2010 (12) TMI 1248 - HC - Income Tax

Assessment proceedings allowed with restrictions pending clarification on services

The court allowed the assessment proceedings to continue but prohibited the assessing officer from issuing a final order until further clarification on ... - Issues involved:The issues involved in the judgment are the validity of the notice issued under Section 148 of the Income Tax Act, 1961, the rejection of objections filed by the petitioner against the notice, and the assessment/re-assessment of the petitioner's income for the assessment year 2003-2004.Validity of Notice u/s 148:The petitioner, a foreign company engaged in the business of extracting mineral oil, challenged the notice dated 31-03-2010 issued under Section 148 of the Act for reopening the assessment for the assessment year 2003-04. The petitioner contended that the reasons for initiating proceedings under Section 147 were based on a Division Bench Judgment and were not applicable to their case. The petitioner argued that their services were not technical in nature but related to providing equipment/tools on hire and services in connection with mineral oil extraction.Change of Opinion and Jurisdiction:The petitioner relied on judgments by the Delhi High Court and the Supreme Court to argue against the change of opinion by the assessing officer. They contended that the officer could not use Section 147 to correct an error resulting from oversight and that the change of opinion did not give jurisdiction to initiate proceedings under Section 147. The assessing officer, on the other hand, argued that under Section 147, they had the jurisdiction to assess or reassess income that had escaped assessment, as per the provisions of the Act.Interpretation of Provisions:The assessing officer justified the notice under Section 148 by citing Explanation 2(c) of Section 147, which allows for reassessment in cases where income has been underassessed or assessed at too low a rate. The officer argued that there was no time bar for escaped assessment and that the case fell within the scope of the explanation. The court examined the judgments in the Kelvinator case and the O.N.G.C. case to understand the applicability of the provisions in the present case.Court's Direction and Interim Measure:After considering the arguments, the court directed that the assessment proceedings could continue but no final order should be passed until further hearing. The court noted that the question of whether the services provided by the petitioner were technical required scrutiny. The respondent was given four weeks to file a counter affidavit, and the matter was listed for admission/orders.Conclusion:The court's interim measure allowed the assessment proceedings to proceed but prevented the assessing officer from passing a final order until further examination of the technical nature of the petitioner's services. The validity of the notice under Section 148 and the jurisdiction of the assessing officer to reassess the income that had allegedly escaped assessment were key points of contention in the judgment.