Income Tax Appellate Tribunal - Kolkata
Raj Kumar Rawla vs Asstt. Commissioner Of Income-Tax on 29 May, 1992
Equivalent citations: [1992]42ITD509(KOL)
ORDER
Abdul Razack, Judicial Member
1. Aggrieved against the order of the Appellate Commissioner the assessee has filed this appeal challenging the reopening action of the Assessing Officer and the addition made under Section 69 as unexplained investment in construction of godowns.
2. To decide the controversy involved in this appeal few facts need to be narrated and they are: The assessment year concerned is 1975-76 and the previous year is 30-6-1974. The Assessment of the assessee was originally completed in a sum of Rs. 44,450. The assessee obtained a loan of Rs. 8 lacs from Vijaya Bank for construction of godown (approximately 22,000 sq. ft.) at Budge Budge Road, Santoshpur. The loan was sanctioned on 23-8-1974 on the loan proposal/scheme submitted on 5-6-1974 by the assessee to the bank. The assessee withdrew the loan amount of Rs. 8 lacs from the bank on the various dates commencing from 27-8-1974 to 21-12-1974. The assessee purchased land on 6-8-1974 for Rs. 47,500 admeasuring about 45 cottahs in plot/Dag No. 253 and part of Dag No. 255. The assessee was already owner of 30 cottahs of land in the same area since the year 1971 on which godowns were already existing. However, for deciding this appeal this fact is not relevant. The assessee entered into an agreement with M/s Fabicon, a firm of contractors/ engineers for construction of the godown on the said land. The said contractors' firm submitted their bill dated 7-11-1974 to the assessee for constructing 20,606 sq. ft. in a sum of Rs. 2,78,181 and the assessee settled their bill for Rs. 2,66,000. The payment to the contractors firm by the assessee was all through account payee bank cheques. The construction of the godown was completed in December 1974. The assessee disclosed rental income of Rs. 90,000 from these godowns for the assessment year 1976-77 (previous year being 30-6-1975) and filed details of construction and report of the registered valuer certifying the cost of construction. The ITO demanded explanation from the assessee about the cast of construction and the sources of the funds to meet such cost of construction. Not being satisfied with the explanation the Assessing Officer added a sum of Rs. 4,13,000 to the income returned as income from undisclosed sources. On appeal for the assessment year 1976-77 to the Appellate Commissioner the addition was deleted by him as per his order dated 18-2-1980 holding that since the assessee did not maintain any account books in relation to the construction made the unexplained investment under Section 69 cannot be added for the assessment year 1976-77 but it related to the financial year 1974-75 relating to the assessment year 1975-76.
3. After receipt of the order of the Appellate Commissioner for the assessment year 1976-77 the assessing officer formed a reasonable belief as under:
In view of the assessee's failure to prove the source and nature of the unexplained investments of Rs. 4,13,000 and Rs. 1 lakh mentioned above, those were treated as his income from 'undisclosed other source' and brought to charge in his assessment for the asst. year 1976-77. In appeal, CIT(A) R-I has, however, held that since the assessee does not maintain any books of account of his own, both the amounts fall to be considered in the assessment for the asst. year 1975-76 on financial year basis following the dates of their investment.
As discussed above, assessee has failed to prove the source and nature of the two investments. I have, therefore, reasons to believe that due to assessee's failure to disclose fully and truly all material facts necessary for assessment, his income for the asst. year 1975-76 has escaped assessment.
