Intimation U/s 143(1) is not an assessment for the purposes of Section 147 and so it is not necessary for the AO to come across some fresh tangible material to form a belief that income has escaped assessment.  

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Intimation U/s 143(1) is not an assessment for the purposes of Section 147 and so it is not necessary for the AO to come across some fresh tangible material to form a belief that income has escaped assessment.

In a write filed by the Taxpayer, the HC has observed that Intimation U/s 143(1) is not an assessment for the purposes of Section 147 and so it is not necessary for the AO to come across some fresh tangible material to form a belief that income has escaped assessment.

The case detail is as under:

ERNST AND YOUNG US LLP

WP(C) 11862/2022 & CM APPL.35429/2022

Let us have a short overview of the case:

Assessee company had preferred the present petition challenging the order passed u/s 148A(d) and stated that the Show Cause Notice was sought to re-open the assessee’s assessment on the ground that assessee’s return of income did not offer to tax receipts of professional service charges from S.R. Batliboi & Associates LLP totalling to Rs.1,92,35,080/-.

The counsel for assessee stated that the assessee furnished a detailed reply wherein it was pointed out that the amount received by it from S.R. Batliboi & Co LLP was not taxable in India by reason of Article 15 of DTAA and the said position had been examined and accepted by the Revenue in subsequent assessment year 2019-20. He stated that an order u/s 148A(d) was passed by Revenue on the erroneous footing that the assessee had not filed a reply to the Show Cause Notice and further stated that the assessee had not objected to the re-opening of its assessment. He stated that the assessee had filed a writ petition being W.P.(C)7791/2022 and this Court vide its order dated 20th May, 2022 had set aside the order passed u/s 148A(d) as well as the notice u/s 148, directing Revenue to pass a fresh reasoned order u/s 148A(d).

 The counsel for the assessee stated that the Revenue completely failed to appreciate that it had itself accepted the assessee’s claim with regard to professional charges received from S.R. Batliboi & Associates LLP in the present assessment year by making an assessment u/s 143(1). He further submitted that in absence of any fresh tangible material or information whatsoever which would indicate that the petitioner’s income for assessment year 2018-19 had escaped assessment, no notice u/s 148A(b) could have been issued.

On the other hand, the counsel for the Revenue, who appeared on advance notice, stated that if the benefit of Article 15 of DTAA was satisfied in a particular assessment year does not mean that the said benefit would be available to the assessee in all subsequent years. He stated that for getting the benefit of Article 15 of DTAA in a particular assessment year, the assessee would have to satisfy that the services rendered in the said assessment year were similar/identical to the services rendered in the assessment year in which the assessee was given the benefit of Article 15 of DTAA – which the assessee had failed to satisfy.

On Writ, the issue before HC was whether order/intimation passed u/s 143(1) does not mean ‘assessment’ for purposes of Section 147 and hence pre-requisite of ‘fresh tangible material’ does not gets attracted for initiating reopening in such case. HC answered it in affirmative with following observation:

  1. The Supreme Court and this Court have repeatedly held that when the original proceeding has been completed u/s 143(1), there is no need for fresh tangible material for reopening the assessment and the doctrine of change of opinion does not arise since u/s 143(1) an intimation is issued and no opinion is formed by way of the said order.
  2. The Supreme Court in Assistant Commissioner of Income Tax Vs. Rajesh Jhaveri Stock Brokers Private Limited – 2007-TIOL-95-SC-IT, has held that there is a distinction between ‘intimation’ and ‘assessment’ under Sections 143(1) and 143(3) of the Act.
  3. This Court in Indu Lata Rangwala v. DCIT – 2016-TIOL-967-HC-DEL-IT has also held that where the return initially filed is processed under Section 143 (1) of the Act, and an intimation is sent to an Assessee, it is not an ‘assessment’ in the strict sense of the term for the purposes of Section 147 of the Act.
  4. In other words, in such event, there is no occasion for the AO to form an opinion after examining the documents enclosed with the return whether in the form of balance sheet, audited accounts, tax audit report etc.
  5. Where reopening is sought of an assessment in a situation where the initial return is processed under Section 143 (1) of the Act, the AO can form reasons to believe that income has escaped assessment by examining the very return and/or the documents accompanying the return. It is not necessary in such a case for the AO to come across some fresh tangible material to form ‘reasons to believe’ that income has escaped assessment.” Consequently, the

 

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