BHAVIK BHARATBHAI PADIA V. INCOME TAX OFFICER WARD 3(3)(1)

SCA/17021/2018

AI Insights

The case revolves around a writ application filed by Bhavik Bharatbhai Padia against the Income Tax Officer, challenging the notice issued for reopening his income tax assessment for the Assessment Year 2011-12. The notice was based on the alleged unexplained investment of Rs. 50,00,000 in LIC pension policies. The petitioner argued that he had disclosed all necessary income in his return and that the investment was made from disclosed sources of income, including salary and capital gains. The respondent defended the reopening by asserting that there was a reason to believe that income had escaped assessment. The court examined the validity of the reopening under the principles laid down by various Supreme Court decisions, focusing on the sufficiency of the reasons recorded and the procedural adherence by the Assessing Officer.

• Counselvise Citation: [2019] 140 COUNSELVISE.COM (IT) 750636 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-08-2019
• Assessment Year: misc
• Other Referred Cases: Raymond Woolen Mills Vs. ITO, CIT Vs. Kelvinator India Ltd., Indo-Aden Salt Manufacturing and Trading Co.(P) Ltd. Vs. Commissioner of Income-tax, Shree Krishna (P) Ltd. Vs. Income-tax Officer, CIT Vs. Smt. P.K. Kochammu Amma, V.D.M.RM.M.RM. Muthiah Chettiar v. CIT, ITO v. Radheshyam Ladia, Commissioner Of Income-Tax Vs. Sarala Devi Birla
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: MAUNA BHATT
• Assessee Lawyers: VAIBHAVI PARIKH
• Keywords: Certiorari; Certiorari; Mandamus; Reopening of assessment; Unexplained investment; Writ application
• Section: 147; 148; 143(3)

Judgement Text

"C/SCA/17021/2018 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17021 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ========================================================== BHAVIK BHARATBHAI PADIA Versus INCOME TAX OFFICER WARD 3(3)(1) ========================================================== Appearance: MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for the Respondent(s) No. 1 ========================================================== CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 19/08/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) Page 1 of 22 C/SCA/17021/2018 JUDGMENT 1. Rule returnable forthwith. Ms. Mauna Bhatt, the learned standing counsel waives service of notice of rule for and on behalf of the respondent. 2. By this writ­application under Article 226 of the Constitution of India, the writ­applicant has prayed for the following reliefs:­ 7. The petitioner, therefore, prays that this Hon'ble Court be pleased to issue a writ of mandamus or a writ in the nature of mandamus or a writ of certiorari or a writ in the nature of certiorari or any other appropriate writ, direction or order and be pleased to: (a) quash and set aside the impugned notice at Annexure­'A' to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the notice at Annexure­'A' to this petition and stay the further proceedings for the Assessment Year 2011­12; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition. 3. The writ­applicant is aggrieved by the notice issued by the respondent dated 30/03/2018 under Section­148 of the Income Tax Act, 1961 [for short 'The Act, 1961'] for the purpose of reopening the assessment for the A.Y.2011­12. The reasons assigned by the respondent for the purpose of reassessment are as under:­ As per information available with this office during the year under consideration the assessee had made investment of Rs.50,00,000/­ in the pension policies of LIC of India. The assessee has filed his return of income on for A.Y.2011­12 declaring total income at Rs.72.78. The information was received from the ITO, (I& CI)­1, A'bad on 27.03.2018. On perusal of the information, it is found that the assessee has made investment of Rs.50,00,000/­ in the pension policies Page 2 of 22 C/SCA/17021/2018 JUDGMENT of LIC of India during F.Y.2010­11 relevant to A.Y.2011­12. During the inquiries conducted by the ITO(I & CI), the investment of Rs.50,00,000/­ made by the assessee remains unexplained. Thus, there is a escapement of Rs.50,00,000/­ and the case requires to be re­ open u/s.147 of the Act. 4. The writ­applicant filed his objections to the notice issued under Section­148 of the Act pointing out that he had disclosed all the income liable to be offered and to be brought to tax in its return of income. The assessee further pointed out in his objections that as the assessee did not have any business income during the A.Y.2011­12, he was not obliged to disclose his investment of Rs.50,00,000/­ in the pension policies of the LIC of India in his return of income. The assessee further pointed out that he had salary income from other sources and capital gains and in such circumstances, he was required to file ITR­2 for the A.Y.2011­12. It was also pointed out that the Form ITR­2 does not include the column for the disclosure of investments. In such circumstances, the assessee could not have expected to disclose his investments in his return of income. The assessee further pointed out that his total income for the A.Y.2011­12 was Rs.71.50 lakh. He had sufficient past savings and the current year's income to make an investment of Rs.50,00,000/­ in the LIC policies. He also pointed out to the respondent that just because he had made an investment of Rs.50,00,000/­, his case should not be reopened, as he could be said to have made full and true disclosure of his income. 