ORDER
Pramod Kumar, A.M.
1. The assessee has filed an application seeking permission to raise a question of law for the first time, and this application is duly supported by the affidavit dt. 17th Oct., 2006. In the said application, the assessee has, in support of its first ground of appeal to the effect that “the CIT(A) erred in coming to the conclusion that the reassessment proceedings under Section 147 by the AO were valid in law”, raised the following question:
Whether on the facts and circumstances of the case, the proceedings under Section 147 initiated on the basis of a notice under Section 148 issued by the AO during the pendency of rectification proceedings under Section 154, were valid in law, more particularly, when the notice under Section 148 was issued for the same reasons as for which the notice under Section 154 was issued?
2. Shri Pai, learned Counsel for the assessee, contends that it is answer to this question, that he has posed for us, which will decide whether or not the appellant deserves to succeed in the appeal. He contends that all the relevant facts are already on record, that no further investigation of facts is needed, that the assessee is entitled to, in terms of Hon’ble Supreme Court’s judgment in the case of National Thermal Power Co. Ltd. v. CTT , raise a legal question arising out of admitted facts on record, and that, in the interest of justice, we ought to decide this question. Shri Rahura, learned Departmental Representative, on the other hand, contends that this question raises a new controversy and there are no good reasons for the assessee to raise it now for the first time. He urges us to decline to adjudicate on this aspect of the matter and decide the matter on the basis of assessee’s legal contentions before the authorities below. In the event we must admit the plea of the assessee, we should at best remit the matter to the file of the CIT(A) for fresh adjudication. Shri Rahura thus urges us not to permit the assessee to give this new twist to the case of the assessee.
3. Having regard to the rival contentions and having perused the material on record, we are inclined to uphold the contention of the assessee. There is no dispute that all the relevant facts are on record and that the issue being sought to be raised now is a pure question of law on the basis of admitted facts of the case. As for the reasons for not taking this plea before any of the authorities below, we do not think that there can be any bar on assessee getting wiser at any stage as long as the assessee acts bona fide. As there is not even allegation acting mala fide, as the question raised is a pure question of law, and as it arises on admitted facts on record, we deem it fit and proper to admit the legal plea of the assessee and proceed to adjudicate on the same. The objections raised by the Revenue are overruled.
4. The impugned CIT(A)’s order is dt. 20th May, 2002 and the relevant assessment is framed under Section 143(3) r/w Section 147 of the IT Act, 1961, for the asst. yr. 1997-98.
5. So far as the additional plea, which we propose to deal with first is concerned, the relevant facts are like this. The original assessment was completed under Section 143(1)(a) vide intimation dt. 9th March, 1998. On 16th Oct., 1998, however, the AO required the assessee to show cause as to why, inter alia, the following mistake not be rectified under Section 154 of the Act:
Loss of Rs. 14 lakhs on share financing business cannot be set off against business income.
6. In response to the notice so issued by the AO, the assessee, vide letter dt. 28th Oct., 1998, submitted as follows:
With reference to your above notice, we have pursued the entire matter and present the Mowing facts for your kind consideration:
1.There are three business activities conducted:
(a) M/s Snagam Stone Supply Co. (b) M/s J.K. Transport (c) Share finance business. While submitting the computation of income, the profit from share financing business was classified under the head income from other sources instead of business income. The past years records can also be examined, which will reveal that the relevant income is being shown therefrom, however under the head income from other sources. The said business is being carried on since financial year 1994-95. There was no income in the first financial year 1994-95. However, subsequently the same has been shown in each of the financial years.
