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  • K.S Radhakrishnan
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  • K.T Sankaran, J.
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Smart Summary

Structured Summary of the Opinion (K.S Radhakrishnan, A.C.J.)

Factual and Procedural Background

The appeals arise from an order of the Income-tax Appellate Tribunal (ITAT), Cochin Bench, dated July 27, 2001. Two appeals were before the High Court: I.T.A. No. 149 of 2001 (assessee's appeal under section 260A of the Income-tax Act, 1961) and I.T.A. No. 140 of 2002 (Revenue's appeal) both challenging parts of the same ITAT order.

The assessee is a proprietary concern named "Package India Tin Fabricators" engaged in tin fabrication and sale. For the assessment year 1992-93, a notice under section 148 dated October 1, 1993 was issued but the assessee pointed out that it provided less than the statutory minimum of 30 days for filing a return. The assessing officer accepted that submission and dropped the proceedings. Believing income had escaped assessment, the assessing officer issued a fresh notice under section 148 dated March 28, 1996. A return was filed on April 19, 1996 declaring higher income than earlier but omitting previously declared agricultural income.

The assessing officer completed reassessment on March 26, 1997 determining aggregate income of Rs. 30,36,990 (major addition being Rs. 16,60,854 for unaccounted sales of tins). The assessee appealed to the Commissioner of Income-tax (Appeals) who upheld the reassessment save with regard to agricultural income. The assessee and the Revenue both appealed to the ITAT. The ITAT partly allowed the assessee's appeal by directing that only peak sales be taken as basis for additions and remitted directions to the assessing officer for relief accordingly. Both parties appealed to the High Court on the adverse parts.

Legal Issues Presented

  1. Whether the notice dated October 1, 1993 issued under section 148 was legal and valid in the light of the retrospective amendment effected by the Finance (No. 2) Act of 1996 (which omitted the words "not being less than thirty days" with effect from April 1, 1989)?
  2. Whether the assessment order dated March 26, 1997 was barred by limitation under section 153(2) of the Income-tax Act, given the contention about validity of the earlier notice?
  3. Whether the additions sustained by the ITAT in respect of inflation of cash balance and receipts on account of demand drafts were legal and sustainable?
  4. Whether the ITAT was justified in directing that sale proceeds of the first day may be available for purchase and sale of tins of the second day (i.e., whether the ITAT's finding that only peak sales could be taken as basis for additions was perverse, based on surmise and conjecture)?
  5. Whether the ITAT was right to interfere with the addition of Rs. 16,60,854 made on account of unaccounted sale of suppressed production of tins?

Arguments of the Parties

Appellant / Assessee's Arguments

  • The assessee contended that the retrospective amendment by the Finance (No. 2) Act of 1996 validated the October 1, 1993 notice (which had given less than 30 days), because the amendment omitted the 30-day requirement with effect from April 1, 1989; therefore, the notice should be treated as legal and valid.
  • Relying on that contention, the assessee argued the final assessment for 1992-93 ought to have been completed before March 31, 1996 under section 153(2), and thus the order dated March 26, 1997 was invalid as barred by limitation.
  • The assessee also argued that when a return was pending (filed in response to earlier proceedings) there was no legal validity for issuing a fresh notice dated March 28, 1996, and any assessment pursuant thereto would be invalid.
  • The assessee relied on several authorities (for example, State of U.P v. Raja Syed Mohammad Saadat Ali Khan; CIT v. Ranchhoddas Karsondas; Commissioner of Income Tax, Madras v. S. Raman Chettiar; and Commissioner Of Income Tax v. P.N. Krishnakumar) to support the proposition that retrospective amendments and subsequent developments in law must be considered by the Tribunal and can validate earlier actions or affect limitation contentions.

