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Miri Mal Mahajan Vs. Commissioner of Income-tax and anr. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtPunjab and Haryana High Court
Decided On
Case NumberLetters Patent Appeal No. 203 of 1970
Judge
Reported in[1974]95ITR186(P& H)
ActsIncome Tax Act, 1961 - Sections 139, 139(2), 142, 142(2), 143(3), 144, 147, 148, 153, 153(1) and 153(2)
AppellantMiri Mal Mahajan
RespondentCommissioner of Income-tax and anr.
Appellant Advocate Harbans Lal, Adv.
Respondent Advocate D.N. Awasthy and; B.S. Gupta, Advs.
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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officer has in consequence of information-in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, 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).. it was not disputed that, if this interpretation was put on..........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 (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the income-tax officer has in consequence of information-in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year, 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).........' 11. this section, therefore, deals with three.....
Judgment:

1. The facts giving rise to this appeal under clause 10 of the Letters Patent may briefly be given as follows :

The appellant, Miri Mal Mahajan, carries on business in the village Phanauri in district Jind. He never submitted any returns of his income.A complaint having been received by the Income-tax Officer, local inquiries were got made through the inspector of the department and on the basis of the material so collected, the Income-tax Officer issued a notice to him under Section 148 of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'), for the assessment year 1962-63 and another notice was issued to him under Section 139(2) of the Act for the assessment year 1966-67. Both these notices were sent per registered post acknowledgment due in one envelope. The envelope was returned to the Income-tax Officer with the endorsement ' Refused to take '. On 21st June, 1967, fresh notices were issued under Section 142(1) of the Act. Again, the registered cover was returned with an endorsement about the refusal of the same. On 17th September, 1967, fresh notices under Section 142 of the Act were sent calling upon the appellant to produce his account on 27th September, 1967. The appellant refused to take delivery of this also.

2. In view of the non-co-operative attitude of the appellant, the Income-tax Officer, by his order dated 14th August, 1968, made assessment under Section 144 of the Act with regard to both these years. According to the information received by the department as a result of the inquiries, the income of the appellant from his dealings in foodgrains and money-lending business was about Rs. 8,400 per year. According to the report of the inspector, the appellant had constructed a house during the year 1961 at an estimated cost of Rs. 22,200. For the assessment year 1962-63 this amount was added to the estimated income of Rs. 8,400 as an income from undisclosed sources. The appellant was, consequently, assessed on an income of Rs. 30,600 for the year 1962-63 and on Rs, 8,400 for the year 1966-67. It was further stated that notices for penalty were issued, but we are not concerned with the same, because it was mentioned at the Bar that those proceedings had been dropped. No appeal was filed by the present appellant before the Appellate Assistant Commissioner, but he filed revision petitions before the Commissioner of Income-tax under Section 264(3) of the Act, which were rejected. Being aggrieved, he filed Civil Writ No. 238 of 1970, which was dismissed by the learned single judge, and hence this appeal.

3. The main point urged before the learned single judge and before us was that the assessment order for the year 1962-63 could not be passed after the expiry of four years from the close of the assessment year as provided under Section 153(1)(a) of the Act. The other point taken on behalf of the appellant was that the order of assessment does not disclose the material on the basis of which the assessment has been made and that no such material was supplied to the appellant and no opportunity was given to him to rebut that material as required by the principles of natural justice. Both these points were negatived by the learned single judge.

4. As the order of the assessment in dispute is for the year 1962-63, the law as it existed at that time has to be considered and any amendment made thereafter will not require our attention. Sub-sections (1) and (2) of Section 153 of the Act provided for the time limit within which orders of assessment can be passed under Section 143 or Section 144 and Section 147 respectively. The relevant part of Section 153 runs as follows :

'(1) No order of assessment shall be made under Section 143 or Section 144 at any time after-

(a) the expiry of four years from the end of the assessment year in which the income was first assessable ; or

(b) the expiry of eight years from the end of the assessment year in which the income was first assessable, in a case falling within Clause (c) of Sub-section (1) of Section 271; or

(c) the expiry of one year from the date of the filing of a return or a revised return under Sub-section (4) or Sub-section (5) of Section 139,whichever is latest.

