Income Tax Appellate Tribunal - Pune
Baldevraj Sitaram Malhotra (Huf), ... vs Income-Tax Officer/Deputy ... on 5 February, 1996
ORDER
Income-tax Appeal Nos. 31(PN) of 1992, 332/(PN) of 1992, 514/(PN) of 1992 and 512/(PN) of 1992:
T.V. Rajagopala Rao, President
1. The question sought to be referred for the opinion of the Special Bench in the above four appeals is the following :
" Whether, on the facts and in the circumstances of the case, the reopening of the assessment under Section 147{a) of the Income-tax Act, 1961, is valid or not ?"
2. The Division Bench happened to refer the question to a Full Bench because the learned Accountant Member (Shri T. V. K. Natarajachandran) sitting in two different combinations had taken diametrically opposite views. While disposing of the case in I. T. A. No. 1909/(PN) of 1988--C. B. Phulpagar v. ITO Ward-5(2), Pune, decided on November 22, 1990--he held that the reopening was valid relying on the Supreme Court's decision in the case of Indo-Aden Salt Mfg. and Trading Co. Pvt Ltd. v. CIT [1986] 159 ITR 624.
3. In another case of Mrs. Mangala S. Paranjape and others v. ITO, Addl. T-Ward, Pune-I. T. A. No. 190/(PN) of 1987, decided on May 9, 1991 --though the facts of the case are similar to the above case referred to decided by the Pune Bench on November 22, 1990, the learned Accountant Member took a different view and held that the facts mentioned in the Supreme Court decision in Indo-Aden Salt Mfg. and Trading Co. Pvt. Ltd. v. CIT [1986] 159 ITR 624 were different and not applicable to the facts of the case.
4. Again while deciding another case of Mrs. Sudha P. Kulkarni v. First ITO, A-Ward, Kolhapur-I. T. A. Nos. 1620 to 162S/(PN) of 1986 decided on February 28, 1992-the Pune Bench held that reopening of the assessment could not be sustained and to this decision also the learned Accountant Member was a party. Therefore, the Department contended that there was conflict in the decisions of the Tribunal on identical facts and the facts involved in these appeals relating to the two assessment years are similar to the facts of those appeals decided already by the Tribunal for and against and, therefore, since there was conflict of decisions the matter may be referred to the President to constitute a Special Bench to hear and dispose of them. The learned Division Bench comprising Shri T. V. K. Natarajachandran and Shri T. A. Bukte, the learned Accountant Member and the Judicial Member, respectively, found the contention of the Departmental Representative correct and they had agreed that there was a conflict of decisions and, therefore, the present matters were sent to the President, Income-tax Appellate Tribunal, to constitute a larger Bench to adjudicate upon the question which is already referred to supra by their referring orders dated April 6, 1993. Ultimately, the President constituted a Special Bench comprising the present three Members under Section 255(3) of the Income-tax Act, 1961. The main question involved in all these four appeals is about the validity of reopening under Section 147(a) of the Income-tax Act, 1961.
5. We have heard Shri C. V. Khandelwal, the learned advocate for the assessee, and Dr. Sunil Pathak, the learned Departmental Representative for the Department, in this case for two days, i.e., on November 29, 1995, and November 30, 1995, at Pune. The learned advocate for the assessee had submitted fairly that no question of reopening was involved in the appeals relating to the assessment year 1983-84, and, therefore, those appeals relating to the assessment year 1983-84 need not be considered by the Special Bench though all the appeals concerning the assessment years 1981-82, 1982-83 and 1983-84 are coming up for hearing together. The learned Departmental Representative agreeing with the submissions made by the learned advocate for the assessee in this regard made it plain that in fact for 1983-84, the assessment order passed under Section 143(3) read with Section 144A is a comprehensive assessment order wherefrom the facts of the case as well as the investigations done by the Assessing Officers will be fully known and it is stated by the Assessing Officer while framing the reopened assessments for 1981-82 and 1982-83 that the assessment orders for 1983-84 should be read as part and parcel of the reopened assessment for 1981-82 and 1982-83 and, therefore, a close scrutiny of the assessment order for 1983-84 would become very essential for correct appreciation of facts on record.
6. The assessee as well as the Departmental Representative had filed paper books. The pages of those paper books would be referred to as and when it is felt necessary in this order. Before deciding the validity of reopening for purposes of record we shall have to state the original assessments made. Here itself we may make it very clear that Baldevraj Sitaram Malhotra and Satpal Sitaram Malhotra are two Hindu undivided families headed by Baldevraj Sitaram Malhotra and Satpal Sitaram Malhotra who are brothers. Each of them are heading their respective families. Smt. Rajinder Mohini Malhotra is the wife of Satpal Sitaram Malhotra. For the assessment year 1981-82, Shri Baldevraj Sitaram Malhotra heading his Hindu undivided family filed the income-tax return on August 24, 1981, whereunder he returned a total income of Rs. 33,990. Original assessment was completed under Section 143(3) on November 8, 1982, on the same income returned. Similarly, for the assessment year 1982-83, Shri Baldevraj Sitaram Malhotra filed his income-tax return on behalf of his Hindu undivided family on August 30, 1982, under which he returned a total income of Rs. 64,988. Original assessment was completed under Section 143(3) on March 30, 1983, on a total income of Rs. 64,990. For the assessment year 1981-82, reopening was made under Section 147(a) on August 14, 1985. Having received the notice of reopening, the assessee filed his return for the assessment year 1981-82 on November 15, 1985. The total income shown in the return in response to a notice under Section 148 is Rs. 1,990. Similarly, for the assessment year 1982-83, the proceedings were reopened under Section 147(a) on March 18, 1986. After receiving the notice under Section 148, the assessee filed its return of income on May 21, 1986. The total income returned was only Rs. 26,920.
7. Shri Satpal Sitaram Malhotra filed its original return of income on August 24, 1981, for the assessment year 1981-82 on a total income of Rs. 34,860. The assessment was completed under Section 143(3) on November 8, 1982, accepting the said income. The assessment proceedings were reopened under Clause (a) of Section 147 on August 14, 1985. In response to the notice under Section 148, the assessee filed its return on November 15, 1985. In the reopened assessment, the assessee returned its income at Rs. 2,860 only.
8. For the assessment year 1982-83, Shri Satpal Sitaram Malhotra, Hindu undivided family, filed its original return of income on August 30, 1982. The said assessment was completed under Section 143(3) on March 30, 1983, on a total income of Rs. 66,380. The assessment was reopened under Clause (a) of Section 147 on March 18, 1986. In response to notice under Section 148, the assessee filed its return of income on May 21, 1986, returning a total income of Rs. 15,730 only.
9. The sources of income of both the brothers are similar. Both the brothers held a half share each in Survey No. 31 of village Bhore, Tehsil Mahabaleshwar, District Satara. Similarly they sold their half share in sub-division No. 1 of Survey No. 31 in favour of Rajinder Mohini Malhotra on July 21, 1980. Further both these assessees are being defended by the same counsel Shri Khandelwal. Thus, the disposal of the appeal of one of the Hindu undivided families would equally apply to the disposal of the connected Hindu undivided family. To elaborate further any finding given in the case of Baldevraj Sitaram Malhotra for the assessment years 1981-82 and 1982-83, respectively, would equally apply to the cases of Satpal Sitaram Malhotra (Hindu undivided family) for the assessment years 1981-82 and 1982-83, respectively.
10. Copies of the reasons recorded for 1981-82 and 1982-83 were furnished to us by the learned Departmental Representative. For 1981-82, the reasons were recorded on August 14, 1985, and for 1982-83, the reasons were recorded on March 18, 1986. In the reasons recorded for the assessment year 1981-82, it is stated that Baldevraj Malhotra is a Hindu undivided family who derived income from dividends, interest, etc., had purchased along with Satpal Sitaram Malhotra (Hindu undivided family) and Harish Kumar Malhotra, Hindu undivided family agricultural land bearing Survey No. 31, admeasuring 33 acres, 19 gunthas, of village Bhore, Tehsil Mahabaleshwar, District Satara, on April 13, 1966. All the three of them had constructed a farm house, servant quarters, store house, after the land was purchased. Subsequently, Harish Kumar Malhotra, Hindu undivided family released its share on March 18, 1978, in equal proportions to the assessee and Satpal Sitaram Malhotra (Hindu undivided family). Thus, the assessee came to own half of the land. The assessee applied to the Collector, Satara, through Tehsildar, Mahabaleshwar, on September 15, 1979, for grant of permission to put the said land to non-agricultural use. The assessee intended to develop the land, divide it into plots and sell it, at a profit. The Tehsildar, Mahabaleshwar, granted N. A. permission by his order No. LND/NA/SN. 68 of 1979 dated December 19, 1979, subject to certain conditions.
11. The land was subsequently valued by Shri J. V. Gandhe, chartered architect, and the Government valuer. However, Shri Gandhe excluded from his valuation, the entire plot No. 1 (admeasuring approximately 32,000 sq. ft.), farm house used as residential bungalow and out-house and valued the land at Rs. 63,74,028.
12. An affidavit was sworn by the assessee on March 25, 1981. The assessee converted a portion of the land valued by Shri Gandhe as stock-in-trade. He also solemnly affirmed that the entire land was put to non-agricultural use from April 13, 1980, and that he introduced that land in his business books at a value of Rs. 63,74,028 which was revalued by Shri Gandhe.
13. The plot of land admeasuring approximately 32,000 sq. ft. and the farm house and out-house which also became non-agricultural land on April 13, 1980, and not converted as stock-in-trade was sold to Smt. Rajinder Mohini Malhotra on July 21, 1980, for a consideration of Rs. 3,00,000, the assessee's share being Rs. 1,50,000. The following Note was found attached to the statement of income filed along with the return of income dated August 24, 1981 :
" The farm house along with land has been converted as non-agricultural property in the financial year 1980-81 and the same has been converted as stock-in-trade and sold. There is no profit made on the same. The difference in cost and the value realised is due to above change and such difference is not treated as forming part of income for the assessment year 1981-82."
14. It is stated that the assessee did not file any further details and the assessment was finalised without taking into account the abovesaid transaction.
15. The photocopy of the affidavit dated March 25, 1981, was filed by the assessee for the first time before the Inspecting Assistant Commissioner, PR-I, Pune, during the course of proceedings under Section 144A of the Income-tax Act, 1961, for the assessment year 1983-84. It was also subsequently obtained along with a copy of the trading account and profit and loss account by writing the letter to Shri B. R. Malhotra, on July 26, 1985. It will be seen that the assessee neither furnished the facts (as stipulated in Note 8, page 11, of the return of income) nor made a correct statement regarding the exact nature of the plot, farm house and outhouse. He had, therefore, reason to believe that the income of Rs. 1 lakh arising out of the sale of the impugned plot of land, farm house and outhouse to Smt. Rajinder Mohini Malhotra has escaped assessment, due to failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment.
