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Manoo Lal Kedarnath Vs. Union of India (Uoi) and ors. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtAllahabad High Court
Decided On
Case NumberCivil Miscellaneous Writ No. 6486 of 1973
Judge
Reported in[1978]114ITR884(All)
ActsIncome Tax Act, 1961 - Sections 147, 147(1) and 148
AppellantManoo Lal Kedarnath
RespondentUnion of India (Uoi) and ors.
Appellant AdvocateJ. Swarup and ;R.K. Gulati, Advs.
Respondent AdvocateAshok Gupta, Adv.
Cases ReferredOfficer v. Lakhmani Mewal Das
Excerpt:
.....fully and truly all material facts relevant to the assessment during the course of the original assessment proceedings. the order of the income-tax officer was challenged both on merits as well as on the ground that the income-tax officer had no reason to believe that any escapement had occurred and consequently he could not have legally assumed jurisdiction under section 147(a). the appeal filed by the petitioner-firm was allowed by the appellate assistant commissioner of income-tax on april 17, 1973, on the ground that the income-tax officer had no material at the relevant time to lead to the conclusion that there was evidence of escapement of income for reasons of default on the part of the petitioner-firm. 2. in the counter-affidavit filed on behalf of the income-tax officer as..........assessment under section 147(a) after obtaining approval of the commissioner of income-tax. the reassessment proceedings were initiated against the petitioner-firm on two grounds, (i) that the scrutiny and examination of the seized documents revealed that the petitioner-firm had advanced rs. 65,650 on various dates between 25th november, 1963, to 6th july, 1964, to m/s. kedarnath jageshwar prasad (a sister concern) but did not debit the amount in its account books on those dates. the second reason in justification of the reopening of the assessment proceedings was that the petitioner-firm had deposited rs. 10,000 in cash on august 12, 1964, in the account of sri jageshwar prasad but it did not post the same in his ledger account and squared up in the rokar. this action clearly showed.....
Judgment:

K.C. Agrawal, J.

1. This is a petition under article 226 of the Constitution for quashing the notice issued by the Income-tax Officer (Central) Circle, 4, Kanpur, dated 29th August, 1973, issued under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), and for a direction restraining the said Income-tax Officer from taking further proceedings pursuant to the above notice. The necessary facts are these:

M/s. Manoolal Kedarnath, the petitioner, is a firm consisting of two partners, Rameshwar Prasad and Jageshwar Prasad. The business of the firm was that of a dealer in atta, maida, vegetables, ghee, etc. The original assessment for the assessment year 1965-66, for which relevant accounting year ended on 3rd November, 1964, was completed on March 24, 1970, on an income of Rs. 50,990. On August 27, 1971, a search was made under Section 132(1) of the Act, at the business premises of the petitioner-firm as well as at the residential houses of its partners. In the search, books of accounts and other documents were seized. The Income-tax Officer thereafter reopened the assessment under Section 147(a) after obtaining approval of the Commissioner of Income-tax. The reassessment proceedings were initiated against the petitioner-firm on two grounds, (i) that the scrutiny and examination of the seized documents revealed that the petitioner-firm had advanced Rs. 65,650 on various dates between 25th November, 1963, to 6th July, 1964, to M/s. Kedarnath Jageshwar Prasad (a sister concern) but did not debit the amount in its account books on those dates. The second reason in justification of the reopening of the assessment proceedings was that the petitioner-firm had deposited Rs. 10,000 in cash on August 12, 1964, in the account of Sri Jageshwar Prasad but it did not post the same in his ledger account and squared up in the rokar. This action clearly showed that the amount of Rs. 10,000 was out of their secreted profit which they intentionally omitted to post to the respective ledger account to avoid detection by the Income-tax Officer. This amount of Rs. 10,000 also escaped assessment. Oti the basis of the two items mentioned above, the Income-tax Officer was of the opinion that he had reason to believe that an income of Rs. 75,650 had escaped assessment within the meaning of Section 147(a) of the Income-tax Act on account of the failure on the part of the petitioner-firm to disclose fully and truly all material facts relevant to the assessment during the course of the original assessment proceedings. The said reasons were recorded by the Income-tax Officer on December 2, 1971. The proposal was approved by the Commissioner of Income-tax on the same date and thereafter the notice was issued which was served on December 2, 1971. In compliance with the said notice the petitioner-firm furnished a return showing an income of Rs. 51,166, the same figure which had been disclosed by him in the original assessment proceedings. On receipt of the return a notice under Section 143(2) of the Act together with a notice under Section 143(3) dated September 4, 1972, was issued to the petitioner. After making inquiries, the Income-tax Officer held that the petitioner-firm had concealed the income in the relevant assessment year and on account of the concealment made, its real income could not be assessed. On this, the income-tax Officer assessed the petitioner-firm at a total income of Rs. 6,01,038. The petitioner-firm went up in appeal to the Appellate Assistant Commissioner. The order of the Income-tax Officer was challenged both on merits as well as on the ground that the Income-tax Officer had no reason to believe that any escapement had occurred and consequently he could not have legally assumed jurisdiction under Section 147(a). The appeal filed by the petitioner-firm was allowed by the Appellate Assistant Commissioner of Income-tax on April 17, 1973, on the ground that the Income-tax Officer had no material at the relevant time to lead to the conclusion that there was evidence of escapement of income for reasons of default on the part of the petitioner-firm. Aggrieved by the judgment of the Appellate Assistant Commissioner, the Income-tax Officer filed an appeal before the Income-tax Appellate Tribunal. The appeal was dismissed on April 29, 1976. It, however, appears that before the aforesaid appeal was dismissed by the Income-tax Appellate Tribunal, the Income-tax Officer concerned issued a second notice under Section 147(a) of the Act on August 29, 1973, calling upon the petitioner-firm to show cause as to why the assessment order made with respect to the year 1965-66 be not set aside and a fresh order of assessment be made in respect of the said year. Upon the receipt of the said notice the petitioner-firm filed the present writ petition in this court challenging its validity on a number of grounds, including that the Income-tax Officer did not have jurisdiction to issue the second notice under Section 148 of the Act in respect of those very matters regarding which the reassessment proceedings had once been annulled. The petitioner also alleged that the proceedings taken against the petitioner-firm were mala fide inasmuch as the same had been started by the Income-tax Officer concerned only with the sole object of harassing the partners of the petitioner-firm.

2. In the counter-affidavit filed on behalf of the Income-tax Officer as well as the Commissioner of Income-tax the allegations made by the petitioner were denied and the issuance of the second notice under Section 147(a) was justified. Along with the counter-affidavit of Sri P.C. Dua, the. Income-tax Officer, Central' Circle 4, Kanpur, a copy of the reasons for belief that income had escaped assessment was also filed.

3. The first question that was raised by Shri Jagdish Swarup, counsel appearing for the petitioner, was that a reassessment order in respect of the items mentioned in the second notice under Section 148 dated 29th August, 1 973, having already been set aside by the Appellate Assistant Commissioner, the Income-tax Officer had no jurisdiction under the law to issue a fresh notice in respect of those very items under Section 148 of the Act and to reassess the petitioner-firm. It may be noted that while issuing the earlier notice under Section 148 of the Act, the Income-tax Officer had given two reasons in the proposal submitted to the Commissioner for his approval and sanction. These two items were with respect to the sum of Rs. 65,650 alleged to have been not posted in the ledger account of the partners and the sum oi Rs. 10,000 representing secreted profit. In the impugned notice dated 29th August, 1973, these two very items found a mention as the reasons given by the Income-tax Officer to the Commissioner for starting reassessment proceedings afresh. The Commissioner of Income-tax gave his approval by observing that he was satisfied that a ground for the reopening was made out. It is the common case of the parties that the grounds for believing that the aforesaid two items had escaped assessment are the same as in the previous reassessment proceedings. In the previous reassessment proceedings the Income-tax Appellate Tribunal examined the juslification for the reopening of the assessment and found that :

