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Commissioner of Income-tax Vs. Premchand JaIn (Legal Representative of Late Pannalal Jain) - Court Judgment

LegalCrystal Citation
Subject;Direct Taxation
CourtGuwahati High Court
Decided On
Case NumberIncome-tax Reference No. 17 of 1978 (Gauhati) and 1 of 1981 (Imphal Bench)
Judge
ActsIncome Tax Act, 1961 - Sections 147
AppellantCommissioner of Income-tax
RespondentPremchand JaIn (Legal Representative of Late Pannalal Jain)
Appellant AdvocateNone
Respondent AdvocateL. Nanda Kumar Singh, Adv.
Prior history
B.P. Saraf, J.
1. This reference has been made by the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, ('the Tribunal' hereafter), at the instance of the Commissioner of Income-tax. The following question of law has been referred to this court for opinion ;
'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the reassessment proceedings under Section 147(a) of the Income-tax Act, 1961, for the assessment years 1958-59 and 1959-60 were
Excerpt:
.....officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or .he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).'12. from a bare perusal of the provisions of section 147(a) reproduced above, it is clear that, to confer jurisdiction on the income-tax officer under the provisions of clause (a) of section 147 of the act, to initiate proceedings for reassessment, two conditions have to be satisfied. secondly, he must also have reason to believe that such..........officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ... he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).' 12. from a bare perusal of the provisions of section 147(a) reproduced above, it is clear that, to confer jurisdiction on the income-tax officer under the provisions of clause (a) of section 147 of the act, to initiate proceedings for reassessment, two conditions have to be satisfied. firstly, he must have reason to believe that income.....
Judgment:

B.P. Saraf, J.

1. This reference has been made by the Income-tax Appellate Tribunal, Gauhati Bench, Gauhati, ('the Tribunal' hereafter), at the instance of the Commissioner of Income-tax. The following question of law has been referred to this court for opinion ;

'Whether, on the facts and in the circumstances of the case, the Tribunal was correct in holding that the reassessment proceedings under Section 147(a) of the Income-tax Act, 1961, for the assessment years 1958-59 and 1959-60 were not valid in law ?'

2. The assessee is an individual. The years involved are assessment years 1958-59 and 1959-60. The original assessment for the assessment year 1958-59 was made by the Income-tax Officer on an income of Rs. 5,301 by order of assessment dated April 10, 1961. Subsequently, the Income-tax Officer initiated proceedings for reassessment under Section 147 of the Income-tax Act by issue of a notice under Section 148 to the legal representative of the assessee (as the assessee had died in the meantime). This notice was served on August 6, 1968. The ground on which notice was issued was that, in the opinion of the Income-tax Officer, the assessee had not furnished at the time of the original assessment true and full particulars of the loans obtained by him from various parties during the relevant assessment year.

3. For the assessment year 1959-60, the original assessment was completed on April 10, 1961 on an income of Rs. 6,062. The Income-tax Officer, however, subsequently found that the assessee had not furnished the true particulars regarding the cost of construction of the house property in Delhi, the investment made therein and the amounts obtained from certain parties. Proceedings under Section 147 for reassessment of the income for this year also were initiated by issue of notice under Section 148 of the Act. This notice was also served on the legal representative of the assessee, hereinafter 'the assessee', on March 21, 1968. The assessee objected to the initiation of proceedings for reassessment on the ground of non-existence of the conditions precedent for such initiation. The Income-tax Officer, however, turned down the objection and reassessed the income of the assessee for these two years and redetermined the same at Rs. 66,684 and Rs. 1,08,420, respectively.

4. The assessee preferred an appeal before the Appellate Assistant Commissioner, who, on consideration of the facts and circumstances of the case, held the initiation of proceedings for reassessment to be bad as there was no basis for taking such action. The Appellate Assistant Commissioner also held that action, if any, could have been taken only under Section 147(b) of the Act which was already barred by limitation at the time the notice was issued. He, therefore, cancelled the assessments under Section 147 of the Act.

5. The Revenue filed appeals before the Tribunal. The case of the Revenue before the Tribunal was that the Appellate Assistant Commissioner erred in holding that the assessee had disclosed true and fulfil particulars of the loans and the investments made in the house at the time of the original assessment. The case of the assessee was that he had furnished true and full particulars regarding the loans in question at the time of the original assessment and also supplied complete details regarding the property constructed by him at Delhi. According to the assessee, there was no failure on his part to furnish the true and full particulars of his income before the Income-tax Officer at the time of the original assessment and, as such, there was no justification for initiation of proceedings under Section 147(a) of the Act for reassessment.

