Research › Search › Judgment

Orissa High Court · body

2007 DIGILAW 701 (ORI)

Maddi Sreeramulu,Sons v. State of Orissa

2007-09-10

I.MAHANTY

body2007
JUDGMENT I. MAHANTY, J. — The petitioner M/s. Maddi Sreeramulu & Sons (HUF) filed the present application under Section 256(2) of the Income tax Act, 1960 (in short ‘the Act’) against the order dated 5.3.1990 passed by the Income Tax Appellate Tribunal, Cuttack Bench, Cuttack in reference Application No. 151/CTK/1989 relating to the assessment year 1976-77. 2. This Court vide order dated 7.9.1992 has been pleased to admit this application on the following question of law : “Whether on the facts and in the circumstances of the case, the initiation of the proceeding under Section 147(a) of the Income Tax Act was valid ?” 3. Subsequent thereto, the Income Tax Appellate Tribunal in compliance of the directions contained in the aforesaid order of the Court sent the statement of the case for consideration of this Court. 4. Learned counsel for the petitioner Mr. G.N.Padhi sub¬mits that this case arises out of the search conducted by a Police Party at the premises of the assessee-petitioner on 17.9.1975 and on the basis of which some gold ornaments, silver and cash were seized from the petitioner. It is further stated that the Superintendent of Police, Koraput vide his letter dated 25.9.1975 informed the Income Tax Officer of such seizure and sent a copy of the seizure list to him. 5. It is stated that the Income Tax Officer upon receipt of such information in turn called upon the petitioner to provide certain information and also examined the petitioner under oath in his capacity as “Karta” of his family and completed assessment under Section 143(1) of the Act on 31.3.1979, i.e. after three and half years of getting such information from the Superintend¬ent of Police, Koraput. Learned counsel for the petitioner fur¬ther asserts that the Income Tax Officer had accepted the accounts of the petitioner after seeking information from the petitioner with regard to the articles seized by the police as well as by examining the petitioner as ‘Karta’ of the H.U.F. as well. In the aforesaid facts, the learned counsel for the peti¬tioner submits that the order of assessment dated 31.3.1979 was passed under Sec. 143(1) of the Act by the I.T.A.T. after duly applying his judicial mind. 6. The basic grievance of the petitioner is that the Income Tax Officer has passed the assessment order under Sec. 143(1) of the Act, on 31.3.1979. 6. The basic grievance of the petitioner is that the Income Tax Officer has passed the assessment order under Sec. 143(1) of the Act, on 31.3.1979. Once again eight months thereaf¬ter, i.e. on 30.11.1979 the revenue sought to re-open the assess¬ment made against the petitioner under Sec. 149(2) of the Act purportedly by recording reasons in the file, but without issuing a copy of the reasons recorded to the petitioner, issued notice under Section 148 of the Act, even without mentioning the status of the assessee in the notice. 7. It is further submitted that although the reasons recorded in the assessment records indicate that the said Income Tax Officer once again relied on the “seizure list of the police” and claimed that he has reason to believe that the income charge¬able to tax for the assessment year 1976-77 has escaped assess¬ment within the meaning of Section 147 of the Income Tax Act. The Assessing Officer thereafter passed the further assessment order dated 19.3.1983 under Sec. 143(3) read with Section 147 of the Act determining the income of the assessee of Rs. 34,610.00 instead of Rs. 2,420.00 vide assessment order under Sec. 143(1) of the Act dated 31.3.1979. 8. The record indicates that the petitioner challenged the aforesaid order by way of an appeal before the Appellate Assistant Commissioner of Income Tax, Berhampur Range, Berhampur and the same was allowed vide order dated 18.3.1987 by quashing the assessment order under Sec. 143(3) read with Sec. 147 of the Act dated 19.3.1983 on the ground that the initiation of the proceeding under Sec. 143(3) was invalid and therefore, the assessment proceeding arising thereof is null and void. 9. The Revenue preferred a Second Appeal before the Income Tax Appellate Tribunal. The I.T.A.T. disposed the same vide order dated 28.9.1989 holding in favour of the Revenue by a finding that the initiation of the proceeding under Sec. 147(3) was valid and proper thereby quashing the appellate order dated 18.3.1987 and restoring the assessment order under Section 143(3) of the Act passed by the I.T.O. 10. The present application filed by the petitioner and the question of law, as has been noted hereinabove arises from the impugned order of the Income Tax Appellate Tribunal. The present application filed by the petitioner and the question of law, as has been noted hereinabove arises from the impugned order of the Income Tax Appellate Tribunal. The learned counsel for the petitioner advanced his arguments and prayed that the question of law framed in the present proceeding be answered in favour of the Assessee by holding that the initiation of the proceeding under Sec. 147(a) of the Act was invalid. In support of the aforesaid prayer, the learned counsel essentially advanced the following contentions : “That, the Hon’ble Tribunal without going to the question as to whether the precondition for issue of notice under Sec. 147(a) namely commission or failure on the part of the assessee to make a return under Sec. 139 of the disclose fully and truly all materials facts necessary for the assessment year even though admittedly all the information existed with the revenue as early as 25.9.1975 