'Moreover, original assessment order made in this case does show that the assessee has filed all the particulars pertaining to his assessment at the initial stage. The department is not sure in regard to the fact as to whose income it is, inasmuch as the said amount has already been considered once in the hands of the sister concern in whose books the credit entries appeared. Even in the case of the assessee, after reassessment was annulled, the department has again initiated proceedings under Section 148. This seems to be more or less only fishy inquiry to rope in certain amount in one case or the other. This cannot certainly lead to the conclusion that the Income-tax Officer has reason to believe that certain item has escaped assessment on account of assessee's furnishing inaccurate particulars at the time of assessment.'

We are informed that after the dismissal of the appeal by the Income-tax Appellate Tribunal, the Commissioner of Income-tax filed an application under Section 256(2) before this court. The application was also rejected. It would thus show that the judgment of the Income-tax Appellate Tribunal between the parties became final.

4. The question that needs consideration is whether once an order with reference to those items became final, was it open to the Income-tax Officer to start proceedings Under Section 147 of the Act on the basis of these items along with others afresh. The settled rule of law is that a judicial determination which has become final between the parties is binding provided it is made by an authority having jurisdiction. It will have legal efficacy till set aside on an appeal or by any superior authority. In the instant case, we find ample reason for applying the same principle, as admittedly the Appellate Assistant Commissioner, who allowed the appeal and the Income-tax Appellate 'Tribunal which maintained it, had jurisdiction to hear and decide the appeal filed before them so that the decision arrived at were binding on the parties. Its effect was that no subsequent proceedings in respect of the same item can be started for the reassessment of the petitioner. On the ultimate analysis, it would be found that if the earlier reassessment proceedings under Section 147(a) were quashed by the competent authorities on the view that the material on the basis of which the Income-tax Officer initiated these proceedings did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure at the time of original assessment, the same position would still be obtained. What was true then would be correct even at the time of the second assessment proceedings.

5. In Commissioner of Income-tax v. Rao Thakur Narayan Singh [1965] 56 ITR 214, the same question arose for decision before the Supreme Court. In this case, there was a reassessment for the assessment year 1942-43, bringing to tax certain forest income and interest income. The assessee preferred an appeal to the Tribunal, objecting to the Income-tax Officer's jurisdiction to initiate reassessment proceeding in respect of the forest income on the ground that he had knowledge of such income when the original assessment was made. The Appellate Tribunal upheld the assessee's contention but, by mistake, the Appellate Tribunal set aside the entire reassessment order and restored the original one. The revenue did not fake any steps to get the mistake rectified. It also did not make any application for reference to the High Court. Thereafter, the Income-tax Officer initiated fresh reassessment proceeding under Section 34 with reference to the interest income and made a fresh reassessment order for the assessment year 1942-43 to include that income. The Supreme Court held that as the order of the Appellate Tribunal became final, the finding of the Tribunal, even though by mistake, that the officer could not initiate reassessment proceedings in respect of the interest income also, was binding on the Income-tax Officer and he could not reopen the assessment over again to include the interest income. Subba Rao J. (as he then was), speaking for the Supreme Court, said at page 239:

'The Tribunal held in the earlier proceedings that the Income-tax Officer knew all the facts at the time he made the original assessment in regard to the income he later on sought to tax. The said finding necessarily implies that the Income-tax Officer had no reason to believe that because of the assessee's failure to disclose the facts, income has escaped assessment. The earlier finding is comprehensive enough to negative 'any such reason on the part of the Income-tax Officer. That finding is binding on him. He could not on the same facts reopen the proceedings on the ground that he had new information. If he did so, it would be a clear attempt to circumvent the said order, which had become final.'

6. The law enunciated by the Supreme Court in the above case squarely applies to the facts of the present case also. If the second notice issued by the Income-tax Officer under Section 148 is only an attempt to circumvent the first order passed by the Appellate Assistant Commissioner of Income-tax and the Income-tax Tribunal, it is against the principle of finality that such a course be permitted.

