Income Tax Appellate Tribunal - Chandigarh
H.P. State Forest Corpn. Ltd. vs Joint Commissioner Of Income Tax on 28 February, 2001
Equivalent citations: [2002]80ITD591(CHD)
ORDER
R.M. Mehta, Vice President
1. This appeal is filed by an undertaking of the State Government of Himachal Pradesh and raises for the consideration of the Tribunal as many as seven grounds. We must mention at the outset that the appeal was heard on more than one occasion considering the nature of the grounds raised and the controversy on board and the Department also asked to summon the record which was produced and perused, more so with reference to ground Ho. 1 which reads as under:
"That the CIT(A) was not justified in holding that the proceedings under Section 147 had been validly initiated vide notice under Section 148 dt. 18th Nov., 1997. He has failed to appreciate that the proceedings initiated under Section 147 vide notice dt. 7th March, 1991 were pending and had not been quashed by the High Court."
2. The brief facts are that the appellant had been showing positive income upto asst. yr. 1987-88 and assessed but for asst. yr. 1988-89 which is presently under appeal, the AO noticed that no return of income had been filed. Being of the view that income of the assesses for asst. yr. 1988-89 had escaped assessment within the meaning of Section 147, a notice dt. 7th March, 1994, was served upon the assessee on 8th March, 1991. In response to the said notice, the assessee filed return of income on 30th March, 1991, declaring an income of Rs. 55,70,000 which had been worked out on the basis of unaudited proforma accounts. On the ground that the return was not accompanied by the statutory audit report as required under Section 44AB and there were certain other defects, the AO by means of a letter dt. 26th July, 1991, asked the assessee to remove the "defects" within 15 days. As the defect regarding the requirement of Section 44AB was not removed by the assessee, the return filed on 30th March, 1991, was held to be invalid by means of an order passed under Section 139(9), dt. 3rd June, 1992. '
3. The assessee filed a writ petition in the High Court of Himachal Pradesh against the said order of the AO and the Hon'ble High Court as per order dt. 20th Aug., 1992, directed as under:
"Heard. The order dt. 3rd June, 1992 (Annexure P-l), stayed. However, the Dy. CIT is at liberty to move, assess and realise the tax from the petitioner assuming that the return filed by the petitioner is a valid return, subject to the final determination of Annexure P-l at later stage."
4. The AO issued statutory notices with a view to complete the assessment and on 10th Feb., 1994, the assessee filed a revised return declaring at income of Rs. 1,58,13,910 and which was accompanied by audited accounts. Assessment was completed on an income of Rs. 3.21 crores vide order dt. 31st March, 1994, and various additions and disallowances were made. The other relevant facts are that on the same date i.e., 31st March, 1994, the AO passed an order under Section 154 determining the taxable income at Rs. 1.09 crores and on appeal, the CIT(A) vide order dt. 19th Dec., 1994, passed under Section 143(3) confirmed certain additions and deleted others. Some of the issues were restored back to the file of the AO for a decision de novo on merits, It is noticed from the order of the AO that another order was passed on assessee's appeal against the older of the AO passed under Section 154 but when the matter regarding the recovery of demand raised against the assessee was pursued, it filed another writ petition before the Hon'ble Himachal Pradesh High Court, dt. 14th March, 1995, on which the following orders were passed on 5th May, 1997 : "In view of the order passed in CWTs No. 590/92 to 593/92, this writ petition does not survive as the entire proceedings commenced from an invalid return. It is needless to say that the subsequent orders of assessment passed by the ITO and the appellate orders passed on the appeals filed against the said assessment orders are invalid consequentially. The writ petition is dismissed with the above observations. Interim order is vacated."
5. On the ground that the entire assessment proceedings completed on the basis of an invalid return had been declared invalid and quashed by the Hon'ble High Court, the AO submitted proposal dt. 29th Oct., 1997, to the CIT for issuing a notice under s.148 and whose approval was received on 13th Nov., 1997. The AO thereafter issued notice under Section 148 dt. 18th Nov., 1997, which was served upon the assessee but no return of income was filed in response thereto. The AO thereafter issued a notice under Section 142(1) calling for the return of income as also audited accounts which was issued on 8th Jan., 1998, and subsequently return declaring an income of Rs. 1.59 crores was filed on 17th March, 1998.
6. The other relevant facts are that the assessment proceedings continued and statutory notices were issued from time to time and ultimately an assessment order was passed on 31st Dec., 1999, computing the assessee's taxable income at Rs. 10.85 crores. Being aggrieved, the assesses filed an appeal to the CIT(A) and at which stage along with various other grounds raised pertaining to the additions and disallowances, it took up a legal issue contending that the order under Section 148 was bad in law since the assessment proceedings commenced from the second notice issued under Section 148 on 18th Nov., 1997, whereas the first notice issued under Section 148 on 7th March, 1991, was barred by limitation and assessment made on the basis of the second notice was invalid. In the course of the proceedings before the CIT(A), the assessee submitted that the notice under Section 148, dt. 18th Nov., 1997, was misconceived since the High Court had not held the earlier notice under Section 148 issued on 7th March, 1991, to be invalid but had only held the return filed in pursuance of the said notice to be so. According to the assessee, the notice under Section 148 issued on 7th March, 1991, had neither been impugned before the High Court nor was the same held to be invalid. The plea, in other words, was that the effect of the High Court order at 5th May, 1997, was that the return filed on 30th March, 1991, as also the subseguent assessment order framed by the AO and the appellate order of the CIT(A) ceased to exist and the proceedings initiated under Section 147 vide notice dt. 7th March, 1991, became pending. The further argument on behalf of the assessee was to the effect that the AO could either require the assessee to furnish a return and make an assessment under Section 143(3) or in the event of the failure of the assessee to do so, he could make an assessment under Section 144 but by no means could proceedings under Section 147 be re-initiated when valid proceedings under the same section were already pending. In support of the aforesaid arguments reliance was placed on the decision of the Hon'ble Supreme Court in the case of ITO v. Mahendra (1972) 83 ITR 104 (SC) and the judgment of the Jaipur Bench of the Tribunal in the case of Jai Dev Jain & Co. v. ITO (1994) 48 TTJ (Jp) 493: (1994) 48 TTD 124 (Jp).
