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Petitioner: RASIKLAL JIVANLAL SHAH AND OTHERS VS Respondent: INCOME-TAX OFFICER AND OTHERS
Court Name: Calcutta High Court Judge(s): Chandan Kumar Banerjee Title: RASIKLAL JIVANLAL SHAH AND OTHERS vs INCOME-TAX OFFICER AND OTHERS Case No.: Civil Revisions Nos. 2099 (W) and 2494 (W) of 1978 Date of Judgment:1984-05-04 Reported As: 1983 PTD 152 Result: Rule made absolute
JUDGMENT
JUDGMENT The petitioners Nos. 3 to 7 along with Kantila Jivanlal Shah and Manganlal Chhagganla Chhangenlal Shah, both since deceased, were partners of M. Ambical Cold Storage, a partnership firm constituted on the 23rd April, 1958, and registered under the Indian Partnership Act. The firm has since been dissolved. The case of the petitioners is that the firm commenced business in the middle of February, 1959, and was for the first time assessable and assessed to income-tax for the assessm ent year 1960-61. The accounting period of the firm was the English calendar year ending on the 31 December of each such year and under the deed of partnership the first accounting period for compel--petition of the accounts of the firm was 31 December, 1959. On the 25tb July, 1958, the firm purchased 3 bighas 7 cottahs 5 chittacks more or less of land at Sheoraphully for Rs. 19,857.19, and on the 25th April, 1961, it purchased further 1 bigha 5 cottahs 7 chittacks of adjacent land for Rs. 10,225. Although the land was first purchased in July, 1958, as the negotiations for the purchase were completed by May, 1958, the purchase of materials for construction as well as the work of construction of cold storage on the said land was started from May, 1958, and such construction was fully completed by December, 1963, and minor repairs were made thereafter from time to time. The cost of construction was met mostly from borrowings. The first accounts of the firm was closed on 31st December, 1959, and the income-tax return for the assessment year 1960- 61 disclosing a loss of Rs. 65,714 was filed. At the bearing of the said assessment, Jayantilal Umedlal Doshi, the authorised representative and accountant of the firm, produced before the assessing I. T. O. Full particulars and other evidence as to purchase of the land, expenses and cost of construction, who considered the same and after ascertaining the actual cost of the said cold storage building assessed the loss at Rs. 15,043 after allowing depreciation on the said building onst st
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the basis of its actual cost and in proportion to the use thereof in accordance with the then I.T. Rules. Similarly, all particulars of the construction of the cold storage were filed before the assessing I. T. O. At the time of the assessments for: the assessment years 1961-62 and 1963-64. There was no omission or failure on the part of the firm to disclose fully or truly any material facts or particulars necessary for the said assessments. For the assessm ent year 1961-62, the firm filed a return showing a loss of Rs. 47,534. The assessing I. T. O. However, assessed the total income at Rs. 1,24,911 and allowed depreciation on the written down value of the cold storage building of Rs. 1,58,508 at the rate of 2 -- % and also a further depreciation at the said rate on the additional cost of construction. On appeal by the firm against the said assessm ent the A. A. C. Allowed deprecia--petition at the full rate of hundred per cent, but, disallowed certain other claims. From the said order of the A. A. C., the firm preferred a further appeal to the Income-tax Appellate Tribunal and obtained further relief---s. By a letter dated the 25th September, 1975, respondent No. 1 called upon the firm to submit details of the expenses for the construction of the said cold storage. In reply, the firm by a letter dated the 29th September, 1975, inter alia, informed respondent No. 1 that the said cold storage had been sold away to one Mayur Udyog and did not belong to the firm any more. By a letter dated the 25th November, 1975, respondent No. 1 called upon the Advocate of the firm to file the details as asked for in -the said letter dated the 25th September, 1975, as the liability to produce the books of account was that of the partners of the firm to whom a formal notice under section 142 (1) of the I. T. Act, 1961, was being issued. By a letter dated the 7th January, 1977, respondent No. 1 intimated to the petitioners that it appeared from the assessment records of the firm that a sum of Rs.46,000 was spent for the construction of the cold storage in the calendar year 1959 relevant to the assessm ent year 196061, but as per the valuer's report of the petitioners the cost of construction for the said period came to Rs. 4,00,000, After considering the increase in the value of the cost of construction during the intervening period up to the date of the valuation by the said valuer, the cost of construction was estimated at Rs.2.58,000 while it was shown by the firm at only Rs.46,000. Thus, Rs. 2,12,000 which was spent for the said construction escaped assessment for the assessm ent year 1960-61, and the petitioners were asked to explain why the said sum should not be assessed to tax and why proceedings under section 147 (a) of the I. T. Act, 1961, should not be taken and in default of a