Citation Codes

Equivalent Citations

citation codes

Case Number

Income-tax Reference No. 264 of 1993

Judges

D.A Mehta
H.N Devani, JJ.

Acts

Section 256(1) of the IT Act, 1961 (the Act),
SECTION 147 INCOME TAX ACT 1961

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Smart Summary

Structured Summary of the Opinion — D.A. Mehta, J.

Factual and Procedural Background

The Tribunal, Ahmedabad Bench 'C', referred three questions under Section 256(1) of the Income-tax Act, 1961 at the instance of the assessee. The assessment year in dispute was 1984-85 (accounting period S.Y. 2039). The assessee filed a return on 30 June 1984 declaring income of Rs. 37,510 which was accepted under Section 143(1) by order dated 21 January 1987.

On 6 November 1985 a search under Section 132 was carried out at the assessee's residential premises and a telephone diary was seized. A note on the last page of the diary recorded a purported purchase of the first floor of a house at Athugar Street, Nanpura, Surat, for Rs. 3,76,121 with particulars including dates and area. The assessee's agreement for sale dated 7 October 1983, books of account and wealth-tax return reflected a lower total consideration: Rs. 1,76,121 (with payments of Rs. 76,121 in that accounting year and a further Rs. 1,00,000 paid on execution of the sale deed on 31 August 1984), and total cost shown later as Rs. 1,90,221 for asst. yr. 1985-86.

On the basis of the seized diary the Assessing Officer (AO) in reassessment proceedings added Rs. 1,85,900 under Section 69 as unexplained investment (deeming the difference to represent 'on money'), by order dated 28 February 1990. The CIT(A) confirmed the addition by order dated 10 August 1990; the assessee did not press one ground before the CIT(A) (a challenge to initiation under Section 147(a)). The assessee appealed to the Tribunal which held that the assessee could not re-agitate before the Tribunal the point waived before CIT(A), and also confirmed the addition. The matter was then referred to this Court on the three questions set out by the Tribunal.

Legal Issues Presented

Whether the Tribunal was right in holding that reopening of the assessment under Section 147(a) of the IT Act, 1961 could not be re-agitated after the said point was consciously waived by the assessee vide letter dated 10th August 1990 submitted to the CIT(A)?
Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessing authority had jurisdiction to initiate proceedings for reassessment under Section 147(a) of the Act?
Whether the Tribunal was justified in confirming the addition of Rs. 1,85,900 representing the difference between the purchase price of the first floor of the house property at Athugar Street, Nanpura, Surat, as recorded in the seized diary and the purchase price shown in the agreement for purchase of the said property?

Arguments of the Parties

Assessee's (Appellant's) Arguments

The Tribunal erred in not permitting the assessee to challenge initiation of reassessment proceedings; that issue was legal and went to the root and should have been decided on merits by the Tribunal rather than being treated as waived before CIT(A). Reliance was placed on P.V. Doshi v. CTT (1978) 113 ITR 22 (Guj).
As to jurisdiction: the assessee argued that full and true facts were disclosed in the original return and that when reassessment was initiated all relevant facts were on record; the search under Section 132 took place on 6 Nov 1985 but the original assessment under Section 143(1) was completed on 21 Jan 1987, so any default in initiating reassessment was that of the assessing authority and reassessment was bad in law.
On merits of the addition: the assessee contended the diary note had no evidentiary value to override the agreement for sale, sale deed and books of account. Statements recorded under Section 132(4) by the assessee, her husband and the seller denied any extra payment; an affidavit denied any overpayment; handwriting in the seized diary did not belong to the assessee or her husband; the diary entry could be a mistaken writing (Rs. 3,76,321 vs Rs. 1,76,121). The assessee also pointed to Form No. 37G having been submitted and relied on Dhakeswari Cotton Mills Ltd v. CIT (1954) 26 ITR 775 (SC) and Raj Mohan Saha and Ors. v. CIT (1964) 52 ITR 231 (Assam) to support the contention that market value evaluation and other considerations should have been undertaken before treating the diary entry as true consideration.
The assessee argued the burden of proof lay on the Department to produce cogent evidence of unaccounted investment and to rebut the assessee's evidence.