2. The loss that has been incurred is in respect of share financing business on account of bad debts in the financial year 1996-97 corresponding to asst. yr. 1997-98. The shares had been sold to Jasfin Investments (P) Ltd. for Rs. 20 lacs. The total outstanding from them was Rs. 20 lacs of which Rs. 6 lacs had been received. The balance sum of Rs. 14 lacs was not paid despite repeated reminders on various occasions Zerox copies of fax letter dt. 14th Nov., 1995, 22nd Dec, 1995 and 8th Feb., 1996. Thereafter, despite Mow up, the balance outstanding was not paid. In fact there is total silence and the approach by the company, Jasfin Investments (P) Ltd., is one of evasive nature. It was therefore ultimately written off as bad debts in the financial year 1996-97 corresponding to asst. yr. 1997-98.
3. We invite your reference to the provisions of Section 36(i)(vii) and Section 36(2) by which the debt can be written off once the assessee determines it to be irrecoverable. The only other condition is that the income, should have been disclosed and that the debt should be written off. In our case both these conditions are satisfied and hence the bad debts should be allowed. Further if any part of the debt is recovered at a later date, the same shall be offered for taxation in the year of receipt.
4. As regards the provisions of Section 72(i), we state that the business of share financing is being continuously carried till the year in which the loss is claimed. The said fact can be verified from the computation of income and balance sheet. For the better understanding, I have compiled a P&L a/c and balance sheet in respect of asst. yrs. 1996-97 and 1997-98, in respect of share financing business. This will enable your good self to have a clear understanding of the situation. Hence the business being continued till the loss, the same should be allowed to be set off against other business income. The condition prescribed for the allow ability of the set off being satisfied the loss should be allowed to be adjusted against other business loss.
5.As regards bank interest of Rs. 64,720 not shown, we submit that the interest income of Rs. 64,720 has already been considered in the computation as the account bank charges and interest is the net of receipts and payments. The interest paid was Rs. 1,42,703 and the interest received was Rs. 64,720. The net result of Rs. 77,983 being excess of interest payment over receipt has been debited to P&L a/c as an expenditure. A zerox copy of ledger account of bank charges and interest is enclosed for your ready reference.
Since there is no mistake apparent from record, we object to such, rectification and we request you to drop the proceedings.
7. Even as there was no further communication by the AO on the response submitted by the assessee, a notice was issued on 20th Feb. 2001 for reassessment of the income escaping assessment. In the reasons recorded by the AO, under Section 147 of the Act, it was stated that:
(1) The bad debt of Rs. 14,00,000 was wrongly allowed in order under Section 143(1)(a). This amount is pertaining to income from other sources as admitted by the assessee in the return of asst. yr. 1996-97 vide order under Section 143(3) dt. 7th Sept., 1998. The AO has already taxed income arising out of share financing at Rs. 6,10,869 as income from other sources. This is in conformity with the return filed by the assessee, which is accepted by the AO. Subsequently, in asst. yr. 1997-98, the assessee claims that interest income from share financing should be treated as business income and the amount advanced to M/s Jasfin Investment (P) Ltd. amounting to Rs. 14,00,009 should be treated as business loss and should be allowed to be written off. The assessee cannot change its own statement regarding source of income according to its will and fancies as and when it suits it.
(2) Since the assessment for asst. yr. 1996-97 has been completed under Section 143(3) after proper scrutiny, the assessee was aware that the return for asst. yr. 1997-98 will not be taken up for scrutiny as per the norms of the Department. The assessee perhaps presumed that he could get away with any wrong declaration, since the assessment will be completed under Section 143(1)(a). Thus, an advance made by the assessee for earning interest which is taxed under the head income from other sources has been conveniently converted into that of business income loss just to claim the bad debt of Rs. 14,00,000.
(3) Non-return of the advance of loan should be treated as capital loss and not business loss.