and the records reveals that enquiry was conducted on the same materials and the concerned officer did not consider, worthwhile to make an assessment on this materials but hold that the action of the income tax officer for initiation of the proceeding under Sec. 147(a) is valid. However the reassessment order is nothing but reviewing the earlier order which is not permissible under the law. Moreover the facts were well known to the department by the time of as¬sessment was completed and therefore the question of the assessee not disclosing fully and truly the materials do not arise and as such there was no scope to institute a proceeding under Sec. 147(a) in the instant case as there was no other materials excepting the seizure list so as to say the income for escaping assessment by attracting the said provision. Further the question of application of mind by the assessing officer after 31.3.79 is not correct as because it is admitted fact and based on record that the assessing officer after considering the materials which was existed as early as 25.9.75 and making necessary enquiry on the said materials and examining the assessee on oath was pleased to pass the assessment order. So the question of any income chargeable to tax under escaped as¬sessment does not arise so far the instant case is concerned in absence of any other materials other than the seizure list. So the question of any income chargeable to tax under escaped as¬sessment does not arise so far the instant case is concerned in absence of any other materials other than the seizure list. The Hon’ble Tribunal has failed to consider the above aspect and hold that the I.T.O. has applied his mind only on 30.11.79 which does not look to be sound and reasonable after doing all exercise before that.” 11. Mr. Mohapatra, learned Standing Counsel for the Revenue supported the order passed by the Income Tax Appellate Tribunal and states that the plea of the assessee that he had no adequate notice since the notice to him did not indicate his name along with the status of H.U.F. has been correctly turned down by the Tribunal by a finding that the G.I.R. number of the assessee is given in the notice as ‘HN-7531’. This GIR No. pertains to the assessee in the capacity of “Karta” under H.U.F. and therefore omissions of H.U.F. in the notice is not at all material. Mr. Mohapatra further contended that the Income Tax Appel¬late Tribunal considered the arguments, taking into account the legal aspects in issuance of notice, its validity and the status as well as the basis of the arguments advanced and came to hold that since there has been an omission and failure on the part of the assessee in disclosing the true material facts necessary for making assessment and for which the Income of the assessee has escaped assessment, the initiation of the proceeding under Sec. 147(a) of the Act was fully justified and proper. Section 147(a) of the Income Tax Act, 1961 reads as under: “If 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 under Section 139 for any assessment year to the Income Tax Officer, or to disclose fully and truly all material facts necessary for his assessment for that year, income charge¬able to tax has escaped assessment for that year or..... Section 147(b) of the Income-tax Act, 1961 read as under : Not-withstanding that there has been no commission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.....” 12. Section 147(b) of the Income-tax Act, 1961 read as under : Not-withstanding that there has been no commission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year.....” 12. On a plain reading of the aforesaid provisions of law it would be clear that if the information provided by an Assessee is not sufficient or if there was no such information at all, then there was clearly a failure or omission on the part of the assessee to disclose fully and truly all material facts. This aspect is covered under Clause (a) of Sec. 147 of the Act. Sub-section (b) thereof would apply of the I.T.O. obtains any infor¬mation relating to the income of the assessee. 13. Considering the aforesaid provisions of law, the Appel¬late Assistant Commissioner of Income Tax, Berhampur Range, Berhampur vide his order dated 18.3.1987 came to the following finding : “4. In the present case, as per the record (including confidential records), the ITO received information about the raid from the Superintendent of Police, Koraput vide his letter No. 5936 (2) D.I.B., dated 25.9.1975. Alongwith the report, he also received information regarding seizure of certain assets including cash. On the basis that, the ITO called for certain explanations from the appellant and also examined the appellant on oath. However, inspite of all these, the ITO completed the assessment under Sec. 143(1) on 31.3.79. 5. Later, on 30.11.79, the ITO recorded that he had reason to believe that the income chargeable to tax for assessment year 1976-77 had escaped assessment. He, therefore, issued notice under Sec. 148. Although the notice from the order sheet do not say anything about the particular clause under which the action was initiated it is clear from the assessment order itself that action was initiated under Sec. 147(a). 