TMI Blog1980 (1) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... . Act, 1922. The appellant had filed its balance-sheet and profit and loss account for the said year along with the return. In the course of the said assessment, pursuant to directions of the assessing ITO, the appellant submitted particulars and statements relating, inter alia, to its purchase and sale of jute of the value of Rs. 50,000 and above, which showed sale of jute by the appellant to Assam Jute Traders amounting to Rs. 25,99,133-11-3. The said statements showed that the appellant had no transaction in P.D.Os. or in shares with and did not purchase any jute from the Assam jute Traders. In the assessment proceedings Mr. D.N. Sharma, advocate, and Ramnath Tulsyan, the accountant of the appellant, appeared before the assessing ITO as the authorised representatives of the appellant and produced bills, Vouchers and other relevant documents as required by him. The assessing ITO also discussed the case with the said representatives of the appellant and thereafter completed the assessment. The appeal by the appellant against the said assessment to the AAC of Income-tax, Range-I, Calcutta, was disposed of along with other appeals for other assessment years by a consolidated order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Income-tax Act, 1961. I, therefore, propose to reassess the income less depreciation allowance for the said assessment year and I hereby require you to deliver to me within 30 days from the date of service of this notice, a return in the prescribed form of your income for the said assessment year. 2. This notice is being issued after obtaining the necessary satisfaction of the Central Board of Revenue. Sd/- H. S. Serna Income-tax Officer, C-Ward, Calcutta." The appellant apprised respondent No. 1 of its difficulties in submitting the return within the short time allowed by the impugned notice and asked for extension of time for submission of, the return. By a letter dated the 1st May, 1969, the appellant challenged the authority and jurisdiction of respondent No. 1 to issue the impugned notice and called upon him to cancel and/or withdraw and/or rescind the same, and thereafter filed the writ petition herein under art. 226 of the Constitution challenging the said impugned notice. In the court below respondent No. 1 filed an affidavit-in-opposition affirmed on the 9th June, and in answer thereto an affidavit-in-reply, on behalf of the appellant was filed, affirmed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liance be made. This reluctance on the part of the management to face the enquiry in this regard is a clear pointer that all is not above board. Since there is reason to believe that the assessee's income exceeding Rs. 50,000 for the assessment year has escaped assessment, the C.B.D.T's approval is sought to reopen the assessment for the assessment year 1952-53 u/s. 147(a). Proposal in the prescribed from is being sent herewith. Sd/- H. S. Serna Income-tax Officer, C-Ward, Companies Dist. I, Calcutta." There is no dispute that by the impugned notice the said assessment for the assessment year 1952-53 was sought to be reopened under s. 147(a) of the I.T. Act, 1961. The law is well settled that the ITO would have jurisdiction to reopen an assessment under s. 147(a) of the I.T. Act, 1961, if the following two conditions precedent were fulfilled: (i) The ITO should have reason to believe that income of the assessee for the year in question has escaped assessment, and (ii) he should also have reason to believe that the income has so escaped by reason of omission or failure of the assessee to disclose fully and truly all material facts necessary for the assessment for that ye ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e very first opportunity in para. 12 of the affidavit-in-reply filed on behalf of the appellant it has been categorically denied that Assam jute Traders ever sold jute to the appellant or that the appellant purchased any jute from Assam jute Traders, which could not be done earlier as the said allegation was made for the first time in the affidavit-in-opposition filed by respondent No. 1. No inference could be drawn from the fact that Assam jute Traders did not have any godown or did not incur any expense for the transportation of jute. Ramnath Tulsyan has also denied, in his affidavit, having sold any jute to the appellant. The profit Tulsyan made from the said transaction was admittedly Rs. 34,283.10 which is also accepted by respondent No. 1 both in the recorded reasons as well as in para.11 of his affidavit-in-opposition. It was further urged that there being no proceeding pending, the respondent No. 1 had no power or authority or jurisdiction to issue summons under S. 131 of the I.T. Act, 1961, and the appellant was justified in refusing to comply with the same. The letters written by respondent No. 1 to produce documents and to furnish details of certain transactions were als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent the same was due to any failure of the appellant to disclose any material facts. Thus there was no existence of the conditions precedent for the issue of the impugned notice. In any event the materials on which the assessment was sought to be reopened did not have nexus or connection with the formation of the belief by respondent No. 1. In support of the above contention reliance was placed on a decision of a single judge of this court in Asoka Marketing v. ITO [1978] III ITR 783. That was a case of reopening of an assessment under s. 147 of the I.T. Act, 1961. In the recorded reasons the ITO recorded that the assessee had collected, inter alia, excess sales tax on which income-tax had not