(2) No order of assessment, reassessment or recomputation shall be made under Section 147-

(a) where the assessment, reassessment or recomputation is to be made under Clause (a) of that section, after the expiry of four years from the end of the assessment year in which the notice under Section 148 was served;

(b) where the assessment, reassessment or recomputation is to be made under Clause (b) of that section, after-

(i) the expiry of four years from the end of the assessment year in which the income was first assessable, or.

(ii) the expiry of one year from the date of service of the notice under Section 148,

whichever is later......'

4. In the impugned order of assessment made by the Income-tax Officer (annexure ' A '), after the mention of the name of the dealer, the status, business and the assessment year in dispute, what is stated is as follows:

' Section 144. Income-tax Act, 1961 '

5. The simple argument of the learned counsel for the appellant was that the impugned order being one under Section 144, the limitation applicable would be that given in Sub-section (1) of Section 153 of the Act. It was not disputed before us, though it was urged to the contrary before the learned single judge on behalf of the department, that Clause (c) of Sub-section (1) of Section 271 has no application whatever to the facts of the present case, and, consequently, Clause (b) of Sub-section (1) of Section 153 also does not apply. Clause (c) obviously did not apply and so according to Clause (a) of Sub-section (1) of Section 153, no assessment under Section 144could be made after the expiry of four years from the end of the assessment year in which the income was first assessable. The contention, therefore, was that for the year 1962-63 no assessment could be made after the expiry of 31st March, 1967. On behalf of the department, however, it was urged that the case fell under Sub-section (2) of Section 153 and not under Sub-section (1) of the said section, because though the impugned order is stated to have been passed under Section 144, in fact, the proceedings were initiated under Section 147 of the Act. The contention on behalf of the department, therefore, was that Section 144 prescribes a procedure for an Income-tax Officer to make an assessment on the basis of the material available to him in a case where the assessee does not co-operate with the department at all after having filed the return or having co-operated to an extent does not fully co-operate with the department in furnishing the entire information that is required to be furnished. This situation can arise in two ways, first, where the non-co-operation of the assessee is in respect of the current assessment year for which he was required to furnish the return or for which he was to produce the books of account or other evidence ; or it may arise in a case where, as provided under Section 147, on some information received subsequently, the Income-tax Officer, prima facie, comes to the conclusion that the income has escaped assessment in whole or in part and he decides to issue a notice under Section 148 of the Act. In this case also if the assessee co-operates and furnishes the material, the assessment will be made in the matter as provided under Section 143 and-if he does not co-operate, the assessment will be made as provided under Section 144, but the assessment would be one under Section 147 read with Section 144, In other words, it was contended that for the sake of clarity it would have been better for the Income-tax Officer to mention in the impugned order that the order was one under Section 147 read with Section 144 of the Act. We now proceed to examine the correctness of the contention of the department.

6. Chapter XIV of the Act deals with the procedure for assessment and this Chapter begins with Section 139 relating to 'return of income'. Sub-section (1) of this section imposes a duty on every person to furnish 'return of his income', inter alia, if his total income during the previous year exceeded the maximum amount which is not chargeable to income-tax. This section, therefore, imposes a general duty on every one who falls within the purview of this sub-section to furnish a return, without specifically being called upon to do so. Sub-section (2) of this section provides that where, in the opinion of the Income-tax Officer, any person is assessable under this Act, the Income-tax Officer may ' before the end of the relevant assessment year ' serve a notice upon him requiring him to furnish, within thirty days from the date of service of the notice, a returnof his income. Sub-section (5) of this section provides that if any person having furnished a return either under Sub-section (J) or under Sub-section (2), discovers any omission or any wrong statement therein, he may furnish a revised return at any time before the assessment is made.