5. The objections raised by the assessee ultimately came to be rejected vide order dated 08/10/2018. While rejecting the objections, the respondent observed as under:­ 3.1 The contention of the assessee that no assessment can be reopened beyond the period of 4 years from the end of the assessment year unless there is failure on part of the assessee to disclose truly and Page 3 of 22 C/SCA/17021/2018 JUDGMENT fully all the materials facts necessary for the purpose of framing the assessment is not acceptable. The case of the assessee has been reopened after following prescribed procedure laid down under the Income­tax Act after recording reasons for reopening the assessment and after taking prior approval of the competent authority notice u/s.148 of the Act was issued. Therefore, the impugned notice u/s.148 of the Act is contrary to law. Further, the assessee has stated neither discussed the information, which has led to form the belief that some income has escaped assessment. The “Reason to believe” refers to the prima­facie or tentative belief which the Assessing Officer is required to form at the time of recording the reasons and issuing the notice u/s.148 of the Act. Further, whether the assessee has offered the same for taxation or not is the question of verification. Further, the income which is believed to be chargeable to tax has escaped from assessment or not has not been verified, as there was no occasion for him to do so since the assessment u/s.143(3) has not been made in the instant case. Therefore, it cannot be ascertained that the income escaped assessment has been offered for tax or not. In the reasons recorded for reopening the assessment, the Assessing Officer has referred to the reasons to believe which in his/her view is applicable. It may be that the issue whether there is escaped assessment, but, the fact remains that it could not be examined since the return is not verified and scrutinized. Thus, in the instant case, there is a reason to believe that the income chargeable has escaped assessment. As already pointed out, at the time of recording of reasons for reopening the assessment, the Assessing Officer is expected to form only a prima facie opinion or belief regarding the applicability of the provision in question. At that stage, it is not necessary for AO to conclusively estbalish that his belief or opinion is correct even on the merits. The merits of the matter will have to be decided in the course of the assessment proceedings after hearing the assessee and in accordance with law. It is worthwhile to note that in all the case laws of the Apex Court as elaborately discussed hereunder, it is commonly held that what is required to re­ open a case is “Reason to believe” but not the established facts of escapement of income. The sufficiency or correctness of the material is not to considered because it is open to the assessee to prove that the facts assumed by the Assessing Officer in the notice were erroneous (Raymond Woolen Mills Vs. ITO [(1999) 236 ITR 34 (SC)]. 3.2 As regards, the contention of the assessee that it is a sheer case of change of opinion and hence the initiation of proceedings under section 148 is illegal, unlawful and liable to quashed, it is stated that the case has been re­opened only after following the due procedures prescribed in the IT Act and was based on the tangible material leading to the conclusion that there was escapement of income from Page 4 of 22 C/SCA/17021/2018 JUDGMENT assessment. In the objection filed, the assessee has heavily relied on various judicial pronouncements. The same were gone through and it is observed that the said decisions are not squarely applicable in assessee's case. As regards the decision of Hon'ble Supreme Court in the case of CIT Vs. Kelvinator India Ltd. 320 ITR 561, relied upon by the assessee, the said decision is not applicable for the reason that the reasons for which the case was re­opened have never been disclosed by the assessee at any point of time as the assessment is being made for the first time. It may also be pointed out that mere furnishing of details about income does not mean that all material facts have been fully and truly disclosed. In the case of Indo­Aden Salt Manufacturing and Trading Co.(P) Ltd. Vs. Commissioner of Income­tax 159 ITR 624 (SC), the Hon'ble Supreme Court has held that even if the assessee had supplied details but if it had not disclosed true facts which the ITO could have found by further probing, the reopening of the assessment was valid. In the case of Shree Krishna (P) Ltd. Vs. Income­tax Officer 221 ITR 538 (SC), the Hon'ble Supreme Court reiterated that it was the duty of the assessee to disclose material facts fully and truly. 4. In view of the above discussion and the judicial pronouncements, the objections raised by the assessee against re­ opening of assessment cannot be entertained as the same are without any basis and the facts of the cases in the case laws mentioned in your Objection letter dated 10/09/2018 are different and are not squarely applicable in your case. It may be seen that while re­opening the assessment, proper procedure as per Income­tax law has been followed by the Assessing Officer. The case has been re­opened well within the time limit prescribed as per the provisions of the Income­tax Act, 1961 and also on account of the fact that there was reason to believe that the income chargeable to tax has escaped assessment. It is not a case that there is no reason for reopening of the assessment. 6. Being dissatisfied with the same, the writ­applicant is here before this Court with the present writ­application. 7. Mr. Himani, the learned counsel appearing for the writ­applicant vehemently submitted that the respondent has resorted to reopening merely on the count that certain investments made by the assessee had remained unexplained. Mr. Himani submitted that the respondent failed to consider that the assessee had declared income of Rs.71,49,440/­ and the same is indicative of the fact that the assessee had substantial funds Page 5 of 22 C/SCA/17021/2018 JUDGMENT for the purpose of making the investments in the LIC policies. Mr. Himani submitted that mere fact that the assessee had made certain investments during the year under consideration, cannot be a ground for reopening. He submitted that if such an approach is approved then, each and every case, where the assessee had made certain investments would be a fit case for reopening merely on the count that the source of such investments is not explained. Mr. Himani would submit that the respondent could have resorted to reopening only if he has reason to belief that such some income chargeable to tax has escaped assessment. 