7. In addition to the aforesaid submissions, it was submitted on behalf of the assessee that in case the second notice was ignored, then assessment with reference to the first notice would be clearly barred by limitation since the assessment on the basis of the notice dt, 7th March, 1991, could not be completed after 31st March, 1993.
8. In considering the aforesaid facts as also the arguments advanced, the CIT(A) in the ultimate analysis held that the reassessment proceedings had been validly initiated in accordance with law and he, therefore, rejected the legal ground raised. The reasons recorded by the CIT(A) in doing so were as under:
"2.1.1 have carefully considered the facts of the case and the rival submissions. The notice under Section 148 was served upon the appellant on 8th March, 1991, and in compliance thereto, the appellant filed a return of income of 30th March, 1991- Since, this return filed by the appellant was not accompanied by statutory audit report as required under Section 44AB of IT Act, 1961 and there were also some other defects therein, the appellant was required to remove these defects within 15 days vide letter dt. 25th July, 1991. The appellant failed to remove these defects and, therefore this return was held to be an invalid return vide order dt. under Section 139(9), dt. 3rd June, 1992. Aggrieved by this order, the appellant filed writ petition in the Hon'ble High Court of Himachal Pradesh, who stayed this order vide order dt. 3rd June, 1992, but allowed the AO to frame the assessment, recover the taxes treating it as valid return subject to final determination of Anx. P-l at later stage. The assessments were, therefore, framed on 31st March, 1994, and meanwhile the appellant had also filed a revised return on 10th Feb., 1991. duly accompanied by the audited accounts. The Hon'ble High Court vide their order dt. 5th May. 1997, held that the return filed on 30th Sept., 1991. was an invalid return and, therefore, all subsequent orders of assessment were invalid consequently. The Hon'ble Allahabad High Court in the case of Kunwar Bishwanath Singh v. CIT (1942) 10 FFR 322 (All) has held that 'since the assessment originally made on the assessee was void but income had escaped assessment within the meaning of Section 34 and the reassessment on the agent was valid'. In this case, a notice under Section 22(2) of 1922 Act which corresponds to Section 139(2) of IT Act, 1961 was served upon a non-resident assessee and return submitted by him was assessed. Later, this assessment was set aside by the High Court on the ground that the notice should have been issued not to the non-resident but to the statutory agent appointed under Section 43 of the 1922 Act. The ITO thereafter commenced proceedings under Section 34 of the 1922 Act after appointing an agent. The objection was that 34 was not applicable as the non-resident had duly filed the return in response to the earlier notice. It is well laid out law by the Hon'ble Calcutta' and Delhi High Courts that a notice under Section 148 is in fact a notice under Section 139(2). [Burdwan Wholesale Cement Co-operative Society Ltd. v. CIT (1991) 57 Taxman 227 (Cal), R. Dalioia v. CIT (1992) 194 ITR 700 (Del), CIT v. Banshidhar Jalan & Sons (1994) 2071TR 488 (Cal)}. The facts of the instant case similar to the facts of the cases decided by the Hon'ble High Court in the case of Kunwar Bishwanath Singh v. CIT (supra). In this case also, the assessments were framed on the basis of an invalid return which the Hon'ble High Court subsequently quashed. Therefore, the AO was within his jurisdiction to reissue the fresh notices under Section 148 of IT Act, 1961, as the income chargeable to tax had escaped assessment. The appellant's plea to this extent is, therefore, not maintainable and it dismissed. As regards the initiation of the fresh proceedings the AO has recorded the reasons and has also obtained the permission of the CIT, Shimla as required under Section 151(2) of the IT Act, 1961, and thereafter issued a fresh notice under Section 148, dt. 18th Nov., 1997, and since no return of income was filed in response thereto a notice under Section 142(1) calling for the return of income and audited accounts was issued tin 8th Jan., 1998, and ultimately the return was filed on 17th March, 1998, which has been assessed."
