [IT Appeal No. 740/Luck./05 for the assessment year 2000-01 decided on 31-1-2007] Shri Chandra Prakash Gupta v. ITO in [IT Appeal No. 351/Luck./05 for the assessment year 2003-04 decided on 17-11-2006] Shri Masihulla Khan v. ITO in [IT Appeal No. 514/Luck./06 for the assessment year 2002-03 decided on 8-12-2006]." 11. He further relied on the decision of Hon'ble Madras High Court in the case of CIT v. K.M. Pachayappan [2008] 304 ITR 264. The ld. AR then sought to distinguish the decision of Hon'ble Allahabad High Court in the case of Pradeep Kumar Har Saran Lal v. Assessing Officer [1998] 229 ITR 46 and the decision of Hon'ble Supreme Court in the case of Asstt. CIT v. Rajesh Jhaveri Stock Brokers (P.) Ltd. [2007] 291 ITR 500, on the ground that in both the cases, time period to issue notice under section 143(2) had expired when notice under section 148(1) was issued. Relying on the above decisions referred to by him, the ld. AR submitted that when time period for issuance of notice under section 143(2) had expired then it could be said that assessment is not made and, therefore, Explanation 2(b) would be applicable. Thus, he sought to emphasize that a case of 'no assessment' will arise only when time period for issuance of notice under section 143(2) has expired. During the time when period for issuance of notice under section 143(2) has not expired, it could not be said that it is a case of 'no assessment'. Thus, where time period for framing the assessment by issuance of notice under section 143(2) is available, it cannot be said that 'no assessment' has been made and, therefore, during this period Explanation 2(b) could not be invoked. 12. The ld. AR then referred to the decision of ITAT Delhi Special Bench in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269. 13. Against this, the ld. DR submitted that decisions of the ITAT Lucknow Bench (cited supra) relied upon by the ld. AR cannot be followed because these decisions were rendered by the Tribunal when they did not have the benefit of decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra). Further, in none of these decisions, the decision of Hon'ble Allahabad High Court in the case of Pradeep Kumar Har Saran Lal (supra) or Hon'ble Delhi High Court in the case of Mahanagar Telephone Nigam Ltd. (supra) was considered. According to him, once decision of Hon'ble Supreme Court on the subject is available

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in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) the decision rendered in other cases would not be applicable. As per Article 141 of the Constitution, the subordinate Courts are bound to follow the judgment of Hon'ble Supreme Court. The ld. DR also pointed out that the Hon'ble Madras High Court in the case of K.M. Pachayappan (supra) had also not considered the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra). The Hon'ble Madras High Court had followed the case of Hon'ble Supreme Court in the case of Trustees of H.E.H. The Nizam's Supplemental Family Trust v. CIT [2000] 242 ITR 381 where the return filed was pending. There was neither any assessment under section 143(1) or 143(3). In the present case, the proceedings for assessment were terminated by processing the return on 26-2-2005, therefore, it could not be said that the return is pending. The ld. DR then submitted that it is not necessary for the officer to issue notice under section 143(2) in each and every case and issuance of notice under section 143(2) is under the administrative control of the CBDT and Chief Commissioner and only when the conditions laid down in the instructions of the CBDT are satisfied, the Assessing Officer can issue notice under section 143(2). Therefore, it cannot be said that in proceedings for assessment is pending. Once return is accepted by the Department by processing or by sending intimation or by treating an acknowledgement as intimation then Department accepts the income returned by the assessee. If the taxes are correctly paid on the income returned then no notice is issued. But where there is a variation in tax as per returned income then either refund is issued or intimation is separately issued which is treated as demand notice. Thus, the process of assessment is completed. It is subsequently when Department considers to verify the return it issues notice under section 143(2). Therefore, when processing is completed, it cannot be said that return is pending. 14. The ld. DR then submitted that Explanation 2(b) to section 147 is clearly applicable. It is invoked where no assessment is made. After 1-4-1989, there has been a change in the law relating to issuance of notice under section 148(1)/Section 147. Processing is not treated as assessment and, therefore, Explanation 2(b) would be clearly applicable. The ld. DR then opened up a new line of argument by saying that the return filed by the assessee is a self- assessment and the proceedings relating to computation of tax and levy of interest is based on such self-assessment. According to him, it is incorrect to presume that the word 'assessment' as used