8. Mr Himani, the learned counsel vociferously submitted that as the assessee had no business income during the year under review, the assessee was not obliged to disclose his investment of Rs.50,00,000/­ in his return of income. He further submitted that the assessee had salary income from other sources and capital gains. In such circumstances, the assessee was required to file the ITR­2 for A.Y.2011­12. According to Mr. Himani, the Form ITR­2, at the relevant point of time, did not include any column for the disclosure of investment. According to Mr. Himani, if the assessee was not obliged to disclose such information in the ITR­2, then he could not be said to have concealed his income or cannot be deemed to have failed or omitted to disclose fully and truly all the material facts necessary for his assessment. 9. Mr. Himani pointed out that the very basis for reopening is the information received from the ITO (I&CI), Ahmedabad dated 27/03/2018. Mr. Himani pointed out that if the so­called information had been received on 27/03/2018, it is quite strange as to how such information received on 27/03/2018 could have been made the basis for recording reasons for reopening on 15/03/2018. Page 6 of 22 C/SCA/17021/2018 JUDGMENT 10. Mr. Himani submitted that reopening is not permissible for carrying out roving and/or fishing inquiry or investigation, without there being any specific finding as to escapement of income. He submitted that no cause and effect relationship between “reasons recorded for reopening” and “income escaping assessment” is demonstrated. He submitted that reopening is based on “borrowed satisfaction”. Mr. Himani submitted that the Assessing Officer himself must be satisfied that some income chargeable to tax has escaped assessment. Such satisfaction must be of the concerned Assessing Officer himself. In the case on hand, no such satisfaction has been recorded by the respondent himself. It is submitted that the respondent could be said to have been not applied his mind independently so as to reach a conclusion that any income has escaped assessment. 11. In such circumstances referred to above, Mr. Himani submitted that there being merit in this writ­application, the same may be allowed and the impugned notice for reassessment may be quashed and set aside. 12. On the other hand, this writ­application has been opposed by Mr. M.R. Bhatt, the learned senior counsel appearing for the Revenue. Mr. Bhatt would submit that having regard to the materials on record, it cannot be said that there is a total non­application of mind on the part of the Assessing Officer, while recording the reasons for reopening of the assessment. Mr. Bhatt further submitted that the reasons recorded have a direct nexus to the subjective opinion formed by the Assessing Officer regarding the escapement of the income. Mr. Bhatt submitted that if there is a discovery of fresh facts or of new and important matter not present at the time of the assessment, which appears to be credible to an honest and rational mind, then such disclosure would constitute Page 7 of 22 C/SCA/17021/2018 JUDGMENT information as contemplated in Clause­(b) of Section­147 of the Act. In such circumstances referred to above, Mr. Bhatt submits that no case is made out for interference and the writ­application may be rejected. 13. Mr. Bhatt also placed reliance on the following averments made in the affidavit­in­reply filed on behalf of the respondent. (II) With reference to paras no.3.2 to 3.2.3, the petitioner's contention that there is no reason to believe that income chargeable to tax has escaped assessment is baseless and denied. I submit that the assessing officer has formed belief after due application of mind to the information received that income chargeable to tax had escaped assessment. “Reason to believe” refers to the prima facie or tentative belief which the Assessing Officer is required to form at the time of recording the reasons and issuing the notice u/s.148 of the Act. I submit that the assessing officer has formed a belief that the petitioner made investments to the tune of Rs.50 lac in the pension policies of LIC of India which have remained unexplained. I submit that there is a live ling between the formation of belief and the information made available to the assessing officer. The petitioner has also contended that the petitioner had substantial funds to make such investments and the reopening is based on surmises and assumptions. The aforesaid contention is denied. I submit that at the time of recording reasons for reopening the assessment, the Assessing Officer is expected to form only a prima facie opinion or belief regarding the applicability of the provision in question. At that stage, it is not necessary for the assessing officer to conclusively establish that his belief or opinion is correct even on the merits. The merits of the matter will have to be decided in the course of the assessment proceedings after hearing the petitioner and in accordance with law. The Hon'ble Supreme Court in the case of Raymond Woolen Mills Vs. ITO [(1999) 236 ITR 34 (SC)] held that what is required to be seen in a case such as this is whether prima facie there was some material before the Assessing Officer on the basis of which he could reopen the case of the petitioner. The sufficiency or correctness of the material is not to be considered because it is open to the petitioner to prove that the facts assumed by the Assessing Officer in the notice were erroneous. (III) With reference to para 3.2.4, the petitioner has contended that the reasons are recorded on 15.03.2018 and the information was made available to the assessing officer on 27.03.2018. I submit that there is a typographical error of date in the reasons recorded supplied Page 8 of 22 C/SCA/17021/2018 JUDGMENT to the petitioner. I submit that reasons were recorded on 27.03.2018 after receipt of information from the ITO (I&CI) as can be seen from the proposal sent to the higher authority for its approval under Section 151 of the Act. (IV) With reference to para 3.2.5, the contentions therein are denied. The submissions made in foregoing paras are reiterated. (V) With reference to paras no.3.3 to 3.3.1, the petitioner's contention that reopening has been resorted to for carrying roving inquiry is denied. The contentions that reopening is based on suspicion and the assessing officer has not at all established as to how the investment in question can be treated as unexplained are baseless and denied. I submit that the Assessing Officer is expected to form only a prima facie opinion or belief