All the facts which prompted the Assessing Officer for formation of a reasonable belief and sending the proposal to the Commissioner for his sanction under Section 151 are stated succinctly by the Appellate Commissioner in the impugned order in para 9 from pp. 4 to 7. Upon obtaining sanction from the Commissioner the Assessing Officer issued a notice dated 6-8-1980 under Section 148 and reopened the assessment. Though the ITO did not mention or give any reasons in his said notice under Section 148 it is apparent that the assessment has been reopened for non-disclosure of material facts relating to the assessment. Admittedly, therefore, the assessment has been reopened by taking recourse to the provision of Section 147(a) of the Income-tax Act, 1961 and we are, therefore, confining ourselves to decide the issue keeping in mind the provision of Section 147(a) and not Section 147(b). Besides, on the basis of facts on record, provision of Section 147(b) are ruled out as being barred by limitation as per provision of Section 149 of the Income-tax Act, 1961. The assessee filed his return again on 16-9-1980 in compliance to the notice under Section 148 of the Assessing Officer declaring the same income as declared in the original return. The Assessing Officer was neither satisfied about the objection raised before him by the assessee regarding his power and jurisdiction under Section 147(a) nor was he satisfied with the assessee's explanation about the cost of construction and the sources of funds to meet such cost of construction. After due enquiry into the facts of the case and after elaborate discussion the Assessing Officer made an addition of Rs. 9,47,000 to the income returned and completed the re-assessment on 25-3-1985. The assessee being aggrieved with the reassessment order filed an appeal before the Appellate Commissioner challenging the jurisdiction of the Assessing Officer in issuing the notice and completing the assessment under Section 147(a) and also objecting to the income assessed and the liability determined thereunder which included the addition of Rs. 9,47,000 being income added under Section 69 as unexplained investment in constructing the godowns. The first appellate authority after hearing the assessee's counsel affirmed the action of the Assessing Officer in reopening the assessment but gave a partial relief to the assessee by directing the Assessing Officer to restrict the addition of Rs. 5,50,000 as against Rs. 9,47,000 made by the Assessing Officer.
4. The assessee's counsel, Sri N.K. Poddar has filed a voluminous paper book and submitted as under:
(i) As the assessee started construction of godowns after the close of the previous year on 30-6-1974 which is relevant for the assessment year 1975-76 as is obvious from the evidence filed and on record. As such it cannot be said or alleged that the assessee has omitted or failed to disclose material facts in relation to the construction made authorising the invoking of provision of Section 147(a) of the Act;
(ii) Neither the Act nor the Rules nor the form of return of income prescribed under the Income-tax Act, cast any obligation on the assessee to disclose such facts which were not in existence at the material time namely, during the previous year ending 30-6-1974;
(iii) The revenue authorities cannot expect the assessee to divine or visualize events or activities occurring or existing after the close of the previous year and, therefore, expect the assessee to disclose the same in the return of income, the previous year of which ended on 30-6-1974;
(iv) Section 69 is inferential and enabling provision empowering the Assessing Officer to add, while computing the income, certain investments not recorded in account books upon failure of any assessee to explain the same to the satisfaction of the ITO. Therefore, no reopening can be made for taking the aid or invoking the inferential or enabling provision like Section 69.
(v) The assessee gave a contract to M/s. Fabicon, a firm of contractors to construct the godowns and not a rupee has been spent by the assessee from out of his funds for this purpose;
(iv) The payment to the firm of contractors amounting to Rs. 2,66,000 has been made by the assessee through account payee cheques and the Assessing Officer has not established by any reliable evidence that the assessee has spent more than Rs. 2,66,000 in constructing the said godowns;
(vii) The Assessing Officer has not considered the reports of the registered valuer who have certified the cost of construction which are in the paper book and which is in the vicinity of the true cost of construction. The Assessing Officer has made the addition on the basis of reports of Engineers given to the bank by the assessee for sanction of the loan and also on the basis of the report of the Departmental Valuation Cell;
(viii) The CIT has given sanction to the Assessing Officer in a mechanical manner without applying mind to the proposal of the Assessing Officer for reopening of the assessment to invoke the provisions of Section 147(a) for making addition under Section 69; and
(ix) The assessment has been reopened after the order of the Appellate Commissioner dated 18-2-1980 for the assessment year 1976-77 wherein it is observed by him (Appellate Commissioner) that the addition falls for consideration in financial year 1974-75 relevant to assessment year 1975-76. At the most the case falls under Section 147(b) and as per Section 149 no notice can be issued beyond 31-3-1978 for cases falling under Section 147(b).
5. The assessee's counsel has relied on the judgment of the Supreme Court in the case of V.D.M.RM.M.RM. Muthiah Chettiar v. CIT[ 1969] 74 ITR 183, judgment of the Patna High Court in the case of Durga Sharon Udho Prasad v. CTT [ 1976] 103 ITR 270 and of the Gujarat High Court in the case of Tolaram Gangaram v. ITO [1985] 155 ITR 551.
6. It is, therefore, urged by Shri Poddar that reopening of assessment made on 25-3-1985 being without jurisdiction and void is liable to be quashed as the assessee has not failed or omitted to disclose the material facts. Alternatively, it is also pleaded that if the action of the Assessing Officer is held to be valid in reopening the assessment under Section 147(a) then the addition of Rs. 5,50,000 sustained by the Appellate Commissioner be deleted.
