Income Tax Appellate Tribunal - Bangalore
Assistant Commissioner Of Income-Tax vs S. Dungarnath on 17 March, 1994
Equivalent citations: [1994]51ITD515(BANG)
ORDER
S. Bandyopadhyay, Accountant Member 1 The appeals bearing Nos. 2755 to 2757 (Bang.)/1991 have been filed by the Department against the orders of the Deputy Commissioner of Income-tax (Appeals) for the three successive years under consideration. The appeals bearing Nos. 65 to 67/Bang./1992 have, on the other hand, been filed by the assessee for the same three years. Since the issues involved in all these appeals are the same and the facts are common, the appeals have been consolidated and a combined order is being passed for the sake of convenience.
2. The facts of the case are that Shri S. Dungarnath was engaged in pawn-broking business. The Department conducted a search and seizure proceedings in the premises of the assessee on 20-2-1988. Certain documents were seized during the course of the said proceedings. For the assessment year 1985-86, the assessment had originally been completed under Section 143(1) on 22-7-1985 on a total income of Rs. 13,530 as returned by the assessee. For assessment year 1986-87, however, the return of income filed originally on 30-6-1986 admitting the total income of Rs. 11,274 was ignored and not considered as a valid return by the Assessing Officer on the ground that the income returned was below the taxable limit. Consequent on the search and detection of the seized documents as referred to above, the assessee filed fresh returns of income for the two years viz., assessment years 1985-86 and 1986-87 admitting additional income to the extent of Rs. 10,000 and Rs. 15,000 respectively. The figures of income returned as per these fresh returns were Rs. 2.2,860 and Rs. 26,274 for these two years respectively. These returns were filed on 23-1-1990. The returns were regularised by issue of notices under Section 148 on 25-1-1990. In response to the said notices, the assessee stated that the returns already filed should be considered as returns filed in response to the notices under Section 148.
2.1 For assessment year 1987-88, however, the assessee filed the return of income originally on 23-1-1990 admitting an income of Rs. 34,520. This income included an additional amount of Rs. 20,000 on account of undisclosed Girvis accounts over and above the figure of total income as per the books.
3. In the additional grounds taken up during the course of the proceedings before us, the assessee has challenged the validity of the notices issued under Section 148 for the assessment years 1985-86 and 1986-87. The assessment proceedings under Section 147(a) for these two years are, therefore, claimed to have been invalid and bad in law. The assessee has referred to the recent decision dated 15-2-1993 of the Karnataka High Court in the case of Winter Care (P.) Ltd. [Writ Petition No. 33832 of 1992] in which it has been held by the Karnataka High Court that the assessment proceeding initiated under Section 147 of the Act in that case was invalid and bad in law inasmuch as the notice under Section 148 itself giving the time limit of up to 30 days only from the date of receipt of the notice, in the said notice, for filing of the return in response thereto itself was invalid. The assessment proceeding was, therefore, quashed by the Karnataka High Court in that case.
3.1 In the instant case also, from a perusal of the copies of notices issued by the Assessing Officer under Section 148, it is found that time limit was allowed in the said notices up to 30 days only for filing the returns and hence, the notices concerned are liable to be held as invalid in accordance with the above-mentioned decision of the Karnataka High Court. In the instant case, however, the other fact to be taken into consideration is that the assessee himself had prompted the issuance of notices by filing revised returns for both the years showing substantially higher income than what had been shown in the original returns. Since these fresh returns were not in time, it was necessary to regularise the same by issue of notices under Section 148. The learned Departmental Representative has referred to the decision of the Supreme Court in the case of Director of Inspection v. Pooran Mall & Sons [1974] 96 ITR 390. He has drawn our specific attention to the following paragraph of the order of the Supreme Court as appearing at page 397 of the said reported decision:
But, the most important principle on the basis of which the order of the Income-tax Officer should be upheld is that it is in pursuance of an agreement between the parties which has obtained the imprimature of the court that this order has been made. The period of limitation is one intended for the benefit of the person whose property has been seized. It is open to him to waive it. We consider that to hold that the period of ninety days which is mentioned in Section 132(5) is an immutable one would cause more injury to the citizen than to revenue. It is, therefore, open to the aggrieved person, as happened in this case, to agree to a fresh disposal of the case by the Income-tax Officer and thereby waive the period of limitation.