6. The Tribunal considered the rival submissions and found that, during the assessment year 1958-59, the assessee borrowed various amounts from several parties in support of which he filed confirmatory letters, copies of the accounts, interest paid to the parties, copy of profit and loss account and balance-sheet. All the parties had admitted that they had advanced loans to the assessee. Under such circumstances, the Tribunal observed that it could not be said that the assessee had not disclosed true and material facts at the time of the original assessment. So far as the assessment year 1959-60 is concerned in which the investment in the house property was involved, the Tribunal observed that, in the original assessment itself, there was discussion regarding the construction of the house. The investment made therein had also been discussed by the Income-tax Officer at length. The Tribunal, therefore, came to a finding that the assessee had disclosed the true and material facts in respect of construction of the property in Delhi and investment made therein at the time of the original assessment. The Tribunal observed :

'The assessee had disclosed not only the loan transactions but also the construction of the property. The assessee had given all primary facts and the Income-tax Officer had discussed the construction of the property in the original assessment order for the assessment year 1959-60. As regards the loans the assessee filed not only the confirmatory letters but also the letters of the parties who advanced the loans. This is what was expected of the assessee, i.e., to disclose the true and material facts at the time of the original assessment. The assessee has filed all these details. Under such circumstances, there is hardly any justification for taking action under Section 147 ...'

7. The Tribunal also referred to the decisions of the Supreme Court in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) S. Narayanappa v. CIT : [1967]63ITR219(SC) and ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) and observed :

'In the conspectus of the above facts, it is quite clear that the, asses-see disclosed all the facts at the time of the original assessments but he did not draw any inference from those facts. To draw an inference was the duty of the Assessing Officer. If the Assessing Officer was satisfied with the genuineness of the transaction at the time of the original assessment, it does not lie in the power of the subsequent Income-tax Officer to initiate action under Section 147 of the Income-tax Act.'

8. In view of the aforesaid observation, the orders of reassessment for both the assessment years were cancelled by the Tribunal and the order of the Appellate Assistant Commissioner was affirmed.

9. The Revenue filed an application under Section 256(1) of the Act seeking reference to the High Court and, accordingly, the Tribunal has referred the aforesaid question of law for our opinion.

10. The point that arises for our consideration in this case is whether the Tribunal was correct in holding that the reassessment proceedings under Section 147(a) of the Act for the two assessment years, namely, assessment years 1958-59 and 1959-60, were not valid in law.

11. In the instant case, admittedly, notices were issued and served on the assessee more than four years after the end of the relevant assessment years. In that view of the matter, the reassessment proceeding can be sustained only if the case falls under Clause (a) of Section 147 of the Act. We are, therefore, concerned in this case only with the operation of Clause (a) of Section 147 of the Act. This provision, so far as relevant (at it stood at the relevant time), read as follows :

'147. Income escaping assessment.--If-

(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under Section 139 for any assessment year to the Income-tax Officer or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year, or ...

he may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in Sections 148 to 153 referred to as the relevant assessment year).'

12. From a bare perusal of the provisions of Section 147(a) reproduced above, it is clear that, to confer jurisdiction on the Income-tax Officer under the provisions of Clause (a) of Section 147 of the Act, to initiate proceedings for reassessment, two conditions have to be satisfied. Firstly, he must have reason to believe that income chargeable to tax has escaped assessment. Secondly, he must also have reason to believe that such escapement has occurred by reason of the omission or failure on the part of the assessee to make a return or to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the Income-tax Officer could assume jurisdiction to issue a notice for assessment or reassessment beyond a period of four years from the end of the relevant assessment year.

13. In the instant case, the Tribunal held that there was no omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for either of the two years under reference and on the basis of this finding held the order of reassessment to be not tenable in law. This finding is the subject-matter of controversy before us.

14. The precise scope of the disclosure that Section 147(a) demands was examined by the Supreme Court as far back as in the year 1960 in Calcutta Discount Co. Ltd. v. ITO : [1961]41ITR191(SC) . It was held that the words 'omission or failure to disclose fully and truly all material facts necessary for his assessment for that year' postulated a duty on every assessee to disclose fully and truly all material facts necessary for his assessment. What facts were material and necessary for assessment differed from case to case. The Supreme Court, in this case, also considered whether this duty extended beyond the full and true disclosure of all primary facts. The answer was in the negative. It was held (p. 201) :

'Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can reasonably be drawn and what legal inferences have ultimately to be drawn. It is not for somebody else--far less the assessee--to tell the assessing authority what inferences, whether of facts or law, should be drawn ...'

15. The Supreme Court held in clear terms that the duty of the assessee is to disclose fully and truly all primary relevant facts ; it does not extend beyond that.