written reply within 7 days, it would be presumed that the petitioners have no explanation to offer and the case should be reopened under section 147 (a). By a letter dated the 17th January, 1977, the petitioners gave a reply to the said letter. Under cover of a letter dated the 21st March, 1977, respondent No, I sent several notices under section 148 of the I. T. Act, 1961, all dated March 21/22, 1977. For reopening the assessment of the firm for the assessment year 1960-61. Several notices under section 148 of the Act, all dated the 2nd March, 1978, were also served on the petitioners for reopening the assessment of the firm for the assessment year 1961-6z on similar grounds. The petitioners have made this w petition under Art. 226 of the Constitution, inter alia, challenging the said notices. No affidavit-in-opposition has been filed on behalf of the respondents. By consent of parties, the petition of the respondents, for vacating or modi--fying the interim order made herein is treated as the affidavit-in-opposition of the respondents, and the affidavit-in-opposition filed by the petitioners, to the said application is treated as the affidavit-in-reply of the petitioners. Mr. Sanjoy Bhattacharjee, learned - Advocate for the petitioners, sub--mitted that the first accounting period of the firm was closed on the 31st December, 1959, and the firm was for the first time assessable and assessed to income-tax for the assessment year 1960-61. The basic fact of the construction of the cold storage and the cost of such construction were disclosed to the assessing I. T. O. In the very first assessment of the firm, who went into the matter, considered the
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same and allowed depreciation on the building of the cold storage. The said assessment could not, therefore, be reopened on the ground that the assessing I. T. O. Did not consider the matter properly either being hoodwinked or bickers having been put by the assessee. The depreciation was allowed by the assessing I T. O. On the cold storage building for both the assessment years 1960-61 and 1961-62, on the basis of the actual cost of construction of the building as will appear from the assessm ent orders for the said assessment years and Mr. Bhattacharjee referred to the same. Mr. Bhattacharjee also referred to and relied on the statements made in paras. 19 and 20 of the petition wherein it is stated that a chart and complete list showing day to day expenses of construction of tile cold storage building were submitted to the assessing I. T. O. At the time of the said assessm ents, who went into and considered the entire cost of construction right from the commencement of the construction, had full discussion in the matter with the authorised representative of the firm and being fully satisfied about the cost of construction, allowed the depreciation on the building. Mr. Bhattacharjee next urged that it would appear from the reasons recorded by respondent No. 1 that for reopening the said assessments he has proceeded solely on the basis of the valuation made in February, 1968, by the assessee's valuer for the purpose of obtaining loan from the bank and he took the opinion of the departmental valuer in making valuations for every year on the basis of the said valuation trade by the assessee's valuer, by resorting to back calculation. The opinion of the valuers could not tie made the basis for the formation of the belief for reopening an assessm ent as valuation may differ from person to person. The cost of acquisition of the land by the assessee was proved by the conveyance. The cost of construction of the building was proved by the receipts, vouchers and other documents. These were the positive and primary evidence which were placed by the assessee before the assessing I. T. O. At the time of the said assessments which could not be brushed aside by respondent No. 1 on the basis of opinions or inferences of valuers. Even if the valuations made by the valuers were correct, the assessee might have so arranged his affairs that the cost of construction was much less than what would have been incurred generally by others. A higher valuation made by the valuer could not necessarily lead to the inference that there was some income of the building and for setting up of the cold storage. The basis of the calculations made by respondent No. 1 as disclosed in the recorded reasons was back calculation on the basis of hypothetical rates of increase in the cost of construction and in the value of the land informally given by the departmental valuer. The assessee's valuer in making the valuation did not state the nature and extent of the construction or if any further construction was made between 1963 and 1968, which might have increased the value of the construction. The valuation by the assessee's valuer was made of the cold storage for the purpose of taking loan and not for ascertaining the market value of the construction. The departmental valuer did not ascertain whether such valuation was correct or not. Thus, there was no nexus between the 1968 valuation and he valuations in other years from 1959 onwards. Mr. Bhattacharjee urged that valuation was a matter of opinion which depended on various factors. The increase in the valuation might be in the opinion of one person at