regarding the applicability of the provision in question and the assessing officer has formed rational belief that investment of Rs.50,00,000/­ made by the petitioner in the pension policies of LIC of India during the year under consideration has remained unexplained. Further more, this is a case where return filed by the petitioner was accepted under Section 143(1) without scrutiny. At that stage, it is not necessary for the assessing officer to conclusively establish that his belief or opinion is correct even on the merits. It is trite law that the expression 'reason to believe' cannot be read so as to mean the assessing officer should have finally ascertained the fact by legal evidence or conclusion. The merits of the matter will have to be decided in the course of the assessment proceedings after hearing the petitioner and in accordance with law. (VI) With reference to para no.3.3.2, the contention of the petitioner that particular transaction entered into by the petitioner need not necessarily result into any income in the hands of petitioner does not have any bearing on the challenge to the validity of the impugned notice issued under Section 148 of the Act. I submit that the issue is with regard to the genuineness of transaction and creditworthiness of the petitioner to make huge investments in the pension policies of LIC. (VII) With reference to paras no.3.4 to 3.4.2, the petitioner contention that there is no cause and effect relationship between reasons recorded and income escaping assessment is baseless and denied. The submission made in the foregoing paragraphs are reiterated. (VIII) With reference to para no.3.5, the petitioner's contention that reopening is based on borrowed satisfaction is denied. I submit that the respondent has independently applied his mind to the information received to form a rational belief that the petitioner made huge Page 9 of 22 C/SCA/17021/2018 JUDGMENT investments which have remained unexplained and income chargeable to tax has escaped assessment. In view of the above, the contention of the petitioner does not hold any merit. 14. The principles of law, governing the subject of reopening of the assessment under Section 147 of the Act, may be summarized as under: “(i) The Court should be guided by the reasons recorded for the reassessment and not by the reasons or explanation given by the Assessing Officer at a later stage in respect of the notice of reassessment. To put it in other words, having regard to the entire scheme and the purpose of the Act, the validity of the assumption of jurisdiction under Section 147 can be tested only by reference to the reasons recorded under Section 148(2) of the Act and the Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from the records. The Assessing Officer is confined to the recorded reasons to support the assumption of jurisdiction. He cannot record only some of the reasons and keep the others upto his sleeves to be disclosed before the Court if his action is ever challenged in a court of law. (ii) At the time of the commencement of the reassessment proceedings, the Assessing Officer has to see whether there is prima facie material, on the basis of which, the department would be justified in reopening the case. The sufficiency or correctness of the material is not a thing to be considered at that stage. (iii) The validity of the reopening of the assessment shall have to be determined with reference to the reasons recorded for reopening of the assessment. (iv) The basic requirement of law for reopening and assessment is application of mind by the Assessing Officer, to the materials produced prior to the reopening of the assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied­a postmortem exercise of analysing the materials produced subsequent to the reopening will not make an inherently defective reassessment order valid. (v) The crucial link between the information made available to the Assessing Officer and the formation of the belief should be present. The reasons must be self evident, they must speak for themselves. (vi) The tangible material which forms the basis for the belief that income has escaped assessment must be evident from a reading of the Page 10 of 22 C/SCA/17021/2018 JUDGMENT reasons. The entire material need not be set out. To put it in other words, something therein, which is critical to the formation of the belief must be referred to. Otherwise, the link would go missing. (vii) The reopening of assessment under Section 147 is a potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If the original assessment is processed under Section 143(1) of the Act and not Section 143(3) of the Act, the proviso to Section 147 will not apply. In other words, although the reopening may be after the expiry of four years from the end of the relevant assessment year, yet it would not be necessary for the Assessing Officer to show that there was any failure to disclose fully or truly all the material facts necessary for the assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub­section (3) of section 143, two conditions are required to be satisfied; (i) The Assessing Officer must have reason to believe that the income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on the part of the assessee either (a) to make a return of income under section 139 or in response to the notice issued under sub­section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all the material facts necessary for his assessment for that purpose. (x) The Assessing Officer, being a quasi judicial authority is expected to arrive at a subjective satisfaction independently on an objective criteria. (xi) While the report of the Investigation Wing might constitute the material, on the basis of which, the Assessing Officer forms the reasons to believe, the process of arriving at such satisfaction should not be a mere repetition of the report of the investigation. The reasons to believe must demonstrate some link between the tangible material and the formation of the belief or the reason to believe that the income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables the Assessing Officer to form a belief that the income chargeable to tax has escaped assessment, formed part of the original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. The