Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Rule Nos. 530, 531, 532, 533, 534, 535, 536 & 537 of 1980 and Civil Rule Nos. 981, 982, 983, 984, 985, 986 and 987 of 1981

Advocates

Mr. J.P Bhattacharjee & Mr. A.K Saraf
Mr. D.N Choudhury & Mr. K.H Choudhury

Judges

Hon'ble Mr. Justice R. K. Manisana Singha
Hon'ble Mr. Chief Justice A. S. Raghuvir

Acts

SECTION 147 INCOME TAX ACT

See more information ...

Smart Summary

Structured Summary of the Opinion (A. Raghuvir, C.J.)

Factual and Procedural Background

This group comprises fifteen writ petitions concerning two Hindu Undivided Families (H.U.F.s): (1) Gulabrai Hanumanbux (Karta Shri Laxmi Prasad) and (2) Keshoram Radheshyam (Karta Keshoram Agarwalla). The two H.U.F.s jointly purchased a plot in 1965 at 28C, Rowland Road, Calcutta (14 K. 14 L. 28 Ch.) for Rs. 1,69,500 and together constructed a three-storeyed building between 1968–71. They assert total construction expenditure of Rs. 3,66,862.66 spread over 1966–73. The valuation date for income-tax and wealth-tax assessments was March 31, 1971.

After assessments were concluded, a Special Survey Squad in Calcutta reported suspected undervaluation of the building. The Revenue procured a report from the District Valuation Officer and, relying on that report, served notices seeking to re-open multiple income-tax and wealth-tax assessment years for both H.U.F.s. The assessees challenged those reopening notices by filing these writ petitions under Article 226.

The opinion sets out the dates of the original assessment orders, the dates on which reasons for reopening were recorded by the Income-tax Officer (I.T.O.), and the dates on which Commissioner sanctions were claimed to have been obtained or telegrammed. The assessees had submitted valuation reports (authorised valuer's report dated October 28, 1972) in the original assessments; the District Valuation Officer later produced a differing valuation and additional particulars.

Legal Issues Presented

Whether the Revenue is obliged to communicate to the assessee the reasons or grounds for reopening a completed assessment at the notice stage.
Whether, on the facts of these cases, the Revenue was entitled to re-open the concluded income-tax and wealth-tax assessments for the specified assessment years.

Arguments of the Parties

Assessees' Arguments

The assessees protested and requested to be informed of the basis/grounds for the reopening of their assessments (protests dated August 18, 1979 and April 28, 1980).
They contended that they had fully disclosed material facts (including authorised valuer's report and accounts) at the time of original assessment and that the Revenue accepted those materials when finalising assessments; therefore, the assessments could not be reopened on the later report of the District Valuation Officer or a Special Survey Squad's complaint.

