Income Tax Appellate Tribunal - Kolkata
Income-Tax Officer vs Laxmi Narayan And Co. on 28 April, 1995
Equivalent citations: [1995]54ITD671(KOL)
ORDER
R. Acharya, Accountant Member
1. This appeal is instituted by the department against the order of the CIT (Appeals) for the assessment year 1976-77 on the following grounds :
1. That, on the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) XIV, Calcutta was not justified in holding that the proceedings started under Section 147(a) were not correct and that the same should therefore be null and void and hence Learned Commissioner of Income Tax (Appeals) XIV erred in cancelling the reassessment made under Section 143(3)/147(a).
2. That, on the facts and in the circumstances of the case, the Learned Commissioner of Income-tax (Appeals) XIV, Calcutta erred in deleting the addition of Rs. 1,50,000 made by the Assessing Officer as income from undisclosed sources.
2. The appeal is filed late by 12 days. Since the department has filed condonation petition explaining the day to day delay to our satisfaction, the delay is condoned after hearing ld. counsel for the assessee. Accordingly the appeal is admitted.
3. Briefly stated, the facts of this case are that the original return in this case was filed on 20-8-1976 and the assessment was completed under Section 143(3) on 10-1 -1977 after necessary verification of loans and after accepting the confirmation letters for the loans. In the balance-sheet, the Assessing Officer found that the assessee has taken loans of Rs. 50,000 each from S/Shri Ajay Kr. Singh, Bijay Kr. Singh and Chouthamal Agarwalla and in each case the loan was taken on 15-3-1975 from each person and loan confirmations were filed but they were signed by Chouthamal Agarwalla on behalf of him as well as other two creditors. Subsequently, on enquiry, it was found that Sri Ajay Kr. Singh advanced only Rs. 18,000 as loan during the year ended on 31-3-1975. But the confirmation of loan submitted by the assessee showed that the loan of Rs. 50,000 was taken from Shri Ajay Kr. Singh on 15-3-1975. Similarly, it was found from the assessment record of Sri Bijay Kr. Singh that he has advanced only Rs. 18,000 as per his Balance-sheet and there was no mention of Lakshmi Narayan Agarwalla in the asset side of the Balance-sheet. Contrary to that, the assessee filed confirmation letter for a loan of Rs. 50,000 taken by the assessee on 15-3-1975. Likewise in the assessment records of Chouthamal Agarwalla it was found for the period ending 31-3-1975 relevant to assessment year 1975-76 that Chouthamal Agarwalla advanced Rs. 18,000 as loan and, there was no mention of Lakshmi Narayan Agarwalla at the asset side of Balance Sheet. The statement of Chouthamal Agarwalla was recorded on 9-12-1977 under Section 131 by the Assessing Officer and he deposed that he had no means to advance Rs. 50,000 on 15-3-1975 and that he signed the bogus confirmation letter in lieu of some monitary consideration from Lakshmi Narayan & Co. He further deposed that the confirmation certificates signed by him on behalf of S/Shri Ajay Kr. Singh and Bijaj Kr. Singh were equally bogus. The Assessing Officer assessing all the loan creditors confirmed that such loans were bogus. In view of this the Assessing Officer before reopening the assessment under Section 147(a) issued a show-cause notice on 6-5-1980 and the Assessing Officer also issued summons under Section 131 to the loan creditors but none appeared. This was informed to the assessee and the assessee was requested by the Assessing Officer to produce the loan creditors for verification. Again, fresh summons under Section 131 were issued to all the loan creditors but none of them appeared. The assessee was confronted with this fact but the assessee also could not produce the loan creditors. Subsequently, the assessment was reopened under Section 147(a) and notice under Section 148 was issued on 11-3-1981 and was duly served on 12-3-1981. In response to notice under Section 143(2), the assessee relied on its letters dated 12-10-1981 and 12-5-1980 already submitted. The assessee also submitted another letter dated 13-12-1984. The Assessing Officer observed that in all these letters, there is nothing by which the assessee could prove that the loans are not bogus and the loan creditors are not name-lenders. He also observed that by the assessment records of the loan creditors as well as by the deposition of the loan creditor, it is proved beyond doubt that the said loans are all bogus and these were nothing but income of the assessee from undisclosed sources. Accordingly, he added Rs. 1,50,000 to the income of the assessee as income from undisclosed sources.
