Patna High Court
Commissioner Of Income-Tax vs S. P. Viz Construction Co. (No. 1). on 11 October, 1988
Equivalent citations: (1989)77CTR(PAT)125, [1989]176ITR34(PATNA), [1989]44TAXMAN373(NULL)
JUDGMENT
D. K. SEN C.J. - The material facts on record and the proceedings leading up to this reference are, inter alia, that S.P. Viz Construction Co., the assessee, is a registered are partnership firm and is an assessee within the meaning of the Income-tax Act, 1961.
For the assessment year 1968-69, he relevant previous year being the calendar year 1967, the assessee field a return of its income initially on August 1, 1968, disclosing a taxable income of Rs. 1,05,525. Subsequently, on February 9, 1972, the assessee filed a revised return with audited balance-sheet and profit and loss account, where its taxable income was declared to be Rs. 79,025.
At the material time, the assessee carried on business as a building contractor. In making the assessment, the Income-tax officer found that the assessee had declared its net profit at 7 per cent of the total receipts which he considered to be too low. He rejected the explanation of the assessee that the building works were being carried on at Assam where the assessee had no previous experience and had to transport labour and materials from Calcutta as also there was increase in the prices of building materials and labour rates after the commencement of the work under contract and as such, the rate of net profit was not high. The Income-tax Officer estimated the rate of net profit at 10 per cent., computed the income accordingly and made an ex parte order of assessment on March 21, 1973.
It was recorded in the order of assessment that penalty proceedings under sections 271(1)(a), 271(1)(c) and 140A(3) of the Income-tax Act, 1961, had already been initiated.
Being aggrieved by the aforesaid, the assessee preferred an appeal before the Appellate Commissioner contending, inter alia, that the assessment was barred by limitation as the same had not been completed within one year from the date of the revised return, that is, before February 8, 1973. It was contended further that the limitation was not saved by section 153(1)(b) of the Income-tax Act, 1961, which did not apply and, in any event, there was material no record on the basis of which section 153(1)(b) of the said Act could be invoked.
The Appellate Assistant Commissioner held that there was a prima facie case of concealment inasmuch as even the revised return filed subsequently by the assessee was not complete nor correct. He noted that the assessee had taken a long time to file the auditors report and had failed to produce its books of account and did not apply under section 146 of the Income-tax Act, 1961, for reopening the ex parte assessment for obvious reasons. The Income-tax Officer had initiated penalty proceedings under section 271(1)(c) of the Act. The Appellate Assistant Commissioner noted further that there had been a change in the incumbent of the office of Income-tax Officer and the successor Income-tax Officer, in accordance with the principles of natural justice, was required to hear the assessee afresh before completing the successor Income-tax Officer to reopen the whole or any part of the proceeding or to give an opportunity to the assessee to be heard had to be excluded as required under Explanation 1 of section 153(3) of the Act. He held that the assessment was not barred by limitation nor illegal and ab initio void.
Being aggrieved by the aforesaid, the assessee preferred a further appeal before the Income-tax Appellate Tribunal. The Tribunal accepted the preliminary objection of the assessee that the assessment was time barred. The Tribunal held that as a revised return had been filed on February 9, 1972, the assessment should have been made before February, 8, 1973, under section 153(1)(c) of the Act. The Tribunal rejected the contention the Revenue that the time for completion of the assessment was extended under section 153(1)(b) of the Act, in the facts, section 271(1)(b) of the Act was attracted.
The Tribunal noted the findings of the Appellate Assistant Commissioner that -
(a) the returns filed by the assessee were not accompanied by complete and correct statement of accounts;
(b) the assessee had taken a long time to file its audit report and had withheld production of its books of account; and,
(c) the assessee did not file an application under section 146 of the Act for reopening of the ex parte assessment.
The Tribunal held that the aforesaid do not constitute valid reasons for holding that the assessee had concealed its income within the meaning of section 271(1)(c) of the Act, or that the records led to a reasonable inference that there was even prima facie case of concealment. The Tribunal held that the there was nothing on record to indicate that the assessee was guilty of concealment of income. On the other hand, the assessee had returned its income on estimate basis and the Income-tax Officer had adopted the same basis for determining the income of the assessee. The Tribunal noted that the estimates made by different persons were bound to differ and it could not be presumed therefrom that the assessee had cealed its income.