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in section 147 would only mean assessment under section 143(3). It also means reassessment under section 147/148(1) and when any escapement of income is found even in an assessment made under section 147/148(1) still then notice under section 148(1) can be issued by assuming jurisdiction under that section. Finally, the ld. DR relied on the decisions in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra), CIT v. Abad Fisheries [2002] 258 ITR 641 (Ker.), Aditya & Co. v. CIT [2005] 279 ITR 47 (Punj. & Har.), Elegant Chemicals Enterprises (P.) Ltd. (supra), Mahanagar Telephone Nigam Ltd. (supra), Pradeep Kumar Har Saran Lal (supra), Vipan Khanna v. CIT [2002] 255 ITR 220 (Punj. & Har.), Deepak Kumar Poddar v. Union of India [1997] 224 ITR 95 (Pat.), A. Pusa Lal v. CIT [1988] 169 ITR 215 (AP) and Jorawar Singh Baid v. Asstt. CIT [1992] 198 ITR 47 (Cal.). 15. We have considered the rival submissions and perused the material on record. In our considered view, the ld. AR is proceeding on the presumption that a proceeding will continue to be pending by virtue of return filed and such proceedings can only be terminated by issuance of notice under section 143(2) and passing of order under section 143(3) or after expiry of time of twelve months from the date of filing of the return. The reasoning advanced by the ld. AR is that a proceeding is pending by virtue of return filed and unless such proceedings are concluded, the Assessing Officer could not issue notice under section 148(1). Further, a processing or sending of intimation is not an assessment, therefore, proceedings initiated because of filing of return remain pending. Once proceedings are pending, the Assessing Officer cannot initiate reassessment proceedings. This is the gist of argument. In this connection, we examine the concept of pendency of proceedings as under : 16. The term 'pending' means 'undecided', i.e., something which is not concluded. An action is considered as pending from the time of commencement of the proceedings. Thus, a legal proceeding is pending as soon as commenced and until it is concluded. As per Advanced Law Lexicon, third Edition of 2005, page 3521/3522, following are the definitions of the word 'pending' : "A suit is pending until final judgment is rendered. See 3 IC61:5NLR88. An action is pending until the judgment is fully satisfied.

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A pending action is an action which has been commenced, and in which some proceeding may be taken (Sherwood v. Ray) (1837) I Moo. PC 353; Hart v. Hart, (1881) 18 Ch. D. 670, 680; Fordham v. Clagett (1882) 20 Ch. D. 637, 653. So long as it is possible for any proceeding to be taken in a case, such cause is still pending (per JESSEL, M.R., in Fordham v. Clagett supra p. 653). For the purposes of section 24(5) and (7) of the Judicature Act, 1873, and action is pending after final judgment so long as the judgment remains unsatisfied. (Salt v. Cooper, (1880) 16 Ch. D. 544). [A legal proceeding is "pending" as soon as commenced (on which see 5 Rep. 47, 48; 7 Rep. 30), and until it is concluded, i.e., so long as the Court having original cognizance of it can make an order on the matters in issue, or to be dealt with, therein. Pending judicial proceeding. A judicial proceeding is said to be pending. (A) in the case of a civil proceeding, when it is instituted by the filing of a plaint or otherwise; (B) in the case of a criminal proceeding under the Code of Criminal Procedure, 1898, or any other law— (i) Where it relates to the commission of an offence, when the charge-sheet or challan is filed, or when the Court issues summons or warrant, as the case may be against the accused, and (ii) in any other case, when the Court takes cognizance of the matter to which the proceeding relates, and in the case of a civil or criminal proceeding. [Contempt of Courts Act. (70 of 1971), S. 3 Expln. (a)]."

