AI Drafter 
TaxTMI 
TaxTMI 
2009 (12) TMI 661
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....f account, without considering the objects of the company and the provisions of section 36(2)(i) and the fact that interest income from these loans have been accepted in the earlier years as business income in the hands of the appellant. (III) The learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance of the inter-corporate loan of Rs. 27,00,000 to Asia Constructions which had become unrealisable and written off in the books of account, without considering the objects of the company and the provisions of section 36(2)(i) and the fact that interest income from these loans have been accepted in the earlier years as business income in the hands of the appellant. (IV) The learned Commissioner of Income-tax (Appeals) has erred in sustaining the disallowance of unrealised interest without considering the fact that not only the unrealised interest amount of Rs. 7,15,781 is outstanding but also the whole interest receipt of Rs. 21,45,046 is unrealisable and accounted in the books of account and subsequently it is written off. Hence, the entire unrealisable interest should be allowed. (V) The learned Commissioner of Income-tax (Appeals) has erred in s....
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....d notice under section 148 of the Income-tax Act, 1961, to the assessee on July 9, 2004. The Assessing Officer after examining the case completed the assessment by an order under section 143(3) read with section 147 on March 15, 2006 determining the income of the assessee at Rs.15,96,84,223 as against the returned income of Rs. 3,08,59,280. On appeal, the Commissioner of Income-tax (Appeals) has rejected the plea of the assessee on this issue in paragraph 5.4 as under : "From the above points raised in paragraphs 5.1 to 5.3 (supra), it is seen that the validity of the proceedings initiated under section 147, the validity of the notice issued under section 148 and consequently the validity of the order of the assessment for the assessment year 2002-03 dated March 15, 2006 have been challenged. From the records of the assessment, I find that the proceedings under section 147 were initiated only after the return of income for the assessment year 2002-03 was processed under section 143(1). The hon'ble apex court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 held that an intimation under section 143(1) is not an assessment and that it....
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....f Rs. 3,40,13,780. This return was accepted under section l43(1)(a) vide intimation dated December 19, 2003. A revised return was filed on March 23, 2004. There was time to issue notice under section 143(2) upto March 31, 2005 on the revised return. While proceedings on the return were pending, the learned Assessing Officer issued a notice under section 148 on July 9, 2004. (b) The issuance of notice under section 148, when the proceedings on the return were pending is a violation of the provisions of the Incometax Act and the settled position of law supported by the decisions of the hon'ble Supreme Court and High Courts including the jurisdictional High Court. He has relied upon the following decisions : (i) The hon'ble Supreme Court in Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT reported in [2000] 242 ITR 381. (ii) The hon'ble Madras High Court in the case of K. M. Pachayappan reported in [2008] 304 ITR 264. (iii) In the decision of the hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines [2007] 292 ITR 49. (iv) In the case of Qatalys Software Technologies Ltd. reported in [2009] 308 ITR 249 (Mad). (c) Hence, when the revised re....
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.... under section 143(1) is not an assessment and that it does not debar the Assessing Officer from issuing a notice under section 148, if the conditions for initiating the proceedings under section 147 are satisfied. He has further contended that the jurisdictional High Court has not considered the decision of the hon' ble apex court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 while deciding the case of K. M. Pachayappan reported in [2008] 304 ITR 264 (Mad). But in the subsequent case of ITO v. K. M. Pachiappan [2009] 311 ITR 31 (Mad), the jurisdictional High Court after considering the decision of the hon' ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, sustained the reopening and reversed the decision in the case of K. M. Pachayappan reported in [2008] 304 ITR 264 (Mad). He has further contended that in view of the decision of the hon' ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, the power of the Assessing Officer is not fettered for reopening the assessment even if the time for issuing notice under section 143(2) of the Income-tax....