Revenue's Arguments

  • The Revenue contended that the notice dated October 1, 1993 was invalid because it did not comply with the statutory requirement then in force of giving at least 30 days to the assessee; the assessee itself pointed this out and got the notice cancelled, so the assessing officer validly issued a fresh notice on March 28, 1996.
  • The Revenue's position was that a subsequent retrospective omission of the 30-day phrase by the Finance (No. 2) Act of 1996 would not revive or validate a notice that had already been cancelled under the law as it stood at the relevant time.
  • To support this, Revenue relied on a number of authorities (including CIT v. G.M. Mittal Stainless Steel P. Ltd.; CIT v. Assam Oil Co. Ltd.; Commissioner Of Income Tax v. Maneklal Harilal Spg. & Mfg. Co. Ltd.; Bakshi Ram v. Brij Lal; and other precedents cited in the opinion) to show that reassessment proceedings must be judged on the law as it stood when proceedings were initiated and that subsequent changes or reversals do not automatically render earlier-initiated proceedings void where the proceedings were validly initiated at the time.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
State of U.P v. Raja Syed Mohammad Saadat Ali Khan [1961] 41 ITR 737 Cited by the assessee among authorities concerning retrospective effect and subsequent consideration of amendments. The case was listed among authorities relied upon by the assessee; the court reviewed that line of cases but held they did not apply to the facts where an invalid notice had been cancelled before the amendment.
CIT v. Ranchhoddas Karsondas [1959] 36 ITR 569 (SC) Referenced by the assessee in support of arguments on returns and validity on the strength of notice. Cited by the court as an authority referenced by parties; the court mentioned it in the context of returns filed on strength of a valid notice but did not treat it as overriding the facts here.
Commissioner Of Income Tax, Madras v. S. Raman Chettiar [1965] 55 ITR 630 (SC) Referenced regarding returns filed on the strength of notices and the effect thereof. Referred by the court to support the proposition that a return filed on the strength of a notice cannot be ignored; applied in support of treating the return filed after the March 28, 1996 notice as valid.
CIT v. G.M. Mittal Stainless Steel P. Ltd. [2003] 263 ITR 255 (SC) Relied upon by Revenue to show that reassessment proceedings could not be said to be without jurisdiction judged by subsequent changes in law; and that reversal of a decision does not render prior reassessment void ab initio. The court approved and applied the principle that reassessment proceedings are to be judged by the law as it stood when proceedings were initiated and relied on this decision to uphold proceedings initiated by the March 28, 1996 notice.
CIT v. Assam Oil Co. Ltd. [1982] 133 ITR 204 (Calcutta HC) The Calcutta High Court's view that a subsequent reversal of its decision by the Supreme Court would not render reassessment proceedings void ab initio. The court cited this decision (noting that it was approved by the Supreme Court in G.M. Mittal) to support the proposition that a later reversal does not automatically void prior reassessment actions.
Commissioner Of Income Tax v. Maneklal Harilal Spg. & Mfg. Co. Ltd. [1977] 106 ITR 24 (Gujarat HC) Held that the relevant question is whether proceedings were validly initiated at the date or moment they were initiated. Quoted by the court to reinforce that the initial validity of initiation governs the validity of subsequent proceedings; applied to sustain the March 28, 1996 initiation.
Bakshi Ram v. Brij Lal (1994 Supp (3) SCC 198 : AIR 1995 SC 395) Cited by Revenue counsel among other apex court precedents supporting their contention. Included in the list of authorities cited by Revenue; the court considered the totality of cited authorities in reaching its conclusion that the amendment did not revive a previously cancelled notice.
CIT v. K. Adinarayana Murty [1967] 65 ITR 607 (SC) Cited by Revenue counsel as supporting authority. Referenced among multiple apex court authorities relied upon by Revenue; the court relied on that body of authority to support its reasoning about initiation and jurisdiction.
CIT v. Mahaliram Ramjidas [1940] 8 ITR 442 (PC) Cited by Revenue counsel among precedents. Listed among authorities referenced by Revenue; court considered these precedents in the context of the issue whether a cancelled notice could be revived retrospectively.
Gursahai Saigal v. CIT [1963] 48 ITR (SC) 1 Cited by Revenue counsel among precedents. Included in the catalogue of authorities relied upon by Revenue; the court considered the cited precedents collectively in reaching its conclusion about the non‑revival of cancelled notice.
Commissioner Of Income Tax v. P.N. Krishnakumar [2002] 254 ITR 31 Cited by the assessee to argue that the Tribunal must consider retrospective amendments pending appeal and that an appeal is a continuation of the original proceedings. The court considered the reliance placed on this decision by the assessee but concluded the decision did not apply to these facts and therefore did not alter the result.
Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT [1947] 15 ITR 311 (FC) Cited by the assessee among authorities on retrospective effect and continuation of proceedings. Noted by the court as among the decisions relied upon by the assessee; the court concluded these authorities did not assist the assessee on the facts before it.
CST v. Bijli Cotton Mills [1964] 15 STC 656 (SC) (AIR 1964 SC 1594) Cited by the assessee in support of retrospective effect arguments. Mentioned among the cases relied upon by the assessee; the court held the line of authorities did not support the assessee's position that the cancelled 1993 notice was revived.
CIT v. Straw Products Ltd. [1966] 60 ITR 156 (SC) Cited by the assessee among precedents bearing on amendments and appeals. Listed among authorities relied upon by the assessee; the court determined those authorities were not applicable to the circumstances of this case.
Kapurchand Shrimal v. CIT [1981] 131 ITR 451 (SC) Cited by the assessee among precedents. Referred to in the catalogue of authorities submitted by the parties; the court found them inapposite to the central factual context.
Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd. [1992] 198 ITR 297 (SC) Cited by both sides among relevant precedents. Mentioned in the list of authorities relied upon; the court did not treat it as changing the outcome on the facts before it.

