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Petitioner: KAMALAM RAJENDRAN VS Respondent: INSPECTING ASSISTANT COMMISSIONER OF JUDGMENT
Court Name: Madras High Court Judge(s): P. D. Dinakaran Title:KAMALAM RAJENDRAN vs INSPECTING ASSISTANT COMMISSIONER OF
JUDGMENT
Reported As: 2000 PTD 3260 Result: Petition allowed Judgment JUDGMENT The brief facts of the case are stated as follows: The petitioner constructed a residential house in 1981-82 for his own use in RA-1, RA-2, Poonga Street, Thirunagar, Madurai 625008. The construction was completed before the financial year ended on March 31, 1982, and the petitioner was occupying the house ever since the completion of the construction. The petitioner duly submitted his return of income for the year 1982-83 relating to the accounting year ended on March 31, 1982, disclosing the value of the said house. Necessary evidence. Viz., vouchers, contractor's bills, etc., showing the cost of construction as Rs.8 lakhs, relating to the construction of the property were also produced before the respondent and the same were accepted by the respondent by order, dated December 24, 1985, accepting the notional property income as disclosed by the petitioner. In fact, the income-tax assessment for the next two assessm ent years, namely, 1983-84 and 1984-85 were also completed by orders of the respondent, dated December 24, 1985. That apart, the value of the said property was also included by the petitioner in the wealth tax returns as per the valuation as on March 31, 1982, being the valuation date for the assessment year 1982-83. The valuation of the property was made in accordance with rule 1-BB of the Wealth Tax Rules, 1957, and accordingly, the Wealth Tax Assessment for the assessment year 1982-83 was also completed by the order dated March 6, 1987, passed by the respondent acting as the Wealth Tax Officer.
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But during the course of the proceedings for assessment to income---tax for the assessment year 1985-86, and the assessm ent to wealth tax for the year 1983-84, the respondent required the petitioner to produce a valuation report once again for the said house and the petitioner submitted a valuation report, dated January 16, 1988, from an authorised valuer, who valued the cost of construction of the building at Rs.8,15,000 on the basis of which, the wealth tax assessment for the year 1983-84 was duly completed on February 29, 1988. However, the Valuation Officer of Income-tax Department, by letter, dated March 8, 1988, proposed to value the said property once again. Hence, the petitioner, by his letter, dated March 9, 1988, pointed out to the respondent that the valuation of the house was already disclosed to the income-tax authorities in his return submitted for income-tax assessment for the assessment year 1982-83 and for the wealth tax assessment for the assessment year 1983-84 and that his income was duly assessed, as mentioned above. But the petitioner did not receive any reply from the Department. On the other hand, he received a letter, dated March 25, 1988, that the Valuation Officer has submitted his valuation report, dated March 24, 1988, on the basis of which, he had determined the value of the building at Rs.9.49 lakhs, which is higher than the valuation filed by the petitioner valuing the property for Rs.8.15 lakhs as on March 31, 1985. On receipt of the said letter from the Valuation Officer, dated March 25, 1988, the petitioner, once again, submitted his representation, dated April 2, 1988, that the proceedings for the valuation of the property are totally without jurisdiction for the reasons -that--- (a) there is no provision for the income-tax for valuation of the property, except the valuation required under Chapter IV, Part E, for the purpose of computation of capital gains; (b) there was no construction activity after submitting the returns for the assessment year 1982-83; and (c) the valuation of the said house property for the wealth tax assessment has already been made under rule 1-BB of the Wealth Tax Rules, and the same was also accepted by the Wealth Tax Authorities, and therefore, the question of valuing the very same house property by the Department does not arise. But, the respondent still issued notice, dated March 28, 1988, under section 148 of the Income-tax Act, which is impugned in the above writ petition, proposing to reassess for the assessment year 1983-84, holding that the said house property had escaped the assessment within the meaning of section 147 of the Income-tax Act. Mr. P.P.S. Janarthana Raja, learned counsel for the petitioner, contends that there is no reason for the Assessing Officer to believe that the income chargeable to tax for the assessment year 1983-84 had escaped assessm ent within the meaning of section 147 of the Income Tax Act, 1961. Mr. P.P.S. Janarthana Raja, learned counsel for the petitioner, further contends that the assessing authority failed to apply their mind to consider that the impugned building was constructed long before the assessm ent year 1985-86 and, therefore, the proposal for reassessing the income chargeable to tax for the assessm ent year 1983-84 on the basis of a valuation report, dated March 24, 1988, and holding that the same had escaped assessment within the meaning of section 147, and the consequential impugned notice issued under section 148 of the Income-tax Act are wholly without jurisdiction. That apart, learned counsel for the petitioner, also contends that the respondent has failed to appreciate the valuation arrived at under rule 1-BB of the Wealth Tax Rules, and in any event, the respondent ought to have given an opportunity to the petitioner to submit his explanation in support of the vouchers and contractor's bills relating to the construction, justifying his valuation of the impugned building constructed prior to 1982-83 which was already accepted by the assessing authority for the assessm ent year 1982-83.
