Rajasthan High Court - Jaipur
Commissioner Of Wealth-Tax vs Hemchand Golecha on 9 August, 2001
Equivalent citations: [2002]254ITR70(RAJ)
Author: Ar. Lakshmanan
Bench: Ar. Lakshmanan, K.S. Rathore
JUDGMENT Ar. Lakshmanan, C.J.
1. Heard Shri R. B. Mathur, learned counsel appearing for the Commissioner of Wealth-tax, Bikaner, headquarters at Jaipur. The matter relates to eight Revenue appeals for the assessment years 1981-82 to 1988-89 arising out of the common order dated September 17,1993, passed by the Commissioner of Income-tax (Appeals), Rajasthan-III, Jaipur, holding that the assessment orders are invalid and ab initio void. Against the said order of the Commissioner of Income-tax (Appeals) (hereinafter referred to as "the CIT(A)"), eight appeals were filed in Wealth-tax Appeals Nos. 310 to 317/JP of 1993 before the Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (for short "the Tribunal"), which were also disposed of by the Tribunal by a consolidated order as a common issue was involved.
2. The matter involved in these cases pertains to the assessment years 1981-82 to 1988-89. The facts of these appeals are that the Department on the basis of the information/material in the possession of the Department, which pointed to the fact that the assessee was in possession of wealth of a certain value, which had escaped assessment, a notice under Section 17 of the Wealth-tax Act, 1957 (hereinafter referred to as "the Act"), was issued in the name of the legal heirs of the assessee on September 12, 1990. No reply was filed in its response. For completing the proceedings initiated under Section 17 of the Act, a notice under Section 16(2) of the Act was issued which was responded to by the authorised representative of the assessee. The Assessing Officer queried and sought reply from the authorised representative as to why on the basis of the material on record, the assessment should not be completed since no return of wealth was filed by the assessee. The assessee did not comply with the requirement and accordingly the assessment was completed ex parte under Section 16(4) of the Act. The Assessing Officer issued notice under Section 17 of the Act on the basis of major audit objections in respect of the assessment years 1981-82 to 1988-89. The wealth assessed and the tax demanded for the assessment years 1981-82 to 1988-89 are as under :
Assessment year Wealth assessed Wealth-tax demanded 1981-82 1,46,97,000 34,95,354 1982-83 1,46,97,000 82,94,474 1983-84 1,46,97,000 24,93,594 1984-85 1,46,97,000 28,92,714 1985-86 1,46,97,000 26,91,834 1986-87 1,46,97,000 9,98,075 1987-88 1,46,97,000 6,60,031 1988-89 1,46,97,000 9,26,761
Copies of the assessment orders have also been filed and marked as annexures in these matters.
3. The assessee preferred appeals against the assessment orders before the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) allowed the appeals of the assessee holding that the notices under Section 17 of the Act were issued by the Assessing Officer without recording the reasons which is a mandatory requirement as per the proviso to Sub-section (1) of Section 17 of the Act and that the assessments completed on the basis of such notices were invalid and void ab initio (annexure 2).
4. That being aggrieved with the order of the Commissioner of Income-tax (Appeals), the Revenue preferred appeals before the Tribunal. The learned Tribunal vide its order dated December 27, 2000 (annexure 3), dismissed the appeals filed by the appellant-Revenue holding that the assessment orders passed by the Assessing Officer under Section 16(4) of the Act are invalid and void ab initio and the orders of the Commissioner of Income-tax (Appeals) have been upheld. The Tribunal held that recording of reasons is a condition precedent even under the unamended provisions of the Act.
5. Thus, being aggrieved with the orders passed by the Commissioner of Income-tax (Appeals) and the learned Tribunal, the appellant-Revenue has filed these appeals under Section 27A of the Act before this court.