8. The grievance raised by of the assessee is that during the pendency of the rectification proceedings under Section 154, it was not open to the AO to resort to the reassessment proceedings under Section 147 of the Act. He places reliance on the judgment of Hon’ble Supreme Court in the case of S. Sankappa and Ors. v. ITO in support of the proposition that assessment generally includes all proceedings, and that the expression ‘assessment’ is used in the Act in a comprehensive sense and includes all proceedings starting with filing of the return or issuance of notices and ending with the determination of tax payable by the assessee. Our attention is then invited to the judgment of Hon’ble Calcutta High Court in support of the proposition that proceedings under Section 154 are proceedings of assessment. A reference is then made to the judgment of Hon’ble Madras High Court in the case of CIT v. E.I.D. Perry Ltd. (1995) 216 YTR 489 (Mad) in support of the contention that if the AO takes recourse to one of the sections, i.e. Section 147 or Section 154, and gives up later, the recourse to another is inappropriate. Learned Counsel then refers to the judgment of Hon’ble Gujarat High Court in the case of Damodar H. Shah v. Asstt. CIT to suggest that if no mistakes are found and proceedings under Section 154 are dropped, issue of notice under Section 147 on the basis of the same material is not valid. Learned Counsel submits that income cannot be said to have escaped assessment if assessment proceedings in respect of income are still pending and have not yet culminated in a final order. Learned Counsel contends that the law is so laid down by the Hon’ble Supreme Court in the case of Trustees of H.E.H Nizam Trust v. CIT (2000) 159 CTR (SC) 114 : (2000) 242 ITR 381 (SC). On the basis of this web of reasoning, it is contended that the proceedings under Section 154 are also part of the assessment proceedings and unless these proceedings are concluded, there cannot be any question of any income escaping the assessment. There is thus, according to Shri Pai, no question of any income escaping the assessment. The very initiation of reassessment proceedings, on the facts of this case, is thus vitiated in law. Shri Rahura, however, contends that the proceedings under Section 154 r/w Section 143(1)(a) are inherently very limited in scope and these proceedings only seek to address the short question whether there are any mistakes apparent on record so far as question of prima facie adjustments permissible under Section 143(1)(a) are concerned. The assessment proceedings are quite distinct from the same and there cannot be any bar on the reassessment proceedings on the ground that rectification proceedings for puma facie adjustments are pending. Learned Departmental Representative thus submits that the contentions of the assessee are not tenable in law, and we must reject the same.
9. Having given our careful consideration to the rival contentions as also the applicable legal position, we find that the plea of the learned Counsel is indeed sustainable in law and merits acceptance. In the case of Trustees of H.E.H Nizam Tiust (supra), Hon’ble Supreme Court has held that unless the assessment proceedings are completed, there cannot be any question of income escaping assessment. In the case of CIT v. Anderson Marine & Sons (P) Ltd. , Hon’ble Bombay High Court has held that the intimation under Section 143(1)(a) is also an assessment. The fact that the intimation so issued by the AO is subjected to the rectification proceedings initiated by the AO himself only indicates that the assessment proceedings are not yet completed. The order passed by the AO under Section 154 is also an order which can be subject to appeal and revision. There is no evidence in the present case that the proceedings are concluded, and, in any event, communication to that effect was not sent to the assessee. Under these circumstances, it cannot indeed be said that the assessment proceedings were completed on the facts of the present case. Since the assessment proceeding, despite its limited effect as indeed was the case before the Hon’ble Supreme Court in the case of Trustees of H.E.H Nizam Trust (supra), were not concluded, it could not indeed be said that any income had escaped the assessment. The AO was thus indeed erroneous in holding the view that income has escaped assessment. The reassessment proceedings were thus vitiated in law and the very issuance of notice under Section 147 is thus liable to be set aside. The legal plea is well taken by the assessee and we approve the same.
10. For the reasons set out above, we quash the reassessment proceedings. The orders passed as a result of these reassessment proceedings are, therefoie, set aside. As the matter is decided on this short issue of validity of initiation of reassessment proceedings during the pendency of rectification proceedings on the same issue, all other grounds of appeal, including that of validity of reasons recorded as also the merits of the case which have not been dealt by any of the authorities below, are rendered infructuous. These grounds of appeal do not call for any adjudication at this stage.
11. The appeal is allowed. It is so pronounced in the open Court today on 11th day of April 2007.