16. This view was reiterated by the Supreme Court in CIT v. Burlop Dealers Ltd. : [1971]79ITR609(SC) . It was observed (p. 612) :

'We are of the view that under Section 34(1)(a) [corresponding to Section 147(a) of the 1961 Act], if the assessee has disclosed primary facts relevant to the assessment, he is under no obligation to instruct the Income-tax Officer about the inference which the Income-tax Officer may raise from those facts. The terms of the Explanation to Section 34(1) also do not impose a more onerous obligation. Mere production of the books of account or other evidence from which material facts could with due diligence have been discovered does not necessarily amount to disclosure within the meaning of Section 34(1), but where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached, a proceeding under Section 34(1)(a) will not lie merely on the ground that the Income-tax Officer has raised an inference which he may later regard as erroneous.'

17. On the facts of the case, it was held (p. 613) :

'The assessee had disclosed his books of account and evidence from which material facts could be discovered : it was under no obligation to inform the Income-tax Officer about the possible inferences which may be raised against him. It was for the Income-tax Officer to raise such an inference and if he did not do so the income which has escaped assessment cannot be brought to tax under Section 34(1)(a).'

18. The aforesaid decision in Burlop Dealers' case : [1971]79ITR609(SC) was followed by the Supreme Court in ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) . It was a case where the assessee had produced in the original assessment proceeding the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest. Subsequently, after a lapse of more than four years from the end of the assessment year, a notice was issued by the Income-tax Officer to the assessee to reopen the assessment on the ground that the transactions of loans represented by the hundis were bogus and no interest was paid by the assessee to any of the creditors and interest was wrongly allowed. The notice for reassessment on being challenged, the Supreme Court held that there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment and the conditions for the applicability of Section 147(a) were not satisfied. Referring to its earlier decision in Burlop Dealers Ltd. : [1971]79ITR609(SC) it was observed (p. 5) :

'It will thus be seen that according to this judgment, there was no obligation on the assessee to disclose that the partnership agreement produced by it was bogus and that the entries made by it in its books of account were false. The assessee discharged the obligation which lay upon it by disclosing its books of account and evidence from which material facts could be discovered and it was for the Income-tax Officer to decide whether the documents produced by the assessee were genuine or false.'

19. Applying these principles to the facts of the case before it, the Supreme Court, in ITO v. Madnani Engineering Works Ltd. : [1979]118ITR1(SC) held (p. 5) :

'Here also the respondent produced all the hundis on the strength of which it had obtained loans from creditors as also entries in the books of account showing payment of interest and it was for the Income-tax Officer to investigate and determine whether these documents were genuine or not. The respondent could not be said to have failed to make a true and full disclosure of the material facts by not confessing before the Income-tax Officer that the hundis and the entries in the books of account produced by it were bogus. We do not see any distinction at all between Burlap Dealers' case : [1971]79ITR609(SC) and the present one and the language of Section 147(a) being identical with that of Section 34(1)(a), the ratio of the decision in Burlop Dealers' case : [1971]79ITR609(SC) must govern the decision of the present case.'

20. It may also be expedient to refer to the decision of the Supreme Court in ITO v. Lakhmani Mewal Das : [1976]103ITR437(SC) where dealing with the duty of the assessee to make a true and full disclosure, it was stated (headnote) :

'The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Income-tax Officer to draw the correct inference from the primary facts. It is not the responsibility of the assessee to advise the Income-tax Officer with regard to the inference which he should draw from the primary facts. If an Income-tax Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening the assessment.'

21. From the foregoing discussion, it is clear that the law on the subject is well-settled. The principles enunciated by the Supreme Court three decades back in Calcutta Discount Co. Ltd. : [1961]41ITR191(SC) still hold the field. We do not want to traverse the same ground over again except to refer to some of the recent decisions of this court where these principles have been reiterated, elucidated and applied.

22. We may first refer to the decision in Abdul Rab Abdul Salam v. ITO . In this case, referring to the provisions of Section 147(a), it was held (p. 427) :

'The principle in such cases is culled from the words in Clause (a) of Section 147 of the Income-tax Act. The words are whether the assessee disclosed 'fully and truly all material facts necessary for assessment'. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee.

Once the assessment order is finalised or issues in the inquiry are settled, the same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth that the conclusion arrived at earlier was discovered to be wrong or that the assessee got away with false representation. The Income-tax Officer can reopen only if he records that true facts were not disclosed ...'

