Unless the return filed by the assessee is scrutinized by the AO u/s.143(3) (of Income Tax Act, 1961), court cannot come to the conclusion of any escapement, the AO cannot initiate proceedings u/s.147 (of Income Tax Act, 1961) when the time for issuance of notice u/s.143(3) (of Income Tax Act, 1961) has not expired.

This is an appeal filed by the assessee against the order of the CIT(A)-2, Bhubaneswar dated 18.3.2019 for the assessment year 2014-15.

2. The appeal was time barred by 132 days. The assessee has filed condonation petition dated 22.10.2019 supported by affidavit sworn by the assessee stating that the first appellate order dated 18.3.2019 was received by the assessee on 11.4.2019 and the second appeal could have been filed by 11.6.2019 but the appeal was filed before the Tribunal on 22.10.2019 causing the delay of 132 days. It is stated that the assessee was seriously ill and was undergoing medical treatment from 5.6.2019 and was advised complete bed rest by the doctor and, therefore, he was unable to do his normal activities. It is stated that after recovering from the illness on 20.10.2019, the assessee could able to contact her counsel for preparation and filing the appeal and immediately on 22.10.2019, the appeal was filed. It is stated that the delay was unintentional and, therefore, delay be condoned. Ld D.R. opposed the condonation petition.

3. After hearing the rival submissions, we have perused the condonation and noted the reasons stated therein causing delay in filing the appeal before the Tribunal. The Hon’ble Supreme Court in the case of Collector, Land Acquisition vs Mst. Katiji (1987) 167 ITR 471 has held that there can be no presumption of deliberateness or negligence or mala fides in case of delay, because litigants run a serious risk without any benefit by the delay. The judiciary is respected not for legalizing injustice on technical grounds but for removing injustice. We find that the assessee had reasonable cause for not filing the appeal within the stipulated time. Respectfully following the decision of Hon’ble Supreme Court in the case of Mst Katiji (supra), we condone the delay of 132 days in filing the appeal before the Tribunal and admit the appeal for hearing.

4. The assessee has raised the following grounds of appeal:

“ (A) For that the Assessing Officer as well as the CIT(A) acted illegally in adding a sum of Rs. 1,28,00,000/- in the hands of the Assessee-Appellant, the value disclosed in the Registered Sale Deed as undisclosed investment particularly when there was no such transaction and therefore the orders are vitiated and liable to be deleted.

(B) For that the CIT (A)-2, Bhubaneswar erred in law and was wholly wrong in confirming the addition made by the Assessing Officer on the ground of undisclosed investment particularly when there was no such investment made by the Appellant.

(C) For that the reassessment as has been made by the Assessing Officer u/s 147 (of Income Tax Act, 1961) of the I.T Act, 1961 is without jurisdiction and without any authority of law and is not maintainable in the eye of law.

(D) For that when there was no such sale consideration affirmed by both the Parties, the Learned Assessing Officer without application of mind and ignoring the submissions made by the Appellant following the value reported in the sale deed should not have treated the same as undisclosed investment.

(E) For that the Learned Assessing officer has committed gross error of law holding that the value mentioned in the sale deed as unexplained investment, particularly when there was no such investment at all. Bothe the Vendor and the Vendee filed Affidavits before the A.O, explaining that the value of the land as mentioned in the Sale Deed is only for the purpose of registration, but in fact no such payment made, as the Assessee/Appellant is the daughter in law of the Vendor Sri Mayadhar Parida.

(F) For that the Forums below are not justified making addition of Rs. 1,28.00.000.00 under the head" unexplained investment", particularly when the appellant is a house wife and has no source of income other than the declared house property income and therefore the addition as made by the A.O and confirmed by the CIT (A)-2, Bhubaneswar is illegal, arbitrary, erroneous and without any basis and hence is liable to be deleted in the interest of justice.

(G) For that the addition of Rs. 1,28.00.000.00 as has been made by the A.O and confirmed by the CIT (A) is not sustainable in the eye of law, because of the fact that the appellant is incapable for making such huge investment and the same is liable to be deleted.

