TaxTMI 
TaxTMI 
2002 (10) TMI 252
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....partmental Representative also filed copy of the decision of the Hon'ble Supreme Court of India in the case of Kalyan Kumar Ray vs. CIT (1992) 102 CTR (SC) 188 : (1991) 191 ITR 631 (SC). 5. These appeals are, therefore, being decided after considering the oral arguments of the learned representatives of the parties, their written submissions and the material on which reliance has been placed by them. 6. Since identical grounds have been taken in these appeals, we consider it proper to take up ITA No. 20/Luc/2000 for asst. yr. 1988-89 as the leading appeal. ITA No. 20/Luck/2000 7. Ground Nos. 1 to 3 taken in this appeal challenge the validity of notice issued under s. 148 of the IT Act, 1961, for reopening of the assessment under s. 147 of IT Act, 1961, and the validity of reassessment order. As these grounds involve legal issues also, we consider it proper to take up these preliminary grounds together for disposal. These grounds are being reproduced below: Ground Nos. 1 to 3 "On the facts and in the circumstances of the case and in law the following actions of the authorities below are arbitrary, erroneous and illegal and must be quashed: 1. In holding that the....
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....ith Methodist Church of India for constructing a shopping complex on the land of the church with its own funds. As per agreement dt. 28th July, 1983, the yield of the commercial shopping complex was to be divided between constructing agency i.e., the assessee and the land owner i.e., the M.C.I. The manner in which the yield was to be distributed has been given in paras 7 and 11 of the agreement, which has been reproduced in para 3 of the order of the learned CIT(A). We do not consider it proper to reproduce the relevant extracts of the agreement in this order. 12. It may be pointed out that by virtue of the said agreement, the contractor i.e., the assessee was to get the cost of the construction on deferred basis. Such payments were out of rents received from the tenants of the proposed building. The assessee was thus to earn income from rent after amortizing the work-in-progress. Vide para 13 of the agreement, it was also agreed that the prospective tenants shall be recommended by the developers i.e., the assessee to the owners who shall be accepted by the owners and thereafter the agreement of the tenancy shall be executed. 13. The assessee filed return for asst. yr. 1990-9....
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....dicated by him by observing as under: "2. The first issue objected to in all the above assessment years is against the action of the AO in initiating the proceedings under s. 147/148. It was also submitted that the AO did not record any reason before taking action under s. 147. The AO was not justified in changing his view and restart already completed proceedings. A perusal of assessment order shows that during the course of assessment proceedings the authorized representative of the appellant submitted a detailed reply on 14th Jan., 2000, stating therein that the return filed earlier may be treated as return in compliance to notice under s. 148. Thereafter, on 18th Jan., 2000, the AO showed to Sri S.N. Mehrotra, C.A., the reasons recorded by him under s. 148. Thereafter, on 18th Jan., 2000, the AO showed to Sri S.N. Mehrotra, C.A., the reasons recorded by him under s. 147 of the IT Act, 1961. A notice issued under s. 143(2) by the AO was complied by Sri S.N. Mehrotra, who appeared before the AO on 21st Jan., 2000. The AO started reassessment proceedings on the basis of valid information and following the correct procedure. Thus, the grounds relating to this issue do not have a....
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..... 7. The security deposit cannot be treated as income as there was no proof that it is the income of the assessee. Mere status or character of deposit cannot lead to the conclusion that income has escaped assessment. 8. The aspect of security deposit was explained to the AO and the CIT in the first round of proceedings and no new fact or material came to the notice of the AO, which was not dealt with during the original assessment proceedings and, therefore, there was no justification for reconsideration of the same in the reassessment proceedings. 9. Even if it is presumed that there was omission on the part of the AO in considering the nature of deposit, then also the power for reopening cannot be exercised on the basis of error of judgment. 10. The reasons recorded for initiation of reassessment proceedings were not supplied before completion of the assessment and these irregularities also invalidate the notice as well as the reassessment proceedings. 11. The reassessment proceedings have been made in violation of rules of natural justice and any action done in violation of rules of natural justice is non est in law. 12. That the belief entertained by the AO mu....
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.... to the CIT, a copy of which is available at pp. 4 and 5 of the paper book, a perusal of which shows that the AO took cognizance of the order passed by the learned CIT under s. 263. He also took note of the significant development which was on account of receipt of appellate order dt. 26th March, 1997, passed by CIT(A) in respect of asst. yr. 1992-93. (b) The assessee had not disclosed the material facts properly in relation to capital receipts. He created a smoke screen so as to prevent the discovery of true state of affairs. Although the assessee was aware of the receipts credited to the account of security deposits but he was successful in his ingenuity in using the nomenclature of security deposit to create a device or smoke screen. It is, thus, clear that the assessee had failed to disclose fully and truly all material facts necessary for his assessment for the assessment years under appeal and camouflaged the receipts in such a way that it did not appear to be taxable. (c) The initiation of reassessment proceedings was justified and supported by provisions of sub-s. (1) of s. 150. Notice under s. 148 was issued/served on the assessee on 26th March, 1998, for the purpose....
