2009 (7) TMI 54 - HC - Income Tax

Validity of Income Tax Notice under Section 147 Upheld Despite Issuance Error

The High Court held that the proceedings initiated under Section 147 of the Income Tax Act, 1961 were valid, despite the notice being issued under Section ... Initiation of proceedings u/s 147 – validity of proceedings – ignorance of explanation 2(b) of section 147 - Even if it is assumed that proceedings could not be initiated under Section 147 in respect of pending assessment, there being no bar in the present case to proceed under Section 143(2), proceedings were valid - It is true that this aspect was not raised by the revenue before the CIT(A) or before the Tribunal but this being purely legal point arising out of the admitted facts, HC allow this point to be raised at this stage – decision of ITAT reversed Issues:1. Validity of proceedings initiated under Section 147 of the Income Tax Act, 1961.2. Interpretation of Explanation 2(b) to Section 147 regarding the initiation of proceedings.3. Assessment validity when notice issued under Section 147 instead of Section 143(2) of the Act.Issue 1: Validity of proceedings initiated under Section 147:The case involved an appeal by the revenue against the order of the Income Tax Appellate Tribunal regarding the initiation of proceedings under Section 147 of the Income Tax Act, 1961. The Assessing Officer had initiated proceedings under Section 147 after finding material indicating escapement of income. The notice was issued, and assessment was made after considering the assessee's reply. The CIT(A) set aside the notice under Section 148, stating that it could not be issued during the pendency of assessment, and the only remedy was to proceed under Section 143(2) of the Act. The Tribunal upheld this view, citing relevant judgments. However, the High Court observed that there was no bar for the Assessing Officer to proceed under Section 143(2) of the Act, and the proceedings were valid despite the notice being under Section 147.Issue 2: Interpretation of Explanation 2(b) to Section 147:The High Court noted that the judgments relied upon in the impugned orders did not consider the effect of the amendment by way of Explanation 2(b) to Section 147. The court highlighted that even if it was assumed that proceedings could not be initiated under Section 147 for pending assessments, in the present case, there was no bar to proceeding under Section 143(2). The court allowed the legal point to be raised at that stage and held that the assessment was not vitiated based on this aspect.Issue 3: Assessment validity with notice under Section 147 instead of Section 143(2):During the hearing, the counsel for the Revenue made an alternative submission that the assessment would not be vitiated merely because the notice was under Section 147 instead of Section 143(2) of the Act. It was argued that if the notice had been under Section 143(2), the assessment would have been valid. The court agreed with this argument, stating that no prejudice was caused as the assessee was given a full opportunity to reply, which was duly considered in the assessment made. The court held that since there was no bar to proceeding under Section 143(2), the assessment was valid, and the view taken by the CIT(A) and the Tribunal was incorrect.In conclusion, the High Court allowed the appeal, setting aside the orders of the CIT(A) and the Tribunal, and remanded the matter to the CIT(A) for further consideration on merits.