TaxTMI 
TaxTMI 
2005 (11) TMI 28
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Road, New Delhi, on October 10, 2002. Separate cases for the three assessment years, viz., 1998-99, 1999-2000 and 2000-2001, were registered for each of the two petitioners. The Income-tax Commissioner, Delhi-VII, New Delhi, later vide order dated May 6, 2004, in exercise of powers conferred under section 127 of the Act transferred all six cases of the two petitioners to the Assistant Commissioner, Income-tax, Central Circle, Agra/respondent No. 3. Block assessment proceedings for the period April 1, 1996, to December 10, 2002 (assessment years 1997-98 to 2003-2004), were initiated under Chapter XIV-B of the Act. The Assistant Commissioner, Income-tax, Agra, vide notice dated October 21, 2004, called upon the petitioners to submit reply to the queries made therein (annexure 3 to the writ petition). The petitioner appeared and submitted reply to the queries. Block assessment order dated December 31, 2004, was passed in each of the above cases (annexure 4 to the writ petition). The Assistant Commissioner, Income-tax, Central Circle, Agra/respondent No. 3, in exercise of powers contemplated under section 148 of the Act, issued impugned notice dated March 31, 2005, for the asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for the assessment year 1998-99 is annexed hereto and marked as annexure 5. 15. That after filing the return in compliance of the notice under section 148 of the Act, the petitioner vide letter dated May 13, 2005, called upon respondent No. 3 to supply the reasons for reopening the assessment under section 148 of the Act but no reasons have been supplied to the petitioner till date. Copy of the letter dated May 13, 2005, sent by the petitioner to respondent No. 3 requiring him to furnish the reasons are annexed hereto and marked as annexure 6. 16. That a perusal of the aforesaid notice would show that the assessment year for which the notice has been issued by respondent No. 3 to the petitioner under section 148 of the Act proposing to reassess is covered by the aforesaid block period. There are no reasons relevant or germane for issuance of notice under section 148 of the Act for reassessment under section 147 of the Act. In any event, no reasons have been supplied to the petitioner despite a request made by the petitioner in that behalf. 17. That the entire proceedings initiated in purported exercise of the powers under section 148 of the Act for reassessment under sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... petitioner is irrelevant. The petitioner has filed his return in compliance of the notice issued to it on April 27, 2005, thereafter no notice under section 143(2) have been issued to the petitioner. It is very surprising as to why the petitioner has approached this hon'ble court where there were no proceedings initiated against him and when he had complied with the notice under section 148 of the Act. So far as the supply of reasons are concerned; as stated above, since the petitioner has not approached the Assessing Officer and has merely filed an application before the dark table and, therefore, never approached the Assessing Officer for issuance of reasons, the same were not supplied to it because the petitioner is based at Delhi and not at Agra. However, when the Assessing Officer was required to communicate the reasons, immediately on July 26, 2005, the reasons have been supplied to the petitioner and even after about two weeks the petitioner never approached the Assessing Officer. 18. That in reply to the contents of paragraph No. 15 of the writ petition it is submitted that the reasons for initiating proceedings under section 147 have been sent to the petitioner long ba....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ced either by his counsel. Hence, the genuineness of the sale transaction of jewellery has remained unproved. As regards the other purchaser of jewellery, i.e., M/s. Shree Ji Jewellers, it was informed by the assessee's counsel that this concern belonged to Shri Subhas Chandra Mittal who had shifted to Mathura. He informed that Shri Mittal was residing at Mayatila, Halan Ganj, Mathura. The ITI deputed to make the enquiries succeeded in tracing out his residence and also served a summons under section 131 of the Income-tax Act, 1961, requiring him to produce the record of his business but he failed to comply. As per the report of the ITI, Shri Mittal is at present doing service in a private concern which belongs to the same group to which the assessee belonged at the time of search. As Shri Mittal has not appeared and produced the relevant record to prove the genuineness of transactions of purchase of gold jewellery and its subsequent disposal, it is clear that his concern was a sham entity created just to facilitate the assessee and other persons connected with the group to introduce cash in the garb of sale proceeds of the jewellery. Considering these facts and circumstances, I ha....