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....edings under s. 147 on the ground that reasons were not shown, he cannot take such plea before the Tribunal. 24. In support of the above specific pleas and other pleas contained in the written arguments submitted by the Department, reliance has been placed on the following cases: (1) Shri Krishna (P) Ltd. vs. ITO (1996) 135 CTR (SC) 75 : (1996) 221 ITR 538 (SC); (2) Ram Prasad vs. ITO (1995) 82 Taxman 199 (All); (3) M.T.N.L. vs. Chairman, CBDT (2002) 162 CTR (Del) 554 : (2000) 246 ITR 173 (Del); (4) ITO vs. Selected Dalurband Coal Co. (P) Ltd. (1996) 132 CTR (SC) 162 : (1996), 217 ITR 597 (SC); (5) G.S. Atwal & Co. vs. CIT (1993) 109 CTR (Cal) 328; (6) Rakesh Agarwal vs. Asstt. CIT (1997) 137 CTR (Del) 65 : (1996) 221 ITR 492 (Del); (7) Indo-Aden Salt Manufacturing & Trading Co. (P) Ltd. vs. CIT (1986) 58 CTR (SC) 9 : (1986) 159 ITR 624 (SC); (8) S. Narayanappa & Ors. vs. CIT (1967) 63 ITR 219 (SC); (9) Phool Chand Bajrang Lal vs. CIT (1993) 113 CTR (SC) 436 : (1993) 203 ITR 456 (SC); (10) Kantamani Venkata Narayana & Sons vs. ITO (1967) 63 ITR 638 (SC); and (11) Praful Chunilal Patel vs. Asstt. CIT (1998) 148 CTR (Guj) 62 : (1999) 236 ITR 832 (G....
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.... of the assessee to disclose the material facts truly and fully, etc. in view of the provisions contained under s. 147(a) of IT Act, 1961, or on the ground that the AO came in possession of some information and in consequence of such information, he believed that the income chargeable to tax has escaped assessment. (iii) Whether the notice issued under s. 148 was time-barred in view of the provisions contained under IT Act, 1961. (iv) Whether the notice under s. 148 was issued on the basis of facts coming subsequently to the notice of the AO or on the basis of mere change of opinion, as contended by the assessee. (v) Whether the notice issued under s. 148 is invalid and illegal and if so, whether the order of reassessment can be treated as illegal and invalid. 30. Before adjudicating the above issues, we consider it proper to lay down the undisputed facts, which are as under: (1) For asst. yr. 1988-89, the original return was filed on 30th Aug., 1991. (2) The notice under s. 148 was issued on 26th March, 1998. (3) The reasons for initiation of reassessment proceedings are contained in the proposal of ITO dt. 3rd March, 1998, mentioned above. (4) The provisio....
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.... disclosed the fact relating to security deposits during the original assessment proceedings, which is clear from the order-sheet dt. 13th Jan., 1992, which relates to the issuance of notice under s. 148, in the first round of proceedings. This entry is being reproduced below: "The assessee is a registered firm has filed return of income on 30th Aug., 1991, for the asst. yr. 1988-89 declaring Nil income. The return is delayed. A perusal of balance sheet shows that there are secured and unsecured loans of creditors exceeding Rs. 10 lakhs and security deposit and banking advances exceeding Rs. 18.80 lakhs. Therefore, in order to regularize the return of income issue notice under s. 147 of the IT Act, 1961." It may also be pointed out that in original assessment for asst. yrs. 1988-89 to 1991-92, the AO has made reference to security deposits. 34. In the combined order of the learned CIT(A) dt. 30th Dec., 1994 for asst. yrs. 1988-89 to 1991-92 also, reference has been made to the security deposits. A relevant portion of his observations on this point as contained in para 1(c) of his order is being reproduced as under: "The AO also noted that the appellant had taken securit....