7. Sections 140 and 141 need not detain us as they relate to the question as to who is to sign the return and to the making of the provisional assessment respectively. Section 141A is with regard to the relief to be given to, and interest to be recovered from, assessees in certain cases with which also we are not concerned. Section 142 is in respect of the enquiry that has to be made before assessment. Sub-section (1) of this section provides that for the purpose of making an assessment, the Income-tax Officer may serve a notice on a person, who has either furnished the return or upon whom a notice to file such a return under Sub-section (2) of Section 139 has been made, irrespective of the fact whether he has made a return or not, to produce or cause to be produced, certain books or other information with regard to the assets and liabilities of the assessee, as may be required by the Income-tax Officer, on a date fixed. Sub-section (2) entitles the Income-tax Officer to make such inquiries as he considers necessary for the purpose of obtaining full information. Sub-section (3) of this section is to the following effect :

'The assessee shall, except where the assessment is made under Section 144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under Sub-section (2) and proposed to be utilised for the purpose of the assessment.'

8. From the above it is clear that an assessee may file a return either of his own accord under Sub-section (1) of Section 139 or he may file a return when called upon to do so by a notice served by the Income-tax Officer under Sub-section (2) of Section 139. If the Income-tax Officer finds that he requires further information from the assessee, he can serve a notice on him under Section 142(1) to produce account books or furnish other information. In addition to the information so collected, the Income-tax Officer can make inquiries of his own to get full information. When all this material has been collected, the stage is set for the Income-tax Officer to make an assessment. This assessment he makes as provided under Section 143. Sub-section (1) of this section provides that where a return has been made under Section 139 and the Income-tax Officer is satisfied without requiring the presence of the assessee or the production by him of any evidence, he can go ahead to make an assessment on the basis of the return. According to Sub-section (2), if the Income-tax Officer is not so satisfied with the return, then he can serve a notice on the assessee to produce evidence as may be required by him and under Sub-section (3), after such evidence has been produced, he can proceed to make the assess-ment. As provided under Sub-section (3) of Section 142, reproduced above, in a case like this the Income-tax Officer is bound to give an opportunity to the assessee to be heard in respect of the material that has been gathered by him on his own, under Sub-section (2) of Section 142. Thus, Section 143 of the Act provides for the procedure that has to be followed by the Income-tax Officer to make an assessment where the assessee fully cooperates with the department not only in filing the return but also in furnishing the information as desired subsequently either by virtue of Sub-section (1) of Section 142 or by virtue of Sub-section (2) of Section 143.

9. Section 144 of the Act deals with the procedure for assessment in a case where the assessee : (i) fails to file a return altogether even after notice under Sub-section (2) of Section 139 or to file a revised return under Sub-section (4) or Sub-section (5) of that section; or (ii) fails to comply with the terms of a notice issued under Sub-section (1) of Section 142 to produce books of accounts or to give information ; or (iii) fails to comply with all the terms of a notice issued under Sub-section (2) of Section 143 for the production of evidence on matters mentioned in the notice. In such a case, the Income-tax Officer can proceed to make an assessment taking into consideration ' all relevant material which the Income-tax Officer has gathered'. In this case he will make an assessment 'to the best of his judgment '. An assessment made under this section is known as the best judgment assessment. Thus, the process which is begun either by filing a return under Section 139(1) or by service of a notice under Sub-section (2) of Section 139, is finished by an assessment made either under Section 143 or under Section 144. It has to be clearly noted that all the sections directly and primarily apply only to the assessment for the current year in respect of which, as provided under Sub-section (2) of Section 139, a notice has to be given by the Income-tax Officer ' before the end of the relevant assessment year '. In terms, therefore, sections 139 to 144 are not applicable to the assessment which is made subsequently for a previous 'assessment year.