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....subsequent decision of the hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500, the hon'ble apex court has held on the basis of the amended provisions of section 147 in paragraphs 16, 17, 18 and 19 as under (page 511 of 291 ITR) : "Section 147 authorises and permits the Assessing Officer to assess or reassess income chargeable to tax if he has reason to believe that income for any assessment year has escaped assessment. The word 'reason' in the phrase 'reason to believe' would mean cause or justification. If the Assessing Officer has cause or justification to know or suppose that income had escaped assessment, it can be said to have reason to believe that an income had escaped assessment. The expression cannot be read to mean that the Assessing Officer should have finally ascertained the fact by legal evidence or conclusion. The function of the Assessing Officer is to administer the statute with solicitude for the public exchequer with an inbuilt idea of fairness to taxpayers. As observed by the Supreme Court in Central Provinces Manganese Ore Co. Ltd. v. ITO [1991] 191 ITR 662, for initiation of action under sect....
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....illed, the Assessing Officer is free to initiate proceeding under section 147 and failure to take steps under section 143(3) will not render the Assessing Officer powerless to initiate reassessment proceedings even when intimation under section 143(1) had been issued. The inevitable conclusion is that the High Court has wrongly applied Adani Exports v. Deputy CIT (Assessments) [1999] 240 ITR 224 (Guj) which has no application to the case on the facts in view of the conceptual difference between section 143(1) and section 143(3) of the Income-tax Act." In the case of K. M. Pachayappan reported in [2008] 304 ITR 264 (Mad), the hon'ble jurisdictional High Court has followed the decision of the hon'ble Delhi High Court in the case of KLM Royal Dutch Airlines [2007] 292 ITR 49 and the decision of the hon'ble Supreme Court in the case of Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT reported in [2000] 242 ITR 381. As far as the decision of the hon'ble Supreme Court in the case of Trustees of H. E. H. the Nizam's Supplemental Family Trust v. CIT reported in [2000] 242 ITR 381 is concerned, the said decision is regarding the assessment year 1962-63 and based on th....
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....sessment year in a case where an assessment under section 143(3) has been made for the relevant assessment year indicates that section 147 can be invoked not only after an order has been passed under section 143(3) of the Act, but even otherwise before such an order is passed. Furthermore, clause (b) of Explanation 2 also makes the position amply clear that 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, that would be deemed to be a case where income chargeable to tax has escaped assessment and becomes a cause for invoking the power under section 147 of the Act. This issue has been considered by various High Courts. In the case of CIT v. Abad Fisheries [2002] 258 ITR 641, the Kerala High Court answering the question whether the Tribunal was right in holding that the reopening of the assessment is valid, in a case where the assessment has been reopened under section 147 of the Act, since the time to issue a notice under section 143(2) of the Act was over, referred with appr....
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....ings under section 148 of the Act could be initiated. If the ingredients of section 148 of the Act are satisfied, there was no bar to initiation of proceedings under section 148 of the Act. The Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 after elaborately considering the provisions of section 143 of the Act prior to and subsequent to amendment with effect from June 1, 1999, and having regard to Explanation 2 to section 147 of the Act observed (page 511) : 'The scope and effect of section 147 of the Act, as substituted with effect from April 1, 1989, as also section 148 to 152 are substantially different from the provisions as they stood prior to such substitution. Under the old provisions of section 147, separate clauses (a) and (b) laid down the circumstances under which income escaping assessment for the past assessment years could be assessed or reassessed. To confer jurisdiction under section 147(a) two conditions were required to be satisfied : firstly the Assessing Officer must have reason to believe that income profits or gains chargeable to income-tax have escaped assessment and, secondly, he must also have reason ....
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....ulating the following questions of law : '(1) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that reassessment proceedings are not valid since the Assessing Officer is barred in initiating the proceedings under section 148 when the time for issuance of notice under section 143(2) had not expired ? (2) Whether, in the facts and circumstances of the case, the Tribunal was right in holding that the appeal by the Revenue is infructuous?' We have heard the argument of learned counsel for the Revenue, who submitted that the issue has already been decided against the Revenue by the above cited judgment of the Division Bench of this court. We have also perused the above referred judgment of the Division Bench of this court dated July 4, 2007 ; wherein it is held as follows (page 268) : 'Applying the principles enunciated in the judgments of the Supreme Court as well as the Delhi High Court, cited supra, the Tribunal is right in coming to a conclusion that no action could be initiated under section 147 of the Act, when there is a pendency of the return before the Assessing Officer. The reasons given by the Tribunal are based on valid ma....
