Full Judgment Text
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PETITIONER:
NIRANJAN & CO. P. LTD.
Vs.
RESPONDENT:
COMMISSIONER OF INCOME TAX, WEST BENGAL-I & OTHERS
DATE OF JUDGMENT19/03/1986
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
PATHAK, R.S.
CITATION:
1986 AIR 1853 1986 SCR (1) 916
1986 SCC Supl. 272 1986 SCALE (1)465
ACT:
Income tax Act, 1961, s. 147 - Assessment - Reopening
of - When permissible.
Assessee - Filling revised return voluntarily after
making of first assessment - Income Tax Officer - Whether
can reopen assessment.
HEADNOTE:
The appellant-assessee filed its return along with a
copy of the Balance-Sheet and profit and loss account in
November, 1962 showing an income of Rs.2.092 as its profit.
According to the appellant, a mistake had occurred in the
preparation of the return, inasmuch as the profit of Rs.
10,718.46 arising from construction worss had been left out
from the return. However, in the Profit & Loss Account, the
profit from construction work was indicated. The Income-tax
Officer made an assessment on 27th November, 1963 after
taking into account the profit from the construction work
also. On 3rd December, 1963 the appellant-assessee again
filed a revised return showing a general profit of Rs. 2.092
as also profit from the construction work aggregating
Rs.12,797.65. But, no copy of Balance-Sheet or Profit & Loss
Account was annexed with the revised return. The Income-tax
Officer issued a notice to the appellant under section 147
of the Income-Tax Act, 1961 on the ground that the revised
return was not before the Income-Tax Officer when the
assessment Order was originally made but came to her
possession later on. The appellant challenge before the High
Court the jurisdiction of the Income-tax-Officer to issue
the notice. The Single Judge dismissed the application and
the Division Bench confirmed the order of the Single Judge
in appeal preferred by the appellant.
In appeal to the Supreme Court, it was contended on
behalf of the appellant-assessee that there was no question
of
917
any escapement of income or under-assessment of income,
because the profit from construction work which was the item
alleged to have been left out from the first return and
included in the revised return was already taken into
consideration by the Income Tax Officer in making the first
assessment order.
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Dismissing the appeal,
^
HELD : 1(i) Under s. 147(a) of the Act, a completed
assessment can only be reopened either if there was omission
or failure on the part of the assessee to make a return or
to disclose fully and truly all material and relevant facts
and the Income-tax Officer must have in his possession
before he issues notice some material from which he can
reasonably form a belief that there has been some escapement
of income due to some failure or omission on the part of the
assessee to disclose fully all relevant or material facts.
The second right under clause(b) of section 147 of the Act,
under which the Income-tax Officer has to reopen a completed
assessment is that notwithstanding that there was no
omission or failure on the part of the assessee either to
make a return or to disclose fully and truly all material
facts, the Income-tax Officer in consequence of information
in his possession subsequent to the first assessment has
reason to believe that income chargeable to tax has escaped
assessment. [923 A-C]
1.2 It is true that even after the expiry of the time
to make return, if an assessee files a return before the
assessment is made, then the Income-tax Officer is bound to
take cognizance of that return and cannot ignore that
return. If a second return is there to the notice of the
Income-tax Officer then it cannot be said that there was an
escapement of income due to omission or failure of the
assessee to disclose fully and truly all material and
relevant facts based on the facts mentioned in the second
return. But after the completion of an assessment, the
assessee is not entitled to take benefit of another return
filed by him, nor is Income-tax Officer obliged or entitled
to take that return into consideration except by the process
of re-opening the assessment. [923 D-F]
Commissioner of Income-Tax, Bombay City II v.
Ranchhoddas Karsondas, 36 I.T.R. 569, Commissioner of
Income-tax, Madras v. S. Ramesh Chettiar, 55 I.T.R. 630 and
918
Balchand v. Income-Tax Officer, Sagar, 72 I.T.R. 197
referred to.
Commissioner of Income-Tax, Gujarat v. A. Raman & Co.,
67 I.T.R. 11, Commissioner of Income-Tax, Bengal v. Messers.
Mahaliram Ramjidas, 8 I.T.R. 442 relied upon.