(H) For that the order passed by the CIT (A) confirming the order of assessment is illegal, arbitrary, erroneous and not sustainable in the eye of law and is liable to be quashed in the interest of justice.”

5. Although the assessee has raised various grounds of appeal, but at the time of hearing, he prayed before the Bench that first the ground No.C, which is a legal ground, may be taken up for hearing, to which, ld D.R. had no objection. Hence, we proceed to adjudicate the legal ground.

6. The brief facts of the case are that the assessee is an individual, derives income from house property. She filed her return of income on 16.9.2015 declaring total income at Rs.3,92,560/-. The return was processed u/s.143(1) (of Income Tax Act, 1961), on 21.10.2015. On the basis of an information received from Sub-Registrar, Khurda, the Assessing Officer noticed that the assessee had purchased two plots of land from Shri Mayadhar Parida of Pandara Samiti, Palasuni, PO: Rasulgarh, Bhubaneswar for a total consideration of Rs.1,28,00,000/- during the year under consideration. The Assessing Officer observed that in the return of income, the assessee has shown gross rent of Rs.5,60,800/-, being the only source of income. From the above facts, the AO disbelieved the capacity of the assessee to purchase the plots by investing huge amount as the assessee did not have any source of income. Therefore, the AO proposed to reopen the assessment and issued notice u/s.148 (of Income Tax Act, 1961) dated 25.1.2016 to the assessee to file her return of income. The assessee, in response to notice u/s.148 (of Income Tax Act, 1961), did not file return of income but file a cope of sale deed made between the vendor Shri Mayadhar Parida and vendee Smt. Swarnakanta Parida. Before the AO, the assessee and Shri Mayadhar Parida filed affidavits made before the Notary Public, Bhubaneswar. From the sale deed made on 9.7.2013, the AO noticed that Mayadhar Parida has received sale consideration of Rs.1,28,00,000/- by cheques and cash from the assessee as full and final consideration. However, on perusal of affidavit, it is admitted that there was no monetary transaction against the sale consideration and the sale deed was executed out of family relation. It was in this backdrop that the Assessing Officer observed that both these documents are contradicting each other and since the assessee could not explain the source of investment of Rs.1,28,00,000/-, the AO did not accept the affidavit and treated the sale consideration of Rs.1,28,00,000/- was unexplained investment and added the same to the total income of the assessee. Accordingly, the AO passed reassessment order u/s.144 (of Income Tax Act, 1961)/147 of the Act on 19.12.2016, determining the total income at Rs.1,31,92,560/-.

7. Before the ld CIT(A), the assessee challenged the jurisdiction of the Assessing Officer to issue notice u/s.148 (of Income Tax Act, 1961) and contended that when the time for issue of notice u/s.143(2) (of Income Tax Act, 1961) had not expired, the assessment framed u/s.147 (of Income Tax Act, 1961) is invalid. For this proposition, the assessee had relied on the decision of Hon’ble Madras High Court in the case of CIT vs Quatalys Software Technologies ltd. 308 ITR 249 (Mad) and the decision of ITAT Cuttack in the case of Ashok Kumar Dey in ITA No.194/CTK/2015 for A.Y. 2007-08. The ld CIT(A) after referring the decision of Hon’ble Kerala High Court in the case of CIT vs Abad Fisheries, 40 taxmann.com 125 (Kerala) and the decision of Hon’ble Supreme Court in the case of ACIT vs Rajesh Jhaveri Stock Brokers Pvt Ltd, 291 ITR 500 (SC) affirmed the reopening of assessment u/s.147 (of Income Tax Act, 1961) and reject the legal ground taken by the assessee. On merits also, ld CIT(A) confirmed the addition.

8. Before us, ld A.R. of the assessee submitted that notice u/s.148 (of Income Tax Act, 1961) was issued on 25.1.2016 even when time of issue of notice u/s.143(2) (of Income Tax Act, 1961) had not expired. He submitted that the time limit for issue of notice u/s.143(2) (of Income Tax Act, 1961) was upto 30th September, 2016. He further submitted that before the logical termination of original return filed by the assessee, the reassessment proceeding u/s.147 (of Income Tax Act, 1961) was invoked and finally the order was passed on 19.12.2016.