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... perusal of the reasons (quoted above) show that, if not both, the second reason out of the two reasons pertaining to M/s. Shree Ji Jewellers emerges from cogent material constituting the basis for notice under section 148(2) of the Act. The most crucial argument, though the fourth and the last, made on behalf of the petitioner is that when section 148(2) of the Act, contemplates that the assessing authority has to record reasons, the natural inference is that it must be with certain object which the Legislature intended to achieve. According to the petitioner "reasons" must be indicated/disclosed in the "notice" or simultaneously along with the "notice" itself so that the assessee is informed of the "cause" (ground" of the notice at the earliest relevant opportunity and not later after filing of the "revised return" as claimed by the respondents. It is submitted that there is two-fold purpose of "recording reasons" (i) to ensure that action is not arbitrary or biased, and (ii) to enable the assessee to file his return effectively and expeditiously. According to the petitioner, the object of the provision is not to land the "assessee" in a situation where he is forced to grapple....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f that there had been such non-disclosure. The existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. The expression 'reason to believe' does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The reason must be held in good faith. It cannot be merely a pretence. It is open to the court to examine whether the reasons for the formation of the belief have a rational connection with or a relevant bearing on the formation of the belief and are not extraneous or irrelevant for the purpose of the section. To this limited extent, the action of the Income-tax Officer in starting proceedings in respect of income escaping assessment is open to challenge in a court of law. (See observations of this court in the cases of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC); [1961] 2 SCR 241; AIR 1961 SC 372 and S. Narayanappa v. CIT [1967] 63 ITR 219 (SC); [1967] 1 SCR 590 ; AIR 1967 SC 523; while dealing with the corresponding provisions of the Indian Income-tax Act, 1922)." For convenience, sections 147 and 148 of the Act, to the extent relevant for our purposes are quoted below: "147. If the As....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... deal with the above decision later. So far as section 148(2) of the Act is concerned, it is silent regarding "communication of reasons" and as to whether the same are to be communicated before or after filing of the revised return. This gives rise to an occasion wherein courts are required to fill in the gap and make the provision "meaningful" and "purposive" without doing violence with the "pith and substance" of the provision and object/intent of the Legislature. The settled principles of "statutory interpretation" require that a "provision" in a legislative enactment is to interpret it in a manner which conforms to the rules of natural justice, i.e., which may not be against sense of "fairness" and "good conscience". It is stressed that when there is no "logic" or "rational nexus" to interpret a statutory provision, otherwise, then the court should prefer that interpretation which is meaningful, purposive, for not doing so. In the process of "interpretation", one has to ascertain whether the Legislature under section 148(2) of the Act, which in unequivocal terms requires "reasons" to be recorded intended such "reasons" not to be communicated/disclosed along with a "not....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... paper), i.e., to avoid arbitrariness or biased or mala fide action by the taxing authorities. Keeping the above object of the Legislature in mind, the courts, including the apex court, interpreted the said section by laying down that reasons have to be communicated, as otherwise the same will remain a mere formality with no ultimate purpose or object to be served. Reference is made to the following decisions to appreciate the above premise. Bharat Singh v. Management of New Delhi Tuberculosis Centre [1986] 69 FJR 129, 133; [1986] 2 SCC 614, 619: "In interpretation of statutes, courts have steered clear of the rigid stand of looking into the words of the section alone but have attempted to make the object of the enactment effective and to render its benefits into the person in whose favour it is made.... It is here that the court has to evolve the concept of purposive interpretation which has found acceptance whenever a progressive social beneficial legislation is under review ... Plain words have to be accepted as such but where the intention of the Legislature is not clear from the words or where two constructions are possible, it is the court's duty to discern the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....view the provision as abstract principles separated from the motive force behind. We will consider the provisions in the circumstances to which they owe their origin. We will consider the provisions to ensure coherence and consistency within the law as whole and to avoid undesirable consequences." State of Karnataka v. Appa Balu Ingale [1995] Suppl. 