The Tribunal noted further that the Income-tax Officer, in making the assessment, did not invoke or apply section 153(1)(b) of the Act which was noted for the first time by the Appellate Assistant Commissioner. Before the assessment became time-barred on February 8, 1973, there was no prima facie finding by the Income-tax Officer that the assessee had concealed its income within the meaning of section 271(1)(c) of the Act. Even thereafter, there was no such specific finding. Only on March 21, 1973, the Income-tax Officer initiated penalty proceedings in a routine manner when the assessment had already become time-barred. The Tribunal also noted that the said penalty proceedings against the assessee was ultimately dropped and this concluded the issue against the Revenue.
The Tribunal also rejected the conclusion of the Appellate Assistant Commissioner that the period from September 6, 1972, to March 31, 1973, should be excluded in computing the period of limitation as there was a change in the incumbent of office. The Tribunal considered section 129 of the Act and held that the successor Income-tax Officer could legally continue the proceeding at the stage at which the same was left by his predecessor and that he was under no obligation to reopen the previous assessment or to rehear the assessee unless it was so demanded by the assessee. In the instant case, there was no such demand from the assessee and if the successor Income-tax Officer gave an opportunity to the assessee of his own accord, the proceeding cannot be considered to have been reopened under section 129 so as to extend the period of limitation. The Tribunal followed the decisions in CIT v. Surajpal Singh [1977] 108 ITR 746 (ALL) and Ram Bilas Kedar Nath v. ITO [1964]54 ITR 11 (ALL).
The Tribunal, while accepting the assessment on merits, allowed the appeal on the preliminary objection.
On an application of the Revenue under section 256(1) of the Income-tax Act, 1961, the following question, stated to be a question of law arising from the order of the Tribunal, has been referred to this court for its opinion :
"Whether, on the facts and in the circumstances of the case, the Tribunal has rightly cancelled the assessment order passed by the Income-tax Officer on March 21, 1973, for the assessment year 1968-69 as time-barred ?"
To appreciate the controversy involved in the reference, the relevant provisions of the Income-tax Act, 1961, as they stood at the material time, may be noted as set our hereunder.
"Whenever in respect of any proceeding under this Act an income-tax authority ceases to exercise jurisdiction and is succeeded by another who has and exercise jurisdiction, the income-tax authority so succeeding may continue the proceeding from the stage at which the proceeding was left by his predecessor :
Provided that the assessee concerned may demand that before the proceeding is so continued, the previous proceeding or any part thereof be reopened or that before any order of assessment is passed against him, he be reheard."
"(1) No order of assessment shall be under section 143 or section 144 at any time after -
(a) the expiry of - ...
(iii) two years from the end of the assessment year in which the income was first assessable, where such assessment year is an assessment year commencing on or after the 1st day of April, 1969, or...
(c) the expiry of one year from the date of the filing of a return or a revised return under sub-section (4) or sub-section (5) of section 139, whichever is latest ...
Explanation 1 - In computing the period of limitation for the purposes of this section, the time taken in reopening the whole or any part of the proceeding or in giving an opportunity to the assessee to be reheard under the proviso to section 129 or any period during which the assessment proceeding is stayed by an order or injunction of any court, shall be excluded."
"(1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person - ...
(c) has concealed the particulars of his income or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty, - ...
(iii) in the cases referred to in clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.
Explanation. - Where the total income returned by any person is less than eighty per cent . Of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purpose of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section."
Before us, the learned advocate for the Revenue reiterated the contentions on behalf of the Revenue before the Tribunal and submitted further that on a proper interpretation of section 129 Act, the successor Income-tax Officer, in the instant case, was required to hear the assessee afresh before completing the assessment and, therefore, the time taken by him to give such an opportunity to the assessee had to be excluded as required under Explanation 1 to section 153(3) of the Act. He submitted further that, in any event, the Income-tax Officer having found that the assessee had concealed its income or had furnished inaccurate particulars of its income within the meaning of section 271(1)(c) of the Act, had initiated penalty proceedings against the assessee prior to the completion of the assessment and, as such, limitation, in the instant case, did not expire till the expiry of eight years from the end of the assessment year in question.
In support of his contentions, the learned advocate for the Revenue cited the following decisions.
