Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : Section 147, Expl.II(b) Of IT Act Added W.e.f. 1.4.1989 Provides By Deeming Fiction That Income Can Be Treated To Have Escaped Assessment.
JUDGEMENT TITLE : M/S S.K.Gupta & Company Vs. Income Tax Officer, Ward-I, Ghaziabad On 06/07/2007 By Allahabad High Court
CASE NO : WRIT TAX NO. 593 OF 1999
CORAM : Hon'ble R.K. Agrawal,J. And Hon'ble Bharati Sapru,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

Reserved

Civil Misc. Writ Petition No.593 Of 1999
M/s S.K.Gupta & Company V. Income Tax
Officer, Ward I, Ghaziabad



Hon'ble R.K.Agrawal, J.
Hon'ble Bharati Sapru, J.

(Delivered By R.K.Agrawal, J.)

By Means Of The Present Writ Petition Filed Under Article 226 Of The Constitution Of India, The Petitioner, M/s S.K.Gupta & Company, Through Its Partner, Sri S.K.Gupta, Seek A Writ, Order Or Direction In The Nature Of Certiorari Quashing The Notice Dated 15.3.1999 Issued By The Income Tax Officer, Ward I, Ghaziabad, The Sole Respondent, Filed As Annexure 4 To The Writ Petition, As Also For Quashing The Entire Proceeding Taken In Pursuance Of The Notice Under Section 148 Of The Income Tax Act, 1961 ((hereinafter Referred To As "the Act") For The Assessment Year 1988-89.
Briefly Stated, The Facts Giving Rise To The Present Petition Are As Follows:-
According To The Petitioner, It Is A Registered Partnership Firm. It Is A Contractor And Is Engaged In The Business Of Construction For The Ghaziabad Development Authority, Ghaziabad. For The Assessment Year 1988-89, It Has Filed Its Return Of Income On 30.3.1989 Under Section 139 Of The Act Declaring The Income At Rs.1,01,070/-. The Respondent Issued Notice Under Section 143(2) Of The Act Calling Upon The Petitioner To Furnish Certain Information For The Purpose Of Making The Assessment. The Assessment Order Under Section 143(3) Of The Act Was Passed By Him On 27.3.1991. However, The Assessment Was Made In The Status Of Association Of Person (AOP). The Petitioner Preferred An Appeal Before The Commissioner Of Income Tax (Appeals), Muzaffarnagar Who, Vide Order Dated 18.12.1991, Had Allowed The Appeal In Part And Granted Substantial Relief. Still Feeling Aggrieved, The Petitioner Preferred A Further Appeal Before The Income Tax Appellate Tribunal, New Delhi, Which, Vide Order Dated 1.4.1998, Had Held That The Assessment Order Passed By The Respondent Was Invalid And Accordingly Quashed The Order Dated 27.3.1991. The Respondent Had Issued A Notice Dated 15.3.1999, Purporting To Be Under Section 148 Of The Act, For The Assessment Year 1988-89. The Petitioner Had Filed Its Return Of Income Under Protest On 7.4.1999 Declaring The Same Income. It Also Requested For Communicating The Reasons Recorded For Initiation Of The Proceeding Under Section 148 Of The Act. The Notice Issued Under Section 148 Of The Act Is Under Challenge In The Present Case On The Ground That There Had Been No Escapement Of Income Assessment As The Return Filed On 30.3.1989 Is Still Pending And Has Not Yet Been Disposed Of Culminating In The Final Assessment. Further, There Had Been No Omission Or Failure On The Part Of The Petitioner To File The Return Or To Disclose Truly And Fully All Material Fact For The Assessment Year 1988-89. The Proceedings Are Barred By Limitation Also As A Period Of 8 Years Had Expired.
In The Counter Affidavit Filed By Sri H.N.Thakur, Income Tax Inspector, Posted With The Income Tax Officer, Ward I, Ghaziabad, Respondent, It Has Been Stated That While Passing The Assessment Order On 27.3.1991, Due To Mistake, The Status Was Mentioned As AOP Instead Of URF And The Same Has Been Corrected On 22.4.1991 While Exercising The Power Under Section 154 Of The Act. No Appeal Has Been Preferred Against The Rectification Order Dated 27.4.1991. Reasons Have Been Recorded By The Respondent, Which Shows That The Petitioner Had Not Declared The Investment Of FDR Amounting To Rs.1,15,000/- While Filing The Return. The Department Has Preferred A Reference Application Against The Order Passed By The Income Tax Appellate Tribunal Dated 21.4.1998. The Proceedings Have Been Validly Initiated And Merely Because The Original Return Stands Undisposed Of, Would Not Prohibit The Initiation Of Re-assessment Proceeding.
In The Rejoinder Affidavit Filed By The Petitioner, The Averments Made In The Counter Affidavit Have Not Been Admitted And The Averments Made In The Writ Petition Have Been Reiterated. It Has Further Been Stated That The Appeal Filed Against The Rectification Order Dated 22.4.1991 Had Been Dismissed By The Commissioner Of Income Tax (Appeals) On The Ground That It Has Become Infructuous. It Has Further Been Stated That The Investment Made In FDR Amounting To Rs.1,15,000/- Had Been Considered By The Respondent While Passing The Assessment Order On 27.3.1991 And It Cannot Be Made The Basis For Reopening.
We Have Heard Sri Pawanshri Agrawal, Learned Counsel For The Petitioner, And Sri Govind Krishna, Learned Standing Counsel, Appearing For The Respondent.
The Learned Counsel For The Petitioner Submitted That The Assessment Year In Question Is Being 1988-89, Therefore, The Law, As It Stood Prior To Its Amendment With Effect From 1.4.1989, Shall Govern The Present Case. He Further Submitted That As The Petitioner Had Filed Its Return Of Income On 30.3.1989 And The Assessment Order Made On 27.3.1991, Having Been Quashed By The Tribunal, It Would Be Taken That The Return Filed On 30.3.1989 Is Still Pending And, Therefore, There Cannot Be Any Escapement Of Income. In Support Of His Aforesaid Plea, He Has Relied Upon The Following Decisions:-
(i) Karimtharuvi Tea Estate Ltd. V. State Of Kerala, (1966) 60 ITR 262 (SC);
(ii) Estate Of The Late A.M.K.M.Karuppan Chettiar V. Commissioner Of Income Tax, Madras, (1969) 72 ITR 403 (SC);
(iii) Sool Chand Ram Sewak V. Commissioner Of Income Tax, U.P., (1969) 73 ITR 466 (Alld.);
(iv) Commissioner Of Income Tax, Madras V. M.K.K.R.Muthukaruppan Chettiar, (1970) 78 ITR 69(SC);
(v) Sheila Brij Jaggi V. 11th Income Tax Officer And Others, (1990) 184 ITR 50 (Bom);
(vi) Indian Tube Co. Ltd. V. Income Tax Officer, (2005) 272 ITR 439 (Cal); And
(vii) Virtual Soft Systems Ltd. V. Commissioner Of Income Tax, (2007) 289 ITR 83 (SC).