Court's Reasoning and Analysis

The court proceeded in a stepwise manner, explicitly tying its analysis to the statutory text, the chronology of notices, and the case law cited by the parties:

  1. Statutory position and chronology: Section 148 (as unamended) required that a notice for initiation of reassessment proceedings specify a period "not being less than thirty days" for filing a return. The October 1, 1993 notice did not comply with this 30-day requirement. The assessee pointed this out and the assessing officer cancelled those proceedings.
  2. Fresh initiation: After concluding that income had escaped assessment, the assessing officer validly initiated reassessment by issuing a fresh notice dated March 28, 1996, in conformity with the law then in force.
  3. Effect of the Finance (No. 2) Act of 1996: The Finance (No. 2) Act omitted the words "not being less than thirty days" from section 148 with retrospective effect from April 1, 1989. However, the court emphasised that when the October 1, 1993 notice and the fresh March 28, 1996 notice were issued, the Finance Act was not yet in force. The assessing officer had therefore applied the law as it stood at those relevant times.
  4. Whether the retrospective amendment validated the earlier cancelled notice: The court held that merely taking away the time-limit by a subsequent amendment does not retroactively validate an invalid notice which had been cancelled under the law in force at the time it was issued. The court reasoned that if the Legislature intended to undo actions taken under the earlier law, it would have done so expressly. In the absence of a statutory provision invalidating proceedings initiated under the earlier law, the court was not prepared to treat those actions as invalid on the basis of a subsequent amendment.
  5. Reliance on authorities: The court discussed and applied authorities (notably the Calcutta High Court's decision in CIT v. Assam Oil Co. Ltd., approved by the Supreme Court in CIT v. G.M. Mittal) to the effect that reassessment proceedings should be judged by the law as it stood when proceedings were initiated, and that subsequent reversals or changes do not automatically render prior reassessment proceedings void ab initio. The court also cited the Gujarat High Court decision in Maneklal Harilal emphasising the relevance of initial validity at the date of initiation.
  6. Application to facts: Because the October 1, 1993 notice was cancelled by the assessing officer under the then-existing law, and because the assessing officer validly issued a fresh notice on March 28, 1996, the return filed on the strength of the March 28, 1996 notice could not be ignored. Consequently, the court rejected the assessee's contention that the assessment order dated March 26, 1997 was barred by limitation under section 153(2).
  7. On the merits of the additions: For the unexplained cash (Rs. 1,88,000), the assessing officer, the Commissioner (Appeals) and the ITAT had concurrently found artificial inflation of the cash balance. The court found no reason to disturb the concurrent findings and sustained the addition under section 68.
  8. For the large addition of Rs. 16,60,854 (unaccounted sales of tins), the court reviewed the ITAT's reasoning (which had accepted that only peak sales could be taken as basis) and found the ITAT's reasoning inconsistent and not supported by cogent reasons. The assessing officer had recorded numerous specific and detailed findings (impounding books, absence of stock register, bank statements, stock reconstructions showing massive discrepancies, corroboration by sales-tax authorities, and adoption of average sale price) which justified the addition. The court concluded the ITAT's interference was unsatisfactory and that the assessing officer's addition should be sustained.