9. Before us, the learned counsel for the assessee after narrating the relevant facts, reiterated at length the arguments already advanced before the CIT(A). It was stressed that the notice under Section 148 issued on 7th March. 1991, was valid in law and the same had not been declared invalid by the Hon'ble High Court and since this was still pending and had not culminated in an assessment order or the proceedings dropped the second notice issued on 18th Nov.. 1997, was invalid in the eye of law and this would also make invalid the subsequent assessment order framed by the AO. In support of the aforesaid arguments, the learned counsel for the assessee placed reliance on the two decisions cited before the CIT(A) namely, (1972) 83 ITR 104 (SC) (supra) and (1994) 48 TTJ Up) 493 : (1994) 48 ITD 124 (Jp) (supra). According to the learned counsel the decision of the Allahabad High Court in the case of Kunwar Bishwanath Singh v. CTT (1942) 10 ITB 322 (All) relied on by the CIT(A) was distinguishable as in that case, the notice for reassessment issued had itself been quashed. It was the further plea that Section 18 proceedings on the first notice were pending for all intents and purposes even though the invalid return filed and the subsequent proceedings before the AO and CIT(A) had been quashed by the Hon'ble High Court. The plea of the learned counsel was that the proceedings had become barred by limitation vis-a-vis the first notice issued under Section 148 and the issue of a second notice would not revive the time-limit. In support of the aforesaid arguments, the following further authorities were cited :
(i) Ghanshyamdas v. Regional Asstt. CST (1964) 51 TTR 557 (SC);
(ii) S.P. Kochhar v. ITO (1984) 145 ITR 255 (AS);
(iii) Hargovindsing Narainsing v. CIT (1973) 90 ITR 435 (Bom):
(iv) Commercial Ait Press v. CTT (1978) 115 ITR 876 (All):
(v) CIT v. P. Krishnankutty Menon (1990) 181 ITR 237 (Ker); and
(vi) CIT v. Sayed Rafique Rehman (1991) 189 ITR 476 (Pat).
10. The learned Departmental Representative on the other hand, strongly supported the orders passed by the tax authorities contending that since the second notice under Section 148 had been issued within the limitation period and no assessment could be made on the basis of the first notice in view of the invalid return, the assessment made after the issue of the second notice was valid in the eye of law. Reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of ITO v. Smt Adarsh Kaur (1982) 2 TTD 312 (Del) (TM) in a short reply, the learned counsel stated that a second notice and may be more could be issued under Section 148 within the period of limitation but it was necessary in law to deal with the first notice and which had not been done in this case.
11. At this stage, we would like to mention that we asked the learned Departmental Representative to summon the record of the case and the point at issue raised in the first ground to be taken up after the production of the record. On a subsequent date of hearing, the record was produced and we verified for ourselves the reasons recorded for the issue of the second notice under Section 148. The learned Departmental Representative once again reiterated the reasons recorded by the C1T(A) in rejecting the assessee's legal ground of appeal placing reliance, on the following decisions :
(i) Chatturam Horilram Ltd. v. CIT (1955) 27 ITR 709 (SC);
(ii) Claggett Brachi Co. Ltd. v. CTT (1989) 177 ITR 409 (SC);
(iii) S. Namyanappa & Ors. v. CTT (1967) 63 ITR 219 (SC);
(iv) CIT v. Bidhu Bhusan Sarkar (1967) 63 ITR 278 (SC);
(v) Industrial Trust Ltd. v. CIT (1973) 91 ITR 550 (SC);
(vi) CIT v. K. Adinarayana Murty (1967) 65 ITR 607 (SC); (vii) Auto & Metal Engineers v. Union of India (1978) 111 ITR 161 (P&H); i (viii) Atma Ram Bindra Ban v. CIT (1960) 39 ITR 418 (Pun)); and (ix) 210 ITR 9 (St).
12. In his short reply, the learned counsel sought to distinguish the various decisions relied on by the learned Departmental Representative contending that insofar as 63 ITR 278 supra was concerned, that was a case in which the initial notice had already been dealt with i.e., terminated. To the same effect i.e. the decision being distinguishable were the arguments of the learned counsel in respect of 39 ITR 418 and 2 ITD 312 (TM) as according to him, in the latter case, the initial notice had not been served on the assessee. On a specific query from the Bench, the learned counsel for the assessee accepted that the second notice was within the period of limitation and he also accepted that the first notice issued in March, 1991, was also valid. A reference was made to the judgment of the Hon'ble Supreme Court Comunidado of Chicalm v. ITO (2001) 247 ITR 271 (SC).
13. We have examined the rival submissions, going minutely into the various decisions relied on by both the parties during the course of the hearing. At the outset, we would refer to the judgment of the Hon'ble Allahabad High Court Kunwar Biswanath 'Singh v. CIT (supra) relied on by the CIT(A) as also by the learned Departmental Representative before us. The assessee in that case was the late Maharaja of Banaras, a non-resident and he was assessed to income-tax for the asst. yr. 1936-37 without appointing an agent under Section 43 of the IT Act, 1922. The High Court subsequently held in the said assessee's case Sir Aditya Narain Singh Bahadur v. CIT (1938) 6 ITR 217 (All) that the ITO was precluded by certain provisions of the Act from serving a notice on him without appointing an agent under Section 43 of the Act. The complete assessment was, therefore, set aside on 14th Feb., 1938, and on 23rd Feb., 1938, after appointing a person as agent of the Maharaja, notice under Section 34 r/w Section 22 was served on the agent. The return was subsequently filed by the agent and he was assessed to tax. The assessee contended before the Hon'ble High Court that the income had not escaped assessment within the meaning of Section 34 of the Act and, therefore, the notice issued on the agent on 23rd Feb., 1938, was not correct. On the aforesaid facts, the Hon'ble Allahabad High Court held that the first notice issued to the Maharaja was not a notice within the meaning of Section 22(2) and the return filed by him was not a due return and the assessment proceedings were started in illegality and conducted in illegality and irregularity and the entire proceedings were void from start to finish. Consequently it was held that income had escaped assessment within the meaning of Section 34 of the Act and the notice dt. 23rd Feb., 1938, issued on the agent was valid in law.