Revenue's Arguments

The Revenue relied upon a prior decision of the Supreme Court (and a Madras High Court decision approved by it) to argue that the Revenue need not communicate the reasons for reopening to the assessee at the notice stage.
At one point the Revenue indicated it might claim privilege over disclosure of reasons (though that threat was not pressed later).
Implicitly, the Revenue relied upon the District Valuation Officer's report and the Special Survey Squad's findings as a basis for reopening assessments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Presidency Talkies Ltd. v. First Addl. Income-tax Officer, AIR 1954 Madras 872	Held that the proviso to S. 34 requires recording reasons for reopening and Commissioner sanction but does not require communication of those reasons to the assessee at that stage.	The Revenue relied on this decision to argue non-disclosure; the Court described it and noted the decision's reasoning but ultimately suggested that a better practice is to inform the assessee of grounds (while accepting the precedent stands).
S. Narayanappa v. Commissioner of Income-tax, AIR 1967 SC 523	Supreme Court approval of the Madras decision; stated there is no statutory requirement to communicate the reasons recorded for sanctioning reopening to the assessee.	The Court acknowledged this Supreme Court authority as directly covering the non-disclosure point and therefore left the question with only a procedural suggestion in favour of disclosure while recognizing the binding precedent.
Calcutta Discount Co. Ltd. v. Income-tax Officer, 41 ITR 191	Principle that an assessee who has produced material facts necessary for assessment has no duty to disclose additional facts which the ITO could discover by due diligence; reopening cannot be justified merely because the ITO could have reached a different inference.	Relied upon in explaining that once material facts are disclosed and the assessment finalized, the Revenue cannot later reopen on the basis that a different factual inference might be drawn.
Commissioner of Income-tax, Calcutta v. Burlap Dealers Ltd., 71 ITR 609	Emphasis on the meaning of 'omission or failure' to disclose material facts and that only relevant nondisclosure permits reopening.	Applied to show that disclosure obligations are limited and that mere possibility of a different conclusion by the ITO does not amount to nondisclosure permitting reopening.
Income-tax Officer, I-ward, Hundi Circle, Calcutta v. Madnani Engineering Works Ltd., 118 ITR 1	Explained limits of reopening where assessee produced documents and books from which material facts could be discovered; the ITO's differing conclusion does not by itself justify reopening.	Used to reinforce the principle that when assessee tenders accounts and evidence, it is for the ITO to decide their genuineness; reopening is impermissible absent nondisclosure of true facts.
Hystead v. Commissioner of Taxation, (Privy Council) 1926 AC 155	Authority warning that permitting reopening and relitigation of settled issues would make litigation never end; parties cannot reopen settled questions merely because of new views.	Quoted to illustrate the policy reason against permitting repeated reopening of settled assessments; applied by analogy to stress finality of assessments once material facts are disclosed.
Abdul Rab Abdul Salam v. ITO, (1988) 2 GLR 75	Local decision considered by the Chief Justice that reviewed relevant authorities and set out the principle governing reopening under Section 147 (clause (a)).	The Court stated that what was discussed in that case covered the issue before it and relied on the principles explained there to support the present decision that reopening is impermissible when material facts were disclosed and accepted in the original assessment.
Sripur Paper Mill Ltd. v. ITO, 114 ITR 404	Applied the Privy Council passage and the general principle that finalised assessments should not be reopened merely because the Revenue forms a different opinion later.	Referenced as an example where the principle preventing harassment by repeated reopening was applied; the present Court found the principle applicable on the facts.

Court's Reasoning and Analysis

The Court addressed two interrelated questions: (1) whether the Revenue must disclose reasons for reopening to the assessee at the notice stage, and (2) whether the Revenue was entitled, on the facts, to reopen the concluded assessments.

On disclosure of reasons: the Court acknowledged binding precedent (Presidency Talkies and its approval in S. Narayanappa by the Supreme Court) establishing that there is no statutory requirement to communicate to the assessee the reasons that induced the Commissioner to sanction proceedings under the reopening provision. The Revenue relied on those authorities to justify non-disclosure and to resist the assessees' requests. Despite acknowledging that precedent, the Court expressed a procedural preference: it considered it better practice for the Revenue to inform the assessee of the grounds on which assessments are sought to be reopened so that if the matter is challenged under Article 226, the tenability of the grounds can be adjudicated in an orderly manner. However, recognizing the controlling Supreme Court authority, the Court did not invalidate the Revenue's approach on this point and left only a suggestion in favour of disclosure.

On entitlement to reopen the assessments (the principal issue): the Court analysed the factual matrix. The assessees had, in their original returns and during the original assessments, disclosed when the land was purchased, the consideration paid, the type of basement and number of floors, plinth areas, materials used, and had submitted an authorised valuer's report and account books. The Revenue had accepted the authorised valuer's valuation and the accounts and concluded the assessments accordingly.

The Court applied established legal principles (as explained in the cited Supreme Court and High Court decisions and explained in Abdul Rab Abdul Salam and other authorities) that reopening under Section 147 (and the relevant provisions) is permitted only where there was a failure to disclose material facts necessary for assessment. If the assessee fully and truly disclosed material facts, and the assessing officer accepted or dealt with the materials and finalised the assessment, the Revenue cannot later reopen those same factual issues merely because it forms a different opinion or discovers a later report (such as from a Special Survey Squad or the District Valuation Officer). To allow reopening under such circumstances would permit indefinite relitigation and harassment of the assessee.