6. Mr. R. B. Mathur, learned counsel appearing for the Revenue-appellant submits that the learned Tribunal has seriously erred in holding that even in the unamended provisions of Section 17 of the Act, recording of reasons is a condition precedent. The unamended provisions which existed prior to April 1, 1989, did not require recording of reasons before issuance of notice under Section 17 of the Act. He would further add that the learned Tribunal without properly appreciating the provisions of law decided the appeals against the appellant-Revenue. It is further submitted that the proviso to Section 17(1) of the Act which requires that the Assessing Officer shall, before issuing any notice under this sub-section, record his reasons for doing so was added with effect from April 1, 1989, and prior to it similar provision was not there. The matters pertains to the years 1981-82 to 1988-89 in which there was no mandatory requirement of recording reasons before issuance of notice. According to learned counsel, the law applicable in the relevant assessment year is to be applied and thus the Commissioner of Income-tax (Appeals) and the learned Tribunal have seriously erred in setting aside the assessment orders. It is then submitted that the Assessing Officer had reasons to believe on the basis of the material on record consisting of serious audit objections that wealth of the assessee had escaped assessment. The assessee was required to furnish its wealth-tax returns by issuance of notice under Section 17 of the Act and again by the notice issued under Section 16(4) of the Act. The assessee instead of submitting the returns and complying with the other requirements, raised frivolous objections and as such the Assessing Officer was constrained to pass the assessment orders ex parte under Section 16(4) of the Act. It is the submission of Shri Mathur that the assessment orders have been passed in accordance with law and the Commissioner of Income-tax (Appeals) and the learned Tribunal have erred seriously in setting aside the assessment orders.
7. We have given our thoughtful consideration to the submissions made by Mr. R. B. Mathur. In this case, the following questions of law arise for our consideration :
"1. Whether, on the facts and circumstances of the case, the Income-tax Appellate Tribunal was justified in holding the assessment orders as invalid and void ab initio despite the fact that as per the then existing provisions in the relevant assessment years, the recording of the reasons for issuance of the notice under Section 17(1) was not mandatory ?
2. Whether, on the facts and circumstances of the case and in law, the Tribunal was right in holding that even in the unamended provisions of Section 17, the recording of reasons were necessary despite the fact that the proviso to Sub-section (1) of Section 17 was added with effect from April 1, 1989, only ?"
We have perused the entire pleadings and the orders passed by the Commissioner of Income-tax (Appeals) and the learned Tribunal.
8. Before proceeding further, it is beneficial to extract Section 17(1) and the proviso to it for better appreciation of the facts and circumstances of the case.
"17. Wealth escaping assessment.--(1) If the Assessing Officer has reason to believe that the net wealth chargeable to tax in respect of which any person is assessable under this Act has escaped assessment for any assessment year (whether by reason of underassessment or assessment at too low a rate or otherwise), he may, subject to the other provisions of this section and Section 17A, serve on such person a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return in the prescribed form and verified in the prescribed manner setting forth the net wealth in respect of which such person is assessable as on the valuation date mentioned in the notice, along with such other particulars as may be required by the notice, and may proceed to assess or reassess such net wealth and also any other net wealth chargeable to tax in respect of which such person is assessable, which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section for the assessment year concerned (hereafter in this section referred to as the relevant assessment year), and the provisions of this Act shall, so far as may be, apply as if the return were a return required to be furnished under Section 14 :.. Provided that... for that assessment year :
Provided further that the Assessing Officer shall, before issuing any notice under this sub-section, record his reasons for doing so."