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process the return. Such return which has commenced a proceeding before the Assessing Officer would be said to be pending, but when return is processed or even where acknowledgement of return is treated as intimation, in that situation, the Assessing Officer is not required to conclude the assessment proceedings necessarily. Therefore, it could not be said that a proceeding is pending because of the return filed by the assessee. A fresh proceedings would commence and be pending when notice under section 143(2) is issued. Thus, proceedings cannot be deemed to be pending before the Assessing Officer by virtue of return filed after Assessing Officer has processed the return, determined the tax payable including the interest on the returned income and also where return filed by the assessee is accepted by way of issuing acknowledgement. Merely because the Assessing Officer is prohibited from issuing notice under section 143(2) after twelve months of filing of the return, it does not mean that proceedings commenced with filing of a return, are pending before him. In fact and in law, proceedings arising after filing of the return is a separate proceeding and proceedings initiated after issuance of notice under section 143(2) are separate proceedings. If notice under section 143(2) is not issued by the Assessing Officer, and twelve months of the filing of the return is expired, it could not be said that conclusion of any proceeding is time-barred because such proceedings were not at all initiated. It is only the commencement of proceedings under section 143(2) are barred by limitation after expiry of twelve months. So far as the proceedings initiated by filing the return of income is concerned, it has to be viewed independently. It will commence with the filing of the return and will come to an end when processing is done or acknowledgement is issued deeming it to be intimation. It cannot be deemed to be pending after processing or issuance of acknowledgement. Thus, proceedings for assessment has two methods of initiation, one is when return of income is filed and the other is when notice under section 143(2) is issued. When return of income is filed and subsequently notice under section 143(2) is issued without processing or issuing acknowledgement, then the two proceedings merged into each other and conclude when assessment order under section 143(3) is passed. In other case, when return is filed and is processed/acknowledgement is issued treating it as intimation, the first assessment proceedings get concluded. So, the second assessment proceedings are initiated when notice under section 143(2) is issued within twelve months

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of filing of return. The law provides for these two proceedings. The third proceedings for assessment are initiated by way of issuance of notice under section 148(1). The statute provides jurisdiction in respect of second [by issuing notice under section 143(2)] and third proceedings [by issuing notice under section 148(1)] to the Assessing Officer when conditions laid down for them are fulfilled. As stated earlier, the first set of assessment proceedings initiates when return of income is filed by the assessee. In this regard, we make a reference to section 147 as amended with effect from 1-4- 1989, as under : "147. Income escaping assessment.—If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub-section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :—

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(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessment has been made, but— (i) income chargeable to tax has been under assessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed." 18. Explanation 2 to above section clearly provides three situations where it is deemed that income has escaped assessment and, therefore, initiation of assessment/reassessment proceedings by issue of notice under section 148(1) would be valid. These situations are :— (i) when return of income is not filed and there is a case of under assessment as mentioned in clause (a). (ii) when return of income is filed and assessment is not made and there is a case of under assessment as mentioned in clause (b). (iii) when return of income is filed and assessment is made and there is a case of under assessment of income as mentioned in clause (c). 19. These three clauses cover practically every situation. The Assessing Officer has only to show that there is a case of under assessment as mentioned in either of the three clauses to Explanation 2 to section 147. Thus, whether return of income is filed or not, even if it is filed assessment is made or not, what has to be pointed out in the reasons recorded by the Assessing Officer is

