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Harshvadan Mangaldas Vs. Income-tax Officer, Ahmedabad, and Another. - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtGujarat High Court
Decided On
Case NumberSpecial Civil Application No. 2817 of 1979
Reported in[1982]137ITR147(Guj)
AppellantHarshvadan Mangaldas
Respondentincome-tax Officer, Ahmedabad, and Another.
Excerpt:
.....under s. 139, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. both these conditions are conditions precedent to be satisfied before the ito acquires jurisdiction to issue notice under s. 148. if either of these two conditions is not satisfied, the action of the ito in issuing notice under s. the value shown in the wealth-tax return for the assessment year 1957-58 was, in our opinion, not a relevant or germane factor for the purpose of computation of capital loss on the basis of the value of the shares as on january 1, 1954, in the income-tax assessment for the assessment year 1972-73. in any case, the assessee was not under an obligation to disclose what value he had shown in his return of..........read with s. 147(a) of the i.t. act, 1961 (hereinafter referred to as 'the act'), reopening his income-tax assessment for the assessment year 1972-73. the assessee held certain shares in private limited companies which were not quoted in the market. the assessee had sold the shares in the previous year relevant to the assessment year 1972-73 and disclosed capital loss in his return on the basis of the market value of those shares as on january 1, 1954. the value of the shares as on january 1, 1954, was worked out by an approved valuer and the assessee had submitted the valuers report which showed the method of valuation adopted by him. the ito accepted the report of the valuer and computed capital loss on its basis. the assessment order was passed by the ito on march 29, 1975. on.....
Judgment:

MANKAD J. - The petitioner has filed this petition challenging the notice dated March 12, 1979, issued by the ITO under s. 148 read with s. 147(a) of the I.T. Act, 1961 (hereinafter referred to as 'the Act'), reopening his income-tax assessment for the assessment year 1972-73. The assessee held certain shares in private limited companies which were not quoted in the market. The assessee had sold the shares in the previous year relevant to the assessment year 1972-73 and disclosed capital loss in his return on the basis of the market value of those shares as on January 1, 1954. The value of the shares as on January 1, 1954, was worked out by an approved valuer and the assessee had submitted the valuers report which showed the method of valuation adopted by him. The ITO accepted the report of the valuer and computed capital loss on its basis. The assessment order was passed by the ITO on March 29, 1975. On March 12, 1979, the ITO with the previous approval of the Commissioner of Income-tax issued a notice under s. 148 read with s. 147(a) of the Act stating to the effect that income under chargeable to tax has escaped assessment as the assessee had failed to disclose fully and truly all material facts necessary for assessment. Petitioner has challenged the validity of this notice.

In his affidavit-in-reply, the ITO has stated the basis on which action under s. 147(a) for reopening the assessment was initiated. He has stated that in his return of wealth for the assessment year 1957-58, the assessee had disclosed the market value of the above shares at a figure which was much lower than their market value as on January 1, 1954, shown in the course of income-tax assessment proceedings for the assessment year 1972-73. According to ITO, the value shown in the return of wealth for the assessment year 1957-58 was not disclosed by the assessee at the time of the income-tax assessment for the assessment year 1972-73 and as a result of suppression of this fact, there was an under-assessment. This is the only ground on which the income-tax assessment has been reopened under s. 147(a) of the Act.

Section 147(a) under which the ITO has sought to reopen the assessment is in para materia with s. 34(1)(a) of the Indian I.T. Act, 1922, which came up for consideration before the Supreme Court in S. Narayanappa v. CIT : [1967]63ITR219(SC) . The Supreme Court has held that two conditions must be satisfied in order to confer jurisdiction on the ITO to issue the notice under s. 34 in respect of assessments beyond the period of four years, but within a period of eight years, from the end of the relevant year, namely, (i) the ITO must have reason to believe that income, profits or gains chargeable to income-tax had been under-assessed; and (ii) he must have reason to believe that such 'under-assessment' had occurred by reason of either, (a) omission or failure on the part of the assessee 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 ITO acquires jurisdiction to issue notice under the said section. If there are in fact some reasonable grounds for the ITO to believe that there had been any non-disclosure as regards any fact which would have a material bearing on the question of under-assessment, that would be sufficient to give jurisdiction to the ITO to issue a notice under s. 34. Whether these grounds are adequate or not, is not a matter for the court to investigate. In other words, the sufficiency of the grounds, which induced the ITO to act, is not a justiciable issue. It is of course open to the assessee to contend that the ITO did not hold the belief that there had been such a non-disclosure. In other words, the existence of the belief can be challenged by the assessee but no the sufficiency of the reasons of the belief. The above decision of the Supreme Court will apply with equal force to a case arising under s. 147(a) of the Act. Two conditions must be satisfied in order to confer jurisdiction on the ITO to issue notice under s. 148 read with s. 147(a) of the Act, namely, (i) the ITO must have reason to believe that income chargeable to tax had escaped assessment; and (ii) he must have reason to believe that income chargeable to tax had escaped asessment by reason of either, (a) an omission or failure on the part of the assessee to make a return under s. 139, or (b) omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for that year. Both these conditions are conditions precedent to be satisfied before the ITO acquires jurisdiction to issue notice under s. 148. If either of these two conditions is not satisfied, the action of the ITO in issuing notice under s. 148 read with s. 147(a) will be without jurisdiction.

It is not in dispute that the assessee, while disclosing the capital loss in the return, filed the approved valuers report in support of the claim for capital loss. The approved valuer had, in his report, disclosed the method which he had adopted for valuing the shares. This method was later on approved by the CBDT. However, whether or not this method was approved by the CBDT is not material; what is material and what is not disputed is that the method adopted by him was a recognised method of valuation. The ITO, while making the assessment, could have questioned the valuation made by the valuer and adopted a different method. He, however, did not chose to do so and proceeded to complete the assessment on the basis of the approved valuers report. He now seeks to reopen the assessment on the ground that the assessee had shown lower value in his wealth-tax return for the assessment year 1957-58 and this fact was suppressed by him at the time when the I.T. assessment was framed. The value shown in the wealth-tax return for the assessment year 1957-58 was, in our opinion, not a relevant or germane factor for the purpose of computation of capital loss on the basis of the value of the shares as on January 1, 1954, in the income-tax assessment for the assessment year 1972-73. In any case, the assessee was not under an obligation to disclose what value he had shown in his return of wealth for the assessment year 1957-58. Under the circumstances, it is difficult to hold that he had failed to disclose fully and truly all the material facts necessary for the assessment. In our opinion, he had disclosed all the facts which were material, truly and fully. Under the circumstances, the condition precedent for acquirising jurisdiction under s. 148 and for reopening assessment under s. 147(a) of the Act was not satisfied. The ITO, therefore, had no jurisdiction to reopen the assessment.

In the result, the petitioner succeeds. Notice dated March 12, 1979, issued by the first respondent under s. 148 read with s. 147(a) of the Act is quashed and set aside.

Rule made absolute accordingly with no order as to costs.


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