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J.P Bajpai, Huf v. Commissioner Of Income-Tax And Another
Structured Summary of the Provided Opinion
Factual and Procedural Background
The writ petition challenges notices issued under Section 148 of the Income-tax Act dated 27 March 1987 and 29 March 1988 for assessment years 1978-79 and 1979-80 respectively, and a notice under Section 143(2) dated 22 February 1990. The petitioner is a Hindu Undivided Family (HUF) owning a residential house in Etawah that yields rental income; the Karta, Mr. J.P. Bajpai, purportedly occupies the premises for office use and pays Rs. 500 per month. The petition alleges that a local partnership firm M/s Atul Traders (later renamed M/s Atul Industrial Corpn.) and managed by Om Prasad Purwar fraudulently recorded deposits in the books of that firm in the name of "J.P. Bajpai, HUF, Etawah" though such amounts were never actually deposited by the petitioner.
The petitioner filed returns and supporting affidavits, and assessments for assessment years 1981-82 to 1984-85 were completed under Section 143(1). Assessment for 1985-86 was completed under Section 143(3). Assessments of M/s Atul Traders and M/s Atul Industrial Corpn. treated the alleged deposits in the petitioner’s name as bogus and added corresponding amounts (including interest) to the firms' incomes in assessments up to 1981 (including an ex parte assessment dated 26 September 1981 for 1979-80). Despite these earlier findings by the assessing officer (AO), notices under Section 148 were issued many years later to the petitioner. The petitioner contends that the AO already had the primary facts and that the later notices constitute a reopening based on change of opinion. A counter-affidavit by the department asserts that examination of the firms' books revealed unexplained credits in the petitioner’s name, and signature identification by an expert led to action under Section 148; it also notes that the CIT(A) deleted an addition by finding alternate sources of the deposit and that an appeal against that deletion is pending before the Tribunal.
Legal Issues Presented
- Whether the notices issued under Section 148 of the Income-tax Act (dated 27 March 1987 and 29 March 1988) for assessment years 1978-79 and 1979-80 to the petitioner are valid or constitute an impermissible reopening based on a mere change of opinion by the assessing authority.
- Whether the notice under Section 143(2) dated 22 February 1990 for the same assessment years is sustainable in the circumstances described.
- Whether respondent No. 2 (the assessing authority) had any fresh material or information justifying issuance of notices under Section 148 when the primary facts were already known and had been investigated in prior assessments of the firms.
Arguments of the Parties
Petitioner's Arguments
- The petitioner (an HUF) only receives rental income from a residential property and had disclosed relevant facts and filed returns and affidavits for multiple assessment years (returns accepted under Section 143(1) and 143(3)).
- M/s Atul Traders/Atul Industrial Corpn. fraudulently recorded deposits in the petitioner’s name without the petitioner actually depositing those amounts; such entries were investigated and treated as bogus in the assessments of the firms.
- The AO had knowledge of the alleged bogus deposits at the time of earlier assessments (up to 1981); therefore issuance of notices under Section 148 after the lapse of more than six years amounts to reopening based on a change of opinion and is invalid.
- Respondent No. 2 had no fresh material or information on record which could justify the issuance of notices under Section 148.
- The notice under Section 143(2) is also challenged but the primary contention relates to the invalidity of reopening under Section 148.
Respondent's (Department's) Arguments
- Examination of the account books of M/s Atul Traders and M/s Atul Industrial Corpn. revealed credits in the petitioner’s name which could not be satisfactorily explained.
- Signatures on the opening card of the bank account (from which funds were made available to the two firms) were identified by a signature expert as those of Sri J.P. Bajpai, supporting action under Section 148.