Holding and Implications

Holding (core rulings):

I.T.A. No. 149 of 2001 (assessee's appeal) — dismissed.

I.T.A. No. 140 of 2002 (Revenue's appeal) — allowed.

Direct consequences for the parties:

  • The reassessment proceedings initiated by the assessing officer on March 28, 1996 were upheld as valid; the court rejected the assessee's contention that the earlier October 1, 1993 notice was validated by the Finance (No. 2) Act, 1996 in a manner that would make the March 26, 1997 order time‑barred under section 153(2).
  • The addition of Rs. 1,88,000 as unexplained cash (treated as income under section 68) was sustained on concurrent findings of artificial inflation of cash balance.
  • The addition of Rs. 16,60,854 on account of unaccounted sale of tins (suppressed production) as determined by the assessing officer — and as confirmed by the Commissioner (Appeals) — was also sustained; the ITAT's interference on that point was set aside to that extent.

Broader implications: The court applied established principles from prior decisions to hold that a subsequent retrospective amendment does not, without express statutory language, revive or validate proceedings which had been cancelled under the law as it then existed. The opinion did not purport to lay down any novel legal principle beyond applying existing authorities to the facts before it.

Order communications: The court directed communication of its order to the Income-tax Appellate Tribunal, Cochin Bench.

Show full summary ...

    Commissioner Of Income Tax v. N. Jayaprakash

    K.S Radhakrishnan, A.C.J:— I.T.A No. 149 of 2001 is an appeal preferred by the assessee against the order of the Income-tax Appellate Tribunal, Cochin Bench in I.T.A No. 210.Coch/98, dated July 27, 2001 and I.T.A No. 140 of 2002 is an appeal preferred by the Revenue against the same order. We may first deal with the appeal preferred by the assessee under section 260A of the Income-tax Act, 1961. The assessee has raised six questions of law, of which the first four questions are consolidated, redrafted and stated as follows:

    “1. Is not the notice dated October 1, 1993, issued under section 148 legal and valid in the light of the amended provision contained in section 148 as per the Finance (No. 2) Act of 1996?

    2. Whether on the facts and in the circumstances of the case the Tribunal is justified in rejecting the contention of the assessee that the assessment order dated March 26, 1997, was barred by limitation in terms of section 153(2) of the Act?

    3. Whether on the facts and in the circumstances of the case the additions sustained by the Appellate Tribunal in regard to inflation of cash balance and receipt on account of DDs is legal and valid and sustainable in law?”

    2. The assessee is a proprietary concern by name “Package India Tin Fabricators” engaged in the fabrication and sale of tins. The assessee also derives share income from two firms, M/s. Das Prakash Agencies and M/s. GPN Cashew Exporting Co. The assessee in response to notice under section 148 dated October 1, 1993, and notice under section 142(1) dated March 13, 1995, filed the return of income for the assessment year 1992-93 on March 27, 1995, declaring a total income of Rs. 1,36,970 and agricultural income of Rs. 1,50,000. During the course of assessment proceedings it was pointed out by the assessee's representative that the notice under section 148 had not given more than 30 days time for filing the return, and therefore, the assessment would be treated as null and void. The assessing authority accepted the stand of the assessee and dropped the assessment proceedings. The assessing authority had reason to believe that income chargeable to tax had escaped assessment and consequently assessment proceedings were again initiated by issuing notice under section 148 dated March 28, 1996. The return of income was filed declaring a total income of Rs. 1,52,110 as against Rs. 1,36,970 returned earlier. The agricultural income returned earlier was omitted to be declared in the fresh return of income on April 19, 1996. The propriety of issuing a second notice under section 148 was questioned by the assessee vide letter dated April 16, 1996, and reply was given on July 15, 1996. The Assessing Officer later completed the assessment by order dated March 26, 1997, determining the aggregate income of the assessee as Rs. 30,36,990 as against the total income shown in the original return of Rs. 1,36,970. The major variation is the addition of Rs. 16,60,854 on account of unaccounted sales of tins. The Assessing Officer had narrated the events which led to this addition. He has also highlighted the inconsistent explanations. Aggrieved by the order of the assessing authority the assessee took up the matter in appeal before the Commissioner of Income-tax (Appeals). The appellate authority found no infirmity in the assessing authority issuing a second notice after having found that the first notice dated October 1, 1993, was invalid. The appellate authority also endorsed the view that initiation of proceedings by issuing a fresh notice under section 148 dated March 28, 1996, was valid. The order passed by the assessing authority was upheld except with regard to the plea of the assessee regarding agricultural income. The appellate authority held that there is no basis for keeping the figure of agricultural income especially when no such amount is returned in the second return filed. Aggrieved by the said order the assessee filed an appeal before the Tribunal. The contention of the assessee was that there was no scope for issuing a fresh notice under section 148 since the plea of escaped income was rejected by the Tribunal. On the merits the assessee's appeal was partly allowed. The Tribunal found force in the contention of the assessee that it cannot be presumed that the sale of the entire tins had taken place in one stretch. The Tribunal felt that only peak sales can be taken as the basis for making the addition. Consequently, the Tribunal directed the Assessing Officer to give the assessee necessary relief in the light of the directions given by the Tribunal. The Revenue as well as the assessee filed appeals aggrieved by that part of the order which is adverse to them.