23. The same principle was reiterated by this court in Gulabrai Hanumanbux v. WTO/ITO .

24. From the aforesaid decisions, it is abundantly clear that the conditions set out above are conditions precedent to the exercise of power of reopening a completed assessment under Section 147(a) of the Act for the purpose of reassessment. If these conditions or any of the conditions precedent do not exist, a completed assessment cannot be reopened. This is because the policy of the law is that once the assessee has disclosed the material facts and the assessment is finalised, later, for a different conclusion on the same facts, the assessment cannot be reopened. This is so, because of the well-accepted policy of law, as observed by the Supreme Court in Parashuram Pottery Works Co. Ltd. v. ITO : [1977]106ITR1(SC) that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity.

25. This is also what was observed by Raghuveer J. (as his Lordship then was) in Sirpur Paper Mills Ltd. v. ITO : [1978]114ITR404(AP) . We may gainfully refer to the following passage (p. 407) :

'The Income-tax Department cannot be permitted to begin fresh litigations because of new views they entertain on facts or new versions which they present as to what should be the inference or proper inference either of the facts disclosed or the weight of the circumstances. If this is permitted, litigation would have no end, 'except when legal ingenuity is exhausted'. To do so, is '. . . to divide one argument into two and to multiply the litigation'.'

26. This view was approved and followed by this court in Rajendra Singh v. Superintendent of Taxes [1990] 79 STC 10 (Gau) ; [1990] 1 GLR 449 and Abdul Rab Abdul Salam v. ITO . This aspect of the matter pertaining to finality of decisions arrived at by the authorities was also discussed by the Privy Council in Hoystead v. Commissioner of Taxation reported in [1926] AC 155, 165, wherein it

was observed :

'. . . it is settled, first, that the admission of a fact fundamental to the decision arrived at cannot be withdrawn and a fresh litigation started, with a view to obtaining another judgment upon a different assumption of fact; secondly, the same principle applies not only to an erroneous admission of a fundamental fact, but to an erroneous assumption as to the legal quality of that fact. Parties are not permitted to begin fresh litigations because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted, and there is abundant authority reiterating that principle ....'

27. It is thus clear that, in order to initiate proceedings for reassessment under Clause (a) of Section 147 of the Act, it is necessary for the Income-tax Officer to be satisfied that the assessee had failed to disclose fully and truly all material facts necessary for the assessment. The contention of the assessee in this case is that he had disclosed all material facts fully and truly and, as such, Section 147(a) has no application to the facts of the present case. This contention found favour both with the Appellate Assistant Commissioner and the Tribunal. The Revenue is not satisfied with the findings of the appellate authorities and challenges the same.

28. We have carefully considered the facts of the case and the order of the Tribunal. It appears that the Tribunal, on consideration of the facts of the case, arrived at a finding that for the assessment year 1958-59 wherein the assessee had borrowed certain amounts from different parties, he filed confirmatory letters, copies of accounts, interest paid to the parties, copy of profit and loss account and balance-sheet. All the parties had also admitted that they had advanced loans to the assessee. The Tribunal observed that that is what was expected of the assessee. The assessee had filed all the requisite details. Under such circumstances, the Tribunal held that it cannot be said that the assessee had not disclosed the true and material facts in regard to the loans in question. So far as the investment in the construction of the house at Delhi in the assessment year 1959-60 is concerned, the Tribunal observed that there was a discussion in the original assessment itself regarding the construction of the house by the assessee at Ansari Road, Daryaganj, Delhi. The investment made therein had also been discussed by the Income-tax Officer at length. On a consideration of all these facts and circumstances, the Tribunal arrived at a finding that the assessee had disclosed all true and material facts at the time of the original assessment, The Tribunal came to the conclusion that the assessee had disclosed all facts at the time of the original assessment. To draw an inference was the duty of the Assessing Officer. If the Assessing Officer was satisfied with the genuineness of the transaction at the time of the original assessment, it did not lie in the power of the subsequent Income-tax Officer to initiate action under Section 147(a) of the Act.

29. We have carefully considered the order of the Tribunal in the light of the provisions of Section 147(a) and the principles enunciated by the Supreme Court and this court and, on a consideration of the same we are of the clear opinion that, in the instant case, the assessee had disclosed fully and truly all Material facts necessary for the purpose of assessment for the two assessment years at the time of the original assessment and, as such, the Income-tax Officer had no jurisdiction to initiate proceedings under Section 147(a) of the Act for reassessment. The Tribunal was, therefore, justified in holding that the reassessment proceedings initiated by the Income-tax Officer in the instant case were not valid in law.

30. In view of the aforesaid discussion, we answer the question referred to us in the affirmative and in favour of the assessee.

31. Under the facts and circumstances of the case, we make no order as to costs.

H.K. Sema, J.

32. I agree.


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