Income
Tax Officer, Azamgarh & Anr Vs. Mewalal Dwarka Prasad [1989] INSC 49 (10 February 1989)
Misra
Rangnath Misra Rangnath Pathak, R.S. (Cj)
CITATION:
1989 AIR 1088 1989 SCR (1) 604 1989 SCC (2) 279 JT 1989 (1) 239 1989 SCALE
(1)349
ACT:
Income
Tax Act, 1961: Sections 142, 143, 147 and 148---1. T. 0. issuing notice in
respect of three entries on the ground of escapement of income--Validity of the
notice--Jurisdiction of High Court to examine--Limits thereof.
HEAD NOTE:
In
respect of assessment year 1965-66, the Income-tax Officer issued notices to
the assessee under s. 148 read with ss. 142(1) and 143(2) of the Act on the
ground that income has escaped assessment in respect of three cash credit
entries totaling Rs. 1 lakh. The assessee challenged the notices by way of writ
petitions before the High Court.
The
High Court gave a finding that the notice was within jurisdiction only in
respect of an entry of Rs.30,000 and in respect of the other two entries viz.
Rs.40,000 and Rs.30,000 it directed the Income-tax Officer not to reopen the
assessment.
These
two appeals are against the High Court's judgment.
The
appeal by ReVenue, by certificate, is in respect of the two entries of Rs.40,000
and Rs.30,000 and the other appeal of the assessee, by special leave, is in
respect of the entry of Rs.30,000.
On
behalf of the Revenue, it was contended that once the High Court sustained the
notice in respect of a sum of Rs.30,000, that gave full jurisdiction to the
Income-tax Officer to reopen the assessment and that the High Court should not
have examined time tenability of the assessee's contention in regard to the two
transactions of Rs.30,000 and Rs.40,000 and that aspect should have been left
to be considered by the Income-tax Officer while making the reassessment.
The
contention of the assessee was that the notice was issued more than 7 years
after the assessment was completed and was also beyond the period of
limitation, viz., four years, that the escapement of the income from assessment
had not resulted from failure on the part of the assessee to disclose fully and
truly all material facts necessary for the assessment.
605
Allowing the appeal of the assessee, and dismissing the appeal by the Revenue.
HELD:
1. The notice issued under s. 148 of the Act is quashed. It was not for the
High Court to examine the valid- ity of the notice under s. 148 in regard to
the two items if the High Court came to the conclusion that the notice was
valid at least in respect of the remaining item. Whether the Income-tax Officer
while making the reassessment would take into account the other two items,
should have been left to be considered by the Income-tax Officer in the fresh
assess- ment proceeding. [610C-D] CIT. Punjab, H.P. & Bilaspur, Simla v. Jagan
Nath Ma- heshwary, 32 AIR 418 and Pulavarthi Viswanadham v. CIT. A.P., 50 ITR
463 approved. V. Jagan Mohan Rao & Ors. v. CIT & Excess Profits Tax,
A.P., 75 ITR 373 and Parimisetti Seetharamamma v. CIT, [1963] 50 ITR 450
referred to.
2.1
The three amounts mentioned in the notice under s. 148 of the Act were found in
the assessee's account by the Income-tax Officer when he examined the same in
course of the assessment proceedings. He had called upon the assessee to
substantiate the genuineness of the transactions and the assessee had produced
material to support the same. The Income-tax Officer accepted the documents
produced and treated all the three transactions to be genuine and on that
footing completed the assessment. The primary facts were before the Incometax
Officer at the time of the regular assessment and he called upon the assessee
to explain to his satisfaction that the entries were genuine and on the basis
of materials provided by the assessee, satisfaction was reached. It was then
open to the Income-Tax Officer to make further probe before completing the
assessment if he was of the view that the material provided by the assessee was
not sufficient for him to be satisfied that the assessee's contention was
correct. [610E-H]
2.2
The expression 'material facts' used in s. 147(a) referred only to primary
facts and the duty of the assessee was confined to disclosure of primary facts
and he had not to indicate what factual or legal inferences should properly be
drawn from primary facts and this clause did apply to the facts of the present
case as the alleged escapement of income for assessment had not resulted from
failure on the part of the assessee to disclose fully and truly all materi- al
facts necessary for its assessment for that year. The notice in the instant case,
did not indicate 606 Whether it was a case covered by cl. (a) or cl. (b). On
the finding of this Court that cl. (a) was not invokable, the power under cl.
