Karnataka High Court
Commissioner Of Income Tax vs Rajatha Jewellers on 25 January, 2006
Equivalent citations: (2006)202CTR(KAR)97, [2006]286ITR573(KAR), [2006]286ITR573(KARN), 2006 (4) AIR KANT HCR 532, 2006 TAX. L. R. 622, (2006) 286 ITR 573, (2006) 194 TAXATION 640, (2006) 153 TAXMAN 545, (2006) 202 CURTAXREP 97
Author: N. Kumar
Bench: P. Vishwanatha Shetty, N. Kumar
JUDGMENT N. Kumar, J.
1. The Revenue has sought this reference under Section 256(1) of the IT Act, 1961 (for short hereinafter referred to as "the Act"). The substantial questions of law referred by the Tribunal for adjudication are as under :
1. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the notice issued under Section 148, requiring the assessee to file a return within 30 days of the receipt of the same, was invalid ?
2. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the reassessments made for these years were invalid in law because of the defective notice ?
3. Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the value of 18.621 kgs. of gold, brought by K.V. Jayaprakash into the firm, did not constitute stock-in-trade of the assessee-firm ?
2. The brief facts of the case are as hereunder:
The assessee is a firm by name Rajatha Jewellers, hereinafter referred to as "firm" which is carrying on the business in jewellery. One Sri K.V. Jayaprakash is one of the partners. The said Jayaprakash was the partner of another firm called 'Rajatha Mahal' which was also in the same business. However, the same came to be dissolved in the year 1978. The said Jayaprakash brought stock of gold of 18.621 kgs. which was his share in Rajatha Mahal to the assessee-firm. In the returns filed by the assessee for the assessment years from 1985-86 to 1989-90, the stock of gold so brought was included in the excise register of the firm. It was valued at Rs. 81,228. While filing the returns of the firm, the said gold was not included either in the capital account or as a stock of the firm. It was also not valued as stock of Rajatha Mahal. On filing of such return, the assessee was assessed under Section 143(1)(a) for the years 1985-86, 1987-88 and 1989-90, and for the year 1986-87 under Section 143(3).
3. The assessing authority, in exercise of the power conferred on him under Section 147 of the Act, issued notice under Section 148 for reopening of the assessment on the ground that the income has escaped assessment insofar as the aforesaid extent of gold is concerned. The said notice directed the assessee to file a return within 30 days' time. Accordingly, the assessee filed its return. After hearing the parties and considering the said returns, the AO passed an assessment order dt. 26th March, 1992 holding that the assessee has omitted to take into consideration the stock of 18.621 kgs. for purpose of valuing closing stock for asst. yr. 1985-86 as per the guidelines given by the Tribunal, Bangalore Bench and the said omission on the part of the assessee has resulted in escape of income for the asst. yr. 1985-86. In the light of the aforesaid conclusion a demand was issued for payment of the tax for the escaped assessment as mentioned in the said order.
4. Aggrieved by the said assessment order, the assessee preferred an appeal to the CIT(A). The CIT(A) found that the statement of the said Jayaprakash that it was not brought as a capital was not correct, and the amount was not credited to his capital account. On the other hand, it was credited as sundry creditors in the name of Sri K.V. Jayaprakash which indicates that the jewellery was transferred to the firm by the said partner and the amount was still shown as outstanding. Therefore, he proceeded to hold that irrespective of the fact whether the amount was shown to the credit of the capital or the partner and was shown as due to a sundry creditor, the fact remains that this jewellery has formed part and parcel of the closing stock of the appellant-firm. There is no reason given for valuing this item of 18.621 kgs. at cost price other than stating that this was kept as a separate item. The revaluation of 18.621 kgs. of jewellery at the same rate as applicable to other items of closing stock is in accordance with the principles of the valuation. Therefore, he confirmed the order of assessment. Aggrieved by these two orders, the assessee preferred a second appeal to the Tribunal. The Tribunal held that, when the value of such stock was not credited to the capital account of the partner in the assessee-firm, it cannot be viewed as his capital contribution; it was kept in separate stock with the assessee-firm, it did not get merged with the trading stock of the assessee-firm as its identity was preserved in the stock register since the inception, pending settlement of the dispute with the erstwhile firm. Such stock was valued at its original figure throughout all these years since 1978 and this fact has been disclosed in the statement accompanied in the return of income and has been accepted in the assessment. Therefore, the Tribunal was of the view that all primary facts were available with the AO before passing the assessment order under Section 143(3) of the Act and the reassessment due to change of opinion on the same set of facts is impermissible. The Tribunal further held that the notice issued under Section 148 did not provide for clear 30 days' time and was contrary to the judgment of this Court in the case of Winter Care (P) Ltd. (Writ Petn. No. 32832 of 1992). Therefore, the notice was bad in law and the consequential reassessment proceedings initiated on the basis of the said notice was liable to be set aside. Accordingly, it set aside the two orders passed by the authorities and held that there was no case for the Revenue to resort to revalue the impugned stock as if it belonged to the firm and as it was part of its own stock. On an application filed by the Revenue under Section 256(1) of the Act, the aforesaid substantial questions of law were referred for opinion of this Court.
