Gujarat High Court
Bimal Chimanlal Shah vs Deputy Commissioner Of Income-Tax on 8 March, 2002
Author: M.S. Shah
Bench: M.S. Shah
JUDGMENT D.A. Mehta, J.
1. Ordinarily, I think that, when there is difference of opinion as to whether a petition requires admission or not, normally, the petition would be admitted. However, in view of the fact that I am unable to agree with the reasons given by my learned Brother for dismissing the petition, I record my dissenting opinion.
2. Rule. Mr. M.R. Bhatt, learned Advocate appears and waives service of Rule on behalf of the respondent.
3. The petitioner, an individual, has challenged notice under Section 148 of the Income Tax Act, 1961 ('the Act') dated 28/5/2001 at Annexure "A" issued by the Deputy Commissioner of Income Tax, Circle-I, Ahmedabad.
4. On 3/10/1994 the petitioner returned a total income of Rs.1,53,080/- for assessment year 1994-95. A scrutiny assessment was framed under Section 143(3) of the Act on 28/2/1991 at a total income of Rs.1,54,170/-.
5. Mr. S.N. Soparkar, learned Senior Counsel appearing on behalf of the petitioner submitted that the impugned notice under Section 148 of the Act has been issued beyond the period of four years from the end of the relevant assessment year and hence, in light of the Proviso to Section 147 of the Act, it would be incumbent upon the respondent to show that there was any omission or failure on the part of the petitioner :
[i] to make a return under Section 139 or in response to notice under Section 142(1) or Section 148 of the Act, or [ii] to disclose fully and truly all material facts necessary for the assessment year.
Admittedly, the first situation was absent, the petitioner having filed his return and having been assessed under Section 143(3) of the Act. He contended that in light of the reasons recorded by the respondent under Section 148(2) of the Act, it was apparent that there was no failure on the part of the petitioner to disclose fully and truly all material facts as required under the Proviso to Section 147 of the Act. That the respondent ought to have formulated "reason to believe" that the income chargeable to tax has escaped assessment due to omission or failure on the part of the petitioner. It was further submitted that from the reasons recorded it could be seen that the surrender value of the tenancy rights received by the petitioner and claimed and allowed as exempt from levy of Income Tax in the original assessment order was now sought to be treated as taxable income under different head of income. He, therefore, submitted that in absence of any new information or material coming to the knowledge of the respondent, the impugned notice issued by the respondent be held to be bad, illegal, contrary to law and be quashed and set aside.
6. As against this, Mr. B.B. Nayak, learned Standing Counsel for the Income Tax Department contended that the petitioner had specifically claimed during the course of original assessment proceeding that the amount of Rs.12 lacs received as consideration for surrender of tenancy rights was exempt. However, the issue was not whether the said amount was taxable or not, but whether any tenancy existed, when in fact, as could be seen from the terms of the deed of surrender, there was no relationship of tenant and landlord between the petitioner and M/s. S.S. Gyani & Co. from whom the petitioner had received the said amount. He further submitted that the amount having been received as a part of the business deal which had not gone through the amount was taxable as business income or income from other sources. That the petitioner having taken a specific stand during the course of original assessment proceedings cannot be permitted to challenge the initiation of reassessment, if the falsity of the petitioner's stand during the course of the assessment proceeding was detected subsequently. According to Mr. Nayak, admittedly, the petitioner was residing at Valsad and so called occupation of premises at Mumbai could not be accepted, or at least required investigation. That there was nothing to show why the petitioner was permitted to occupy the premises even if such occupation was accepted to have existed at the relevant point of time. That the payment was in relation to separation on account of a business deal which had not been carried through. Therefore, the subject matter of the reassessment proceedings was in relation to the aspect of occupation of the premises and the nature of payment, and only after both these aspects were ascertained, can it be said whether the amount was taxable or not, and if taxable, under which head ? He therefore urged that the Court should not intervene at this stage i.e. at the stage when the petitioner was merely called upon to submit his return in response to the notice under Section 148 of the Act.
7. During the course of hearing after perusal of the original file which was produced before us, the Court called upon the respondent to submit; (i) order sheet entries in relation to original assessment proceedings, (ii) the assessment note and the office note.