Revenue's (Respondent's) Arguments

The respondent submitted that the Tribunal had recorded findings of fact after appreciating the evidence on record and there was no reason for interference; the Tribunal's order should be upheld.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
P.V. Doshi v. CTT (1978) 113 ITR 22 (Guj)	The conditions prescribed for initiating reassessment proceedings are mandatory; jurisdiction cannot be conferred by consent and there can be no waiver of such mandatory conditions; an order made without jurisdiction is a nullity.	The Court relied on this decision to hold that the Tribunal was wrong to treat the assessee's failure to press the point before the CIT(A) (in reliance on a communication from the AO) as a conscious waiver of a mandatory jurisdictional challenge; question No.1 was answered in favour of the assessee based on this principle.
Dhakeswari Cotton Mills Ltd v. CIT (1954) 26 ITR 775 (SC)	The assessee cited it in support of the proposition that valuation/market-value considerations and evidentiary standards must be properly applied before treating an asserted amount as true consideration (as relied upon by the assessee).	The precedent was relied upon by the assessee before the Court. The Court's reasoning and outcome indicate that the Court did not accept the assessee's contention based on this authority given the seized diary and other facts; the opinion records that the assessee's reliance on such authorities did not carry the day.
Raj Mohan Saha and Ors. v. CIT (1964) 52 ITR 231 (Assam)	The assessee cited observations from this decision (at p. 234) in support of arguments about valuation and evidentiary evaluation before deeming differences as income.	This decision was invoked by the assessee. The Court's opinion notes the reliance but, on the facts (seized diary, particulars, statutory presumptions and lack of satisfactory explanation), the Court did not accept the assessee's position based on this precedent.

Court's Reasoning and Analysis

The Court addressed each referred question sequentially and explained the legal reasoning applied to the facts actually on record.

Question No. 1 (Waiver of challenge to reopening under Section 147(a)):

The Court observed that P.V. Doshi establishes that conditions for initiating reassessment are mandatory and that jurisdiction cannot be created by consent. Consequently, a purported waiver of a jurisdictional challenge cannot be treated as effective where jurisdictional conditions have not been satisfied.
Factually, the assessee had raised a challenge to reassessment before the CIT(A) on the ground that, at the date of issuance of notice under Section 148, the original return (and hence the Section 143(1) intimation) was not received. Before the CIT(A) the AO communicated that assessment under Section 143(1) had been completed on 21 Jan 1987, and the assessee's representative did not press that point before the CIT(A) on that basis.
The Court concluded that the Tribunal wrongly construed that omission as a conscious waiver: the challenge brought before the Tribunal was different in nature and thus the Tribunal should not have refused to consider it on the ground of waiver. Accordingly, the Tribunal's finding on this procedural point was held incorrect and Question No.1 was answered in favor of the assessee.

Question No. 2 (Jurisdiction to initiate reassessment under Section 147(a)):

The Court examined whether, at the time of original assessment, the AO had material to indicate escapement of income. It found nothing on record to show such material was before the AO when framing the original assessment under Section 143(1).
However, the diary seized during the search contained a noting that gave complete particulars suggesting a higher purchase consideration. On perusal of the seized diary the AO acquired information on which a prima facie opinion of escapement could be formed — either non-declaration of correct sale consideration or furnishing inaccurate particulars.
The Court held that the noting in the diary constituted sufficient information for the AO to initiate reassessment, and therefore the Tribunal was justified in concluding that reassessment proceedings had been properly initiated. Question No.2 was thus answered in favour of the Revenue.