4 SCC 469: "34 .... Judge must be a jurist endowed with the legislator's wisdom, historian's search for truth, prophet's vision, capacity to respond to the needs of the present, resilience to cope with the demands of the future and to decide objectively disengaging himself/herself from every personal influence or predilections. Therefore, the judges should adopt purposive interpretation of the dynamic concepts of the Constitution and the Act with its interpretative armoury to articulate the felt necessities of the time .... To construe law one must enter into its spirit, its setting and history...." United Bank of India v. Abhijit Tea Co. P. Ltd. [2000] 102 Comp Cas 53, 60; [2000] 7 SCC 357, 366: "24. The above result is also reached by the application of the principle of purposive construction. 25. In regard to purposive....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t where the plain literal interpretation of a statutory provision produces a manifestly absurd and unjust result which could never have been intended by the Legislature, the court may modify the language used by the Legislature or even 'do some violence' to it, so as to achieve the obvious intention of the Legislature and produce a rational construction. In such a case the court may read into the statutory provision a condition which though not expressed, is implicit in constituting the basic assumption underlying the statutory provision....." D. Saibaba v. Bar Council of India [2003] 6 SCC 186: "18. Reading word for word and assigning a literal meaning ... would lead to absurdity, futility and to such consequences as Parliament could have never intended. The provision has an ambiguity and is capable of being read in more ways than one. We must, therefore, assign the provision a meaning-and so read it-as would give life to an otherwise lifeless letter and enable the power of review conferred thereby being meaningfully availed and effectively exercised." Kailash Chand v. Dharam Dass [2005] 5 SCC 375 "In Rakesh Wadhawan v. Jagdamba Industrial Corporation [2002] 5 SCC 440 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urt is required to interpret section 148(2), in a manner which makes the provision not only "meaningful" and "purposive" but also not opposed to "fairness" / "fairplay" and "good conscience" the core ingredients of rules of natural justice. The court has time and again held that if two interpretations are possible of a statutory provision except in the case of express statutory exclusion, the one which satisfies "rules of natural justice", is to be preferred. Swadeshi Cotton Mills Co. Ltd. v. Union of India [1981] 51 Comp Cas 210, 227; [1981] 1 SCC 664: "The rules of natural justice can operate only in areas not covered by any law validly made. They can supplement the law but cannot supplant it (Per Hegde J. in A.K. Kraipak [1970] 1 SCR 457; [1969] 2 SCC 262). If a statutory provision either specifically or by inevitable implication excludes the application of the rules of natural justice, then the court cannot ignore the mandate of the Legislature. Whether or not the application of the principles of natural justice in a given case has been excluded, wholly or in part, in the exercise of statutory power, depends upon the language and basic scheme of the provision conferrin....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... litigant's defence. 15. The adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a quasi-judicial body embarks on determining disputes between the parties, or any administrative action involving civil consequences is in issue. These principles are well settled. The first and foremost principle is what is commonly known as audi alteram partem rule. It says that no one should be condemned unheard. Notice is the first limb of this principle. It must be precise and unambiguous. It should appraise the party determinatively of the case he has to meet. Time given for the purpose should be adequate so as to enable him to make his representation. In the absence of a notice of the kind and such reasonable opportunity, the order passed becomes wholly vitiated. Thus, it is but essential that a party should be put on notice of the case before any adverse order is passed against him. This is one of the most important principles of natural justice. It is after all an approved rule of fair play. The concept has gained significance and shades with time.... 16. Principles of natural justice are those rules which have been laid down by ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cedure is mainly grounded on the principles of natural justice irrespective of the extent of its application by express provision in that regard in a given situation. It has always been a cherished principle. Where the statute is silent about the observance of the principles of natural justice, such statutory silence is taken to imply compliance with the principles of natural justice where substantial rights of the parties are considerably affected. The application of natural justice becomes presumptive, unless found excluded by express words of statute or necessary intendment. (see Swadeshi Cotton Mills Co. Ltd. v. Union of India [1981] 1 SCC 664 ; AIR 1981 SC 818; [1981] 51 Comp Cas 210). Its aim is to secure justice or to prevent miscarriage of justice. Principles of natural justice do not supplant the law, but supplement it. These rules operate only in areas not covered by any law validly made. They are a means to an end and not an end in themselves. The principles of natural justice have many facets. Two of them are : notice of the case to be met, and opportunity to explain." Kumaon Mandal Vikas Nigam Ltd. v. Girja Shankar Pant, AIR 2001 SC 24: "While it is true that ove....