    3. Counsel appearing for the assessee Sri T.M Sreedharan submitted that the Tribunal was not justified in rejecting his legal plea stating that it was too technical. Counsel submitted, the Tribunal should have found that the effect of the subsequent amendment with retrospective effect by the Finance (No. 2) Act of 1996, was to confer validity to the notice dated October 1, 1993, under section 148, even though such notice allowed only less than 30 days for filing the return of income. Counsel submitted that by giving retrospective effect to the amended law with effect from April 1, 1989, the notice dated October 1, 1993, issued under section 148 was legal and valid. Counsel therefore submitted that final assessment for the year 1992-93 should have been completed before March 31, 1996, by virtue of section 153(2) of the Income-tax Act, and that the assessment order passed on March 26, 1997, was invalid. The counsel further submitted that in the light of the return of income pending before the Assessing Officer when he issued fresh notice under section 148 on March 28, 1996, there was no legal validity for the fresh notice dated March 28, 1996, and any assessment order made pursuant thereto would be invalid. In support of his contention reference was made to the decision of the apex court in State of U.P v. Raja Syed Mohammad Saadat Ali Khan, [1961] 41 ITR 737, CIT v. Ran-chhoddas Karsondas, [1959] 36 ITR 569 (SC) and Commissioner Of Income Tax, Madras v. S. Raman Chettiar , [1965] 55 ITR 630 (SC).

    4. Sri P.K Raveendranatha Menon, senior counsel appearing for the Revenue on the other hand contended that the assessing authority has rightly held that the notice under section 148 dated October 1, 1993, was invalid since it had not complied with the statutory prescription of 30 days' time for filing the return. Counsel submitted, the assessee himself had pointed out the mistake and it was under such circumstance the assessment proceedings initiated in pursuance of notice dated October 1, 1993, were dropped. There is sufficient ground for initiating the assessment proceedings since the income had escaped assessment. Consequently, the assessment proceedings were initiated by issuing notice under section 148 dated March 28, 1996. Counsel for the Revenue submitted, the assessing authority had rightly applied the statutory provisions when it was pointed out by the assessee that the notice issued under section 148 dated October 1, 1993, had not satisfied the condition of giving a minimum of thirty days time for filing the return and hence rightly cancelled the notice. Counsel pointed out that though the Finance (No. 2) Act of 1996 had omitted the words “not being less than thirty days” retrospectively with effect from April 1, 1989 that by itself would not revive the notice dated October 1, 1993, issued by the assessing authority since it was already cancelled applying the then existing law. In support of his contention counsel referred to the decision of the apex court in CIT v. G.M Mittal Stainless Steel P. Ltd., [2003] 263 ITR 255. Reference was also made to the decision of the Calcutta High Court in CIT v. Assam Oil Co. Ltd., [1982] 133 ITR 204 and also in Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd., [1992] 198 ITR 297 (SC). Reference was also made to the decision of the apex court in Bakshi Ram v. Brij Lal, 1994 Supp (3) SCC 198 : AIR 1995 SC 395, the decisions of the apex court in CIT v. K. Adi-narayana Murty, [1967] 65 ITR 607 (SC), CIT v. Mahaliram Ramjidas, [1940] 8 ITR 442 (PC); Gursahai Saigal v. CIT, [1963] 48 ITR (SC) 1.