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....) Ltd. vs. CIT (1997) 138 CTR (SC) 260 : (1997) 224 ITR 560 (SC), held that the duty of the assessee is only to fully and truly disclose all material facts. Explaining the expression "material facts" as contained in s. 34(1)(a), the Court observed that it refers only to the primary facts and the duty of the assessee is to disclose such primary facts. The Court further observed that there is no duty cast on the assessee to indicate or draw the attention of the ITO to what factual or legal or other inferences can be drawn from the primary facts disclosed. There is not a word in the order of assessment if the respondent-assessee omitted to disclose any material fact." The ratio of the above decision is fully applicable to the facts of the present case. 37. The learned Senior Departmental Representative has placed reliance on the decision of Hon'ble Supreme Court of India in the case of Shri Krishna (P) Ltd. vs. ITO & Ors.. In that case, the assessee had shown certain Hundi loans totalling to Rs. 8,53,258 said to have been taken from a number of persons. The ITO accepting the averments made the assessment. During the course of assessment proceedings for the subsequent year, the a....
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....t 6 per cent was allowable and available only in respect of masonry assets and not in respect of earth work. The ITO sought to reopen the original assessment under s. 147(a). The question was whether excessive depreciation had been allowed and income had escaped assessment for those years owing to the failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. It was held that since excess depreciation had been allowed on the entirety of the assets on the basis of material supplied by the assessee, the ITO could reasonably be said to have material to form the belief that there was underassessment owing to the failure on the part of the assessee to disclose fully and truly all material facts. 40. Thus, the decision of this case is also not applicable. 41. The learned Senior Departmental Representative has also placed reliance on the decision of Hon'ble Gujarat High Court in the case of Praful Chunnilal Patel, vs. M.J. Makwana, Asst. CIT. 42. It may be pointed out that this decision has been dissented from by the Full Bench of Hon'ble Delhi High Court in the case of CIT vs. Kalvinator of India Ltd. (2002) 174 CTR (Del)(FB) 617....
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....n be given greater retrospectivity than is expressly mentioned so as to enable the authorities to effect the finality of tax assessments or to open up liabilities, which have become barred by lapse of time. Our conclusion therefore, is that sub-s. (1) of s. 150, as amended w.e.f. 1st April, 1989, does not enable the authorities to reopen assessments which have become final due to bar of limitation prior to 1st April, 1989, and this position is applicable equally to reassessments proposed on the basis of orders passed under the Act or under any other law." 47. In the case of Ranchi Handloom Emporium vs. CIT & Anr., (2000) 158 CTR (Pat) 646 : (1999) 235 ITR 604 (Pat) the Hon'ble Patna High Court has held that amendment to s. 147 w.e.f 1st April, 1989, will not be applicable to asst. yr. 1988-89. The following observations of the Hon'ble Court are being reproduced below: "that the submission that the present case would be governed by the amended provisions of s. 147 of the Act was completely misconceived. Having regard to the fact that the amended provisions, as substituted by the Direct Tax Laws (Amendment) Act, 1987, came into force from 1st April, 1989, and the present case r....
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....s impliedly applied cl. (b) of s. 147, according to which, notwithstanding, any omission or failure on the part of the assessee, the AO can entertain a belief, in consequence of information in his possession that income chargeable to tax has escaped assessment for any assessment year. It may be pointed out that in the assessment order, the AO has not indicated provisions of s. 147(a) in the body of the order. The learned CIT(A)-II has also not recorded any finding to the effect that the reopening of the assessment was made on the ground that the assessee had failed to disclose material facts truly and fully. In view of the above, the only inference can be drawn that the notice under s. 148 was issued to the assessee by the AO on the ground contained under s. 147(b) and not on the ground contained under s. 147(a) of the Act. The contention of the learned Senior Departmental Representative that the notice for reopening the assessment was issued on account of failure on the part of the assessee to disclosure the material facts truly and fully is, therefore, not acceptable. 50. The period of limitation is to be considered in view of the provisions of s. 149. Under the unamende....
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.... the AO has not stated while issuing notice under s. 148 that the notice is being issued to carry out the order of learned CIT passed under s. 263 or to give effect to the same. A mere mention of the order of learned CIT under s. 263 only shows that the AO has been influenced by the opinion of the learned CIT and proceeded to make reassessment on the basis of such provision. Had he acted only on the basis of orders of CIT under s. 263 of IT Act, he would have given details of this order and also relevant findings of CIT and could have also specifically pointed out in the proposal of reassessment that the proceedings are reinitiated to give effect to the order of learned CIT. Likewise, the plea of the learned Senior Departmental Representative that the AO has also had the order of learned CIT(A), dt. 30th Dec., 1994, as ground for reopening the assessment is concerned, the same is not acceptable inasmuch as the AO has made no reference to such order in his proposal to initiate reassessment proceedings. It may also be pointed out that the reassessment can be made only on the basis on which a notice under s. 148 was issued and no subsequent reasons or developments can be assigned for ....
