TMI Blog1979 (6) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... ., the house property in Begumpet and the bad debt are concerned, the WTO was not competent to reopen the assessment proceedings for the first four years, as the time prescribed for taking action in respect of cases falling under cl. (b) of s. 17(1) is at any time within four years of the end of that assessment year. This contention of his was negatived throughout. Mr. T. Ramachandra Rao's contention is that, while it is open to the WTO, when he issues a notice under s. 17(1)(a), to also consider matters falling under s. 17(1)(b), viz., whether the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise, he cannot exercise the jurisdiction vested in him under s. 17(1)(b) after the expiry of the period of limitation of four years prescribed for proceedings under s. 17(1)(b). In support of his contention, he relied upon a decision of the Madras High Court in AL. VR. ST. Veerappa Chettiar v. CIT [1973] 91 ITR 116. That was a case where the ITO initiated reassessment proceedings by issuing a notice under s. 34(1)(a) of the Indian I.T. Act, 1922, in respect of a particular item. While so reope ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Rao contends is that there is no discussion as such on the question of limitation provided under s. 34(1)(b) and, therefore, that decision requires reconsideration. The view expressed in Pulavarthi Viswanadham v. CIT [1963] 50 ITR 463 (AP) was followed by another Bench of this court in CIT v. Jeskaran Bhuvalka [1970] 76 ITR 128. There, as pointed out by Mr.Ramachandra Rao, the question as to whether the period of four years provided in s. 34(1)(b) operates as a bar after the expiry of that period for reopening the assessment in respect of the items referred to in s. 34(1)(b) did not arise for consideration. The language of s. 34 is in pari materia with the language of s. 17 of the W.T. Act. Since the question involved is an important one and is likely to arise quite often, we are of the opinion that there should be an authoritative pronouncement of this court. We, therefore, refer question No. 2, which reads as follows : " If the answer to the above question is in the affirmative, whether the Wealth-tax Officer was competent to revise the value of the Begumpet property in the reassessments for 1963-64 to 1966-67 and to disallow the assessee's claim for bad debt of Rs. 2,36,985 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 65, and January 27, 1968, respectively. Subsequently, the WTO, having come to know that an item of immovable property consisting of 8 1/2 acres of open land at Maredpalli, Secunderabad, was not disclosed by the assessee in the original returns, reopened in the first instance the assessments for the years 1957-58 and 1958-59 and estimated the value of the property at Rs. 85,000. The plea of the assessee that Maredpalli land was agricultural land and was, therefore, exempt from the purview of the Act was abandoned at the time of hearing of the appeal and the plea was confined to the value of the lands. The AAC determined the value of the land at Rs. 25,000 in his order dated April 5, 1969. Thereafter, the WTO reopened the assessments for the years 1963-64 to 1967-68 by the issuance of notices under s. 17(1)(a) of the Act on the ground that the assessee failed to disclose fully and truly all the relevant and material facts relating to the assessments in question. In the returns filed by the assessee in response to the notice issued under s. 17 of the Act, Rs. 25,000 towards the value of the Maredpalli land was included by the assessee, although the assessee objected to the jurisdictio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised return and hence the WTO had jurisdiction to reopen the assessment under s.17(1)(a) of the Act. The assessee's representative replied that the admission of the assessee, that the Maredpalli land was non-agricultural in nature, was made under an erroneous impression of law and that admission was withdrawn before the AAC in view of the Full Bench decision of the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552. The Tribunal agreed with the WTO and the AAC that the omission of Maredpalli property in the original return had undoubtedly invested the WTO with the jurisdiction to reopen the assessment under s. 17(1)(a) of the Act and the attitude of the assessee before the appellate authorities would not deprive the WTO of his powers and jurisdiction to reopen the original assessment. However, on the application of the several tests laid down by the Andhra Pradesh High Court in Officer-in-Charge (Court of Wards) v. CWT [1969] 72 ITR 552 [FB] it was found that the land was agricultural in nature and was, therefore, exempt from the purview of the Act. The Tribunal negatived the contention of the assessee's representative that the WTO was prec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act for any assessment year or to disclose fully and truly all material facts necessary for assessment of his not wealth or the net wealth of such other person for that year, the net wealth chargeable to tax has escaped assessment for that year, whether by reason of under-assessment or assessment at too low a rate or otherwise ; or (b) has in consequence of any information in his possession, reason to believe, notwithstanding that there has