a particular rate while in the opinion of another person at some other rate. Such opinion could not be made the basis for reopening an assessment under section 147 of the Act and for valuing a particular construction, moreso when the valuation is made at a much later date and of the entire construction which was complete. This could not be made the basis of valuation of the construction in earlier years when it was in the process of construction. Mr. Bhattacharjee next urged that valuation of a property and cost of construction thereof were not synonymous. Valuation could not provide a reasonable basis as to what would or could have been the cost of construction in 1958 or in 1959 particularly when the valuation was made after 9 or 10 years in 1968. The valuation made in 1968 might provide a clue of determining the cost of construction in 1968 if at all, but not of any earlier years. It was further urged that in view
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of the positive assertion made by the assessee that full particulars of the cost of construction and all documents in support, thereof were produced before and considered by the assessing I. T. O. At the time of the said assessm ents the valuation in 1968 could not be made the basis for reopening of the assessm ents in the absence of denial of such assertions by the assessing I. T. O. And in that view of the matter the assessee could not be charged with omission or failure or disclose fully and truly all or any facts material to the said assessments. The two conditions precedent that, (i) the I. T. O. Must have reason to believe that 'income has escaped assessment, and (ii) he must have further reason to believe that such escapement was by reason of the omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment for the relevant years were not satisfied as the said assertions made by the assessee were not denied by the assessing I. T. O. The assessee in its original assessments duly disclosed the primary fact of construction of the cold storage and it was for the assessing I. T. O. To find out the cost of construction thereof. The assessee disclosed all relevant documents and papers before the assessing I. T. O. And if he was satisfied and did not make any further enquiries, then it could not be said that the assessee had failed to disclose fully and truly all or any material facts. Mr. Bhattacharjee next urged that in the recorded reasons there is no charge against the assessee of omission or failure to disclose fully or truly any material fact necessary for the said assessments. Thus, even if any income had escaped assessment, there could not be any re-opening of the completed assessm ents under section 147 (a) of the Act. Mr. Bhattacharjee contended that respondent No. 1 sought to reopen the assessments on the basis of the valuation made by the assessee's valuer for obtaining a loan from bank, which was a piece of information. Thus, if at all the assessm ents could be reopened under section 147(6) and not under section 147(al of the 'Act. The time-limit for reopening the assessments under section 147(6) of the Act having long expired, the said assessm ents could not be reopened any more. Mr. Bhattacharjee submitted that the contentions raised by him in this rule also applied to the proposed assessment for the assessment year 1959-60, the subject-matter of the rule being C: R. .2.494 (W) of 1978, and to the reopening of the assessm ent for the assessm ent year 1961-62. With regard to the assess--ment year 1959-60, Mr. Bhattacharjee submitted that the categorical case of the assessee was that it had no income in the accounting year relevant to the said assessment year. The initial burden was on respondent No. 1 to show that the assessee had any income in the said year and that such income could be said to have escaped assessm ent which, not having been discharged by respondent No. 1, be could not initiate any proceeding in respect of the said assessment year under section 147 of the Act. The nil return filed by the assessee for the said assessment year was accepted by the assessing I. T. O. Narayandas Paramananddas v. I. T. O. ((1977) 107 I T R 79 (Cal.)). Here, the assessee challenged in a writ petition the notices under section 148 of the I. T. Act, 1961, for opening certain assessments. Sabyasachi Mukharji Judge found that the transaction of the assessee with Messrs Atlas Agencies and with various other parties were disclosed by the assessee and were scrutinised by the I. T. O. The statement made it: the petition that the assessee had full discussions regarding existence, validity and genuineness of all parties including Atlas Agencies remained un-contradicted. The learned judge observed that it was not certain whether the facts gathered by the I. T. O. On which the assessm ents were sought to be reopened could not have been gathered from the materials before him in the original assessm ents and held that the revenue had not discharged the onus which lay on it to establish its case that the facts came to his knowledge subsequent to the original assessm ents from which it could be said that there was omission or failure on the part of the assessee to disclose fully and truly material facts necessary for the assessments, on account whereof the income chargeable to tax escaped assessment.