16. As already stated the reopening notice under Section 147(a) was issued for the assessment year 1982-83 on March 18, 1986. This reopening is also made with reference to the land situated in Survey No. 31 of Bhore village. Inter alia, reiterating the same contents as were contained in the notice of reopening for the assessment year 1981-82, it is stated that from the trading and profit and loss account filed for the first time before the Inspecting Assistant Commissioner in Section 144A proceedings, it is seen that the assessee had sold some plots in the course of its business and the business went into loss. However, during the course of the proceedings under Section 144A, the Inspecting Assistant Commissioner gave a direction to hold that the assessee did not trade in land. The sale price of plots was directed to be treated as realisation of a capital asset. The Inspecting Assistant Commissioner also issued direction to take any alternative stand so as to protect the interests of the Revenue.
17. The assessee's version regarding the value of reopening stock of land as on April 13, 1980, has been rejected for the detailed reasons discussed in the assessment orders for the assessment year 1983-84. This has resulted in restructuring the trading and profit and loss account of the business. This restructured trading and profit and loss account shows a gross profit of Rs. 8,28,108. The profit and loss account is restructured as under :
Profit and loss account (assessment year 1982-83) :
Rs.
Rs.
To expenses 15,925 By gross profit 8,28,108 To net profit 8,12,183 8,28,108 8,28,108 The assessee's half share was Rs. 4,06,092.
Thus either by treating the land as a capital asset or by treating it as a trading asset, the income had escaped assessment.
18. The fact that the assessee had sold plots in the Panchgani land was not disclosed in the return of income for this year. The assessee, therefore, failed to disclose fully and truly all particulars and material facts necessary for his assessment. This has resulted in the income of Rs. 4,06,092 chargeable to tax escaping assessment for the assessment year 1982-83.
19. In pursuance of the notices issued under Section 148, returns of income were filed by both the Hindu undivided families. By means of a similar letter dated January 16, 1986, addressed to both the Hindu undivided families, the Income-tax Officer had brought to the notice of the assessees that the matter of valuation of land of the farm house was referred to Shri J. V. Gandhe, chartered architect, and the said Shri Gandhe, as can be seen from the photocopies of the valuation report filed by him, valued plot No. 1 of Survey No. 31 separately at Rs. 2,99,847 by holding it as N. A. property. The remaining land was valued by Shri Gandhe at Rs. 63,74,928 and the said land was converted into stock-in-trade by the assessee by executing an affidavit on March 25, 1981. Thus, the value of Rs. 63,74,928 was credited in the assessee's books as the value of non-agricultural land. The Assessing Officer had extracted the Note given under the return of income filed by the assessee on August 24, 1981, below the computation sheet and the value adopted by Shri Gandhe for the land covered by subdivision No. 1 of Survey No. 31 after extracting the following Note found under the computation sheet filed on August 24, 1981, namely :
" The farm house along with land has been converted as non-agricultural property in the financial year 1980-81 and the same has been converted as stock-in-trade and sold. There is no profit made as the value realised is due to above change and such difference is not treated as forming part of income for the assessment year 1981-82."
and stated that the above Note gives an impression that the farm house along with sub-plot No. 1 was also converted as stock-in-trade. However, on going through the affidavit executed by the assessee, it is found that it is not so. The farm house along with sub-plot No. 1 remained as a capital asset with the assessee and was subsequently sold by him to Smt. Rajinder Mohini Malhotra in the month of July, 1980. The resultant capital gains arising out of this transaction, however, had not been shown by the assessee for income-tax purposes. The assessee was called upon to explain why the capital gains arising on conversion of the farm house and adjoining land into non-agricultural land and subsequently sold, should not be brought to tax.
20. As already stated the investigations and enquiries conducted by the Assessing Officer and also by the Inspecting Assistant Commissioner while passing the order under Section 144A for the assessment year 1983-84 had led the Assessing Officer to obtain facts relating to the assessment years 1981-82 and 1982-83 which would show or made him believe that income which is liable to tax had escaped assessment by virtue of the assessees' failure to disclose truly and fully all necessary facts for completion of the assessment.
21. In the assessment order passed for the assessment year 1983-84, dated March 18, 1986, the Assessing Officer clearly stated that the assessee did not disclose in his income-tax return for the assessment year 1982-83 that he was trading in lands and that he had, according to his trading account, incurred losses in the business. In fact the assessee did not file his trading account along with his income-tax return for 1982-83. On the other hand for the first time, he had filed the said trading account in the proceedings relating to the assessment year 1983-84. It is stated by the Assessing Officer while completing the assessment for 1983-84 as follows at paragraph 2.19 :
"A trading account from the beginning, i.e., from April 13, 1980, was filed by him only when the case was referred to the Inspecting Assistant Commissioner under Section 144A. Owing to the failure on the part of the assessee in furnishing even the basic data, the question of proper valuation of stock-in-trade could not be gone into in the assessment year 1981-82."
22. Both the assessee-Hindu undivided families contested the validity of the reopening made under Section 147(a). It is contended that all the material facts necessary to frame the assessment for the assessment year 1981-82 was already given in the income-tax return. Particular stress was laid upon the Note given under the computation sheet appended to the income-tax return for 1981-82 which is already extracted above. It is contended that had the Assessing Officer been diligent enough to find out the facts, he would have found them by simply referring to the wealth-tax record of these assessees for the assessment year 1980-81, or the facts could have been found out by the fact that the option to purchase the property under Chapter XX-A of the Income-tax Act, was not ultimately exercised by the Government but it was released from acquisition (vide page 91 of the assessee's paper book). However, these arguments were negatived by the Assessing Officer and in the reassessment dated March 8, 1990, passed under Section 143(3) read with Section 147(a), the Assessing Officer computed capital gains or in the alternative trading profit. At paragraph 8, he had computed the capital gains at Rs. 1,19,517 for which the particulars are as follows :
Rs.
Rs.
Sale price. :
3,00,000 Less : Cost price of land 44,000 x 32,000 ________________ 14,58,171 966 Cost of construction of bungalow and out-house 60,000 60,966 2,39,034 1/2 share thereof :
1,19,517.
23. He also computed the profit derived on the basis that the assessee is engaged in the business of trading in land. The Assessing Officer held that the correct head of income should be capital gains for which he had already determined the tax liability but in case any appellate authority were to hold that the correct head of income is business, he computed the business profit as follows as per the particulars given in paragraph 10 of his reassessment orders :
Rs.
Rs.
Sale price :
3,00,000 Less :
Cost as on date of conversion :
Building :
1,07,847 Land :
32,000 x 1.40 = 44,800 1,52,647 Profit :
1,47,353
24. For the assessment year 1982-83, the Assessing Officer computed the reassessment as per his orders dated March 14, 1990, passed under Section 143(3) read with Section 147(a). He had adopted the finding of business profits for the assessment year 1982-83. He had treated the sale of agricultural land as sale of stock-in-trade. He had adopted the position that the assessees were trading in land, keeping the plots of land as stock-in-trade with them. The total income was computed as follows :
Rs.
Rs.
Total income as per original assessment order before deduction under Chapter VI-A :
69,614 Add :
(1) Profit on sale of plots at Malhotra Silver Hills 1/2share as discussed :
3,22,485 (2) Profit on trading of agricultural land :
7,439 3,29,924 3,99,538 Less :
Deduction under section 80C 1,628 under section 80L 3,000 4,628 3,94,910 Total income :
3,94,910
25. Aggrieved against the reassessments framed for 1981-82 and 1982-83, the assessee-Hindu undivided families went in appeal before the Commissioner of Income-tax (Appeals).
26. It is enough for our purposes to note that the learned Commissioner of Income-tax (Appeals) by his individual orders passed in the case of each of these two Hindu undivided families upheld the validity of reopening under Section 147(a). For the assessment year 1981-82, he passed the orders in the case of B. R. Malhotra on October 31, 1991, and for the assessment year 1982-83 in the case of the same assessee he passed the orders on March 9, 1992. In the case of S. P. Malhotra, the learned Commissioner of Income-tax (Appeals) passed his orders for the assessment year 1982-82 on January 28, 1992, and for 1982-83 he passed similar orders on March 9, 1992. Thus having been aggrieved about the validity of the reopening having been upheld by the lower appellate authority, the assessee came up in second appeals and thus the question framed for our decision in all these four appeals stand for our consideration.
27. Shri Khandelwal, learned counsel for the assessee made the following submissions against the validity of reopening. For the assessment years 1981-82 and 1982-83, the assessee filed the wealth-tax and income-tax returns and their income-tax assessments were framed under Section 143(3) of the Income-tax Act and the wealth-tax returns under Section 16(3) of the Wealth-tax Act. Along with the wealth-tax returns, the assessee filed statement of wealth, receipt and payment account and reconciliation statement. Our attention is drawn to pages 1, 3 and 5 of the assessee's paper book and also pages 63, 65 and 67 of the assessee's paper book. At pages 1 and 2 of the paper book is the statement of wealth as on March 31, 1980 of Shri B. R. Malhotra (Hindu undivided family). A Note was provided at page No. 2 which is as follows :
"The land permission for converting the agricultural into non-agricultural use was granted on December 19, 1979. The agricultural use was, however, started on and from April 13, 1980, when the land and structure thereon was converted to stock-in-trade."
28. While describing the immovable property at page 1, half share of the farm house was shown at the value of Rs. 30,000. At page 3, is provided receipt and payment account for the year ending March 31, 1980. At page No. 5, reconciliation statement was furnished along with the wealth-tax return. At page No. 7, is the letter of the assessee dated March 28, 1981, addressed to the Wealth-tax Officer, Pune, wherein it was stated that he was granted extension of time for filing the wealth-tax return till January 31, 1981. Since the fate of the agricultural land which was converted by him in the financial year 1980-81 as non-agricultural land was not finalised by the Government and the appellate authorities ultimately had given decision in his favour on March 16, 1981, he is filing the return soon after the decision. In that letter itself, it was stated that he was granted permission to convert the agricultural land into non-agricultural use on December 19, 1979. However, he could not convert the same into non-agricultural purposes till April 12, 1980. He had converted the same into non-agricultural use on April 13, 1980. Thereafter he had received an order from the concerned authorities that the land was forfeited, though ultimately the matter was decided in his favour by the appellate authority. Pages 9 and 10 of the paper book are the statement of wealth as on March 31, 1980, filed on behalf of Shri S. P. Malhotra (Hindu undivided family) for the assessment year 1980-81. At pages 11 and 13, payment and reconciliation statements were provided.
