RAJ KUMAR O. MAHESWARI V. INCOME TAX OFFICER

TAXAP/1772/2005

AI Insights

The case revolves around the reopening of an income tax assessment for the year 1994-95 concerning alleged unexplained cash credits under section 68 of the Income Tax Act, 1961. The Income Tax Officer initially reopened the assessment beyond the normal limitation period, which was contested by the assessees. The CIT(A) found the reassessment to be barred by limitation, a decision later overturned by the Tribunal. The High Court, referencing decisions from the Supreme Court and its own precedents, concluded that the Tribunal erred in upholding the reassessment, as there was no material change or undisclosed fact that warranted reopening the assessment beyond the prescribed period.

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 694417 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 10-12-2014
• Assessment Year: misc
• Other Referred Cases: Parashuram Pottery Works Co. Ltd. vs. Income-tax Officer, Cadila Healthcare Ltd vs. Deputy Commissioner of Income-tax, Phool Chand Bajrang Lal and Another vs. Income-Tax Officer and another
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: PRANAV DESAI
• Assessee Lawyers: R K PATEL
• Keywords: Income escaping assessment; Limitation Period; Reassessment; Unexplained cash credits
• Section: 147; 148; 68

Judgement Text

"O/TAXAP/1771/2005 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD TAX APPEAL NO. 1771 of 2005 WITH TAX APPEAL NO. 1772 of 2005 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE KS JHAVERI and HONOURABLE MR.JUSTICE K.J.THAKER ================================================================ 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder ? 5 Whether it is to be circulated to the civil judge ? ================================================================ OCHHAVLAL M. MAHESWARI....Appellant(s) Versus INCOME TAX OFFICER....Opponent(s) ================================================================ Appearance: MR RK PATEL, ADVOCATE for the Appellant(s) No. 1 MR PRANAV G DESAI, ADVOCATE for the Opponent(s) No. 1 ================================================================ CORAM: HONOURABLE MR.JUSTICE KS JHAVERI and Page 1 of 11 O/TAXAP/1771/2005 JUDGMENT HONOURABLE MR.JUSTICE K.J.THAKER Date : 10/12/2014 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE KS JHAVERI) 1. Being aggrieved and dissatisfied with the impugned orders passed by the Income Tax Appellate Tribunal, Rajkot Bench (hereinafter referred to as ‘the Tribunal’) dated 28.07.2005 in ITA Nos. 558/RJT/2003 & 559/RJT/2003 for the Assessment Years 1994-95 respectively, the revenue has preferred the present Tax Appeals. 1.1 The following substantial question of law was raised while admitting the appeals on 31.01.2005. : Whether, the Tribunal was justified in holding that the reopening of the assessment was within the period of limitation? 2. The assessees are individual and filed their return of income for assessment year 1994-95 along with necessary details. Subsequently the assessment was reopened under section 147 of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) on scrutiny of the case records by the Assessing Officer for making addition towards alleged unexplained cash credits under section 68 of the Act. 2.1 Notices u/s 148 was issued on 07.03.2000 on the same subject matter and the assessees objected the jurisdiction of the Assessing Officer for invoking proceedings under sections Page 2 of 11 O/TAXAP/1771/2005 JUDGMENT 147 and 148 of the Act to reopen the completed assessment beyond four years. On merit also the assessees submitted that no addition is maintainable towards alleged unexplained cash credits. The Assessing Officer disregarded the contention of the appellant and framed reassessment by making addition towards unexplained cash credit. 2.2 Being aggrieved by the order of the Assessing Officer the assessees preferred appeals before the CIT(A) who concluded that the assessment sought to be opened u/s 147 & 148 was barred by limitation due to proviso to section 147 of the Act. The revenue, preferred appeals before the Tribunal and the Tribunal vide impugned orders reversed the findings of CIT(A) and observed that the Assessing Officer was justified in reopening the assessment u/s 148 of the Act as well as making addition under section 68 of the Act. Being aggrieved and dissatisfied with the same, the present appeals are preferred by the assessees. 3. Mr. R.K. Patel, learned advocate appearing for the assessees submitted that the Tribunal seriously erred in upholding the jurisdiction of the Assessing Officer to invoke reassessment proceedings under sections 147 & 148 of the Act inspite of the fact that there is no failure to file return or to disclose fully and truly the material facts necessary for assessment by the assessees. He submitted that the Tribunal has ignored certain factual aspects of the case read along with the settled position of law and thereby the ultimate finding and conclusion of the Tribunal is such that it results in vitiated finding. Page 3 of 11 O/TAXAP/1771/2005 JUDGMENT 3.1 In support of his submissions, Mr. Patel has relied upon the decision of the Apex Court in the case of Parashuram Pottery Works Co. Ltd. vs. Income-tax Officer reported in [1977] 106 ITR 1 (SC) and decision of this Court in the case of Cadila Healthcare Ltd vs. Deputy Commissioner of Income-tax reported in [2011] 334 ITR 420 (Guj). 4. Mr. P.G. Desai, learned advocate appearing for the revenue supported the impugned order and contended that the same having been passed in accordance with law does not call for interference by this court. He has drawn the attention of this Court to section 147 of the Act as well as decision of the Apex Court in the case of Phool Chand Bajrang Lal and Another vs. Income- Tax Officer and another reported in [1993] 203 ITR 456. 