(b) could be called in aid under s. 149(1)(b) of the Act within four years from
the end of the relevant assessment year. Admittedly, the notice has been issued
beyond a period of four years and, therefore, the notice itself was beyond the
time provided under the law.
The
High Court overlooked to consider this aspect of the matter. [610H; 611A-C]
Calcutta Discount Company Ltd. v. ITO, 41 ITR 191, followed.
CIVIL
APPELLATE JURISDICTION:Civil Appeal No. 1970(NT) of 1975 & 855(NT)/1975.
From
the Judgment and Order dated 22.4.1974 of the Allahabad High Court in Civil
Miscellaneous Writ No. 152 of 1974 Dr. V. Gauri Shankar, Miss A. Subhashini and
K.C. Dua for the Appellants.
S.C. Manchanda,
Ms. S. Janani, Mrs. Urmila Kapoor and Ms. Meenakshi for the Respondent.
The
Judgment of the Court was delivered by MISRA, J. Civil Appeal No. 1970 of 1975
is by the Reve- nue by certificate of the High Court while the other is an
appeal by the assessee by special leave. Both arise out of the same judgment of
the Allahabad High Court dated 22.4.1974 in an application under Art. 226 of
the Constitu- tion by the assessee challenging the notices issued under s. 148
read with ss. 142(1) and 143(2) of the Income Tax Act of 1981, all dated 7th of
March, 1973 relating to the assess- ment year 1965-66. The notice under s. 148
was on the basis of three cash credit entries dated 22nd of August, 1964 from
Messrs Meghraj Dulichand, Messrs Associated Commercial Organisation Private
Limited and Messrs Laxminarain Atmaram, the first two being for a sum of Rs.
30,000 each and the last one for a sum of Rs.40,000. The High Court ultimately
found:
"The
result is that the notice dated 7th March 1973, was within jurisdiction only in regard to the cash credit
entry from the firm Meghraj Dulichand of Calcutta. In regard to the other two transactions, the case did not fall within
the purview of clause (a) of section 147.
607 As
seen above, the Income Tax Offi- cer had no material in his possession on the
basis of which he could have reason to believe (mere suspicion apart) that
income had escaped assessment. For this reason the case was not covered by clause
(b) of section 147 either.
In
regard to those two items the notice was totally without jurisdiction. The
Income Tax Officer had no jurisdiction to re-open the assessment in respect of
these two cash credit entries.
In
this view it is unnecessary to decide whether the notice was barred by time on
the footing that it was covered by clause (b) to section 147.
In the
result, the petition succeeds and is allowed in part. The respondent Income Tax
Officer is directed not to re-open the assessment of the petitioner firm for
the assessment year 1965-66 in relation to the cash credit entries of Rs.30,000
from M/s. Associated Commercial Organisation Private Ltd. and of Rs.40,000 in
respect of M/s. Laxminarain Atmaram." The appeal by the Revenue is in
relation to the two transactions totaling Rs.70,000 and the appeal by the
asses- see is in regard to the remaining one in respect of a sum of Rs.30,000.
Dr. Gouri Shankar appearing for the Revenue has contended that it was not for
the High Court to go into the question as to whether the notice under s. 148 of
the Act was partly valid and partly not because if the Income Tax Officer
proceeded to issue notice under s. 148 of the Act for reopening the assessment,
he would require the assessee to furnish a fresh return and the entire
assessment proceed- ing has to be re-done after the assessee furnishes the
return.