29. It was the claim of the assessee that sub-division No. 1 in Survey No. 31 measuring about 32,000 sq. ft. together with bungalow and farm house were sold to Rajinder Mohini Malhotra by the registered sale deed dated July 21, 1980. The wealth-tax return for the assessment year 1980-81 was filed by the assessees subsequent to the said sale on March 28, 1981, which is subsequent to the sale on July 21, 1980. The fact of sale was, however, not intimated in the footnote, under the statement of wealth. Our attention was also drawn to pages 63, 65 and 67 of the assessee's paper book. At page 63, we come across the statement of wealth as on March 31, 1981. At page 65, we come across receipt and payment account for the year ending March 31, 1981. At page 65, a sum of Rs. 1,50,000 was found to have been received from Rajinder Mohini Malhotra. At page 67, reconciliation statement was provided. In that it is stated that land and farm house were introduced as stock-in-trade and their value was shown at Rs. 31,23,989.
30. It is contended that the wealth-tax is one of the direct taxes and the income-tax and wealth-tax-assessments of both these assessees were completed by the same officer. The provisions of Section 147(a) were brought to our notice and it was contended that the conditions for invoking of Section 147(a) are absence of full disclosure, non-disclosure or true disclosure of the income in the return and consequently there could be escapement of income also. If after the reassessment also, it does not result in any tangible income but the reassessment was framed or liable to be framed only on a loss figure then Section 147(a) does not come into play, argued learned counsel. He further argued that if chargeable income escaped assessment then only reopening is possible. If there is no escapement of income, no reopening is possible. While reopening the case, this condition should be satisfied.
31. Before converting the land into non-agricultural use and treating it as stock-in-trade, the assessee was not carrying on any business in land. 33 acres 19 gunthas of agricultural land was purchased by three brothers for Rs. 1,26,000 in 1966. On September 15, 1979, these assessees sought permission to convert the land into non-agricultural use. Conditional permission was granted on December 19, 1979. The said permission was granted for the whole of the land and not the part of it. Till March 31, 1980, this property was agricultural land. The land was situated at 3 or 4 kms. to Panchgani Municipality. It was claimed that the said municipality had a population of less than 10,000 at that time. It was also claimed that even though the said land was a capital asset, no capital gains arising out of the sale of the said land was exigible to tax under Section 45 of the Income-tax Act. The conversion of the said land into stock-in-trade took place on April 13, 1980. However, there was no document evidencing the said fact except the affidavit dated March 25, 1981. There was no prescribed form or rule to follow at the time when conversion took place from the capital asset into stock-in-trade.
32. Through a Note provided under the statement of income appended to the return of income for the assessment year 1980-81, the fact regarding the sale of farm house along with land and its conversion into non-agricultural property was duly disclosed before the Assessing Officer who completed the original assessment. It was also disclosed that the entire land was converted into stock-in-trade and one plot was sold during the year along with farm house but there was no profit resulting from such sale. The difference in cost and value realised did not result in any profit. Therefore, it was not treated as forming part of the income. The conveyance deed in respect of the sale of plot No. 1/31, and the tax clearance certificate under Section 230A were all shown to the Assessing Officer. The Assessing Officer who completed the original assessment being satisfied about the contention of the assessee did not call for further papers, though all the other papers were available with the Assessing Officer in one file or the other. The Assessing Officer had taken up a number of assessments of the assessee and his group of cases simultaneously. The value of the stock-in-trade after its conversion on April 13, 1980, was rightly taken at Rs. 6 per sq. ft. which represents the market value of the property at that time and hence the Assessing Officer was not justified in coming to the conclusion that there has been escapement of income.
33. There was no escapement of capital gains tax also as under the circumstances of the case, the property sold during the year being property No. 1/31, was not a capital asset but was stock-in-trade of the assessee. The Assessing Officer has taken advantage of the omission in the trading and profit and loss account submitted along with the return for the assessment year 1983-84 in which inadvertently the transaction in land during the year was not shown. In the wealth-tax assessment for 1981-82 for which the valuation date was March 31, 1981, the value of the property was shown by the assessee at Rs. 6 per sq. ft. and the said rate was accepted by the Assessing Officer also. The assessee relied upon the following case law in a bid to show that the reopening was bad under law :
1. Gwalior Rayon Silk Mfg. (Wvg.) Co. Ltd. v. Raghavan, IAC of I.T. [1984] 150 ITR 12 (Bom) at pages 14 and 15 ;
2. Miheer Hemant Mafatlal v. N. Rama Iyer, ITO [1986] 159 ITR 515 (Bom).
34. The above two decisions were cited in order to show exactly what amounts to non-disclosure of material facts. He cited Malegaon Electricity Co. Pvt. Ltd. v. CIT [1970] 78 ITR 466, at pages 472 and 473 (SC) to show that a mere change of opinion on the part of the Income-tax Officer cannot validate the reopening. He contended that the following case law would unequivocally point out that mere change of opinion on the part of the Income-tax Officer cannot validate the reopening proceedings :
1. T. A. George v. Agrl ITO [1985] 153 ITR 721 (Ker) ;
2. CIT v. Anamalai Bus Transports (P.) Ltd. [1976] 105 ITR 267 (Mad) ;
3. Addl. CIT v. Ganeshilal Lal Chand [1985] 154 ITR 274 (Raj) ;
4. Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 (SC).
35. If the Income-tax Officer failed to conduct diligent enquiries when the proceedings were pending, but due to negligence or for any other reason did not probe into the matter sufficiently, that deficiency in enquiry does not authorise to make a reassessment and for this purpose, the following case laws are cited :
1. BiBi Gurdarshan Kaur v. CIT [1964] 51 ITR 1 (Punj) ;
2. Akula Venkatasubbaiah v. CIT [1963] 47 ITR 458 (AP) ;
3. CIT v. Delhi Cement Stockists [1971] 81 ITR 515 (Delhi).
36. It is further submitted that even though the information is available in the wealth-tax records, that also amounts to information and for that purpose, the following case laws are cited :
1. CIT v. P.N. Sreenivasa Rao [1988] 171 ITR 562 (Ker) ;
2. Mrs. Leela Nath v. CIT [1987] 164 ITR 216 (Cal).
37. In order to disclose what are the valid conditions to be fulfilled for reopening learned counsel relied upon the following case law ;
1. Indo-Aden Salt Mfg. and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624 (SC) ;
2. Indian Oil Corporation v. ITO [1986] 159 ITR 956 (SC) ;
3. Khan Bahadur Hormasji Maneckji Dossabhoy Hormasji Bhiwandiwalla and Co. v. B. K. Sahu, IAC of I. T. [1991] 188 ITR 203 (Bom) ;
4. Addl. OT v. Ganeshilal Lal Chand [1985] 154 ITR 274 (Raj) ; 5. Dunlop Rubber Co. Ltd. (London) v. ITO [1971] 79 ITR 349 (Cal).
38. Our attention was also drawn to the Section 230A certificate dated July 18, 1980, vide pages 19 to 21 of the assessee's paper book given by the Department, at the time when the sale was made in favour of Rajinder Mohini Malhotra.
39. The learned Departmental Representative, vehemently opposing the arguments advanced on behalf of the assessee and stoutly defending the validity of reopening for both these assessment years firstly brought to our notice the return of income filed by the assessee. He invited our attention to pages Nos. 1 and 3 of the Departmental paper book which only represent a photocopy of the income-tax return filed by the assessee for the assessment year 1981-82. In Part I, paragraph No. 4 of the return, the column is provided for mentioning profits and gains of business and profession. However, it was kept blank. The assessee did not disclose any activity. He also did not disclose any profit having been made in the sale of plots effected in the relevant accounting year, though there was duty cast upon him that he should disclose the sale of plots either as sale of capital assets or as sale of stock-in-trade. The learned Departmental Representative states that paragraph No. 4(d) of page No. 2 of his paper book should be read along with Note No. 3 at page 15 of his paper book. Note No. 3 found at page 15 which represents the form of the income-tax return states that the following particulars should be given in regard to the income chargeable under the head "Profits and gains of business or profession" in a statement to be attached with the return of income, namely :
"1. General particulars ;
(i) Name in which business or profession is carried on ;
(ii) Address of principal place of business or profession ; (iii) Name and address of branches ;
(iv) Nature of business or profession ;
(v) Method of accounting, please state whether mercantile/cash/ mixed ; and
(vi) Method of stock valuation.
(vii) If regular books of account are maintained, copies of--"
40. In column No. (viii) under Note No. 3 found at page 16, the following is what is stated :
'If regular books of account are not maintained, attach a statement indicating the amounts of turnover or gross receipts, gross profits, expenses and net profit of the business or profession and the basis on which such amounts have been computed disclosing the amounts of the total sundry debtors, sundry creditors, stock-in-trade and cash balance as at the end of the previous year.'
41. None of the particulars required as per the columns of the income-tax return, mentioned above, were furnished by the assessee either for the assessment year 1981-82 or 1982-83.
42. Then the learned Departmental Representative had cited Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) and the Delhi High Court in General Mrigendra Shum Sher Jung Bahadur Rana v. ITO [1980] 123 ITR 329 at page 335 in order to highlight as to what amounts to failure to disclose primary facts necessary for the completion of assessment. Our attention was also drawn to page 50 of his paper book which is the valuer's report given by Shri J. V. Gandhe, chartered architect, and the Government valuer. The report is dated April 18, 1980. Under the said report, the valuer had valued 10,62,488 sq. ft. at Rs. 6 per sq. ft., i.e., at Rs. 63,74,928. It is stated in the said report that the valuer had inspected the land on April 14, 1980. The whole of the land is contiguous and forms one block.
We have already seen that on July 21, 1980, Plot No, 1 with farm house and residential bungalow and out-house were sold to Mrs. Rajinder Mohini Malhotra. If that is so, how is it possible even on April 18, 1980, the valuer had excluded the land sold on July 21, 1980, from being valued under his report questions the Departmental Representative. This fact was highlighted only to show that the sale in favour of Rajinder Mohini Malhotra was in all probability a sham and make believe and the sale in her favour itself was pitched upon only as a measure of tax saving device in order to get the benefits of Section 54F of the Income-tax Act, 1961.
