Calcutta High Court
Income-Tax Officer And Ors. vs Kajaria Investment And Properties P. ... on 31 August, 2007
Equivalent citations: [2008]297ITR45(CAL)
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
JUDGMENT Ashim Kumar Banerjee, J.
1. Notice under Section 148 of the Income-tax Act, 1961, (hereinafter referred to as the "said Act of 1961"), to the respondent/writ petitioner was called in question in the writ petition filed by them. According to the writ petitioner before issuing such notice the Revenue was obliged to satisfy themselves that there had been sufficient ground to reopen the assessment under Section 147 to the extent that there had been an escapement of income from the assessment done in regular process under Section 143. Since there was no reason to issue such notice, notice was bad in law.
2. The Revenue filed an affidavit-in-opposition disclosing reason for reopening the assessment. The recording of reasons before issuing of notice under Section 148 was annexed to the affidavit-in-opposition. The writ petition thus took a different shape as at the time of hearing the respondent/assessee took the plea that the reason so disclosed by the Revenue were not sufficient to reopen the assessment. The learned single judge after considering the rival contentions allowed the writ petition by holding that the very basis of forming the opinion was not sustainable in law and, hence, the notice issued under Section 148 was liable to be quashed. His Lordship relied on another single Bench decision of this Court reported in Smt. Tarawati Debi Agarwal v. ITO , and allowed the writ petition. Hence, this appeal by the Revenue.
3. Mr. Nizamuddin, learned Counsel appearing in support of the appeal contended that mere insufficiency of reason could not be a ground for quashing of the notice issued under Section 148 at its threshold. As and by way of alternative submission Mr. Nizamuddin contended that assuming that the authority was not entitled to reopen the assessment on the basis of a valuation report submitted by the Valuation Officer as held by the learned single judge in Smt. Tarawati Debi Agarwal v. ITO , the learned single judge erred in allowing the writ petition overlooking the fact that apart from the valuation report there had been other causes disclosed in the said record of reasons, hence, the ratio decided in Smt. Tarawati Debi Agarwal v. ITO was misapplied by his Lordship.
4. Mr. Nizamuddin, learned Counsel in support of his contention relied on the following decisions:
(i) Raymond Woollen Mills Ltd. v. ITO ;
(ii) GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC);
(iii) Amarlal Kishandas v. CIT ; and
(iv) ITO v. Shree Bajrang Commercial Co. P. Ltd. .
5. In addition to the aforesaid decisions Mr. Nizamuddin also relied on an unreported decision delivered by one of us (Ashim Kumar Banerjee J.) in C. R. Nos. 2553-2554(W) of 1981 dated April 26, 2001.
6. Mr. J.P. Khaitan, learned senior counsel while opposing the appeal, contended that on a plain reading of the record of reasons it would appear that the notice was issued on the basis of the valuation submitted by the Valuation Officer. The Valuation Officer at the relevant time was not authorised to undertake such valuation as the power conferred upon him under Section 142A was introduced by the Finance (No. 2) Act of 2004, with retrospective effect from November 15, 1972, whereas the subject assessment sought to be reopened related to the assessment year 1967-68. He contended that when the Valuation Officer was not entitled to value the property his valuation report could not have been made the basis for the reopening of the assessment.
7. Mr. Khaitan in support of his contention relied on the following decisions:
(i) Smt. Tarawati Debi Agarwal v. ITO ;
(ii) CIT v. Shirinbai Abdullabhai ;
(iii) Smt. Amiya Bala Paul v. CIT ;
(iv) CESC Ltd. v. Deputy CIT (No. 2) ;
(v) Ajanta Pharma Ltd. v. Asst. CIT ; and
(vi) Hotel Mount View v. CIT .
8. Let me deal with the cases cited by the parties.
(i) Smt. Tarawati Debi Agarwal v. ITO : The learned single judge held that primary facts regarding construction of the house had been disclosed at the time of regular assessment. Hence on the same issue the assessment could not be reopened.
