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Rawatmal Harakchand Vs. Commissioner of Income-tax - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKolkata High Court
Decided On
Case NumberIncome-tax Reference No. 375 of 1975
Judge
Reported in[1981]129ITR346(Cal)
ActsIncome Tax Act, 1961 - Sections 147, 148 and 151(2)
AppellantRawatmal Harakchand;commissioner of Income-tax
RespondentCommissioner of Income-tax;rawatmal Harakchand
Advocates:Sanjoy Bhattacharyya, ;Aparna Datta, ;B.K. Bagchi and ;B.K. Naha, Advs.
Cases ReferredPhillips v. Martin
Excerpt:
- .....been held to be invalid, the tribunal could not sustain the addition of rs. 45,711 in the same invalid proceedings. he urged that the question raised by the assessee must be answered in its favour.13. mr. bagchi, learned advocate appearing for the revenue, contended on the other hand that the contentions of the assessee raised a new and different question. he submitted that the tribunal has nowhere held that the reassessment was wholly invalid. mr. bagchi drew our attention to the fact that before the aac the only contention of the assessee was that there should be a set-off of rs. 12,000 from the amount added, that is, rs. 51,211.14. the assessee did not claim that the entire sum should be deleted. on the basis of the submission of the assessee, the aac allowed a relief of rs......
Judgment:

Sen, J.

1. This reference relates to reassessment of Rawatmal Harakchand, the assessee, in respect of its income for the assessment year 1957-58.

2. After issuing a notice under Section 147 of the I.T. Act, 1961, the ITO brought to tax two sums, respectively, of Rs. 51,711 and Rs. 1,86,061, on the ground that the same escaped assessment in the said assessment year as the asses-see failed to disclose necessary material particulars.

2. Pursuant to the reassessment there were penalty proceedings and a penalty of Rs. 2,00,000 was imposed by the IAC under Section 271(1)(c) read with Section 274(2) of the I.T. Act, 1961.

3. In the appeal preferred by the assessee against the reassessment, the AAC upheld the addition of Rs. 1,86,061 but gave a relief of Rs. 6,000 in respect of the addition of Rs. 51,231.

4. Thereafter, further appeals were preferred by the assessee against the order of the AAC as also against that of the IAC.

5. The Tribunal went into the question of the validity of the reassessment made under Section 147(a) of the I.T. Act, 1961, and found that the ITO had not recorded any reasons to establish his belief that there was any omission or failure on the part of the assessee to disclose fully and truly all material facts. It was found further that all that the ITO had recorded was merely his belief that some income had escaped assessment.

6. The Tribunal also found that, prior to the issue of the notice under Section 148 of the Act, the Commissioner recorded his satisfaction under Section 151(2) of the Act in a mechanical fashion. The Tribunal observed that it did not appear that the Commissioner had applied his mind before he accorded his approval.

7. Following the decisions of the Supreme Court in the case of Chhugamal Rajpal v. S.P. Chalika : [1971]79ITR603(SC) and in the case of Sheo Nath Singh v. AAC : [1971]82ITR147(SC) , the Tribunal held that the notice issued under Section 148 of the Act was invalid inasmuch as two essential pre-requisites for the issuance thereof did not exist.

8. Thereafter, the Tribunal went on to consider the reassessment order on its merits, though the Tribunal had noted earlier in its order that it was understood that only the validity of the reassessment would be agitated before the Tribunal and if it were held that the proceedings were validly initiated then there will be a further hearing on merits on an adjourned date the Tribunal held that the addition of Rs. 1,86,061 was to be deleted but held that the addition of the other sum, i.e., Rs. 51,711, against which the AAC had given a relief of Rs. 6,000 was correct.

9. From this order of the Tribunal both the Commissioner, West Bengal, and the assessee applied for a reference and, under Section 256(1) of the Act, the following question has been referred to this court at the instance of the assessee:

' Whether, on the facts and in the circumstances of the case, the Tribunal was justified in sustaining the addition in respect of the addition of Rs. 43,711 having held the reassessment to be invalid in respect of the addition of Rs. 1,86,061 ?'

10. The following questions have been referred at the instance of the revenue:

'(1) Whether, on the facts and in the circumstances of the case, the Tribunal, having upheld the addition of Rs. 45,711 was justified in holding the reassessment to be invalid in respect of the other addition of Rs, 1,86,061 ?

(2) Whether, on the facts and in the circumstances of the case and in view of the fact that the assessee had disclosed in its revised return filed in response to the notice under Section 148 an income of Rs. 51,711 which it failed to disclose in its original return, the department had no onus to adduce any further proof of the assessee having furnished incorrect particulars of its income ?

(3) Whether, on the facts and in the circumstances of the case and on a correct interpretation of Section 271(1)(c) of the Income-tax Act, 1961, the Tribunal was justified in cancelling the penalty '

11. Mr. Sanjoy Bhattacharyya, learned counsel for the assessee, has contended before us that the only issue before the Tribunal was the validity of the reassessment made under Section 147 of the IT, Act, 1961. It was the admitted position before the Tribunal that both the reassessments and penalty were liable to be annulled iu case it was held that the proceedings were invalid. The Tribunal recorded that the appeals should be posted for further hearing on merits in case it was held that the reassessment proceedings were validly initiated.

12. Mr. Bhattacharyya submitted further that the Tribunal has categorically held that the notice issued under Section 148 to the assessee was invalid by reason of ; (a) no reasons having been recorded by the ITO while initiating the proceedings, and (b) the Commissioner not applying his mind before according his approval to the proceedings. Therefore, it must be held that all proceedings and orders passed thereafter must be held to be invalid. The conclusion was inescapable that the initiation of the reassessment proceedings having been held to be invalid, the Tribunal could not sustain the addition of Rs. 45,711 in the same invalid proceedings. He urged that the question raised by the assessee must be answered in its favour.