43. The learned Departmental Representative invited our attention to photocopy of the affidavit solemnly affirmed by Shri S. S. Malhotra evidencing the conversion of agricultural land into non-agricultural use on April 13, 1980. In fact, this affidavit is wilfully relied upon as the corner-stone for the assessee's contentions. The photocopy of the affidavit is furnished at pages 63 to 65 of the Departmental paper book. The Departmental Representative brought it to our notice for the purpose of stating that a fair reading of the said affidavit would disclose that sub- plot No. 1/31, admeasuring 2,973 sq. mts. along with bungalow and out-house known as farm house was never brought to non-agricultural use and the remaining extent in 33 acres 19 gunthas only was brought to non-agricultural use. The affidavit was sworn in on March 25, 1981. In the affidavit it is stated by Shri S. S. Malhotra that he held a 50 per cent, share in land and bungalow and out-house known as farm house situated in Survey No. 31, Village Bhore, Taluka Mahabaleshwar, District Satara, measuring 33 acres 19 gunthas out of which sub-plot No. 1/31 measuring 2,973 sq.mts. along with a bungalow and out-house known as farm house had already been sold on July 21, 1980, to Smt. Rajinder Mohini S. Malhotra.
44. The land was intended to be used for commercial purposes and with the intention to put it to non-agricultural use, he along with Shri B. S. Malhotra representing his Hindu undivided family as the karta applied to the Collector of Satara through Tehsildar, Mahabaleshwar, on September 15, 1979, for granting permission to convert the land from agricultural to non-agricultural use. It was their intention to develop the land, subdivide the same into small plots, obtain electrical light connections and provide other services and facilities and amenities and thereafter to construct thereon and sell the sub-divided plots with or without buildings as business expediency dictates. The said land remained agricultural till April 12, 1980, and on and from the auspicious day of Baisakhi, i.e., on April 13, 1980, he commenced the use of the land for non-agricultural purposes and converted the same from that day as his stock-in-trade. He got the land valued as non-agricultural as on April 13, 1980, from the Government approved valuer, vide his report, dated April 18, 1980. It is significant that the affidavit mentioned above disclosed that sub-plot No. 1/ 31, was already sold away to Rajinder Mohini S. Malhotra on July 21, 1980, i.e., from July 21, 1980, the land was never in the possession of the assessees. Similar affidavit by Rajinder Mohini Malhotra was not affirmed before any authority to show that the land and farm house sold to her was already put to non-agricultural use. We agree with the contention of the learned Departmental Representative when he argued that a fair reading of the affidavit extracted above does not include that the land in sub-division No. 1/31 was not converted into non-agricultural use nor was it converted into house plots.
45. Further, the affidavit mentioned above states that the land was got valued as on April 13, 1980, by the Government valuer, vide his report dated April 18, 1980. The said report is not other than that of Shri J. V. Gandhe, photocopy of which is found at page 50 of the Departmental paper book. On that day, he made two reports one with regard to farm house, a bungalow, out-house and appurtenant land together known as farm house in sub-division No. 1/31 and another report was made covering all other extent in Survey No. 31. Excluding the area of plot No. 1 with farm house used as residential bungalow and out-house, the remaining land is 10,62,488 sq. ft. and he valued the same at Rs. 6 per sq. ft, at Rs. 63,74,928.
46. Another valuation report of the same day, namely, April 18, 1980, is made by Shri Gandhe, a photocopy of which is furnished at pages 51 and 52. This report was made exclusively with reference to 32,000 sq. ft. covered by sub-division No. 1/31. However, it is the contention of the assessee that the permission was obtained from the Revenue authorities to use the whole land in Survey No. 31 for non-agricultural purposes and in fact it was so used. This contention does not appear to be correct. If it is correct, then Shri Gandhe would have made the report for a total extent of 10,94,488. That means 10,62,488 + 32,000. The affidavit which is adverted to above was not filed during the original assessment proceedings for the assessment years 1981-82 and 1982-83. The said affidavit was filed for the first time before the Inspecting Assistant Commissioner, PRI, Pune, during the course of proceedings under Section 144A of the Income-tax Act for the assessment year 1983-84. It is no doubt true that the assessee filed trading as well as profit and loss account for the assessment years 1981-82 and 1982-83 also but they were all obtained from the assessee by the Assessing Officer by writing a letter dated July 26, 1985, which is long after the original assessments were over and when the assessment proceedings for 1983-84 were pending. At this juncture for better appreciation of facts on record, it will be very useful to keep before us the specific dates on which the income-tax assessments as well as wealth-tax assessments for the assessment years 1981-82 and 1982-83 were completed in the case of these two assessees. In the case of S. P. Malhotra, the income-tax assessment for 1981-82 was completed on March 31, 1982, and in the case of Shri B. R. Malhotra, the original income-tax assessment was completed oh December 8, 1982. For the assessment year 1982-83, the income-tax assessments of S. P. Malhotra and Shri B. R. Malhotra (Hindu undivided families) were completed after giving only one hearing on March 30, 1983. Rather the original assessment order also was passed on the same day. It was only after passing of the assessment order on March 30, 1983, the Income-tax Officer took up the wealth-tax proceedings in the cases of these two assessees on March 31, 1983. The wealth-tax assessment for the assessment year 1981-82 in the case of B. R. Malhotra (Hindu undivided family) was at pages 69 to 71 of the assessee's paper book. Thus, it is not correct to state that the proceedings of income-tax as well as wealth-tax for the assessment years 1981-82 and 1982-83 were taken up simultaneously by the same Assessing Officer in the case of these two assessees. We find that the assessment proceedings were taken up separately for the two separate years and the assessments also were completed separately in the income-tax and wealth-tax proceedings. Thus, there is no question of the material produced or information furnished in the wealth-tax return or the annexures made to the said return being made use of by the Income-tax Officer while completing the income-tax assessments either for the assessment year 1981-82 or 1982-83.
47. Explanation I under Section 147 reads as under :
" Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso."
48. While making the assessment under Section 143(3) read with Section 144A for the assessment year 1983-84, the Assessing Officer called upon the assessee to file the trading account as well as profit and loss account. It was the case of the assessee that when the land was put to non-agricultural use, it was got valued as on April 13, 1980, and according to Shri Gandhe, the valuer, the value worked out to Rs. 63,74,928. However, the learned Assessing Officer got the same land valued by Shri Rajput, another valuer. The report of Shri Rajput is dated November 12, 1983, and it is provided at pages 53 to 57 of the Departmental paper book. The land was valued as on March 31, 1980. Shri Rajput had taken into consideration the sale instances effected in the village. From 1975 to 1980 only five sale instances took place in that village and the prices ranged between Rs. 4,800 to Rs. 8,360 per acre. After duly considering the sales statistics secured by him Shri Rajput had determined the value of the land in Survey No. 31 of Bhore village at Rs. 6,000 per acre or Rs. 2,00,850 was determined as its value as on March 31, 1980. The Assessing Officer who had assessed the assessees for 1983-84 had found that Shri Gandhe's valuation at Rs. 63,74,928 does not reflect the market value but it was only found to be an inflated price adopted for the assessee in order to execute their own tax planning devices to avoid capital gains or to pay minimum or no taxes on business profits. In fact the Assessing Officer had adopted the value of the land at Rs. 2,00,850 as on April 13, 1980, the date when the land was stated to have been converted into stock-in-trade of the assessee. The half share of each of these assessees in the land in Survey No. 31 of Bhore village was returned at Rs. 33,475 for the assessment year 1980-81. However, on April 13, 1980, within a difference of 13 days, the case of the assessee was that its value shot up to Rs. 66 lakhs and odd. This was not accepted by the Assessing Officer and he preferred to value the stock-in-trade at Rs. 2,00,850 as suggested by the valuer, Shri Rajput.
49. Further, these two assessees sold several plots in the accounting years relevant to the assessment years 1982-83 and 1983-84. It is significant to note that after converting the said land from agricultural to non-agricultural, the assessees had invested several huge amounts for laying of roads, for plotting them, etc. Even then the plots sold never fetched the price of Rs. 6 per sq. ft. For instance from April 13, 1980, to March 31, 1981, the assessees incurred Rs. 61,389.03 towards development and other expenses as can be seen from page 79 of the assessee's paper book. From April 1, 1981, to March 31, 1982, they have incurred developmental charges of Rs. 76,150 as can be seen from page 83 of the assessee's paper book. For the assessment year 1982-83, 1,51,068 sq. ft. of plots were sold and it had fetched only Rs. 8,76,222 which gives the maximum of Rs. 5.80 per sq. ft., whereas the value of the land on the date of conversion was taken at Rs. 6 per sq. ft. even without any development charges. Further in the accounting year relevant to the assessment year 1983-84, 37,337 sq, ft. of land plotted was sold for Rs. 2,04,800 which gives the maximum price of Rs. 5.38 per sq. ft. The above made the Assessing Officer to discard the price of Rs. 63,74,928 as on the date of conversion to be unrealistic and he had adopted Rs. 2,00,850 as the real market value of the land as on the date of conversion, namely, April 13, 1960. This made the Assessing Officer who completed the assessment for the year 1983-84 to reconstruct the trading results for the assessment years 1981-82 and 1982-83. While so reconstructing and taking the price of the land at Rs. 2,00,850 in the beginning by March 31, 1983, he had shown the assessees having derived a net profit of Rs. 1,75,573 out of the land sales at Bhore village. Each of the brothers is stated to have derived a net profit of Rs. 87,786 by March 31, 1983. Thus, the Assessing Officer did not accept the loss said to have been sustained by the assessee in the sale of plots for the assessment years 1981-82 and 1982-83. On the other hand, he had computed the profits as follows by recasting the trading results :
1981-82 Rs.
Rs.
To opening balance 2,00,850 By sales Nil To development expenditure 61,389 By closing stock 2,62,239 2,62,239 2,62,239 1982-83 To opening balance 2,62,239 By sales 8,76,222 To development expenditure 76,149 (1,51,068 sq. ft.) To gross profit 8,28,108 By closing stock 2,90,274 11,66,496 11,66,496 Thus the loss claimed for the assessment years 1981-82 and 1982-83 were negatived.
50. Rs. 1,19,517 was computed as capital gain towards half share of each of the assessees arising out of transfer of sub-plot No. 1/31 to Smt. Rajinder Mohini Malhotra on July 21, 1980, for the assessment year 1981-82. Rupees 3,22,485 was determined to be the profit on the sale of plots at Malhotra Silver Hills. Half share in the hands of each of these assessees was determined for the assessment year 1982-83.