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that there is a case of under assessment. The argument of ld. AR that clause (b) to Explanation 2 will come into operation only when time period for issuance of notice under section 143(2) is expired and assessment is not made, is not acceptable as this will put another condition in Explanation 2(b) which is otherwise not inserted by the Legislature. As pointed out earlier, statute provides commencement of assessment proceedings in at least three ways. They can merge into each other but they do not cancel each other. Ultimate object is to make assessment of correct income and, therefore, Legislature has thought it fit to consider commencement of assessment or reassessment proceedings in at least three streams which can subsequently merge into one, if they are pending at the same time. They will ultimately result in an order under section 143(3). A case where assessment proceeding is completed would fall in clause (c). In the present case, we are only concerned with the operation of clause (b) to Explanation 2 and this clearly provides that where assessment is not completed, still then there could be a case of deemed escapement of income and notice under section 148(1) can be issued irrespective of the fact whether assessment proceedings initiated by virtue of filing the return or assessment proceedings by way of issuance of notice under section 143(2) are concluded or not. Thus, in fact, following situation emerged from the above discussion: (i) after filing the return of income, processing is not done/acknowledgement is not issued, i.e., return filed is pending. Thus, there is a case of assessment having not done. This will fall in clause (b) to Explanation 2. (ii) Where return of income is filed, processing is done/ acknowledge-ment issued. The proceedings initiated by way of filing of return is concluded though technically, it may not be said to be an assessment completed as held in various Court judgments. This will also fall in clause (b) to Explanation 2. (iii) Where return of income is filed, processing is not done/acknowledgement is not issued but notice under section 143(2) is issued. If Assessing Officer still finds escapement of income then he has two options. He can cover such escaped income in the proceedings initiated under section 143(2) or he can initiate proceedings under section 147 read with Explanation 2(b) as assessment is not complete and there is a case of deemed escapement of

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income. (iv) Return of income is filed, processing is done/ acknowledgement is issued and thereafter notice under section 143(2) is issued within twelve months. Such cases would also be cases of deemed escapement of income if conditions laid down in Explanation 2(b) are satisfied. (v) Return of income is filed, processing is done or not done, acknowledgement is issued or not issued as intimation, the time period for issuance of notice under section 143(2) is expired. This would be again a case which will fall in Explanation 2(b) as assessment is not done. (vi) Where assessment is done under section 143(3) after filing the return of income and Assessing Officer finds escapement of income then such case would fall in Explanation 2(c). (vii) Were no return of income is filed at all then such case would fall in Explanation 2(a). 20. However, notwithstanding above analysis of Explanation 2 to section 147, certain Court rulings have defined the parameters as to and when a case would fall under section 147, therefore, notice under section 148(1) would be valid. 21. Therefore, we refer to authorities relied on by the parties. The ld. AR has relied on the decision of Hon'ble Madras High Court in the case of K.M. Pachayappan (supra) wherein for the assessment year 1997-98, return of income was filed on 30-3-1999, the return was processed under section 143(1) on 15-3-2000 and, therefore, the Assessing Officer had issued notice under section 148(1) on 15- 3-2000. It was claimed that Assessing Officer could have issued notice under section 143(2) up to 31-3-2000, therefore, issuance of notice under section 148(1) on 15-3-2000 was not valid as proceedings were pending. The Hon'ble Madras High Court relied on the decision of Hon'ble Supreme Court in the case of Trustees of H.E.H. The Nizam's Supplemental Family Trust (supra ), wherein it was held that if concerned return of income is not disposed of then notice under section 148 could not be issued and no reassessment proceedings can be initiated. 22. The ld. DR sought to distinguish this judgment by submitting that the Hon'ble Madras High Court did not consider the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock

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Brokers (P.) Ltd. (supra), wherein it is held that failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate assessment proceedings even where intimation under section 143(1) has been issued. The ld. DR further pointed out that the Hon'ble Madras High Court has passed the order relying on the judgment of Hon'ble Supreme Court in the case of Trustees of H.E.H. The Nizam's Supplemental Family Trust (supra) which related to the assessment year 1962- 63 wherein the concept of assessment was some what different as compared to that which was in vogue in the relevant assessment year. Further, subsequent to the assessment year involved in judgment of Trustees of H.E.H. The Nizam's Supplemental Family Trust's case (supra), the provisions of section 147 and Explanation thereto as introduced with effect from 1-4-1989 had altered the situation and concept of deemed escapement of income has come into place. We entirely agree with these submissions of the ld. DR. A precedence becomes binding only when it is similar on all four corners of facts and law. A slight difference in fact or in law will not make a valid binding precedence. In this regard, we may refer to the Hon'ble Supreme Court decision in the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147, wherein it was held that circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. 23. In view of the altered position of law with effect from 1-4-1989 with the introduction of concept of deemed escaped income which seems to have not attracted the attention of the Hon'ble Madras High Court in the case of K.M. Pachayappan (supra ), we are of the view that the case is effectively differentiated by the revenue. 24. Thereafter, the ld. AR relied on certain authorities of ITAT, particularly of Lucknow Bench. In our considered view, after carefully going through these authorities we find that they also did not have the benefit of the decision of Hon'ble Supreme Court in the case of Rajesh Jhaveri Stock Brokers (P.) Ltd. (supra) and also did not consider Explanation 2(b) of section 147. They had basically considered the main provision of section 147 and held that by filing of the return, an assessment proceedings remained pending which could be concluded by getting time-barred after expiry of twelve months available for issuance of notice under section 143(2). Therefore, we are not able to persuade ourselves to follow those decisions.

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"The scheme of section 143(1)(a) of the Income-tax Act, 1961, and the clarificatory circular dated 31-10-1989, issued by the Central Board of Direct Taxes, makes it amply clear that unlike the past practice, assessments are not required to be made in each and every case and assessment orders will be passed only in a very limited number of cases, selected for scrutiny. Under section 143(1)(a), the Assessing Officer has to accept the return on its face value and make minor adjustments consistent with the information given in the return without touching upon debatable and controversial issues. There is a lot of difference between an assessment and an intimation, as contemplated by section 143(1)(a) and if it were not so, then Parliament would not have used the word intimation as a substitute for assessment. The intimation under section 143(1)(a)(i) is only fictionally taken as a notice of demand under section 156. From all this it follows that the intimation is nothing but an acknowledgement slip to the effect that the return filed has been accepted and the Assessing Officer has acted upon that and for the purposes of recovery, that shall be deemed to be a notice of demand as if issued under section 156. Jurisdiction to make adjustment under the provisions of section 143(1)(a) is co-extensive and coterminous with the jurisdiction vested in the Assessing Officer under section 154 for making obvious corrections, as no item of debatable nature can be corrected under section 154 of the Act. Similarly, the Assessing Officer cannot enter into any controversial item to make permissible adjustments under the proviso to section 143(1)(a). The only requirement of section 147 is that Assessing Officer must have good reason to believe that some income had escaped assessment. One this belief is well-founded, recourse to reassessment proceedings cannot be said to be illegal. So long as the ingredients of section 147 are fulfilled, the Assessing Officer is free to initiate reassessment proceedings and failure to take steps under section 143(2) will not render the Assessing Officer powerless to initiate the reassessment proceedings." 30. The Hon'ble Patna High Court (Ranchi Bench) in the case of Deepak Kumar Poddar (supra), has held as under : "Following the filing of returns by the assessees for the assessment year 1992-93, notices were issued to them under section 143(2) of the Income-tax Act, 1961. While the proceedings in terms of section 143(3) of the Act were pending pursuant to the notices, on the basis of the materials seized in the course of a search at the