Question No. 3 (Merits: addition of Rs. 1,85,900 under Section 69)

The Court accepted the Tribunal's factual findings: the seized diary was recovered from the assessee's residential premises and the last-page noting was detailed and specific (dates in both calendars, area, description), undermining the contention that it was a mistaken entry.
Most pages of the diary were in the husband's handwriting (a fact accepted by both spouses in Section 132(4) statements). Ownership of the diary was not denied. Under Section 132(4A) a presumption arises as to the document seized from a person's possession, placing the burden on that person to explain the document and its contents. Neither the assessee nor her husband produced or identified the author of the last-page note.
Given the inadequacy of the assessee's explanation and the cogent nature of the seized evidence, the AO was entitled under Section 69 to deem the unexplained difference as the assessee's income. The Court also noted that Form No. 37G and the lack of acquisition proceedings were not decisive in face of the seized diary and other evidence.
Consequently, the Court held that the Tribunal's confirmation of the addition could not be interfered with. Question No.3 was answered in favour of the Revenue.

Holding and Implications

Core Rulings:

Question No.1: The Tribunal was not right in holding that the assessee could not re-agitate the point regarding reopening under Section 147(a); the Court answered this question in favour of the assessee and against the Revenue (i.e., the Tribunal erred on the waiver point).
Question No.2: The Tribunal was right in law that reassessment proceedings had been correctly initiated and the assessing authority had jurisdiction to do so; this question was answered in favour of the Revenue and against the assessee.
Question No.3: The Tribunal was right in confirming the addition of Rs. 1,85,900 representing the difference between the sale consideration in the seized diary and the transaction reflected in the assessee's documents; this question was answered in favour of the Revenue and against the assessee.

Direct Consequence: The reference was disposed of in accordance with the answers above: the assessee succeeds on the procedural (waiver) point but fails on jurisdiction and merits. The Court ordered that there shall be no order as to costs.

Implication regarding precedent: The Court applied existing precedent (P.V. Doshi) to reverse the Tribunal on the waiver point but did not purport to lay down new law. No novel precedent was announced by this decision; outcomes turned on application of statutory provisions (Sections 132, 132(4A), 143(1), 147(a), 148, 69) to the facts.

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Ramilaben Ratilal Shah v. Commissioner Of Income-Tax

JUDGMENT D.A. Mehta, J.

1. The Tribunal, Ahmedabad Bench 'C', has referred the following three questions under Section 256(1) of the IT Act, 1961 (the Act), at the instance of the assessee :

"1. Whether, in the facts and circumstances of the case, the Tribunal was right in holding that reopening of the assessment under Section 147(a) of the IT Act, 1961, could not be reagitated after the said point was consciously waived by the assessee vide letter dt. 10th Aug., 1990, submitted to the CIT(A) ?

2. Whether, on the facts and circumstances of the case, the Tribunal was right in law in holding that the assessing authority had jurisdiction to initiate proceedings for reassessment under Section 147(a) of the Act ?

3. Whether, on the facts and circumstances of the case, the Tribunal was justified in confirming the addition of Rs. 1,85,900 representing the difference between purchase price of the first floor of the house property at Athugar Street, Nanpura, Surat, as recorded in the seized diary and the purchase price shown in the agreement for purchase of the said property ?"

2. The assessment year is 1984-85 and the relevant accounting period is S.Y. 2039. The assessee filed return of income on 30th June, 1984 declaring total income of Rs. 37,510. The said return was accepted under Section 143(1) of the Act vide order made on 21st Jan., 1987.

3. On 6th Nov., 1985 the residential premises of the assessee were subjected to search and seizure proceedings under Section 132 of the Act. A notice came to be issued under Section 148 of the Act and was served on 31st March, 1989. The assessee submitted a return of income in response to the aforesaid notice and declared identical income as was shown in the original return of income. During the course, of search proceedings one diary viz., a telephone diary consisting of 53 pages came to be seized. The following note appeared on the last page of the said diary :

"S.Y. 2039 Sravan-sud-5 and Saturday dtd. 13-3-83 (August), the first floor of the house property at Athugar Street, Nanpura, Surat admeasuring about 1512 sq. ft. purchased from Shri Jagdishbhai for Rs. 3,76,121. An agreement to sale dt. 7-10-1983."

Original note was in Gujarati and the above reproduction is stated to be a verbatim translation.