10. Section 147 of the Act deals with a case where for one reason or the other the Income-tax Officer has not been able to assess the income for a particular assessment year, because no return was filed under Sub-section (1) of Section 139 and no notice under Sub-section (2) of this section had been served before the end of that assessment year or the Income-tax Officer wrongly made the assessment either due to some default of the assessee or otherwise. The income of that assessment, year thus escapes assessment. Section 147 provides as follows :--

' 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 undersection 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

(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information-in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

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).........'

11. This section, therefore, deals with three different ways in which the income can escape assessment. If no return has been filed and, consequently, no assessment made, then there is the total escapement of the income. Then there may be partial escapement of the income either because the assessee has made an incorrect return or because of any other reason, other than the default of the assessee. If this happens and the Income-tax Officer, on the basis of the information received by him, comes to the conclusion that the income had so escaped assessment either in whole or in part, then he is empowered to make an assessment of the income which has so escaped or to recompute the loss or the depreciation allowance, as the case may be, and this he is entitled to do in accordance with sections 148 to 153 of the Act.

12. The argument on behalf of the department, therefore, is that whenever the income of an assessee has escaped assessment, then the assessment has to be made by the Income-tax Officer under Section 147. However, as in the case of assessment during the assessment year, as provided in Section 139 or 144, certain procedure has to be followed in this case also. Section 148 provides for a notice to be served. This is in the following terms :

' (1) Before making the assessment, reassessment or recomputation under Section 141, the Income-tax Officer shall serve on the assessee a notice containing all or any of the requirements which may be included in a notice under Sub-section (2) of Section 139 ; and the provisions of this Act, shall, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section.

(2) The Income-tax Officer shall, before issuing any notice under this section, record his reasons for doing so.'

13. This section, therefore, envisages the following steps to be taken by the Income-tax Officer:

(i) 'He must record reasons why he is issuing the notice. These reasons obviously should be in terms of Section 147, namely, he has receivedinformation from which he has come to the conclusion that prima facie the income has escaped assessment either in whole or in part on account of the default of the assessee or otherwise.

(ii) Having come to this conclusion and having recorded his reasons, he then proceeds to issue a notice and it is provided that this notice shall have to be in the same terms, as far as practicable, as a notice under subsection (2) of Section 139, requiring the assessee to submit his return.

(iii) Once this notice has been served, then ' the provisions of this Act, so far as may be, apply accordingly as if the notice were a notice issued under that sub-section. '

14. We have already seen that, if a notice is issued under Sub-section (2) of Section 139, then further information can be called by the Income-tax Officer under Sub-section (1) of Section 142 and under Sub-section (2) of Section 143. We have also seen that, if an assessee complies with this notice and co-operates with the department, then the assessment can be made in the manner provided by Section 143 and, if he does not fully co-operate, then the assessment can be made in terms of Section 144. It was, therefore, urged on behalf of the department that the Income-tax Officer, while making run assessment under Section 147, is governed by the same rules of procedure as provided under Sub-section (1) of Section 142 and Section 143 or 144, as the case may be, and, consequently, an assessment made by the Income-tax Officer would correctly be treated to be an assessment under Section 147 read with Section 144 of the Act. All the same it is not an assessment under Section 144, pure and simple, because an assessment under this section, in terms, can only be an assessment where a return is filed in pursuance of a notice under Sub-section (2) of Section 139 and not in pursuance of a notice under Section 148, although the form of the notice may be the same.

15. Section 149 lays down the time limit within which a notice under Section 148 can be given and the case before us admittedly falls under sub- Clause (i) of Clause (a) of Section 149(1), which is to the following effect:

' (1) No notice under Section 148 shall be issued,--

(a) in cases falling under Clause (a) of Section 147-

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under Sub-clause (ii).......'