    5. Before we examine the rival contentions on the legal questions raised, we may refer to section 148 as unamended.

    “148. Issue of notice where income has escaped assessment.— (1) Before making the assessment, reassessment or recomputation under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139.

    (2) The Assessing Officer shall, before issuing any notice under this section, record his reasons for doing so.”

    6. It is trite law that issue of a notice under this section is a condition precedent to the validity of any assessment under section 147, and therefore if no such notice is issued or if the notice issued is invalid or vague or is not served in accordance with law, the assessment would be bad. The assessing authority had not followed the time-limit prescribed while notice under section 148 was issued on October 1, 1993. The assessee filed his return of income on March 27, 1995. The assessee had also pointed out to the Income-tax Officer that in the notice dated October 1, 1993, issued under section 148, the assessee was not given the statutory minimum period of time for filing the return of income. The law that was in force at the relevant point of time cast a statutory duty on the assessing authority to give a minimum of 30 days' time. The Assessing Officer cancelled the notice when it was pointed out to him and, therefore, notice under section 148 was issued on March 28, 1996. The Finance (No. 2) Act of 1996, enacted by Parliament and received the assent of the President on September 28, 1996. The Act omitted the words “not being less than 30 days” from section 148 with effect from April 1, 1989. When notice dated October 1, 1993, as well as the fresh notice dated March 28, 1996, were issued the Finance (No. 2) Act was not in force. The assessing authority had, therefore, rightly applied the then existing law.

    7. Section 148 provides for initiation of assessment proceedings which starts with the issue of notice. Initiation of proceedings by the assessing authority on October 1, 1993, was not valid and consequently it was dropped. Fresh notice was therefore issued under section 148 in conformity with the time prescribed under section 148. When the Finance Act was passed a legally valid proceeding was in existence. Notice prescribed under section 148 of the Act for the purpose of initiating reassessment proceedings is a condition precedent to the validity of an assessment made. The assessing authority was only curing the defect of not following the time-limit when it was pointed out by the assessee and therefore notice was issued strictly on the basis of the then existing statutory provision. The mere fact that the time-limit prescribed under section 148(1) was taken away would not make an invalid notice valid so as to render the assessment order dated March 26, 1997, invalid in terms of section 153(2) of the Act. The assessee cannot be allowed to raise such a plea after having persuaded the assessing authority to withdraw notice dated October 1, 1993, pointing out that it was not in conformity with the statutory provision. The assessee cannot be allowed to take advantage of the plea of limitation in terms of section 153(2) of the Act contending that the notice dated October 1, 1993, was valid due to the omission of the time-limit vide Finance (No. 2) Act of 1996 with effect from March 1, 1989.

    8. We may in this connection refer to the decision of the Calcutta High Court in CIT v. Assam Oil Co. Ltd., [1982] 133 ITR 204, which was approved by the apex court in CIT v. G.M Mittal Stainless Steel P. Ltd., [2003] 263 ITR 255. The Calcutta High Court took the view that a subsequent reversal of the decision of the High Court by the Supreme Court would not render the reassessment proceedings void ab initio. Reference may also be made to the decision of the Gujarat High Court in CIT v. Maneklal Harilal Spg. & Mfg. Co. Ltd., [1977] 106 ITR 24, which took the view that what is relevant is whether the proceedings were validly initiated. The court took the view that it is because of the initial validity of the action of the Income-tax Officer as on the date on which or the moment at which the proceedings were initiated, that it must be held that once they were validly initiated, the Income-tax Officer had correctly and validly initiated the proceedings. The apex court in G.M Mittal Stainless Steel P. Ltd.'s case, [2003] 263 ITR 255 held that it could not be said that reassessment proceedings were without jurisdiction on the basis of the law as it stood when the proceedings were initiated. On the strength of notice dated March 28, 1996, the return of income was filed and such return cannot be ignored. Reference may be made to the decisions of the apex court in CIT v. Ranchhoddas Kersondas, [1959] 36 ITR 569 and Commissioner Of Income Tax, Madras v. S. Raman Chettiar , [1965] 55 ITR 630.