51. It would appear that the case of the Revenue was that each of these assessees had escaped assessment of taxable capital gains for the assessment year 1981-82 and also escaped assessment of their share of business profits derived from out of the sale of plots in Survey No. 31 of Bhore village. By letter dated February 15, 1990 (vide page 103 of Departmental paper book) which the Assessing Officer addressed to the chartered accountants of the assessee he specifically intimated the following at paragraph 2 :
" In paragraph 4 of your letter, you have mentioned that while filing the return of income your client submitted, inter alia, the valuation report of the approved valuer in confirmation of the fact that the said property sold to Mrs. Rajinder Mohini S. Malhotra is at the prevailing market rate. I have checked the records of Baldevraj S. Malhotra and Shri Satpal S. Malhotra for the assessment year 1981-82 very carefully. There is no evidence on record to show that any valuation report was filed along with the return or at the subsequent proceedings stage."
52. It is also intimated in the same letter that only one hearing took place on November 8, 1982, and there is no record of any details having been filed by the assessee on that date. Further the assessment order also was passed on the same day.
Thus, it is clear, argued the learned Departmental Representative, that when the land was said to have been converted into non-agricultural use on April 13, 1980, and when it was got valued at its market price on that day and the same market price is adopted as the price at which the stock-in-trade was entered in the account books of the assessee, it was not proved by any cogent evidence.
53. After having surveyed the whole of the record and after hearing the arguments on both sides, we are of the view that except the Note made under the computation sheet in the income-tax return filed for the assessment year 1981-82, which is already extracted above and on which the assessee heavily relies there is no other documentary evidence on the basis of which the assessee can substantiate its contention that the reopening under Section 147(a) is impermissible since it amounts to reopening the matter on mere change of opinion on the same set of facts already available on record. The Note adverted to above may be extracted once again at the cost of repetition since it is very important for. purpose of interpretation :
" The farm house along with land has been converted as non-agricultural property in the financial year 1980-81 and the same has been converted as stock-in-trade and sold. There is no profit made on the same. The difference in the cost and the value realised is due to above change and such difference is not treated as forming part of the income for the assessment year 1981-82."
54. According to the learned Departmental Representative the above Note is extremely vague and cryptic. It does not give any material facts like which specific farm house and land was converted into stock-in-trade, what was the original cost of acquisition, the date of conversion, the basis of conversion, the total area of property converted and the sale price. In the absence of such details, the Note cannot be said to be full and true disclosure of all material facts.
55. Learned counsel for the assessee contended that the Income-tax Officer could have made suitable enquiries on the basis of the Note and also on the information given in the wealth-tax returns and further on the certificate granted under Section 230A of the Income-tax Act. The learned Departmental Representative strongly contended that there was no material whatsoever that any enquiry was made in this regard as the assessment order was passed after one hearing and on the same day, on which the hearing took place. It was further submitted that it was obligatory on the part of the assessees to have filed copies of the profit and loss accounts and the balance-sheets along with their returns of income as income was claimed to have been derived under the head "Business". He further contended that failure on the part of the Income-tax Officer to make suitable enquiries does not vitiate reassessment proceedings if it can be proved that the assessee had failed to disclose fully and truly all material facts required for the purpose of assessment for that year. It is also contended that disclosure said to have been made in the wealth-tax returns cannot absolve the assessee of his responsibility to disclose material facts in the income-tax return because income-tax and wealth-tax are separate proceedings.
56. When it was admitted that regular books of account were maintained by these assessees, it was obligatory on them to have filed the profit and loss accounts and the balance-sheets along with their returns. However, the learned Departmental Representative argued that a vague Note was appended to the return of the assessment year 1981-82 and absolute silence maintained about the sale of the plots in the income-tax return for the assessment year 1982-83 by the assessees with a mala fide intention of concealing the real state of affairs regarding the profits derived from the sale of plots. It is more evident from the fact that all information regarding the sale of a single plot of agricultural land at village Dhonjee including profits derived therefrom have been disclosed in the statement of computation of total income by the assessees in their return of income for the assessment year 1982-83, but the fact of sale of as many as 21 plots in Survey No. 31 of Bhore village were not mentioned anywhere. The learned Departmental Representative argued that the allegation on the other side that the original assessment orders were passed after extremely meticulous care had been taken and after obtaining all material information necessary for purposes of passing proper assessment orders, is to say the least ludicrous. The very fact that the officer could pass as many as 50 orders on Malhotra group alone on the 30th and 31st March, 1983, and that too after admittedly hearing the cases without issue of notice and at the request of the respective assessees and also completing the assessment order on the same day on which the hearing was undertaken, disproves the claim that the officer had scrutinised the returns thoroughly and passed sound assessment orders.
57. The certificate obtained under Section 230A at the time when transfer of property to Smt Rajinder Mohini Malhotra took place, cannot be made use of by the assessee. The certificate under Section 230A is dated July 18/ 21, 1980, and it was issued to the two assessee-Hindu undivided families by Shri G. M. Shetty, Income-tax Officer. An impression was sought to be conveyed by learned counsel for the assessee that the same officer who issued the certificate under Section 230A was also the Assessing Officer who ultimately framed the income-tax and wealth-tax assessments. This is wrong. Between the issue of first certificate under Section 230A in the case of transfer of property to Smt. Rajinder Mohini Malhotra and the completion of the wealth-tax assessments for 1982-83 as many as four officers held charge as the Income-tax Officers :
1. The certificate under Section 230A dated July 21, 1980, was issued to the assessees by Shri G. M. Shetty.
2. Letter dated June 15, 1981, written to the assessee-Hindu undivided families that certificate under Section 230A is not required for transactions below Rs. 50,000 signed by Shri A. K. Kalburg.
3. The assessment order dated March 31, 1982, for the assessment year 1981-82 in the case of Shri S. P. Malhotra (Hindu undivided family) passed by Shri V. M. Patki.
4. Assessment order dated November 8, 1982, for the assessment year 1981-82 in the case of Shri B. R. Malhotra (Hindu undivided family) passed by Shri Syed Anwar Basha.
58. The assessee also wanted to rely upon the orders passed under Chapter XX-A a copy of which is furnished at page 91 of the assessee's paper book. In the said letter, it is intimated that after scrutiny of the relevant documents and other details furnished by Smt. Rajinder Mohini Malhotra in respect of the transfer of above immovable property, it is not considered a fit case for acquisition under Chapter XX-A of the Income-tax Act, 1961. This order is dated November 28, 1981. That order emanated from the proceedings between the vendee of sub-plot No. 1 of Survey No. 31 under which she purchased 2,972.76 sq. mtrs. as on July 21, 1980. This cannot be taken to be a material fact brought to the notice of the Assessing Officer at the time of original assessment for the assessment year 1981-82.
59. The order sheet dated February 26, 1990, in the case of S. P. Malhotra (Hindu undivided family) for the assessment years 1981-82 to 1984-85, a copy of which is kept at page 105 of the Departmental paper book is very much relied upon by the learned Departmental Representative on the ground that it contained important admissions made by learned counsel for the assessee during the hearing stage on February 26, 1990. At paragraph No. 4, of the order sheet, the following is what is stated :
"Mr. Khandelwal was shown copies of profit and loss account filed before the then Assessing Officer during the course of assessment proceedings for the assessment year 1983-84 under covering letter of Shri S. P. Malhotra dated August 2, 1985. Shri Khandelwal stated that the profit and loss account was prepared much afterwards. Hence, sale of plot No. 1 was inadvertently omitted to be shown for the previous year relevant to the assessment year 1981-82 and loss for previous year relevant to the assessment year 1982-83 not claimed."
60. The learned Departmental Representative submitted that the above Note is self-evident of the fact that the profit and loss account was prepared very much afterwards and that in the original proceedings, the sale of plot No. 1 was inadvertently omitted to be shown. So also the loss for previous year relevant to the assessment year 1982-83 was not claimed.
61. The following letter was addressed by the Income-tax Officer to both the assessee-Hindu undivided families on January 16, 1986. This letter is concerning income-tax assessments for 1981-82 :
"Sir, Sub : Income-tax assessment for the assessment year 1981-82.
A notice under Section 148 of the Income-tax Act, 1961, was issued on August 14, 1985, and served on you for the assessment year 1981-82. A return of income in response to the said notice has been filed by you on November 15, 1985. It is your claim in the return of income that no income has escaped assessment.
2. I find from the records that you had 1/2 share in the farm house and the adjoining sub-plot in a land at village Bhore, near Panchgani. This land along with the farm house was sought to be used for N. A. use and necessary application for converting it into N. A. was made to the Collector, Satara, through the Tehsildar, Mahabaleshwar, on September 15, 1979. It was your intention to develop the said land divide it into plots and sell them. The Tehsildar granted you N. A. permission by his order dated December 19, 1979.
3. The matter of valuation of land of the farm house was referred to Shri J. V. Gandhe, chartered architect, by you. It is seen from the photocopies of the valuation report of Shri Gandhe that the farm house along with plot No. 1 of Survey No. 31 has been separately valued by him at Rs. 2,99,847 by holding it as N. A. property. The remaining land which was valued by Shri Gandhe at Rs. 63,74,928 was converted into stock-in-trade by you by an affidavit executed on March 25, 1981. The value so made (Rs. 63,74,928) was credited in your books as the then value of N. A. land,
4. I find from the return of income for this year filed on August 24, 1981, that the following Note was given on a computation sheet ;
The farm house along with land has been converted as non-agricultural property in the financial year 1980-81 and the same has been converted as stock-in-trade and sold. There is no profit made on the same. The difference in the cost and the value realised is due to above change and such difference is not treated as forming part of income for the assessment year 1981-82.'
5. The above Note gives an impression that the farm house along with sub-plot No. 1 was also converted by you as stock-in-trade. However, on going through the affidavit executed by you, I find that it is not so. The farm house along with sub-plot No. 1 remained as a capital asset with you and was subsequently sold by you to Smt. Rajinder Mohini Malhotra in the month of July, 1980. The resultant capital gains arising out of this transaction have not been shown by you for income-tax purposes.
6. You are, therefore, requested to submit your say as to why the capital gains arising on conversion of farm house and adjoining land into N. A. land subsequently sold should not be brought to tax. A reply is requested within eight days from the date of receipt of this letter."
Thus from the above letter, it is very clear that for the assessment year 1981-82, the Revenue feels that what escaped assessment was the capital gains in the hands of both the assessees and not business profits. For the assessment year 1982-83, what escaped assessment according to the Revenue was the business profits.
62. For the assessment year 1982-83, admittedly, the sale of plots were never disclosed in the original return though 21 plots measuring 1,15,199 sq. ft. were said to have been sold for a total consideration of Rs. 8,76,222 at the village Bhore on the Panchgani Mahabaleshwar Road which spot acquired the name of Malhotra Silver Hills.