been paid, the exact amount whereof accumulated in each year was not known as the books of account of the assessee had been seized by the Company Law Board, which was the subject-matter of an injunction from this court, but the surplus in each year was not likely to be less than Rs. 50,000. Upon consideration of the said recorded reasons it was held that the recorded reasons did not amount to the formation of a belief that any income escaped assessment even on an over-generous interpretatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tributed by taking resort to a device so as to divert the income before it accrues or arises to him. Effectiveness of such device depends not upon considerations of morality but on the operation of the I.T. Act. While legislative injunction in taxing statutes cannot be violated, it may be lawfully circumvented. It was urged that no case had been made out by respondent No. either in the recorded reasons or in his affidavit-in-opposition that the income arising from the sale of jute by Assam jute Traders was the income of the appellant or the same came back to or was received by the appellant nor it is alleged that Assam jute Traders was a benamidar of the appellant or had acted as the nominee or agent of the appellant or that there was any evasion of tax by the appellant or that there was any omission or failure on the part of the appellant to disclose fully and truly any facts material to the said assessment. The mere fact that Ramnath Tulsyan, the proprietor of Assam jute Traders, was the accountant of the appellant could not lead to the inference or belief that the income arising from the jute purchased by Assam jute Traders from the appellant and sold by Assam jute Traders was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neering Works Ltd. [1979] 118 ITR 1 (SC). Here the assessment of Madnani Engineering Works Ltd., the assessee, for the assessment year 1959-60, was duly completed and interest paid to certain hundi creditors was allowed as deductible expenditure. After over seven years the said assessment was sought to be reopened under s. 147(a) of the I.T. Act, 1961, and a notice under s. 148 of the said Act was issued by the ITO. The assessee made a writ petition to this court challenging the said notice. The reasons recorded by the ITO who filed an affidavit stating that the reasons for reopening the said assessment were that in the course of the assessment of the assessee for the assessment year 1963-64, it was discovered and found that various items shown as loans against hundis in the previous year relevant to the assessment year 1959-60 were fictitious and not genuine and thus it appears that the assessee had failed to disclose fully and truly all the material facts for its assessment whereby a portion of its income had escaped assessment. On these facts the Supreme Court held as follows (P. 5): "The assessee discharged the obligation that lay upon it by disclosing its books of account an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the assessee and was not in existence during the original assessment. No doubt the assessee could himself have confessed at the original assessment that the loans disclosed by him were not genuine. But, in our opinion, that would not be a material fact within the meaning of section 147(a) ...... we are of the opinion that the ITO had no reasonable ground to believe that there was a failure on the part of the assessee to disclose fully or truly all material facts whereby any income of the assessee escaped assessment. It appears to us that the assessee had disclosed all primary facts within his knowledge at the original assessment which Were duly considered by the ITO concerned. " It was next urged on behalf of the appellant that admittedly the profit arising from the transaction of Assam jute Traders was, at the highest, Rs. 34,283, being the difference between the sale price and the purchase price of the jute and, in the assessment of Ramnath Tulsyan, the said profit, after giving the allowable deductions, was computed at Rs.. 11,330. Thus, in any event, respondent No. 1 could not and did not have any reason to believe that the income of the appellant chargeable to tax for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of some third parties. Therefore, if anybody's income had escaped assessment, it was the income of the partners and not the income of the firm. On the material that the partners had introduced moneys into the partnership firm in the fictitious names, in my opinion, it cannot be said that there were materials for forming the belief that the income of the partnership firm had escaped assessment due to failure or omission on the part of the assessee. " It was urged that in para. 2 of this supplementary affidavit respondent No. 1 has alleged that the informer was connected with the appellant from 1943 to 1951, and left, the service of the appellant in June, 1951, while in para. 3 of the said affidavit it is alleged that the said informer gave information to respondent No. 1 in january and June, 1968, that is, 17 years after he had left the services of the appellant. The said informer is alleged to have told that the ruling price of jute during the years 1950 and 1951, had shot up from Rs. 30 to 40 per maund. There is no statement by respondent No. 1 that he ever tried to test the veracity of the said allegations of the said informer by ascertaining or even trying to ascertain the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rissa. He does not mention the facts contained in those communications. All that he says is that, from those communications it appears that these persons (alleged creditors) are name-lenders and the transactions are