In the instant case, there was information in the form
of a revised return and since informations mentioned before
came to the knowledge of the Income Tax Officer subsequent
to the making of the first assessment and information being
such from which a reasonable person could have formed the
belief that there was escapement of income or under
assessment of income, it cannot be said that there was no
jurisdiction of the Income Tax Officer to reopen the
assessment. Whether in the reassessment to be made pursuant
to the notice issued, the income assessed would be more by
Re.1 or less than the income already assessed is not
material or relevant for the question of jurisdiction to
issue the notice under s. 147 of the Act.[925 D-F]
(2) Filing of voluntary return which came to the
knowledge and possession of the Income-tax Officer will not
be any bar for the Income-tax Officer to issue notice for
reopening of the assessment, if the other conditions are
fulfilled. [923 G-H]
JUDGMENT:
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 967 of
1972.
From the Judgment and Order dated 21st May, 1971 of the
Calcutta High Court in Civil Appeal No. 201 of 1970.
V.S. Desai, Ms. Aruna Jain and Ashok Mathur for the
Appellant.
C.M. Lodha and Ms. A. Subhashini for the Respondents.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. This appeal by special leave is
directed against the judgment and order 21st May, 1971 of
the division bench of the Calcutta High Court.
919
This appeal raises the familiar problem whether there
are grounds for reopening a completed assessment but that
question arises under rather peculiar circumstances. The
assessment year concerned is 1962-63. The assessee/appellant
had filed its return in November, 1962 showing an income of
Rs.2,092 as its profit. According to the assessee/appellant,
a mistake had occurred in the preparation of the return,
inasmuch as the profit of Rs. 10,718.46 arising from
construction works had been left out from the return. But it
appears that along with the original return, a copy of the
Balance-sheet and Profit and Loss Account was filed by the
appellant. In the Profit and Loss Account, the profit from
construction work was indicated. The Income-tax Officer made
an assessment on 27th November, 1963 and it appears from the
assessment order that the profit from the construction work
was taken into account in making the assessment. The
assessee/appellant, however, filed a revised return showing
a general profit of Rs.2,092 as also profit from the
construction work aggregating Rs.12,797.
It is important in this connection to bear in mind that
the return was filed by the assessee/appellant on 29th
November, 1962. This was received in the receiving section
of the Department and a stamp had been duly put thereon in
token of the receipt. It further appears that a revised
return dated 2nd August, 1963 was received, as shown in the
endorsement, on 3rd December, 1963. The original assessment
was made on 27th November, 1963.
In the revised return, the assessee/appellant had shown
a general profit of Rs.2,092 as also the profit from the
construction work aggregating to Rs.12,797.65. After having
made the assessment order on the basis of the first return,
the Income-tax Officer issued a notice to the assessee under
section 147 of the Income-tax Act, 1961 (hereinafter called
the ’Act’). It is stated that the ground for issue of this
notice was that the revised return was not before the
Income-tax Officer when the assessment order was originally
made but came to her possession later on when it was
forwarded to her on 3rd December, 1963. On receipt of the
notice, the assessee wrote challenging the Income-tax
Officer’s jurisdiction and thereafter not being satisfied
moved an application under article 226 of the Constitution
and obtained
920
a rule nisi which was ultimately discharged by order dated
30th April, 1970.
The appellant/assessee preferred an appeal before the
division bench of the said High Court.
The division bench discussed several contentions urged
before it. It appears from the affidavit of the Income-tax
Officer who made the assessment, Mrs. Mahajan, that the
return was filed on 29th November, 1962. The return showed a
business loss of Rs. 4,422 and dividend income of Rs. 6,519.
The total income shown was Rs.2,095.26. The said Income-tax
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Officer stated that the file was transferred to her on 9th
October, 1963 and the file number and other particulars were
duly intimated to the assessee. It was further stated by the
said Income-tax Officer that on 3rd December, 1963, she had
received from the Income-tax Officer, ’E’ Ward a return
filed before that officer by the assessee showing an income
of Rs.12,797.65 against Rs. 2,096.26 shown as income in the
original return.
The said Income-tax Officer has further stated that the
assessment for the year 1962-63 was completed on 30th
November, 1963. At the time of making the assessment, she
had before her only the return dated 29th November, 1962
showing an income of Rs.2,096.26. On 3rd December, 1963 i.e.
to say after completing the assessment she had received from
the Income-tax Officer, ’E’ Ward a return showing an income
of Rs.12,797.65. The second or the revised return, however,
was not accompanied by the Profit and Loss Account and the
Balance-sheet.
After discussing the relevant provisions of law and
other submissions urged on behalf of the assessee/appellant
the division bench dismissed the appeal and upheld the
notice.
Being aggrieved, the assessee/appellant has come up in
appeal before this Court by special leave.
Before the position in law is discussed, it is
necessary to bear in mind the factual position emerging from
the documents.