9. We have also perused the assessment orders (annexure 1). As already noticed, the legal objection taken by learned counsel for the assessee was with reference to the validity of the notice issued under Section 17 of the Act and the assessment completed thereof. It is seen from the order of the Tribunal that the assessments were forwarded to the Assessing Officer for his comments. The Assessing Officer, presently holding additional charge of Circle 3(1), Jaipur, submitted his comments vide his letter dated September 8, 1993, mentioning therein that it is not correct to say that the notices were issued without approval of the Commissioner of Wealth-tax. The said approval was conveyed by the AC(IA), Jaipur, vide D. O. letter No. 6471 dated July 23, 1990, and is available in the assessment record for the assessment year 1981-82. The learned appellate authority on receipt of the comments from the Assessing Officer, confronted learned counsel for the assessee during the course of the appellate proceedings on September 9, 1993. The representative of the assessee after perusing the comments of the Assessing Officer, reiterated his contention that no reasons for issuance of the notices under Section 17 of the Act for all the eight assessment years were recorded by the Assessing Officer and, therefore, the notices issued under Section 17 of the Act and the assessment completed as a consequence thereof were invalid as recording of reasons is a condition precedent for assuming jurisdiction and valid issuance of notices under Section 17 of the Ad. It is thus, seen from the order of the Commissioner of Income-tax (Appeals) that the assessment records were perused in the presence of the parties and after perusing the assessment records, it was found that the reasons recorded were not available on the assessment record for any of the assessment years. Thus, it is seen that the reasons said to have been recorded by the Assessing Officer were not available on the assessment records of any of the years. Therefore, the question to be considered in these appeals is will the notices issued under Section 17 of the Act be without jurisdiction and consequently invalid as contended by learned counsel for the assessee.
10. We have already reproduced Section 17 of the Act, which was substituted by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989. The second proviso inserted by the Direct Tax Laws (Amendment) Act, 1989, which came into effect with effect from April 1,1989, to Sub-clause (1) of Section 17 has already been extracted. It is clearly mentioned therein that the Assessing Officer shall, before issuing any notice under this sub-section, record his reasons for doing so. Thus, with effect from April 1, 1989, recording of reasons before issuance of notice under Section 17(1) of the Act was made mandatory. The use of the word "shall" in the second proviso to Section 17(1) makes "recording of reasons" before issuance of notice under Section 17, certain and mandatory. However, as per the law up to March 31, 1989, recording of reasons was not mandatory under the Wealth-tax Act.
11. In the cases on hand, notices under Section V of the Act for all the eight assessment years were issued on September 12, 1990. Since the assessment years involved are assessment years 1981-82 to 1988-89, the question would arise whether the issue of notice under Section 17 will be covered under the provisions of law existing up to March 31, 1989, or the provisions of substituted Section 17 with effect from April 1, 1989 ? While considering this issue, the Commissioner of Income-tax (Appeals) has held that the provisions of Section 17 of the Act are not pari meteria with those of Section 147 of the Income-tax Act, but they are similar and synonymous. Thus, issuance of notices under Section 17 of the Act on September 12, 1990, would be governed and covered by the substituted provisions of Section 17 of the Act, which came into force with effect from April 1, 1989.
12. When the matter was taken on appeal before the Tribunal, the same view was taken by the Tribunal on consideration of the records and materials placed before it. Thus, the moot question before the Tribunal was decided by the Commissioner of Income-tax (Appeals) by affirming the decision of the Commissioner of Income-tax (Appeals).
13. We are of the opinion that recording of reasons is a condition precedent even under the unamended provisions of the Act. Since, in these cases, admittedly, no reasons were recorded, therefore, the proceedings initiated under Section 17 are invalid and ab initio void. The Tribunal has also referred to the judgment of the Madras High Court in the case of K. R. Venkatesalu v. WTO [1999] 237 ITR 293, wherein as per the facts of the cited case the notices under Section 17 for the assessment years 1984-85 and 1985-86 were issued on February 15, 1991, and the High Court, decided the issue of applicability of the amended provisions of Section 17 of the Act as under (page 296) :
"At the outset, we would like to make it clear that Section 17 of the Act had undergone a change with effect from April 1, 1989, by the Direct Tax Laws (Amendment) Act, 1987. Inasmuch as the impugned notices under Section 17 of the Act have been issued only on February 15, 1991, it goes without saying that it would be only the amended provisions which would govern the instant case."
In view of the above, we are of the opinion that the contention raised by learned counsel for the appellant has no merit and we are of the opinion that the order passed by the Assessing Officer under Section 16(4) of the Act is, invalid and ab initio void and, accordingly, we confirm the order dated September 17, 1993, passed by the Commissioner of Income-tax (Appeals) and the order dated December 27, 2000, passed by the learned Tribunal. The appeals fail and are, hereby, dismissed. However, we reserve the right of the Assessing Officer to take remedial measures as per the provisions of the law if he is so desires.