- Although additions were made in the AO's order (including unexplained credits under Section 68), the Commissioner of Income Tax (Appeals), Agra, deleted such addition on the ground that alternative sources were shown; the department has appealed that deletion to the Tribunal, indicating ongoing departmental contention that notices were rightly issued.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gemini Leather Stores v. ITO and Ors. (1975) 100 ITR 1 (SC) | Cited in support of the proposition that prior knowledge of material facts by the assessing authority can preclude reopening on mere change of opinion. | Referenced as one of the Supreme Court decisions supporting the court's view that the AO had the requisite material and that reopening under Section 148 was based on change of opinion. |
| Jagdish Prasad v. CIT (1976) 104 ITR 214 (SC) | Cited in support of the general line of authorities addressing reopening and the limits on reopening once primary facts are disclosed. | Used by the court as part of the body of precedent reinforcing that reassessment cannot be based solely on a change of opinion. |
| ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1 (SC) | Cited among authorities dealing with assessment/reassessment principles, particularly where prior assessment treated entries as bogus. | Relied upon as supportive authority for the proposition that the assessing authority's prior conclusions and knowledge negate grounds for reopening on change of opinion. |
| Indian & Eastern Newspaper Society v. CIT (1979) 119 ITR 996 (SC) | Cited as one of the Supreme Court decisions supporting limits on reopening assessments. | Referenced to buttress the court's conclusion that notices under Section 148 were issued on the basis of change of opinion. |
| Calcutta Discount Co. Ltd. v. ITO and Anr. (1961) 41 ITR 191 (SC) | Establishes that an assessee's duty is to disclose all primary facts and nothing beyond; once primary facts are disclosed, the AO must draw proper conclusions and cannot reopen merely on change of opinion. | Cited as the foundational principle applied by the court to hold that the petitioner having disclosed primary facts could not be subjected to reopening based on a change of opinion. |
| ITO v. Lakhmani Mewal Das (1976) 103 ITR 437 (SC) | Reiterates the principle that reopening on the basis of change of opinion is impermissible if primary facts were disclosed. | Applied by the court as reinforcing authority indicating that the AO’s later action amounted to an impermissible change of opinion. |
| CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC) | Reiteration of the ruling that reopening cannot be for a mere change of opinion where primary facts are available. | Relied on by the court as part of the consistent line of Supreme Court authority supporting the petitioner's submission. |
| Parashuram Pottery Works Ltd. v. CIT (1977) 106 ITR 1 (SC) | Part of the authorities indicating the limits on reassessment where primary facts have been disclosed. | Used by the court to support the legal proposition that the notices under Section 148 were invalid as being predicated on change of opinion. |
| Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC) | Cited among cases confirming that the AO cannot reopen an assessment merely because he now draws a different conclusion from the same primary facts. | Applied to reinforce the court's conclusion that reopening was not permissible. |
| Foiamei Fiance v. CIT (2001 UPTC 521); CIT v. Foramer Fiance (2003) 264 ITR 566 (SC); CIT v. Kelvinator of India Ltd. (2002 UPTC 792 (Del)) | Held that where an assessee has made full disclosure in the return and there is no failure to disclose primary facts, a notice under Section 148 cannot be issued on mere change of opinion; the High Court decision was upheld by the Supreme Court. | The court cited these cases to show recent authority (including a Supreme Court affirmation) that supports the position that reopening on change of opinion is impermissible when primary facts are disclosed. |
Court's Reasoning and Analysis
The court's analysis proceeds from the factual matrix established in the assessments of the relevant firms and the petitioner's returns:
- The entries in the books of M/s Atul Traders/M/s Atul Industrial Corpn. in the name of the petitioner had been considered in detail by the assessing officer in the earlier proceedings and were treated as false and bogus, with the amounts being added to the firm's income up to assessment year 1979-80 (including an ex parte assessment dated 26 September 1981).
- The petitioner had filed returns, applications and affidavits for the assessment years in question and the assessments for several years had been completed under Sections 143(1) and 143(3), indicating disclosure and acceptance of the petitioner's declared income (net Rs. 5,000 for several years).
- Given that the primary and necessary facts relating to the disputed deposit entries were already in the knowledge of the AO and had been the subject of earlier investigation and treatment as bogus entries, the AO could not validly issue notices under Section 148 after the lapse of more than six years on the basis of a change of opinion.