63. In the original return, the amount of income declared was Rs. 64,988. However, in the return filed in pursuance of reopening notice, the income declared was Rs. 26,920 by Shri B. R. Malhotra (Hindu undivided family). The difference in the amount declared in the subsequent returns was stated to be due to the fact that the assessee had not claimed expenses incurred in connection with project work carried out by the assessee pertaining to the land converted into stock-in-trade with effect from April 13, 1980. The assessee it is stated carried a bona fide belief that since the land was converted into stock-in-trade and sub-divided into as many as 148 plots and since conversion cost was fixed on the basis of prevailing market value on the date of conversion and since the amount realised on the basis of sale of part of such plots did not exceed the converted value and since there was no profit to be declared by the assessee pertaining to such source of activity and according to the assessee the deficit would not be allowable deduction the details were not given in the return of income. Similarly, in the original return expenses incurred pertaining to development of such land were not claimed but the same were claimed in the return filed in response to notice under Section 148. It is further contended on behalf of the assessee that he did not maintain regular books of account though Shri B. R. Malhotra in his statement recorded by the Assessing Officer inadvertently stated that the books of account were maintained in respect of this activity. By maintaining books of account, he means only recording the matters by way of memorandum of record.
64. On November 15, 1990, Shri B. R. Malhotra was examined on oath under Section 131 of the Income-tax Act. Questions put and answers elicited from him were provided on pages 132 and 133. In the statement it is clearly admitted that when the land was purchased at Bhore village in Satara in 1966, the intention was to put it to agricultural use. Agricultural operations were carried on till April 12, 1980. They did not want to dispose of the land in 1979, since agricultural operations were going on. Questions Nos. 5 and 6 are important and hence they are extracted as under :
"Question No. 5 : Why did you apply for permission to convert the land into N. A. ?
Answer : In case I get the permission, I will divide the land into plots and sell the land.
Question No. 6 : Have you maintained any books of account, visa-vis, either agricultural operations carried out on the said land or with regard to expenses incurred for surveying the land, dividing them into plots, making approach roads, etc., along with the realisations received from sale of the said land ?
Answer : No accounts for the agricultural operations were maintained but estimated income was filed every year. With regard to getting the land converted into plots, the expenses were incurred and for the sales also the accounts were maintained and the same was submitted along with the returns."
65. It is stated that the maintenance of accounts is different from maintaining regular books of account and a question was asked whether he had maintained any regular books of account for which he replied that after April 13, 1980, books of account were maintained. In answer to another question, he replied that out of a total of 148 plots, 29 plots were sold in different years. In reply to another question, he answered that, inter alia, he carried on business in development of lands, trading in lands and construction activities.
66. Now, let us discuss the case law cited before us in support of the respective contentions of the assessee as well as the Department. Broadly stated the assessee's contention is that all the primary facts necessary for completing the assessments were already placed before the Income-tax Officer who had completed the original assessment for these two assessment years, namely, 1981-82 and 1982-83, and, therefore, there was no valid ground for reopening the assessments. The assessee relied upon Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC) in order to show what are all the requirements of valid reopening. The learned Departmental Representative had cited before us Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 (SC) in which the ratio of Calcutta Discount Co. Ltd.'s case [1961] 41 ITR 191 (SC) was summarised pithily as follows ;
Their Lordships stated that in Calcutta Discount Co. Ltd. v, ITO [1961] 41 ITR 191, the Supreme Court observed that before the Income-tax Officer may issue a notice under Section 34(1)(a) of the Indian Income-tax Act, two conditions precedent must co-exist : The Income-tax Officer must have reason to believe (1) that income, profits or gains had been under assessed, and (2) that such underassessment was due to non-disclosure of material facts by the assessee. The Supreme Court in Calcutta Discount Co.'s case [1961] 41 ITR 191 as explained by the later Supreme Court case in Kantamani Venkata Narayana and Sons v. First Addl. ITO [1967] 63 ITR 638 further held that where the Income-tax Officer has prima facie reasonable grounds for believing that there has been a non-disclosure of a primary material fact, that by itself gives him jurisdiction to issue a notice under Section 34 of the Act, and the adequacy or otherwise of the grounds of such belief is not open to investigation by the court. Again the Supreme Court in the case of S. Narayanappa v. CIT [1967] 63 ITR 219, 221-222 further explained the legal position as follows ;
".... the legal position is that if there are in fact some reasonable grounds for the Income-tax Officer to believe that there had been any non-disclosure as regards any fact, which could have a material bearing on the question of underassessment, that would be sufficient to give jurisdiction to the Income-tax Officer to issue the notice under Section 34. Whether these grounds are adequate or not is not a matter for the court to investigate. In other words, the sufficiency of the grounds which induced the Income-tax Officer to act is not a justiciable issue. It is of course open for the assessee to contend that the Income-tax Officer did not hold the belief that there had been such non-disclosure. In other words, the existence of the belief can be challenged by the assessee but not the sufficiency of the reasons for the belief. Again the expression 'reason to believe' in Section 34 of the Income-tax Act does not mean a purely subjective satisfaction on the part of the Income-tax Officer. The belief must be held in good faith ; it cannot be merely a pretence. To put it differently, it is open to the court to examine the question whether the reasons for the belief have a rational connection or a relevant bearing to the formation of the belief and are not extraneous or irrelevant to the purpose of the Section. To this limited extent, the action of the Income-tax Officer in starting proceedings under Section 34 of the Act is open to challenge in a court of law."
67. Now, in the facts before us the grievance of the Revenue is that neither the capital gains nor business profits consequent upon sale of subdivision No. 1/31 on July 21, 1980, to Smt. Rajinder Mohini Malhotra were disclosed. For instance the date of sale deed under which the land is sold, the consideration for which the land is sold, the cost of the land to the assessees as on the date of sale, the date on which the land is converted into stock-in-trade, if so, what is the rate of the land per sq. ft. or per sq. mtr. at the time when it was converted into stock-in-trade, what is the excess realised were not at all given by the assessee under the Note given under the computation sheet of income appended to the income-tax return for the assessment year 1981-82. The return of income filed on August 24, 19&1, along with the computation sheet contained the following Note :
" The farm house along with land has been converted as non-agricultural property in the financial year 1980-81 and the same has been converted as stock-in-trade and sold. There is no profit made on the same. The difference in the cost and the value realised is due to above change and such difference is not treated as forming part of income for the assessment year 1981-82."
68. From the above Note, it is very clear that the particulars like in which village jurisdiction, the land lies, what is the extent of the land sold, what is the nature of the land sold, etc., are not given. It is no doubt true that land can be held both as a capital asset as well as stock-in-trade. A person can keep a large chunk of land for a number of years previously in order to subsequently convert the land into non-agricultural land, make it into plots with a view to sell them at a profit at a future date is consistent with the conduct of the owner of the property as well as with the trader of the property. The former hypothesis is more pronounced in a case where the assessee was never a trader in lands previously (vide the Madras High Court judgment in CIT v. Kasturi Estate (P.) Ltd. [1966] 62 ITR 578 and the Bombay High Court judgment in Bhogilal H. Patel v. CIT [1969] 74 ITR 692.
69. However, the assessees applied for permission to convert the land into non-agricultural use by their application dated September 15, 1979, and such permission was granted to them by the Tehsildar, Mahabaleshwar, on December 19, 1979, and after thus converting the said land into non-agricultural use, the land was made into plots so that they may be useful to be sold as house plots. Roads were laid in the area and all other layouts essential to convert the said area into a residential area were being laid. 148 plots were carved out in total. The total extent of the land was 33 acres 19 gunthas. It was purchased in 1966 for Rs. 1,26,000 as agricultural land. Sub-plot No. 1/31, measuring 2,972.40 sq. mts. equivalent to 32,000 sq. ft. In the said land a bungalow and an out-house, servants quarters, store house were all constructed at a cost of Rs. 44,000 in 1968. The extent of 32,000 sq. ft. represents all those constructions together with land appurtenant thereto. The whole of the said land together with the construction was sold away for Rs. 3 lakhs under the aforesaid sale deed. Thus the difference between the cost price of sub-plot No. 1 of Survey No. 31 on the date of sale vis-a-vis, the sale consideration received was considerable.
70. Further, according to the assessee, the land was converted into stock-in-trade on December 19, 1979, the date on which the permission was granted by the Tehsildar. By that date apart from purchasing the said land at Rs. 1,26,000 and further investing an amount of Rs. 44,000 to build the farm house, etc., in Survey No. 1/31, no further expenditure was incurred on the said land.
71. For the assessment year 1980-81, the valuation date of which was March 31, 1980, the whole of the land was treated as agricultural land and in the wealth-tax return of each of the brothers, its value was shown at Rs. 33,475 only as can be seen from the wealth-tax assessment for the assessment year 1980-81 dated April 2, 1983, found at pages 15 to 17 of the assessee's paper book.
72. One of the most important factors to be borne in mind at this juncture is that the whole of the land was converted into non-agricultural use only from April 13, 1980, the date is significant since there was only 13 days difference between the valuation date relevant to the assessment year 1980-81 and the date on which the land was alleged to have been converted into non-agricultural use. The Registered Valuation Officer had valued the whole land of 33 acres 19 gunthas as on March 31, 1980, at Rs. 2,00,850, vide the report dated November 12, 1983 of the Valuation Officer provided at pages 93 to 97 of the assessee's paper book. This valuation report is duly based upon the sales statistics gathered of all the lands sold in that village from the years 1975 to 1980. The sales statistics were specifically given at page 99 of the assessee's paper book. But curiously the same land was again valued by Shri J. V. Gandhe on April 14, 1980, one day after the purported beginning of conversion of the land into non-agricultural land. It is significant that the land was divided into two bits. The first bit comprised 10,62,488 sq. ft. which represents the total extent of the land in Survey No. 31 excluding sub-plot No. 1 in Survey No. 31. The land excluding sub-division No. 1/31 was valued at Rs. 6 per sq. ft. or its market price was determined as on April 13, 1989, at Rs. 63,74,928 as against Rs. 2,00,850 as on March 31, 1980, with only 13 days difference. Sub-plot No, 1 of Survey No. 31 similarly was valued at Rs. 3 lakhs as on April 13, 1980, by Shri Gandhe. The question in the assessment proceedings was whether Shri Gandhe's report truly reflects the sale price of the plots comprised in Survey No. 31. It is significant to note that in 1981-82 after spending the huge amounts towards development charges and after the plots were carved out, the average cost at which the plot was sold was less than Rs. 6 or to put it exactly at Rs. 5.40 per sq. ft. Admittedly, Shri Gandhe's valuation report is not supported by any sales statistics. Shri Gandhe was examined by the Assessing Officer under Section 131 of the Income-tax Act on two days, i.e., on September 16, 1985, and September 19, 1985. Under question No. 4, he was asked to substantiate the basis of valuation at Rs. 6 per sq. ft. which he had adopted in his report. The answer given is as follows :
" I explain the basis of valuation as under :
The land is located between Panchgani and Mahabaleshwar and situated at higher level than the main road which commands a panoramic view of the valley on the west.