9. Ld A,R submitted that the issue is squarely covered in favour of the assessee by the full bench decision of Hon’ble High Court of Orissa in the case of Jayanarayan Kedarnath and another vs Sales Tax Officer, reported in 68 STC 25 (Orissa). Ld A.R. submitted that the facts are in pari materia with the present case. In the said case before the disposal of the return under the OST Act, reassessment proceeding was initiated, which was challenged by the Petitioner before the Hon'ble High Court of Orissa. A three 3 judges bench of the jurisdictional High Court while overruling an earlier order of the Hon'ble High Court of Orissa in the case of State of Orissa Vs. Sri Sanatan Pothal reported in 31 STC 632 , held as under:

"It is, therefore, obvious that the assessment proceeding in question was to be completed by 31st March, 1978 and not later than that. Sub-section (8), which is almost in pari materia with section 147 (of Income Tax Act, 1961), covers the case of "escaped assessment" or "underassessment" or "unauthorized compounding "of tax. It empowers the Commissioner at any time within thirty-six months (now five years) from the expiry of the year to which the assessment relates to call for returns under subsection (1) of section 11 (of Income Tax Act, 1961) and proceed to assess the amount of tax due from the dealer in the manner laid down in sub-section (5) of this section" if for any reason the turnover of a dealer for any period has escaped assessment or has been under-assessed". It is not necessary to refer to rule 23 (of Income Tax Rules, 1962) which prescribes a form of the notice and the return to be filed by the dealer."

Further, the Hon'ble Court at Para-6 of the judgment held that- "We have simply to examine the scope and ambit of sub-section (8) of section 12 (of Income Tax Act, 1961). The scheme of this provision contemplates cases where the turnover of a dealer for any period has escaped assessment or has been underassessed. It was submitted that the petitioner's Case did not fall under the mischief of this provision inasmuch as the assessment proceeding being still incomplete and in a stage of finalization, it could not be a case of underassessment much less of escaped assessment. With respect to the grounds and reasons advanced in the counter-affidavit that some "fraud report" having been received in the meantime, it was submitted that the assessing authority, even if he required more time to complete the assessment on the basis of the said report in regular course on applying the principles of natural justice in extenso, he should have in the first instance completed the regular assessment within the prescribed period of three years for which he had enough time and could have initiated the proceeding under section 12(8) (of Income Tax Act, 1961) within the period of limitation for completion of which no outer period was fixed. It is obvious from the language and scope of section 12(8) (of Income Tax Act, 1961) that it is a special provision dealing with the assessment or escaped tax even though the escapement may be the result of a mistake committed by the assessing officer himself."

10. Ld A.R. submitted that applying the ratio laid down by the Full Bench of the Hon'ble High Court of Orissa, the initiation of the reassessment proceeding as well as completion of the reassessment u/s 144 (of Income Tax Act, 1961)/147 of the I.T Act, 1961 is not sustainable. He also referred to the decision of the Hon'ble Madras High Court in the case of Qatalys Software Technologies Ltd (supra) and K.M. Pachayappan (supra) where similar view has been expressed. The relevant portion of the said decision is quoted below-

"Therefore, a valid return of income was pending as on March 15, 2000.The Assessing Officer issued notice under section 148 (of Income Tax Act, 1961) on March 15, 2000 when a valid return under section 139(4) (of Income Tax Act, 1961) was pending. In this case, the return was filed and the same is pending, which means that the proceeding is still pending. In such a situation, the Revenue could not have issued notice for the purpose of reopening under section 147 (of Income Tax Act, 1961). In the case of Trustees of H.E.H. The Nizam's Supplemental Family Trust v. CIT (2000) 242 ITR 381, the Supreme Court considered the scope of reopening the assessment."

11. Ld A.R. submitted that when the return was pending and the time for assessment was not over, it was premature on the part of the Assessing Officer in invoking jurisdiction conferred u/s 147 (of Income Tax Act, 1961) of the I.T Act and completing the assessment u/s 144 (of Income Tax Act, 1961)/147 of the IT Act even without issuing a show cause notice which is required u/s 144 (of Income Tax Act, 1961) and the Assessing Officer proposes to make a best judgement assessment.

