Order Passed Under Section 143(1) Is Not An Assessment; Delhi High Court Dismisses Ernst And Young's Writ Petition

The Bench of Justices Manmohan and Manmeet Pritam Singh Arora held that no opinion is formed by way of the order passed under Section 143(1), and that only an intimation is issued to the assessee when the return initially filed by it is processed; thus, the doctrine of change of opinion is not attracted.

A Show Cause Notice was issued to the petitioner/assessee- Ernst and Young U.S. LLP, seeking to re-open its assessment on the ground that the assessee in its income tax return had failed to offer to tax certain professional charges received by it. Subsequently, the Assessing Officer passed an order under Section 148A(d) of the Income Tax Act, holding that it was a fit case for issue of notice under Section 148 since the assessee had failed to provide any relevant documents to substantiate its claim. Against this, the assessee filed a writ petition before the Delhi High Court.

Section 148A of the Income Tax Act provides that the Assessing Officer is required to conduct an inquiry and provide an opportunity of hearing to the assessee before issuing a notice under Section 148. Section 148 A(d) provides that before issuing any notice under Section 148, the Assessing Officer shall decide, on the basis of material available on record including reply of the assessee, whether or not it is a fit case to issue a notice under Section 148, and accordingly pass an order, with the prior approval of specified authority.

Section 148 provides for issue of notice by the Assessing Officer where the income of the assessee has escaped assessment.

The petitioner/ assessee Ernst and Young U.S. LLP submitted before the Delhi High Court that the said professional charges received by it were not taxable in India in view of Article 15 of the India-US Double Taxation Avoidance Agreement and hence, the assessee did not offer the said receipts to tax in the income tax return filed by it, which was accepted by the Revenue Department. The assessee averred that the order passed by the Revenue Department under Section 143(1) of the Income Tax Act accepting the Income Tax Return filed by the assessee and determining the taxable income of the assessee is an assessment with consequences. Thus, the assessee contended that in the absence of any fresh tangible material or information which would indicate that the assessee's income for the relevant assessment year had escaped assessment, no Show Cause Notice under Section 148A(b) of the Income Tax Act could have been issued by the department.

The High Court observed that the Supreme Court in Assistant Commissioner of Income Tax versus Rajesh Jhaveri Stock Brokers Private Limited (2007) had held that in view of the amendment to Section 143 (1), the requirement of passing of an assessment order has been dispensed with and instead only an intimation is required to be sent to the assessee. Further, the Apex Court had held that under the first proviso to the newly substituted Section 143 (1), with effect from 1^st June, 1999, where no sum is payable by the assessee, or where no refund is due to him, the acknowledgment of the return filed by the assessee shall be deemed to be an intimation under Section 143(1). Thus, Supreme Court had ruled that the intimation under Section 143(1)(a) cannot be treated as an assessment order.

Additionally, the Court noted that the Delhi High Court in Indu Lata Rangwala versus DCIT (2016) had reiterated that where the return initially filed by the assessee is processed under Section 143 (1) of the Income Tax 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, which provides for assessment or reassessment of the assessee's income if it has escaped assessment.

Ruling that no opinion is formed by way of the order passed under Section 143(1), and that only an intimation is issued to the assessee under the said order, the Bench held that when the original proceeding has been completed under Section 143(1), there is no need for fresh tangible material in order to reopen the assessment and therefore, the doctrine of change of opinion is not attracted.

"Consequently, the order passed under Section 143(1) of the Act is not an assessment for the purposes of Section 147 of the Act. Further, it is not necessary in such a case for the Assessing Officer to come across some fresh tangible material to form a belief that income has escaped assessment.", the Court said.

Hence, the Bench upheld the order passed by the Assessing Officer and dismissed the writ petition.

Case Title: Ernst and Young U.S. LLP versus Assistant Commissioner of Income Tax

Citation: 2022 LiveLaw (Del) 798

Dated: 22.08.2022 (Delhi High Court)

Counsel for the Petitioner: Mr. S. Ganesh, Senior Advocate with Ms. Ananya Kapoor, Advocate

Counsel for the Respondent: Mr. Puneet Rai, Sr. Standing Counsel for the Revenue

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