bogus. He has not even come to a prima facie conclusion that the transactions to which he referred are not genuine transactions. He appears to have had only a vague feeling that they may be bogus transactions. Such a conclusion does not fulfil the requirements of section 151(2). What that provision requires is that he must give reasons for issuing a notice under section 148. In other words, he must have some prima facie grounds before him for taking action under section 148. Further, his report mentions: 'Hence proper investigation regarding these loans is necessary'. In other words his conclusion is that there is a case for investigating as to the truth of the alleged transactions. That is not the same thing as saying that there are reasons to issue notice under section 148 ......... Further, the report submitted by him under section 151(2) does not mention any reason for coming to the conclusion that it is a fit case for the issue of a notice under section 148. We are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in a writ petition before this court. In the recorded reasons for reopening the said assessment disclosed by the ITO before this court it was stated that current account with the Bank of India in the name of M/s. Calcutta Plywood Manufacturing Company, a proprietary concern of the assessee, was not produced at the time of the original assessment which showed deposits far in excess of the turnover of the said business. The writ petition was verified by an affidavit of the husband of the assessee wherein it was stated that during the assessment proceedings the husband of the assessee appeared before the assessing ITO and produced before him the books of account and other relevant materials including the said bank account and the entries appearing therein were discussed with him. No affidavit was filed by the assessing ITO controverting the said statements and a Single Bench of this court, therefore, held that it must, therefore, be accepted that bank pass books were in fact produced and there was no failure or omission on the part of the assessee to disclose fully and truly all material facts for the purpose of assessment and the condition precedent for the issue of the notice had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e respondents that the recorded reasons might be cryptic or might not contain all the reasons for the reopening and further reasons could, therefore, be disclosed in the affidavit and the court could rely thereon to judge whether the reopening of the assessment was proper or not. Strenuous and elaborate arguments were, therefore, made before us on the question as to how far and to what extent the court could rely and act on the affidavit of the ITO filed before the court which might not strictly conform to the reasons recorded by the ITO under s. 148(2) of the new Act corresponding to the first portion of cl. (iii) of the first proviso to s. 34 of the old Act. On behalf of the appellant it was contended that under s. 151 of the new Act corresponding to the second portion of cl. (iii) of the first proviso to s. 34 of the old Act, the satisfaction of the CBDT (under the old Act the CBR) or of the Commissioner had to be based only on the said recorded reasons and on no other material. The affidavit that may be filed by the ITO before the court is not a document which had been or could be considered by the Board or by the Commissioner in according their satisfaction for initiating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said recorded reasons which forms part of the report. Whenever the court had asked for production of the recorded reasons the said report was invariably produced before the court and the court had always accepted and looked into such report as the recorded reasons were also accepted by the assessee. It was further urged on behalf of the respondents that in the court below the distinction between the report and the recorded reasons which is now sought to be made was not raised on behalf of the appellant. On behalf of the parties reliance was placed on the following decisions in support of their respective contentions which are dealt with in chronological order: 1. Calcutta Discount Co. Ltd. v. ITO [1961] 41 ITR 191 (SC). This was a case of reopening of an assessment under s. 34(1)(a) of the India I.T. Act, 1922, where the Supreme Court made the following observations (pp. 203, 205): " It has to be remembered, however, that in sending a report to the Commissioner, the Income-tax Officer might not fully set out what he thought amounted to a non-disclosure, because it is conceivable that the report may not be drawn up carefully and may not contain a reference to all the non-disc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22, where the existence of the belief of the ITO under the said section was challenged. The following observation was made by the Supreme Court (pp. 642, 643): " It is clear from the affidavits filed in the court of first instance that the Income-tax Officer had received information relying upon which he had reason to believe, that the assessee had not disclosed fully and truly all material facts necessary for the assessment and in consequence of nondisclosure of that information, income chargeable to tax had escaped assessment ...... The averments made by the Income-tax Officer in his affidavit which have been accepted by the court of first instance prima facie establish that the Income-tax Officer had reason to believe that by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment, income chargeable to income-tax has escaped assessment." 