K.C. Singhal, J.M.
The only issue arising in this appeal is whether the Commissioner (Appeals) has justified in holding that the assessment framed by assessing officer was barred by period of limitation.
2. The brief facts giving rise to this appeal are these. The premises of the assessee were searched on 15-1-1986, and by that time, no return was filed by the assessee. Hence, the notice under section 148 was issued on 16-9-1988. However, the return was not filed within the time allowed in the said notice. Finally, the return was filed by the assessee on 24-3-1991, which does not mention whether it was filed under section 139(4) or under section 148. No assessment could be framed by 31-3-1991. Again, the notice under section 148 was issued on 30-3-1992 after recording the reasons and the assessment was also completed on that very date. The said assessment was challenged before the Commissioner (Appeals) on the ground that such assessment was barred by period of limitation. The said contention of the assessee was accepted by the Commissioner (Appeals) after following the decision of Tribunal Pune Bench in ITA No 1329/Pn/1992, dated 25-1-1996. Aggrieved by the same, the revenue is in appeal before the Tribunal.
3. The learned Departmental Representative, on behalf of revenue, has vehemently opposed the order of Commissioner (Appeals) by contending that the amended provisions of section 147 were applicable with effect from 1-4-1989. The section being procedural was applicable to any case which was pending on that date He drew my attention to the provisions of clause (b) of Explanation 2 to section 147 which provides that where the return of income is furnished by the assessee, but no assessment has been made and it is noticed that assessee had understated income or claimed excessive loss, deduction, allowance or relief in the return, then it will be a case of escaped assessment. Therefore, according to him the meaning of words “escaped assessment” was enlarged by legislature with effect from 1-4-1989 and consequently, the legal position prevailing prior to 1-4-1989 could not be applied to the facts of the case since the Commissioner (Appeals) had followed the legal position as prevailed prior to 1-4-1989, his order cannot be sustained. On the other hand, the learned counsel for the assessee has relied on the order of Commissioner (Appeals).
4. The issue before us centers around the provisions of Explanation 2(b) to section 147 effective from 1-4-1989, which has enlarged the meaning of the words “escaped assessment” used in the main provisions of section 147. In order to appreciate the controversy, it would be useful to refer the legal position prior to 1-4-1989. Under the pre-amended provisions, no income could be said to have escaped during the pendency of assessment proceedings and consequently, no notice under section 148 could be issued during such pendency. Reference can be made to the decision of Supreme Court in the case of Ganshyamdas v. Regional Asstt. CST (1964) 51 ITR 557 (SC). A proceeding can be said to be pending when it is initiated, but not terminated by any order. The assessment proceedings are initiated either by filing of the return or by issue of notice and the same are terminated by the order of assessment. Therefore, after filing of valid return, the assessment proceedings remain pending till the assessment is finalised. Therefore, when no assessment could be made by assessing officer for any reason, it was held that no notice could be issued for reopening the assessment even though period of limitation for issuing such notice had not expired. To modify this legal position, the provisions in clause (b) of Explanation 2 to section 147 were introduced by the legislature with effect from 1-4-1989.
5. For the benefit of this order, the aforesaid provisions effective from 1-4-1989, may be reproduced as under :
Explanation 2 : For the purposes of this section the following shall also be deemed to be cases where income chargeable to tax has escaped assessment namely :
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the assessing officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
A perusal of the above provisions clearly shows that two conditions must be satisfied before its application namely : (1) the return of income must have been furnished by the assessee, and (2) it is shown that in the return so furnished, the assessee has either understated the income or has claimed excessive loss, deduction, allowance or relief. The legislature has used the word “and in between the two conditions. That means that none of the conditions can be ignored so in order to demonstrate that both the conditions are satisfied, the assessing officer must state in the reasons recorded that these conditions are fulfilled. The reason is obvious. Explanation 2 is only an aid to the interpretation of the words “escaped assessment” in the main provisions of section 147 which says that assessing officer must have reasons to believe that the income has escaped assessment. Section 148(2) says that such reason should be recorded prior to the issue of notice so it is incumbent upon the assessing officer to record such reasons to demonstrate that the conditions provided by the legislature in clause (b) of Explanation 2 were satisfied before issuing the notice.
6. The reasons recorded by the assessing officer vide order-sheet dated 30-3-1992, are being reproduced as under :
“In this case, for the first time, the assessee filed return of income on 24-3-1991. Earlier on 26-9-1988, notice under section 148 was issued. But in response to this notice, the assessee did not file return. As per this notice the assessee was asked to file the return of income within 30 days. As the assessee did not file return within this time, the return filed on 24-3-1991, cannot be treated as has been filed in response to this notice. Even otherwise presuming that (as per assessee) the assessment proceedings in respect of this notice under section 148 have already been barred by time on 31-3-1991, still on the basis of return filed on 24-3-1991, it is clear that the assessee had taxable income for the year for which I have reason to believe that the income has escaped assessment.
There were search and seizure operations on 15-1-1986 in which certain documents and material was seized. As per this seized material on scrutiny thereof, I find that the assessee has not accounted for the following :
Purchases of Rs. 6,00,286 are not accounted for payment of Rs. 11,000 is claimed twice.
Thus, even the return filed on 24-3-1991, does not show the true and correct income of the assessee. Accordingly, there being no assessment also framed for the assessment year 1986-87, I am of the opinion that the income has definitely escaped assessment. On this account, I, therefore, reopen the assessment under section 148.
A.C. Inv. Cir. 3(1), Pune
There is no dispute between the parties that assessee had filed the return on 24-3-1991, as is also apparent from the reasons recorded. It is immaterial whether such return was filed under section 139(4) or section 148. In either case, it was a valid return. The perusal of the reasons recorded shows that certain transactions were not accounted for and payment of Rs. 11,200 was claimed twice and, therefore, the return filed on 24-3-1991, did not show the true and correct income of the assessee. Therefore, it is apparent that assessing officer was satisfied about existence of both the conditions as provided by the legislature in the amended provisions of clause (b) of Explanation 2 to section 147. Admittedly, the notice was issued in time.
7. In view of the above discussion, it cannot be said that assessment was barred by period of limitation. Accordingly, the order of Commissioner (Appeals) cannot be upheld. Since the Commissioner (Appeals) had allowed the appeal on the ground of limitation, she had no occasion to decide the appeal on merit. Accordingly, the older of Commissioner (Appeals) is set aside and the matter is restored to the file of the Commissioner (Appeals) for fresh adjudication on merits.
8. In the result, appeal of the revenue is allowed for statistical purposes.