4. Being aggrieved, the assessee preferred appeal before the CIT (Appeals) contending that the original assessment was completed under Section 143(3) after detailed scrutiny of all material facts necessary for the assessment submitted by it before the Assessing Officer. The assessee also relied on the Supreme Court decision in the case of ITO v. Lakhmani Mewal Das [1976] 103 ITR 437 and challenged that the reopening of the assessment is wholly illegal because the assessee has fulfilled its duty to make a true and full disclosure and that there was no failure on the part of the assessee to furnish material or failure to disclose the material. It was further contended that in view of the legal position laid down by the Supreme Court that ITO's drawing inference subsequently is erroneous and it is a case of change of opinion and recourse to provisions of Section 147(a) cannot be taken. It was further argued that the necessary verification of loans were also made by the Inspector and the confirmations were accepted as it is evident from the original assessment order. It is also contended that the loans from S/Shri Ajay Kr. Singh and Bijay Kr. Singh have been treated as bogus on the statement of third person who was accountant of lenders. The ld. counsel for the assessee reiterated that the ITO while making the original assessment was fully satisfied about the genuineness of the loans and, therefore, the reopening of the assessment under Section 147(a) is illegal in view of the Calcutta High Court decision in the case of Lakhmani MewalDas (supra) which was confirmed by the Supreme Court in Lakhmani AfftbtdDass case (supra). On the basis of this decision it was argued that the duty cast on the assessee is to make a true and full disclosure of the primary facts at the time of original assessment and if an officer drew an inference which subsequently appeared to be erroneous, is mere change of opinion and it would not justify initiation of reassessment proceedings. It was also argued that the grounds or reasons which lead to the formation of the belief must have a material bearing on the question of escapement of income. The ld. counsel for the assessee also relied on the letter dated 13- 12-1984 which was written in response to show-cause notice issued by the Assessing Officer. He also relied on the following decisions in order to support his arguments and contentions :
(a) CIT v. Simon Carves Ltd. [1976] 105 ITR 212 (SC).
(b) RawatmalHarakChand v. CIT [1981] 129 ITR 346 (Cal).
(c) GangaSaranandSons(P.)Ltd.v. ITO [1981] 130 ITR 1 (SC).
(d) Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC).
5. The ld. CIT (Appeals) considered the submissions made by the assessee and also noted from the original assessment order that the ITO had accepted the loans as genuine. He further observed that in view of these facts as well as keeping in view the submissions made on behalf of the assessee and also the Court decisions - both of Calcutta High Court and Supreme Court - referred to on behalf of the assessee, as mentioned above, he was convinced that the case is not covered under the provisions of Section 147(a). According to him, in this case where all the material facts were disclosed at the time of original assessment and where confirmation letters were submitted and where the Assessing Officer had made necessary verification including enquiries through the Inspector, the conditions for reopening the assessment under Section 147(a) cannot be said to have been fulfilled. In the opinion of the CIT (Appeals), therefore, the fresh proceedings started under Section 147(a) were not correct and the same were held to be null and void. He, therefore, cancelled the reassessment and restored the original assessment. In effect he also deleted the addition of Rs. 1,50,000 as income from 'other sources'.
6. Being aggrieved by the order of the CIT (A), the revenue has preferred this appeal to the Tribunal. The ld. Departmental representative, Sri D.P. Kar, submitted that the amount of loan received at Rs. 50,000 each is not shown in the balance sheet of the creditors and there was no compliance to the summons issued to them. It is further submitted that the assessee also did not produce them and that one of them appeared before the Assessing Officer and confessed that not only the loan advanced by him is bogus but also the other two loans are also bogus. According to him, therefore, the CIT (A) was not justified in cancelling the reassessment only on the ground that the Inspector has enquired and verified all the loans. Sri Kar also contended that the assessee has not at all disclosed all the material fully and truly and, therefore, the Assessing Officer has power to reopen the assessment. In order to support his arguments and contentions, Sri Kar relied on the Allahabad High Court decision in the case of Seth Banarsi Doss Gupta (HUF) v. OT[1995] 202 ITR 428. The ld. Departmental representative further contended that the CIT (A) was also not justified in deleting the addition of Rs. 1,50,000 as it has been proved beyond doubt to be bogus.