4. During the relevant accounting period, the assessee entered into an agreement for sale on 7th Oct., 1983 whereunder the assessee agreed to purchase property situated at 1st floor of residential house at Athugar Street, Nanpura, Surat. The agreement showed that it was agreed between the parties to purchase the flat for a total sum of Rs. 1,76,121. As per balance sheet furnished by the assessee as well as wealth-tax return filed by the assessee it was found that a sum of Rs. 76,121 had been paid towards purchase price till the end of the accounting year under consideration. In the succeeding year viz., S.Y. 2040, relatable asst. yr. 1985-86, final sale deed came to be executed on 31st Aug., 1984 and the assessee made balance payment of Rs. 1,00,000. This is apparent from the property account appearing in the books of account of the assessee. At the time of execution of the sale deed a sum of Rs. 14,100 was incurred towards expenditure for stamp paper, registration, etc. Thus, the total cost of the property as reflected in the wealth-tax return, for asst. yr. 1985-86 came to Rs. 1,90,221.

5. As the seized diary denoted the purchase price to be Rs. 3,76,121, the AO, in the course of reassessment proceedings rejected the explanation tendered by the assessee and added a sum of Rs. 1,85,900, being the difference between actual consideration and apparent consideration. It was held by the AO that this sum represented the component of 'on money' which the assessee had paid for purchasing the property. The addition was made under Section 69 of the Act vide order dt. 28th Feb., 1990.

6. The assessee carried the matter in appeal before CIT(A) who confirmed the assessment order vide his order dt. 10th Aug., 1990. The assessee had raised two-fold challenges before CIT(A) : first one was relatable to the validity of proceedings initiated under Section 147(a) of the Act, and the second one was in relation to merits of the addition of Rs. 1,85,900. The CIT(A) recorded that the first challenge as to initiation under Section 147(a) of the Act was not pressed.

7. The assessee carried the matter in appeal before the Tribunal. The issue regarding challenge to initiation of proceedings under Section 147(a) of the Act was specifically raised and urged before the Tribunal. However, the Tribunal rejected the said contention holding that the assessee having waived the contention before the first appellate authority could not be permitted to reagitate the same contention before the Tribunal. The Tribunal also rejected various contentions raised on merits of the addition for the reasons stated in its order dt. 9th March, 1992.

8. Assailing the order of the Tribunal it was urged by Mrs. Soparkar that the Tribunal had committed an error in law in not permitting the assessee to agitate the ground regarding initiation of reassessment proceedings. That the said issue was a legal issue and went to the root of the matter; that it was incumbent upon the Tribunal to deal with the same on merits. The assessee could not have been non-suited on the ground that the assessee had given up the said contention before the first appellate authority. In support of her submission she placed reliance on the decision of this Court reported in case of P.V. Doshi v. CTT (1978) 113 ITR 22 (Guj).

8.1 In relation "to the second question it was submitted that the assessee had declared full and true facts in the return of income, and even otherwise, when the reassessment proceedings were initiated, all the relevant and necessary facts were on record before the respondent-authority. It was submitted that proceedings under Section 132 of the Act had taken place on 6th Nov., 1985 when the diary came to be seized while the original assessment under Section 143(1) of the Act had been completed on 21st Jan., 1987. Therefore, the default, if any, was committed by the assessing authority and for that the assessee could not be held liable and thus reassessment was bad in law.