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Per contra, Mr. C.V. Rajan, learned counsel for the respondent, contends that the impugned notice, being only a notice under section 148 of the Act, the petitioner has no right to challenge the same which is only a proposal to reassess the income for the assessment year 1983-84 with regard to the alleged escaped assessm ent of the income within the meaning of section 147 of the Act based on the valuation report and, therefore, the petitioner has a statutory duty to submit his returns within the time stipulated under the impugned notice, dated April 28, 1988; instead the petitioner has chosen to approach this Court under the writ petition, and therefore, the same is liable to be dismissed as not maintainable in law. Learned counsel for the respondent further contends that once there are sufficient reasons to believe that the income chargeable to tax for the year 1983-84 has escaped the assessment, the impugned notice, dated March 28, 1988, issued under section 148 of the Act is well within the jurisdiction and justified in law, as the same is within the period of limitation prescribed under section 147 of the Act. That apart, placing reliance on the decision in Uma Devi Jhawar (Smt.) v. ITO (1996) 218 ITR 573 (Cal.), learned counsel for the petitioner contends that, assuming the petitioner has got an alternative remedy before the appellate authority against the proposed reassessment for the year 1983-84, when once it is contended that the very jurisdictional facts are lacking for issuing a notice under section 148 of the Act, and if this Court is satisfied with the contention relating to the lack of jurisdictional facts, the notice issued under section 148 of the Act goes, and consequently, certainly, the order of the assessm ent also would go. Learned counsel for the petitioner, therefore, contends that there is no substance in the objections of learned counsel for the respondent to dismiss the writ petition as not maintainable on the ground of alternative remedy. Learned counsel for the petitioner, further, relying upon the decision in Uma Jhawar (Smt.) v. ITO (1996) 218 ITR 573 (Cal.), contends that the valuation certificate cannot satisfy the requirement contemplated under section 147, namely, that the Assessing Officer should have reason to believe that the income chargeable to tax for the year 1983-84 has escaped. I have given a careful consideration to the submissions of both, sides The points that arise for my consideration are that: (i) Whether a writ petition is maintainable in view of an alternative remedy available to the petitioner? (ii) Whether the petitioner is entitled to challenge the notice, dated March 28, 1988, under section 148 of the Income-tax Act? And (iii) If the writ petition is maintainable, and the petitioner is entitled to challenge the impugned notice, dated March 28, 1988, whether the impugned notice is liable to be quashed? Point No. 1 Whether a writ petition is maintainable in view of an alternative remedy available to the petitioner? "No doubt, the petitioner is having an effective alternative remedy by way of appeal before the appellate authority and further appeal before the Tribunal and these writ petitions could not have been entertained, if this objection, regarding the maintainability was raised and brought to the notice of this Court, when these writ petitions came up for admission or immediately thereafter. However, it is seen from the records that some of the writ petitions in this batch, have been entertained by this Court in the year 1989 and they are pending for nearly five years. The counter- affidavits in these writ petitions have been filed before this Court, only on November 28, 1994; when these writ petitions were taken up for final hearing, raising the contentions that the petitioner is having an alternative remedy and that the writ petitions are liable to be dismissed on `that ground. However, as the writ petitions have been admitted and kept pending before this Court all these years, we are of the view, that it is not proper to dismiss these writ petitions, at this stage, on the ground that the petitioner has not exhausted the alternative remedy. Inasmuch as these cases
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involve interpretation of section 11(4-A) of the Act, on the undisputed facts of this case, and as it is also in the interest of the Revenue to have the issues in question settled early, the petitioner is not directed to avail of the remedy of appeal. " Points Nos. 2 and 3: Whether the petitioner is entitled to challenge the notice, dated March 28, 1988, under section 148 of the Income-tax Act? And If the writ petition is maintainable, as the petitioner is entitled to challenge the impugned notice, dated March 28, 1988, whether the impugned notice is liable to be quashed? Points Nos. 2 and 3 are inter-related: "55A. With a view to ascertaining the fair market value of a capital asset for the purposes of this Chapter, the Assessing Officer may refer the valuation of the capital asset to -a Valuation Officer-- (a) in a case where the value of the asset as claimed by the assessee is in accordance with the. Estimate made by a registered valuer, if the Assessing Officer is of opinion that the value so claimed is less than its fair market value; (b) in any