The surrounding areas were being developed and the buildings were under construction in the surrounding plots. And another important point is that this land was converted into non-agricultural land in April, 1980. So value of the land so converted into non-agricultural land automatically goes up.
The owners wanted to have a proposal of making a layout in the land and construct the bungalows for sale. There is one road passing through this land of village Bhilar and this also increases the value of the land.
Panchgani proper and Mahabaleshwar proper have become little crowded and it is worthwhile to develop this land. All the above factors I have taken into consideration to arrive at the valuation of the land.
I enquired from the estate agents from Pune about the cost of the land nearby and this is also a basis for my valuation."
73. In answer to question No. 5, he categorically stated that he did not collect any sales statistics of non-agricultural lands in the vicinity or land in places where non-agricultural lands were sold on the Panchgani-Mahabaleshwar Road from the office of the Sub-Registrar. In answer to question No. 6, he admitted that the land was converted into non-agricultural land in April, 1980. There was no non-agricultural activity at the time of inspection. He visited the land on April 14, 1980. Therefore, by the alleged date of conversion into non-agricultural land, i.e., on April 13, 1980, there is not even one activity found seen on the impugned land but even then the market value of the land was estimated at an astronomical figure of Rs. 63,74,928 + Rs. 3,00,000.
74. We have already seen that the amount spent towards purchase of the land or towards raising a farm house and sinking a well in that area, etc., the assessee might have spent only round about Rs. 2,50,000. Now the question is at the time when the assessee wants to convert the agricultural land into stock-in-trade, what is the price at which the stock-in-trade is available to him or the cost price of the stock-in-trade. In our understanding the difference between the cost price of the stock-in-trade and the sale price represents the gross business income of the assessee. The developmental charges incurred and the essential expenditure incidental to the sale should also be excluded in order to get the net profits.
75. In William Pickles Accountancy, Fourth edition, revised by James L. Lafferty, low priced edition at page 532, the following is what is stated :
" The Recommendations on Accounting Principles issued by the Institute of Chartered Accountants contain guidance on stock valuation and the following are adaptations and extracts therefrom :
The basis normally used for the determination of the amount to be carried forward for stock is its cost less any part thereof which properly needs to be written off at the balance-sheet date. It is in computing cost and the amount, if any, to be written off that practical difficulties arise.
The elements making up the cost of stock are :
(a) Direct expenditure on the purchase of goods bought for resale, and of materials and components used in the manufacture of finished goods ;
(b) other direct expenditure which can be identified specifically as having been incurred in acquiring the stock or bringing it to its existing condition and locations ; examples are direct labour, transport, processing and packaging ;
(c) such part, if any, of the overhead expenditure as is properly carried forward in the circumstances of the business instead of being charged against the revenue of the period in which it was incurred.
Overhead expenditure may be divided into production expenses, administration expenses, selling expenses and finance charges, and each division may be sub-divided into fixed overheads and variable overheads. The inclusion of overhead expenditure in computing the cost of stock is a matter upon which the opinions of many accountants differ but it is generally agreed that it cannot properly include selling expenses and finance charges and other expenses which do not relate to the bringing of the stock to its existing condition and location."
76. In our understanding the stock should be valued either at the cost or its market price whichever is lower. Therefore, the argument of the assessee that the market value of the land as on April 13, 1980, should be taken to be the cost price of the stock-in-trade held by the assessees has no legal basis to stand.
77. Further, in the accounting year relevant to the assessment year 1981-82, Rs. 61,389 was spent towards development expenditure. For the assessment year 1982-83, Rs. 76,149 was spent towards development expenditure, for 1983-84 Rs. 2,373 was spent towards development expenditure. Thus after spending more than Rs. 1,30,000 towards development expenditure, still the average rate at which one sq. ft. is sold is only Rs. 5.40 as against the cost price of Rs. 6 per sq. ft. sought to be adopted by the assessee. Under the circumstances, we entirely agree with the Assessing Officer that the valuation report obtained from Shri Gandhe was tailored only to suit the conveniences and to avoid the genuine taxes liable to be paid by the assessee. We also entirely agree that the valuation of land as on April 13, 1980, was only Rs. 2,00,850 as suggested by Shri Rajput, approved valuer. We hold that there is every justification for the Assessing Officer to reconstruct the trading results while making the assessment for the assessment year 1983-84. We also fully agree that the assessee's trading activities have not resulted in losses but resulted in profits.
78. Ordinarily, a person who is carrying on business is expected to maintain books of account, prepare profit and loss account as well as balance-sheet at the close of every accounting year. He is expected to file the profit and loss account as well as the balance-sheet along with his income-tax return in order to support the figure of business profit claimed or the business loss claimed in his return. However, in this case, the assessee neither showed that he had carried on business nor obtained any business profits. Similarly, the assessees also did not show that they have obtained capital gain on the sale of the farm house situated in Survey No. 1/31.
79. The learned Departmental Representative filed photocopies of the income-tax returns filed by the assessee ; from page 1 to page 49 of his paper book. For the assessment year 1982-83, though not less than 21 plots were sold and amount realised, however, the business profits or the sales were never shown. The very fact that the assessee carried on business in plots was never mentioned in the income-tax return.
80. At pages 63 to 65 of the Departmental paper book, a photocopy of the affidavit sworn in by Shri S. S. Malhotra on March 25, 1981, was filed. We have carefully gone through the affirmations in the affidavit and we hold that the affidavit does not concern itself with sub-division No. 1 of Survey No. 31 or the sold out portion of the property of 2,973 sq.mts. Therefore, it would appear that it is not the whole land of 33 acres 19 guhthas which was sought to be converted into agricultural land, but permission was obtained only to convert the 33 acres 19 gunthas minus sub-plot No. 1/31, measuring 2,973 sq. mts. into non-agricultural land. Therefore, the nature of sub-plot No. 1/31, which is 32,000 sq. ft. in area, which was sold under sale deed dated July 21, 1980, remained only as farm house together with appurtenant land even at the time of its sale. Therefore, the Revenue is perhaps right in thinking that for the assessment year 1981-82, the assessee failed to disclose material facts relevant for the computation of capital gains and for the assessment year 1982-83, the assessee failed to disclose the true business profits obtained from its business of selling plots.
81. Both for the assessment years 1981-82 and 1982-83, it is very clear from the records that the assessee failed to furnish all material facts which are relevant for the purpose of computation of either capital gains or business profits. The case laws cited generally support the case argued for the learned Departmental Representative rather than by the advocate of the assessee. In order to highlight what is meant by non-disclosure of material facts, the learned advocate for the assessee relied upon Gwalior Rayon Silk Mfg. (Wvg.) Co. v. V. Raghavan, IAC of I. T. [1984] 150 ITR 12 (Bom). In that case, there was a definite finding that all primary facts essential for making of the assessments had been truly and fully disclosed at the time of original assessment. The only complaint made in the affidavit filed by the Department was that the assessee did not disclose that the yarn purchased was imported polyester filament yarn or that it was grey or dyed or twisted or sized. The Bombay High Court from the facts and circumstances of that case held that they were not primary facts relevant to the assessments or the non-disclosure thereof was tantamount to a disclosure not full or true. This case does not help the assessee because in the case of the assessees not even one primary or essential fact necessary for framing the assessments was provided at the time of original assessment whereas the facts are otherwise in the above cited Bombay case.
82. Another case cited was again a Bombay case reported in Miheer Hemant Mafatlal v. Rama Iyer (N.) ITO [1986] 159 ITR 515. In that case also the facts are very different from the facts on hand. The petitioners before the Bombay High Court who were the heirs of estate of one late H, appended a Note to their respective returns stating that administration of said estate was pending and that their shares in the income of that estate was not taxable in their hands. While completing the original assessment, the Income-tax Officer accepted their submission and computed their income without taking into account the said share of their income in the estate. The question was after having thus completed the assessment whether reopening under Section 147(a) could be valid on the ground that the petitioners did not disclose their shares in the income of estate and also the quantum thereof at the time of filing the returns. The Bombay High Court held that the reopening is not permissible.
83. Here, in the original assessments for 1981-82 and 1982-83, there is no mention at all either about the business profits or the capital gains haying been accepted in the hands of the assessees. It is not even stated by the Income-tax Officer that the assessees are not liable for capital gains or for business profits in these two assessment years. Thus no primary facts for computation of business profits or capital gains were furnished at the time of original assessments and, there was not even application of mind by the Income-tax Officer on those aspects at the time of original assessments. This makes all the difference between the assessees' case as well as the Bombay case cited above.
84. The next decision relied upon was the Supreme Court decision in the case of Malegaon Electricity Co. P. Ltd. v. CIT [1970] 78 ITR 466. Here again the facts are quite different and they were extracted truly in the first paragraph of the headnote contained at pages 466 and 467 of the reported decision. However, when the Supreme Court found fault with the Tribunal the court stated that it had erred in declining to decide the question whether any portion of the sale price came within the scope of Section 10(2)(vii). That question should have been examined at the very outset for the purpose of considering whether the assessee had placed before the Income-tax Officer truly and fully all material facts necessary for the purpose of his assessments. If any part of the sale proceeds could be deemed to be profits under Section 10(2)(vii), then the appellant had a duty to include it in its return and its failure to do so would amount to failure on its part to disclose fully and truly the material facts necessary for its assessment and would bring its case within the scope of Section 34(1)(a). Ultimately, the Supreme Court set aside the orders of the High Court and declined to answer the questions and directed the Tribunal itself to decide the appeal in the light of their Lordships' decision. One does not know how this decision really helps the assessee. From the facts of the case, neither the business profits nor the capital gains can be found out. Therefore, the decision is neither here nor there.
85. The following decisions are relied upon by the assessee :
Indo-Aden Salt Mfg. and Trading Co. P. Ltd. v. CIT [1986] 159 ITR 624 (SC). In fact the Income-tax Officer wanted to heavily rely upon this decision in his reassessments. The ratio of this decision is found extracted at page 625 which is as follows :
" It is well-settled that the obligation of the assessee is to disclose only primary facts and not inferential facts. If some material for the assessment lay embedded in the evidence which the Revenue could have uncovered but did not, then it is the duty of the assessee to bring it to the notice of the assessing authority. The assessee knows all the material and relevant facts--the assessing authority might not. In respect of the failure to disclose, the omission to disclose may be deliberate or inadvertent. That is immaterial. But if there is omission to disclose material facts, then, subject to other conditions, jurisdiction to reopen is attracted."