Applying these principles to the present facts, the Court concluded that the assessees had disclosed the material facts and had their valuation considered and accepted in the original assessments. The Revenue, having accepted those materials and concluded the assessments, could not thereafter reopen them on the ground that a later report indicated undervaluation. The Court therefore found that the Revenue was not entitled to reopen the assessments in these matters.

Holding and Implications

Holding:

The group of fifteen writ petitions is ALLOWED and the notices seeking to re-open the assessments are QUASHED. The Court held that the Revenue was not entitled to re-open the assessments on the facts of these cases because the assessees had fully disclosed material facts and the Revenue had accepted those materials in the original assessments. The petitions were allowed with no costs.

Implications:

Direct effect: The specific notices served on the assessees in these fifteen matters are quashed and the Revenue cannot proceed to reopen the specified income-tax and wealth-tax assessment years on the basis relied upon in these cases.
Limitation plea: The assessees also raised limitation as a ground, but the Court found that plea unnecessary to decide in light of the principal conclusion that reopening was impermissible; accordingly the limitation issue was not addressed in detail.
Precedential effect: The Court recognized that the disclosure question is covered by Supreme Court authority that the Revenue need not communicate the recorded reasons to the assessee at the notice stage, and therefore the Court offered only a procedural suggestion (that disclosure would be better). The Court did not purport to set aside or modify the controlling precedent; its substantive holding applied established case law to the facts and did not announce a novel principle.

Final words in the opinion: the Court quashed the notices for the reasons stated, allowed the writ petitions, and awarded no costs.

Show full summary ...

M/S. Gulabrai Hanumanbux & Another Petitioners In Cr. 533, 981, 982 & 987 Of 1981 v. Wealth Tax Officer, B-Ward, Digboi .

A. Raghuvir, C.J:— The subject in this group of fifteen writ petitions relates to two Hindu Undivided families, one is known as Gulabrai Hanumanbux with Karta Shri Laxmi Prasad-the other Keshoram Radheshyam with Karta Keshoram Agarwalla. The two group families together purchased in 1965 a plot of land measuring 14 K. 14 L. 28 Ch. at 28C, Rowland Road at Calcutta for Rs. 1,69,500/-. Between the calendar years 1968-71 the two together constructed a three storeyed building. The two families own the land and the building in equal moieties. According to them in 1966-67 they spent Rs. 5139.04 before the construction commenced. In the calendar year 1968-69 they spent Rs. 1,07,425.21, 1969-70-Rs. 70,142,09, 1970-71- Rs. 1,03,019.11, 1971-72-Rs. 61,764.65, 1972-73-Rs. 19,372.56. Thus a total sum of Rs. 3,66,862.66 P. was spent over the construction of the building. The amounts expended were the subject of Income-tax assessments and assessments under the Wealth Tax Act of 1957. In the assessments the valuation date was March 31, 1971.

2. Long after the assessments were concluded the special Survey Squad at Calcutta appears to have informed the Revenue that the building in the assessments was under-valued. Thereafter the Revenue obtained a report from the District Valution Officer. Based upon the report of the District Valuation Officer fifteen notices were served on the assessees to reopen the assessment orders. The notices thus served on the assessees are assailed in the fifteen writ petitions. The H.U.F of Gulabrai the Income-tax assessment orders for 1969-70, 1971-72 and 1972-73 are sought to be re-opened. The H.U.F of Keshoram Redheshyam the income-tax assess ment orders for 1969-70, 1971-72 and 1972-73 are sought to be re-opened in these cases.

3. Similarly in the case of Wealth-tax assessment of Keshoram Radheshyam assessment years of 1971-72, 1972-73, 1973-74, 1374-75 and 1975-76 are sought to be re-opened. (It is not shown as to why 1975-76 of Gulabrai's assessment in the Wealth-tax is not sought to be re-opened). Now we may set out the de tails of the assessments.

