Punjab-Haryana High Court
R. Kakkar Glass And Crockery House vs Commissioner Of Income-Tax on 15 February, 2002
Equivalent citations: [2002]254ITR273(P&H)
Author: N.K. Sud
Bench: N.K. Sud
JUDGMENT N.K. Sud, J.
1. This order will dispose of Civil Writ Petition No. 17719 of 2000, and 446, 452, 453 and 523 of 2001, involving common question of law and facts. For the sake of convenience, the facts are taken from Civil Writ Petition No. 17719 of 2000.
2. The petitioner, a partnership firm, filed its return of income for the assessment year 1991-92 on October 4,1991, declaring an income of Rs. 51,180. The said return was processed under Section 143(1)(a) of the Income-tax Act, 1961 (for short "the Act"). Subsequently, on October 24, 1994, a search under Section 132(1) was conducted at the business premises of the petitioner and also at the residential premises of its partners. During the course of search cash amounting to Rs. 60,000, certain FDRs/KVPs and other documents including some rough balance-sheets were found and seized. On the basis of the seized material, the assessment was reopened under Section 147 of the Act by the Assessing Officer for taxing the income which had allegedly escaped assessment. For this purpose, notice under Section 148 was issued on July 18,1995, after recording the following reasons :
"During the course of search operation conducted under Section 132 of the Income-tax Act, 1961, at the residential premises of R. Kakkar Glass and Crockery House, Lal Bazar, Jalandhar, cash amounting to Rs. 60,000 and FDRs/KVPs, etc., were found and seized. It was also gathered from the various documents found during the search that the assessee had also made huge investments on the acquisition/construction of certain house properties. The assessee-firm was asked to explain the source of acquisition of the aforesaid cash as well as the source of investment made with regard to the purchase of FDRs/KVPs and the acquisition/construction of properties.
As the assessee failed to explain the source of acquisition of the aforesaid cash and the investment with regard to FDRs/KVPs and construction of properties. These have been treated as income of the assessee from the undisclosed sources for the relevant period.
Since I have reasons to believe that the income of the assessee-firm for the assessment year 1991-92 to the nine of Rs. 6,04,000 as tabulated below has escaped assessment.
Date of search 24-10-1994 As per para. 9,5(d) Rs. 6,04,000."
3. In response to this notice, the petitioner vide its reply dated August 21, 1995, submitted that the return originally filed may be treated as having been filed in compliance with the said notice. The Assessing Officer, thereafter, framed the assessment under Section 143(3) vide order dated January 16,1998, wherein an addition of Rs. 3,20,900 was made as undisclosed income.
4. Aggrieved by the order of assessment, the petitioner filed an appeal before the Commissioner of Income-tax (Appeals), Jalandhar. The petitioner challenged the legality of the proceedings under Section 147 as also the addition of Rs. 3,20,900 made as undisclosed income. The Commissioner (Appeals) vide his order dated January 16, 1998, accepted the petitioner's challenge to the legality of the proceedings under Section 147 on the ground that the reasons recorded for initiating proceedings under Section 147 were invalid. Resultantly, he quashed the notice under Section 148 as also the assessment made thereunder in the following terms :
"The perusal of the above reasons shows that the Assessing Officer framed his opinion regarding the escapement of income as per second para, of the reasons wherein he has stated that the assessee had failed to explain the source of acquisition of cash and the investment with regard to FDRs, KVPs and construction of properties. However, while quantifying the income that had escape assessment, he had mentioned the figure of Rs. 6,04,000 which did not include any of these investments or cash.