Therefore, the CIT(A) was totally incorrect and committed gross error of law in upholding the order of reassessment passed u/s 144 (of Income Tax Act, 1961)/147 of the IT Act ,1961. He submitted that before assuming the jurisdiction, u/s l47 of the IT Act, the AO has to follow the mandatory procedure as is laid u/s 143(2) (of Income Tax Act, 1961), particularly when he is disbelieving the income returned by the Assessee. He submitted that when the original return was pending with the Department and a notice u/s 148 (of Income Tax Act, 1961) was issued there was no need on the part of the Assessee to file another return. He submitted that the AO cannot by pass the provisions as contained u/s 143(2) (of Income Tax Act, 1961), which renders an assessment order completely null & void. Therefore, the order passed u/s.147 (of Income Tax Act, 1961) is without jurisdiction and is liable to be quashed.

12. He further relied on the judgment of Hon’ble Gujarat High Court in the case of Pr. CIT vs Govind Gopal Goyal in R/Tax Appeal No.300 of 2019 order dated 15.7.2019, wherein, it was held that unless the return of income already filed is disposed of, the notice for reassessment under section 148 (of Income Tax Act, 1961) cannot be issued i.e. no reassessment proceedings can be initiated so long as the assessment proceedings pending on the basis of the return already filed are not terminated. It is also held that if an assessment is pending either by way of original assessment or by way of reassessment proceedings, the AO cannot issue a notice under section 148 (of Income Tax Act, 1961)m but if no proceedings are pending either by way of original assessment or by way of reassessment, he can issue a notice under section 148 (of Income Tax Act, 1961) within the time as stipulated. In view of above, ld A.R. submitted that since the time for issue of notice u/s.143(2) (of Income Tax Act, 1961) had not expired,issue of notice u/s.148 (of Income Tax Act, 1961) is invalid and, same should be quashed and consequently, assessment u/s.147 (of Income Tax Act, 1961) should also be annulled.

13. Replying to above, ld DR submitted that the action of the Assessing Officer in initiating reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961) has been done in accordance with the valid jurisdiction conferred on him under the said provisions of the Act. Ld DR also submitted that there is no requirement of law that in case the statutory period of issuance of notice u/s.143(2) (of Income Tax Act, 1961) has not been expired, then, the AO has no valid jurisdiction to initiate reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961). Ld D.R. submitted that after processing the return of income u/s.143(1) (of Income Tax Act, 1961) on 21.10.2015, the AO received an information received from Sub- Registrar, Khurda, that the assessee had purchased two plots of land from Shri Mayadhar Parida of Pandara Samiti, Palasuni, PO: Rasulgarh, Bhubaneswar for a total consideration of Rs.1,28,00,000/- during the year under consideration. The Assessing Officer from the return of income, observed that the assessee has shown gross rent of Rs.5,60,800/-, being the only source of income. Therefore, there was clear escapement of income and the AO was right in initiating reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961). Therefore, the legal ground of the assessee is not tenable and sustainable. Ld Sr. DR also submitted that in response to notice u/s.148 (of Income Tax Act, 1961), the assessee neither responded nor filed any return of income. Therefore, the assessee is not entitled to agitate any legal ground including legal contention that the AO has no power to initiate reassessment proceedings before expiry of time limit for issuance of notice u/s.143(2) (of Income Tax Act, 1961).

14. Placing rejoinder to above, ld A.R. submitted that when the prescribed time limit for issuing notice u/s143(2) (of Income Tax Act, 1961) was not expired and original return of income filed by the assessee was pending with the AO, then it was not required to file another return in response to notice u/s.148 (of Income Tax Act, 1961) as the initiation of reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961) was void ab initio and bad in law in view various decisions of Hon’ble Supreme Court and Hon’ble High Courts including the judgement of Hon’ble Jurisdictional High Court in the case of Jayanarayan Kedarnath (supra) and the decision of Hon’ble Madras High court in the case of Qatalys Software Technologies Ltd. (supra) and the decision of Hon’ble Gujarat High Court in the case of Govind Gopal Goyal (supra). Ld counsel summed up his arguments by stating that legal issue agitated by the assessee is squarely covered in favour of the assessee by the said decisions. Therefore, initiation of reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961) and all consequent proceedings and orders may kindly be quashed being void ab initio and bad in law.