4. By a notice on March 22, 1980 the income-tax assessment for the assessment years 1971-72 and 1972-73 in respect of M/S. Gulabrai are sought to be re-opened (the assessment orders in these cases were passed on December 31, 1971 and March 16, 1974 respectively, the I.T.O recorded the reasons for re-opening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred the sanction has been received on February 28, 1980 by a telegram). By a notice on April 9, 1980 the income-tax assessment year 1969-70 in respect of Gulabrai is sought to be re-opened (the assessment order in this case was passed on December 31, 1971, the I.T.O recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred the sanction has been received on March 31, 1980).

5. By a notice on April 9, 1980 the income-tax assessment for the assessment year 1969-70 in respect of Keshoram Radhe shyam is sought to be re-opened, (the assessment order in this case was passed on December 13, 1971, the I.T.O recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred he sanction has been received on March 31, 1980). By a notion on March 22, 1980 the income-tax assessment for the assessment years 1971-72 and 1972-73 in respect of Keshoram Radheshyam are sought to be re-opened (the assessment order in these cases were passed on December 18, 1971, the I.T.O recorded the reasons for re-opening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred the sanction has been received on February 28, 1980 by a telegram).

6. The Wealth-tax assessment in respect of Gulabrai for the assessment year 1971-72 assessment order was passed on May 24, 1972, reasons were recorded on February 29, 1980 and notice was issued on February 22, 1980. As respects assessment year 1972-73 the order is dated November 5, 1973, notice was issued on March 13, 1981 and for the assessment year 1973-74 assess ment order is November 5, 1973, reasons are recorded on May 27, 1981 and as regards assessment year 1974-75, assessment order is March 19, 1975, reasons are recorded on May 27, 1981 and notice was issued on May 27, 1981.

7. The Wealth-tax assessment of Keshoram Radheshyam for the assessment year 1971-72 the assessment order is dated December 23, 1971, reasons are recorded on February 29, 1980 and notice was issued on March 22, 1980. As respects assessment year 1972-73, order was passed on November 5, 1973, reasons were recorded on March 13, 1981 and notice was issued on March 13, 1981. As respects assessment year 1973-74, the assessment order is dated November 5, 1973, reasons are recorded on May 27, 1981 and notice was issued on May 27, 1981. As respects assessment year 1974-75, assessment order is dated July 24, 1975, reasons are recorded on May 27, 1981 and notice was issued on May 27, 1981. As respects assessment year 1975-76 assess ment order is dated November 5, 1975, reasons are recorded on May 27, 1981 and notice was issued on May 27, 1981.

8. It is seen in the course of all these proceedings the assessess submitted returns and relevant to the valuation of the building as on March 31, 1971 the authorised Valuation Officer's report dated October 28, 1972 was submitted in that the plinth area of the three storeyed building was shown 13, 319 sq.ft, garage and mazzanine 778 sq.ft, left room area 878 sq.ft, and according to him the land value is Rs. 2,40,000/-, the buliding Rs. 4,87,000/- the total was Rs. 7,27,000/-.

9. We have earlier referred to the report of the Special Survey Squad whereupon the Revenue referred the issue of valuation to the District Valuation Officer who in his report stated the basement constructed was for erecting a building of 9 storeyed. The value is Rs. 7,55,100/-. The 3 storeyed basement is 14,081 sq.ft(Authorised Valuation Officer states this 13,319 sq.ft) the garage and mezzanine is 778 sq.ft (the Authorised Valuation Officer states 780 sq.ft), left room area 878 sq ft. (the Authorised Valuation Officer states it is 800 sq.ft), verandah ground floor is 515 sq.ft, back barandah ground floor is 366 sq ft., foundation extra is 3274 sq.ft, marble flooring & lining 4000 sq.ft @ 7/- Rs. 28,000/-, glazed tile lining 4500 sq. ft. @ Rs. 4.00-Rs. 5,200/-, compound wall 405 Rft. @ 12/- - Rs. 4,860/-, C.C Pave-meat 2600 sq.ft @ Rs. 2.50 - Rs. 6,500/-, compound gate 2 Nos. Rs. 2,000/-, structure near entrance gate - Rs. 3,000/-, under ground & overhead reservoir, tubewells, pumps etc. Rs. 15,000/-.