921
On behalf of the assessee/appellant, it was urged
before us as it was urged before the division bench of the
High Court that there was in this case no question of any
escapement of income or under-assessment of income because
the profit from construction work which was the item alleged
to have been left out from the first return and included in
the revised return was in fact taken into consideration by
the Income-tax Officer in making the first assessment order.
It was argued that this item of profit was not only before
the Income-tax Officer as it was included in the Profit and
Loss Account but in fact it was taken into consideration by
the said Income-tax Officer in making the order. The
specific amount which provided the ground for the issue of
the notice under section 147 having been taken into
consideration by the Income-tax Officer while making the
assessment, it was urged that it could not be said that
there was any escapement of income, or under assessment of
Income.
The division bench after analysing the record has come
to the conclusion that the Income-tax Officer while making
the first assessment had before her not only the Balance
Sheet and the Profit and Loss Account of the assessee in
which profit on construction work was clearly shown but it
was evident from the asessment order itself that this
particular item of profit or income was taken into
consideration in making the first assessment. Therefore,
this by itself could not be any ground for reopening under
section 147 of the Act. It, however, appeared that in the
revised return, the profit or income from all sources have
been stated to be Rs.12,797.65. In the Balance-sheet which
was submitted in the first return, the profit from
construction work was shown at Rs.10,718.46. According to
the assessee, a loss of Rs.18.07 shown in the balance-sheet
had to be deducted from the said amount and if so deducted,
the profit came to Rs.10,700.39. If the profit disclosed in
the first return of Rs.2,096.26 was added to the amount of
Rs.10,700.39, the total amount came to Rs.12,796.65. It is
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apparent therefore that the total profit and income
calculated on the basis of the first return and the balance-
sheet came to Rs.12,796.65 and that is less by Re.1 only
from the profit and income disclosed in the revised income
which is Rs.12,797.65.
922
Apart from this as is apparent from the judgment of the
division bench of the High Court that in the original
return, a loss from business and profession to the extent of
Rs.4422.89 was shown and there was a profit from another
source to the extent of Rs.6,519.15 and therefore there was
a net profit of Rs.2,096.26 which was taxable. But in the
revised return, the assessee/appellant had shown profit from
business and profession to the extent of Rs.7,461.42 and
also profits from other sources to the extent of Rs.5,336.23
and the taxable income was shown at Rs.12,797.65. It appears
therefore that the figures disclosed as profit from business
and other sources could not be readily obtained from the
figures disclosed in the balance sheet and the profit and
loss account. It appears that the present figures could be
obtained by a process of back calculation with a view to
reconcile the profit or income disclosed in the revised
return with those disclosed in the balance-sheet. It is
clear that the figures disclosed in the first return of the
balance-sheet filed with it could not readily be reconciled
with the profits disclosed in the revised return and the
later provided grounds for reasons to believe that income
chargeable to tax had escaped assessment.
This reopening was under section 147 of the Act.
Reopening under section 147 can only be made after completed
assessment if the Income-tax Officer has reason to believe
under clause (a) that by reason of omission or failure on
the part of the assessee to make a return or to disclose
fully or truly all relevant facts, income chargeable to tax
has escaped assessment for that year and under clause (b)
notwithstanding, that there was no omission or failure on
the part of the assessee if the Income-tax Officer has in
consequence of information in his possession reason to
believe that income chargeable to tax has escaped assessment
then he is subject to the provisions of limitations in
respect of certain income which does not apply in the
instant case, jurisdiction to issue notice.
At this stage, the jurisdiction to issue the notice is
under consideration. We are not concerned in this appeal
whether on a properly made assessment, any higher income
would be taxed or not.
923
The position in law is well-settled. A completed
assessment can only be reopened either if there was omission
or failure on the part of the assessee to disclose fully and
truly all material and relevant facts and the Income-tax
Officer must have in his possession before he issues notice
some material from which he can reasonably form a belief
that there has been some escapement of income due to some
failure or omission on the part of the assessee to disclose
fully all relevant or material facts. The second right under
clause (b) of section 147 of the Act, which the Income-tax
Officer has to reopen a completed assessment is that
notwithstanding that there was no omission or failure on the
part of the assessee either to make a return or to disclose
fully and truly all material facts, the Income-tax Officer
in consequence of information in his possession subsequent
to the first assessment has reason to believe that income
chargeable to tax has escaped assessment.