14. It is apparent that the aforesaid judgment is distinguishable as rightly contended by the learned counsel for the assessee since the initial notice issued was held to be one not issued within the meaning of the provisions of law in question i.e., Section 22(2). In the present case before us; the Hon'ble High Court has held the return filed in response to the notice under Section 148 issued on 7th March, 1991, to be invalid and has consequentially quashed all subsequent proceedings initiated and completed by the tax authorities, but the notice itself remains intact.
15. Two other decisions relied on by the learned CIT(A) were those of the Hon'ble Delhi High Court in the case of R. Dalrnia & Ors. v. CTT (1992) 194 ITR 700 (Del) and other of the Hon'ble Calcutta High Court in the case of CIT v. Banshidhar Jalan & Sons (1994) 207 ITR 488 (Cal). We have gone through these cases and we do not find them to be applicable to either the facts of the present case or to the point at issue which is whether the AO is empowered to issue a second notice under Section 148 when the first notice issued under the same section stands and proceedings relating thereto have still to attain finality/conclusion. In none of the aforesaid two decisions relied on by the CIT(A) were the aforesaid facts under consideration.
16. Before we come to the decisions relied on by the learned counsel for the assessee, we would like to refer to various other judgments relied on by the learned Departmental Representative during the course of the hearing.
(i) In the Judgment reported in (1955) 27 ITR 709 (SC) (supra), the facts were that the assessee-company carrying on business in Chota Nagpur was assessed to tax for the year 1939-40 but the assessment was set aside by the Tribunal on 28th March, 1942, on the ground that the Indian Finance Act, 1939, was not in force during the asst. yr. 1939-40 in Chota Nagpur. On a reference under Section 66 of the IT Act, 1922, the High Court agreed with the view of the Tribunal. On 30th June, 1942, Bihar Regulation IV of 1943, was promulgated by which the Indian Finance Act, 1939 was brought into force in Chota Nagpur retrospectively from 30th March, 1939. The ITO issued to the assessee on 12th Feb., 1944 a notice under Section 34 on the ground that income for the year 1939-40 had escaped assessment. On the matter travelling to the Hon'ble Supreme Court at the instance of the assessee, their Lordships took the view that the income of the assessee chargeable to tax for the year 1939-40 had escaped assessment within the meaning of Section 34 and, therefore, the notice issued was valid. This decision in our view could not be applicable since the initial assessment order had been set aside and it was not a case of one notice after the other being issued for reassessing escaped income, (ii) In the judgment reported in (1967) 63 ITR 278 (SC) (supra), the notice issued under Section 34 once again under the 1922 Act was challenged on the ground that the earlier proceedings were pending but their Lordships on the facts of the case held that the earlier proceedings had actually been terminated and did not continue to remain pending and, therefore, the notice under Section 34, dt. 2nd Feb., 1956, and the subsequent assessment order dt. 2nd May, 1956, made on the basis of the said notice were valid. This decision is not applicable to the facts if the present case where the assessee contends that the proceedings pertaining to the notice under Section 148 issued on 7th March, 1991, are still pending. To the same effect would be our observations in respect of the decision reported in (1967) 63 ITR 219 (SC) (supra) which deals with the issue of a notice under Section 34 for reassessment after the completion of the earlier assessment. In other words, the earlier proceedings are not pending.
(iii) In the decision reported in (1989) 177 ITR 409 (SC) (supra), the facts are once again distinguishable since no earlier proceedings were pending. The reassessment proceedings commenced on the agents were found to be barred by limitation vis-a-vis the provisions of Section 149(3) and the ITO dropped the proceedings on being made aware of the prohibition. Their Lordships held the assessment proceedings taken against the agents had to be ignored and could not operate as a bar to assessment proceedings directly against the non-resident i;e., the appellant-assessee in that case.
(iv) In decision reported in (1973) 91 ITR 550 (SC) (supra), the facts were that for the asst. yr. 1946-47 and two other assessment years i.e., 1947-48 and 1949-50, the ITO at Ajmer issued notices under Section 34(1)(a) of the IT Act, 1922, and in response thereto the company filed its returns. Pending those returns, the ITO, Central Circle IV, Delhi, issued another set of notices under Section 34 for the same three years. The company did not submit any returns to the ITO at Delhi but wrote back saying that it had already submitted its returns to the earlier ITO at Ajmer and hence it could not be called upon to file fresh returns. The ITO rejected the objections and made assessments which were confirmed by the AAC. On appeal, the Tribunal held that since the officer at Ajmer had already initiated proceedings under Section 34(l)(c), the ITO at Delhi could not initiate fresh proceedings and consequently the notices issued by him were invalid.
On the matter travelling to the Hon'ble Supreme Court, their Lordships held that the ITO at Ajmer had no jurisdiction over the assessee and the notices issued by him and the returns submitted by the assessee pursuant to such notices were not valid and that the notices issued by the ITO at Delhi and the assessments made by him were valid- This case has been decided on its own facts and is once again held to be distinguishable as the ITO at Ajmer who had issued the first set of notices was found to be not having jurisdiction in the matter. In the present case, the jurisdiction is not under challenge before us.