expression “tangible material” does not mean the material alien to the original Page 11 of 22 C/SCA/17021/2018 JUDGMENT record. (xiii) The order, disposing of objections or any counter affidavit filed during the writ proceedings before the Court cannot be substituted for the “reasons to believe. (xiv) The decision to reopen the assessment on the basis of the report of the Investigation Wing cannot always be condemned or dubbed as a fishing or roving inquiry. The expression “reason to believe” appearing in Section 147 suggests that if the Income Tax Officer acts as a reasonable and prudent man on the basis of the information secured by him that there is a case for reopening, then Section 147 can well be pressed into service and the assessments be reopened. As a consequence of such reopening, certain other facts may come to light. There is no ban or any legal embargo under Section 147 for the Assessing Officer to take into consideration such facts which come to light either by discovery or by a fuller probe into the matter and reassess the assessee in detail if circumstances require. (xv) The test of jurisdiction under Section 143 of the Act is not the ultimate result of the inquiry but the test is whether the income tax officer entertained a “bona fide” belief upon the definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) The concept of “change of opinion” has been treated as a built in test to check abuse. If there is tangible material showing escapement of income, the same would be sufficient for reopening the assessment. (xvii) It is not necessary that the Income Tax Officer should hold a quasi judicial inquiry before acting under Section 147. It is enough if he on the information received believes in good faith that the assesee's profits have escaped assessment or have been assessed at a low rate. However, nothing would preclude the Income Tax Officer from conducting any formal inquiry under Section 133(6) of the Act before proceeding for reassessment under Section 147 of the Act. (xviii) The “full and true” disclosure of the material facts would not include that material, which is to be used for testing the veracity of the particulars mentioned in the return. All such facts would be expected to be elicited by the Assessing Officer during the course of the assessment. The disclosure required only reference to those material facts, which if not disclosed, would not allow the Assessing Officer to make the necessary inquiries. (xix) The word “information” in Section 147 means “instruction or knowledge derived from the external source concerning the facts or Page 12 of 22 C/SCA/17021/2018 JUDGMENT particulars or as to the law relating to a matter bearing on the assessment. An information anonymous is information from unknown authorship but nonetheless in a given case, it may constitute information and not less an information though anonymous. This is now a recognized and accepted source for detection of large scale tax evasion. The non­disclosure of the source of the information, by itself, may not reduce the credibility of the information. There may be good and substantial reasons for such anonymous disclosure, but the real thing to be looked into is the nature of the information disclosed, whether it is a mere gossip, suspicion or rumour. If it is none of these, but a discovery of fresh facts or of new and important matters not present at the time of the assessment, which appears to be credible to an honest and rational mind leading to a scrutiny of facts indicating incorrect allowance of the expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. (xx) The reasons recorded or the material available on record must have nexus to the subjective opinion formed by the A.O. regarding the escapement of the income but then, while recording the reasons for the belief formed, the A.O. is not required to finally ascertain the factum of escapement of the tax and it is sufficient that the A.O had cause or justification to know or suppose that the income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that the sufficiency and adequacy of the reasons which have led to the formation of a belief by the Assessing Officer that the income has escaped the assessment cannot be examined by the court. 15. Having heard the learned counsel appearing for the parties and having gone through the materials on record, the only question that falls for our consideration is whether the respondent is justified in reopening the assessment for the A.Y.2011­12. 16. It is not in dispute that the form of return of income i.e. ITR­2, then in force had no separate column for the disclosure of any investment. The question is whether the assessee was under any legal obligation to disclose about his investment of Rs.50,00,000/­ in the LIC policies. In the aforesaid context, we would like to refer to and rely upon a decision of the Supreme Court in the case of CIT Vs. Smt. P.K. Kochammu Amma reported in [1980] 125 ITR 624 (SC). Page 13 of 22 C/SCA/17021/2018 JUDGMENT 17. In that case, the assessee filed her return for the assessment year 1964­65, disclosing therein income from property and income from other sources and against item (b), under the column \"Profits and gains of business and profession\" stated: \"please ascertain from the firms' files\". Though the prescribed form of return did not contain a separate column for that purpose, there was a note in the return stating that, if the income of any other person is includible in the total income of the assessee under the provisions of the Income­tax Act, 1961, inter alia, of Section 64, such income should also be shown under the appropriate head. The respondent, however, did not show in the return the amounts representing the shares of her husband and minor daughter in the two firms, though they were includible in her total income under Section 64(1)(i) and (iii). The question was whether penalty could be imposed on the respondent under Section 271(1)(c), on the ground that the assessee had concealed the particulars of her income because she had not shown the shares of her husband and her minor daughter in the two firms as forming part of the total income in the return submitted by her. The Supreme Court held (at page 627): \"There is a decision