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....ch appears to it to lay down the law more elaborately and accurately. The mere incidence of time whether the judgments of co-equal Benches of the Superior Court are earlier or later is a consideration which appears to me as hardly relevant.'" In view of the above discussion and having regard to the various decisions of the hon'ble Supreme Court and the hon'ble High Courts and particularly the decision of the hon'ble Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500 which was considered and followed in the case of ITO v. K. M. Pachiappan reported in [2009] 311 ITR 31 (Mad), which is the latest decision of the hon'ble jurisdictional High Court on this subject, we are of the considered opinion that there is no bar for initiating the proceeding under section 147 of the Income-tax Act, 1961 and issuing notice under section 148 of the Act in the absence of the assessment under section 143(3) and even the time to make assessment under section 143(3) is not expired. The hon'ble Supreme Court has empathetically made it clear that the power of the Assessing Officer is not fettered for initiating the proceedings under section 147 by issuing n....
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....es is nothing but capital in nature. Therefore, when the said investment becomes irrecoverable, the same will be capital loss which is not to be allowed under section 36(2)(i) of the Income-tax Act, 1961. These are not trade debts that become bad and written off but it is only unrealisable investments. Therefore, the claim of the assessee is not allowable under the provisions of the Income-tax Act, 1961. He has relied upon, the order of the lower authorities. The learned Departmental representative has also relied upon the decision of the hon'ble jurisdictional High Court in the case of Vijayakumar Mills Ltd. v. CIT [2001] 247 ITR 176 (Mad) ; whereas the hon'ble jurisdictional High Court in the case of Vijayakumar Mills Ltd. v. CIT has held that the Tribunal has come to the correct conclusion in holding that the amounts are not liable to be deducted as business, that of either as bad debts or trading losses as the advances were not made for business purpose of the assessee. After considering the rival contentions and the materials on record, we note that as per clause 15 of the memorandum and articles of association, the assessee is authorised to invest its funds and money in th....
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....e accounts of the assessee. The Commissioner of Income-tax (Appeals) while confirming the order of the Assessing Officer on disallowance of unrealised investment amount also confirmed the disallowance of the interest of Rs. 14,29,000 made by the Assessing Officer. Before us, the learned authorised representative for the assessee has submitted that the interest income from these loans have been accepted in the earlier years as income of the assessee. The lower authorities have failed to consider the fact that not only the unrealised interest of Rs.7,15,781 was outstanding but the whole receipt of Rs. 21,45,046 was unrealisable and was written off. Thus, he has contended that the entire unrealised interest should be allowed. On the other hand, the learned Departmental representative has relied upon the orders of the lower authorities. After considering the rival contentions and the materials on record, we are of the view that if the entire amount of Rs. 21,45,046 was earlier offered as income by the assessee and when it becomes unrealisable and written off by the assessee, then prima facie it fulfils the conditions laid down under clause (i) of sub-section (2) of section 36 of ....
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....o be reduced from the profits without deducting any amount. Ground No. VIII : Regarding interest receipts treating as income from other sources : We have heard the learned authorised representative as well as the learned Departmental representative and considered the relevant records. At the outset, we find that this issue is covered against the assessee and in favour of the Revenue by the decision of the hon'ble jurisdictional High Court in the case of Dollar Apparels v. ITO [2007] 294 ITR 484 (Mad) ; wherein the hon'ble jurisdictional High Court has held as under (headnote) : "The Tribunal had held that the deposits made by the assessee with the bank had no direct link to the sanctioning limit by the bank. Even assuming that the deposits were made as a pre-condition of the bank for sanctioning the limit, it could not be considered as income from export earnings, as there was no nexus between the export earnings and the interest income and the interest income was earned from the deposits and not from the export business." Accordingly, we decide this issue against the assessee and in favour of the Revenue. Ground No. IX : Regarding disallowance of claim under section 80....