    9. Counsel for the assessee placed considerable reliance on the decision of this court in Commissioner Of Income Tax v. P.N Krishnakumar, [2002] 254 ITR 31. Placing reliance on the said decision counsel submitted that the Tribunal was bound to consider the retrospective amendment while it decided the appeal especially, when the appeal is a continuation of the original proceedings and that the Tribunal is bound to take note of the amendment brought about in the law pending the appeal. Counsel also referred to the decisions in Raja Bahadur Kamakshya Narain Singh of Ramgarh v. CIT, [1947] 15 ITR 311 (FC), State of U.P v. Raja Syed Mohammad Saadat Ali Khan, [1961] 41 ITR 737 (SC), CST v. Bijli Cotton Mills, [1964] 15 STC 656 (SC); AIR 1964 SC 1594, CIT v. Straw Products Ltd., [1966] 60 ITR 156 (SC), Kapurchand Shrimal v. CIT, [1981] 131 ITR 451 (SC) and Commissioner Of Income Tax v. Sun Engineering Works (P) Ltd., [1992] 198 ITR 297 (SC).

    10. We are of the view the abovementioned decisions would not apply to the facts of this case. The mere fact that the time-limit has been taken away with effect from April 1, 1989, would not vitiate the proceedings validly initiated applying the then existing law. The object and purpose of the amendment is only to take away the time-limit for giving time for the assessee to file a return which the Legislature thought unnecessary. If the Legislature wanted to undo all that was done by the assessing authority applying the then existing law it should have been specifically provided in the statute. In the absence of specific provision in the Finance (No. 2) Act of 1996 invalidating those proceedings initiated by the Income-tax Officer we are not prepared to say that the action taken by the Income-tax Officer applying the then existing law was invalid. Once we uphold the notice issued under section 148 on March 28, 1996, the plea of limitation raised by the assessee under section 153(2) has to be rejected. We therefore decide the legal questions in favour of the Revenue and against the assessee holding that the Finance (No. 2) Act of 1996 as amended would not validate an invalid notice which was issued under section 148(1).

    11. We may now examine question Nos. 5 and 6 as to whether the Tribunal is justified in sustaining the additions with regard to inflation of cash balance and receipt on account of demand drafts. The Commissioner (Appeals) confirmed the addition of Rs. 1,88,000 being the cash transferred from the Trichur branch but not deducted from the cash balance in that branch. The assessing authority on verification of the cash books of the assessee noticed that the assessee was transferring the sale proceeds from the Trichur branch to the head office by cash. It was also noticed that the cheques received from parties or their agents were credited in the accounts with UCO Bank, Trichur and the cash withdrawn from the bank was transferred to the head office. The records reveal that normally entries for transfer of cash were made both at Trichur and the head office. But on April 13, 1991, the receipt of cash is accounted in the head office without corresponding effective entries in the cash book of the Trichur branch. Records reveal that the outgoings to the head office amounting to Rs. 1,88,000 were not reduced from the cash balance. When the discrepancy was brought to the notice of the assessee, it was pointed out that the sister concern M/s. GPN Cashew Exporting Co. had enough balance on these days and since the assessee was also the managing partner of that sister concern, whenever shortage was felt, it was adjusted from the sister concern which was not accepted by the Assessing Officer on the ground that the assessee was having extensive dealings with the sister concern and such dealings were running into lakhs and all such cash transactions were regularly entered in the books, but there was no entry in respect of the transaction of Rs. 1,88,000. The assessing authority therefore held this is unexplained cash brought amounting to Rs. 1,88,000 and he treated it as the assessee's income and brought to tax under section 68 of the Act. The addition was confirmed by the Commissioner (Appeals), so also the Tribunal.

    12. We notice that the assessing authority, the Commissioner as well as the Tribunal have concurrently found that there has been artificial inflation of the cash balance. A perusal of the records indicated that even small cash transfers are promptly entered in the assessee's and sister concerns' books of account. The assessing authority noticed that artificial inflation of cash balance in the head office accounting as receipts from the Trichur branch when in fact there was no such cash availability. Though the assessee tried to explain the cash availability of the sister concern at Kollam the same could not be established. The unexplained cash brought amounting to Rs. 1,88,000 was treated as the assessee's unexplained income and brought to tax under section 68. We find no reason to disturb the concurrent findings rendered with regard to the unexplained income of the assessee.

