Under section 147 of the Income tax Act the assessing officer has powers to reopen cases where income has escaped assessment. In 248ITR487 it is found that the assessee failed to file a return. Subsequently on receipt of notice it filed a return of loss. The assessing officer did not see any good case for the revenue chose to drop the notice and proceedings altogether. In this manner he prevented the assessee from claiming set off of loss in the next year.
The J & K High Court held that the reassessment is confined to escaped assessment or under assessment. It further held that proceedings u/s 147 being for the benefit of the revenue and not the assessee, the assessee cannot be permitted to take advantage of the reassessment proceedings and seek relief which, in the absence of the proceedings for assessment of escaped income, he could not have claimed. Thus according to the Court the income cannot be reduced beyond the income originally assessed nor the loss originally determined can be re-determined at a higher figure.
In (2007) 290ITR (AT) 32 the Ahmedabad bench upheld an action u/s 263 to dislodge the claim of loss determined in S 147 action.
Similarly if the Commissioner under sections 263 of the Act finds that the assessment order is prejudicial to the interests of the Revenue, then he can reopen the issue. Therefore, virtually, both these provisions are for reopening the assessment_one at the Income-tax Officer level and other at the level of the Commissioner. Both can invoke their power after the assessment order, but both are not exclusive of each other. Under sections 147 and 148 of the Act, the order of assessment is not wiped out nor does it become non est. The order survives to a limited extent and is not wholly wiped out. It will remain in suspended animation till the Income-tax Officer finally decides it. On the issuance of notice under sections 147 and 148 of the Act by the Income-tax Officer the power under section 263 of the Act of the Commissioner is not denuded and both the provisions can exist without there being any conflict in the matter.
Hence it is of utmost importance to prefer all claims for deductions, set off etc. in the original return to avoid such a situation.