of this court which is directly in point and it concludes the determination of the question arising in this appeal against the Revenue but before we refer to that decision, we might first examine the question on principle as a matter of pure interpretative exercise. Section 271, Sub­section (1), Clause (c), provides for imposition of penalty on an assessee if it is found, inter alia, that the assessee has concealed the particulars of 'his income'. The question is what is the scope and content of the words 'his income' occurring in this penal provision. Do they refer only to the income of the assessee himself or do they also take in the income of others which is liable to be included in the computation of the total income of the assessee by reason of the relevant provisions of the Act, such as Section 64, Sub­ section (1), Clauses (i) and (iii) ? The answer to this question obviously depends upon as to what is 'his income' which the assessee is liable to disclose for the purpose of assessment, for, concealment can only be of that which one is bound to disclose and yet fails to do so. Page 14 of 22 C/SCA/17021/2018 JUDGMENT Section 139 provides for filing of a return of income by an assessee and Sub­section (1) of this section lays down that every person whose total income during the previous year exceeds the maximum amount which is not chargeable to income­tax, shall furnish a return of his income in the prescribed form and verified in the prescribed manner, and setting forth such other particulars as may be prescribed. The return of income is required to be filed in order to enable the Revenue authorities to make a proper assessment of tax on the assessee. It must, therefore, follow a fortiori that the assessee must disclose in the return every item of income which is liable to be taxed in his hands as part of his total income. The charge of income­tax is levied by Section 4 on the total income of the assessee, and 'total income' is defined in Section 2, Sub­section (45), to mean 'the total amount of income referred to in Section 5 computed in the manner laid down' in the Act. It is no doubt true that the definition of 'total income' in Section 2, Sub­section (45), refers to Section 5 and this latter provision lays down that all income, profits and gains accrued or arising to the assessee or received by or on behalf of the assessee shall be liable to be included in his total income but this provision is subject to the other provisions of the Act, and, therefore, if the income of any other person is declared by any provision of the Act to be includible in computing the total income of the assessee, such income would form part of the total income exigible to tax under Section 4 of the Act. Now, Section 64, Sub­section (1), is one such provision which provides for inclusion of the income of certain other persons in computing the total income of an assessee. Clauses (i) and (iii) of this sub­section provide that in computing the total income of an assessee there shall be included all such income as arises directly or indirectly to the spouse of such assessee from the membership of the spouse in a firm carrying on a business in which such individual is a partner as also to a minor child of such assessee from the admission of the minor to the benefits of the partnership firm. It is clear from this provision that though the share of the spouse or minor child in the profits of a partnership firm in which the assessee is a partner is not the income of the assessee but is the income of such spouse or minor child, it is liable to be included in computing the total income of the assessee, and it would be assessable to tax in the hands of the assessee. The total income of the assessee chargeable to tax would include the amounts representing the shares of the spouse and minor child in the profits of the partnership firm. If this be the correct legal position, there can be no doubt that the assessee must disclose in the return submitted by him, all amounts representing the shares of the spouse and minor child in the profits of the partnership firm in which he is a partner, since they form part of his total income chargeable to tax. The words 'his income' in Section 139, Sub­section (1), must include every item of income which goes to make up his total income assessable under the Act. The amounts representing the shares of the spouse and minor child in the profits of Page 15 of 22 C/SCA/17021/2018 JUDGMENT the partnership firm would be part of 'his income' for the purpose of assessment to tax and would have to be shown in the return of income filed by him. The assessee then contended that the return of income which was required to be filed by her under Section 139, Sub­section (1), was a return in the prescribed form and the form of the return prescribed by Rule 12 of the Income­tax Rules, 1962, did not contain any column for showing the income of the spouse and minor child which was liable to be included in the total income of the assessee under Section 64, Sub­section (1), Clauses (i) and (iii), and there was, therefore, no obligation on the assessee to disclose this income in the returns filed by her. This contention is also, in our opinion, fallacious and deserves to be rejected. It is true that the form of return prescribed by Rule 12, which was in force during the relevant assessment year did not contain any separate column for showing the income of the spouse and minor child liable to be included in the total income of the assessee, but did contain a note stating that if the income of any other person is includible in the total income of the assessee under the provisions, inter alia, of Section 64, such income should also be shown in the return under the appropriate head. This note clearly required the assessee to show in the return under the appropriate head of income, namely, 'profits and gains of business or profession', the amounts representing the shares of the husband and minor daughter of the assessee in the profits of the two partnership firms. But even so, the assessee failed to disclose these amounts in the return submitted by her and there was, therefore, plainly and manifestly a breach of the obligation imposed by Section 139, Sub­section (1), requiring the assessee to furnish a return of her income in the prescribed form. It is difficult to see how the note in the prescribed form of the return could be ignored by the assessee and she could contend that, despite the note, she was not liable to show in her return the amounts representing the shares of her husband and minor, daughter in the two partnership firms. The contention of the assessee, if accepted, would render the note meaningless and futile and turn it into dead letter and that would be contrary to all recognised canons of construction. There can be no doubt that the assessee was bound to show in her return the amounts representing the shares of her husband and minor daughter in the two partnership firms and in failing to do so, she was guilty of concealment of this item of income which plainly attracted the applicability of Section 271, Sub­section (1), Clause (c).