The DR has also referred to the comments made in the famous treatise of Mulla on the Code of Civil Procedure at page 227 where the principle of waiver of a notice has been discussed. He has also drawn our attention to the discussions made at page 1190 of the book "The Law & Practice of Income-tax" of Kanga & Palkhivala, 8th edition, Volume I, on the same subject. His argument is that since the returns had already been filed and even subsequent to issue of notices Under Section 148, the assessee did not file fresh returns but stuck to those returns filed already, it must be considered that the assessee had waived his right for getting a fresh time of not less than 30 days for filing the returns.
3.2 The learned DR has also come up with another argument in this connection. He has argued that the assessment years concerned in this case are 1985-86 and 1986-87 and that the amendment brought to Section 148 by the Direct Tax Laws (Amendment) Act, 1987 with effect from 1-4-1989 would not cover the proceedings for these two years and hence, the notices issued under Section 148 in the old form would conform to the provisions of law as existing prior to the amendment and hence, neither the notices nor the assessment proceedings can be considered to be invalid. In support of his contention, he has referred to the amended provisions of Sections 187 and 188 and also insertion of Sub-section (5) to Section 143 and Sub-section (2) to Section 144 with effect from 1-4-1989. He argues that these clarify the intention of the Legislature that the amended provisions would be applicable to assessment years 1989-90 onwards only.
4. The learned counsel for the assessee, on the other hand, has drawn our attention to the discussions made at pages 3676 and 3678 of the Book "Income-tax Law" authorised by Chaturvedi & Pithisaria, 5th edition and has pressed that the assessee cannot be considered to have waived his right to the notice inasmuch as there was no conscious abandonment of an existing right known to the assessee. He, therefore, contends that there was lack of jurisdiction on the part of the Assessing Officer consequent on issue of invalid notices. About the intention of the Legislature regarding applicability of the new provisions, he has drawn our attention to the provisions of Sub-section (2) of Section 275.
5. Although Section 147 deals with some substantive matter affecting the chargeability of income, yet, the provisions of Section 148 relating to issue of notice under that section has got to be considered as procedural. In accordance with the plethora of decisions regarding applicability of amended provisions of law on procedural parts of a statute it must be held that this procedural section would operate in its amended form to all proceedings initiated on or after 1-4-1989, on which date the amended provisions came to the statute book. There is no doubt about the fact that in the instant case, the notices were issued much after that date. Hence, in our view, the matter relating to issuance of notice under Section 148 in the instant cases will have to be decided in accordance with the amended provisions of Section 148 only. Arguments put forward both by the DR as well as counsel for the assessee by quoting the newly inserted Sub-section (5) of Section 143, Sub-section (2) of Section 144 and also Sub-section (2) of Section 275 only support this contention. In these Sub-sections, the Legislature thought it fit to make a clear mention that the provisions of the respective sections as they stood prior to the amendment shall apply to and in relation to any assessment for assessment year commencing on 1-4-1988 or earlier assessment year. Sub-section (2) of Section 275 again made a clear mention that the provisions of that Section shall apply to and in relation to any action initiated for the imposition of penalty on or before 31st of March 1989. But for these specific insertions, the pending proceedings even for the earlier years would also have been liable to be guided in accordance with the respective amended provisions. So far as Section 148 is however concerned, no such special saving clause was inserted by the amending Act of 1987 so as to save all the assessments pertaining to assessment year 1988-89 or earlier years from the operation of the amended provisions. Hence, we are not inclined to agree with the contention of the learned DR in this connection that the old provisions of Section 148 alone should guide the present issue. On the other hand, we are of the view that inasmuch as the notices under Section 148 for both the years were issued after 1-4-1989, the amended provisions of Section 148 would apply to the present case.