8. The order sheet entries for assessment year 1994-95 commenced with the entry dated 31/10/1994 recording that the return of income was filed. The second entry pertains to issuance of notice under Section 143(2) of the Act on 14/7/1995 for hearing on 2/8/1995. Thereafter, various hearings have taken place from time to time and ultimately entry No.8 on 16/12/1996 reads as follows :
"Order sheet.
Shah Bimal Chimanlal
Valsad A.Y. 1994-95
________________________________________________________
xxx xxx xxx
8 16/2/96. Shri M.J. Shroff, Advocate
attended and filed the following
details in support of the return.
[1] Copies of bank summary
a/c.
[2] Copies of capital a/cs. with the
partnership firms in which he is
a partner.
[3] Copy of deposit a/c. with
M/s. Tirth Developers.
[4] Copy of gift deed.
[5] Certificate of LIC regarding loan
taken.
[6] Copy of deed of surrender of
tenancy rights.
[7] Copy of Bank advice in respect
of foreign gift.
In respect of the surrender value of tenancy rights of Rs.12,00,000/-, it was submitted that the same is not chargeable to tax in view of the provisions of the Act, applicable to the point of time. Please explain as to why the capital gain on transfer of tenancy rights should not be taxed with supporting provisions of the Act.
Adj. to 18/12/96 at 10.30 Sd/-"
Then, on 14/2/1997,the then Assessing Officer has recorded that the petitioner had made submissions as to why the receipt of surrender of tenancy rights was not liable to tax. On 17/2/1997 after recording the presence of the representative of the petitioner the Assessing Officer records :
"He is requested to file contra accounts in respect of receipt of surrender of tenancy rights and also to furnish the PAN of the other party".
In response to the aforesaid requisition on 25/2/1997 the said details have been submitted and this is recorded vide entry no.11.
9. The following assessment note and the office note have been recorded by the respondent before framing final assessment :
"ASSESSMENT NOTE :-
A search operation u/s. 132 was conducted on 19/1/95 at the business premises of the firms in which, assessee is a partner and also at the residential premises of the assessee. As a result of the search, certain books of accounts and other papers were seized. Statements of the partners of the firms were recorded u/s. 132(4) of the Act. The partners, during the course of the statements, have disclosed unaccounted income of Rs.55 lacs to be assessable in the hands of two partnership firms and two individuals of the Amar group. The disclosures are taxable for Asstt. Year 1995-96. The seized materials are also related to Asstt.Year 1995-96.
2. All the seized materials, statements recorded u/s. 132(4) and the appraisal report have been carefully gone through. There is nothing in the seized materials, which has any bearing in the assessment for Asstt. Year 1994-95 in the case of the assessee. The assessment is accordingly completed after verifying the details available on records.
3. Assessee has received total amount of Rs. 12 lacs by instalments during the accounting year from M/s. Gyani & Co. of Bombay, for surrender the tenancy rights over the property situated at 419, Marol Maroshi Road, Andheri (E), Bombay. The payments have been received by cheques drawn on Development Co.op.Bank. These amounts were credited to the bank account of the assessee with Bank of India, Valsad and later withdrawn these amounts for investing in the partnership firms as capital. Copies of relevant accounts have been filed and verified. As per provisions of Sec. 48 and 55 of the Act as applicable to Asstt.Year 1994-95 and earlier years, the receipts are not liable to tax. Therefore, the income is not included in the total income.
Sd/-
Asstt. C.I.T., Cir.1, Valsad.
OFFICE NOTE :-
Intimate the payment of Rs.12 lacs by M/s. S.S. Gyani & Co. of Bombay, to the concerned Assessing Officer, I.T.O., Ward-22, Bombay for verification and necessary action.
Sd/-
Asstt. C.I.T., Cir.1, Valsad."
10. The assessment which was framed on 28/2/1997 is sought to be reopened by virtue of the impugned notice dated 28/5/2001 and the reasons which are recorded for issuing the said notice under Section 148 of the Act read as under :
"RECORDING OF REASONS FOR ISSUE OF NOTICE UNDER SECTION 148 OF THE ACT.
