S. 147 — Reassessment proceedings cannot be initiated if time limit for issue of notice u/s.143(2) has not expired.

Notice u/s.148 was issued to the assessee before the expiry
of the time limit for issue of notice u/s.143(2). The assessee preferred an
appeal before the CIT(A) and challenged the validity of reassessment
proceedings. The CIT(A) rejected the plea of the assessee.

Upon further appeal to the Tribunal, the learned Accountant
Member took a view that the decision in the case of Trustees of H.E.H. The
Nizam’s Supplemental Family Trust v. CIT, 242 ITR 381 (SC) pertains to A.Y.
1962-63 which was prior to the amendment to S. 147 w.e.f. 1st April, 1989. Prior
to the amendment of S. 147, there was no provision equivalent to cl. (b) of
Expln. 2 in the amended S. 147. In a subsequent decision of the Supreme Court in
the case of ACIT v. Rajesh Jhaveri Stock Brokers (P) Ltd., 291 ITR 500 (SC) it
has been held that so long as the ingredients of S. 147 are fulfilled, the AO is
free to initiate proceeding u/s.147 and failure to take steps u/s.143(3) will
not render the AO powerless to initiate reassessment proceedings even when
intimation u/s.143(1) had been issued. Applying the jurisdictional High Court’s
decision in the case of ITO v. K. M. Pachiappan, 311 ITR 31, the validity of
reassessment proceedings was upheld.

The learned Judicial Member distinguished the decision of
Rajesh Jhaveri Stock Brokers (P) Ltd. on the ground that the notice u/s.148 was
issued after the expiry of the time available for issuing notice u/s.143(2) in
that case. Following the latest decision of the jurisdictional High Court in the
case of CIT v. Qatalys Software Technologies Ltd., 308 ITR 249, the notice
issued by the AO u/s.148 was quashed.

Upon difference of opinion between the members, the matter
was referred to the Third Member.

The Department wants to interpret the expression ‘no
assessment has been made’ in the clause (b) of Expln. 2 in the amended S. 147 to
mean that it also includes situation where assessment u/s. 143(3) is still
possible but not yet made. If this interpretation is to be accepted, it will set
at naught the fundamental principles underlying S. 147.

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 u/s.143(1) and the time to
issue notice u/s.143(2) is over,

(ii) assessment is made u/s.143(3) or,

(iii) assessment is no longer possible u/s. 143(3).

Proceedings u/s.147 can be initiated only after the earlier
proceedings have terminated as mentioned in (b) above.

Observation of the Supreme Court in the case of Rajesh
Jhaveri Stock Brokers (P) Ltd. has to be understood in the right perspective. It
is mentioned that failure to take steps u/s.143(3) will not render the AO
powerless to initiate reassessment proceedings even when intimation u/s.143(1)
had been issued. The failure of the AO which the Court is talking about will be
deemed to have occurred only when the hands of the AO are tied down by law and
he is unable to initiate the proceedings u/s.143(3). Hence order passed
u/s.143(3) read with S. 147 was quashed.