4. Jamna Lal Kabra v. ITO [1968] 69 ITR 461. This was a case of reopening of an assessment under s. 147(a) of the I.T. Act, 1961. A single judge of the Allahabad High Court observed as under (pp. 464, 466): " Before proceeding to make the assessment or reasse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded, by him pursuant to sub-section (2) of section 148 ...... An attempt has been made in the counter-affidavit filed by the Income-tax Officer to support the validity of his action by pointing out that the petitioner misled the Income-tax Officer by withholding the fact that the building and the machinery had not been-partitioned and that the impression conveyed all along by the petitioner was that all the assets had been partitioned. That is a case completely inconsistent with the reasons recorded by the Incometax Officer ...... As I have pointed out above, the Income-tax Officer must be confined to the reasons given by him to support the validity of his action under clause (a) of section 147." 5. Sowdagar Ahmed Khan v. ITO [1968] 70 ITR 79 (SC). This was a case of reopening of an assessment under s. 34(1)(a) of the Indian I.T. Act, 1922, and one of the contentions was that there was no material before the ITO on which he could form his belief that any income had escaped assessment by reason of the omission or failure on the part of the assessee to disclose fully or truly any material facts, and thus the requisite for the issue of a notice under s. 34(1)(a) being not fulfilled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the Income-tax Officer had any reason to form the belief in question or the reasons before him were relevant for the purpose." 7. Chhugamal Rajpal v. S. P. Chaliha [1971] 79 ITR 603 (SC). In this case the assessment of the assessee was sought to be reopened under s. 147 of the I.T. Act, 1961, and a notice under s. 148 of the said Act was issued by the ITO to the assessee. Before the Supreme Court only the report submitted by the ITO to the Commissioner and the order of the Commissioner were produced but the order sheet regarding the reasons of the ITO as required by s. 148(2) was not produced. The Supreme Court set out, inter alia, the said report of the ITO, column 7, whereof requires the ITO to give: " Brief reasons for starting proceedings under section 147 (indicate the items which are believed to have escaped assessment) ". The said brief reasons, which were appended to the said report overleaf, were considered by the Supreme Court and the Supreme Court observed as follows (pp. 607, 608): "In his report the Income-tax Officer does not set out any reason for coming to the conclusion that this is a fit case to issue notice under section 148. The material that he had b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by reason of the omission by the assessee to disclose fully and truly all material facts necessary for the said assessment and issued notice under s. 34(1)(a) pursuant where to the assessee filed a return similar to that which was filed earlier and denied receipt of the said sum of Rs. 1,50,000. The ITO rejected the assessee's plea and completed the assessment by treating the same as income of the assessee. On appeal the AAC set aside the order of the ITO directing him to re-do the assessment after giving the assessee an opportunity to cross-examine the parties on the basis of whose statements the ITO had concluded that the said sum of Rs. 1,50,000 was paid by the mortgagor to the mortgagee. Thereafter, further investigation was made by the ITO when the accounts of the mortgagor were produced and certain witnesses were also examined in the presence of the assessee to prove the said payment and an assessment was again made by treating the said sum as income of the assessee, which was affirmed in appeals both by the AAC and the Tribunal. There was reference to the High Court of Madras at the instance of the assessee and ultimately the matter came up before the Supreme Court in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apart from the reasons recorded under section 148(2) of the Income-tax Act, 1961 provided, however, the court is satisfied that the reasons were there before the notice was issued." An unreported decision of another single judge of this court in Matter No. 64 of 1975 intituled Kanhaiyalal Maloo v. ITO, where the learned judge followed the decision of the Single Bench of this court in H. A. Nanji Co. [1973] TLR 567 (Cal). ITO v. Madnani Engineering Works Ltd. [1979] 118 ITR 1. In this case the assessee had shown in its accounts certain cash credits as money borrowed on hundis and paid interest to the lenders which were allowed in its agreement. Subsequently the ITO-sought to reopen the said assessment under s. 147(a) of the I.T. Act, 1961, and issued a notice under s. 148 of the said Act. The assessee challenged the said notice in a writ petition before this court. The ITO at first refused to disclose the reasons for reopening the said assessment but subsequently filed an affidavit stating his reasons for seeking to reopen the said assessment. The learned single judge who heard the said writ petition accepted the said reasons as good and valid reasons for reopening the said as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e all the facts in the disclosed reasons, the genesis of the facts stated in the affidavit must have some place in the reasons, however brief or short it may be. In a given case where the recorded reasons refer to only fictitious loans in short, it may not be necessary to state all such loans which the ITO had in his mind. But the ITO cannot be heard to say in his affidavit that he had in mind also at the time of recording reasons the suppression of sales committed by the assessee in his return since such facts were not before the Commissioner to ensure that the case is a