(v) In the judgment reported in (1967) 65 ITR 607 (SC) (supra), the facts were that the assessee was an HUF and subsequent to the original assessment, the ITO on the ground that income had escaped assessment issued a notice under Section 34 to reopen the assessment for asst. yr. 1949-50 in the status of an "individual". The respondent-assessee, however, filed a return in the status of HUF. Pending the proceedings, the AAC for the asst. yr. 1954-55 held that the status of the respondent was that of an HUF and thereafter the ITO issued a fresh notice under Section 34 to reassess the income of the assessee for the year 1949-50 as an HUF. Second return was filed by the assessee pursuant to the second notice and the ITO made an assessment on 16th Aug., 1958. The question before their Lordships was whether the assessment made pursuant to the second notice and the second return ignoring the first return filed pursuant to the first notice was valid. It was held by their Lordships that since the correct status of the assessee was that of an HUF, the first notice issued in the status of an individual was illegal and without jurisdiction and the ITO could not have validly acted on the return filed by the assessee pursuant to that notice. According to their Lordships the ITO was capable to ignore the first return as non est in law and, therefore, the second notice and the return filed pursuant to the said second notice and lastly the assessment made in respect thereto was held to be valid- This case is also distinguishable and not at all applicable to the facts of the present case since the first notice itself was held to be illegal.
(vi) Two other judgments were relied on by the learned Departmental Representative i.e. (1978) 111 ITR 161 (P&H) and (1960) 39 ITR 418 (Punj) (supra) which are found to be distinguishable on facts and, therefore, held to be inapplicable. Another judgment of the Tribunal reported in (3982) 2 ITD 312 (TM) (Del) (supra) is also held to be inapplicable as in that case the initial notice under Section 148 had not been served on the assessee and this would automatically lead to the conclusion that no proceedings were pending.
(vii) The learned Departmental Representative had also placed reliance on the judgment in the case of Anil Kumar Upadhayay v. AAC (1994) 210 HR 9 (St.) contending that their Lordships of the Hon'ble Supreme Court had dismissed the SLP filed by the assessee against the judgment of the Hon'ble Allahabad High Court dismissing a writ petition challenging notice under Section 148 on the ground that no assessment had been made and the return filed by the assessee was pending. It is noticed that the SLP was rejected with the observation that the High Court had found on facts that the return was not pending and, therefore, reassessment under Section 148 was permissible even when no assessment had been made. In the present case, there is no such finding pertaining to the notice under Section 148 issued on 7th March, 1991, which remains intact in spite of the subsequent proceedings having been quashed as also the return filed, by the Hon'ble High Court.
17. We now come to the various decisions relied on by the learned counsel for the assessee and at the outset we would refer to the judgment of the Hon'ble Supreme Court reported in (1972) 83 ITR 104 (SC) (supra) where the relevant facts were that on 5th Jan., 1962, the ITO issued a notice to the assessee under Section 34(1)(a) of the IT Act, 1922, to reopen his assessment for the asst. yr, 1946-47. The Hon'ble High Court quashed the notice vide its order dt. 6th March, 1963, oh the ground that the notice was barred by limitation. In the meantime the IT Act, 1961, ,came into force on 1st April, 1962, and thereafter the ITO once again issued a notice on 26th March, 1963, under Section 148 of the IT Act, 1961. On the matter travelling to the Hon'ble Supreme Court at the instance of the assessee, their Lordships held that though the proceedings on the basis of the notice dt. 5th Jan., 1962, under the 1922 Act were quashed for the reason that the notice was issued beyond time, it could not be said that no proceedings under Section 34 of the 1922 Act were either factually or legally pending at the time when the 1961 Act came into force. That since the proceedings initiated under Section 34 of the 1922 Act were pending at the time when the 1961 Act came into force, the ITO was not competent to issue any fresh notice under Section 148 of the 1961 Act. It must be highlighted that the notice issued under the 1922 Act was clashed by the Hon'ble Supreme Court on the ground that same was barred by limitation but still their Lordships of the Hon'ble High Court held that as on the date of the coming into effect of the 1961 Act and the issue of the notice under Section 148 of the said Act, the earlier proceedings initiated under the 1922 Act were still pending. In the assessee's case, the first notice has not been quashed and it can, therefore, be said to be a case better on facts as compared to the assessee before the Hon'ble Supreme Court.