The cash had been found at the time of search which could be related only to previous year 1994-95, i.e., relevant to the assessment year 1995-96. There was no construction of properties in the case of the firm, similarly there were no FDRs or KVPs relating to the firm, the investment of which could be related to the assessment year 1991-92. This shows that the reasons recorded for reopening the assessment for the assessment year 1991-92 were not valid reasons for reopening the assessment as argued by the appellant in his letter dated July 21, 1998. As regards reference to order under Section 132(5) and quantification of income that escaped assessment is concerned, the Assessing Officer did not form his opinion of income having escaped assessment even on the basis of order under Section 132(5). The order under Section 132(5) has only been referred to for the purpose of quantification of income that has escaped assessment and this reference cannot be construed as one of the reasons for forming the belief regarding escapement of income. In view of this, it is held that the reasons recorded by the Assessing Officer for reopening the assessment were not valid reasons and therefore the same are quashed. Consequently, notice under Section 148 issued in pursuance to such invalid reason is also quashed. Consequently, the assessment made by the Assessing Officer vide order dated January 16, 1998, is quashed."
5. Aggrieved by the order of the Commissioner (Appeals), the Revenue filed an appeal before the Income-tax Appellate Tribunal which is pending.
6. Meanwhile, proceedings under Section 147 were again initiated for the assessment year 1991-92 and a fresh notice under Section 148 was issued on February 9, 1999. In response thereto, the petitioner filed its return under protest on March 18, 1999, declaring an income of Rs. 51,180 which was the income as returned originally in its return filed on October 4, 1991. It is this notice which is under challenge in the present writ petition.
7. Mr, A. K. Mittal, advocate, appearing on behalf of the petitioner, raised two fold arguments in support of the writ petition. Firstly, he referred to the reasons recorded by the Assessing Officer for initiation of proceedings under Section 147 to show that he had recorded satisfaction about escapement of income of Rs. 3,20,900 which was the same income which had been included in the earlier assessment framed on January 16, 1998, in pursuance of the earlier notice under Section 148 dated July 20, 1995. According to him, once the said assessment had been quashed in appeal, the Assessing Officer could not initiate proceedings under Section 147 again in respect of the same income on the basis of the same material. The other contention raised by Mr. Mittal is that since the Revenue has filed an appeal before the Tribunal against the order of the Commissioner (Appeals) dated July 27,1998, it cannot, during its pendency, initiate fresh proceedings under Section 147 in respect of the alleged escapement of the same income. Elaborating this argument further, he pointed out that if the Revenue were to succeed in its appeal, the first assessment dated January 16, 1998, containing the addition of Rs. 3,20,900 would stand restored and if the Revenue is also allowed to proceed with the fresh proceedings initiated vide the impugned notice, there would be another assessment containing the addition of the same amount. Thus, this would lead to an anomalous position of there being two assessments of the same amount. In support of his contentions, he placed reliance on the following decisions :
(i) CIT v. Rao Thakur Narayan Singh [1965] 56 ITR 234 (SC);
(ii) Manoo Lal Kedarnath v. Union of India [1978] 114 ITR 884 (All); and
(iii) Saradbhai M. lakhani v. 1TO [1998] 231 ITR 779 (Guj).
8. Mr. R. P. Sawhney, learned counsel for the respondents, controverted the claim of the petitioner. He contended that the earlier notice under Section 148 dated July 20,1995, had been quashed purely on technical grounds. There was no finding on the merits that the addition of Rs. 3,20,900 was unwarranted. It was, therefore, contended that since the notice dated July 20, 1995, has been held to be invalid and quashed on technical grounds, there is no bar in law against issuing another notice under Section 148 by rectifying the technical defects provided it falls within the parameters prescribed in Sections 147 and 148 of the Act. Learned counsel also pointed out that pendency of the Revenue's appeal before the Tribunal in the earlier proceedings would not lead to any anomalous situation if an assessment is framed in pursuance of the impugned notice. In case the Revenue succeeds in appeal before the Tribunal, the earlier proceedings under Section 147 would revive and the original order dated January 16, 1998, shall stand restored. As a consequence thereof, the present proceedings shall automatically become redundant. However, as long as the order of the Commissioner (Appeals) quashing the earlier notice under Section 148 was in operation, no fault could be found with the impugned notice under Section 148 dated February 9, 1999, for assessing the escaped income of Rs. 3,20,900.
9. After hearing counsel for the parties and after perusing the record, we find no merit in the contentions raised on behalf of the petitioner.