8.2 On merits it was submitted that all the authorities, including Tribunal, had failed to appreciate the facts and evidence in the proper perspective by shifting the onus on the assessee when in fact the onus was on the Department. It was submitted that in the statement recorded under Section 132(4) of the Act at the time of search both the assessee and her husband had denied having made any extra payment by way of sale consideration; seller had also denied having received any extra money; the assessee had filed an affidavit during the course of reassessment proceedings wherein she had categorically stated that she had not paid anything over and above what was reflected in the document showing conveyance of the property; and the handwriting in the seized diary did not belong to the assessee or her husband; note in the seized telephone diary had no evidentiary value and it could not override the evidentiary value of the agreement for sale, the sale document and the books of account maintained by the assessee. That whosoever was the author of the noting made in the diary had committed an error in writing Rs. 3,76,321 instead of Rs. 1,76,121. Therefore, in face of this evidence, even if the burden was on the assessee, the same stood discharged and the Department was required to file cogent evidence in rebuttal and conclusively establish by bringing positive material on record to prove existence of any unaccounted investment. That the authorities had failed to appreciate that in relation to the transaction in question the assessee had submitted Form No. 37G as prescribed under the IT Rules, 1962, but no acquisition proceedings had been commenced by the Department. On the basis of this, it was contended that the respondent ought to have undertaken an exercise to correctly evaluate the market value of the property before treating the amount mentioned in the noting on the last page of the diary as being the sale consideration. She placed reliance on the decision of the apex Court in the case of Dhakeswari Cotton Mills Ltd v. CIT (1954) 26 ITR 775 (SC) and the decision of the High Court of Assam in the case of Raj Mohan Saha and Ors. v. CIT (1964) 52 ITR 231 (Assam) with special reference to observations at p. 234 of the report. She, therefore, urged that the Tribunal's order was not only erroneous but was one which no reasonable person can make in the facts and circumstances of the case and was, therefore, required to be set aside deleting the addition in toto.

9. Mr. B.B. Naik appearing on behalf of the respondent submitted that the Tribunal had recorded various findings of fact after appreciating evidence on record and no interference was called for. He, therefore, urged that the Tribunal's order be upheld.

10. Insofar as question No. 1 is concerned the Tribunal's order cannot be permitted to stand. .In the case of P.V. Doshi (supra) this High Court in almost identical fact situation held that the conditions prescribed for initiating reassessment proceedings are mandatory and, therefore, there could never be a waiver of a mandatory provision. That jurisdiction could not be conferred on the authority by mere consent, but only on fulfilment of conditions precedent for the exercise of jurisdiction. If jurisdiction could not be conferred by consent, there would be no question of waiver, acquiescence or estoppel or the bar of res judicata being attracted because the order in such a case would lack inherent jurisdiction and would be a void order or a nullity. Therefore, in the facts of the present case the Tribunal had wrongly come to the conclusion that the assessee had waived its right to challenge reassessment proceedings before CIT(A), and was thus not entitled to raise the said challenge before the Tribunal.

11. As the facts reveal, the assessee had challenged the reassessment before CIT(A) on the ground that on the date of issuance of notice under Section 148 of the Act, the original return submitted on 30th June, 1984 .was yet pending and hence no reassessment proceedings could be initiated. This challenge was based on the fact that the assessee had not received any order/intimation under Section 143(1) of the Act. However, before the CIT(A) the assessing authority vide letter dt. 8th Aug., 1990 submitted that assessment under Section 143(1) of the Act had been completed on 21st Jan., 1987. It was on the basis of this communication that the representative of the assessee had not pressed the aforesaid point before CIT(A). The Tribunal has wrongly treated this as a conscious waiver on the part of the assessee. In fact, the Tribunal failed to appreciate that the challenge to reassessment proceedings before the Tribunal was on entirely different grounds and had nothing to do with pendency of the original return, once the assessee having come to know that original assessment had been framed before issuance of notice under Section 148 of the Act.

12. In these circumstances, question No. 1 is answered in the negative i.e., in favour of the assessee and against Revenue.

13. Insofar as question No. 2 is concerned, the facts on record go to show that the assessee cannot succeed. The original assessment had been completed under Section 143(1) of the Act accepting the returned income. Though this order was made on 21st Jan., 1987 and the search proceedings took place on 6th Nov., 1985, there is nothing on record to show that while framing the original assessment the assessing authority had any material before it which would indicate that there was escapement of income. As recorded in the assessment order it is only subsequently on perusal of the seized diary that the AO came in possession of the information and thereafter verification of the assessment record was carried out. Noting in the diary constituted sufficient information for the assessing authority to form a prima facie opinion that there was escapement of income by either non-declaration of correct sale consideration or there was furnishing of inaccurate particulars as regards sale consideration. Therefore, the Tribunal was justified in holding that the assessee had failed to disclose fully and truly all material facts, necessary for the assessment of the relevant assessment year.

14. The second question, therefore, is answered in the affirmative i.e., in favour of the Revenue and against the assessee.