(a) Hanumantharaj (T.B.) v. CIT [1978] 111 ITR 414 (Mad). In this case, the assessee, as karta of a Hindu undivided family, filed a voluntary return for the assessment year 1951-52 on May 28, 1952, disclosing a net income for of Rs. 7,073. The Income-tax Officer completed the assessment on March 31, 1960. In the assessment, the Income-tax Officer added a sum of Rs. 10,000 as income from undisclosed sources on the basis of unexplained cash credits, as also another sum of Rs. 17,767 being the share income of the assessee from another firm which had not been disclosed in the return or at any time prior to the completion of the assessment. The assessee contended that under section 34(3) of the Indian Income-tax Act, 1922, the assessment was barred by limitation as the same had to be completed during a period of four years from the end of the year in which the income became first assessable.
The Income-tax Officer rejected the contention on the ground that this is a case where the provisions of section 28(1)(C) of the said Act of 1922, applied and as such a longer period of limitation was available. Appeals by the assessee to the Appellate Assistant Commissioner and the Tribunal were unsuccessful. On a reference, a Division Bench of the Madras High Court held that in view of the non-disclosure of the assessees income from the said firm in the return of the assessee and the addition to the income returned on account of cash credit, which remained unexplained in spite of opportunity given to the assessee to explain the same by the Appellate Assistant Commissioner who remanded the matter to the Income-tax Officer for the said purpose, the provisions of section 28(1)(c) of the Income-tax Act, 1922, would apply. It was held further that it was immaterial that the penalty was ultimately not levied or could not be levied on the assessee under section 28(1)(c) of the said Act of 1922, and the only question to be considered was whether the provisions of section 28(1)(c) would apply to the facts for the purpose of section 34(3) of the Act. The High Court held that the assessment was not barred by limitation.
(b) Jyoti Prakash Mitter v. Union of India [1978] 112 ITR 378 (Cal). This decision of a learned single judge of the Calcutta High Court was cited for the proposition that there was a difference between the initiation of a penalty proceeding under section 271 and the imposition of penalty thereunder. Under section 271(1) of the Act of 1961, penalty proceedings could be initiated during the pendency of any proceedings under the Act and the same did not require any notice to be served on the assessee before the initiation of such proceedings as the same depended on the prima facie subjective satisfaction arrived at by the Income-tax Officer in the course of any proceedings under the Act. It was held in the facts of that case that the assessment proceedings involved were not barred under section 153(1)(c) of the Act of 1961, and the allegation of the Revenue that the petitioner had concealed the particulars of his income or had furnished inaccurate particulars of such income in the said assessment year brought the case within the mischief of section 271(1)(c) of the Act. The extended period of limitation under section 153(1)(b) would be available for completion of the assessment.
(c) CIT v. Smt. Chitra Mukherjee [1981] 127 ITR 252 (Cal). In this case, the Income-tax Officer had initiated penalty proceedings under section 271(1)(a) of the Income-tax Act, 1961, against the assessee for failing to file her return under section 139(1) of the said Act within time. A notice was issued to the assessee to show cause why penalty should not be imposed. This notice was not complied with. Thereafter, the Income-tax Officer concerned was succeeded by another. The successor Income-tax Officer continued the penalty proceedings from the stage at which his predecessor had left it and without issuing a fresh notice either under section 129 or under section 274 of the Income-tax Act, 1961, imposed a penalty on the assessee. The order of penalty was set aside by the Appellate Assistant Commissioner on the ground that the same had been imposed without hearing the assessee as required by section 274 of the Act of 1961. On appeal by the Revenue, the Tribunal affirmed the order of the Appellate Assistant Commissioner. On a reference, a Division Bench of the Calcutta High Court held, inter alia, that under section 129 of the Act of 1961, it was open to an assessee to demand a rehearing before a successor Income-tax Officer before he continued the previous proceedings or any part thereof. It was held further that there was nothing on record to show that the assessee had knowledge that the successor Income-tax Officer intended to proceed with the matter from the stage at which his predecessor had left it. It was also held that though no reply had been filed to the notice under section 274 of the Act of 1961, issued by the predecessor Income-tax Officer, the successor Income-tax Officer has no authority to pass an order of penalty without giving the assessee a fresh opportunity of being heard, as penalty proceedings were not only quasi-judicial but quasi-criminal in nature and the requirement of a reasonable opportunity had to be followed strictly unlike the requirement in assessment proceeding.
No one appeared on behalf of the assessee.