10. When notices were served one of the assessees protested on August 18, 1979 and repeated the protest on April 28, 1980 stating the assessee be informed the basis of re-opening the assessment. The Revenue informed on May 13, 1980 that the assessee is not entitled to be informed the basis for initiation of the proceedings at that stage. It is in these circumstances the assessees approached this court and assai 1 the notices. The two assesses seek to quash the notices and the entire proceedings in this Court.

11. In this group or cases the first question that was debated at great length was whether or not the Revenue should inform the reasons for re-opening assessment to the assessee. The subject was referred in the correspondence between the assessee and the Revenue as stated earlier. The Revenue maintains a decision of the Supreme Court to which we would advert to immediately held the Revenue need not set out their reasons for reopening the assessment. In the debate what was suggested was that after notices are served on the assessee in the event of the assessee to approach the Court under Article 226 the reasons will be disclosed in the Court. At one point or time the Revenue threatened to claim privilege though it was not pressed later: Thereafter having regard to the decision of the Supreme Court the Revenue argued the assessee need not be-informed of the reasons at the notice stage of the proceedings.

12. In out view the better course of procedure for the Revenue is to inform the assessee grounds on which the assessments are sought to be re-opened. The grounds if they are assailed inv the Court of Article 226 the tenability or otherwise of the grounds will be adjudged in the court. Adoption of this procedure will result in an orderly procedure.

13. In this regard the decision of the Madras High Court in AIR 1954 Madras 872, Presidency Talkies Ltd. v. First Addl Income-tax Officer was referred to by the Revenue where it is held grounds need not be informed to the assessee at that stage of the proceedings, That Court observed: “The requirement regarding the communication of the reasons to the Commissioner is, in our opinion, intended to safeguerd the interest, of the assessee against any hasty action on the part of the Income-tax Officer under S. 34 or an action without any justification. It is not intended by the proviso that the reason should be communicated to the assessee. The satisfaction mentioned is the satisfaction of the Commissioner, and the adequacy of the reasons is not a matter for consideration of the court, and it is not open to the assessee to agitate the question, that the reasons were inadequate to sanction the initiation of the proceedings under S. 34 by the Commissioner.”

14. The decision of the Madras High Court was approvod by the Supreme Court in AIR 1967 SC 523, S. Narayanappa v. Commissioner of Income-tax and the issue was dealt in the following manner:—

“The Scheme of S. 34 of the Act is that, if the conditions of the main section are satisfied a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under sub-s. (2) of S. 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under S. 34 and obtain the sanction of the Commissioner who must be satisfied that the action under S. 34 was justified. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under S. 37 must also be communicated to the assessee.” (para 4).

15. We have expressed our opinion what would be a better and orderly procedure. We see the subject at issue is covered by the decision of the Supreme Court directly. Therefore we leave the question with our suggestion.

16. The principal question argued in this group of cases is whether the Revenue is entitled to re-open the assessment. In our decision on the facts of the case the Revenue is not entitled to re-open the two sets of assessment. The reasons are as under.

17. The two assessees disclosed to the Revenue in the assess ment returns when the land was purchased, how much they paid towards consideration, what type of basement was raised? what is the plinth area of the floors? How many floors were constructed? What material was used? The Authorised Valuer's report was submitted. All the evidence was tendered. The Re venue accepted the valuation after enquiry and assessments were concluded. It was therefore not open at the instance of a Special Survey Squad's complaint or thereafter at the report of the District Valuation Officer to re-open the concluded issue. This aspect is covered by the numerous decisions of the Supreme Court and it is not necessary to cover all of them in the instant case. One of us (Chief Justice) considered the relevant cases in (1988) 2 GLR 75, Abdul Rab Abdul Salam v. ITO and what is stated in that case covers the issue in the instant cases. In that case it is held:

“The principle in such cases is culled out from the words in clause (a) of Section 147 of the Income-tax Act. The words are whether assessee ‘fully and truly disclosed all material facts necessary for assessment.’ Once the assessee does that what inferences are to be drawn is in the hands of the Income-tax Officer. It is open for the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with, the case of the assesses. Once the assessment order is finalised or issue in the inquiry are settled the same issues cannot be reopened later stating the ITO has discovered the truth later. The conclusion arrived earlier was discovered to be wrong or the assesses got away with the false representation. The ITO can reopen only if he records true facts were not disclosed; (like true account books were not filed as in this case).”