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....2007] 291 ITR 500 is distinguishable on facts and therefore, it does not apply to the present case, for the reasons discussed in the following paragraphs. In the present case the return for the assessment year 2002-03 was filed on October 30, 2002, which was processed on December 19, 2003. Subsequently a revised return was filed on March 23, 2004, and, therefore, the time for issuing notice under section 143(2) was available up to March 31, 2005. The notice under section 148 was issued on July 9, 2004, before the time available for issuing notice under section 143(2) had expired. These facts are presented below, in a tabular form to facilitate comparison : S. No. Particulars Date 1. Return filed (AY : 2002-03) 30.10.2002 2. Processed under section 143(1) 19.12.2003 3. Revised return filed 23.03.2004 4. Time available for issuing notice under section 143(2) 31.3.2005 5. Notice under section 148 9.7.2004 In the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, the return was filed on October 30, 2001, and the time available for issuing under section 143(2) expired on October 31, 2002. Th....
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....4. Notice under section 148 18.06.1996 In the case of K. M. Pachiappan [2009] 311 ITR 31, the Madras High Court, relying on the decision of Supreme Court in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. [2007] 291 ITR 500, upheld the Assessing Officer's action of initiating proceeding under section 147. It appears that the important distinction in the facts of the two cases, namely : "the time available for issuing notice under section 143(2) had not expired in the case of K. M. Pachiappan [2009] 311 ITR 31", was not placed before the Madras High Court. In the case of Qatalys Software Technologies Ltd. [2009] 308 ITR 249 (Mad), the return for 2003-04 was filed on November 13, 2003, and the time for issuing under section 143(2) was available up to November 30, 2004. The notice under section 148 was issued on October 5, 2004, when the time for issuing notice under section 143(2) had not expired. These facts are presented below. Qatalys Software Technologies Ltd. [2009] 308 ITR 249 (Date of judgment : July 29, 2008) S. No. Particulars Date 1. Return filed (AY : 2003-04) 13.11.2003 2. Processed under section 143(1) Yes (20.12.20....
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....decisions of the Madras High Court and therefore it has a binding force. In the circumstances, therefore, this decision is respectfully followed and the impugned notice issued by the Assessing Officer under section 148 for the assessment year 2002-03 is quashed. Order of reference to Third Member There is a difference of opinion between the Members constituting the Bench, on the issue involved in this appeal and, therefore, the following question is formulated for being decided by a Third Member : "1. Whether, on the facts and circumstances of the case, the proceedings initiated by the Assessing Officer under section 147 of the Act for the assessment year 2002-03, vide notice issued under section 148 dated July 9, 2004, was valid. 2. Whether, on the facts and circumstances of the case, the Assessing Officer could initiate proceedings under section 147 of the Act when the time for issuance of notice under section 143(2) had not expired." Order of Third Member Pradeep Parikh (Vice-President).-There being a difference between the two Members who originally heard the appeal, the hon'ble President was pleased to nominate the zonal Vice-President as the Third Member by ....
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....acts and the controversy involved, took us through his written submissions and primarily contended that when the proceedings were pending before the Assessing Officer, he could not have issued notice under section 148 of the Act. In support of this proposition, learned counsel took us through various judgments and in particular he relied on the judgment of the jurisdictional High Court in the case of Qatalys Software Technologies Ltd. [2009] 308 ITR 249 which according to him was directly on the point. It was contended that the judgment in the case of Asst. CIT v. Rajesh Jhaveri Stock Brokers P. Ltd. reported in [2007] 291 ITR 500 was not a binding precedent in so far as that in that case the time limit for issuing notice under section 143(2) had expired. My attention was drawn to the meaning of the expression gassessment proceedingsh which according to the Advanced Law Lexicon, Third Edition meant the entire process of assessment starting from the stage of filing of return under section 139 or issuance of notice under section 142(1) till the making of the assessment order. For this proposition, reliance was placed on the judgment of the Supreme Court in the case of Auto and Me....