5. Sri M.V. Seshachala, the learned Counsel appearing for the Revenue, assailing the impugned order of the Tribunal made two submissions. Firstly, he contended that the Finance (No. 2) Act, 1996 which came into force in 1996 made the amendment retrospective w.e.f. 1st April, 1989 by deleting the words "not being less than 30 days" in Section 148 and after amendment, it is left to the authorities to specify the time. Therefore, the Tribunal was in error in holding that the notice issued was invalid. Secondly, he contended that the value of 18.621 kgs. of gold which was brought by partner K.V. Jayaprakash into the firm did constitute stock-in-trade of the assessee as is clear from the material on record and the finding of the Tribunal is contrary to the material on record and is liable to be set aside.
6. Per contra, Sri v. Parthasarathy, the learned Counsel appearing for the assessee, supported the impugned order.
7. In order to appreciate the findings of the appellate authorities that the notice issued under Section 148 of the Act was invalid, it is necessary to look into Section 148 as it stood prior to amendment and also after the amendment and the effect of retrospective operation given to the amended provision.
8. Section 148 before amendment reads as under :
148. Issue of notice where income has escaped assessment-(1) Before making the assessment, reassessment or recomputation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The AO shall, before issuing any notice under this section, record his reasons for doing so.
(underlining, italicised in print, by me)
9. After amendment it reads as under:
148. Issue of notice where income has escaped assessment.-(1) Before making the assessment, reassessment or recomputation under Section 147, the AO shall serve on the assessee a notice requiring him to furnish within such period as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed, and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under Section 139.
(2) The AO shall, before issuing any notice under this section, record his reasons for doing so.
(underlining, italicised in print, by me) The amendment was introduced by Finance (No. 2) Act, 1996 which gave retrospective effect to the amended provision w.e.f. 1st April, 1989.
10. Section 148 deals with issue of notice in a proceedings initiated under Section 147. It is a procedural law. Statutes dealing with merely matters of procedure are presumed to be retrospective unless such a construction is textually impermissible. The general rule that an Act of Parliament is not to be given retrospective effect applies only to statutes which affect vested rights. It does not apply to statutes which only alter the form of procedure. If an amendment is brought to a procedural law, the amended provision applies to all actions pending as well as future. No person has a vested right in any course of procedure. He has only the right of prosecution or defence in the manner prescribed for the time being by or for the Court in which the case is pending. If by an Act of Parliament the mode of procedure is altered he has no other right than to proceed in accordance with the altered mode. The Finance (No. 2) Act, 1996 expressly gave retrospective effect to the amended provisions w.e.f. 1st April, 1989. The resultant position is, the amended provision applies to all matters which were pending on 1st April, 1989 and all matters which have not reached finality on the date of the amendment. Thus, from 1st April, 1989 onwards, any action for opening or reopening assessment for the asst. yr. 1988-89 and earlier assessment years will have to be taken in accordance with the amended provisions.
11. A reading of the aforesaid provision contained in the Finance Act makes it clear that the amended provision came into force w.e.f. 1st April, 1989. In other words, it has been given a retrospective effect. Therefore, in law it is as if that was the law as on 1st April, 1989. Admittedly, the notice under Section 148 was issued on 28th March, 1990 which stipulated thirty days' time within which the returns had to be filed. Though the Amendment Act came into force from 1996, the amended provision by virtue of the. retrospective operation came into effect from 1st April, 1989 which equally applies to the facts of the case. In that view of the matter, the conclusion reached by the Tribunal that the notice under Section 148 is vitiated for not giving thirty days' clear notice, is unsustainable in law and accordingly it is set aside.
12. Insofar as the second contention that the Tribunal committed a serious error in interfering with the concurrent finding of fact recorded by two fact-finding authorities is concerned, we find considerable force in the said submission. Though the learned Counsel appearing for the respondent sought to support the aforesaid two orders, on facts he is unable to dispute that in the excise register the impugned gold was shown as the stock of the firm. While giving the valuation of closing stock, the value of this stock was also taken into consideration and in the returns filed the closing stock (was) shown including this stock. In fact in the returns filed for the asst. yr. 1986-87 and subsequent years, the said gold is shown as the capital account of the said partner K.V. Jayaprakash. Therefore, from these undisputed facts it is clear that the said value of the stock was not taken into consideration for the purpose of assessing and on that basis no income-tax was paid by the firm. It has escaped assessment. Hence, the case of Revenue that it has escaped assessment is clearly established. The Tribunal was in total error in ignoring these facts and recording a finding contrary to the material on record. Therefore, the finding recorded by the Tribunal on merits also cannot be sustained.
13. Accordingly, all the questions referred for our opinion are answered in the negative, in favour of the Revenue and against the assessee.
14. In view of the aforesaid findings, the opening stock for the corresponding years have to be corrected taking into consideration the valuation of the closing stock of the previous year.
In terms stated above, the reference is disposed of.