fit one for issue of notice under s. 147. The courts have laid down that by the affidavit the ITO may always clarify the position fully about the material facts he had in his mind at the time of recording reasons but facts in the affidavit, as it appears to us, which even by implication had no place in the recorded reasons for issuing notice cannot be accepted as forming part thereof. There is, however, no dispute over the proposition that once the assessment is validly reopened, the entire assessment again becomes open for scrutiny in respect of all categories of matters relevant for assessment. At the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to try to find out and follow the opinion expressed by larger Benches of this court in preference to those expressed by smaller Benches of the court which practice, hardened as it has into a rule of law, is followed by this court itself." 16. Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851. Here the Supreme Court observed as follows (headnote): "When a statutory functionary makes an order based on certain grounds, its validity must be judged by the reasons so mentioned and cannot be supplemented by fresh reasons in the shape of affidavit or otherwise. Otherwise, an order bad in the beginning may, by the time it comes to court on account of a challenge, get validated by additional grounds later brought out. " From the above decisions relating to the reopening of assessment either under s. 34 of the Indian I.T. Act, 1922, or under s. 147 of the I.T. Act, 1961, it appears that whenever the Supreme Court relied on the affidavit filed by the ITO before the court there was no controversy that the reasons given by the ITO in such affidavit were not in conformity with or were contrary to the reasons recorded by him for reopening the assessment, and it further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at for avoiding duplication of work, the ITO may in certain cases annex a copy of the reasons recorded by him to the said report under item No. 7 of such report. If the ITO gives his brief reasons in accordance with item No. 7 of the said report separately, he has nevertheless to send a copy of the reasons recorded by him for obtaining sanction under s. 151 of the Act as such sanction is given not on the basis of such report but on the basis of the reasons recorded under s. 148(2) of the Act. There is no provision in the Act for such report and, as admitted by the learned counsel for the respondents, the forms and the report have been improvised by the I.T. Dept. for convenience. If the ITO disclosed further or additional reasons in his affidavit before the court which are not stated in the recorded reasons such further or additional reasons would not, therefore, be before the Board or the Commissioner for their consideration for the purpose of according their sanction. The I.T. Act does not provide that for the issue of a notice under s. 34 of the old Act or section 148 of the new Act satisfaction of the court was necessary but such satisfaction under the statute had to be that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a vague feeling or suspicion that there might be something wrong with the said transactions of the appellant with the Assam jute Traders. He, therefore, wanted to make an investigation in the matter and for that purpose issued summons under s. 131 of the new Act to Ramnath Tulsyan but although Ramnath Tulsyan appeared before him and produced his papers and documents pursuant to the said summons, respondent No. 1 found very little from Ramnath Tulsyan which could afford him any reason for the formation of the belief that any income of the appellant for the said assessment year had escaped assessment. The other steps taken by respondent No. 1 for such investigation was service of summons under s. 131 of the new Act and issue of letters to the appellant asking for production of certain books and documents and because of the refusal of the appellant to comply therewith respondent No. 1 merely suspected that all was not above board. Respondent No. 1 has not drawn any prima facie conclusion that the said transactions of the appellant with the Assam jute Traders were bogus or not genuine. The conclusion drawn by respondent No. 1 does not fulfil either the requirements of s. 148(2) or of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isputing the said allegations made by the appellant. There is also an affidavit by Ramnath Tulsyan corroborating the said statements made in the petition. The respondents obtained leave of the court to make a further affidavit and pursuant thereto a supplementary affidavit was filed which was again made by respondent No. 1. No affidavit was made by the assessing ITO dealing with the said affidavit of Ramnath Tulsyan. The said allegations made in the petition and in the said affidavit of Ramnath Tulsyan not having been controverted by the assessing ITO by filing an affidavit, it must, therefore, be accepted that all relevant documents and papers including the said statements were produced by the appellant before the assessing ITO and the authorised representatives of the appellant had discussions in the matter with the assessing ITO. It follows, therefore, that in the original assessment the appellant disclosed before the assessing ITO all the primary facts necessary for the said assessment and discharged the obligations that lay upon it by disclosing and producing its books of account and other evidence and documents from which all the material facts could be discovered. It was f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at respondent No. 1 had neither any right nor any power nor any jurisdiction to reopen the said assessment either under the new Act or under the old Act. To appreciate the arguments advanced on behalf of the appellant in that behalf, it is necessary to set out the relevant portions of ss. 297, 147 and 149 of the new Act and/or S. 34 of the old Act prior to and after its amendment by the Finance Act, 1956, and by the Indian I.T. (Amend.) Act, 1959. 