Sahana Dwellers Private Limited v. The Additional/Joint/Deputy/Assistant Commissioner of Income Tax

1. The issue in this Petition is very short. In this case, assessee had filed return of income (“ROI”) for Assessment Year (“AY”) 2015-16 declaring a total income of Rs.2,93,77,746/-. Assessment under Section 143(3) of the Income Tax Act, 1961 (“the Act”) was completed on 28th December 2017 determining the total income at Rs.12,04,87,700/-. Subsequently, the Principal Commissioner of Income Tax (“PCIT”), Mumbai-3 passed an order under Section 263 of the Act on 10th March 2021, setting aside the assessment order under Section 143(3) of the Act dated 28th December 2017 with a direction to the Assessing Officer (“AO”) to verify the issues mentioned in the PCIT’s order. While that assessment was in progress, the impugned notice dated 26th March 2021 under Section 148 of the Act came to be issued. The reasons recorded to believe there was escapement of income subject to tax are almost identical to the reasons based on which the order under Section 263 of the Act came to be passed.

2. Mr. Naniwadekar submits, as per the 3rd proviso to Section 147 of the Act, which was in force at the relevant time, i.e., before 1st April 2021 amendment provides “……….Provided also that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision which is chargeable to tax and has escaped assessment”. Pursuant to the directions given by the PCIT in his order under Section 263 of the Act, an order under Section 144 read with Section 263 read with Section 144B of the act came to be passed on 28th March 2022. Therefore, the notice impugned in the Petition issued under Section 148 of the Act could not have been issued in view of the third proviso as quoted above.

3. The impugned notice dated 26th March 2021 under Section 148 of the Act has been issued during the pendency of the assessment proceedings following the directions given by the PCIT. Such a notice, in our view, could not have been issued, more particularly, because the notice involved matters which were the subject matter of revision under Section 263 of the Act. Further when the order of assessment under Section 143(3) of the Act has been remanded to the AO to enquire into and make a fresh assessment, the question of entertaining reasonable belief that the income chargeable to tax has escaped assessment does not arise, much less the assessment when the assessment proceedings are still pending. The concept of reason to believe comes in picture if the income chargeable to tax has escaped assessment. So long as the assessment is pending, the assessing authority cannot have any such reason to believe that income chargeable to tax for the assessment year in question has escaped assessment. Income cannot be said to have escaped assessment within the meaning of this section if the assessment proceedings in respect of that income and/or issue are still pending and have not culminated into a final order. The underlying principle is how can an escapement of income from an assessment be predicted before an assessment is complete. Thus, it was not open for the AO to invoke powers under Sections 147 and 148 of the Act. In our view, so long as the assessment proceeding in respect of certain income subsists, income cannot be said to have escaped assessment. Such proceedings, if initiated, will have to be held as invalid, ab-initio, void and illegal. We find support for this view in Ador Technopack Ltd. v. Dr. Zakir Hussein, Deputy Commissioner 1.

4. We should also note, Mr. Sharma agrees with Mr. Naniwadekar that the sanction granted under Section 151 of the Act, as held by this Court in J M Financial and Investment Consultancy Services Private Limited v. Assistant Commissioner of Income Tax, Circle 3(2) (1) and Ors[2] is invalid.

5. Petition disposed. (DR.

NEELA GOKHALE, J.) (K. R. SHRIRAM, J.)