86. We are bound by the ratio of the above Supreme Court decision and in fact we have applied the ratio to the facts of the case and found that there is every justification for reopening the case under Section 147(a) since the assessee failed to disclose material facts at the time of original assessments.
87. The following case-laws also are relied upon : Hyderabad Race Club v. CIT [1985] 153 ITR 521 (AP) [FB] and Addl. CIT v. Ganeshilal Lal Chand [1985] 154 ITR 274 (Raj) for the proposition that if the Income-tax Officer did not evince proper interest while enquiring for the purpose of finalising the original assessment and subsequently he finds out his overlooking a cash credit does not give him a ground for reopening of assessment. We do not think that the above case-laws really help the assessee inasmuch as there is no material at all produced before the Income-tax Officer at the time of original assessment to form an opinion. Therefore when there is no scope to form an opinion from the state of record, there is no question of change of opinion taking place subsequently. For the same reason we hold that the decision of the Supreme Court in Indian and Eastern Newspaper Society v. CIT [1979] 119 ITR 996 does not apply to the facts of the case. Similarly, the cases of Bibi Gurdarshan Kaur v. CIT [1964] 51 ITR 1 (Punj) ; Akula Venkatasubbaiah v. CIT [1963] 47 ITR 458 (AP) and CIT v. Delhi Cement Stockists [1971] 81 ITR 515 (Delhi) were all cited for the proposition that deficiency in enquiry at the time of original assessment does not give a right to reopen the matter. Now in the facts of the present case, there is no question of any deficiency in enquiry at the time of framing original assessment and notice of reassessment also was not given to the assessees with a view to make up the deficiencies in enquiry at the time of original assessment. Therefore, the three decisions cited above cannot be of any help to the assessee.
88. The following two decisions were cited for the proposition that if necessary information about primary facts was made available for wealth-tax purposes, that information was valid information for finalising the original assessment. On the face of such information having been made available even at the time of original assessment, though in the wealth-tax proceedings, there is no valid ground to reopen the matter for income-tax purposes, saying that the same material is not produced in the income-tax proceedings.
89. CIT v. P. N, Sreenivasa Rao [1988] 171 ITR 562 (Ker). The facts of the Kerala High Court's case appear in some respects similar to the facts of the present case and, therefore, both the facts as well as the ratio of the Kerala High Court are extracted hereunder (headnote) :
"The assessee, who was a partner in a firm, relinquished his half share in certain lands. The release deed under which the relinquishment took place was registered after obtaining the permission of the Department under Section 230A of the Income-tax Act, 1961. The assessee filed his returns for the assessment year 1971-72 without disclosing the fact of relinquishment or the capital gains arising from the transaction. The Income-tax Officer completed the assessment by assessing to tax, under Section 45, a sum of Rs. 75,417 received by the assessee as his share of the difference between the market value of the properties of the firm and their book value on his retirement from the firm. Subsequently, the Income-tax Officer issued a notice under Section 148 for reopening the assessment under Section 147(a) and assessed to tax a sum of Rs. 65,000 as capital gains. The Appellate Assistant Commissioner held that the reopening of the assessment was not valid as the assessee had made full disclosure of all the material facts at the time of assessment. The Appellate Assistant Commissioner further held that neither the sum of Rs. 65,000 nor the sum of Rs. 75,417 was assessable to tax as capital gains under Section 45 as both the amounts were realised by the assessee on his retirement from the firm within the meaning of Section 47(ii). The Tribunal held that the reopening of the assessment was valid and upheld the levy of capital gains on the sum of Rs. 65,000. The Tribunal, however, held that in respect of the sum of Rs. 75,417 received by the assessee towards his share at the time of his retirement from the firm, there was no liability to tax on capital gains. On a reference :
Held, that the very fact that the assessee had recourse to Section 230A clearly showed that it was the case of the assessee that the property was held by the assessee as co-owner and that it was not part of the partnership assets. The assessee had also filed returns under the Wealth-tax Act, 1957, disclosing the amount realised by relinquishment of his right as co-owner in respect of the lands. But when the assessee filed his returns under the Income-tax Act, he failed to disclose the receipt of income by way of capital gains by reason of the relinquishment. The sanction under Section 230A of the Act was obtained long prior to the commencement of the assessment and the assessee did not produce those documents during the assessment proceedings. The stand of the assessee throughout the assessment proceedings was that the property was partnership property and not co-ownership property which showed that the fact of relinquishment was a crucial factor which the assessee failed to disclose at any stage of the assessment proceedings. Therefore, the reopening of the assessment under Section 147(a) was valid.
Held also, that the amount received by the assessee on his retirement from the firm, being his share of the difference between the market value and book value of the assets, was not liable to tax as capital gains....
Held further, that the capital gains arising out of the transaction by which the assessee relinquished his right in certain lands was liable to tax under Section 45."
90. As can be seen from the above that throughout the assessment proceedings, it was maintained that the property was partnership property and not co-ownership property. Admittedly, the relinquishment of rights in the property by a partner was not disclosed at any stage of the assessment proceedings. Therefore, the reopening proceedings were held to be valid. Similarly, in this case also at the original assessment proceedings stage, the primary facts which disclosed either capital gains or business profits were never disclosed. Subsequently while enquiring into the assessment proceedings for the assessment year 1983-84, the Income-tax Officer came to know some of the crucial facts which would disclose that the assessee is guilty of suppression of facts in the beginning. In the very same case their Lordships of the Kerala High Court also considered the contention of the assessee that before execution of the relinquishment deed, sanction under Section 230A of the Income-tax Act was obtained. That point also was stressed against the validity of reopening. However, the Kerala High Court rejected the argument of the assessee stating that the sanction under Section 230A was part of the assessment records but those proceedings were completed long prior to the commencement of the assessment in question. Further in the facts of that case, the Tribunal found that the assessee did not produce the documents concerning the Section 230A certificate in the assessment proceedings.
91. Just like in the Kerala case, in this case also the Section 230A certificate was not filed before the assessing authority at the time of original assessment. Similarly, the order releasing sub-division No. 1 of Survey No, 31 from acquisition proceedings under Chapter XX-A of the Income-tax Act was also not produced before the Income-tax Officer at the time of original assessment. Now in the reopened proceedings they were sought to be pressed into service for the contention that the reopening is bad in law. We are of the opinion that neither the Section 230A certificate, nor the certificate releasing sub-division No. 1 of Survey No. 31 from acquisition proceedings under Chapter XX-A of the Income-tax Act was brought to the notice of the Income-tax Officer at the time of original proceedings. However, their existence can never be doubted. We hold that unless and until they are brought to the notice of the Income-tax Officer and considered they do not come in the way of the Income-tax Officer to reopen the proceedings under Section 147(a).
92. Another decision pressed into service by the learned advocate for the assessee was Mrs. Leela Nath v. CIT [1987] 164 ITR 216 (Cal). In the facts of that case for the assessment year 1959-60, the income-tax return was filed without disclosing capital gains arising from sale of shares. However, the assessee showed reduction in the holding of shares in the wealth-tax returns for the subsequent year 1960-61. The Income-tax Officer reopened the assessment for 1959-60 and included capital gains in reassessment. The question was whether the assessee succeeded in her contention that she had already made a true and full disclosure of all primary facts. The Income-tax Officer reopened the assessment under Section 147(a) and completed the reassessment treating the sum of Rs. 4,64,000 as capital gains made by the assessee on the sale of shares. The Calcutta High Court held that the assessee had a duty to disclose all the primary facts necessary for the assessment of income for the particular assessment year. The fact of sale of shares was a material fact in determining whether any capital gains resulted from such transaction. It could not be disputed that the assessee was under an obligation to furnish the particulars regarding the sale of shares and consideration received therefor. Rejecting the contention that the particulars were given in the wealth-tax returns and the information furnished should hold good even for income-tax purposes also, the High Court held, at page 218 of the reported decision, as follows :
" It was further submitted that the facts about the holding of shares of Electrical Mfg. Co. Ltd. were clearly furnished in her wealth-tax returns for the assessment years 1958-59 to 1960-61. If the Income-tax Officer had considered her wealth-tax return for the assessment year 1959-60 which was filed along with the original return under the Income-tax Act on June 27, 1959, as well as for the assessment year 1960-61 which was filed on August 4, 1960, the Income-tax Officer could have noticed that the assessee had sold her shares of Electrical Mfg. Co. Ltd. on January 3, 1959."
93. The Calcutta High Court held that the contention raised before the income-tax authorities that the disclosure was made in the wealth-tax returns is without any substance.
Further, we have already discussed with reference to the particular dates on which the income-tax assessments for 1981-82 and 1982-83 as well as the wealth-tax assessments of the assessees for those very years were completed and finalised. The income-tax proceedings as well as wealth tax proceedings did not take place simultaneously in the case of either of these assessees. There is a considerable time lag between income-tax assessment orders and wealth-tax assessment orders.
Therefore, having regard to the ratio of the above decisions, we should hold that the fact that material particulars might have been furnished in the wealth-tax returns for 1981-82 and 1982-83 is immaterial. They must be disclosed in the income-tax returns themselves.
94. It is contended by the learned Departmental Representative that the change of opinion on the part of the Income-tax Officer as contended by the other side must be reflected in the order. The income-tax returns or the original assessment orders of 1981-82 and 1982-83 never speak even one word about this activity. Therefore, there was no scope even to express an opinion to the Income-tax Officer on the basis of material on record.
When there could be no opinion which would be expressed in the original assessments, there is no question of change of opinion being expressed in the reassessments.
95. Considering the whole of the discussion made in the above paragraphs and for all the reasons given in our orders above, we hold that the reassessment proceedings started under Section 147(a) in the case of both these assessees for the assessment years 1981-82 and 1982-83 are quite valid, justifiable under the facts and circumstances, and hence they are upheld. Therefore, we answer the question referred to the Special Bench in favour of the Department and against the assessee.
96. We direct that the matter should go back to the Division Bench who should take up enquiry into other aspects of the matter and dispose of the appeal in conformity with the Special Bench order as far as reopening is concerned and according to law with regard to other aspects.
97. The appeals of the assessees for the assessment years 1981-82 and 1982-83 are disposed of accordingly as stated above.