(i) In the decision of the Jaipur Bench of the Tribunal reported in (1994) 48 TTJ (Jp) 493: (1994) 48 ITD 124 (Jp) (supra), the facts were quite akin to these which are being considered by us in the present case. For the asst. yrs. 1971-72 and 1972-73, notices under Section 148 were issued to the assessee-firm and these were served on 9th Oct., 1973, on the receiver who was appointed on 28th July, 1972, on a suit for rendition of accounts filed by one of the partners. No assessment orders were passed on the basis of these notices and thereafter another act of notices under Section 148 was issued for both the assessment years on 31st March, 1980, and 17th March, 1981, respectively. The assessment for the asst. yr. 1971-72 was completed under Section 144 on 29th March, 1984, while for the asst. yr. 1972-73, the assessment was completed under Section 143(3) on 20th Feb., 1985. On appeal, the assessee contended before the first appellate authority that assessments had become time-barred as they could not have been framed on the aforesaid dates on the basis of first set of notices issued on 9th Oct., 1973. The first appellate authority took the view that perusal of record did not reveal that any notice under Section 148 had been issued on 9th Oct., 1973, and the photo copies of the notices produced did not give reasons for initiating the proceedings. Therefore, it was held that initiation of proceedings under Section 148 vide second set of notices was valid. On second appeal before the Tribunal, it was held that once the notices under Section 148 had been issued, the proceedings initiated through them had to be taken to their logical conclusion i.e., either the assessments were required to be framed on the basis of those proceedings or the AO may specifically drop the proceedings. It was held by the Tribunal that even if the assessee did not comply with the notices by filing income-tax returns, the remedy open to the Revenue was not to issue fresh notices under Section 148 but to issue notices under Section 142(1) or to complete the assessments under Section 144. Further view expressed by the Tribunal was that in case the assessments had become barred by limitation, they could not be revived by issuing fresh notices. On the aforesaid facts and circumstances it was held that since notices for the assessment years under consideration had been issued by the AO on 9th Oct., 1973, but he filed to complete the assessments within the time allowed under law, the assessments were barred by time for both the years and further assessments completed on 29th March, 1984, and 20th Feb., 1985, were invalid because they were completed on the basis of fresh notices issued under Section 148 i.e., at a time when the original proceedings initiated under Section 148 were still pending. The Tribunal ultimately annulled the assessments made on the basis of the second set of notices. We may mention that this decision of the Jaipur Bench of the Tribunal has been subsequently confirmed by the Hon'ble Rajasthan High Court in CIT v. Jaideo Jain & Co. (1997) 227 ITR 302 (Raj).
(ii) In the judgment of the Hon'ble Supreme Court reported in (1964) 51 ITR 557 (SC) (supra), their Lordships while dealing with the C.P. Berar ST Act, 1947, held that once assessment proceedings had been initiated, income cannot be said to have escaped assessment until a final order of assessment is passed on the pending proceedings. This to some extent supports the arguments on behalf of the assessee that a second notice under Section 148 could not have been issued when the earlier notice under Section 148 subsisted and was not held to be invalid or quashed by the Hon'ble High Court. To the same effect was the judgment of the Hon'ble Allahabad High Court reported in (1984) 145 ITR 255 (All) (supra) relied on by the learned counsel for the assessee and the relevant facts being that the Tribunal set aside the assessment and remanded the matter back to the ITO for making a fresh assessment and on the matter travelling to the Hon'ble High Court at the instance of the assessee, their Lordships took the view that so long as the assessment is pending, the AO cannot have reason to believe that income for the relevant assessment year has escaped assessment and, therefore, proceedings under Section 147 and consequent issue of notice under Section 148 are not valid.
(iii) In the judgment of the Hon'ble Bombay High Court reported in (1973) 90 JTR 435 (Bom) (supra), the facts were that the Karta of the assessee-HUF died in September, 1954, and thereafter dispute arose among the members of the family and a Court receiver was appointed. For the asst. yr. 1956-57, the ITO issued a notice under Section 22(2) of the IT Act, 1922, in the name of the family on the Court receiver and the response thereto, the receiver filed returns. The ITO did not pass any orders on the ground that the notices served on the Court receiver and the returns submitted by him were invalid but he in turn proceeded to initiate action under Section 34 of the Act.
On the aforesaid facts, their Lordships held that at the relevant time, the assets of the assessee-family were in charge and under the control of the Court receiver and the notices served under Section 22 and the returns submitted were valid. Even on the assumption that the returns were invalid that would not authorise the ITO to proceed under Section 34. On the aforesaid facts, it was held that this could not be regarded as a case where no return had been filed by the assessee or that the income had escaped assessment and, therefore, the proceedings initiated under Section 34 were held to be invalid. This judgment supports the assessee's arguments.
(iv) In the judgment reported in (1978) 115 ITR 877 (All). (supra) their Lordships held that fresh notice for reassessment during the pendency of earlier proceedings would be invalid. In the decision of the Hon'ble Kerala High Court reported in (1990) 181 ITR 237 (Ker) (supra) reassessment proceedings were initiated and notices under Section 147(a) issued against three legal heirs. The ITO also issued further notices under Section 147(a) to five legal heirs and completed the reassessment thereon. Their Lordships held that the ITO had no authority to initiate successive reassessment proceedings when such proceedings already initiated under Section 147(b) were pending.
(v) In the judgment reported in (1991) 189 ITR 476 (Pat) (supra), their Lordships held that the reassessment notices issued while the assessment proceedings were still pending, were not valid in law. All the aforesaid decisions support the viewpoint canvassed on behalf of the assessee.