1. I.T. Act, 1961. " 297. Repeals and savings.-(1) The Indian Income-tax Act, 1922 (XI of 1922), is hereby repealed. (2) Notwithstanding the repeal of the Indian Income-tax Act, 1922 (XI of 1922) (hereinafter referred to as the repealed Act),-... (d) where in respect of any assessment year after the year ending on the 31st day of March, 1940,-... (ii) any income chargeable to tax had escaped assessment within the meaning of that expression in section 147 and no proceedings under section 34 of the repealed Act in respect of any such income are pending at the commencement of this Act, a notice under section 148 may, subject to the provisions contained in section 149 or section 150, be issued with respect to that assessment year an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unless he has recorded his reasons for doing so and the Commissioner is satisfied on such reasons recorded that it is a fit case for the issue of such notice; ......... .." Section 34, after its amendment by the Finance Act, 1956: "34. Income escaping assessment.-(1) If (a) The Income-tax Officer has reason to believe that by reason of the omission or failure on the part of an assessee to make a return of his income under section 22 for any year or to disclose fully and truly all material facts necessary for his assessment for that year, income, profits or gains chargeable to income-tax have escaped assessment for that year, or have been under-assessed or assessed at too low a rate, or have been made the subject of excessive relief under the Act, or excessive loss or depreciation allowance has been computed, or ...... he may in cases falling under clause (a) at any time and in cases falling under clause (b) at any time within four years of the end of that year, serve on the assessee, or, if the assessee is a company, on the principal officer thereof, a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 22 and ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity merely on the ground that at the time the notice was issued or at the time the assessment or reassessment was made, the time within which such notice should have been issued or the assessment or reassessment should have been made under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (18 of 1956), had expired." The Indian I.T. (Amend.) Act, 1959, came into force with effect from the 13th March, 1959. Prior to the said Amendment Act of 1959, sub-s. (4) of s. 34 of the Indian I.T. Act, 1922, as well as the said saving clause as introduced by s. 4 of the said Amendment Act, were introduced by the Indian I.T. (Amend.) Ordinance, 1959, which came into force on the 17th January, 1959. On behalf of the appellant, it was urged that as the original assessment was, made under s. 23(3) of the old Act on the 29th March, 1957, long before the coming into operation of the new Act, the same was, therefore, sought to be reopened by respondent No. 1 under the new Act in exercise of the powers conferred on him under s. 297(2)(d)(ii) of the new Act. It was submitted that in cases falling under s. 297(2)(d)(ii) of the new Act all the sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ITO to reopen an assessment after the expiry of eight years from the end of the relevant assessment year, only if the amount of the escaped income exceeded or was likely to exceed Rs. 1 lakh or more, and if such amount was less than Rs. 1 lakh, then the assessment could be reopened only within eight years. The cumulative effect of the said amendment by the Finance Act, 1956, which came into force on 1st April, 1956, was, firstly, if the escaped income was Rs. 1 lakh or more, the assessment could be reopened at any time under s. 34(1)(a) but if it was less than Rs. 1 lakh, it could be reopened under cl. (ii) of the new first proviso only within eight years. The said amendment was not given retrospective effect. To obviate the difficulties created by the above provision, sub-s. (4) was inserted in s. 34 by s. 2 of the Indian I.T. (Amend.) Act, 1959, which sought to validate the reopening of an assessment where an income amounting to Rs. 1 lakh or more escaped assessment in respect of assessment, years, the period of eight years in respect whereof had elapsed prior to I St April, 1956. It was also urged that the above question was not one of mere limitation which might not be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the time for reopening such assessment under the old Act had long expired. In support of the above contentions reliance was placed on behalf of the appellant on the following observations: 1. Calcutta Discount Co; Ltd. v. ITO [1961] 41 ITR 191, where the Supreme Court made the following observations (p. 206): "Learned counsel seems to suggest that as soon as the Income-tax Officer has reason to believe that there has been under-assessment in any year he has jurisdiction to start proceedings under section 34 by issuing notice provided eight years have not elapsed from the end of the year in question, but whether the notices should have been issued within period of four years or not is only a question of limitation which could and should properly be raised in the assessment proceedings. It is wholly incorrect, however, to suppose that this is a question of limitation only not touching the question of jurisdiction. The scheme of the law clearly is that where the Income-tax Officer has reason to