16. Now, this sub-clause has absolutely nothing to do with the date on which the assessment is to be completed. It only provides that a notice under Section 148 can be given within eight years of the end of the assessment year for which the income has escaped in terms of Section 147. The time limit for completing the assessment or reassessment is provided for only in Section 153 which has already been reproduced above. Whereas for obvious reasons Section 149 deals with the time limit for a notice underSection 148, but does not deal with the time limit for a notice tinder subsection (2) of Section 139, because the time limit for a notice tinder the latter section is provided in that sub-section itself, Section 153 deals with the time limit for completion of all types of assessments, whether these assessments are made in pursuance of a notice issued under Sub-section (2) of Section 139 or in pursuance of a notice under Section 148. As already noticed, Section 143 or 144, in terms, applies only to an assessment in pursuance of a notice issued under Sub-section (2) of Section 139 and, consequently, Sub-section (1) of Section 153 deals with such assessments and ordinarily such an assessment has to be completed before the expiry of four years from the end of the assessment year in which the income was first assessed. To say that this section also deals with an assessment made in pursuance of Section 147, which has to be initiated by a notice under Section 148, would be misreading the section. For an assessment made under Section 147, Sub-section (2) of Section 153 lays down the limitation. It was not disputed that, if this interpretation was put on Section 153, then the assessment made by the Income-tax Officer in respect of the assessment year 1962-63 would be valid and well within time.

17. There is another way of looking at the matter. It was in the year 1966 that the Income-tax Officer on the information received by him formed the opinion that the income for the year 1962-63 had escaped assessment. He then served a notice under Section 148 on 6th October, 1966. The learned counsel for the appellant had to concede that this notice under Section 148 was within time, because in view of the provisions of Section 149 this notice could be given within eight years of the end of 1962-63. In other words, a notice under Section 148, if given on or before 31st March, 1971, would have been well within time. Supposing within a month of the notice under Section 148, given in 1966, the assessment is completed. If the argument of the learned counsel for the appellant is accepted that it is Sub-section (1) of Section 153 which governed this case, then that assessment would be barred by time. In fact, any assessment made, in pursuance of a notice given, four years after the end of the assessment year for which the income has escaped would, according to this argument, be barred by time. This would lead to the absurd result that although a notice under Section 148 issued by the Income-tax Officer in respect of the escaped income within eight years of the end of the relevantassessment year would be well within time, yet any assessment made beyond four years of the end of the assessment year, though made in pursuance of a valid notice under Section 148, would be invalid being barred by time.

18. If we read Section 153 along with the other sections beginning from Section 139, as discussed above, the conclusion is irresistible that Sub-section (1) of Section 153 deals with a case which falls directly under the provisions of Section 144, i.e., an assessment made in pursuance of a notice under Sub-section (2) of Section 139 whereas Sub-section (2) of Section 153 deals with an assessment made under Section 147 in pursuance of a notice under Section 148 given within the time prescribed under Section 149, to which assessment the provisions of Sections 142, 143 and 144 have been made applicable by virtue of the last part of Sub-section (1) of Section 148 reproduced above. We feel that the whole confusion has arisen, because the Income-tax Officer did not add Section 147 in the heading of the order of assessment. The impugned order is an order under Section 147 read with Section 144 in respect of which the assessment can be completed within the time limit provided under Sub-section (2) of Section 153.

19. The second contention on behalf of the appellant that the evidence got collected by the Income-tax Officer was not put to the assessee as provided in Sub-section (3) of Section 142 has, on the face of it, no force. The assessee was given a number of opportunities to produce his books of account on a date fixed by the Income-tax Officer, but he failed to avail of any of these opportunities. One cannot, therefore, understand how the material gathered by the Income-tax Officer under Sub-section (2) of Section 142 could be put to the assessee and afford him an opportunity to say what he may have to say in respect of the same. In fact, the very opening words of Sub-section (3) of Section 142, viz., 'The assessee shall, except where the assessment is made under Section 144, be given an opportunity ', make it clear that it does not apply to an assessment under Section 144, i.e., where the assessee does not co-operate with the department.

20. In view of the above, we have no hesitation in holding that there is no merit in either of the two contentions, and we dismiss this appeal with costs.


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