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petitioners' premises, the Assessing Officer found that there were sufficient grounds for initiating proceedings under section 147 and, hence, notices under section 148 of the Act were issued to the petitioners. In writ petitions, the petitioners contended that it was not open to the Assessing Officer to initiate proceedings under section 147 and issue notices under section 148 of the Act before concluding the proceedings under section 143(3) and without passing a final order in those proceedings; and that Explanation 2(b) to section 147 did not apply to scrutiny cases : Held, dismissing the petitions, that a provision cannot, contrary to its plain meaning, be given a limited meaning on the basis of the explanatory note submitted before Parliament at the time of presentation of the Bill. Explanation 2(b), therefore, was applicable to scrutiny cases. Moreover even the explanatory note did not say that Explanation 2(b) to section 147 would apply only to the "non-scrutiny" cases or that cases picked up for scrutiny would not be covered by it." 31. In the case of Pramod Kumar Rakesh Kumar & Co. v. ITO [1990] 186 ITR 637, the Hon'ble Allahabad High Court has held as under : "In the absence of any specific provision in the circulars issued by the Central Board of Direct Taxes we are not inclined to hold that just because an assessment was made under section 143(1)(a) on the basis of the returns said to have been filed under the Amnesty Scheme, the power of the Income-tax Officer under sections 147 and 148 is taken away. It is, therefore, not possible for us to quash the impugned notices on the said ground." 32. In the case of Jorawar Singh Baid (supra), it was held under : "In our view, the power that can be exercised under section 143(2) to correct the assessment made under section 143(1) does not exclude the power of the Assessing Officer to reopen the assessment under section 147 if the ingredients of section 147 are satisfied. It is open to the Assessing Officer to invoke the jurisdiction under section 147, notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment under section 147 is vitiated because the Assessing Officer failed to invoke his power to correct the assessment already completed under section 143(1) by issuing a notice under section 143(2) of the Act."

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'intimation' by Apex Court. This situation is directly covered in Explanation 2(b) to section 147 and, therefore, issuance of notice under section 148(1) after processing is completed/ acknowledgement issued would be covered by the deeming provision in Explanation 2(b). The argument of ld. AR that reassessment presupposes that assessment should have been framed and intimation is not an assessment, therefore, assessment is not framed and, therefore, reassessment could not be initiated is not acceptable because deeming provision of Explanation 2(b) to section 147 does not contemplate that an assessment of the nature as done under section 143(3) should be completed for invoking that clause of the explanation. It only says that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return. Thus, Assessing Officer has to only point out, or it should come to his notice on the basis of examination of the return that assessee has under-stated the income or claimed excessive loss, deduction, allowance or relief. It nowhere presupposes that assessment of the type prescribed under section 143(3) should have been completed for deeming escapement of income. The word 'assessment' has not been used at all in Explanation 2(b), therefore, it will over all the situations where assessment is not framed. This situation will include the situation where only intimation is sent or processing is done or even nothing is done after filing the return. The opening words of section 147 "if the Assessing Officer has reason to believe that any income chargeable to tax has escaped the assessment for any assessment year....." cannot be read without considering Explanation 2 which defines and prescribes the scope and limit of all deemed escapement of income under the situation mentioned in three clauses. 37. Thus, we reject the contention of the ld. AR for the assessee that Assessing Officer could not have issued the notice under section 148(1) within twelve months of filing of the return which is the period when Assessing Officer should have issued notice under section 143(2) which has not been issued. 38. There is one more aspect in this issue which requires consideration. One more condition is apparently proposed to be inserted in section 147 by reading into it the provisions of section 143(2) that, if time period for issuance of notice under section 143(2) has not expired then notice under section 148(1) could not be issued. Section 147 is a procedure for assessing escaped income (original or deemed) and for this, it has prescribed condition for

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conferring jurisdiction on the Assessing Officer. This is a complete code in itself and if conditions laid down in section 147 are satisfied then to look elsewhere as to whether other conditions laid down in other provisions are fulfilled or not and thereby to decide whether the Assessing Officer could have assumed jurisdiction under section 147/148 in spite of conditions laid down in this section is totally fulfilled will not be legally correct. In our considered view, in the matter of jurisdiction, the provision should be construed strictly. It can neither be extended nor reduced by reading other provisions into the provisions of section 147, unless it is so specifically provided either in other sections or in section 147. As a result, we hold that issuance of notice under section 148(1) was valid. The appeals will be posted for hearing on merits.” 11. On going through the entire judgement of the Coordinate Bench of the Tribunal (supra) the present case is squarely covered in favour of Revenue. In the judgment the details for issuing notice have been discussed elaborately after discussing many judgments regarding the issue of notice under Section 148 of the Act after satisfying the conditions of Section 147 of the Act. The case cited by the ld. D.R. is also applicable to the facts of the present case. While deciding the issue the ITAT Lucknow Bench, has concluded that the notice under Section 148 of the Act can be issued by the AO even if there is time limit for issuance of notice under Section 143(2) of the Act has not been expired in pursuance of return filed under Section 139 of the Act for completing regular assessment under Section 143(3) of the Act. The Assessing Officer has only to show that there is a case of under assessment as mentioned in either of the three clauses to Explanation 2 to section 147. Thus, whether return of income is filed or not, even if it is filed assessment is made or not, what has to be pointed out in the reasons recorded by the Assessing Officer is that there is a case of under assessment. The argument of ld. AR that clause (b) to Explanation 2 will come into operation only when time period for issuance of notice under section 143(2) is expired and