The asstt. U/s.143(3) was made on 28/2/97, During the year the assessee received Rs.12,00,000/from M/s. S.S. Gyani & Co. of Bombay as surrender value of tenancy rights over property situated at 419,Mashoshi Road, Andheri, Bombay. The assessee has never paid any rent or lease rights to M/s. S.S. Gyani & Co. since 1986-87 nor any expenses of the nature debited to profit & loss account. In absence of the above, it cannot be seen that the assessee was a tenant of the property. The assessee had purely business deal with M/s. S.S. Gyani & Co. in development of the said property. This is business deal and receipt of Rs.12,00,000/- is required to be taxed as income from other sources. I have therefore, reason to believe that the income chargeable to tax has escaped the asstt. to the tune of Rs.12,00,000/-.
Sd/-
(M.L.PATEL) Deputy Commissioner of Income tax, Circle-I, Valsad. "
11. The impugned notice (Annexure "A") having been issued after expiry of the period of four years from the end of the relevant assessment year, the respondent shall have to establish that there was any omission or failure on the part of the petitioner to place all material facts necessary of the assessment year in question. An omission or failure presumes statutory obligation. It is well settled that any challenge to initiation of reassessment proceedings has to be tested primarily on the basis of the reasons recorded. The case of the revenue must succeed or fail on the basis of reasons recorded. It has to be borne in mind that recording of reasons under Section 148(2) of the Act, is a mandatory condition precedent and notice issued under Section 148 of the Act is a serious proceeding resulting in disturbing a completed assessment. It cannot be gainsaid that the satisfaction of the conditions, being a sine qua non, can be judged only vis-a-vis reasons recorded. The reasons recorded unfold the process by which the Assessing Officer was led to the formation of his belief about escapement of income.
12. In the case of Krishna Metal Industries Vs. H.M. Algotar, 225 I.T.R.853, this Court speaking through Justice R.K. Abichandani has laid down that :
" xxx xxx The proviso to section 147 lays down that where an assessment under sub-section (3) of Section 143 or Section 147 has been made for the relevant assessment year, no action shall be taken under section 147 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 section 142(1) or section 148 or to disclose fully and truly all material facts necessary for his assessment for that assessment year. The impugned notice does not state that the assessee had not disclosed fully and truly all material facts necessary for his assessment for the relevant assessment year. The concerned officer has not recorded any satisfaction to that effect which was a precondition to the exercise of his jurisdiction for reopening the assessment, as the period of four years ended on March 31,1994, and thereafter it was not open to the said authority to initiate action unless the case fell within the terms of the proviso ..... "
13. In another decision, this Court speaking through Justice R. Balia in the case of Shree Tharad Jain Yuvak Mandal, and Another vs. Income Tax Officer 242 I.T.R.612 at pages 615-616; stated thus :
"The scope of the assessee's duty to disclose fully and truly all material facts necessary for assessment in the context of the provisions of section 34 of the Indian-tax Act,1922, has been succinctly stated by the Supreme Court by Their Lordships in Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191. The Court observed (page 200):
'There can be no doubt that the duty of disclosing all the primary facts relevant to the decision of the question before the assessing authority lies on the assessee'.
The Court further said (page 201) :
'Does the duty, however, extend beyond the full and truthful disclosure of all primary facts ? In our opinion, the answer to this question must be in the negative. Once all the primary facts are before the assessing authority, he requires no further assistance by way of disclosure. It is for him to decide what inferences of facts can be reasonably drawn and what legal inferences have ultimately to be drawn. It is not for somebody else- far less the assessee-to tell the assessing authority what inferences, whether of facts or law, should be drawn".
14. The reasons recorded by the Assessing Officer disclose that the reason attributed for so called escapement of income chargeable to tax is that the petitioner had not paid any rent or lease rights to M/s.S.S.Gyani & Co. since 1986-87 nor any expenses of the nature were debited to profit and loss account. On the basis of this the respondent goes on to infer that the petitioner was not a tenant of the property and that the same was merely a business deal between the petitioner and M/s. S.S. Gyani & Co. for developing the said property. Therefore, according to him the receipt of Rs.12 lacs is required to be taxed as income from other sources. Nowhere do the reasons recorded state that there was any omission or failure on the part of the petitioner to disclose fully and truly any material fact which had resulted in escapement of income for the assessment year under consideration.