15. On careful consideration of the rival submissions, undisputedly, the assessee filed the return of income for assessment year 2014-15 on 16.9.2015 declaring total taxable income at Rs.3,92,560/-, which was processed u/s.143(1) (of Income Tax Act, 1961) on 20.12.2015. Keeping in view the date of filing of return of income and relevant assessment year 2014-15 under consideration, it is also not in dispute that the time limit for issuance of notice u/s.143 (of Income Tax Act, 1961)(20 was upto 30th September, 2016. These facts have not been controverted by ls DR before the bench.

16. At thus juncture, we take respectful cognizance of Hon’ble Jurisdictional High Court in the case of Jayanarayan Kedarnath (supra), wherein, Their Lordships in para 6, in a case of sales tax assessment, held that in the first instance, the Officer should complete the regular assessment within the prescribed period of three years for which he had enough time and could have initiated the proceeding under section 12(8) (of Income Tax Act, 1961) of Orissa Sales Tax Act, 1947. In the same judgment, Hon’ble High in para 5 also made it clear that sub section (8) of Section 12 (of Income Tax Act, 1961) of OST Act, 1947 is almost pari materia with Section 147 (of Income Tax Act, 1961), which covers the case of “escaped assessment” or “underassessment” or “unauthorized compounding of tax”.

17. Further, Hon’ble Madras High Court in the case of Qatalys Software Technologies Ltd. (supra) referring to its earlier decision in the case of CIT vs K.M.Panchayappan, 304 ITR 264 (Mad) held thus:

“Applying the principles enunciated in the judgments of the Supreme Court as well as the Delhi High Court, cited supra, the Tribunal is right in coming to a conclusion that no action could be initiated under section 147 (of Income Tax Act, 1961), when there is a pendency of the return before the AO. The reasons given by the Tribunal are based on valid materials and evidence and we do not find any error or illegality in the order of the Tribunal so as to warrant interference.”

18. Furthermore, Their Lordships speaking for Hon’ble Gujarat High Court in the case of Govind Gopal Goyal (supra) in paras 16 & 17, held thus:

“ 16. In the overall view of the matter, we are convinced that the Tribunal applied the correct principle of law and passed the impugned order. We may only say that Section 142(1) (of Income Tax Act, 1961) and Section 148 (of Income Tax Act, 1961) cannot operate simultaneously. There is no discretion vested with the Assessing Officer to utilize any one of them. Such a view would be directly opposed to the decision of the Supreme Court in the case of Commissioner of Income Tax, Bombay City, I, Bombay v. M/s. Narsee Nagsee and Co. Bombay, reported in MANU/SC/0093/1960 : AIR 1960 SC 1232. The very same contention was raised before the Supreme Court and was specifically rejected.

The two provisions govern different fields and can be exercised in different circumstances. If income escapes assessment, then the only way to initiate assessment proceedings is to issue notice under Section 148 (of Income Tax Act, 1961). In fact, if notice has already been issued under Section 142 (of Income Tax Act, 1961) and the proceedings are pending, it looks absurd to call for a return under Section 148 (of Income Tax Act, 1961).

17. It is settled law that income cannot be said to have escaped assessment when the assessment proceedings are pending.”

19. So far as the contention of ld D.R. that there was escapement of income by the assessee and there was new material in the hands of the Assessing Officer for initiating reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961) and the revenue suffered loss due to this escapement of income by the assessee is concerned, we respectfully take cognizance of the observations made by Hon’ble Supreme Court in the case of Parashuram Pottery Works Co Ltd vs Income Tax Officer, Circle -1, Ward A, Rajkot, 106 ITR 1 (SC), which read thus:

“It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realizing that price should familiarize themselves with the relevant provisions and become well-versed with the law on the subject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue.”

Therefore, this contentions of ld DR are dismissed on loss of revenue.