In Reply, Sri Govind Krishna, Learned Standing Counsel, Submitted That The Provisions As It Stood On The Date When Re-assessment Proceeding Are To Be Taken, Is To Be Applied And, Therefore, If No Assessment Has Been Made, It Would Be Treated As A Case Of Escaped Assessment. He Further Submitted That There Are Sufficient And Good Reason For Taking Proceeding Under Section 148 Of The Act And This Court Should Decline To Exercise Its Jurisdiction Under Article 226 Of The Constitution Of India. In Support Of His Aforesaid Pleas, He Has Relied Upon The Following Decisions:-
(i) Commissioner Of Wealth Tax V. Sharvan Kumar Swarup And Sons, (1994) 210 ITR 886 (SC);
(ii) Kundan Lal Ratan Lal Jain V. Assessing Officer, (2000) 245 ITR 434 (Alld); And
(iii) Commissioner Of Income Tax V. Raatha Jewellers, (2006) 286 ITR 573 (Kant).

We Have Given Our Anxious Consideration To The Various Pleas Raised By The Learned Counsel For The Parties.
It Is Not In Dispute That The Petitioner Had Filed Its Return Of Income For The Assessment Year 1988-89 On 30.3.1989. The Assessment Was Framed Under Section 143(3) Of The Act On 27.3.1991 Which Had Been Quashed By The Tribunal Vide Order Dated 21.4.1998. It Is A Case Where There Is No Assessment At All. Proceeding For Re-assessment Has Been Initiated Under Section 148 Of The Act By Issuance Of Notice Dated 15.3.1999. The Reasons Which Have Been Recorded For Issuing The Notice, A Copy Of Which Has Been Filed As Annexure 1 To The Rejoinder Affidavit, Is Reproduced Below:-
"In The Return Of Income Filed By The Assessee, The Assessee Did Not Declare The Investments In FDRs Amounting To Rs.115,000/- As Also The Assessee Had Made An Effort To Create Bogus Capital Formation In The Names Of Minors And Ladies. Further More Investment Of Rs.64,536/- Have Been Made By The Assessee In The Name Of Deepak Gupta, Vidya Gupta, Rajni Gupta, Sarika Gupa And Pankaj Gupta. Since The Above Income Has Escaped Assessment Amounting To Rs.743,642/-, I Am Satisfied That Initiation Of Proceedings U/s 147 Is Necessary.
Issue Notice U/s 148 Of The I.T.Act/."