- The department's counter-affidavit asserted signature identification by an expert and unexplained credits as justification for reopening; the court acknowledged this contention and the fact that the CIT(A) had deleted an addition on the ground of alternate sources, with the department appealing that deletion to the Tribunal. Nevertheless, the court held that the earlier AO's investigations and conclusions showed that primary facts were already available to the assessing authority.
- The court relied on a line of Supreme Court decisions and subsequent authorities establishing that once an assessee discloses primary facts, the AO's subsequent disagreement with the inferences drawn does not justify reassessment by way of reopening under Section 148; reopening on mere change of opinion is impermissible.
- On this basis, the court concluded that the impugned notices under Section 148 were issued only on the basis of a change of opinion and therefore were illegal.
Holding and Implications
Holding: The writ petition is allowed and the impugned notices under Section 148 (and the challenged notice under Section 143(2)) are quashed.
Implications:
- Direct effect: The immediate consequence for the parties is that the notices issued to the petitioner under Section 148 (dated 27 March 1987 and 29 March 1988 for assessment years 1978-79 and 1979-80) and the notice under Section 143(2) (dated 22 February 1990) have been quashed; no order as to costs was made.
- Legal/precedential effect: The decision applies the established principle that an assessing officer cannot reopen assessments on the basis of a mere change of opinion where the assessee has disclosed the primary facts. The opinion does not purport to lay down a novel principle beyond the cited authorities; it applies established precedent to the factual record before the court.
Note: All statements and conclusions in this summary are drawn exclusively from the content of the provided opinion and do not add or infer facts beyond that text.
1. This writ petition has been filed for a writ of certiorati to quash the impugned notices under section 148 of the it act, dt. 27th March, 1987 and 29th March, 1988, for asst. yrs, 1978-79 and 1979-80 respectively and for quashing the notice under Section 143(2), dt. 22nd Feb., 1990.
2. Heard learned counsel for the parties.
3. The petitioner is an HUF which owns residential house at Etawah and receives rental income. It is alleged in para 2 of the petition that the Karta of the HUF, Mr. J.P. Bajpai is occupying the said premises for his individual use (office purpose) for which he pays Rs. 500 per month. It is alleged that the petitioner does not have any income from any other source.
It is alleged in para 3 of the petition that one M/s Atul Traders which is a partnership concern in Etawah, and managed by Sri Om Prasad Purwar, fraudulently and without the consent of the petitioner started an account in the books of his firm styled as J.P. Bajpai, HUF, Etawah. It is alleged in para 4 of the petition that the aforesaid amount allegedly shown deposited in the books of M/s Atul Traders has never been deposited by the petitioner but M/s Atul Traders fraudulently and with nefarious design has illegally shown the bogus deposit in the name of the petitioner on the liability side of its balance sheet.
4. Respondent No. 2 issued notice under Section 139(2) for the asst. yrs. 1981-82 and 1982-83 to the petitioner, and the petitioner in response filed returns for those assessment years, and also voluntarily filed the returns for asst. yrs, 1983-84 and 1984-85 showing annual income as Rs. 5,000 net of the petitioner from the property owned by the petitioner. The petitioner also filed an application along with an affidavit with the returns for these assessment years, and the assessment for 1981-82 to 1984-85 was completed under Section 143(1) of the IT Act. True copies of the application, affidavit and assessment orders are Annex. I to VI to the writ petition.
The assessment of the petitioner's family for asst. yr. 1985-86 was also completed under Section 143(3) on 6th Feb., 1986, and the return declaring net income of Rs. 5,000 was accepted by the AO (vide Annex. VII to the writ petition). 5. The assessment of M/s Atul Traders for asst, yr. 1979-80 was completed on 26th Sept., 1981, ex parte, and the alleged deposit in favour of the petitioner appearing on the liability side of the balance sheet of M/s Atul Traders was treated as bogus and the entire amount along with interest was added in the hands of the firm M/s Atul Traders, Etawah. Hence it is alleged that the respondent No. 2 had knowledge that the alleged deposit of the petitioner has been shown fraudulently by M/s Atul Traders. True copy of the assessment order for asst. yr. 1979-80 is Annex. VIII to the writ petition.