20. During the course of arguments, ld DR contended that expression in clause (b) of Explanation (2) to Section 147 (of Income Tax Act, 1961) that “no assessment has been made” meaning that it also includes situation where assessment order u/s.143(3) (of Income Tax Act, 1961) is still possible but yet not made and the return of income has been processed u/s.143(1) (of Income Tax Act, 1961). If this interpretation is accepted, it will destroy the fundamental principles underlying for assumption of valid jurisdiction for initiation of reassessment proceedings u/s.147 (of Income Tax Act, 1961), which are being consistently followed till date by Hon’ble Supreme Court, various Hon’ble High Courts and co-ordinate Benches of this Tribunal. These principles are also applicable to the extended meaning given to them by way of using expression “no assessment has been made” in clause (b) of Explanation (2) to Section 147 (of Income Tax Act, 1961) by way of amended provision.

21. In our humble understanding, said clause is intended to cover two situations viz; (i) where a return is filed and no action is taken either u/s.143(1) (of Income Tax Act, 1961) or u/s.143(3) (of Income Tax Act, 1961) and time for issuing notice u/s.143(2) (of Income Tax Act, 1961) has expired and (ii) where a return is filed and is processed u/s.143(1) (of Income Tax Act, 1961) but the time limit as per provisions of the Act for issue of notice u/s.143(2) (of Income Tax Act, 1961) has not been expired, it does not envisage a situation where a return is filed and the time limit for issue of notice u/s 143(2) (of Income Tax Act, 1961) has not expired.

In our considered view, unless the return filed by the assessee is scrutinized by the AO by way of issuing notice u/s.143(2) (of Income Tax Act, 1961), he cannot come to the conclusion of any escapement of income by the assessee for the relevant assessment year. If the AO issues notice u/s.143(2) (of Income Tax Act, 1961),obviously, he would scrutinize the return and frame the assessment u/s.143(3) (of Income Tax Act, 1961) and, thereafter, original assessment proceedings would be closed or terminated. Subsequently, if the AO notice escapement of income, on the basis of some new tangible material, which was not before him during original assessment proceedings, then he has reason to believe that there is escapement of assessment and he may assume valid jurisdiction for initiation of reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961).

22. In addition to that, in above two situations, he will also have to look into the return and records of original assessment proceedings, to see whether there is escapement or not. In such a situation when after processing the return u/s.143(1) (of Income Tax Act, 1961), the AO notices any escapement of assessment, and the prescribed time limit for issuance of notice u/s.143(2) (of Income Tax Act, 1961) has not been expired then the only valid recourse available to him is to issue notice u/s.143(2) (of Income Tax Act, 1961) . To sum up, the assessment proceedings are said to be commended once the return is filed and the proceedings terminate when either the return is processed u/s.143(1) (of Income Tax Act, 1961) or scrutiny assessment proceedings are closed by way of passing order u/s.143(3) (of Income Tax Act, 1961) or if no notice u/s.143(2) (of Income Tax Act, 1961) has been issued and prescribed time limitation period as per relevant provisions the Act to issue notice u/s.143(2) (of Income Tax Act, 1961) is over. Meaning thereby the assessment proceedings are deemed to be over or terminated when (a) the return is processed u/s.143(1) (of Income Tax Act, 1961) or (b) scrutiny assessment order is framed u/s.143(3) (of Income Tax Act, 1961) or (c) the time limit for issue of notice u/s.143(2) (of Income Tax Act, 1961) is expired and thereby the assessment is no longer possible 143(3) of the Act. Thus, the assessment proceedings u/s.147 (of Income Tax Act, 1961) can be initiated only after the earlier assessment proceedings are terminated by way of any of the one of the three modes as noted above.

Therefore, we are not impressed with the contentions of the ld Sr DR and we dismiss the same in view of aforesaid legal position and prepositions rendered by Hon’ble High Courts in the above noted decisions and judgments.