other case, if the Assessing Officer is of opinion-- (i) that the fair market value of the asset exceeds the value of the asset as claimed by the assessee by more than such percentage of the value of the asset as so claimed or by more than such amount as may be prescribed in this behalf; or (ii) that having regard to the nature of the asset and other relevant circumstances, it is necessary so to do, and where any such reference is made, the provisions of sub--sections (2), (3), (4), (5) and (6) of section 16-A, clauses (ha) and (i) of subsection (1) and subsections (3-A) and (4) of section 23, subsection (5) of section 24, section 34-AA, section 35 and section 37 of the Wealth Tax Act, 1957 (27 of 1957), shall, with the necessary modifications, apply in relation to such reference as they apply in relation to a reference made by the Assessing Officer under subsection (1) of section 16-A of that Act. Explanation. In this section 'Valuation Officer' has the same meaning as in clause (r) of section 2 of the Wealth Tax Act, 1957 (27 of 1957)" " 147. If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessm ent for any assessm ent year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessm ent and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessm ent year concerned: Provided that where an assessm ent under subsection (3) of section 143 or this section has been made for the relevant assessm ent year, no action shall be taken under this section. After the expiry of four years from the end of the relevant assessment year, unless any income chargeable to tax has escaped assessm ent for such assessment year by reason of the failure on the part of the assessee to make a return under section 1'39 or in response to a notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material fact necessary for his, assessm ent for that assessm ent year. ' Explanation 1.---Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso. Explanation 2.--For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment-namely:--- (a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the
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previous year exceeded the maximum amount which is not chargeable to income-tax; (b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return; (c) where an assessm ent has been made, but--- (i) income chargeable to tax has been underassessed; or (ii) such income has been assessed at too low a rate; or (iii) such income has been made the subject of excessive relief under this Act; or (iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed. " " 148. (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessm ent year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and-- the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so." While interpreting section 17(1)(a) of Wealth Tax Act, with regard to similar powers conferred on the assessing authorities under the Wealth Tax Act, a Division Bench of this Court consisting of Mt. Kanakaraj, J. And Mr. S. M. Abdul Wahab, J., by order, dated June 26, 1997, in W. As. Nos.1094 to 1096 of 1992 in K.R. Venkateslalu v. WTO (1999) 237 ITR 293, has held as follows (page 297): "The argument of Mr. Sundar, learned counsel for the appellant, is based on the judgment of the Supreme Court in Ganga Saran & Sons (Pvt). Ltd. v. ITO (1981) 130 ITR 1. It has to be remembered that the said judgment arose out of the unamended provisions of the Income-tax Act, which contained similar provisions of law like the Wealth Tax Act. It was with reference to the said provisions of law, the apex Court pointed out that unless the ingredients are available for reopening an assessment, the power cannot be exercised. Learned counsel for the appellant also relies on the judgment in Acchut Kumar S. Inamdar v. P.R. Hajarnavis (1981) 132 ITR 331 (Bom.), for the proposition that mere under valuation of a property cannot give rise to reopening of assessment. We are of the opinion that after the amendment of section 17 of the Act with effect from April 1, 1989; the position is slightly different. .All that is necessary is that the Assessing Officer should have every reason to believe that a property has escaped assessm ent, whether by reason of under assessment or assessment at too low a rate or otherwise. The word 'otherwise' has to be given some meaning and it is' not possible to contemplate or limit the circumstances under which an assessment can be reopened, because the property has not been correctly valued. All that can be said is that an Assessing Officer should not exercise the power arbitrarily or in a mala fide manner. So long as the Assessing Officer has some reason to believe that the property had escaped proper assessment, he can always exercise the power provided he does so within the period of limitation. " No doubt, the Division Bench has held that if an assessing authority has reason to believe that a property has escaped assessm ent, It can always exercise a power to reassess the same, provided it does so within the period of limitation. Placing reliance on the said decision of the Division Bench by order, dated June 26, 1997, in W.As. Nos. 1094 to 1992 in K.R. Venkatesalu v. WTO (1999) 237 ITR 293, learned counsel for the respondent justifies the issue of the impugned notice, dated March 28, 1988, made under section 148 of the Income-tax Act.