7. The ld. counsel for the assessee Sri V.N. Purohit, on the other hand, filed a paper book of 12 pages containing copies of ITO's letter dated 26-9-1980, assessee's reply thereto, assessee's letter dated 30-12-1980, ITO's letter dated 12-11-1984, assessee's letter dated 13-12-1984, written submission before the CIT (Appeals) along with the list of cases relied on as to invalidity of assessment reopened under Section 147(a), list of cases as to Tribunal's. power to convert a reassessment made under Section 147(a) as having been made under Section 147( b) and the order of the Tribunal, B-Bench, Calcutta in the case of Dy. CIT v. Anand Prakash Gpenka [IT Appeal No. 1258 (Cal.) of 1991]. At the outset, the ld. counsel for the assessee submitted that although the assessment was finalised in January 1977, the Assessing Officer started a fishy enquiry in 1980 as it is evident from the letters placed at pages 1 and 2 of the paper book. It is also contended that for reopening the assessment, enquiry was made from the assessee which is illegal and instead of that no new facts have been brought on the record. The ld. counsel for the assessee Sri Purohit also argued that S/Shri Ajay Kr. Singh and Bijay Kr. Singh have not admitted the facts narrated by Sri Chauthamal Agarwalla, their accountant. Sri Purohit invited our attention to its letter dated 15-9-1988 placed at page 10 of the paper book and explained that the creditworthiness of the creditors is proved. It is further argued that since the summons are served, existence and identity of the creditors is proved. Sri Purohit also invited our attention to page 3 of the paper book which is the assessee's letter to the Assessing Officer and contended that no opportunity was given to the assessee to cross-examine Sri Chauthamal Agarwalla. The ld. counsel for the assessee further submitted that the assessee has placed all material before the Assessing Officer and the creditworthiness were duly verified and accepted by the department and, therefore, there is no question of reopening the assessment for being done afresh in order to support his contention. Sri Purohit placed reliance on ITAT, B-Bench's order in the case of Anand Prakash Goenka (supra). According to him, as the facts are identical, the Tribunal's decision is fully applicable to this case. Sri Purohit also pointed out that the provisions of Section 147( b) can legally be applied to this case but as it is barred by limitation, on the date of issue of notice, the Assessing Officer wanted to correct the mistake committed by his predecessor.
8. In reply, Sri D.P. Kar, submitted that the contentions of the assessee are not correct. The provisions of Section 147(a) are applicable as the assessee has completely failed to disclose fully and truly all material facts, necessary for his assessment. In order to support his arguments and contentions as mentioned above, Sri Purohit has placed reliance on the following decisions:
(a) Calcutta Discount Co. Ltd's case (supra)
(b) CIT v. Orissa Corpn. (P.) Ltd. [1986] 159ITR 78 (SC)
(c) Lakhmani Mewal Das 's case (supra)
(d) Simon Carves Ltd's case (supra)
(e) Rawattnal Harakchand's case (supra)
(f) Ganga Saran & Sons (P.) Ltd. 's case (supra)
(g) AnandPrakash Goenka's case (supra)
(h) KaramChandKakkarv. ITO [1974] 93 ITR 198 (Bom.)
(i) Mriganka Mohan Surv. CIT [1974] 95 ITR 503 (Cal.)
(j) T.Ramaraov. ITO [1989] 179 ITR 287 (AP)
(k) CIT v.Banwarilal& Sons Ltd. [1982] 137 ITR 91 (Delhi).
9(a). We have carefully considered the rival contentions, relevant facts and material placed on record. We have also gone through the decisions on which reliance has been placed by both the. parties. We find that none of the decisions on which reliance has been placed by the ld. counsel for the assessee comes to the rescue of the assessee as those decisions are not applicable to the instant case because the facts and circumstances of these cases are altogether different. On the other hand, we find that the Allahabad High Court's decision in the case of Seth Banarsi Doss Gupta (HUF) (supra) on which reliance is placed by the ld. departmental representative is applicable to the instant case. We find that in this case the question before the court was a limited one, viz. whether the Assessing Officer could legitimately have reasons to believe that the assessee had failed or omitted to disclose fully and truly all material facts necessary for the assessment year 1949-50. From that point of view, the discrepancy pointed out by the Assessing Officer between the statements made by the assessee in 1962 and earlier in 1954, furnished relevant material for reopening the assessment under Section 147(a).
9(b). We find that the assessee has mainly relied on the following decisions and the CIT (Appeals) has also based his decision on them. They are:
(a) Supreme Court decision in the case of Lakhmani Mewal Das (supra). The ratio of the said decision is not applicable to the instant case as in that case the necessary link between the material and the belief was not established and there was nothing to show that the confession of M.K. related to the loan to assessee. In that case, close nexus between material before the ITO and his belief was missing, while in the instant case, it is established.
(b) The Calcutta High Court decision in the case of Rawatmal Harak Chand (supra) is also not applicable as in that case, proceedings under Section 147 were not validly initiated as the ITO had not recorded his reasons for his belief.
(c) The Supreme Court decision in the case of Ganga Saran & Sons (P.) Ltd. (supra). In this case salary, commission and bonus paid to the director were allowed as deduction in original assessment of company. Reassessment notice to disallow the same on the ground that the director had given substantial amounts as loan to Managing Director and gifts to his near relatives and drew small amounts for himself, was held to be invalid. The Hon'ble Supreme Court held that "neither of the two conditions necessary for attracting the applicability of Section 147(a) was satisfied in the present case and the notice issued by the ITO must be held to be without jurisdiction". On the contrary to it, we find that in the instant case, both the conditions that ITO has reason to believe that income of assessee has escaped assessment and that such escapement is by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment, are fulfilled.