23. The Co-ordinate Bench of ITAT, Hyderabad in the case of Sri Venkata Siva Reddy Nellore vs ITO in ITA No.962/Hyd/2017 for A.Y. 2012- 13 dated 22.11.2017, as heavily relied by the ld AR, after referring to the decision of Hon’ble Madras High Court in the case of Qatalys Software Technologies Ltd (supra) and K.M.Pachayappan (supra) in para 8.1 held thus:

“8.1 The facts indicate that the assessee filed return of income on 26.7.2013 for A.Y. 2012-13, even though belatedly as to the time prescribed u/s.139(1) (of Income Tax Act, 1961), but within the time provided u/s.139 (of Income Tax Act, 1961). On receipt of return, AO has time to issue notice u/s.143(2) (of Income Tax Act, 1961)/142(1) for a period of six months, i.e. upto 31.1.2014. However, AO chose to reopen the assessment on the reason of income escaping assessment on 12.12.2013, when the assessment proceedings have not even been started. On the issue whether the proceedings u/s.147 (of Income Tax Act, 1961) are correct when a notice u/s.143(2) (of Income Tax Act, 1961) could have been issued was considered by the Co-ordinate Bench. The Co-ordinate Bench in the case of M/s. Eanadu Relief Fund vs DDIT (E) in ITA No.434/Hyd/2010 dt.13.1.2011 (quoted before the ld CIT(A) in written submissions) by assessee held as under:

‘9.3 Return filed for assessment year 1994-95 on 28.3.1996 and the same was processed u/s.143(1) (of Income Tax Act, 1961). Later 148 notice was issued on 18.6.1996 though time available for issue of notice u/s.143(2) (of Income Tax Act, 1961) was upto 31.3.1997.

9.4 In the case of CIT vs Qatalys Software Technologies Ltd, (308 ITR 249), the Madras High Court held that reopening is improper when the time limit is available to issue notice u/s.143(2) (of Income Tax Act, 1961). As seen from the above, in the case of K.M.Pachayappan, 304 ITR 264 and Qatalys Software Technologies Ltd, 308 ITR 249, Madras High Court by placing reliance on the judgment of SC in the case of Rajesh Jhaveri (supra) held that the AO was barred from initiating assessment proceedings u/s.147 (of Income Tax Act, 1961) when the time for issuance of notice u/s.143(2) (of Income Tax Act, 1961) had not expired. However, taken a different view in the case of ITO vs K.M Pachiyappan , 311 ITR 31, (Mad) upheld that the AO in initiating the proceedings u/s.147 (of Income Tax Act, 1961) in similar circumstances. However, it appears that the important distinction in fact of these two cases namely time available for issue of notice u/s.143(2) (of Income Tax Act, 1961) had not expired in the case of K.M.Pachippan, 311 ITR 31 has not placed before the Madras High Court. Further, the Tribunal in the case of Super Spinning Mills ltd vs Addl. CIT, Tribunal Tax reported (3rd Member)(Chennai) held that:

“ The department wants to interpret the expression ‘ no assessment has been made in clause (b) of explanation 2 to S.147 to mean that it also includes situation where assessment u/s.143(3) (of Income Tax Act, 1961) is till possible but not yet made.

If this interpretation is to be accepted, it will set at naught the fundamental principles underlying S.147 and which principles have been followed till date.

These principles are applicable even to the extended meaning given to them term ‘escaped assessment’ in the amended provision. The above clause is intended to cover the following two situations (i) where a return is filed and non action is taken either u/s.143(1) (of Income Tax Act, 1961) or u/s.143(3) (of Income Tax Act, 1961) and the time limit for issuing notice u/s.143(2) (of Income Tax Act, 1961) has expired (ii) where a return is filed and is processed u/s.143(1) (of Income Tax Act, 1961) and the time limit for issuing notice u/s.143(2) (of Income Tax Act, 1961) has expired. It does not envisage a situation where a return is filed and the time limit for issue of notice u/s.143(2) (of Income Tax Act, 1961) has not expired. Unless the return filed by the assessee is scrutinized by the AO he cannot come to the conclusion of any escapement. If the AO issues notice u/s.143(2) (of Income Tax Act, 1961), the quite obviously he would scrutinize the return and frame the assessment u/s.143(3) (of Income Tax Act, 1961). Subsequently, he may notice escapement and issue notice u/s.148 (of Income Tax Act, 1961). Besides this, in the above two situations also, he will have to look into the return to see whether there is escapement or not. If he notices any escapement, it can eb called an escapement only if it is notice after the proceedings u/s.147 (of Income Tax Act, 1961). In that event he will have to issue notice u/s.143(2) (of Income Tax Act, 1961). In nutshell, (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) (of Income Tax Act, 1961) and the time to issue notice u/s.143(2) (of Income Tax Act, 1961) is over (ii) assessment is made u/s.143(3) (of Income Tax Act, 1961) or (iii) the assessment is no longer possible u/s.143(3) (of Income Tax Act, 1961). proceedings u/s.147 (of Income Tax Act, 1961) can be initiated only after the earlier proceedings have terminated as mentioned above. Order u/s.147 (of Income Tax Act, 1961) r.w. 143(3) was therefore liable to be quashed.