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in the notice. Reasons as argued by learned counsel for the petitioner, (i) are generally not supplied promptly even when asked for and that too for no reason or rhyme; (ii) in a large number of cases the assessee has no option but to rush to the High Court which unnecessarily burdens already overloaded dockets of the courts; (iii) loss of time, energy and inconvenience caused to the assessee; and (iv) unnecessary (which is otherwise avoidable) burden upon public exchequer since the Revenue Department spent millions and millions all over the country) in contesting avoidable litigation besides reckless waste of valuable hours of working of "Revenue officials". The present case is the best example (if one has asked for an illustration) wherein "reasons" are supplied only when the assessee was compelled to file the present writ petition. There is ample experience, and no discussion is needed, that in the present scenario, it is in itself a punishment if one is pushed, for no fault of his, to file a suit/petition in court. On the other hand, the erring official enjoys litigation at the cost of public money. Even if, the "assessee" is right and just in filing the writ petition-th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ns, this court in the case of K.M. Bansal [1992] 195 ITR 247 concluded: "Applying the above principles to the case in hand, it must be held that, in cases where the assessees have filed their returns or revised returns, as the case may be, in response to the notice under section 148(1) and have also raised a contention that the very initiation of the reassessment proceedings is not in accordance with law, the Assessing Officer shall communicate the reasons recorded by him under section 148(2) to the assessee, subject, of course, to the necessity of protecting his sources/informants if he thinks such protection is necessary in any given case. Suffice it to say that he shall proceed in accordance with the principles enunciated above." This court, thus held that it may not be conclusive and proper for the Revenue to communicate reasons along with notice considering the necessity to protect the source/informants and the decision of the Supreme Court in the case of S. Narayanappa [1967] 63 ITR 219, would be stultified if the court nevertheless interpreted section 148(2) of the Act to mean that the reasons were to be communicated to the assessee without submitting the "revised retu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te that if the appellant had already been served with a notice under section 148 and had complied therewith by filing a return, it was entitled to contend that no second notice lay and also to submit that, in any event, the second notice was barred by time. It is, therefore, necessary to set aside the order of summary dismissal of the writ petition and to restore the writ petition (Writ Petition No. 356 of 1991) to the file of the High Court to be heard and disposed of on the merits. Our observations are confined to the order of summary dismissal that is impugned and should not in any way influence the decision of the court on the merits. Both the parties shall be entitled to take all available contentions at such hearing. The writ petition, having regard to the lapse of time, shall be decided expeditiously. Order on the appeal accordingly. No order as to costs." The aforesaid judgment of the Supreme Court is of no help to the petitioner inasmuch as the point under consideration has not been adjudicated, directly or indirectly, by the apex court. Learned counsel for the petitioner also referred to the provisions of the Right to Information Act, 2005 to emphasise that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 'the only thing in a judge's decision binding as an authority upon a subsequent judge is the principle upon which the case was decided'. 47. The ratio decidendi of a decision may be narrowed or widened by the judges before whom it is cited as a precedent. In the process the ratio decidendi which the judges who decided the case would themselves have chosen may be even different from the one which has been approved by the subsequent judges. This is because judges, while deciding a case will give their own reasons but may not distinguish their remarks in a rigid way between what they thought to be the ratio decidendi and what were their obiter dicta, that is, things said in passing having no binding force, though of some persuasive power ..." There is no dearth of decisions and it is now well-settled that while interpreting a statutory provision if two interpretations are possible the one which favours the taxpayer has to be adopted. Reference may be made to State of Punjab v. Jullundur Vegetables Syndicate [1966] 17 STC 326, 329 ; AIR 1996 SC 1295, 1297. Para. 5 of the said judgment reads: "5. Before we advert to the rival contentions it will be convenient to clear the grou....