2017 (1) TMI 122

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....sment? 2. The assessee is a partnership firm. One of the partners Sri.P.C.Kapur retired from the firm on 1.4.1997 and the deed of retirement provided for a sum of Rs. 5,50,000/-(Rupees five lakhs and fifty thousand ) to be paid by the firm to the retiring partner 'as compensation for his agreeing to retire from the firm'. The aforesaid sum of Rs. 5.5 lakhs was claimed as a deduction for the purposes of computation of tax under the provisions of the Income Tax Act (hereinafter referred to as 'Act') by the firm. 3. The return of income filed in respect of A Y 1998-99 was processed and an intimation under Section 143(1)(a) of the Act issued. No notice under section 143(2) of the Act dated 9.12.2002 was issued and the matter was allowed to rest. Thereafter, a notice under section 148 of the Act was issued initiating proceedings for re-assessment. The assessee claimed that the sum of Rs. 5.5 lakhs represented non-compete fee and an allowable deduction. The assessing officer disallowed the same holding it to be capital in nature. He also concluded that the amount had been categorized as 'lump sum payment made as a compensation for future profits forgone by the retir....

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....it claimed towards lump sum payment made as a compensation for future profits forgone by the retiring partner Rs. 5,50,000/- is not allowable for the following reasons: 1. The payment has not been authorised by partnership deed. 2. Serving of future profit is contingent one. Contingent expenditure cannot be allowed. 3. Future profits does not relate to the AY in question. And so, the expenditure cannot be allowed in this AY. 8. A perusal of the Reasons would indicate that the assessing officer proceeds solely on the basis of the return of income and the enclosures thereto, being the financials and the deed of partnership, to initiate proceedings for re-assessment. The aforesaid documents however are part of record and the basis on which the intimation under section 143(1)(a) has been issued on 1.12.98. Let us bear in mind that the intimation dated 1.2.1998 has been manually issued, being prior to the electronic era which came into force on and with effect from 2003. The assessing officer has thus evidently applied his mind to the return and annexures even at that stage. 9. The scheme of assessment as set out in section 143 requires an assessing officer to process the retur....

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....ssment, review would take place. One must treat the concept of change of opinion as an in-built test to check abuse of power by the Assessing Officer. Hence, after 1st April, 1989, the Assessing Officer has power to reopen, provided there is tangible material to come to the conclusion that there is escapement of income from assessment. Reasons must have a link with the formation of the belief.' 12. If the assessing officer, after issuing intimation u/s section 143(1) does not to issue a notice u/s 143(2) of the Act to initiate proceedings for scrutiny of the return of income, the obvious conclusion is that he does not consider it necessary or expedient to do so, the inference being that the Return of Income filed in order. It is this opinion that cannot be arbitrarily changed by the assessing officer, to re-assess income on the basis of stale material, already on record. If we thus keep in the mind the above fundamental requirement of section 147, it would be apparent that the exercise undertaken by the Revenue in this case is not one of re-assessment, but of review. The reasons make it abundantly clear that the re-assessment is sought to be initiated on the basis of the return of....

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....crutiny assessment proceedings within time. Thus, in those cases, when proceedings for re-assessment were initiated by issue of notice under section 148, the Tribunal in the case of Jarvis and the Commissioner of Income Tax (Appeals) in the case of Aryavartha as confirmed by the Income Tax Appellate Tribunal, took the view that the assumption of jurisdiction under section 148 was bad in law. 16. The facts as well as the law remain identical in all three cases. Thus merely by virtue of the non-action on the part of the assessing officer in the case of the present assessee, i.e. by his failure to issue a notice under section 143 (2) of the Act, the Department gets the advantage of another four years from 31.3.2002 to initiate proceedings for re-assessment. This obviously can neither be the proper interpretation of section 147 nor the intention of Legislature. The CIT (A) in order dated 30.09.2004 distinguishes the present case from the two others on precisely the ground stating thus:- "In my opinion, the Appellant s case stands on a different footing than that of Jarvis International. In that case, the original assessment was completed under section 143(3) and the Assessing Office....