6. In accordance with the amended provisions of the particular section and after taking into consideration the decision of the Karnataka High Court in the case of Winter Care (P.) Ltd. (supra), it would appear that the notices under Section 148 in the instant case would have to be treated as invalid. However, we have taken note of the fact that in the instant case, the proceedings were beckoned by the assessee by filing of the fresh returns of income and in fact the notices under Section 148 were issued by the Assessing Officer merely to regularise the filing of the said returns. The assessee did not avail of any time at all to file returns in response to the said notices and, on the other hand, he came up with the assertion that the returns already filed even before the issue of notices should be considered as the returns filed in response to the notices. Since the assessee consciously waived his right to the time period allowable to him under Section 148 for filing his returns of income, we must come to the conclusion that this is a case where the wordings used in the notices regarding the time period allowed to the assessee were of very little importance inasmuch as the assessee had already filed the returns. Ultimately, therefore, we are of the view that notwithstanding the decision of the Karnataka High Court in the case of Winter Care (P.) Ltd. (supra), the notice under Section 148 in the instant case cannot be considered to have been invalid and, hence, the proceedings which were actually initiated at the instance of the assessee by his act of filing the returns would have got to be considered as perfectly valid proceedings.
7. Coming to the merits of the case, we find that the Assessing Officer discussed in all the assessment orders that whereas the assessee had shown charging of interest on girvi accounts at the rate of 11/2% per month only, actually however, he had confessed as having charged interest at the rate of 3% p.m. The Assessing Officer also cited certain instances from the seized documents about some transactions by way of giving loans on pawning of ornaments having been carried outside the books. In that view, the Assessing Officer, after taking into consideration that the assessee had admitted an additional income of Rs. 10,000 in the revised return for assessment year 1985-86 and also the fact that actually interest was being charged at the rate of 35% per annum, considered additional income of Rs. 30,000 by way unexplained investment in pawning business. For this year, the Assessing Officer also added back another amount of Rs. 17,857 by taking into consideration extra 11/2% interest per month on the closing balance of the girvi amount of Rs. 1,19,049.
7.1 In assessment year 1986-87, the Assessing Officer stated that as per the seized document "A-6", investment of Rs. 65,130 was indicated. After taking into consideration that out of this amount, Rs. 30,000 had already been added back by him in assessment year 1985-86, he included the balance sum of Rs. 35,130 within the income of the assessee for this year by way of unexplained investment. Regarding extra interest, he considered an amount of Rs. 26,705 at the rate of 11/2% p.m. on the consideration that the same amount of Rs. 26,705 had been returned by the assessee at the rate of 11/2% p.m. 7.2 For assessment year 1987-88, however, no addition was made on the ground of unexplained investment. Extra interest at the rate of 11/2% p.m. was however, added back at the figure of Rs. 15,213 by considering the closing balance of the girvi account.
8. In the appeal before the DCIT(A), the arguments taken up by the assessee against the additions on account of unexplained investment on girvis and also inclusion of further interest for all the three years were brushed aside. Additions in this regard were, therefore, confirmed in principle. So far as however, the addition on extra interest is concerned, the DCIT(A) allowed the reliefs to the extent of extra income shown in the revised returns filed by the assessee. The amounts of relief for assessment years 1985-86 and 1986-87 were, therefore, of the order of Rs. 10,000 and Rs. 15,000 respectively. For assessment year 1987-88, however, in as much as the extra income of Rs. 20,000 had already been declared in the return filed by the assessee in comparison with the addition of Rs. 15,213 made in this regard, the entire addition was deleted by the DCIT(A).
9. The Department has come up in the present appeals against the aforesaid deletions from the additions made on account of further interest income. The assessee, on the other hand, has filed the appeals challenging the additions made initially. Levies of interest under Sections 217 and 139(8) have also been challenged before us.