7. Now the question is with reference to the items other than those which were mentioned in the notice dated December 2, 1971, given under Section 148 of the Income-tax Act. It was not disputed before us that all the other items mentioned in the second notice dated 29th August, 1973, apart from the two referred to above were those which were the subject-matter of consideration by the Income-tax Officer in the reassessment proceedings. After taking those items into account the Income-tax Officer held that the correct income of the petitioner, which was liable to be taxed was Rs. 6,01,038. This order of the Income-tax Officer was set aside by the Appellate Assistant Commissioner in the appeal and the same was maintained in the second appeal by the Income-tax Appellate Tribunal. It is true that Section 147 was intended to deal with cases of escapement of income to tax. Broadly speaking, if, therefore, during the course of the reassessment proceeding, an Income-tax Officer comes to know that a particular item had escaped assessment he may take steps to bring that income to tax by way of proceedings under Section 147 of the Act. In proceedings under Section 147 of the Act, the Income-tax Officer is entitled to bring to tax items of income other than those which had led to the issue of the notice under Section 148. His jurisdiction is not confined to the items in respect of which a notice under Clause (a) of Section 147 has been issued (see Jaganmohan Rao v. Commissioner of Income-tax : [1970]75ITR373(SC) ). It is also true that Section 147 places no limit on the number of notices of reassessment that may be issued so long as they are within the time limit specified in the Section. But once a proceeding in respect of an item other than the one mentioned in the notice under Section 148 has been taken and the same is subsequently not upheld in appeal, it is not possible to restart the proceedings in respect of the same items afresh. The judgment given on all the items irrespective of the fact that only some of them were the subject-matter of the notice under Section 148 would be binding. It, therefore, appears that the first reassessment order made by the Income-tax Officer in respect of the items mentioned in the second notice under Section 148 of the Act having been set aside, the second notice issued for reassessment is invalid.

8. Furthermore, it is to be noted that the requirement of Section 148 is that before notice is issued after the expiry of the 4 years from the end of the relevant assessment year, the Commissioner should be satisfied on reasons recorded by the Income-tax Officer that it is a fit case for the issue of such notice. It is also imperative for the Income-tax Officer to record his reasons before initiating proceedings as required by Section 148. The Income-tax Officer cannot initiate proceedings in a case where the period of 4 years has expired from the end of the relevant assessment year without obtaining the prior sanction. The giving of the sanction by the Commissioner of Income-tax is not a mere formality. He is required to apply his mind to the grounds on which the sanction is sought, to start or initiate the proceedings de novo. In the instant case, it would be seen that in the reasons recorded by the Income-tax Officer the two items referred to above found a prominent place. It was stated therein that the assessment orders already made by the Income-tax Officer regarding the same had been quashed. The Commissioner of Income-tax still gave sanction for starting the proceedings in respect of these two item as well. This clearly shows the non-application of his mind to the controversy, whether the present was a fit case for according sanction or not. Had he applied his mind properly he would have found that as a competent court had already found that the Income-tax Officer did not have jurisdiction to start proceedings of reassessment on that basis the approval to initiate proceedings afresh in respect of these items could not be given. As observed by the Supreme Court in Income-tax Officer v. Lakhmani Mewal Das : [1976]103ITR437(SC) , the provisions of the Act in this respect depart from the normil rule that there should be finality about orders made in judicial and quasi-judicial proceedings. It is, therefore, absolutely essential that before such action is taken the requirement of the law should be satisfied. It was the bounden duty of the Income-tax Officer to have given a consideration to this aspect of the matter. In fact, the Income-tax Officer also acted without jurisdiction in seeking the approval of the Commissioner of Income-tax for starting the second reassessment proceedings on the basis of the two items which had been the subject-matter of decision in the earlier case.

9. For all these reasons the writ petition succeeds and is allowed. The notice under Section 147(a) of the Income-tax Act dated 29th August, 1973, is quashed. The respondents are restrained from taking proceedings on the basis of the said notice. The petitioner will be entitled to the costs of this petition.


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