IN THE INCOME TAX APPELLATE TRIBUNAL, (SMC) BENCH, CUTTACK
Before : Shri K.K.Gupta, Accountant Member
(Assessment Year 2007-08)
M/s.Varsha Enterprises, 2170, Versus Income-tax Officer, Ward 1(2), Lewis Road, Bhubaneswear Bhubaneswar. 751002
PAN: AAAFV 6942N
(Appellant) (Respondent) For the appellant: Shri P.K.Pattnaik, AR For the respondent Shri S.C.Mohanty, DR
Date of hearing : 26.04.2012
Date of pronouncement : 11.05.2012
Shri K.K.Gupta, AM : This appeal by the assessee is agitating the action
of the learned Commissioner of Income-tax (Appeals) on dismissing the
appeal preferred on the order dt.22.12.2009 by the Assessing Officer
u/s.143(3) holding a view that the assessee was subjected to reassessment
proceedings on the basis of an audit objection when the order u/s.143(3)/147
dt.17.8.2011 was available to the learned CIT(A).
2. The brief facts are that the assessee is a trader in spare parts was
subjected to assessment u/s.143(3) when income declaring ₹1,43,897 was
enhanced to ₹3,80,050 by making certain additions and disallowance which
were appealed against before the first appellate authority and was before the
learned CIT(A) instituted on 16.2.2010. Meanwhile on account of an audit
objection, the Assessing Officer issued notice u/s.147/148 when the audit
objected that the capital accounts differed as in the balance sheet vis-à-vis
the details furnished. The Assessing Officer completed the assessment
u/s.147/148 by accepting the total income as determined in the earlier
assessment order dt.22.12.2009 at ₹3,80,050 when the calculation of interest
on tax u/s.234 increased the total demand from ₹1,05,936 to ₹1,44,566. ITA No.197/CTK/2012
3. Aggrieved, the assessee perused the original appeal filed against
assessment u/s.143(3) before the CIT(A), who noted the following in his order
against the assessee which the assessee is in appeal before us now.
"The question now arises about the status of the original order after reopening and reassessment of the said order. There is no concept of multiple or incremental assessment orders for the same assessment year in the statute. It is an accepted canon in tax law that for a given year, there can be only one assessment. When an assessment is reopened, the AO has to take into account not only the escaped income in respect of which a notice under section 147 has been issued, but also the entire income during that year. It follows, therefore, that once an assessment is reopened, the initial order of assessment stands automatically cancelled and the order of reassessment will have to take its place. The above view has received approval of three judge bench of the Supreme Court in the case of ITO v. K. L. Srihari (HUF), 250 ITR 193. In this regard the apex court upheld the decision of the Karnataka High Court in the above case reported in 197 ITR 694 (Kar.) where it was held that the effect of reopening an assessment is that the original assessment gets totally effaced in that event. In this regard the Karnataka High Court has relied upon its own decision in the case of CIT v. Mysore Iron & Steel Ltd., 197 ITR 694. In this case, reliance was placed on the following extract from the decision of the SupremeCourt in the case of Dy, CCTv. Sri Ramulu  39 STC 177 (SC).
" ... The reason for that is that once an assessment is reopened, the initial order for assessment cease to be operative. The effect of reopening the assessment is to vacate or set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially, although the justification for reassessment arises because of turnover escaping assessment in a limited field or only with respect to a part of the matter covered by the initial assessment order. The result of reopening the assessment is that a fresh order for reassessment would have to be made including for those matters in respect of which there is no allegation of the turnover escaping
4. In view of the above judicial pronouncements, the order under appeal cannot be said to be legally existing after the same has been vacated by the order u/s.143(3)/147 of the I. T. Act."
4. The learned Counsel for the assessee vehemently argued that by this
finding, the learned CIT(A) actually annulled the order u/s.143(3) which ITA No.197/CTK/2012
original order was in appeal before him therefore leaves no room for the
assessee to seek relief insofar as the audit objection did not lead to any
further finding of income having escaped assessment when the Assessing
Officer chose to repeat the determination of income as was originally
computed on having been accepted by him. He submitted that the issue now
could not be dealt with on merits by the learned CIT(A) insofar as the
assessee has preferred to raise the grounds on merits before the Tribunal in
order to settle the issue whether the learned CIT(A) on having cancelled the
original assessment order whether should have allowed the assessee to file
an appeal on the order which incorporates the very order of determination of
income under the provisions of Section 147/148.
5. The learned DR prayed for restoring the issue to the file of the
Assessing Officer or the learned CIT(A) for consideration on merits in view of
the material brought on record by the assessee.
6. I have heard the rival submissions of the parties and perused the
impugned orders of the authorities below. Considering the facts and
circumstances of the case, I am inclined to hold that the Department has not
filed any appeal against the observation of the learned CIT(A), the issue
rather stands clarified by the learned CIT(A) himself on having cancelled the
earlier assessment order. The submission quote unquote by the learned
CIT(A), as mentioned above, glaringly indicate that the learned CIT(A)
decided the issue in favour of the assessee on merits grounds raised by the
assessee before it. He was not to consider the issue on merit having
cancelled the order when he knew that proceedings u/s.147/148 did not yield
into confirming escapement of income for assessment. In other words, the
audit objection, if any, as noted by the Assessing Officer was not leading to
finding of any escapement of income for proceeding u/s.147/148. The ITA No.197/CTK/2012
Assessing Officer, therefore, mechanically confirmed the income as
determined u/s.143(3) originally vide order dt.22.12.2009, which was
appealed against before the learned CIT(A). The learned CIT(A) on the basis
of quoting the Apex Court's decision held the same as non-existing,
therefore, stood cancelled insofar as having noted the order u/s.143(3)/147,
the learned CIT(A) was aware of the fact that the very income having been
computed u/s.143(3) stood cancelled by him. I find force in the contention of
the learned Counsel for the assessee that the relief as sought for by the
assessee appellant before the learned CIT(A) was granted to the assessee
and was not an indication that the assessee was to file an appeal for the
reassessment which included only that income which had been computed
u/s.143(3) originally. In view of this, I have no hesitation in allowing the
assessee's appeal that the original order u/s.143(3) stood cancelled by the
learned CIT(A) therefore did not require any further adjudication insofar as
the demand created also got cancelled and the enhanced demand in
pursuance to order u/s.143(3)/147 was to enhance interest which procedural
interest has been charged by the Department without affording an
opportunity to the assessee.
7. In the result, the appeal of the assessee is allowed.
Senior Private Secretary.
Copy of the order forwarded to :
1. The Appellant: M/s.Varsha Enterprises, 2170, Lewis Road, Bhubaneswear 751002
2. The Respondent: Income-tax Officer, Ward 1(2), Bhubaneswar.
3. The CIT,
4. The CIT(A),
5. The DR, Cuttack
6. Guard File (in duplicate)
True Copy, By order,
Senior Private Secretary.