10. So far as the addition on account of unexplained investment on girvi account is concerned, it is found that the Assessing Officer has merely relied on the writing in the seized document "A-6". The Assessing Officer himself states that the said writings indicate the investment of Rs. 65,130. This takes into account an element of surmise and no evidence has been adduced to show that the seized document actually pertain to the assessee's business or that the writings thereon actually related to girvi business being carried on outside the books. Hence, the additions in this regard cannot be considered to be based on good grounds. Therefore, the additions of Rs. 30,000 and Rs. 35,130 on this account for assessment years 1985-86 and 1986-87 respectively are being ordered to be deleted by us. To that extent, the orders of the lower authorities are being reversed.
11. So far as, however, addition on account of extra interest is concerned, the assessee himself confessed before the Departmantal authorities that actually he was charging interest on girvi items at the rate of 3% per month whereas he was accounting for the same in his books at the rate of 1 1/2% p.m. only. Although the learned counsel for the assessee has argued that interest at the rate of 3% per month was not being charged in all cases, yet in the face of such clear admission by the assessee and on account of non-availability of proper evidences to show in which cases lesser rate of interest was charged, we would like to confirm the action of the Assessing Officer in taking into consideration interest on girvi account at the rate of 3% p.m. At the same time again, we also find sufficient force in the argument of the DCIT(A) that credit must be given in respect of extra interest already declared by the assessee in the returns of income filed by him, over and above the figures shown in his books of account. We, therefore, uphold the reliefs allowed by the DCIT(A) also. In that view, we dismiss both the departmental as well as the assessee's appeals on this point relating to inclusion of extra interest on girvi account.
12. This leaves us to the consideration of leviability of interests under Sections 139(8) and 217. The assessment for assessment year 1985-86 is clearly a re-assessment under Section 147. In view of the decision of the Karnataka High Court in the case of Charles D'Souza v. CIT [1984] 147 ITR 694, therefore, we are of the view that no interest would lie to this particular re-assessment. The interest already levied under Section 217(1)(b) for this year is, therefore, being directed to be deleted.
12.1 For assessment year 1986-87, however, since the original return filed by the assessee had been considered as invalid by the Department, the assessment proceeding, although initiated under Section 147, must be considered to be of the nature of first assessment and not a re-assessment. Hence, the assessment proceeding for this year is to be treated as a regular assessment for the purpose of levy of interest which has got, therefore, to be treated as justified. Hence, the appellate ground of the assessee against the levy of interest for assessment year 1986-87 is being dismissed.
12.2 For assessment year 1987-88, however, it has been pointed out that the assessee was an old assessee and was being assessed even since assessment year 1974-75. It has also been contended that in view of the immediate assessment prior to the financial year corresponding to this assessment year having been completed at non-taxable income, the assessee was not liable to file his statement of income and of advance tax payable in accordance with the procedure laid down in Section 209A, for this year. In support of this contention, reliance has been placed on the decision of the Bombay High Court in the case of Patel Aluminium (P.) Ltd. v. Miss K.M. Tawadia, ITO [1987] 165 ITR 99.
13. If the contentions of the assessee in the above regard be factually correct, then we are of the opinion that the above-mentioned decision of the Bombay High Court would apply and the assessee would not be liable to imposition of interest under Section 217(1)(b). However, factual verification of the matter is necessary. We, therefore, remit this matter relating to levy of interest under Section 217(1)(b) for assessment year 1987-88 back to the file of the Assessing Officer with the direction that he should examine first whether the assessee can be considered to be a hitherto-before assessed assessee during the financial year corresponding to assessment year 1987-88 and if so, whether the assessment immediately completed before the date of last instalment for payment of advance tax during that financial year was at a non-taxable income as alleged by the assessee. If the position be found to be so factually correct, it is hereby ordered that no interest would be liable to be levied in accordance with the above mentioned decision of the Bombay High Court. Otherwise, however, if the factual conditions be found to be different than as alleged by the assessee and as discussed by us above, the levy of interest is tenable to hold good.
14. In the result, the departmental appeals for all the three years are dismissed, whereas the assessee's appeals are partially allowed to the above mentioned extent.