been no such omission or failure as is referred to in clause (a), that the net wealth chargeable to tax has escaped assessment for any year, whether by reason of under-assessment or assessment at too low a rate or otherwise ; We may, in cases falling under clause (a) at any time within eight years and in cases falling under clause (b) at any time within four years of the end of that assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice under sub-section (2) of section 14, and may proceed to assess or reassess such net wealth, and the provisions of this Act shall, so far as may be, apply as if the notice had issued under that sub-section. " We may consider the effect and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax Officer decides to reopen the assessment he could do so within the period prescribed by serving on the person liable to pay tax a notice containing all or any of the requirements which may be included in a notice under section 22(2) and may proceed to assess or reassess such income, profits or gains. It is, therefore, manifest that once assessment is reopened by issuing a notice under sub-section (2) of section 22 the previous under-assessment is set aside and the whole assessment proceedings start afresh. When once valid proceedings are started under section 34(1)(b) the Income-tax Officer had not only the jurisdiction but it was his duty to levy tax on the entire income that had escaped assessment during that year. " The Supreme Court had to consider the scope and effect of reassessment under s. 19(1) of the Madhya Pradesh General Sales Tax Act, 1958, in Commr. of S.T. v. H. M. Esufali H. M. Abdulali [1973] 90 ITR 271. Hegde J., speaking for the court, ruled at page 280 thus : " What is true of the assessment must also be true of reassessment because reassessment is nothing but a fresh assessment. When reassessment is made under section 19, the former assessment is complet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clude all items that escaped assessment notwithstanding the fact that he had mentioned in the notice only some and complete the assessment as if the reassessment proceedings are de novo and afresh. The intendment and object of s. 17(1) of the Act and the corresponding s. 34(1) of the Act of 1922 is to confer jurisdiction on the assessing authorities to assess or reassess the taxable wealth or income, as the case may be, which escaped assessment for any year whether by reason of under-assessment or assessment at too low a rate or otherwise. Section 17(1)(a) will be attracted if the WTO has reason to believe that by reason of omission or failure on the part of any person to make a return of his net wealth or to disclose fully and truly all material facts necessary for the assessment of his net wealth, the net wealth chargeable to tax has escaped assessment for that year. The escapement may be due to under-assessment or assessment at too low a rate or otherwise. If the aforesaid factors are satisfied, the WTO may at any time within eight years of the end of the assessment year, serve on such person a notice containing all or any of the requirements which may be included in a notice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch may be included in a notice under sub-s. (2) of s. 14, is separated by a comma and the latter portion of that sub-section is altogether independent as it requires the WTO to proceed to assess or reassess such net wealth, The period of limitation of eight years and four years prescribed in cls. (a) and (b), respectively, govern the right conferred on the assessing authority to issue notice proposing to make assessment or reassessment, as the case may be, but not the items which escaped assessment whether by reason of under-assessment or assessment at too low a rate or otherwise. Where the omission or failure either to file a return or to disclose fully and truly all the primary and material facts, is on the part of the assessee, the larger period of eight years is available to the assessing authority to reassess the entire net wealth. The assessing authority would get or acquire jurisdiction to reassess the entire net wealth under s. 17(1)(a) when once the provisions of s. 17(1)(a) are attracted. The provisions of s. 17(1)(a) would be attracted even if one of the items that escaped assessment falls under this category. Where there is not even a single item which falls under cl. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would have fallen under cl. (b), in spite of the fact that the period of four years had already elapsed. This view of ours gains support from the decision of a Division Bench of this court in Pullavarthi Viswanadham v. CIT [1963] 50 ITR 463. It arose under s. 34(1) of the Indian I. T. Act of 1922. Therein the ITO initiated proceedings under s. 34(1)(a) of the 1922 Act for the year 1945-46 as he had reason to believe that the assessee was indulging in extensive money-lending and other business activities without disclosing them to the income-tax authorities. In the reassessment he included two sums of Rs. 7,553 and Rs.478 representing 1/4th share of the profits earned by the assessee and which were originally excluded by the ITO from the taxable income of the assessee under the mistaken impression that they belong to the estate of late J. V. Subba Rao. The question that fell for consideration was whether the ITO had jurisdiction to include the aforesaid items, which would fall under cl. (b) only. Chandra Reddy C.J., speaking for the Bench, observed at pages 465, 466, 467 : "........ when once the Income-tax Officer reaches the conclusion on the material that is before him ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . That case arose under s. 34(1) of the Indian I.T. Act, 1922. Therein the question that fell for decision was whether, on the facts and the circumstances of the case, it was open to the ITO under s. 34(1)(a) of the 1922 Act to reconsider the assessee's claim in respect of the loss from Thatchanallur Sugar Mill business for the assessment years 1953-54 and 1954-55. It was held that when once the reassessment proceedings are validly initiated in respect of an item of income either under cl.(a) or cl. (b) of s. 34(1), the jurisdiction of the ITO to reassess is not confined to the item of income in respect of which notice has been issued, but extends to all items of income which have escaped assessment, which may fall either under cl. (a) or cl. (b) of sub-s. (1) of s. 34. Ramanujam J., speaking for the court, observed at pages 123 and 124 thus : " In this case the learned counsel for the assessee fairly concedes, in view of the above decisions, the power of the Income-tax Officer to bring in items of income falling under section 34(1)(b) to charge in proceedings validly initiated by him in respect of items coming under section 34(1)(a). But what he contends is that though the Incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respect to the learned judges, we hold that the decision and the observations which are in conflict with the view expressed by this court in Pulavarthi Viswanadham's case [1963] 50 ITR 463 do not represent the correct legal position. The Bombay High Court in New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. v. CIT [1977] 107 ITR 760 differed from the view taken by this court in Pulavarthi Viswanadham's case [1963] 50 ITR 463. The Bombay High Court did not consider the true effect and import of the observations of the Supreme Court in Jaganmohan Rao v. CIT [1970] 75 ITR 373 on the assumption that (p. 772) : "........ the court was not concerned in that case with the question as to whether the reassessment could be made under section 34(1)(a) or section 34(1)(b), but the observations quoted above were made by the Supreme Court only in reference to and in the context of the contention that was advanced before it ([1970] 75 ITR 373, 380) that only 2/3rds of the income of the mill could be said to have escaped assessment. In fact though the Supreme Court has in its judgment referred to section 34(1)(b), at the time material for the assessment in the said case, clauses (a) and (b) were not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of this case. The decision of the Supreme Court in CIT v. Onkarmal Meghraj [1974] 93 ITR 233 relied upon by the assessee's counsel does not in any way assist the assessee in the present case. That was a case wherein it was held that there was no omission or failure either to file a return or to disclose fully and truly all the material facts and, therefore, s. 34(1)(a) could not apply and the notice should be deemed to have been issued under s. 34(1)(b). The assessment year being 1944-45, the notice issued under s. 34 in April, 1954, was beyond the period of four years' period specified under s. 34(1)(b) and consequently the assessments on the Sons of N, M and were barred by limitation. Hence, this case is distinguishable on facts. To the same effect is the decision of the Allahabad High Court in Gupta Cold Storage v. ITO [1978] 115 ITR 819 cited by the assessee's counsel. Therein it was found on facts that the notice issued under s. 148 of the I.T. Act, 1961, to reassess the income for the assessment year 1961-62 was beyond 8 years from the date of the close of the assessment year 1961-62 and, therefore, it was clearly beyond time and invalid. Consequently, the notice issued on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ude the items which would fall under cl. (b) of s. 17(1) of the Act even though the reassessment proceedings have been validly initiated under cl. (a) if a period of four years had elapsed, do not lay down correct principles of law. It is not open to the assessee to contend that the assessing authority would be resorting to circumvent the provisions pertaining to the limitation, to the detriment of the assessee. Such a contingency will not arise in the case of honest and fair assessees, who have discharged their duty of filing the return in time and fully and truly disclosing all the material facts necessary for the assessment. In such a case, no assessment can be reopened or no proceeding for reassessment under cl. (a) can be entertained. Where any assessing authority attempts to resort to this procedure of issuing notice under cl. (a) with a view to reassess the items falling under cl. (b), the same can validly be challenged in a court of law in view of the completion of four years' period of limitation. If the assessee succeeds in his plea that the reassessment proceedings under cl. (a) are without jurisdiction, as no case has been made out to reopen the assessment under cl. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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