15. Coming to the third question which deals with the merits of the addition, suffice it to state that the Tribunal has recorded various findings of facts and it is not possible to state that the said findings are erroneous in any manner whatsoever. The seized diary was recovered from the residential premises of the assessee. The noting on the last page of the said diary is very eloquent in as much as it gives complete particulars of the property purchased including area of the property. Therefore, the contention of the assessee that there was a mistake in mentioning the amount of sale consideration does not merit acceptance. The details denoting dates, both as per the English calendar and the Hindu calendar, area of the property, description of the property belie such a claim that there could be mistake committed by the author of the note.

15.1 It is also necessary to take note of the fact that the seized diary was recovered from the possession of the assessee and/or her husband. All other pages except the last page, are in handwriting of the husband of the assessee and this fact is accepted both by the assessee and her husband in their respective statements recorded under Section 132(4) of the Act at the time of search. In such circumstances, the burden was on the assessee to explain as to who had made the noting on the last page. Both the assessee and her husband have stated that they are not aware as to who is the person who has made such noting in the diary seized from their residence, from their possession. The ownership of the diary has not been denied by either of them. Therefore, under Section 132(4A) of the Act a statutory presumption arises and it is for the person from whose possession the seizure has been effected to explain the document and its contents. Neither the assessee nor her husband have produced the person who is supposed to have made the noting.

16. Section 69 of the Act provides that in case of investments which are not recorded in the books of account, if any, maintained by. assess"ee, and the assessee offers no explanation, or explanation offered by the assessee is not satisfactory in the opinion of the AO, the value of the investments may be deemed to be income of the assessee for such financial year. In the present case the value of the property reflected in the noting in the seized diary is in excess of the value reflected in the books of account and the explanation offered by. the assessee has not been found to be satisfactory by the authorities below and the Tribunal. In these circumstances, the authority is statutorily empowered to deem the difference as income of the assessee for the year under consideration by exercise of the discretion vested in the authority having regard to the attendant facts and circumstances.

17. The Tribunal has rightly taken note of the fact that except for denying as to who is the person who has made noting in the diary neither the assessee nor her husband have indicated the name of the person who had written such a note in the seized diary. It is apparent that such a person could be only a person closely connected with assessee or her husband and in whom the assessee or her husband would repose confidence so as to permit such' a person to. make noting of such a nature. Therefore, the statement by the assessee and her husband that they are not aware of the person who had made noting is not acceptable being against human probabilities and the natural course of events.

18. The document of sale was executed in favour of the assessee on 31st Aug., 1984. Form No. 37G was submitted at the said point of time. The authority had no material to doubt the veracity of the facts stated. The diary was seized on 6th Nov., 1985 when the search took place. Therefore, on the solitary ground that no acquisition proceedings were initiated, the assessee cannot succeed in face of other cogent evidence which has come on record.

19. In these circumstances, the impugned order of the Tribunal does not suffer from any legal infirmity and the findings of facts recorded after appreciation of evidence on record do not merit interference for the simple reason that the assessee has failed to place any evidence on record to show that the position was to the contrary.

20. Accordingly question No. 3 is answered in the affirmative i.e., in favour of the Revenue and against assessee.

21. To summarise :

(i) The Tribunal was not right in holding that the assessee could not reagitate the point regarding reopening of the assessment under Section 147(a) of the Act as there could be no waiver of a mandatory condition relating to jurisdiction; (ii) the Tribunal was right in law in holding that the reassessment proceedings had correctly been initiated and the assessing authority had jurisdiction to do so;

(iii) the Tribunal was right in confirming the addition of Rs. 1,85,900 representing difference between the purchase price reflected in the sale deed and as recorded in the seized diary.

22. In the result, the reference stands disposed of accordingly. There shall be no order as to costs.

Ramilaben Ratilal Shah v. Commissioner Of Income-Tax

Structured Summary of the Opinion — D.A. Mehta, J.

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Assessee's (Appellant's) Arguments

Revenue's (Respondent's) Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Ramilaben Ratilal Shah v. Commissioner Of Income-Tax

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