2006 (4) TMI 439 - AT - Income Tax

Invalid Initiation of Proceedings Under Section 147: Appeal Success

Chandrasekhar Balagopal Versus Assistant Commissioner of Income-tax, Circle-I(1)

Chandrasekhar Balagopal Versus Assistant Commissioner of Income-tax, Circle-I(1) - [2007] 11 SOT 615 (COCHIN) Issues Involved:1. Jurisdiction to issue notice under section 148 of the Income-tax Act, 1961.2. Treatment of Rs. 3.90 crores received under a non-compete agreement as capital receipt or taxable income.Detailed Analysis:1. Jurisdiction to Issue Notice under Section 148:The Tribunal examined whether the initiation of proceedings by issuing a notice under section 148 for the assessment year 2000-01 was valid. The facts revealed that the assessee had filed a return of income on 31-8-2000, which was processed under section 143(1) on 28-3-2002. The Assessing Officer later found that Rs. 390 lakhs received by the assessee under a restrictive covenant with Terumo Corporation had not been considered for assessment, leading to the belief that income chargeable to tax had escaped assessment. Consequently, the assessment was reopened under section 147 by issuing a notice under section 148 on 13-6-2002.The assessee contended that no intimation under section 143(1) was ever received, and the return was not properly processed. The Tribunal noted that the order sheet did not record the issuance of any intimation, and no refund order was prepared or sent to the assessee. The Tribunal cited the Supreme Court's decision in CIT v. Ranchhoddas Karsondas, which held that if a return has been voluntarily submitted, the ITO cannot ignore it, and any assessment under section 34 (now section 147) ignoring the return is invalid.The Tribunal also referenced the Special Bench decision in Motorola Inc. v. Dy. CIT, which emphasized that once a return is available, there is no need to issue a notice under section 148. The Tribunal concluded that the voluntary return filed by the assessee was not acted upon under section 143(1)(ii), rendering the initiation of proceedings under section 147 invalid and void ab initio.2. Treatment of Rs. 3.90 Crores Received under Non-Compete Agreement:Although the assessee raised grounds on the merits regarding the treatment of Rs. 3.90 crores received under a non-compete agreement, the Tribunal did not find it necessary to address these issues. Since the appeal was allowed on the legal ground of invalid jurisdiction for reopening the assessment, the Tribunal did not delve into the substantive merits of whether the amount received was a capital receipt or taxable income.Conclusion:The Tribunal allowed the appeal on the legal ground, holding that the initiation of proceedings under section 147 by issuing a notice under section 148 was invalid and void ab initio. Consequently, there was no need to address the merits of the case regarding the treatment of Rs. 3.90 crores received under the non-compete agreement. The appeal of the assessee was allowed.