7. The learned Departmental Representative Sri D.S. Roy, on the other hand, relying on the orders of the lower authorities submitted that the Assessing Officer was within his jurisdiction and was perfectly justified in reopening the assessment under Section 147(a) and assess the unexplained investment under Section 69 and the Appellate Commissioner did not go wrong in confirming the action of the Assessing Officer and in sustaining the addition to the extent of Rs. 5,50,000. The Departmental Representative, therefore, pleaded that the impugned order of the Appellate Commissioner be upheld.
8. The short and interesting question which we have to decide is whether or not the assessee is obliged in law to disclose the investment made by him in subsequent previous year ending with 30-6-1975 but falling in the financial year 1974-75 which relates to the year under appeal that is to say, assessment year 1975-76 to enable the assessing officer to invoke the provisions of Section 69 of the Income-tax Act, 1961. In order to enable us to do so we have heard lengthy arguments of the representatives of both the parties before us and also perused the relevant material on record.
9. The answer to the question is whether there had been a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. According to us it will depend on the nature of the obligation which is enjoined upon the assessee in this regard by virtue of various provisions of the Income-tax Act. If an assessee fails to disclose or furnish to the Assessing Officer all such facts and other related information which he is obliged under the law to disclose and which are necessary for the purpose of making his assessment and then surely he can be accused of having failed to disclose fully and truly all the material facts for the purpose of his assessment. It is a trite law by now commencing from the decision of the Supreme Court rendered in the case of Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 that it is always the duty of an assessee to disclose fully and truly all primary facts, but not inferential facts, which are necessary and relevant for the purpose of making assessment by the Assessing Officer. But as stated above the nature of facts to be disclosed by an assessee will necessarily depend upon the nature of information or disclosure that the assessee is obliged to do so by the statute. In the instant case originally the assessee filed his return and his assessment was completed accordingly. When we look to the provision of Section 139(1)of the Act, we find that every person whose total income exceeds the maximum amount which is not chargeable to income-tax has to furnish within specified period a return in the prescribed form and verified in the prescribed manner setting forth along with the return such other particulars as may be required in respect of his total income or total world income during the previous year. Similarly we find that by virtue of Sub-section (2) of Section 139 the ITO has been empowered to issue a notice to any person if he is of the opinion that income of any person is chargeable to tax as per the provisions of the Income-tax Act, 1961. The person who has been called upon to file a return under Section 139(2) is obliged to disclose and furnish to the ITO such other particulars as may be prescribed and the same is to be furnished in the prescribed form.
10. After the receipt of the return of income either under Section 139(1) or under Section 139(2) the ITO has power under Section 143(1) to make the assessment without requiring the presence of the assessee or production by him of any evidence. This means the ITO believes the assessee and accepts the returned income without any inquiry about the correctness or completeness of the return of income filed. If the ITO is not satisfied about the correctness or completeness of the income returned, he has been empowered under two different provisions of the Act to embark upon an enquiry. One provision is Section 142(1) of the Act which empowers the ITO to issue a notice to an assessee and call for such information on such points as he considers necessary for the purpose of making assessment. Once such notice is issued by the ITO under Section 142(1) it is incumbent upon the assessee to furnish and disclose all such information as is required and demanded by the ITO. The other provision is Section 143(2) of the Act which also empowers the ITO to issue a notice to any person who has filed the return either under Section 139(1) or under Section 139(2) to appear or cause appearance and to produce before him any evidence as the assessee may rely in support of the return filed. The notices under Section 142(1) and under Section 143(2) are issued to ensure that the income declared in the return is correct and complete. After issue of notices under Sections 142 and 143 the ITO is then expected to make the assessment after taking into consideration such evidence as the person concerned wanted to produce as also such other evidence as he might have directed the assessee to produce on the points raised by him. On analysing these provisions we see that the beginning is made in this process of assessment by the filing of return by the assessee and he is obliged and commanded to furnish such particulars of his income as are laid down and mentioned in the various columns of the return of income form prescribed by the relevant rules. In other words, the assessee is required to truly and fully supply the information and other particulars sought for in the various columns of the prescribed form of return of income. Now if the Assessing Officer was of the opinion that the Information conveyed as per the prescribed form of return of income was complete, correct and sufficient for making the assessment, he could proceed and assess the person filing the return on the basis of such return and at that stage no question, of the assessee furnishing any information other than that required to be furnished in the prescribed form of return, could arise. It, therefore, follows that if the assessee discloses true and full information which he is required to supply in the prescribed form of return no question of his failing to disclose any other particulars of his income at that stage could arise. Then the next stage in the process of making an assessment upon a person was where a return is filed by him in the prescribed form but the ITO felt that the information conveyed by such person in the prescribed return form was inadequate and required further inquiry and verification for the purpose of making assessment, the ITO then acts by issuing notices, requiring the assessee to produce such evidence, material, particulars or information either upon his direction under Section 142(1) or under Section 143(2) directing the assessee to produce such evidence as he (assessee) may rely in support of the return filed. It is at this third and crucial stage when the assessee is required by the ITO to elucidate on some particular points that the assessee has been obliged to disclose truly and fully all necessary facts in respect of those points to enable the assessing officer to make a valid and proper assessment. Therefore, unless this third stage was reached there can be no obligation on an assessee to disclose and produce any evidence in respect of points other than those in respect of which the assessee was, as provided in the form of return, obliged to furnish.