\" 18. Although, on this view, the order imposing penalty on the assessee could have been sustained but, in view of the decision of the Supreme Court in V.D.M.RM.M.RM. Muthiah Chettiar v. CIT [1969] 74 ITR Page 16 of 22 C/SCA/17021/2018 JUDGMENT 183, which is a larger Bench decision where a different view had been taken by a Bench of three judges of the Supreme Court, the contention of the assessee that imposition of penalty in his case is illegal had to be upheld. There, the Supreme Court proceeded to hold (at page 629 of 125 ITR): \"It was held in this case (Muthiah Chettiar) that even if there were any printed instructions in the form of the return requiring the assessee to disclose the income received by his wife and minor child from a firm in which the assessee was a partner, there was, in the absence in the return of any head under which the income of the wife or minor child could be shown, no obligation on the assessee to disclose this item of income, and the assessee could not be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment within the meaning of Section 34(1)(a) of the Indian Income­tax Act, 1922. With the greatest respect to the learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down the correct law on the subject, and had it not been for the fact that since July 1, 1972, the form of the return prescribed by Rule 12 has been amended and since then, there is a separate column providing that 'income arising to spouse/minor child or any other person as referred to in Chapter V of the Act' should be shown separately under that column and consequently there is no longer any scope for arguing that the assessee is not bound to disclose such income in the return to be furnished by him, we would have referred the present case to a larger Bench. But we do not propose to do so since the question has now become academic in view of the amendment in the form of the return carried out with effect from July 1, 1972. We would, therefore, follow this decision in Muthiah Chettiar's case , which being a decision of a Bench of three judges of this court, is binding upon us, and following that decision, we hold that the assessee could not be said to have concealed her income by not disclosing in the return filed by her the amounts representing the shares of her husband and minor daughter in the two partnership firms.\" The next decision cited is in ITO v. Radheshyam Ladia. There the Supreme Court affirmed the decision of the Calcutta High Court in Radheshyam Ladia v. ITO [1987] 166 ITR 135 which was relied on by the Appellate Assistant Commissioner, In Radheshyam Ladia [1987] 166 ITR 135 (SC), the assessment years involved were 1960­61, 1961­ Page 17 of 22 C/SCA/17021/2018 JUDGMENT 62 and 1962­63. The Supreme Court followed the decisions in Smt. P.K. Kochammu Amma and Muthiah Chettiar's case in and Malegaon Electricity Co. P. Ltd's case . The Supreme Court extracted the aforesaid passage from Smt P. K. Kochammu Amma and observed (at page 141 of 166 ITR): \"We agree with what has been stated in Kochammu Amma's case , and for the reasons indicated therein, we do not propose to refer the case to a larger Bench. Following the law as laid down in the two cases in Muthiah Chettiar's case and Malegaon Electricity Co. P. Lid's case , we dismiss this appeal.\" 19. The aforesaid two decisions of the Supreme Court have been referred to and relied upon by the Calcutta High Court in the case of Commissioner Of Income­Tax Vs. Sarala Devi Birla reported in [1993] 203 ITR 953 (Calcutta). 20. In the said case before the Calcutta High Court, the original assessment for the relevant assessment year was completed under Section 143(3) of the Act. Later, the reassessment was made on a higher income. The assessee had given a cash gift to her minor daughter and the said amount was invested in shares. The Income­tax Officer was of the view that the income arising from the assets transferred to the minor child was to be treated as the income of the individual under Section 64(4) of the Act and, therefore, such income had escaped assessment due to failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. Since such income was not disclosed in the original return, the Income­tax Officer initiated reassessment proceedings under Section 147(a) and included the capital gains arising on the transfer of shares and dividend income from the shares in the total income already determined. On appeal, the Assistant Commissioner held that the Income­tax Officer had no jurisdiction to Page 18 of 22 C/SCA/17021/2018 JUDGMENT reopen the assessment under Section 147(a) of the Act. On revenue's appeal, the tribunal affirmed the order of the Appellant Assistant Commissioner. The Revenue went in appeal before the High Court. The High Court framed the following two substantial questions of law for consideration:­ \"1. Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in holding that the assessee was under no obligation to disclose in her return of income, the income of her minor daughter? 2. Whether, on the facts and in the circumstances of the case, and on a correct interpretation of Section 64(4) of the Income­tax Act, 1961, the Tribunal misdirected itself in law in holding that the Income­tax Officer was not justified in reopening the assessment of the assessee under Section 147(a) of the Income­tax Act, 1961, in respect of her omission or failure to disclose the income of her minor daughter in her own assessment ?