5(ii) The order sheet entry dated 31.11.79 reads as under: 30.11.79 : Seen the seizure list. I have reasons to believe that the income chargeable to tax for the A.Y 1976-77 has escaped assessment within the meaning of Sec. 147 of the I.T.Act. Issue notice under Sec. 148. Sd/- I.T.O. 5 (iii) From the proper reading of the order sheet entry, three situations emerge. I have reasons to believe that the income chargeable to tax for the A.Y 1976-77 has escaped assessment within the meaning of Sec. 147 of the I.T.Act. Issue notice under Sec. 148. Sd/- I.T.O. 5 (iii) From the proper reading of the order sheet entry, three situations emerge. (I) The ITO formed his belief on the basis of the seizure list which was supplied to him alongwith the report of the S.P. The Income-tax Act makes it clear that both in case of Sec. 147(a) and in case of Sec. 147(b), the ITO must have reason to believe that income has escaped assessment after the original assessment is completed. In the present case, the ITO has formed his belief only on the basis of the report of S.P. and the sei¬zure list. The report of the S.P. and the seizure list was received by the ITO much before the original assessment was made. It is not understood why the ITO chose a time after the original assessment was over to form his belief regarding the escapement of income.” 14. The finding arrived at by the Appellate Assistant Commissioner in paragraphs 4 & 5(i) as noted hereinabove has been dealt with by the I.T.A.T. Cuttack Bench, Cuttack in paragraph-14 of the judgment in the following manner : “14. x x x x x x The I.T.O. made the original assessment under Section 143(1). He had no occasion to make investigation in detail, as he has merely accepted the return filed by the asses¬see. When he had taken report of the Superintendent of Police, Koraput and the seizure-list that made, still he did not make out his mind. But after completing the time barred assessment the I.T.O. applied his mind and came to the conclusion that there was an escapement of income due to the omission and failure on the part of the assessee.” 15. From the above it is clear that in a reading of the aforesaid conclusion the Income Tax Appellate Tribunal also accepted the following facts : (i) The I.T.O. had received the information from the Superin¬tendent of Police, Koraput vide his letter dated 25.9.1975. (ii) On the basis of the said report the I.T.O. called upon the assessee to provide certain explanations. (iii) The assessee was examined by the I.T.O. on oath. 16. The I.T.O. thereafter completed the assessment under Sec. 143(1) on 31.3.1979. (ii) On the basis of the said report the I.T.O. called upon the assessee to provide certain explanations. (iii) The assessee was examined by the I.T.O. on oath. 16. The I.T.O. thereafter completed the assessment under Sec. 143(1) on 31.3.1979. Therefore, from the aforesaid fact it would be clear that right from the date of receipt the Superin¬tendent of Police’s letter dated 25.9.1975 till passing of the order under Sec. 143, vide order dated 31.3.1979. Clarifications had been sought for as well as the I.T.O. had examined the assessee, which clearly establishes that the I.T.O. had been satisfied by the explanation provided by the assessee. 17. Therefore, the order of assessment once having been passed under Sec. 143(1) when factually shown to have been passed with the knowledge of the seizure, cannot thereafter, form the basis of a further proceeding under Sec. 148(2) of the Act. The Income Tax Appellate Tribunal has proceeded on the footing that “the I.T.O. made the original assessment under Section 143(1). He had no occasion to make investigation in detail as he has merely accepted the return filed by the assessee. When he had taken the report of the Superintendent of Police, Koraput and the seizure list that made, still he did not make out his mind. But after completing the time barred assessment the I.T.O. applied his mind......” 18. The aforesaid finding of the Income Tax Appellate Tribunal is clearly not based on record. The First Appellate Authority vide his order dated 18.3.1987 has recorded that in the present case as per the record (including confidential records), the I.T.O. received information about the raid from the Superin¬tendent of Police, Koraput vide his letter No. 5936 (2) D.I.B. Dated 25.9.1975. Alongwith the report, he also received informa¬tion regarding seizure of certain assets including cash. On the basis of that the ITO called for certain explanations from the appellant and also examined the appellant on oath. However, inspite of all these, the ITO completed the assessment under Sec. 143(1) on 31.3.79. (Para-4). 19. Alongwith the report, he also received informa¬tion regarding seizure of certain assets including cash. On the basis of that the ITO called for certain explanations from the appellant and also examined the appellant on oath. However, inspite of all these, the ITO completed the assessment under Sec. 143(1) on 31.3.79. (Para-4). 19. In view of the finding recorded hereinabove, we are of the view that in the facts and circumstances of the case since the I.T.O. has passed the original assessment order under Sec. 143(1) on 31.3.1979 and the record indicates that 3½ years prior there to i.e., Superintendent of Police’s letter dated 25.9.1975, the I.T.O. had the necessary information and had accepted the explanation as well as taking statements of the assessee on oath, the Revenue has failed to explain why the Income Tax Officer had to wait till after he passed the original order of assessment, to issue the notice under Sec. 147(a) of the Act. Therefore, we answer the question framed in favour of the assessee and against the Revenue and hold that in the facts and circumstances of the case the initiation of the proceeding under Sec. 147(a) of the Act was invalid and therefore we quash the order passed by the Income Tax Appellate Tribunal and affirm the order passed by the First Appellate Authority. 20. The S.J.C. is allowed in terms of the answer to the question of law framed hereinabove. CHIEF JUSTICE, I agree. Reference answered.