11. As far back as 1969 the Supreme Court was concerned with a question whether or not an assessee is bound to disclose in its return information which is relevant for his assessment but which is not specifically required to be supplied or furnished in the prescribed form, came up for consideration in the case of V.D.M.RM.M.RM. Muthiah Chettiar (supra). In that case one Muthiah who had been assessed to income-tax in respect of his share in the income of a firm as also income from other sources, while disclosing the amount of income from the firm received by his sons did not disclose the facts that they were minors. The ITO while assessing Muthiah did not include in his income the share income of the minor sons received from the firm in which Muthiah was a partner as provided in Section 16(3)(a)(ii) of the Income-tax Act, 1922. After the completion of the assessment the ITO realised that the share income of the minor sons from the partnership firm in question was liable to be included in the income of Muthiah under the provisions of Section 16(3)(a)(ii) of the 1922 Act. The Assessing Officer, therefore, initiated proceedings under Section 34(1)(a) of the 1922 Act [corresponding to Section 147(a) of the Income-tax Act, 1961] on the ground that the information given by Muthiah in his return was not full in the sense that he had not stated therein that his three sons who had received a share in the income of the partnership firm were in fact, minors. After examining the facts of the case the Hon'ble Supreme Court held that Muthiah was not guilty of failure to disclose true and full facts relating to his assessment. The Supreme Court observed at p. 187 as under:
The Act and the Rules accordingly impose no obligation upon the assessee to disclose to the ITO in his return information relating to income of any other person by law taxable in his hands.
It was then held by the Supreme Court in the said case that the Assessing Officer cannot resort to Section 34(1)(a) of the 1922 Act and reopen the assessment. This judgment of the Supreme Court was followed by the Hon'ble Calcutta High Court in the cases of Radheshyam Ladia v. ITO [1971] 82 ITR247and also Madanlal Maheswart v. ITO[1973] 87 ITR 295.
12. These observations made by the Supreme Court clearly make out that while filing a return an assessee is not bound or obliged to disclose any information in relation to any fact other than what is required to be supplied and furnished by him in the various columns of the prescribed form of return of income or which he is bound under the provisions of the Act to furnish even though that fact may otherwise be relevant for the purpose of his assessment. For the simple reason that such information has not been furnished in the return it would not mean that the assessee had failed or omitted to disclose fully and truly all material facts which are necessary for the purpose of his assessment. As stated by us above the obligation to supply such other information could arise only if the ITO had required the assessee to furnish information in connection with the construction made by him, subsequent to the close of the previous year 30-6-1974 but falling within the financial year 1974-75 relevant for the assessment year 1975-76.
13. The Patna High Court in the case of Durga Sharan Udho Prasad (supra) has also dealt with a case more or less similar to this case. In that case the ITO found that the cost of construction of a house was more as reported by the Income-tax Inspector than that recorded in the account books which were accepted at the time of framing original assessment. According to the ITO the provision of Section 69B of the Act got attracted and he, therefore, reopened the completed assessment under Section 147(a). On a reference under Section 256(1) of the Income-tax Act, 1961 the Patna High Court did not approve the reopening action of the ITO under Section 147(a) and held as under at page 276:
Section 69B merely impose an obligation upon the ITO to compute the total income of any individual for the purpose of assessment by including the amount expended over investments exceeding the amount recorded in this behalf in the assessee's books of account for which the assessee offers no satisfactory explanation.