10 . The main thrust of the arguments advanced by counsel for the petitioner was that notice under Section 148 could not be issued in respect of the same income for a second time. However, no provision in the Act has been referred to which places such an absolute bar. A notice under Section 148 can be quashed for non-fulfilment of the statutory requirements. It can also be quashed by going into the merits of a case and reaching a finding that the income in dispute has not escaped assessment. Thus, the validity of the second notice has to be adjudged in the light of the findings on the basis of which the earlier notice has been quashed. In the present case, it is evident that the earlier notice dated July 20, 1995, had been quashed by the Commissioner (Appeals) on purely technical grounds. It was found by him that the reasons recorded by the Assessing Officer regarding escapement of income did not pertain to the income sought to be assessed by him as escaped income. Since recording of valid reasons warranting prima facie satisfaction about the escapement of income is a condition precedent for assumption of jurisdiction, the earlier notice was quashed on this technical ground alone. No findings were recorded about the merits of the additional income assessed as the escaped income. When a notice is quashed on some technical ground, it would be in order to issue a fresh notice under Section 148 provided all other legal requirements of law have been complied with. For instance, if a notice under Section 148 is quashed on the ground that no reasons had been recorded, a second notice shall be in order after recording the reasons. Similarly, if a notice is quashed on the ground that it has been issued without the requisite sanction of the higher authority, fresh notice can be issued after obtaining the necessary sanction. Such instances can be multiplied. However, if a notice under Section 148 is quashed after examination of the material relied on by the Assessing Officer and after recording a finding that on the basis of such material the additional income cannot be said to have escaped assessment, then it shall not be permissible for the Assessing Officer to issue a fresh notice on the basis of the same material in respect of the same item of income. However, in case some fresh material comes into the possession of the Assessing Officer subsequently suggesting escapement of income under the same head or some other head, we see no fetters on his power to issue a fresh notice under Section 148. Needless to emphasise that all such subsequent notices have to conform to the parameters prescribed under the law including the provision regarding limitation.
11. While issuing the impugned notice under Section 148, the Assessing Officer has recorded the following reasons :
"The assessee-firm, R. Kakkar Glass and Crockery House, filed its return for the assessment year 1991-92 on October 4, 1991, showing income of Rs. 51,180. Subsequently a search under Section 132 took place at the business premises of the assessee and the residential premises of the partners. A lot of incriminating documents were found and seized during the course of search which show that the assessee-firm had been conducting large scale undisclosed business.
Pages 48 to 53 of annexure A-9 seized during the course of search are balance-sheets of the assessee-firm for the assessment year 1990-91 to the assessment year 1993-94 which show that the assessee-firm has been furnishing inaccurate particulars during the course of assessment proceedings. So excess of assets over liabilities will give the undisclosed capital of the assessee-firm. Thus from these pages the accretion to capital for the assessment year works out to Rs. 3,20,900 as detailed below :
Dhiana |
-----------------------------------
| |
Karam Singh Dial Singh
|
Methi Singh----------------------------- |
| |
Surmukh Singh Gajjan Singh
| |------------|--
Gangan Amar Singh Hazura Daughters
Singh (defendant) Singh of defendants
(deceased No.3
whose estate
is in dispute)
Tej Kaur
Contesting
defendant
No.2 (alleged widow)
Thus I have reasons to believe that income of Rs. 3,20,900 has escaped assessment for the year under consideration."
12. The reasons recorded disclose the material as well as the basis for recording a prima facie satisfaction about the escapement of income to the extent of Rs. 3,20,900. This was not the material referred to when the earlier notice under Section 148 had been issued. No argument has been advanced against the validity of these reasons except that the income of Rs. 3,20,900 had already been added in the assessment framed in pursuance of the earlier notice under Section 148 dated July 20, 1995. It has already been found that the earlier notice had been quashed purely on technical ground without the appellate authority going into the merits of the addition of Rs. 3,20,900. Had the appellate authority in the earlier proceedings referred to the material relied upon for issuing the impugned notice and recorded a finding that the alleged income had not escaped assessment, the same would have come in the way of the Assessing Officer while issuing the fresh notice in respect of the same income. A comparison of the reasons recorded for issuance of the two notices, which have been reproduced earlier, clearly shows that the basis for the two notices is entirely different. The earlier notice was issued on the ground that the assessee had failed to explain the source of acquisition of cash and investment with regard to FDRs/KVPs and construction of properties whereas the impugned notice dated February 9, 1999, has been issued on the basis of undisclosed capital arrived at by the comparison of the balance-sheets seized during the course of search and the balance-sheets filed with the returns of income.