(ii) CIT v. Shirinbai Abdullabhai : The Division Bench of this Court held that since the assessment had been completed on the basis of the materials placed by the assessee in respect of the construction of the house it could not be said that any material fact had been concealed by the assessee which would warrant reopening of the assessment.
(iii) Raymond Woollen Mills Ltd. v. ITO : The apex court observed that when there was prima facie some material on the basis of which the Department could reopen the case, sufficiency or correctness of such material was not a thing to be considered at that stage and the notice on the ground of insufficiency of reason could not be held to be invalid. The apex court observed (page 35)".... It will be open to the assessee to prove that the assumption of facts made in the notice was erroneous. The assessee may also prove that no new facts came to the knowledge of the Income-tax Officer after completion of the assessment proceeding".
(iv) GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19 (SC) : The apex court held that once the reasons were disclosed the Assessing Officer would have to dispose of the objection if filed by passing a reasoned order. The apex court while observing as such, directed the appellate authority to dispose of the appeal expeditiously.
(v) Amarlal Kishandas v. CIT : The Division Bench of the Madras High Court held that since the assessee had disclosed all the primary materials at the time of the regular assessment reopening was not permissible.
(vi) Smt. Amiya Bala Paul v. CIT : The apex court held that the power of enquiry granted to an Assessing Officer under Sections 133(6) and 142(2) did not include the power to refer the matter to the Valuation Officer for an enquiry by the latter.
(vii) CESC Ltd. v. Deputy CIT (No. 2) : On the facts the Division Bench held that the notice was wholly without jurisdiction. Hence, the court was entitled to quash the notice and plea of alternative remedy would not be available to the Revenue to ask for dismissal of the writ petition.
(viii) Ajanta Pharma Ltd. v. Asst. CIT : The Division Bench of the Bombay High Court distinguished the apex court decision reported in GKN Driveshafts (India) Ltd. v. ITO [2003] 259 ITR 19. The Division Bench went into the reasons so disclosed by the Revenue and held that the reasons given for issuance of the notice were contrary to the materials placed before the Department. The notice was thus held bad in law and was quashed.
(ix) ITO v. Shree Bajrang Commercial Co. P. Ltd. : In this decision the Division Bench of this Court observed that once the Income-tax Officer had reason to belief and formed an opinion that the assessee had not disclosed fully and truly all the material facts at the time of the regular assessment such prima facie opinion of the Income-tax Officer was not open for judicial review on the ground of insufficiency or inadequacy of the reasons. The Division Bench observed that it was the jurisdiction of the Income-tax Officer to consider the materials to initiate proceedings and when there was, prima facie material at his hands of the High Court in exercise of power under Article 226 should not interfere with the discretion of the Income-tax Officer when no case of mala fides had been established. The Division Bench further observed, the sufficiency or correctness of the material was not a matter to be considered at that stage.
(x) Hotel Mount View v. CIT : A Division Bench of this Court held, the valuation report, though admissible in evidence, could not have been relied upon by the Assessing Officer for the purposes of issuance of notice under Section 147.
(xi) Unreported decision delivered by one of us (Ashim Kumar Banerjee J.) in C.R. Nos. 2553-2554(W) of 1981 dated April 26, 2001 : In the said case the writ petition came up for hearing after 20 years. One of us (Ashim Kumar Banerjee J.) held that it would be too late in the day to go into the reasons to quash the impugned notice assailed in the writ petition. The reasoning was not under challenge in the said writ petition and the same was disclosed during the pendency of the writ petition. Hence, the single Bench directed the Revenue to supply xerox copy of the reasoning to the writ petitioner coupled with a liberty given to the writ petitioner to challenge the reasoning if they were entitled to in law.