Similarly the Gujarat High Court in the case of Tolaram Gangaram (supra) has dealt with an issue identical to the facts of the instant case (except for the assessment year). The Gujarat High Court after examining the facts of the case held that there was no non-disclosure by the assessee and quashed the notice issued under Section 147(a). We extract below the observations of their Lordships of the Gujarat High Court in the said case:
Though this contention appears to be attractive on the face of it, on close scrutiny, with respect to the Revenue, it is fallacious. We should again remind ourselves that the construction was completed in December 1972, that is, in the course of the period corresponding to S.Y. 2029 which is the previous year relevant to the assessment year 1974-75. It is only because the ITO decided to add to the total cost as in his opinion there was an understatement of cost, that the impugned amount came to be added to the total cost and correspondingly to the income of the assessee in the assessment year 1973-74. This could have been done only under Section 69 which the Tribunal found could be done in the assessment year relevant to the financial year of which it should be an income and which in the present case would be of financial year 1972-73. It is, thus, clear that the assessee could not be blaimed for not disclosing the true and complete materials for assessing the property income in 1973-74. It is only on account of the addition made by the ITO that this situation had arisen. It is entirely a fortuitous circumstance and, therefore, we cannot agree with the submission made on behalf of the Revenue that the assessee was under duty in law to disclose these facts for the assessment of 1973-74. It is only on account of the addition made by the ITO that this situation had arisen. In that view of the matter, therefore, we are of the opinion that the ITO was not justified in invoking his jurisdiction under Section 147(a) of the FT Act, 1961, and, therefore, the impugned notice is beyond his jurisdiction, power and authority.
14. We have perused the return of income form prescribed for the assessment year 1975-76 from the file of ITO given by departmental representative and we did not find any column or clause therein directing the assessee to disclose investments made by him during the previous year. There is no mention or indication in the said form that the assessee should disclose or give any information in relation to any investment which the assessee is likely to make later, that is to say, after the close of the previous year namely 30-6-1974 or during the financial year 1974-75 ending by the close of the said previous year which has to be considered by the assessing officer for the purpose of making assessment for the assessment year 1975-76. Therefore, keeping in mind the decision of the Supreme Court in the case of V.D.M.RM.M.RM. Muthiah Chettiar (supra) we find that when neither the Act nor the Rules which has prescribed the form of return of income impose any obligation or duty upon an assessee to make such disclosure, the assessee, therefore, in our opinion cannot be charged for omission and failure to disclose fully and truly all the material facts necessary for his assessment.
15. The provisions of Section 69 like many other provisions is an inferential and enabling provision empowering the assessing officer to add, while computing his income such investments as may remain unexplained by the assessee. Certainly it is not the duty of an assessee to suggest, lead or instruct the Assessing Officer that he should be informed of certain facts or that he should act in a particular manner or that he should take the aid and recourse of certain provisions and assess him in a particular manner. There is also no evidence on record to show that the ITO directed/called for information from the assessee in respect of the investment made by him for the construction of the godown which commenced, admittedly, after the close of the previous year and that the assessee failed to comply with such direction or demand.
16. The Assessing Officer did the reopening exercise after the order of the Appellate Commissioner dated 18-2-1980 for the assessment year 1976-77 deleting the addition made under Section 69 of the Act as explained investment in constructing the godowns. At the most this may constitute information empowering the assessing officer to resort to Section 147(b). But as submitted by the assessee's counsel, with whom we agree, invoking of Section 147(b) was barred by time by 31 -3-1980 as per Section 149 of the Act.
17. On the basis of admitted facts before us it was not obligatory on the assessee to disclose the amount invested by him during the previous year 30-6-1975 for construction of godown which falls within the financial year 1974-75 for invoking and applying the provisions of Section 69 of the Income-tax Act, 1961 which is an inferential and enabling provision. In our opinion, therefore, non-disclosure of inferential facts cannot attract the provision of Section 147(a), and the Assessing Officer was not justified in reopening the assessment for assessment year 1975-76.
18. We, therefore, vacate the impugned order of the Appellate Commissioner and quash the assessment made on the assessee by resorting to the provision of Section 147(a) of the Income-tax Act, 1961, as the same being without jurisdiction.
19. In the result, the appeal is allowed.