As The Assessment Order Dated 27.3.1991 Has Been Quashed By The Tribunal, It Would Be Treated That The Said Order Is No Longer In Existence And Cannot Be Looked Into For Any Purpose Whatsoever. In The Return Of Income Filed By The Petitioner, Both On 30.3.1989 And 7.3.1999, It Had Disclosed The Income Of Rs.1,07,070/-, I.e., The Same Income. The Information Regarding Non-disclosure Of Investment Made In The FDR As Also In The Name Of Minor Children Is Specific And Can Be Said As Relevant Material For Forming The Belief That The Income Of The Petitioner Had Escaped Assessment To Tax.
It Has Been Well Settled By A Series Of Decisions, Viz., Of The Apex Court In The Case Of Estate Of The Late A.M.K.M.Karuppan Chettiar (supra) And Of The Various High Courts In The Case Of Sool Chand Ram Sewak, M.K.K.R.Muthukaruppan Chettiar, Sheila Brij Jaggi And Indian Tube Co. Ltd. (supra), That Where A Return Has Been Filed And Even If No Assessment Has Been Made, The Income Cannot Be Said To Have Escaped Assessment.
But After The Amendment Made In Section 147 Of The Act, By The Direct Tax Laws (Amendment) Act, 1987 With Effect From 1.4.1989 Whereby Clause (b) To Explanation II Had Been Inserted To The Following Effect :-
"(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;"

the Position Has Changed. Now, By A Deeming Fiction Where A Return Has Been Filed But No Assessment Has Been Made, Is Also Treated To Be A Case Where The Income Chargeable To Tax Has Escaped Assessment.
It Also Cannot Be Disputed That The Law As It Stood Amended On The First Day Of April Of Any Financial Year Is To Be Applied To The Assessment Of That Year And Any Amendment In The Act Which Came Into Force After The First Day Of April Of Any Financial Year, Would Not Apply To Assessment Of That Year, Even If The Assessment Is Actually Made After The Amendment Came Into Force (See Karimtharuvi Tea Estates Limited. V. State Of Kerala, 60 ITR 262 (SC)).
We May Also Mention Here That The Main Part Of Section 147 Of The Act Relates To Substantive Provision Whereas The Explanation Relates To Procedural Matters. The Substantive Provision Cannot Be Held To Be Retrospective In Operation Unless Specifically Provided Or By Necessary Implication Whereas Procedural Provision, Unless Otherwise Provided, Are To Apply Retrospectively.
In The Case Of Rajatha Jewellers (supra) The Karnataka High Court Has Held As Follows:-
"Statutes Dealing With Merely Maters Of Procedure Are Presumed To Be Retrospective Unless Such A Construction Is Textually Impermissible. The General Rule That An Act Of Parliament Is Not To Be Given Retrospective Effect Applies Only To Statutes Which Affect Vested Rights. It Does Not Apply To Statutes Which Only Alter The Form Of Procedure. If An Amendment Is Brought To A Procedural Law, The Amended Provision Apples To All Actions Pending As Well As Future. No Person Has A Vested Right In Any Course Of Procedure. He Has Only The Right Of Prosecution Or Defence In The Manner Prescribed For The Time Being By Or For The Court In Which The Case Is Pending. If By An Act Of Parliament The Mode Of Procedure Is Altered He Has No Other Right Than To Proceed In Accordance With The Altered Mode."

The Patna High Court In The Case Of Ranchi Handloom Emporium V. Commissioner Of Income Tax And Another, (1999) 235 ITR 604, Has Held That The Amendment Made In Section 147 Of The Act With Effect From 1.4.1989 Would Not Be Applicable To The Assessment Year 1988-89. The Patna High Court Has Held As Follows:-
"The Submission That The Present Case Will Be Governed By The Amended Provisions Of Section 147 Of The Act Is Completely Misconceived. Having Regard To The Fact That The Amended Provisions, As Substituted By The Direct Tax Laws (Amendment) Act, 1987, Came Into Force From April 1, 1989, And The Present Case Relates To The Assessment Year 1988-89, The Relevant Accounting Year Being July 9, 1986, To June 27, 1987, I Have No Doubt In My Mind That It Would Be The Unamended Provisions Which Would Govern The Case. If A Particular Act Does Not Constitute Any Offence Or Does Not Involve Any Consequence, The Person Committing Such Act Cannot Be Held Liable If The Same Very Act Becomes An Offence And Liable To Penal Consequence By Virtue Of Some Subsequent Law. He Cannot Be Punished For Committing That Act Merely Because Some Penalty Is Prescribed Later For The Same."