\" 21. The first question came to be answered in the affirmative and the second question in the negative and both in favour of the assessee. The observations made by the learned Judge of the Calcutta High Court are as under:­ 10. Mr. Bajoria, learned counsel for the assessee, contended that the principles laid down in the aforesaid decisions of the Supreme Court will govern this case as the assessment year involved in one of the decisions was 1962­63 and in the other 1964­65. This is, however, not relevant. The question is whether, at the material time, when the return was filed by the assessee, the form of return contained a separate column to include the income under Section 64. The Supreme Court in Kochammu Amma [1980] 125 ITR 624 mentioned that the amendment in the form of return was carried out with effect from April 1, 1972, long after the original return was filed in this case. 11. It appears that the Income­tax (Second Amendment) Rules, 1967, came into force with effect from April 1, 1967. Rule 12 of the Income­ tax Rules has been amended by the said amendment which provides as follows (see [1967] 64 ITR (St.) 13): \"12. Return of income.­­(1) The return of income required to be Page 19 of 22 C/SCA/17021/2018 JUDGMENT furnished under Sub­section (1) or Sub­section (2) or Sub­section (3) of Section 139 shall,­­ (a) in the case of a company, be in Form No. 1 and be verified in the manner indicated therein; (b) in the case of a person not being a company, be in Form No. 2 and be verified in the manner indicated therein; Provided that in the case of a person, not being a company or a co­ operative society or a local authority, whose total income (as computed by such person) does not exceed fifteen thousand rupees, the return of income may be furnished in Form No. 3 and shall be verified in the manner indicated therein. (2) Notwithstanding anything contained in Sub­rule (1),­­ (a) where a return of income relates to the assessment year commencing on April 1, 1961, or any earlier assessment year, it shall be furnished in the appropriate form prescribed in Rule 19 of the Indian Income­tax Rules, 1922, and shall be verified in the manner indicated therein; (b) where a return of income relates to the assessment year commencing on April 1, 1962, or April 1, 1963, or April 1, 1964, it shall be furnished in the appropriate form in force immediately before April 1, 1967, and shall be verified in the manner indicated therein.\" 12. Thus, for the assessment year 1962­63, the old return form which was considered by the Supreme Court in those decisions remained in force. 13. The return form which has been prescribed by the said Amendment of 1967 Rules, also contains a note which is as follows : \"3. If the income of any other person is includible in your total income under the provisions of Section 60, 61, 62, 63 or 64 of the Income­tax Act, 1961, such income should also be shown in this return under the appropriate heads.\" 14. But no separate column has been provided for inclusion of the income under Section 60, 61, 62, 63 or 64 of the Income­tax Act, 1961. 15. The rules were amended by the Income­tax (Amendment) Rules, 1971, which came into force on April 1, 1971. In the return form prescribed by the Rules, there is no separate column indicated but only a note was appended being Note No. 1 which is as follows : \"If the income of any other person is includible in your total income under the provisions of Section 60, 61, 62, 63 or 64 of the Income­tax Act, 1961, such incomes should also be shown separately in this return under the appropriate heads.\" Page 20 of 22 C/SCA/17021/2018 JUDGMENT 16. Surprisingly, even after the judgment of the Supreme Court in V.D.M.RM.M.RM. Muthiah Chettiar v. CIT [1969] 74 ITR 183, the Central Board of Direct Taxes, while amending the Rules, did not provide any separate column for inclusion of the income under Section 64 of the Act. In V.D.M.RM.M.RM. Muthiah Chettiar v. CIT , a similar note was considered by the Supreme Court and it was held that, in the absence of any head under which the income of the wife or minor child of a partner whose wife or minor child was a partner in the same firm, could be shown, by not showing that income, the taxpayer cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment ; it is only by the Income­ tax (Second Amendment) Rules, 1972, which came into force on July 1, 1972, in the return form prescribed thereunder, a column has been added being column 12(b) where income arising to spouse/minor child or any other person as referred to in Chapter V of the Act is required to be shown. This amendment was noticed by the Supreme Court in Kochammu Amma [1980] 125 ITR 624. 17. In our view, therefore, at the material time when the original return was filed by the assessee some time in 1962, the form of return in force did not provide for any separate column to disclose the income arising under Section 64 of the Act. Even assuming that there was escapement in the subsequent return filed in 1968, in response to the notice under Section 148 read with Section 147(b), the position would not be different inasmuch as the 1967 Rules, which came into force with effect from April 1, 1967, did not also provide for any separate column for inclusion of such income under Section 64 of the Act. On the contrary, the form with a note continued to remain in force until a new form with a separate column came into force with effect from July 1, 1972. 18. For the reasons aforesaid and in view of the principles laid down by the Supreme Court as mentioned hereinbelow, it must be held that there was no omission or failure on the part of the assessee to disclose all her income. 23. Applying the aforesaid principle of law to the facts of the present case, we are of the view that the impugned notice for reopening of the assessment is not sustainable in law. 24. In such circumstances referred to above, we hold that the reasons recorded by the Assessing Officer to form the belief that the income Page 21 of 22 C/SCA/17021/2018 JUDGMENT chargeable to tax had escaped assessment lack validity. The impugned notice is therefore, set aside. The writ­application is accordingly allowed and is disposed of. (J. B. PARDIWALA, J) (A. C. RAO, J) aruna Page 22 of 22 "