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Jeetwanlal (1929) Ltd. v. I. T. O. ((1978) 115 I T R 465 (Cal.)). Here, before the completion of the original assessm ent, the assessee is said to have informed the I. T. O. That it had filed a suit against the tenant of Sarat Bose Road property and did not accept rent from him. Reopening of the assessm ent was sought to be made on the ground that as the tenant deposited rents with the Rent Controller, the same was deemed income of the assessee which was not disclosed and included in the return filed. Sabyasachi Mukharji Judge held that on the basis of the above facts and, in the absence of any affidavit by the I. T. O. Who made the original assessment or from any person who had knowledge abut the said assessment and in view of the recorded reasons, there was no failure or omission on the part of the assessee to disclose fully and truly any fact which entitled the I. T. O. To reopen the assessm ent under section 147(a) of the I. T. Act, 1961. Smt. Minoti Hailer v. I. T. O. ((1978) 115 I T R 471 (Cal.)). This was a case of reopening of an assessment under section 147(a) of the I. T. Act, 1961. In para. 5 of the petition, the assessee stated that all materials were disclosed before the assessing I.T. O. In the original assessment and he discussed the same. Sabvasachi Mukhary Judge held that in the absence of any affidavit of the assessing I. T. O. Controverting the said statements, the same should be accepted as true and there was no failure or omission on the part of the assessee to disclose fully or truly any material facts. Grindlays Bank Ltd. v. I T O ((1979) 116 I T R 710 (Cal.)). Here, the assessments were sought to be reopened under section 147 of the I. T. Act, 1961, on the ground that the assesses did not disclose that the contribution to the Grindlays Superannuation Fund was debited to its Indian profit and loss account and no evidence was produced in the original assessment that the said fund was a recognised one. In the writ petition, the assessee alleged that the said fact was brought to the notice of the assessing I. T. O. Who, being satisfied, allowed the same as admissible expense which was not denied by the said I. T. O. The learned judge found that the said fund had been disclosed and claim for deduction thereof was made an the original assessments which was allowed as an admissible expense due to an error on the part of the assessing .I. T. O. And not due to any omission or failure on the part of the assessee to disclose any primary and material facts. The learned judge also held that the Public Accounts Committee of Parliament was not a person or body or authority authorised to form an opinion and, therefore, any opinion formed by it could not be information within the meaning of section l47(b) of the I. T. Act, 1961. I. T. O. v. Madnani Engineering Works Ltd. ((1979) 118 I T R 1 (SC)). Here, an assessment was sought to be reopened by the I. T. O. Under section 147(a) of the I. T. Act, 1961, on the ground that the transactions or loans represented by certain hundis were bogus and no interest was paid by the assessee to any of the alleged hundis creditors deduction whereof was wrongly allowed in the original assessm ent and thus the income of the assessee escaped assessment by reason of its failure to disclose fully and truly all material facts necessary for the assessment" The Supreme Court held that the assessee produced all hundis on which it had obtained loans from the creditors as also entries in the books of account showing payments of interest. It was for the I. T. O. To investigate and determine whether those documents were genuine or not. It could not therefore be said that the assessee failed to make a full and true disclosure of the material facts by not admitting before the I. T. O. That the hundis and the entries in the books of account were bogus. Thus, there was no failure on the part of the assessee to disclose fully and truly all material facts necessary for its assessm ent and the conditions precedent for the applicability of section 147(a) were not satisfied. The statement of the I. T. O. That he discovered that the hundi loan transactions were bogus, was merely a statement of his belief, and did not set out any material on the basis of which he arrived at such belief. Indian and Eastern Newspaper Society v. C. I. T. ((1979) 119 I T R 996 (SC)). Here, the Supreme Court held that the opinion of the internal audit party of the I. T. Deptt. On a point of law could not be regarded as "information" within the meaning of section 147(b) of the-I. T. Act, 1961, and could not