6. The name of M/s Atul Traders was changed to M/s Atul Industrial Corpn., Etawah since asst. yr. 1980-81 having the same composition, assets and liabilities. Again in the year 1981-82 in the matter of M/s Atul Industrial Corpn., respondent No. 2 treated the alleged deposit of the petitioner in the books of the firm as bogus and the interest credited to this account was added in the hands of M/s Atul Industrial Corpn. and respondent No. 2 observed that the genuineness of the deposit was doubted and the interest allowed to Sri J.P. Bajpai, HUF is not allowed and the same is added to the total income of the firm. True copy of the assessment for asst. yr. 1981-82 of M/s Atul Industrial Corpn. is Annex. IX to the petition.
7. Respondent No. 2 issued notice under section 148 of the it act for asst. yr. 1978-79 to the petitioner as well as to M/s Atul Traders in March, 1987. A notice under Section 148, dt. 29th March, 1988, for asst. yr. 1979-80 was also issued to the petitioner. True copy of the notices are Annex. X and XI to the writ petition.
After issuing notices under Section 148 to M/s Atul Traders, Etawah, respondent No. 2 has made reassessment under Section 143(3) r/w Section 148 and has treated the deposit of the petitioner shown by M/s Atul Traders in his account book to be bogus and has added the alleged deposit plus interest in the hands of M/s Atul Traders vide order dt. 30th March, 1989, copy of which is Annex. VII to the petition. In pursuance of notice under Section 148 the petitioner filed return for asst. yrs. 1978-79 and 1979-80.
8. It is alleged in para 17 of the petition that while passing the assessment order under Section 144 on 26th Sept., 1981, the fact that bogus deposit of the petitioner was shown in the books of M/s Atul Traders was well within the knowledge of the assessing authority, and the said deposit was added in the hands of M/s Atul Traders. As such this fact was well in the knowledge of the assessing authority and only after the lapse of more than six years that in the year 1987 notice under Section 148 was issued to the petitioner.
9. It is alleged in para 18 that assessment of both the petitioner and M/s Atul Traders for asst. yrs. 1981-82 to 1985-86 had been completed and the deposit in the name of petitioner in the books of M/s Atul Traders was accepted as bogus. As such the entire primary facts were well in the knowledge of respondent No. 2 while completing the assessment of the petitioner as well as of M/s Atul Traders. Hence, after the lapse of six years the notice under Section 148 on the basis of change of opinion was invalid. Respondent No. 2 has now issued the notices under Section 143(2) for the asst. yrs, 1978-79 and 1979-80 which is also challenged in this petition.
10. It is alleged in para 21 of the petition that respondent No. 2 does not have any fresh material on the record or any information which could justify the notice under Section 148. Hence this petition.
11. A counter-affidavit has been filed and we have perused the same.
12. All that has been said in para 15 of the counter-affidavit is that in the course of examination of account books of M/s Atul Traders and M/s Atul Industrial Corpn., Etawah, the credit was found in the name of the petitioner which could not be satisfactorily explained. Since the signature of Sri J.P. Bajpai on the opening card of the bank account from which money was made available to the abovementioned two firms, were identified as those of Shri J.P. Bajpai by the signature expert, action was taken under section 148 of the it act.
13. In para 17 of the counter-affidavit it is stated that while it is true that additions have been made in the assessment order of M/s Atul Traders including unexplained credit under Section 68, but the CIT(A), Agra, has deleted the addition on the ground that M/s Kanhaiya Lal Pyare Lal and M/s Ravi Shanker Krishna Shanker are the source of the deposit.
Against the order of CIT(A), the Department has filed an appeal before the Tribunal, Allahabad, which is pending. It is alleged that notices have rightly been issued to the petitioner.