In the
present case, along with the notice under s. 148 of the Act the Income Tax
Officer did call upon the assessee to furnish a return as required under s. 142
of the Act. That notice casts an obligation on the assessee to make a fresh
return and therein it was obliged to make a complete disclosure of its income
in accordance with law and it was open to the Income Tax Officer to examine not
only the three items referred to in the notice but also whatever came within
the legitimate ambit of an assessment proceeding.
This
being the legal position, Dr. Gouri Shankar for the Revenue contends, once the
High Court sustained the notice in respect of a sum of Rs.30,000 that gave full
jurisdiction to the Income Tax Officer to reopen the assessment and take to a
fresh assessment proceeding. The High Court should not have examined the
tenability of the assessee's 608 contenton in regard to the two transactions of
Rs.30,000 and Rs.40,000 and that aspect should have been left to be con- sidered
by the Income Tax Officer while making the reassess- ment.
A
Division Bench of the Punjab High Court in Commission- er of Income Tax,
Punjab, Himachal Pradesh & Bilaspur, Simla v. Jagan Nath Maheshwary, 32 ITR
418 examined this aspect of the matter with reference to a proceeding for
reassessment under s. 34 of the earlier Act of 1922 and came to hold:
"When
a notice is issued under s. 34 based on a certain item of income that had escaped
assessment, it is permissible for the Income- tax authorities to include other
items in the assessment, in addition to the item which had initiated and
resulted in the notice under section 34." A Division Bench of the Andhra
Pradesh High Court in Pulavarthi Viswanadham v. Commissioner of Income-Tax,
Andhra Pradesh, 50 ITR 463 considered the same position with refer- ence to s.
34 of the earlier Act. After extracting the two clauses in sub-s. (1) of s. 34,
the Court held:
"It
is immediately plain that when once the Income-tax Officer reaches the
conclusion on the material that is before him that there has been a
non-disclosure as regards part of the income, profits or gains chargeable to
income- tax by the assessee, he is entitled to issue a notice either under
clause (a) or (b), as the case may be, under section 22(2) of the In- come-tax
Act." After extracting s. 22(2) the High Court proceeded to say:
"What
emerges from sub-section (2) of section 22 is that when once an assessee is
required to submit a return of his income, he is obliged to disclose the
totality of his in- come. The question that falls to be decided on the language
of these two sections is whether after notice is issued under section 34(1)(a)
the assessment should be limited to items which escaped assessment by reason of
the failure on the part of the assessee to dis- close all his income, profits
or gains which are subject to tax. The contention of learned counsel for the assessee
is that having regard to the terms of clause (b) it was not within the powers
of the Income-tax 609 Officer to bring to charge such of the items as have
escaped from being taxed without any remissness on his part. It is only items
that escaped assessment due to omission or failure of the assessee that come within
the range and sweep of section 34, continues learned counsel for the assessee.
We do not think that we can accede to this proposition. When once the
assessment is reopened, no distinction could be made between items falling
under clause (a) and those coming within the pale of clause (b). As pointed out
by a Division Bench of this Court in R.C. No. 12 of 1960 (Parimisetti Seetharamamma
v. Commissioner of Incometax, [1963] 50 ITR 450, to which one of us was a
party:
"
..... when once an assessment is reopened under section 34, the Income-tax
Officer proceeds de novo under the relevant sections of the Income-tax Act,
i.e., he issues notice under section 22(2) and proceeds to assess the assessee.
He has to follow the same procedure as in the case of the first assessment as
is clear from the clause in section 34 and the provisions of this Act shall, so
far as may be, apply accordingly as if the notice were a notice issued under
that subsection. The proceedings under section 34 must be deemed to relate to proceedings
which commence with publication of notice under section 22(1)." The view
taken by the two High Courts has been supported by this Court in V. Jaganmohan Rao
& Ors. v. Commissioner of Incometax & Excess Profits Tax, Andhra
Pradesh, 75 ITR 373.
