Karnataka High Court
First Income-Tax Officer, Davanagere ... vs A.Y. Panduranga Rao And Ors. on 29 August, 1980
Equivalent citations: [1981]128ITR250(KAR), [1981]128ITR250(KARN), [1981]6TAXMAN249(KAR)
Author: N. Venkatachala
Bench: N. Venkatachala
JUDGMENT Chandrashekhar, C.J.
1. This is an appeal from the order of Srinivasa Iyengar J. allowing W.P. No. 1845 of 1976. The respondent therein, the First Income-tax Officer, Davanagere Circle (hereinafter referred to as "the ITO") has presented this appeal.
2. In the writ petition, the petitioners had impugned the notice dated December 23, 1975, issued to them by the ITO under s. 148 of the I.T. Act, 1961 (hereinafter referred to as "the Act"), for reassessment for the year 1962-63. The learned single judge had quashed that notice.
3. The facts of the case have been fully set out in the order of the learned single judge. For the purpose of this appeal, it is sufficient to set out only the following facts : The petitioners and their father, Amberkar Veerupanna Dodda Yellappa, constituted a Hindu joint family. He was the karta of the family and he passed away on October 14, 1968. The family had purchased for Rs. 12,800 an extent of 146 acres of agricultural lands and subsequently had agreed to sell them to a company, the Yellamma cotton, Woollen and Silk Mills Limited (hereinafter referred to as "the company") for Rs. 86,000. The family had received an advance of Rs. 36,000 on July 6, 1951, and the balance of Rs. 50,000 on September 13, 1953, by way of allotment of shares in the company. The family executed on October 4, 1961, a registered sale deed in favour of the company conveying those lands. The family had not disclosed in its returns to income-tax the difference between the sale price and the purchase price of those lands as its (the family's) income by way of capital gain. Such income had not been brought to tax in the original assessment of the family to income-tax in any of the years. Subsequently, the ITO had issued to the family notices under s. 148 of the Act for reopening the assessments for the assessment years 1962-63 and 1963-64. In response to such notices the family had filed returns for those two years. After considering such return for the assessment year 1962-63, the ITO made on April 11, 1968, a note in the assessment file as follows :
"As the assessment for 1963-64 has been reopened on the same issue on which the assessment for 1962-63 had been reopened, the proceedings initiated under section 147(b) for 1962-63 are hereby dropped."
4. The ITO by his order dated October 7, 1968, assessed to tax the profit from sale of lands amounting to Rs. 72,116 for the assessment year 1963-64. Against that order of assessment, the family had preferred an appeal to the AAC who set aside that assessment holding that the said profit could not be taxed in the assessment year 1963-64.
5. On December 23, 1975, the ITO, after having obtained the permission of the CBDT, issued the impugned notice to the petitioners in their capacity as erstwhile coparceners of the HUF, proposing to reopen the assessment for the year 1962-63.
6. In the writ petition, the petitioners had contended that as the return filed by the family on April 27, 1967, pursuant to the earlier notice under s. 148 was a valid return but had not been disposed of in accordance with law, it was not competent for the ITO to issue the impugned notice under s. 148 and that, hence, the impugned notice was invalid and without jurisdiction. The learned single judge upheld that contention.
7. In this appeal, the learned standing counsel for the I.T. Dept. contended that the learned single judge erred in holding that the ITO had not disposed of the return filed on April 27, 1967. The learned standing counsel maintained that the above-quoted note made by the ITO on April 11, 1968, amounted to disposing of that return. In support of his contention he strongly relied on the decision of the Supreme Court in Esthuri Aswathiah v. ITO . There, the assessee family had submitted a return showing that it had no assessable income for that year. On that return the ITO had passed an order "no proceeding" and closed the assessment. The Supreme Court held that such an order, in the circumstances of the case, meant that the ITO accepted the return and assessed the income as "nil".
8. Though the decision in Esthuri Aswathiah's case had been cited before the learned single judge, he held that the facts of that case were not similar to those of the present case and that, hence, that decision was not applicable to the present case.
9. We are unable to agree with the view taken by the learned single judge. In our opinion, there is no material difference between the order "no proceeding" in Esthuri Aswathiah's case and the above-quoted note made by the ITO on April 11, 1968. Hence, the decision of the Supreme Court in Esthuri Aswathiah's case is applicable to the present case.