believe that an underassessment has resulted from non-disclosure he shall have jurisdiction to start proceedings for reassessment within a period of eight years; and where he has reason ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that in sub-section (4), the crucial words are that at the time of the issue of the notice the period of eight years specified in that sub-section (i.e. sub-section (1)) before its amendment by clause (a) of section 18 of the Finance Act, 1956, had expired in respect of the year to which notice relates'. It is clear that sub-section (4) relates to cases to which sub-section (1) of section 34, as it stood prior to April 1, 1956, applied and to which there was a time-limit of eight years, and not to cases to which that sub-section, as amended by the 1956 Act, whereby the time-limit was removed, applied. Corresponding words are also to be found in section 4 of Act I of 1959. That section also provides that no notice issued under section 34(1)(a) shall be questioned merely on the ground that at the time it was issued, the time within which it should have been issued had expired 'under that section as in force before its amendment by clause (a) of section 18 of the Finance Act, 1956 (XVIII of 1956)'. Reading these two provisions together makes it fairly clear that the intention of the legislature in enacting these two provisions was to save notices issued after the lapse of eight year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit petition to the Gujarat High Court challenging the said notices. The High Court held that under s. 297(2)(d)(ii) of the new Act a notice under s. 148 of the new Act could not be issued by the ITO to reopen the assessment if the right to reopen the same was barred under the old Act on the date when the Act came into force and in the present case the reopening of the assessment was admittedly barred in s. 34(1)(a) of the old Act at the commencement of the new Act and quashed the impugned notices. The ITO appealed to the Supreme Court. The Supreme Court observed that ss. 147 to 151 referred to in s. 297(2)(d)(ii) of the new Act and ss. 151 to 153 were the provisions of the new Act corresponding to s. 34 of the old Act. In the new Act s. 34 of the old Act was split up into ss. 147 to 153 but s. 149 laid down different time-limits for issuing notices and in cases falling within cl. (a) of s. 147, corresponding to cl. (a), sub-s. (1) of s. 34. The Supreme Court held as under (pp. 601, 603): " In our opinion, it is not permissible to construe section 297(2)(d)(ii) of the new Act as reviving the right of the Income-tax Officer to reopen the assessment which was already barred under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) of the new Act the ITO has, firstly, to record his satisfaction and thereafter to obtain sanction of the Commissioner or the Board, as the case may be, and, lastly, he has to serve a valid notice on the assessee. It was submitted that after the ITO had formed his requisite beliefs as aforesaid, the other steps which had to be taken were merely procedural. The first proviso to s. 34(1)(a) also provides that the ITO shall not issue a notice unless the income that had escaped assessment amounted to or was likely to amount to Rs. 1 lakh or more. This is not a matter of formation of belief of the ITO and is a question of fact to be decided in the, proceedings before the ITO after the assessment has been reopened. If it is less than rupees one lakh the proceedings would not be sustained but if it is Rs. 1 lakh or more, then the proceedings would be sustained. This question, therefore, cannot be decided in a writ petition. The bar of eight years is a limitation on the power of the ITO to reopen an assessment if the income escaped is less than Rs. 1 lakh and as eight years have elapsed from the end of the relevant assessment year, the reopening is barred by time. Thus, the fact which ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as less than Rs. 1 lakh, the present proceedings initiated under s. 147(a) of the new Act could not be stopped or restrained on the ground of bar of time. At this stage, it is not possible to presume or assume that the income which escaped assessment could be less or more than Rs. 1 lakh. The provisions of the Finance Act, 1956, or of the Indian I.T. (Amend.) Act, 1959, did not in any way affect the present reopening. The decisions cited on behalf of the appellant were clearly distinguishable. It was lastly urged that in Calcutta Discount Co.'s case [1961] 41 ITR 191 , the Supreme Court found that the ITO had no reason at all and did not form the necessary belief for reopening the assessment. It was only in the context of the arguments of Mr. Shastri appearing for the revenue that the time-limit for the issue of a notice as provided in s. 34 of the old Act question of limitation which could be raised only in an assessment proceeding (sic), that the Supreme Court observed that the scheme of the statute was that if the ITO had reason to believe that an under-assessment had resulted from non-disclosure he would have jurisdiction to start proceedings for reassessment within a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated March 27, 1957, was invalid and the proceeding under s. 34 was not maintainable. The ITO appealed to the Supreme Court. The Supreme Court made the following observations (p. 238): " A proceeding for assessment is not a suit for adjudication of a civil dispute. That an income-tax proceeding is in the nature of a judicial proceeding between the contesting parties, is a matter which is not capable of even a plausible argument. The income-tax authorities who have power to assess and recover tax are not acting as judges