5. We have heard learned advocates for the parties and gone through the records of the case. At the outset we think it appropriate to have a look at section 147 of the Act and the same is reproduced hereunder: “147. Income escaping assessment.- If the Assessing Officer has reason to believe that any 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 and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) : Provided that where an assessment under sub- Page 4 of 11 O/TAXAP/1771/2005 JUDGMENT section (3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a notice issued under sub-section (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year: Provided further that the Assessing Officer may assess or reassess such income, other than the income involving matters which are the subject matters of any appeal, reference or revision, which is chargeable to tax and has escaped assessment. Explanation 1.—Production before the Assessing Officer of account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.—For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely :— (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax ; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return ; (c) where an assessment has been made, but— (i) income chargeable to tax has been underassessed ; or Page 5 of 11 O/TAXAP/1771/2005 JUDGMENT (ii) such income has been assessed at too low a rate ; or (iii) such income has been made the subject of excessive relief under this Act ; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. Explanation 3.—For the purpose of assessment or reassessment under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, notwithstanding that the reasons for such issue have not been included in the reasons recorded under sub-section (2) of section 148.” 5.1 Thus, it is clear that section 147 of the Act provides for the reopening of assessment proceedings and gives discretion to the Assessing Officer to reopen the assessment proceedings when he/she has reason to believe that some of the income has escaped assessment. Section 147 can be evoked within period of four years from the relevant assessment year. Under the first proviso to section 147, where an assessment has been made u/s 143(3) the assessment cannot be opened after the expiry of four years from the relevant assessment year unless income has escaped assessment by reason of failure on the part of the assessees to disclose fully and truly all material facts necessary for his assessment. 5.2 In the present case, the relevant assessment year is 1994-95 and the limitation period of four year expires on 31.03.1999. In the present case, the impugned notice is issued on 07.03.2000 which means that the notice is issued after the period of limitation. Now it is required to be seen as Page 6 of 11 O/TAXAP/1771/2005 JUDGMENT to whether there was any failure on the part of the assessees to disclose material facts necessary for his assessment. From the perusal of assessment order as well as assessment records there seems to be no evidence whatsoever to conclusively prove that the cash credits of the assessees were not genuine. The entire information available at the time of reassessment was also available at the time of original assessment as well and the Assessing Officer while completing the original return had accepted the cash credits as genuine in the assessment framed u/s 143(3). 6. In this regard we are supported by the decisions of the Apex Court in the case of Parshuram Pottery (supra) wherein the Apex Court has held as under: “It has been said that the taxes are the price that we pay for civilization. If so, it is essential that those who are entrusted with the task of calculating and realising that price should familiarise themselves with the relevant provisions and become well versed with the law on the sub- ject. Any remissness on their part can only be at the cost of the national exchequer and must necessarily result in loss of revenue. At the same time, we have to bear in mind that the policy of law is that there must be a point of finality in all legal proceedings, that state issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. So far as income-tax assessment orders are concerned, they cannot be reopened on the scope of income escaping assessment under section 147 of the Act of 1961 after the expiry of four years from the end of the assess- ment year unless there be omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. As already mentioned, 'this cannot be Page 7 of 11 O/TAXAP/1771/2005 JUDGMENT said in the present case. The appeal is conse- quently allowed; the judgment of the High Court is set aside and the impugned notices are quashed. The parties in the circumstances shall bear their own costs throughout.” 