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
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 Revenue 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 Constitution 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 assessment 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.
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 assessee 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 proceeding 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 contenton 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.
A Division Bench of the Punjab High Court in Commissioner 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 reference 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
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
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 submission 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 examined 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 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. This Court in Calcutta Discount Company Limited v. I. T. 0.,141 ITR 191 held that the expression ’Material facts’ used in el. (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 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 indicate 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 respective costs throughout. G.N. Appeal by the assessee is allowed
and Appeal by the revenue is dismissed.