14. From the facts of the case, it appears that the deposit entries standing in the name of the petitioner HUF in the books of account of M/s Atul Traders/Atul Industrial Corpn. had been considered in detail by the AO in the assessment proceedings and was treated to be false and bogus, and the liability claimed in respect thereof by the said firm was disallowed, and the same was added in the hands of the said firm right upto the year 1981 when assessment was made for asst. yr. 1979-80. As such the primary and necessary facts relating to the said entries were already in the knowledge of the AO on the basis of which he chose to treat the said entries as false and bogus and added the same in the hands of the firm. Hence, by no stretch of imagination can it be said that there was non-disclosure in respect of the said entries to entitle the AO to issue notices under section 148 of the it act. In this connection reference has been made to the decisions of the Supreme Court in Gemini Leather Stores v. ITO and Ors., (1975) 100 ITR 1 (SC), Jagdish Prasad v. CIT (1976) 104 ITR 214 (AS), ITO v. Madnani Engineering Works Ltd., (1979) 118 ITR 1 (SC) and Indian & Eastern Newspaper Society v. CIT, (1979) 119 ITR 996 (SC).
15. It is well-settled that the responsibility of the assessee is limited to the disclosure of all primary facts and nothing beyond that vide Calcutta Discount Co. Ltd. v. ITO and Anr. (1961) 41 ITR 191 (SC). Once the assessee has disclosed all the primary facts that is the end of his duty. It is then for the assessing authority to draw the proper conclusions from those facts. If the conclusions drawn by the AO from the primary facts disclosed by the assessee are erroneous, the assessing authority cannot reopen the assessment merely on the basis of a change of opinion. This principle has been reiterated by the Supreme Court in ITO v. Lakhmani Mewal Das, (1976) 103 ITR 437 (SC), CIT v. Bhanji Lavji (1971) 79 ITR 582 (SC), Parashuram Pottery Works Ltd. v. CIT, (1977) 106 ITR 1 (SC) and Commissioner Of Income Tax, Calcutta v. Burlop Dealers Ltd.† . (1971) 79 ITR 609 (SC).
16. In Foiamei Fiance v. CIT, 2001 UPTC 521 it was held that where there was no failure on the part of the assessee to make a return disclosing full and material particulars for assessment, notice cannot be issued under Section 148 on mere change of opinion. Against that decision an appeal was filed in the Supreme Court vide CIT v. Foramer Fiance, (2003) 264 ITR 566 (SC), and the decision of this Court was upheld by the Supreme Court. The said decision of this Court has been followed by the Full Bench of the Delhi High Court in CIT v. Kelvinator of India Ltd., 2002 UPTC 792 (Del).
17. It may be mentioned that a perusal of the assessment order of M/s Atul Traders for asst. yr. 1978-79 under Section 143(3)/148 of the IT Act, copy of which is Annex. XII to the writ petition, shows that notices had been issued to Sri Om Prasad Purwar, partner of the firm M/s Atul Traders and specific queries were made by the AO. A perusal of the said order shows that Sri J.P. Bajpai categorically denied the existence of any amount of his HUF in the firm M/s Atul Traders or M/s Atul Industrial Corpn. in his statement recorded under Section 131 in the course of assessment proceedings for asst. yr. 1982-83. Hence, the AO held that this was a bogus entry made out of unknown sources of the income of the firm.
A similar view has been taken in the assessment of M/s Atul Industrial Corpn. for asst. yr. 1981-82 vide Annex. IX to the writ petition.
Thus, from these orders and other similar assessment orders and the other material, it is evident that the question about the entries in the name of petitioner-HUF standing in the books of the firm M/s Atul Traders or M/s Atul Industrial Corpn. have been fully investigated by the AO, and only after such investigation he has come to the opinion that these were bogus entries.
Thus, it is obvious that the impugned notice under Section 148 has been issued only on the basis of change of opinion on the part of the AO, which is illegal.
For the reasons given above, this petition is allowed and the impugned notices are quashed. No order as to costs.
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