Assessment u/s 147 r.w.s. 143(3) cannot be made as an alternative to Section 263

Briefly stated, the assessee filed its return of income declaring a loss of Rs.7,06,97,714/- for Assessment Year 2004-05 in question. The return was subjected to scrutiny assessment and the assessment was completed u/s 143(3) of the Income Tax Act, 1961 (The Act) on 16.11.2006 where the income was assessed in negative at a loss of Rs.7,04,14,520/-. Subsequent to the completion of the assessment u/s 143(3) of the Act, a notice u/s 148 of the Act was issued on 21.07.2010 and the completed assessment u/s 143(3) was thus reopened to include certain income which has allegedly escaped assessment earlier. In the first appeal, the assessee challenged the jurisdiction assumed u/s 147 r.w. Section 148 of the Act and further challenged the disallowance in relation to prior period expenses to the tune of Rs.19,37,322/- in the assessment framed in pursuance of proceedings u/s 147 of the Act. The CIT(A) however did not see any merit in either of the grievances of the assessee and hence dismissed the first appeal. Aggrieved, the assessee preferred appeal before the Tribunal.

ITAT observed that the jurisdiction u/s 147 was exercised in a most flippant and nonchalant manner. The Assessing Officer has not even attempted to met the basic condition of holding “reason to believe” towards alleged escapement at all. The action of the Assessing Officer is highly tentative and non-descript. The Assessing Officer has simply proposed to re-assess the income as pointed out by the audit. There is no belief whatsoever. The process of reasoning for coming to the factum of escapement is sorely missing. The Assessing Officer has resorted to Section 147 of the Act primarily as alternative to Section 263 or Section 154 owing to the admitted fact that the action u/s 263 cannot be taken due to bar of limitation. As further asserted by the Assessing Officer, the rectification u/s 154 also cannot be taken. Such approach of a quasi-judicial authority like the Assessing Officer is totally incomprehensible and innately opposed to the basic cannons of law embedded in Section 147 of the Act. Needless to say, the invocation of jurisdiction under Section 147 is governed by its own set of stringent statutory requirements and is not alternative to the provisions of Section 263 of the Act. Therefore, it held that the impugned assessment framed under Section 147 r.w. Section 143(3) is clearly bad in law in the absence of any valid jurisdiction. Consequently, the impugned assessment order dated 04.11.2011 framed in pursuance of nonest jurisdiction stands quashed.

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