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But, in this regard, the decisions relied upon by learned counsel for the petitioner also deserve to be referred to. "The valuation report by which agricultural lands held by the petitioner were valued at Rs.13,31,03 was considered by the Wealth Tax Officer for different assessment years. The Appellate Assistant Commissioner of Income-tax has also considered the same. Therefore; the Wealth Tax assessment orders were passed. Therefore, for the Wealth Tax Officer there was no reason to' believe that not wealth chargeable to tax has escaped assessment because of failure on the part of the petitioner to disclose fully and truly all material facts necessary for assessment of not wealth. Hence, the impugned notices issued by the Wealth Tax Officer are absolutely baseless." Similarly, a Division Bench of the Calcutta High Court in ITO v. Santhosh Kumar Dalmia (1994) 208 ITR 337, have held as, follows (page 339): "It is immaterial whether the Income-tax Officer has rejected the contentions of the assessee on the existence of the jurisdictional facts. He cannot assume jurisdiction by deciding jurisdictional, facts wrongly. If the Income-tax Officer did not have any jurisdiction to issue the impugned notice, the writ Court can always interfere irrespective of the fact whether the assessment pursuant to such notice has been made or not. If the notice issued under section 148 of the said Act, which is the condition precedent for making reassessment is quashed, then the reassessment cannot stand and that is why the learned Judge after quashing the notice under-section 148 of the said Act also directed that if any assessment order has been passed pursuant to the said notice, the same would also be set aside and quashed. That apart; the assessee also challenged the said order of reassessm ent in the writ petition. If the notice goes, so also does the order of reassessm ent." "A notice under section 148 read with section 147(a) -of Income Tax Act, 1961, is not a show-cause notice. Such a notice can be issued only if the conditions precedent for assumption of jurisdiction under section 147(a) are satisfied. For invocation of jurisdiction under section 147(a), two conditions are to be satisfied; firstly, the Income-tax Officer must have reason to believe that income, profits or gains chargeable to income-tax have escaped assessment, and 4econdly, he must have also reason to believe that such escapement has occurred by reason of either (i) omission or failure on the part of the assessee to make a return of his income under section 139 or (ii) omission or failure on the part of the assessee to disclose fully and truly al-1 material facts necessary for his assessm ent for that year. Both the conditions are conditions precedent to be cumulatively satisfied before the Income-tax Officer could assume jurisdiction to issue notice under section 148 read with section 147(a). When the validity of a notice issued under section 148 is in challenge, it is for the Income-tax Officer to satisfy the Court that the aforesaid conditions have been satisfied. The expression 'reason to believe' means that there is a reason coupled with the belief. If there is no rational and intelligible nexus between the reasons and the belief, so that, on such reasons, no one properly instructed on facts and law could reasonably entertain the belief, the conclusion would be inescapable that the Income-tax Officer could not have had reason to believe. In such a case, the notice issued by him would be liable to be struck down as invalid and without jurisdiction. The materials having a natural nexus to the formation of the belief have to be disclosed by the Income- tax Officer. He can do so by filing an affidavit. Mere disclosure of the belief in the affidavit filed by the Income-tax Officer without setting out any material on the basis of which the belief was arrived at is not sufficient. Where no affidavit is filed by the Income-tax Officer, in spite of opportunity given, the Court may direct production of the records containing materials to establish that there is a direct nexus or live link between the materials and the formation of his belief. If the Court allows the Income-tax Officer to produce such records and the Court examines the materials to find out whether there are tenable reasons, the Court must allow inspection of such records to the
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assessee. The recorded reasons or materials or the letter of proposal sent by the Income-tax Officer to the Commissioner are not privileged-documents. The appellant purchased a piece of land. In July, 1966, the appellant started construction of a house thereon which was completed in October, 1968. The said building was constructed at a total cost of Rs.1,46,363 paid by the appellant in four years from 1967 to 1970. In the course of the assessm ent proceedings for the assessment year 1967-68, the appellant furnished details of the cost of construction in each year and also filed a valuation report. The Income-tax Officer on the basis of a valuation report made an addition of Rs.48,182. The addition was deleted by the Appellate Assistant Commissioner. . The Tribunal dismissed the appeal of the Department and held, inter alia, that before the Income-Tax Officer the books of account maintained for the construction and other details supported by vouchers had been produced, that the Income-tax Officer had not pointed out any defect in the accounts or bills produced, and that hence, the accounts could not be rejected. In March, 1976, the appellant received a notice under section 148 for the assessm ent year 1967-68. The appellant required the Income-tax Officer to disclose the reasons for the said notice. No reply was given by the Income-tax Officer. No copy of the recorded reasons was given to the appellant. The appellant filed a writ petition against the notice which was dismissed by a Single Judge. On appeal: Held, (i) that the judgment was not right in denying the inspection of the records to the appellant: (ii) that in an affidavit filed by the Income-tax Officer in the appeal it had been stated that the Departmental Valuation Officer had estimated the cost of construction at a higher figure. However, in the original assessm ent proceedings, the Tribunal had held that the assessee's valuer's report on the basis of which the addition of Rs.48,182 had been made did not reflect the correct valuation and that since the assessee had maintained books of account the Income-- tax Officer could not reject the same without pointing out defects. The Tribunal had accepted the cost of construction furnished by the assessee. This finding had become final and binding on the Income-tax Officer. The decision of the Tribunal was arrived at prior to the issue of the notice under section 148 on March 31, 1976. In the face of the aforesaid findings and the order of the Tribunal, the Income-tax…
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