6.1 Similarly, this Court in the case of Cadila Healthcare (supra) has observed as under: “10. It is well settled as held by the Supreme Court in a catena of decisions which have been referred to in the memo of petition that the duty which is cast upon the assessee is to make a true and full disclosure of the primary facts at the time of the original assessment. Production before the Assessing Officer of the account books or other evidence from which material evidence could with due diligence have been discovered by the Assessing Officer will not necessarily amount to disclosure contemplated by law. The duty of the assessee in any case does not extend beyond making a true and full disclosure of primary facts. Once he has done that his duty ends. It is for the Assessing Officer to draw the correct inference from the primary facts. It is no responsibility of the assessee to advise the Assessing Officer with regard to the inference which he should draw from the primary facts. If an Assessing Officer draws an inference which appears subsequently to be erroneous, mere change of opinion with regard to that inference would not justify initiation of action for reopening assessment. The grounds or reasons which lead to the formation of the belief contemplated by the proviso to Section 147 of the Act must have a material bearing on the question of escapement of income of the assessee from assessment because of his failure or omission to disclose fully and truly all material facts. 14. From the facts emerging on record, there is nothing to indicate that the petitioner has withheld any particulars. The successor Assessing Officer has verified the same record to come to the conclusion that there is escapement of income Page 8 of 11 O/TAXAP/1771/2005 JUDGMENT which could have been done at the initial stage itself. There is nothing on record to indicate any omission on the part of the assessee in fulfilling any obligation in law. Whether the Assessing Officer while framing original assessment had failed to work out the tax liability correctly or not, the assessee cannot be charged for any omission. In case the assessee had laid a claim to a particular amount, it was the job of the Assessing Officer to correctly compute the tax liability. Merely making a claim cannot be stated to be non-disclosure of material facts so as to vest in the Assessing Officer jurisdiction under section 147 of the Act. Besides, as already noted hereinabove, the respondent seeks to reopen the assessment after a period of four years from the end of the relevant assessment year. In the reasons recorded, there is nothing to indicate that the assessee has failed to disclose fully and truly all material facts necessary for its assessment for the year under consideration. Hence, the ingredients of the proviso to section 147 of the Act are clearly not satisfied. In the circumstances, there is no justification for assumption of jurisdiction by the respondent Assessing Officer for reopening the proceedings under section 147 of the Act. The entire proceedings initiated pursuant to the impugned notice dated 28th October, 2009, therefore, are without jurisdiction and as such, cannot be sustained.” 6.2 The question raised in the present appeal is squarely governed by these two abovementioned decisions. Mr. Desai, learned advocate for the revenue has relied upon the decision of the Apex Court in the case of Phool Chand Bajrang Lal (supra). In the said decision, the Apex Court has observed as under: “28. We are not persuaded to accept the argument of Mr. Sharma that the question regarding truthfulness or falsehood of the transactions reflected in the return can only be examined during Page 9 of 11 O/TAXAP/1771/2005 JUDGMENT the original assessment proceedings and not at any stage subsequent thereto. The argument is too broad and general in nature and does violence to the plain phraseology of Sections 147(a) and 148 of the Act and is against the settled law by this Court. We have to look to the purpose and intent of the provisions. One of the purposes of Section 147, appears to us to be, to ensure that a party cannot get away by wilfully making a false or untrue statement at the time of original assessment and when that falsity comes to notice, to turn around and say \"you accepted my lie, now your hands are tied and you can do nothing\". It would be travesty of justice to allow the assessee that latitude. “ 6.3 The decision in the case of Phool Chand Bajrang Lal (supra) shall not be applicable on the facts of the present case inasmuch as in the present case the reasons for reopening the assessment nor the order disposing of the objections indicate that there was any failure on the part of the petitioner to disclose fully and truly all material facts relevant for its assessment. In the instant case, the lenders did not name the assessees in their statements. The case of Phool Chand Bajrang Lal (supra) was on the lines when there was actual and willful false or untrue statement at the time of original assessment which eventually was found by the Assessing Officer. Here, by no stretch of imagination it could be said that the assessees failed to disclose truly all the facts necessary for his assessment. Mr. Desai is not in a position to show that there was any material disclosure on the part of the assessee at the time of assessment u/s 143(3) which was finally disclosed at the time of reassessment. 7. We, therefore, are of the considered opinion that the Tribunal has committed an error in coming to the conclusion that the assessees had concealed the income and therefore Page 10 of 11 O/TAXAP/1771/2005 JUDGMENT penalty proceedings were required to be initiated. We are in complete agreement with the finding of facts by the CIT(A) and therefore the order passed by the Tribunal is required to be quashed and set aside. 8. For the foregoing reasons, we answer the question raised in the present appeals in the negative i.e in favour of the assessees and against the revenue. We find that the Tribunal was not justified in holding that the reopening of the assessment was within the period of limitation. Accordingly, we quash and set aside the impugned order/s passed by the Tribunal and consequently the impugned notices are also set aside. The order/s passed by CIT(A) is hereby restored. Appeals are allowed accordingly. (K.S.JHAVERI, J.) (K.J.THAKER, J) divya Page 11 of 11 "