15. Though the position in law as stated herein before is well established, to the effect that initiation of reassessment has to be tested in light of the reasons recorded and the reasons recorded cannot be improved upon by way of affidavit of the respondent, even if one takes into consideration the affidavit-in-reply filed by the respondent nowhere does one get even a whisper that there was any omission or failure on the part of the petitioner. The affidavit-in-reply with special reference to paragraph 3.3. refers to the deed of surrender and goes on to state that as per terms of the said deed the petitioner and the other party had come to gether to develop the property mentioned in the deed and hence the entire receipt was resulting from a business deal to develop the said property. Therefore, according to the respondent the receipt was a casual receipt relating to assessee's business of construction liable to tax under Section 56 of the Act under the head "income from other sources". In para 4.1, the respondent repeats that the income does not fall under the provisions of Sections 48 & 55 of the Act but is taxable under the head "income from other sources". In paragraph 4.2 after referring once again to the deed of surrender the respondent reiterates that it was a business deal which was chargeable to tax under the head "income from other sources" The sentence which follows reads " It was due to failure on the part of the assessee to disclose such income under the proper head of income, its income has escaped assessment".
16. Thus, it is only in the affidavit-in-reply that for the first time a mention as to a failure on the part of the petitioner comes forth. Now what is stated : that the petitioner failed to disclose income under the proper head of income. The respondent does not state either in the reasons recorded or in the affidavit-in-reply that there was any omission or failure on the part of the petitioner to furnish any material fact necessary for the assessment of the assessment year in question. The reasons, as already seen, are silent. On this ground alone the action of the respondent should fail. However, even if the averment in the reply affidavit is taken into consideration the charge is as regards failure to disclose income under the proper head of income. Once all relevant facts have come on record what further inference of facts or inference in law should be drawn is within the exclusive domain of the Assessing Officer.
17. It is a clear case where the Assessing Officer has no reason to link escapement of income from assessment with non disclosure of any material fact necessary for his assessment at the time of original assessment but is due to erroneous decision on the question of law by the Assessing Officer. Thus, the case is squarely covered by Proviso to Section 147 of the Act. The reason which led the Assessing Officer to believe that income of the petitioner has escaped assessment does not attribute any failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment by not furnishing the requisite information. In fact, as can be seen from the various order sheet entries, the assessment note and office note (extracted hereinbefore), it is apparent that the subject matter of the receipt of consideration for vacating the premises drew the attention of the respondent. The respondent raised queries, the petitioner responded and on considering the submission, the claim of the petitioner was accepted. At the cost of repetition, it requires to be stated that neither there is any whisper in the reasons about failure on the part of the assessee to disclose truly and fully all material facts, nor from the facts admitted on record it can be said that there is any justification for the respondent to come to the belief about escapement of income chargeable to tax.
18. A perusal of the deed of surrender makes it abundantly clear that the petitioner and M/s. S.S. Gyani & Co. executed the said deed on 12/8/1993 wherein the petitioner has been termed "OCCUPANT" while the other party has been called "OWNER". That the petitioner and the other party came into contact during 1986-87 and agreed to develop jointly "some of the properties" of the owners. The occupant was permitted to gratuitously occupy portion of the premises viz. at 419, Marol Manshi Road, Andheri, East, Mumbai - 400 059. That due to various reasons from either side they could not develop any of the properties of the owner jointly and hence, original idea of joint development was abandoned. It is further stated that the premises were gratuitously occupied by the occupant and he was asked to vacate by the owner, but as the occupant did not vacate the same ultimately the deed of surrender was entered into. Therefore, on a plain reading of the deed it is apparent that the petitioner had occupied the premises gratuitously. There was therefore no question of payment of any rent as stated by the respondent in the reasons recorded. Further more, from the deed it is apparent that the premises, portion of which was permitted to be occupied by the petitioner, were those where the owner was having its office. Therefore, the contention raised on behalf of the revenue to the effect that though the petitioner was residing at Valsad whether he had in fact occupied the premises at Mumbai or not was required to be ascertained, does not deserve any consideration for the simple reason that the deed of surrender was admittedly available