“There decisions of the Supreme Court are cited and in that three eases the above principle is explained. The first one is 41 ITR 191 (Calcutta Discount Co. Ltd. v. Income-tax Officer) and in that it was explained ‘there is no duty on the assessee to disclose further facts, which on due diligence, the Income-tax Officer might have discovered, which might have been discovered by the assessing authority if be had pursued investigation on the basis of what has been disclosed’. There was no further duty on the assessee it was emphasised what inferences are to be drawn or for what matter what proper inferences to be drawn. Again in 71 ITR 609 (Commissioner of Income-tax, Calcutta v. Burlap Dealers Ltd.) emphasis was laid on words ‘omission or failure’ how it is to be considered is discussed. The discussion shows the duty postulated by the assessee is only to the extent to disclose fully and truly material facts necessary for assessment. What facts are material and what are not necessary for assessment will differ from case to case. ‘Where on the evidence and the materials produced the Income-tax Officer could have reached a conclusion other than the one which he has reached’ was juxtaposed to show the assessee was under no obligation to inform the Income-tax Officer which inference may be raised against him. The above cited two cases were relied in the third case 118 ITR 1 (Income-tax Officer, I-ward, Hundi Circle, Calcutta v. Madnani Engineering Works Ltd.). In that case what can by done by the ITO was farther explained. What is not the duty of the assessee in the discussion of the case is explained with reference to the contention raised in that case ‘the assessee contended that it has produced all the relevant materials and documents necessary for completing the assessment and it was under no obligation to inform the ITO about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment….’ The assessee discharged his obligation so it was held when he tenders books of account and evidence from which material facts could be discovered, it was for the ITO to decide whether the documents produced by the assessee were genuine or false. All the aspects considered in the two earlier cases were explained and followed.”

“Thus once assessee disclosed material facts necessary and assessment is finalised later for a different conclusion on the same fact the assessments cannot be reopened. If this was not the law one Privy council case from Australia held ‘litigation will never end’, The assessee can never rest in peace. The revenue can always reopen and such a power to reopen the orders can be wielded to harass the assessee. Litigation can never be concluded finally. All assessments can be reopened with a view to ‘obtain another judgment upon a different assessment of fact’. The Privy Council futher held “Parties, are not permitted to begin fresh litigation because of new views they may entertain of the law of the case or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the document or the weight of certain circumstances. If these were permitted litigation would have no end except when legal ingenuity is exhausted’. These aspects were applied by one of us (Raghuvir, J.) in 114 ITR 404 in Sripur Paper Mill Ltd v. ITO. The above passage extracted is found in Privy Council case, Hystead v. Commissioner of Taxation, 1926 AC 155.”

18. On the facts in the instant cases the valuation of the building as on the date March 31, 1971 was the subject of inquiry before assessments were concluded. The Authorised Valuer's report was considered as to the valuation. The Revenue could have rejected the evidence proffered by the assessees including the valuation submitted by the assessee. The facts in the case show the valuation by the Authorised Officer was accepted and the evidence tendered was also accepted. The account books offered by the assessee as evidence could have been rejected. The revenue instead accepted the accounts. The assessments were thus concluded. Later after the assessment orders it is not open for the Revenue to contend the assessment assessees got away with under-valuation of the building in question.

19. The ratio of the decision called out in the case apply on all fours on the facts of the case. We hold the Revenue cannot change opinion and reopen the assessments. The notices served in this group of fifteen cases for the aforesaid reasons are hereby quashed. The assessees also raised the question as to limitation but the plea of limitation does not survive the above decision therefore need not be dealt in detail.

20. For the aforesaid reasons the group of fifteen writ petitions are allowed. No costs.

M/S. Gulabrai Hanuma... v. Wealth Tax Officer, ...