18. In the judgment of the Hon'ble Kerala High Court in the case of Smt. Nilofer Hameed and Anr. v. ITO (1999) 235 ITR 161 (Ker), the facts were that the first notice under Section 148 was issued on 21st March, 1994, and served on 29th March, 1994. As per the aforesaid notice, there was time upto March, 1998, for completion of the assessment. A second notice under Section 148 was issued on 25th March, 1997, when the assessments for the two years under consideration i.e., 1986-87 and 1988-89 were pending. Under these circumstances, their Lordships held that the notice issued under Section 148 on 25th March, 1997, was not valid, The further view expressed by their Lordships was that the AO could issue any number of notices under Section 148 provided conditions stipulated in Section 147 were satisfied and if the same were within the period specified under Section 149 r/w Section 151. This was, however, subject to no assessment being pending either by way of original assessment or by way of reassessment proceedings. In other words, every notice issued under Section 148 within the period of limitation has first to be concluded or taken to its logical conclusion before a second notice is issued. As already stated and now reiterated in the present case, the notice issued under Section 148 on 7th March, 1991, stands and before taking the same to its logical conclusion, the AO issued a second notice in 1997. The aforesaid judgment of the Hon'ble Kerala High Court deals with the facts which are quite akin to the facts of the present case.
19. We now come to the judgment of the Hon'ble Supreme Court reported in (2000) 247 ITR 271 (SC (supra) which was relied on by the learned counsel for the assesses. At pp 272 & 273 of the report, their Lordships on the facts of the case observed as under:
"We are afraid that the High Court was in error on both counts. It is trite law that when an assessee challenges a notice to reopen under Section 147 on the ground that no reasons under Section 148 had been recorded or disclosed, the Court must call for and examine the reasons, and, in fact, ordinarily, the reasons are set out by the respondents to the writ petition in their counter. The High Court also did not appreciate that if the appellant had already been served with a notice under Section 148 and had complied therewith by filing a return, it was entitled to contend that no second notice lay and also to submit that, in any event, the second notice was barred by time."
20. No doubt, in the later part of the judgment their Lordships clarified that the aforesaid observations were to be confined to the order of summary dismissal and was not to influence the decision of the Court on merits since the relevant point was restored back to the Hon'ble High Court for reconsideration.
21. There is a direct judgment of the Hon'ble Supreme Court on the point at issue in the case of Trustees of H.E.H. the Nizam's Supplemental Family Trust v. CIT (2000) 242 ITR 381 (SC) and for the purposes of convenience, the facts are extracted from the report itself at pp 381 and 382 as follows :
"The trustees of H.E.H. the Nizam's Second Supplemental Family Trust filed an income-tax return for the asst. yr. 1962-63 on behalf of the beneficiaries on 2nd April, 1964. Along with the return they filed an application under Section 237 for refund of tax deducted at source on Government securities and dividends. The trustees reminded the ITO for disposal of the refund application. The ITO gave a reply on 22nd July, 1964, stating that the refund could not be granted to the trustees unless the reference on the same question for the preceding assessment years filed by the trustees were disposed of by High Court. A reminder was again sent by the trustees on 23rd Sept., 1966, to the ITO for grant of refund but again no reply was given by the ITO. Thereafter a notice under Section 148 of the Act was received by the trustees from the ITO requiring them to file a return for the asst. yr. 1962-63. The assessee filed a return but thereafter raised an objection that the return filed by them on 22nd April, 1964, along with the refund application was still pending and, therefore, the proceedings initiated under Section 147 of the Act were invalid. They also claimed that the assessment made pursuant to the notice under Section 148 was equally invalid. To this, the ITO sent his reply on 16th July, 1979, stating that the return filed on 2nd April, 1964 was disposed of on 10th Nov., 1965, but a note recorded by the ITO in his file. This note was recorded on 10th Nov., 1965 in the file pertaining to the asst. yr, 1963-64 and was to the following effect :
'In view of the Supreme Court judgment in the case of H.E.H. Nizam, the question of giving credit for tax deducted at source can be considered in the hands of the beneficiaries. Hence no credit for the tax deducted at source is to be allowed here. The question of refunding the additional surcharge will have to be considered.' The AAC and the Tribunal held that the reassessment was not valid. However, the High Court was of the view that the order dt. 10th Nov., 1965, of the ITO on the note sheet was an order of disposal of the tax return filed by the trustees, It held that the return filed by the trustees on 2nd April, 1964, along with the refund application was one filed under Section 139 of the Act and was a valid return and as the refund application was disposed of, by order dt. 10th Nov., 1965, of the ITO, there was no bar to the reassessment proceedings for the same year and the reassessment proceedings were, therefore, valid."
22. Their Lordships of the apex Court on the aforesaid facts and laying down the law observed as under :
"A mere glance at this note would show that it could not be said that the ITO gave finality to the refund since no refund is granted either in the hands of the trust or in the hands of the beneficiaries. It is an inconclusive note where the ITO left the matter at the stage of consideration even with regard to refund in the hands of the beneficiaries. This note was also not communicated to the trustees. When we examine the note dt. 10th Nov., 1965, on the file of 1963-64 nothing flows from that as well. In any case if it in an order, it would be appealable under Section 249 of the Act. Since the period of limitation starts from the date of intimation of such an order, it is imperative that such an order be communicated to the assessee. Had the ITO passed any final order, it would have been communicated to the assessee within a reasonable period. In any case, what we find is that the note dt. 10th Nov., 1965, in merely an internal endorsement on the file without there being an indication if the refund application has been finally rejected. By merely recording that in his opinion, no credit for tax deducted at source is to be allowed, the ITO cannot be said to have closed the proceedings finally. The decisions referred to by the Revenue are of no help in the present case. We are, thus, of the opinion that during the pendency of the return filed under Section 139 of the Act along with the refund application under Section 237 of the Act, action could not have been taKen under Section 147/148 of the Act."