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be taken into account by the I. T. O. The effect and consequence of the lays mentioned in the audit note should in every case be determined by the I. T. O. Himself and he should come to his conclusion thereon. The opinion of the audit party in regard to law could not for the purpose of his belief add to or colour the significance of such law. Mr. Bhattacharjee further contended that the impugned notices were defective. To appreciate the contention of Mr. Bhattacharjee relevant portion of one of the impugned notices which are all in similar language is set out below. Income-tax officer 1(1)/G Dated 21/22-3-1977. "To Rasiklal Jivanlal Shah, on behalf of Khantilal Jivanlal Shah (decd.). Ramdas Maganlal Shah on behalf of Maganlal Chhaganlal Shah (decd.). Hiralal J. Shah Jeevanlal Ch. Shah Rangildas Ch. Shah Ramdas Maganlal Shah Probhudas Rangaldas Shah Tansukhlal Jeevanlal Shah Rasikial Jec,vanlal Shah (as partners of Messrs M. Ambica Cold Storage, now defunct, C/o. Kisseendas, 12, Rarrlochan Mullick Street Calcutta-7) Whereas I have reasons to believe that ( your income/the income of ) chargeable to tax for the assessm ent in respect of which you are assessable for the assessment dear 1960-61 has escaped assessm ent within the meaning of section 147 of the income-tax Act, 1961". Mr. Bhattacharjee urged that Rasiklal Jeevanlal Shah and Ramdas Shah, the first two persons named in the impugned notices were described and served with the notices as legal representatives of Kantilal Jeevanlal Shah, deceased, and Chhaganlal Snah, deceased, respectively. The legal representatives of the deceased partners were not liable for the income of the partnership firm. The notices mentioned: "Your income charFcl~ii- to tax in the assessment year 1960-61 has escaped assessm ent". The notices, therefore, did not specify whose income chargeable to tax had escaped assessment. No income of the petitioners who were served with the notices escaped assessm ent but alleged escapement, if any, was that of the firm which was a distinct entity and unit of taxation under the I. T. Act. Under section 148 of the Act, a notice was required to be served on the assessee which was the firm in this case. Thus, there I was no service of the notice or, the assessee. From the above facts, it was clear that the impugned notices were issued by respondent No. 1 without the application of mind. Sewlal Daga v. C. I. T. ((1965) 55 I T R 406 (Cal.)). Here the original assessment was of one Chandrabban Johurmull in the status of an individual who died in May, 1949. Thereafter, notice under section 34 of the Indian I. T. Act, 1922, was issued to assessee' s son, Sewlal Daga, describing the assessee as "Messrs, Chandrabhan Johurmull, karta, Sewlal Daga "It was contended on behalf of Sewlal Daga that the notice was not served on him as the legal represen--tative of the deceased and was, therefore, illegal. A Division Bench of this Court held that the service of a notice on the assessee was a condition precedent to the assumption of jurisdiction by the I. T. O. Under section 34 and the notice issued and served being invalid, the proceedings before I. T. O. Were, consequently, illegal and void.
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B.K . Gooyee v. C. I. T. ((1966) 62 1 T R 109 (Cal.)). Here, the notice issued and served under section 34 of the Indian. I. T. Act, 1922, did not contain the signature of the I. T. O. A Division Bench of this Court held that the service of a valid notice being a condition precedent to the jurisdiction of the I. T. O. To take further proceedings under section 34, all proceedings taken pursuant to the notice were invalid. I. T. O. v. Chandi Prasad Modi ((1979)119 ITR 340 (Cal.). Here, there were two assessee of the name of Bhimraj Bansidhar, one being assessed as H. U. F. And the other being separately assessed as a partnership firm, both of which carried on business at the same place. The I. T. O. Issued a notice under section 148 of the I. T. Act, 1961, addressed to Messrs. Bhimraj Bansidbar of 180, Mahatma Gandhi Road, Calcutta. A Division Bench of this Court held that the I. T. O., having full knowledge of the separate identity of the two concerns, issued the impugned notice and there being nothing to show to which of the two concerns the notice was issued, the impugned notice was vague. "The burden is on the revenue authorities to show that a receipt constitutes income and that the income is liable to tax under the statute, but the onus of showing +hat a…
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