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....rt of India. The Tribunal affirmed the order of CIT(A). On appeal under s. 260A of the Act, the Hon'ble Rajasthan High Court rejected the appeal and held that even in consequence of information based on relevant judicial decision, no notice under s. 148 can be issued, because of the time-limit of four years, as provided under cl. (b) of s. 149(1). The view of the Tribunal in cancelling the reassessment order was upheld. The relevant observation of the Hon'ble Court are being reproduced below: "Turning to cl. (b) of s. 147 of the Act, irrespective of the fact that there has been no omission or failure as provided under cl. (a), the AO in consequence of information in his possession can still consider a case of escaped assessment for any assessment year. The word "information" has been explained by the apex Court in Maharaj Kumar Kamal Singh vs. CIT (1959) 35 ITR 1 (SC). It is observed that the word 'information' in s. 34(1)(b) includes information as to the true and correct state of the law and so would cover information as to relevant judicial decisions. Even in consequence of such an 'information', no notice under s. 148 can be issued because of the time-limit of four years as ....
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.... the intention of legislature while enacting s. 150 of IT Act, 1961. In the case of Gaurishankar Choudhary vs. Addl. CIT & Anr. (1999) 154 CTR (Pat) 264 : (1998) 234 ITR 865 (Pat), the Hon'ble High Court of Patna, while explaining the scope of s. 150 has observed as under: "Sec. 150 of the IT Act, 1961, provides that notwithstanding anything contained in s. 149, the notice under s. 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision, or by a Court in any proceeding under any other law. Resort to sub-s. (1) of s. 150 of the Act can be taken only in cases where it becomes necessary to make assessment or reassessment or recomputation in consequence of, or to give effect to, any finding or direction pursuant to an appellate order passed by the appellate authority or pursuant to any order in reference or revision or by a Court in any proceeding under any other law. Obviously, the appeal, reference or revision or any other proceedings before a Court mu....
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....l fact or change in law was brought to his notice or came to his notice for initiating reassessment proceedings. According to the learned counsel, the notice issued under s. 148, only on the basis of change of opinion, cannot be treated to be a valid notice. 58. In support of the above contention, the learned counsel for the assessee has placed reliance on the following rulings: 1. Andhra Bank Ltd. vs. CIT (1997) 140 CTR (SC) 334 : (1997) 225 ITR 447 (SC); 2. Calcutta Discount Co. Ltd. vs. ITO & Anr. (1961) 41 ITR 191 (SC); 3. CIT vs. Bhanji Lavji ; 4. Reform Flour Mills (P) Ltd. vs. CIT (1973) 88 ITR 150 (Cal); 5. Sunrolling Mills (P) Ltd. vs. ITO (1986) 54 CTR (Cal) 268 : (1986) 160 ITR 412 (Cal); 6. S.P. Gramophone Co. vs. ITAT & Ors. (1986) 54 CTR (P&H) 252 : (1986) 160 ITR 417 (P&H); 7. Garden Silk Mills (P) Ltd. vs. Dy. CIT (1999) 151 CTR (Guj) 533 : (1999) 237 ITR 668 (Guj); 8. Noorbari Tea Company (P) Ltd. vs. ITO & Anr. (1988) 69 CTR (Gau) 24 : (1988) 172 ITR 162 (Gau); 9. Saradbhai M. Lakhani vs. ITO (1998) 145 CTR (Guj) 110 : (1998) 231 ITR 779 (Guj); 10. Dr. Santhosh Kumar Dey (Decd.) vs. ITO (2000) 162 CTR (MP) 386 : (2000) 245 ITR 277 ....
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....a & Anr. (1999) 151 CTR (Ker) 663 : (1999) 236 ITR 604 (Ker); 39. Ranchi Handloom Emporium vs. CIT & Anr. (2000) 158 CTR (Pat) 646 : (1999) 235 ITR 604 (Pat); and 40. Smt. Jamila Ansari vs. IT Department & Anr. 59. After going through the material on record, we find ourselves in agreement with the learned counsel for the assessee that the assessee had disclosed all the material facts during the course of original assessment proceedings. To repeat, the assessee had placed the agreement before the AO. It had shown the security deposit in the balance sheet and, therefore, nothing was concealed by the assessee. Hence, the allegation of non-disclosure of material facts by the assessee relating to deposits is not made out or established. On the basis of record, it is found that the AO somehow or other, did not treat the security deposits as income of the assessee and this conclusion or omission (sic-opinion) was subsequently changed on account of the opinion of the learned CIT expressed in his order passed under s. 263 for some assessment year. Hence, even the opinion is not that of the AO, rather it is the opinion of the other officer, namely, CIT. 60. This issue has been de....