In The Case Of Virtual Soft Systems Ltd. (supra) The Apex Court While Considering The Provisions Of Section 271(1)(c) Of The Act, As Amended By The Finance Act, 2002, With Effect From 1.4.2003, Has Held As Follows:-
"The Amendment Is Not Retrospective And There Is No Assumption As To Its Retrospectivity. Retrospectivity Has To Be Enacted Specifically In The Fiscal Statute And It Is More So In The Case Of Penal Provisions, Otherwise It Would Be Contradictory Or Derogatory To Article 20(1) Of The Constitution. This Court Has Held In Brij Mohan V. CIT (1979) 120 ITR 1, That The Law To Be Applied Is The One In Force On The First Day Of The Accounting Period. To This Effect Are The Other Decisions Of This Court Reported As CIT V. Patel Brothers And Co. Ltd. (1995) 215 ITR 165. The Allahabad High Court Has Also Taken The Same View In Zam Zam Tanners (2005) 279 ITR 197. The Notes On Clauses On The Amendment Introduced By The Finance Act, 2002, Make Specific Mention Inter Alia Of The Amendment To Be Effective From April 1, 2003, Of Which The Bombay High Court Has Failed To Take Notice In Its Judgment In CIT V. Chemiequip Ltd. (2004) 265 ITR 265."

In The Case Of Sharvan Kumar Swarup And Sons (supra) The Apex Court Has Held That Rule 1BB Of The Wealth Tax Rules, Which Came Into Force On 1.4.1979, Prescribing The Method Of Valuing A House, To Be A Rule Of Evidence. It Has Been Held To Be Procedural And Not Substantive And Applicable To All Proceedings Pending On 1.4.1979.
Clause (b) To Explanation II, Added In Section 147 Of The Act By The Direct Tax Laws (Amendment) Act, 1987, With Effect From 1.4.1989, Provides For A Deeming Fiction As To When An Income Can Be Treated To Have Escaped Assessment. It Is A Rule Of Evidence And Procedure And, Therefore, Would Cover Cases Where The Re-assessment Proceedings Are Initiated After 1.4.1989.
In The Case Of S.K.Gupta And Co. V. The Income Tax Officer And Another, (2000) 246 ITR 560, Which Is Inter Partes And Relates To The Assessment Year 1987-88, A Similar Plea Was Raised By The Petitioner, Which Had Been Repelled In The Following Words:-
"However, What Is Evident Is That Due To The Time Taken In The Earlier Round Of Proceedings, The Limitation For Making An Assessment On The Basis Of The Return Of Income, Filed In Pursuance Of The Notice Dated October 5, 1990, Had Expired And, Therefore, It Cannot Be Said That Either The Said Notice Or The Return Of Income Had Revived And Could Be Treated To Be Pending. Such A Situation Has Been Taken Care Of By Clause (b) Of Explanation 2 To Section 147. Explanation 2 States That For The Purposes Of Section 147, The Following Shall Also Be Deemed To Be Cases Where Income Chargeable To Tax Has Escaped Assessment, Namely :---
"(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;"

Thus, In View Of This Explanation And The Fact That Because Of The Events, Narrated Above, No Assessment Was Made On The Assessee-partnership Firm, It Becomes A Case Where Income Chargeable To Tax Has Escaped Assessment. As Stated In Paragraph 7 Of The Counter Affidavit, The Income Was Not Stated By The Assessee In The Return That Was Filed In Pursuance Of The Earlier Notice Under Section 148 On November 16, 1990. The Income Declared In The Said Return Was Only Rs. 99,620 While As Stated In Paragraph 16 Of The Counter Affidavit During The Course Of Search And Seizure Operations, The Assessee Had Offered An Additional Income Of Rs.1 Lakh. Therefore, All The Conditions Mentioned In Clause (b), Reproduced Above Were Satisfied In This Case And The Assessing Officer Could Reassess The Income After Issuing A Notice Under Section 148. It Is Not A Case Of Circumventing The Period Of Limitation But Is A Case Where Because Of Certain Circumstances, The Statute Itself Allows The Assessing Officer An Opportunity To Bring To Tax Escaped Income Although The Period Originally Prescribed Had Expired."

We Are, Therefore, Of The Considered Opinion That The Present Case Is Squarely Covered By Clause (b) Of Explanation II To Section 147 Of The Act And The Re-assessment Notice Has Been Validly Issued On The Reasons Assigned By The Respondent. The Reasons Relied By The Respondent Are Based On The Relevant Material And Do Not Suffer From Any Legal Infirmity.
In The Result, The Writ Petition Fails And Is Dismissed.

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