In this case the assessee had filed a revised return
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voluntarily before apparently he knew that the first
assessment was made. It is true that even after the expiry
of the time to make return, if an assessee files a return
before the assessment is made, then the Income-tax Officer
is bound to take cognizance of that return and cannot ignore
that return. If a second return is there, to the notice of
the Income-tax Officer then it cannot be said that there was
an escapement of income due to omission or failure of the
assessee to disclose fully and truly all material and
relevant facts based on the facts mentioned in the second
return. But after the completion of an assessment, the
assessee is not entitled to take benefit of another return
filed by him, nor is Income-tax Officer obliged or entitled
to take that return into consideration except by the process
of re-opening the assessment. See the observations of this
Court in Commissioner of Income-Tax, Bombay City II v.
Ranchhoddas Karsondas, 36 I.T.R. 569, Commissioner of
Income-Tax, Madras v. S. Raman Chettiar, 55 I.T.R. 630 and
Balchand v. Income-Tax Officer, Sagar, 72 I.T.R. 197. Filing
of a voluntary return which came to the knowledge and
possession of the Income-tax Officer after completion of the
assessment by the Income-tax Officer will not be any bar for
the Income-tax Officer to issue notice for reopening of the
assessment, if the other conditions are fulfilled.
924
These principles are well settled.
In Commissioner of Income-Tax Gujarat v. A. Raman and
Co., 67 I.T.R. 11 dealing with section 147(1)(b) of the Act,
this Court observed that even if the information which was
obtained could have been gathered by the Income-tax Officer
at the time of the original assessment would not disentitle
the Income-tax Officer to re-open the assessment if he has
in consequence of information in his possession reason to
believe that income chargeable to tax has escaped
assessment. That information must come to the possession of
the Income-tax Officer after the previous assessment but if
the information be of such a nature that it could have been
obtained during the previous assessment or investigation of
the materials but was not obtained, the Income-tax Officer
was not precluded from re-opening. In this case it was
contended that profit and loss account was there at the time
of the original assessment, therefore the fresh information
now relied upon could have been gathered. That is not the
correct position. The facts which came to the knowledge of
the Income-tax Officer were undoubtedly such as noted before
from which a reasonable belief could have been formed that
there was escapement of income or under-assessment of income
and that belief could be formed by the revised return where
the figures were different than the figures of the previous
return.
In Commissioner of Income-Tax, Bengal v. Messrs
Mahaliram Ramjidas, 8 I.T.R. 442 it was held by the Privy
Council that to enable the Income-Tax Officer to initiate
proceedings under section 34 of the 1922 Act which is in
pari materia with section 147 of the Act, it is enough that
the Income-tax Officer on the information which he had
before him and in good faith reason to believe that profits
had escaped assessment or had been assessed at too low a
rate. It is true, however, that the information must be
definite and not mere guess. There must be causal connection
between the information and the discovery. See in this
connection the observations of this Court in A.N. Lakshman
Shenoy v. Income-tax Officer, Ernakulam and Anr., 34 I.T.R.
275. In S. Narayanappa and Others v. Commissioner of Income-
tax, Bangalore, 63 I.T.R. 219 the content of ’reason to
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believe’ in section 34 of the 1922 Act came up for
consideration. It was held that such belief must be held in
good faith and it could not be a mere
925
pretence. It was open to the court to examine whether the
reasons for the belief had any rational connection or a
relevant bearing to the formation of the belief and were not
extraneous or irrelevant to the purpose of the section but
the sufficiency of the reasons was not open to the scrutiny
by the court.
It was contended on behalf of the assessee/appellant
relying on the observations of this Court in Commissioner of
Income-Tax, Gujarat v. A Raman and Co. (supra), that the
Income-tax Officer must have had reason to believe and in
consequence of information he must have that reason to
believe and it was submitted that the information was
already there and there was no new information from which
the Income-tax Officer could have formed the belief.
Having regard to the facts of this case as discussed
above and the nature of the information indicated before, we
are of the opinion that there was information in the form of
a revised return and since the informations mentioned before
came to the knowledge of the Income-tax Officer subsequent
to the making of the first assessment and the information
being such from which a reasonable person could have formed
the belief that there was escapement of income or under-
assessment of income, it cannot be said that there was no
jurisdiction of the Income-tax Officer to reopen the
assessment. Whether in fact the reassessment to be made
pursuant to the notice issued, the income assessed would be
more by Re. 1 or less than the income already assessed is
not material or relevant for the question of jurisdiction to
issue the notice under section 147 of the Act.
In our opinion on the materials on record, the division
bench was, therefore, right in a dismissing the appeal of
the assessee/appellant. The appeal accordingly fails and is
dismissed with costs.
M.L.A. Appeal dismissed.
926