with the respondent during course of original proceedings and at this stage revenue cannot be permitted to go behind the terms of the deed. The parties to the agreement have stated in no uncertain terms that a part of the premises were occupied by the petitioner gratuitously and on vacating the same the owner paid sum of Rs.12 lacs. As to how and in what manner the payment was made has also come on record. The permanent A/c.Number of the other party viz. M/s.S.S.Gyani & Co. has also come on record. However, more importantly, as can be seen from the office note the respondent had already intimated the Assessing Officer of M/s. S.S. Gyani & Co., to verify the genuineness of the payment and in the present proceeding there is nothing to show that either the other party or the payment is not genuine. In fact, if it would have been so the respondent would have specifically recorded the same in the reasons. Thus, considering the matter from any angle, in terms of the deed of surrender all material facts have come on record. Not only the account of the petitioner had been scrutinised as recorded in the order sheet but contra account of the other party had been called for and verified as recorded in the order sheet. Taking overall view of these facts it cannot be stated that there was any omission or failure on the part of the petitioner or that on merits also the revenue has made out any prima facie case which would enable it to pursue the reassessment proceedings initiated by virtue of the impugned notice. I have dealt with in detail the facts of the case only with a view to satisfy myself as to whether the revenue has any prima facie case to continue with the proceedings in question.
19. The limited controversy is as to whether there was any omission or failure on the part of the petitioner to disclose fully and truly all material facts necessary for the assessment of the year under consideration. The petitioner had made a claim as per his understanding of law to the effect that an asset (by whatever term expressed, tenancy right/occupancy right, etc.) which had no cost of acquisition, was not exigible to capital gain tax. In case the Assessing Officer was inclined to take another view of the matter all the necessary facts were available before him : the surrender deed specifically stated that the petitioner was occupant and the occupation was gratuitous. It is not necessary for the Court to draw any inference in law. Suffice it to state that in case of business relationship or a business transaction no question would arise of taxability under Section 56 of the Act which is the residual head of income. The said Section provides that income of every kind which is not to be excluded from the total income shall be chargeable under the head "income from other sources", if such income is not chargeable under any of the heads specified in Section 14, items A to E of the Act. Business income falls under Section 14D which is the head for Profits and gains of business or profession, and Capital gains falls under Section 14E.
20. The law is well settled that the reassessment proceedings cannot be availed of by the revenue on mere change of opinion on the same set of facts. In the present case, the then Assessing Officer had fully applied his mind as is evident from the order sheet entries, assessment note, office note and the assessment order. It is not the case of the respondent that any fresh facts have come to light which were not known during the course of original proceedings nor is it a case where the respondent can state from the facts which are on record that any false claim was made by the petitioner. These aspects have to be appreciated in the context of invocation of the Proviso to Section 147 of the Act. Proviso to Section 147 of the Act stipulates that failure on the part of the assessee has to be regarding full and true disclosure of all material facts necessary for the assessment. In case of difference of opinion as to the head of income under which a particular transaction and the resulting receipts are liable to tax, the same cannot be brought within the purview of the provisions of the Proviso to Section 147 of the Act, especially when the claim is once processed under one head of income, as the same would be a mere change of opinion.
21. The Supreme Court in the case of Parashuram Pottery Works Co. Ltd. vs. ITO 106 ITR 1, after following the principles laid down in its earlier decision in case of Calcutta Discount Co. Ltd. Vs. ITO 41 ITR 191 observed that the assessing authority should familiarise himself with the relevant provisions and become well-versed with the law. Any remissness on the part of the assessing authority can only be at the cost of the national exchequer and that there must be a point of finality in all legal proceedings, so that stale issues are not reactivated beyond a particular stage and the controversies are set at rest.
22. Applying the aforesaid ratio it is apparent that the impugned notice issued under Section 148 of the Act could not have been issued after the period of four years from the end of the relevant assessment year since the condition for exercise of the power beyond four years as contemplated by the Proviso to Section 147 of the Act did not exist.
23. In the result the petition is allowed. The impugned notice dated 28/05/2001 at Annexure "A" to the petition is quashed and set aside. Rule made absolute. There shall be no order as to costs.