9. On a combined reading of the aforesaid precedents we find that the apex court in the case of Raymond Woollen Mills Ltd. , held that insufficiency of reasons could not be a ground for quashing of the notice under Section 148 at its threshold. Such law is still good law and is binding upon us. The apex court in the case of Smt. Amiya Bala Paul , held that either under Section 133(6) or under Section 142 the Income-tax Officer was not entitled to seek report from the Valuation Officer. Hence, the report of the Valuation Officer could not be the basis of issuance of notice under Section 148. The said judgment was delivered by the apex court on July 7, 2003. The Legislature thereafter amended the law by incorporating Section 142A by the Finance (No. 2) Act of 2004, making it retrospective from November 15, 1972. Hence, the ratio decided by the apex court in the case of Smt. Amiya Bala Paul is no more applicable. The impugned notice, however, was issued proposing reopening of the assessment for the year 1967-68. Hence, the report of the Valuation Officer could not be relied on by the Revenue in terms of Section 142A. The ratio decided in Smt. Amiya Bala Paul would be squarely applicable in the instant case. Hence, the valuation report could not be relied on by the Revenue any more after the said decision of Smt. Amiya Bala Paul . To that extent, we accept the contention of Mr. Khaitan.
10. If we stop here we have to sustain the order of the learned single judge by dismissing the appeal. However, on a plain reading of the record of reasons appearing at pages 42-46, we find that such reasoning on the facts could not support the contention of Mr. Khaitan. On a perusal of the reasons we find that in respect of a subsequent assessment year being the assessment year 1968-69 the issue of valuation was gone into. The Assessing Officer referred the matter to the Valuation Officer who upon inspection of the said property determined the cost of construction estimated at Rs. 15.76 lakhs whereas the assessee claimed that the cost of construction was Rs. 7.55 lakhs excluding the cost of installation of lift to the extent of Rs. 1 lakh approximately. According to the Valuation Officer the value of the building excluding the cost of lift came to Rs. 14.7 lakhs. Hence, there was a difference of Rs. 7.22 lakhs which was concealed by the assessee and was to be considered as undisclosed source. The assessee offered its explanation on the said valuation being done. The explanation was found to be not convincing. The issue ultimately went up to the Tribunal. The Tribunal, however, reduced the estimated cost of construction to Rs. 10 lakhs and passed appropriate order by holding that Rs. 3.36 lakhs was to be considered income from undisclosed source for the years in which construction was carried out. There was no material before us as to whether the said order was challenged by the assessee. Pertinent to note, the assessee did not file any affidavit-in-reply dealing with the allegation contained in the affidavit-in-opposition filed before the learned single judge disclosing the record of reasons. Mr. Khaitan also could not highlight on this aspect.
11. To sum up, the record of reasons was not based upon the valuation report submitted by the Valuation Officer. The Valuation Officer opined that the estimated cost was Rs. 14.78 lakhs. The Tribunal reduced to it to Rs. 10 lakhs. Notice of escapement of income was issued for the year 1967-68 on the basis of the valuation so fixed by the Tribunal and not on the basis of the report of the Valuation Officer. This aspect was perhaps overlooked by the learned single judge. The learned single judge simply relied upon the ratio decided in Smt. Tarawati Debi Agarwal v. ITO and allowed the writ petition. We are unable to accord our approval to such decision.
12. If, we apply the ratio decided in Smt. Amiya Bala Paul we would have to hold that the reason for reopening the assessment was completely based upon the report of the Valuation Officer which was clearly wrong. Hence, relying upon the decision of the apex court in Raymond Woollen Mills Ltd. we are constrained to hold that it was not right for the learned single judge to quash the said notice at its threshold as the writ court was not entitled to go into the question of sufficiency or correctness of reasons.
13. The appeal thus succeeds.
The order of the learned single judge is quashed and set aside.
The appeal is disposed of accordingly without any order as to costs.
Urgent xerox certified copy would be given to the parties, if applied for.
Tapas Kumar Giri, J.
I agree.