10. In view of the above discussions, we are inclined to hold that unless the return filed by the assessee is scrutinized by the AO u/s.143(3) (of Income Tax Act, 1961), we cannot come to the conclusion of any escapement, the AO cannot initiate proceedings u/s.147 (of Income Tax Act, 1961) when the time for issuance of notice u/s.143(3) (of Income Tax Act, 1961) has not expired. The case law relied by the assessee’s counsel laid down the same proposition of law. Accordingly, we allow the first ground of the appeal of the assessee by holding that this reopening of assessment by issue of notice u/s.148 (of Income Tax Act, 1961) dated 17.10.2007 is bad in law.

Thus, on the facts of the case and principles of law, the reopening is ab initio void.”

24. Therefore, in view of foregoing discussion and propositions laid down by Hon’ble Jurisdictional High Court in the case of Jayanarayan Kedarnath (supra) and the decision of Hon’ble Madras High court in the cases of Qatalys Software Technologies Ltd. (supra) and K.M. Pachayappan (supra) and the recent decision of Hon’ble Gujarat High Court in the case of Govind Gopal Goyal (supra), we are convinced that the contention advanced by ld D.R. that even if the prescribed time for issuance of notice u/s.143(2) (of Income Tax Act, 1961) was not expired, the AO was having valid jurisdiction to initiate reassessment proceedings u/s.147 (of Income Tax Act, 1961) and issuance of notice u/s.148 (of Income Tax Act, 1961) is not correct, therefore, we dismiss the same. Our above noted judicious conclusion also gets strong support from the order of ITAT Hyderabad in the case of Sri Venkata Shiva Reddy (supra).

25. Since, undoubtedly, the time limit for issuance of notice u/s.143(2) (of Income Tax Act, 1961) for assessment year 2014-15 was to be expired on 30.9.2016 and prior to that on 25.1.2016, the AO issued notice u/s.148 (of Income Tax Act, 1961) after initiating reassessment proceedings u/s.147 (of Income Tax Act, 1961), i.e. before expiry of limitation period for issuing notice u/s.143(2) (of Income Tax Act, 1961). Therefore, we are compelled to hold that the initiation of reassessment proceedings u/s.147 (of Income Tax Act, 1961),notice u/s.148 (of Income Tax Act, 1961), and all consequent proceedings and orders including the reassessment order u/s.144 (of Income Tax Act, 1961)/147 of the Act passed on 19.12.2016 in pursuance to the notice u/s.148 (of Income Tax Act, 1961) and impugned first appellate order are also bad in law. We, therefore, quash the reassessment notice u/s.148 (of Income Tax Act, 1961) and consequent reassessment order dated 19.12.2016 passed u/s.144 (of Income Tax Act, 1961)/147 of the Act and allow the legal ground of appeal of the assessee.

26. As we have cancelled the reassessment order passed u/s.144 (of Income Tax Act, 1961)/147 of the Act while deciding the legal Ground No.C of the appeal of the assessee, the other grounds of appeal of the assessee on merits of addition have become academic and infructuous and not adjudicated upon.

27. In the result, appeal of the assessee is allowed.

Order pronounced on 20 /11/2020.

Sd/- sd/-

(Laxmi Prasad Sahu) (Chandra Mohan Garg)

ACCOUNTANT MEMBER JUDICIAL MEMBER

Cuttack; Dated20/11/2020

B.K.Parida, SPS (OS)