10. In our opinion, therefore, the Assessing Officer acquired jurisdiction in this case of reopening the assessment under Section 147(a)/148 on the basis of specific, reliable and relevant information coming to his possession subsequently and, therefore, he had reason to believe that by reason of omission or failure on the part of the assessee to make a true and full disclosure of all material facts necessary for his assessment during the concluded assessment proceedings, part of assessee's income chargeable to tax has escaped assessment. The Assessing Officer has started reassessment proceedings because the fresh facts which came to the light were not disclosed previously. It is also seen that the facts previously disclosed were incomplete and in such circumstances, in our opinion, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available, on going through the fresh information.
11. We also find that although the Assessing Officer confronted the assessee with all the information and material and issued a show-cause notice to prove the genuineness of the loans, the assessee failed to do so. Even fresh summons under Section 131 were issued to the creditors but there was no response to those summons. The Assessing Officer also requested the assessee to produce the creditors but the assessee failed to do so. In our opinion, therefore, the assessee has completely failed to rebut and to controvert the facts on the basis of which assessment has been reopened. In this view of the matter, none of the contentions raised by the assessee is tenable.
12. Considering all the facts and circumstances of the case, we come to the conclusion that the reopening of the assessment is legal and valid and it is in accordance with the provisions of law and the CIT (Appeals)'s order cancelling the reassessment is without jurisdiction and without any authority of law. Therefore, his order cannot be sustained in the eyes of law.
13. Our view gets support from the Delhi High Court decision in the case of Midland Fruit & Vegetable Products (India) (P.) Ltd v. CIT [1994] 208 ITR 266 wherein it was held that it was not in dispute that before issuing the notice under Section 148, the Income-tax Officer did make notings on the order sheets on 17-8-1967, in respect of both the assessment years and these notings met the requirements of Section 148(2). The Tribunal had clearly found as a fact that the Income-tax Officer had received a letter dated 26-4-1967, from the Assistant Director of Inspection regarding bogus hundi loan transactions conducted by the assessee. The names of three creditors were specifically mentioned. The information contained in the said letter was definite and there was a nexus and a rational connection between that information and the belief entertained by the Income-tax Officer before initiating reassessment proceedings. The reassessment proceedings were valid.
In the case of Midland Fruit & Vegetable Products India (P.) Ltd. 's case (supra) also the credits shown in the accounts were accepted at the time of original assessment but subsequently information was gathered that some of the creditors were bogus and, therefore, reassessment proceedings were started and were held to be valid. Our decision also gets support from the Supreme Court decision in Phool Chand Bajrang Lal v. ITO [ 1993] 203 ITR 456. In this case fresh loan taken by the assessee from the company was accepted as genuine at the original assessment stage and interest was allowed. The assessment was reopened under Section 147(a) on the basis of some subsequent information from the officer assessing the company that its Managing Director had confessed that the company had not advanced any loan to any person during the period covering the date of cash loan. As the subsequent information was definite, specific and reliable, the notice for reassessment was declared valid. The Hon'ble Supreme Court has held that The subsequent information on the basis of which the Officer acquired reasons to believe that income chargeable to tax had escaped assessment on account of the omission of the appellant to make a full and true disclosure of the primary facts was relevant, reliable and specific. Therefore the Income-tax Officer in this case rightly initiated the reassessment proceedings on the basis of subsequent information which was specific, relevant and reliable.
** ** ** He may start reassessment proceedings either because some fresh facts had come to light which were not previously disclosed or some information with regard to the facts previously disclosed comes into his possession which tends to expose the untruthfulness of those facts. In such situations, it is not a case of mere change of opinion or the drawing of a different inference from the same facts as were earlier available but one of acting on fresh information.
** ** ** It would be immaterial whether the Income-tax Officer, at the time of making the original assessment, could or could not have found by further enquiry or investigation whether the transaction was genuine or not if, on the basis of subsequent information the Income-tax Officer arrives at a conclusion, after satisfying the twin conditions prescribed in Section 147(a) that the assessee had not made full and true disclosure of the material facts at the time of original assessment and therefore income chargeable to tax had escaped assessment.
In this view of the matter as well as for the reasons stated above, we hold that the CIT (Appeals) was not justified in cancelling the assessment and in deleting the addition of Rs. 1,50,000. His order is, therefore, quashed and the order of the Assessing Officer is restored with the addition of Rs. 1,50,000 being intact.
14. In the result, the appeal is allowed.