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....on of mind was necessary on the return which was pending. Relying on the judgment of the Punjab and Haryana High Court in the case of Vipan Khanna v. CIT [2002] 255 ITR 220, it was pointed out that reassessment proceedings are not substitute for regular assessments. It was also contended that jurisdiction can be assumed only by a due process of law. Reiterating his reliance on the judgment in the case of Qatalys Software Technologies Ltd. [2009] 308 ITR 249, it was submitted that since it was directly on the question, the same will apply. I have duly considered the rival contentions and the material on record. In this appeal we are concerned with the validity of the reopening of the assessment under section 147 of the Act. Section 147 and the related provisions are basically machinery provisions. Section 147 has been explained in detail by the Special Bench of the Tribunal in the case of Smt. Mahesh Kumari Batra [2006] 280 ITR (AT) 34 (Amritsar) ; [2005] 95 ITD 152. The gist of the observations in the said decision is that section 147 deals with income escaping assessment. The process entails the reopening of a completed assessment. This infringes on the sanctity of a completed ....
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....r (at page 8175) has also explained the expression " escaped assessment" . According to the learned authors, it " postulates the termination of certain earlier assessment proceedings in the course of which the income should have been, but has not been, assessed. Clearly, no income can be said to have escaped assessment so long as the earlier proceedings are pending. Such pending proceedings must have either resulted in an assessment or reached a point of termination in law before proceedings for back assessment can be initiated (emphasis supplied). Looked at from another angle, an additional assessment comes only when there is already a completed assessment ex-hypothesis insufficient" . In Ghanshyamdas v. Regional Asst. CST [1964] 51 ITR 557, the Supreme Court pointed out that so long as an assessment proceeding is pending against the assessee, and no final order has been passed thereon, it would be premature to suggest that any income of the assessee has escaped assessment. At this juncture, it is very emphatically reiterated that as per the judgment in the case of Ranchhoddas Karsondas [1959] 36 ITR 569 (SC), once a return is filed, the assessment proceedings become pending. I....
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....ice under section 143(2) has expired. But if such time-limit has not expired, it cannot be termed as escapement and he cannot resort to proceedings under section 147. In that event he will have to issue notice under section 143(2) of the Act. In a nutshell, as per the principles laid down by the Supreme Court in several cases, (a) the proceedings are said to have commenced once the return is filed, and (b) the proceedings terminate when, (i) the return is processed under section 143(1) and the time to issue notice under section 143(2) is over, (ii) assessment is made under section 143(3) or, (iii) the assessment is no longer possible under section 143(3). Proceedings under section 147 can be initiated only after the earlier proceedings have terminated as mentioned in (b) above. It has been held by the Supreme Court in the case of CIT v. Sun Engineering Works Pvt. Ltd. [1992] 198 ITR 297 that it is neither desirable nor permissible to pick out a word or sentence from the judgment of the Supreme Court, divorced from the context of the question under consideration and treat it to be a complete law declared by the court. The judgment must be read as a whole and the ob....
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....-tax Act, 1961, if the other conditions for reopening of the assessment and initiation of proceedings under section 147 are satisfied. In this connection, the scheme of the Act has to be appreciated. Chapter XIV of the Act deals with the procedure for assessment. Sections 139 to 140A deals with the filing of return and matters connected with the return. Sections 142 to 145A deals with assessment procedures. It is only after section 145A the subject of reopening of assessment follows. This is one indication that an assessment can be reopened only on the termination of the procedure prescribed in the preceding provisions, viz., from sections 142 to 145A. Further, section 147 uses the expression " assess or reassess" . The word " reassess" is used to indicate the termination of proceedings as a result of an assessment made under section 143(3) of the Act. The word " assess" is used to cover those situations where the return has or has not been processed under section 143(1) but the time limit to issue notice under section 143(2) has expired. When the Legislature has logically arranged the relevant provisions, there is no need to put a specific bar in section 147/148 to the effect that....