There,
repelling the same argument on behalf of the assessee this Court said:
"This
argument is not of much avail to the appellant because once proceedings under
section 34 are taken to be validly initiated with regard to two-thirds share of
the income, the jurisdiction of the Income-tax Officer cannot be confined only
to that portion of the income. Section 34 in terms states that once the
Income-tax Officer decides to reopen the assessment he could do so within the
period prescribed by serving on the person liable to pay tax a notice
containing all or any of the requirements which may be included in a notice
under section 22(2) and may proceed to assess or reassess such income, profits
or gains. It is, therefore, manifest that once assessment is reopened 610 by
issuing a notice under sub-section (2) of section 22 the previous
under-assessment is set aside and the whole assessment proceedings start
afresh. When once valid proceedings are started under section 34(1)(b) the
Income-tax Officer had not only the jurisdiction but it was his duty to levy
tax on the entire income that had escaped assessment during that year." No
serious effort, however, was made by Mr. Manchanda appearing for the assessee-respondent
to counter this sub- mission advanced on behalf of the Revenue. Accepting the
legal position indicated in these cases we come to the conclusion that it was
not for the High Court to examine the validity of the notice under s. 148 in
regard to the two items if the High Court came to the conclusion that the notice
was valid at least in respect of the remaining item.
Whether
the Income Tax Officer while making his reassessment would take into account
the other two items should have been left to be considered by the Income Tax
Officer in the fresh assessment proceeding.
With
this conclusion the decision of the High Court would ordinarily have been
reversed. As we have already stated, the assessee has also appealed against
that part of the judgment of the High Court which was adverse to it. Mr. Manchanda
contended that in this case the regular assessment had been made for the
assessment year 1965-66 on 22.1.1966. Notice under s. 147 of the Act was issued
on 7th of March, 1973, i.e., more than seven years after the assessment had
been completed. The three amounts mentioned in the notice under s. 148 of the
Act were found in the assessee's accounts by the Income Tax Officer when he
exam- ined the same in course of the assessment proceedings. We had called upon
the assessee to substantiate the genuineness of the transactions and the assessee
had produced material to support the same. The Income Tax Officer accepted the
documents produced and treated all the three transactions to be genuine and on
that footing completed the assessment. The primary facts were before the Income
Tax Officer at the time of the regular assessment and he called upon the assessee
to explain to his satisfaction that the entries were genuine and on the basis
of materials provided by the assessee satisfaction was reached. It was then
open to the Income Tax Officer to make further probe before completing the
assess- ment if he was of the view that the material provided by the assessee
was not sufficient for him to be satisfied that the assessee's contention was
correct. This Court in Calcutta Discount Company Limited v. I. T. 0.,141 ITR
191 held that the expression 'Material facts' used in el. (a) 611 referred only
to primary facts and the duty of the assessee was confined to disclosure of
primary facts and he had not to indicate what factual or legal inferences
should properly be drawn from the primary facts. In the facts appearing on the
record we are in agreement with Mr. Manchanda that cl. (a) of s. 147 did not
apply to the facts of the case as the alleged escapement of income for
assessment had not resulted from failure on the part of the assessee to
disclose fully and truly all material facts necessary for its assessment for
that year. The notice in the instant case did not indi- cate whether it was a
case covered by cl. (a) or cl.(b). On our finding that cl. (a) was not invokable,
the power under cl. (b) could be called in aid under s. 149(1)(b) of the Act
within four years from the end of the relevant assessment year. Admittedly, the
notice has been issued beyond a period of four years and, therefore, the notice
itself was beyond the time provided under the law. On the facts appearing in
the case the High Court overlooked to consider this aspect of the matter. Since
the proceedings before the High Court were under Art. 226 of the Constitution
and not by way of reference under the Act, the jurisdiction of this Court is
not advisory and confined to the questions referred for opinion. On the facts
we are satisfied that ends of justice require our intervention and we would
accordingly allow the appeal of the assessee by holding that the notice under
s. 148 of the Act cannot be sustained in law for the reasons indicated above.
The
appeal by the assessee is allowed and the appeal by the Revenue is dismissed.
The notice under s. 148 of the Act is quashed. Both parties are directed to
bear their respec- tive costs throughout.
G.N.
Appeal by the assessee is allowed and Appeal by the revenue is dismissed.
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