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assessment is not made, is not acceptable as this will put another condition in Explanation 2(b) which is otherwise not inserted by the Legislature. As pointed out earlier, statute provides commencement of assessment proceedings in at least three ways. They can merge into each other but they do not cancel each other. Ultimate object is to make assessment of correct income and, therefore, Legislature has thought it fit to consider commencement of assessment or reassessment proceedings in at least three streams which can subsequently merge into one, if they are pending at the same time. They will ultimately result in an order under section 143(3). A case where assessment proceeding is completed would fall in clause (c). In the present case, we are only concerned with the operation of clause (b) to Explanation 2 and this clearly provides that where assessment is not completed, still then there could be a case of deemed escapement of income and notice under section 148(1) can be issued irrespective of the fact whether assessment proceedings initiated by virtue of filing the return or assessment proceedings by way of issuance of notice under section 143(2) are concluded or not. Thus, in fact, following situation emerged from the above discussion:

(i) after filing the return of income, processing is not done/acknowledgement is not issued, i.e., return filed is pending. Thus, there is a case of assessment having not done. This will fall in clause (b) to Explanation 2.

(ii) Where return of income is filed, processing is done/ acknowledgement issued. The proceedings initiated by way of filing of return is concluded though technically, it may not be said to be an assessment completed as held in various Court judgments. This will also fall in clause (b) to Explanation 2.

(iii) Where return of income is filed, processing is not done/acknowledgement is not issued but notice under

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section 143(2) is issued. If Assessing Officer still finds escapement of income then he has two options. He can cover such escaped income in the proceedings initiated under section 143(2) or he can initiate proceedings under section 147 read with Explanation 2(b) as assessment is not complete and there is a case of deemed escapement of income.

(iv) Return of income is filed, processing is done/ acknowledgement is issued and thereafter notice under section 143(2) is issued within the specified time. Such cases would also be cases of deemed escapement of income if conditions laid down in Explanation 2(b) are satisfied. (v) Return of income is filed, processing is done or not done, acknowledgement is issued or not issued as intimation, the time period for issuance of notice under section 143(2) is expired. This would be again a case which will fall in Explanation 2(b) as assessment is not done.

(vi) Where assessment is done under section 143(3) after filing the return of income and Assessing Officer finds escapement of income then such case would fall in Explanation 2(c). (vii) Were no return of income is filed at all then such case would fall in Explanation 2(a). 12. We also found substance in the submissions of the ld. D.R. that the period of notice shall be counted from the relevant assessment year for the limitation of issuing notice under Section 148 of the Act which period also covers the period of notice to be issued as per Section 143(2) of the Act. Considering the entire issue and judgements relied by both the parties as well as cited by us (supra), we allow the appeal of Revenue and set aside the order of the CIT(A). Since the CIT(A) has not decided issue on merit, the issue on merits shall be considered by the CIT(A) and for

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this purpose, the case is remanded to the CIT(A) to decide merits of the appeal after due hearing afforded to the assessee.

Order pronounced in the open Court on 16th August, 2022.

Sd/- Sd/-

(N.V. Vasudevan) (Laxmi Prasad Sahu) Vice President Accountant Member

Bengaluru, Dated: 16th August, 2022

Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) -6, Bengaluru 4. The CIT - 6, Bengaluru 5. The DR, ITAT, Bengaluru 6. Guard File By Order

Assistant Registrar ITAT, Bengaluru vms