It is, therefore, settled law that unless and until one set of proceedings is disposed of or given the colour of finality, the AO is precluded in law from commencing further proceedings under Section 148 where the earlier proceedings are with reference to a return pending and which has not been acted upon and applying the same to the present case, a notice already issued under Section 148 which is still to be concluded or disposed of.
23. As a result of the detailed discussion in the preceding paras, it becomes quite clear that the position of law is settled, inasmuch as, subsequent proceedings under Section 148 cannot be commenced unless and until there is a disposal of the earlier proceedings and in the present appeal, the notice issued under the same section in March, 1991, remains undisposed of. He had summoned the record during the course of the hearing of the present appeal and perused the reasons recorded for the issue of the notice in 1997 and these are as under :
"Reasons for the asst. yr. 1988-89 :
The return of income for this assessment year was filed on 30th March, 1991, declaring income at Rs. 55,10,000 in response to notice under Section 148, dt. 7th March, 1991, served upon the assessee corporation of 8th March, 1991. The return was filed without enclosing auditors report as required under Section 44AB of the IT Act, 1961.
2. The defects in the return were pointed out to the assessee vide letters dt. 26th July, 1991, and 8th Jan., 1992, but the defects so pointed out were not removed and the return filed was held invalid under Section 139(9) vide orders dt. 3rd June, 1992.
3. Notices under Section 142(1) were issued on 29th July, 1992 and 10th May, 1993 and under Section 143(2) on 3rd Aug., 1993. The assessee corporation filed a revised return on 10th Feb., 1994, along with auditors report under Section 44AB declaring total income at Rs. 1,58,13,910. The assessment was framed under Section 143(3) dt. 31st March, 1994, on a total income of Rs. 3,21,77,960. After giving effect to the orders of the CIT(A) on 20th Jan., 1995, the total income of the assessee corporation was determined at Rs. 2,60,18,280.
4. The assessee-corporation filed a writ petition against the orders of the AO and the Hon'ble High Court of Himachal Pradesh in CWP 125/95, dt. 6th May, 1997, passed the following orders :
'In view of the orders passed in CWPs No. 590/92 to 593/92, this writ petition does not survive as the entire proceedings commenced from an invalid return. It is needless to say that the subsequent orders of assessment passed by the ITO and the appellate orders passed on the appeal tiled against the said assessment orders are invalid consequently. The writ petition is dismissed with the above observations. Interim order is vacated.' 5th May, 1997 (d).
5. Since the entire proceedings of this assessment commenced from an invalid return and the assessment framed declared as an invalid one, hence an income of Rs. 3,2177,960 determined under Section 243(3) dt. 31st March, 1994 has escaped assessment by virtue of an order of the Hon'ble High Court of Himachal Pradesh I, therefore, have reasons to believe that as the asst. yr. 1988-89, assessment framed of the assessee corporation has been held to be invalid being based on an invalid return, hence income chargeable to tax has escaped assessment.
[Emphasis, italicised in print, supplied by us] 6. This is a fit case for issue of notice under Section 148 of the IT Act, 1961."
24. It is quite clear from the above that the second notice under Section 148 was issued on the ground that income had escaped assessment because of the invalid return filed by the assessee and there is a categorical reference to the order passed by the Hon'ble High Court. There is nothing on record and it is more or less an accepted position before us that the notice under Section 148 issued in March, 1991, stands and the same had not been quashed by the Hon'ble High Court, there being no challenge to it on the part of the assessee. We have already referred in the present order to a number of reported decisions which hold that even where the proceedings have got barred by limitation, it does not tantamount to a conclusion of the proceedings initiated by the AO and something more is required to be done. In the final analysis, we quash the assessment order passed by the AO on 31st Dec., 1999, pursuant to the initiation of proceedings by issue of the second notice under Section 148 on 18th Nov., 1997. In the view that we have taken to quash the assessment order itself we do not find it necessary.to adjudicate upon any of the other grounds raised and argued in the appeal including the additional grounds.
25. Before we part with this appeal, we would like to mention that provisions for reopening/reassessment underwent a sea change w.e.f. 1st April, 1989, and there are decisions both ways of the Hon'ble High Courts, some taking the view that the new provisions are applicable to all the proceedings where notices for reopening have been issued after 1st April, 1989, although the assessment years involved are earlier ones whereas some decisions are to the effect that the new provisions apply only to the assessment years beginning asst. yr. 1989-90 onwards. We do not propose to go into this controversy which has not been raised before us but on the assumption that the amended provisions were applicable in the present case where the assessment year involved is 1988-89 and the proceedings have been initiated in 1991, there would be no change in our decision aforesaid as we do not find anything in the amended law which would lead to the conclusion that successive proceedings could be initiated under Section 148 without completing the earlier ones. The decision of the Hon'ble Kerala High Court in (1999) 235 FTR 161 (Ker) (supra) has the same facts since the assessment years involved were 1986-87 and 1988-89 and the notices under Section 148 were issued, the first one in March, 1994, and the second in March, 1997. Their Lordships held that the second notice issued in March, 1997, was not valid in the eye of law as proceedings pursuant to the first notice were still pending. As already observed, this decision is squarely applicable.
26. In the result, the appeal is treated as allowed in terms indicated above.