Tuesday, September 11, 2012

In case of under-assessment or a mistaken order, A.O. can rectify the mistake u/s 154 or make a reassessment u/s 147 and not under Both


In EID Parry 216 ITR 489 (Mad) it was held that if an assessment happens to be a mistaken order, or an under-assessment the means available to the Assessing Officer  is either to make a reassessment u/s 147 or to rectify the mistake u/s 154 While, it is correct, as held in the above cases that the AO has to decide between the two and cannot begin both proceedings at the same time, the principle of constructive res judicata made applicable by the Madras High Court that the AO having started  rectification proceedings u/s 154 should stick to the same only and cannot drop that and his  proceedings  u/s 147 is not acceptable. The fact that the AO invoked s. 154 and dropped it does not affect the legitimacy of re-assessment u/s 147. The same principle was confirmed in the  CIT vs. M/s India Sea Foods by Kerala High Court.

In the above case , it was argued that ITO  can give up a rectification proceedings initiated under Section 154 and then proceed to make an income escaping assessment under Section 147 of the Income Tax Act for the same assessment year. The IT department appealed to Tribunal and The Tribunal based on decision of the Supreme court in ASST. COMMISSIONER OF INCOME TAX VS. RAJESH JHAVERI STOCK BROKERS P. LTD. reported in (2007) 291 ITR 500 held that an intimation under Section 143(1)(a) itself is an assessment which could be revised through an income escaping assessment under Section 147 of the Act.

Kerala High Court was of the view that Assessing Officer himself realized the mistake of initiating rectification proceedings and when he noticed that the correct recourse open to him under the Act is to make an income escaping assessment, he is entirely free to do it and in our view, there was nothing wrong in the Assessing Officer giving up rectification proceedings and the ITO was  initiating an income escaping assessment by issuing notice under Section 148 within the statutory period and hence , there is no wrong in doing the same.

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