13. It has also been correctly pointed out on behalf of the Revenue that no anomalous situation would arise if the Revenue was to succeed in its appeal before the Tribunal. If the earlier assessment with the addition of Rs. 3,20,900 were to be restored, the second assessment in respect of the same addition would stand automatically vacated as in that event the fresh proceedings under Section 147 shall be rendered infructuous.
14. None of the authorities cited by counsel for the petitioner are applicable to the facts of the present case. In Rao Thakur Narayan Singh's case [1965] 561TR 234 (SC), the notice under Section 34 had been issued on the ground that syar income and interest income had escaped assessment. The Tribunal in considering the validity of reassessment notice, only discussed the question of escapement of syar income. It did not advert to the interest income at all. It came to the conclusion that the Income-tax Officer at the time of original assessment had the knowledge of the existence of the syar income and, therefore, he had not come into possession of definite information which was a condition precedent for reopening the assessment. However, though this finding had been arrived at on the basis of the syar income alone, the Tribunal set aside the entire order of reassessment and restored the original order of assessment. The legal effect of the order was that the reassessment of the entire income including the syar income and interest income was set aside on the ground that the Income-tax Officer did not come into possession of definite information and, therefore, could not initiate reassessment proceedings. It was held that the Tribunal had committed a mistake in setting aside the reassessment order in respect of the interest income also but so long as that order stood, it comprehended both the incomes. Since the Revenue had not taken steps to get the finding on interest corrected either by way of reference application or by taking up proceedings for rectification, the finding of the Tribunal that the Income-tax Officer had no definite information about escapement of interest income had also become final. It is under these circumstances that the second notice for reassessment relating to interest income on the same material was held to be not permissible. In the present case, such is not the situation. The notice dated July 20, 1995, has been quashed by the Commissioner (Appeals) on the ground that the satisfaction has been recorded in respect of unaccounted for cash or unexplained investment in FDRs/KVPs and for the acquisition/construction of property whereas the amount of Rs. 6,04,000 which had been tabulated as amount which had escaped assessment, did not contain any of the aforesaid items. It was further held that no satisfaction had been recorded in respect of the income which had been added in the assessment framed on January 16, 1998.
15. Similarly in Manoo Lal Kedarnath's case [1978] 114 ITR 884 (All), the earlier reassessment proceedings under Section 147 relating to two items were quashed by the competent authority on the ground that the material on the basis of which the Income-tax Officer had initiated those proceedings did not have a rational connection with the formation of the belief that the assessee had not made a true disclosure at the time of original assessment. It is in this background that the second notice pertaining to the same two items was held to be not maintainable. It was held that the earlier finding that there was no material to form the belief that the assessee had not made a true and full disclosure at the lime of original assessment would still be applicable to any subsequent notice under section 148 for taxing the same income. In the present case, a comparison of the reasons recorded on the two occasions clearly shows that the satisfaction recorded by the Assessing Officer is in respect of different items. Further the finding given by the Commissioner (Appeals) for quashing the earlier proceedings has no bearing on the proceedings initiated vide notice dated February 9, 1999.
16. In Saradbhai M. Lakhani's case [1998] 231 ITR 779, the Gujarat High Court had quashed the reassessment proceedings on the ground that those were based merely on a change of opinion which was not permissible under the law. This issue has no relevance to the point under consideration in the present writ petition.
17. In the result, we find no merit in these writ petitions which are, accordingly, dismissed. No costs.