13. Mr. Bagchi, learned advocate appearing for the revenue, contended on the other hand that the contentions of the assessee raised a new and different question. He submitted that the Tribunal has nowhere held that the reassessment was wholly invalid. Mr. Bagchi drew our attention to the fact that before the AAC the only contention of the assessee was that there should be a set-off of Rs. 12,000 from the amount added, that is, Rs. 51,211.

14. The assessee did not claim that the entire sum should be deleted. On the basis of the submission of the assessee, the AAC allowed a relief of Rs. 6,000.

15. Mr. Bagchi submitted that, in the circumstances, it must be held that the assessee waived its objection to the inherent jurisdiction of the ITO to reassess the assessee's income for the said assessment year and obtain a relief in its favour and, therefore, the assessee was estopped from contending that the entire addition must be deleted. It was open to the assessee to only agitate the question of further set-off.

16. In support of his contentions Mr. Bagchi cited the following decisions.

17. First was a decision of the Federal Court in the case of Chatturam v. CIT [1947] 15 ITR 302. This decision was cited for the proposition laid down by the Federal Court as follows (p. 307):

' The income-tax assessment proceedings commence with the issue of a notice. The issue of receipt of a notice is not, however, the foundation of the jurisdiction of the Income-tax Officer to make the assessment or of the liability of the assessees to pay the tax. It may be urged that the issue and service of a notice under Section 22(1) or (2) may affect the liability under the penal clauses which provide for failure to act as required by the notice. The jurisdiction to assess and the liability to pay the tax, however, are not conditional on the validity of the notice.'

18. Mr. Bagchi next cited a decision of this court in the case of Commr. of Agrl. I.T. v. Sultan Ali Gharami : [1951]20ITR432(Cal) . This case relates to proceedings under the Bengal Agrl. I.T. Act and a Division Bench of this court observed that there could be a waiver as to the machinery of taxation which inures against the subject.

19. Lastly, Mr. Bagchi cited a decision of the Supreme Court in the case of Director of Inspection of Income-tax (Investigation) v. Pooran Mall & Sons : [1974]96ITR390(SC) . In this case the Supreme Court quoted with approval the principle laid down in an English case, Phillips v. Martin (11 NSWLR 153) as follows:

' ' Here there is abundant evidence of waiver, and it is quite clear that a man may by his conduct waive a provision of an Act of Parliament intended for his benefit. The caveator was not brought into court in any way until the caveat had lapsed. And now the applicant, after all these proceedings have been taken by him, after doubtless much expense, has been incurred on the part of the caveator, and after lying by and hoping to get a judgment of the court in his favour, asks the court to do that which but for some reasons known to himself he might have asked the court to do before any other steps in the proceedings had been taken. I think he is altogether too late. It is to my mind a clear principle of equity and I have no doubt there are abundant authorities on the point, that equity will interfere to prevent the machinery of an Act of Parliament being used by a person to defeat equities which he has himself raised, and to get rid of a waiver created by his own acts '.'

20. Following the above principle the Supreme Court held that there was an agreement between the parties in that case to the effect that the ITO may pass a fresh order within two months of the order of the High Court and such an agreement proceeded on the basis that the ITO had jurisdiction to pass a fresh order. The Supreme Court held that thereby the respondent had waived the period of limitation prescribed by Section 132(5) of the Act and the ITO had jurisdiction to pass a fresh order. The Supreme Court also quoted with approval the following passage from Craies on Statute Law, 6th edn., p. 249 :

' As a general rule, the conditions imposed by statutes which authorise legal proceedings are treated as being indispensable to giving the court jurisdiction. But if it appears that the statutory conditions were inserted by the legislature simply for the security or benefit of the parties to the action themselves, and that no public interests are involved, such conditions will not be considered as indispensable and either party may waive them without affecting the jurisdiction of the court.'

21. On a consideration of the facts and circumstances of the present case, we are unable to accept the contentions of Mr. Bagchi. The question which has been referred at the instance of the assessee and the question No. 1 referred at the instance of the department, both proceeded on the basis that addition on reassessment has been retained and some other addition has been deleted. The deletion has been made on the sole ground that the initiation of the reassessment proceedings were invalid. In that view of the matter, it is open to the assessee to contend within the framework of the question referred that the addition of Rs. 45,711 retained by the Tribunal was incorrect. This is not a new question.

22. Further, it does not appear to us that in the instant case there has been any waiver by the assessee. It was the assessee who preferred two appeals before the Income-tax Appellate Tribunal, one being against the retention of the addition in reassessment by the AAC. There was no question of any waiver nor any agreement between the assessee and the revenue, The decisions cited by Mr. Bagchi and the principles of statutory construction as enunciated by the said decisions have little application in the facts and circumstances of the instant case.

23. The law is quite clear. Once the initiation of reassessment proceedings is held to be invalid whatever follows thereafter must also necessarily be invalid and none of the additions could have been sustained by the Tribunal. It is surprising that the Tribunal having proceeded to determine the matter only on the question of invalidity of the initiation and postponing the hearing of the appeals on merits, went on to consider the merits of the additions.

24. For the reasons stated above we answer the questions as follows:

The question of the assessee is answered in the negative and in favour of the assessee.

The question No. 1 raised by the department is answered in the affirmative and in favour of the assessee.

In view of the answer to the above questions, question No. 2 as raised by the revenue does not call for any answer.

Question No. 3 is answered in the affirmative and in favour of the assessee.

25. In the facts and circumstances, there will be no order as to costs.

Banerjee, J.

I agree.


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