deciding a litigation between the citizen and the State: They are administrative authorities whose proceedings are regulated by statute, but whose function is to estimate the income of the taxpayer and to assess him to tax on the basis of that estimate. Tax legislation necessitates the setting up of machinery to ascertain the taxable income, and to assess tax on the income, but that does not impress the proceeding with the character of an action between the citizen and the State ...... Again the period prescribed by section 34 for assessment is not period of limitation. The section in terms imposes a fetter upon the power of the Income-tax Officer to bri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereof and under s. 34(3) the ITO had no jurisdiction to make any order of assessment or reassessment after the expiry of four years commencing from 1st April, 1956, as the relevant assessment year ended on the 31st March, 1956, and the impugned notice having been issued after the expiry of the said time-limit was illegal and bad. single judge of this court, relying on the decision of the Supreme Court in Lalji Haridas v. R. H. Bhatt [1965] 55 ITR 415 (SC) and Lalji Haridas v. ITO [1961] 43 ITR 387 (SC), observed as follows (p. 857): " The two decisions of the Supreme Court discussed above have set at rest any controversy on the question whether an Income-tax Officer has jurisdiction to deal with the question of limitation raised by an assessee. The statute had created a bar of limitation regarding assessment orders in certain cases. The statute has also given the income-tax authorities the power to make such assessment order in cases where the bar of limitation did not apply. It was for the income-tax authorities, therefore, to decide whether an assessment order could be made having regard to the contention raised on behalf of the petitioner. It is not, in my view, a case of i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis the Supreme Court held that it was not permissible to construe s. 297(2)(d)(ii) of the 1961 Act as reviving the right of the ITO to reopen the assessment already barred and such construction which was not warranted either by the express language thereof or by implication and held that the said reassessment was barred. It was further contended that the Supreme Court in that case did not consider or construe s. 34(4) of the 1922 Act which clearly indicated that a notice under s. 34(1)(a) of the 1922 Act could be validly issued up to the time when the new Act come into force. The amicus curiae on the other hand cited another decision of the Supreme Court in S. C. Prashar v. Vasantsen Dwarkadas [1963] 49 ITR (SC) 1, where the Supreme Court considered s. 4 of the Indian I.T. (Amendment) Act, 1959, and sub-s. (4) of s. 34 of the Indian I.T. Act, 1922, introduced by the said Amendment Act of 1959, and held that s. 34(4) of the 1922 Act validated actions initiated after the Amendment Act of 1959 came into force and s. 4 of the said Amendment Act validated notices issued under s. 34(1)(a) of the 1922 Act as amended in 1948, including notices in respect of assessment years prior to Mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1959, notices issued before the commencement of the said Amendment Act of 1959 were saved from the time-bar for the issue of such a notice before the amendment of s. 34 by s. 18 of the Finance Act, 1956. This court in B. R. Vasa [1979] 116 ITR 940 (Cal), therefore, held that the notice under s. 147 could be issued under s. 34(4) as such notice was not time-barred on 31st March, 1962, as the same could be issued at any time even if eight years had elapsed before the amendment of s. 34 by s. 18 of the Finance Act, 1956. In the case before us, however, the time-limit of eight years expired on 31st March, 1961, which could not have been saved by s. 34(4) of the old Act or by s. 4 of the Indian I.T. (Amendment) Act, 1959, as the time-limit of eight years did not expire before the amendment of s. 34 by the Finance Act, 1956. As the impugned notice had not been issued at or before the time when the Indian I.T. (Amendment) Act, 1959, came into force, therefore, s. 4 of the said Amendment Act has also no application to this case. Thus, the case of B. R. Vasa [1979] 116 ITR 940 (Cal) does not help the respondents in this case. Admittedly, no proceedings for reassessment for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e amounts to or is likely to amount to Rs. 50,000 or more instead of an unlimited period for such assessment or reassessment under cl. (ii) of the first proviso to s. 34(1) of the old Act, if the amount of income escaped was Rs. 1 lakh or more. As respondent No. 1 proceeded under the new Act therefore, in accordance with the provisions contained in s. 148(2) read with s. 149(1)(a)(ii) of the new Act he recorded his reasons that he had reason to believe that the appellant's income exceeding Rs. 50,000 for the said assessment year had escaped assessment. Under the new Act, it was not necessary to record that the amount of income which escaped assessment was Rs. 1 lakh or more or any other amount exceeding Rs. 1 lakh. In the recorded reasons the income which escaped assessment is stated to be exceeding Rs. 50,000 and neither less than Rs. 50,000 nor more than Rs. 1 lakh. It is well settled that for the purpose of initiating a proceeding for reopening an assessment the ITO need not come to a definite finding or conclusion as to the amount of escapement but he must have only reason to believe, no doubt on relevant materials, as to the amount which has escaped assessment and such belie ..... X X X X Extracts X X X X X X X X Extracts X X X X
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