The first point to be considered is as to whether by reason of the proviso to section 129 of the Income-tax Officer was entitled to the benefit of the exclusion of any time which may have been taken by him to give an opportunity to the assessee of being heard in consonance with the principles of natural justice. No doubt, under section 129 of the Act, noted hereinbefore, an assessee has a right to demand that before the successor Income-tax Officer continues any proceeding initiated by his predecessor or any part thereof, he should reopen any part of the proceeding or rehear the assessee before any final order of assessment was passed. In the instant case, there was no such demand from the assessee under section 129 of the Act. The successor Income-tax Officer was entitled under the sub section to continue the proceeding from the stage at which the same had been left by his predecessor. At the highest, it can be contended that the successor Income-tax Officer, who continues the proceeding from the stage at which the same had been left should have issued a further notice to the assessee stating that he intended to continue the proceeding. The successor Income-tax Officer did not do so in the instant case.
In our view, the successor Income-tax Officer cannot wait on his own, indefinitely, on the chance that the assessee might demand a reopening of the proceedings or any part thereof or a rehearing and claim that the period of his waiting should be excluded in computing the period of limitation. The principle laid down in Smt. Chitra Mukherjees case [1981] 127 ITR 252 (Cal), in our view, does not apply in the facts of the case, inasmuch as, in the said case, the proceedings involved were penalty proceedings and not assessment proceedings, as in the instant case. It was noted in the said decision that for assessment proceedings, the Act had specially provided for extension of time in the case of rehearing by the succeeding Officer.
Next to be considered is whether the Revenue is entitled to the benefit of the extended period of limitation under section 153(1)(b) of the Act of 1961. On the materials on record, the Tribunal has found as a fact that there was nothing to establish even prima facie that the assessee was guilty of concealment of any income within the meaning of section 271(1)(c) of the Act nor was there any finding by the Income-tax Officer to that effect at any time before or after the assessment became time-barred on February 8, 1973. The Tribunal noted that the assessees return of income was on the basis of estimate, which basis was also adopted by the Income-tax Officer. A difference in estimate, it was held, would not lead to the concealment. The penalty proceedings were initiated by the Income-tax Officer in a routine manneron March 21, 1973, after the assessment became time-barred. The Tribunal also noted that the proceeding under section 271(1)(c), initiated in the instant case, had ultimately been dropped against the assessee. On the basis of the aforesaid facts, the Tribunal has come to the conclusion that the Revenue was not entitled to the benefit of the extended period of limitation under section 153(1)(b) of the Act. Such findings of fact by the Tribunal have not been challenged by the Revenue by an appropriate question and the same must be held to have become final.
The decision in T. B. Hanumantharajs case [1978] 111 ITR 414 (Mad) will not assist the Revenue in the facts and circumstances of the instant case. In the said case, it was found as a fact that a cash credit of Rs. 10,000 had remained unexplained in the return of the assessee and that another amount being the share income of the assessee from another firm had not been disclosed in the return. The cash credit remained unexplained by the assessee even when the Appellate Assistant Commissioner remanded the matter to the Income-tax Officer. The decision of the learned single judge of the Calcutta High Court in Jyoti Prakash Mitters case [1978] 112 ITR 378, has to be read in the context of the facts of the said case where the main challenge was against penalty proceedings which were initiated after a search and seizure in the premises of the assessee.
Except for a bare statement in the main order of assessment that penalty proceedings had been initiated against the assessee, inter alia, under section 271(1)(c) of the Act 1961, there is nothing on record to establish that the assessee had concealed the particulars of income or furnished inaccurate particulars thereof. No specific concealment or inaccuracy was referred to. The date when the said penalty proceedings were initiated cannot also be found on the record.
The Explanation to section 271(1)(c) of the said Act, which was in force at the relevant time, in our view, cannot also be taken advantage of by the Revenue inasmuch as the deemed concealment thereunder can arise only in a valid order of assessment under section 144 of the Act and not in a time-barred assessment.
For the above reasons, I am unable to accept the contentions of the Revenue and I answer the question referred in the affirmative and in favour of the assessee. In the circumstances of the case, there will be no order as to costs.
Let a copy of this judgment and order be sent to the Assistant Registrar of the Income-tax Appellate Tribunal, Patna, in compliance with section 260 of the Income-tax Act, 1961.
S. ALI AHMAD J. - I agree.