10. Sri K. Srinivasan, learned counsel for the respondents (the writ petitioners), did not also seek to support the above view of the learned single judge. But Sri Srinivasan sought to justify the ultimate order of the learned single judge on another ground which we shall presently set out.
11. In the present case, more than four years had elapsed from the end of the assessment year 1962-63. Hence, the assessment for that yea could not be reopened under clause (b) of s. 147. If at all, it could be reopened under clause (a) of that section. That clause reads :
"(a) the Income-tax Officer has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under section 139 for any assessment year to the Income-tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has escaped assessment for that year."
12. In the present case, the petitioners' family had filed a return for the assessment year 1962-63 in response to the earlier notice under s. 148. Hence, the first of the two alternative conditions precedent under that clause, did not exist in the present case. Sri Srinivasan contended that the second condition also was not satisfied in this case because the ITO was in possession of all the material facts relating to the income of Rs. 72,116 when he dropped the proceedings on April 11, 1968, and that if he did not tax that income for the year 1962-63, it was not due to any omission or failure on the part of the petitioners' family to disclose that income or any material facts relating thereto fully and truly. Sri Srinivasan maintained that merely because the ITO had subsequently taken the view then that such income was taxable for the assessment year 1963-64 and not for the assessment year 1962-63, it was not open to him (the ITO) to reopen the assessment again on account of his change of opinion as to the assessment year in which such income could be taxed.
13. In support of his contention, Sri Srinivasan relied on the decision of the Supreme Court in Geminii Leather Stores v. ITO . There, the facts were these : The assessee-firm had utilised certain drafts for making purchases at Madras and Calcutta. Those drafts represented its undisclosed income. This aspect of the matter was not considered by the ITO at the time of original assessment. To bring such undisclosed income to tax, he sought to reopen the assessment on the ground that the amounts for which those drafts had been purchased by the firm, had not been recorded in the disclosed accounts of the firm. The firm had contended that the ITO could not invoke the jurisdiction under s. 147(a) of the Act, Upholding that contention, this is what the Supreme Court observed (p. 4) :
"In the case before us the assess did not disclose the transactions evidenced by the drafts which the Income-tax Officer discovered. After this discovery the Income-tax Officer had in his possession all the primary facts, an it was of him to make necessary enquiries and draw proper inference as to whether the amounts invested in the purchase of the drafts could be treated as part of the total income of the assessee during the relevant year. This the Income-tax Officer did not do. It was plainly a case of oversight, an it cannot be said that the income chargeable to tax for the relevant assessment year had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully and truly all the material facts. The Income-tax Officer had all the material facts before him when he made the original assessment. He cannot now take recourse to section 147(a) to remedy the error resulting from his own oversight."
14. However, the learned standing counsel contended that since the petitioners' family had not disclosed even in the return filed on April 27, 1967, the income from the sale of the lands, it was a clear case where the income had escaped assessment by reason of the omission of the assessee to disclose fully and truly all material facts, and hence the case came squarely within the ambit of clause (a) of s. 147 and that the impugned notice under s. 148 was valid.
15. The above contention overlooks that when the ITO, after considering the return filed on April 27, 1967, dropped the proceedings on April 11, 1968, he had full knowledge of the income arising out of the sale of the agricultural lands. But he took the view that that income could not be brought to tax for the assessment year 1962-63. Thus, it was plainly a case of error of judgment on his part and his not bringing to tax that income was not due to any omission or failure on the part of the petitioners' family to disclose that income or any material facts relating thereto fully and truly.
16. In our opinion, the decision of the Supreme Court in Gemini Leather Stores' case fully supports the contention of Sri Srinivasan. Hence, the order of the learned single judge should be upheld on a ground different from the one on which he rested his order.
17. In the result, we dismiss this appeal.
18. In the circumstances of the case, we direct the parties to bear their own costs.
Order on oral application for grant of a certificate of fitness to appeal to the Supreme court Order on oral application for grant of a certificate of fitness to appeal to the Supreme Court
19. After we pronounced the above judgment in court, the learned counsel for the revenue made an oral application for grant of a certificate of fitness under article 133 of the Constitution to appeal to the Supreme Court.
20. In deciding this appeal, we have merely followed the ruling of the Supreme Court in Gemini Leather Stores v. ITO . Hence, no substantial question of law of general importance which needs to be decided by the Supreme Court can be said to arise from our judgment.
21. Hence, we decline to grant the certificate prayed for and dismiss the oral application made on behalf of the revenue.