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.... ITO on the basis of which he could reopen the assessments. This was a case of mere change in opinion, and, therefore, the assessments had not been validly reopened under s. 147(b) of the IT Act, 1961." 61. In the case of CIT vs. Bhanji Lavji, the Hon'ble Supreme Court of India has observed that it is not for the assessee to satisfy the ITO that there is no concealment with regard to any question and it was for the ITO, if that issue was raised, to establish that the assessee had failed to disclose fully and truly certain facts material to the assessment of income which had escaped assessment. 62. In the case of Garden Silk Mills (P) Ltd vs. Dy. CIT, the Hon'ble Gujarat High Court has observed as under: "However wide the scope of taking action under s. 148 of the IT Act, 1961, it does not confer jurisdiction on change of opinion on the interpretation of a particular provision earlier adopted by the assessing authority. For coming to the conclusion that there has been excessive loss or depreciation allowance or that there has been underassessment or assessment at a lower rate or for applying other provisions of Expln. 2 to s. 147, it must be on material and it should have n....
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....t in the case of Jay Shree Tea and Industries Ltd. vs. Dy. CIT & Ors.. In that case, the assessee was a public limited company deriving its income from business of growing and manufacturing tea in India and from other activities. For the asst. yr. 1990-91, the assessee filed its return along with audit report and claimed deduction under s. 32AB(5) of IT Act, 1961. The AO completed the assessment and allowed deductions. Subsequently, the AO issued notice under s. 148 on the ground that income had escaped assessment as deduction under s. 32AB(5) allowed was more than the amount permissible under that section. The assessee challenged this action of the AO in writ petition on the ground that notice had been issued after four years from the end of relevant assessment year and also on other grounds. The Hon'ble Calcutta High Court allowed the petition accepting the plea of the assessee and it was held that the Department failed to prove that the assessee had failed to disclose fully and truly all material facts required for assessment of its income and assuming that there was some mistake in calculation either on the part of the assessee or on the part of the ITO, that did not mean that ....
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....nded provisions of s. 147 and also the amended provisions of s. 148 has considered and observed as under: "From a bare perusal of the provisions contained in s. 147 of the said Act, as it stood upto 31st March, 1989, it is evident that to confer jurisdiction under s. 147(a) of the Act two conditions were required to be satisfied, viz., (1) the AO must have reason to believe that income chargeable to tax has escaped assessment; and (2) he "must also have a reason to believe that such escapement occurred by reason of either; (a) omission or failure on the part of the assessee to make a return of his income under s. 139, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. The aforementioned requirements of law must be held to be conditions precedent for invoking jurisdiction of the AO to reopen the assessment under s. 147 of the said Act. It is trite that both the conditions aforementioned are cumulative. It is also a well-settled principle of law that, in the event it is found that any of the said two conditions is not fulfilled the notice issued by the AO would be wholly without jurisdic....
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....ke up or adjudicate the remaining grounds taken in this appeal on merits. 75. In the result, the ITA No. 20/Del/2000 deserves to be allowed on these grounds. Consequently assessment order dt. 25th Jan., 2000, passed under s. 143(3)/148 is also quashed. ITA Nos. 21, 22 & 23/Del/2000 76. These three appeals relate to asst. yrs. 1989-90, 1990-91 and 1991-92. The assessee has taken ground Nos. 1, 2 and 3 in these appeals as legal grounds to challenge the validity of the assessment framed under s. 147/143(3). These grounds are reproduced as under: "On the facts and in the circumstances of the case and in law the following actions of the authorities below are arbitrary, erroneous and illegal and must be quashed: 1. In holding that the assessment framed under s. 147/143(3) of the IT Act, 1961, was valid and proper in law; 2. In not providing the grounds for reopening of the assessment under s. 147 and in completing the assessment under s. 143(3) without such disclosure; 3. In holding that the case was covered under s. 147 of the Act and that the re-assessment proceedings were validly initiated and undertaken." 77. So far as ground No. 2 is concerned, while deciding....
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....ssessment year concerned (hereafter in this section and in ss. 148 to 153 referred to as the relevant assessment year): Provided that where an assessment under sub-s. (3) of s. 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under s. 139 or in response to a notice issued under sub-s. (1) of s. 142 or s. 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year." 79. In view of the proviso referred to above, the period of limitation is only open to four years, where the reassessment is not made on the ground of failure on the part of the assessee to disclose material facts fully and truly necessary for the assessment. 80. So far as the three assessment years under consideration are concerned, on facts it is found that there was no failure on the part of the assessee to disclose the material facts fully and truly necessary for the asse....