    13. The Revenue in I.T.A No. 140 of 2002 raised three questions of law which are stated hereunder:

    “1. Whether, on the facts and in the circumstances of the case the Tribunal is justified in directing that the sale proceeds of the first day may be available for the purchase and sale of tins of the second day and is not such finding and direction to the officer based on surmises, conjectures and hence perverse?

    2. Whether, on the facts and in the circumstances of the case is not the conclusion reached in paragraph 10 and the direction contained therein are based on surmises and conjectures and hence vitiated?

    3. Whether, on the facts and in the circumstances of the case and also for the reasons given in paragraph 10 of the order, the Tribunal is right in law and fact in interfering with the addition of Rs. 16,60,854 made on account of unaccounted sale of suppressed production of tins?”

    14. Counsel for the Revenue contended that the Tribunal was not right in interfering with the addition of Rs. 16,60,854 made on account of unaccounted sale of suppressed production of tins. Senior counsel appearing for the Revenue took us through paragraph 10 of the Tribunal's order and submitted that no cogent reasons have been stated by the Tribunal to accept the findings of the Assessing Officer as well as those of the appellate authority. The findings of the Tribunal, according to counsel, are on conjectures and surmises. In this connection it is worthwhile to extract paragraph 10 of the Tribunal's order which reads as follows:

    “Considering the facts and on going through the orders of the Revenue authorities, we are in agreement with the findings of the Revenue authorities. However, we find considerable force in the argument of the assessee's counsel that it cannot be presumed that the sale of the entire tins had taken place at one stretch. It could have taken place within the period of three months, July, August and September. If that be so, and if the tins are treated as sold, then the assessee's plea that the sale proceeds of the first day may be available for the purchase and sale of tins of the second day cannot be rejected outrightly. In that case, only the peak sales can be taken as the basis for making the addition. We direct the Assessing Officer to give the assessee necessary relief in the light of the above discussion.”

    15. The first sentence of the paragraph says that the Tribunal is in agreement with the Revenue authorities. In the next sentence the Tribunal says “however the Tribunal finds considerable force in the arguments of the assessee's counsel”. Both the sentences would not go together. In the third sentence the Tribunal used the expressions “it could have” and “if that be so” and then used the expression “if the tins are treated as sold”. We have no hesitation to say that the Tribunal has not applied its mind to the various reasons stated by the assessing authority for interfering with the addition of Rs. 16,60,854 made on account of unaccounted sale of suppressed production of tins. Counsel appearing for the assessee however tried to sustain the said order and submitted that the Tribunal is right in finding that there was no evidence to show that the sale of the entire tins had taken place on a single day at one stretch. Counsel referred to annexure D copy of the quantitative particulars of tins sold for the period from July 25, 1991 to September 27, 1991. So the peak sale was on August 19, 1991. We have perused the order passed by the assessing authority as well as that of the Tribunal. We are of the view that cogent and acceptable reasons have been stated by the Assessing Officer in making addition towards unaccounted sale of tins. The facts would indicate that during the course of scrutiny of the assessee's books of account the Assessing Officer had noticed certain discrepancies in the cash book and impounded the books produced. Further in spite of repeated requests the assessee had failed to produce his stock register. The Assessing Officer had to prepare the monthwise statement of purchase of tin sheets and tins production and sales of tins. The Assessing Officer had noticed that the closing stock of tins as on March 31, 1992, should have been 32,659 tins as against 3,200 tins disclosed. The Assessing Officer had also noticed that the assessee had availed of key loan facility from the Central Bank of India, Kollam and the stock position of tins of each day was obtained from the said bank by the Assessing Officer. The declared stock shown to the bank was adjusted in the original statement prepared by the Assessing Officer and a second statement was prepared, as per which the closing stock of tins as on March 31, 1992, should have been 45,786 as against 3,200 tins disclosed. The[Assessing Officer had also noticed that the sales tax authorities have detected unaccounted sales of tins and that on the basis of the admitted rate of fabrication charges and consumption of tin sheets, the assessee should have disclosed a much higher output. Under such circumstance the assessing authority had concluded that the assessee had suppressed pro-duction of tins and that the suppressed stock of 42,586 tins were sold out] side the accounts. The assessing authority adopting the average sale price of Rs. 39 per tin, had made an addition of Rs. 16,60,854 towards unaccounted sale of tins. Detailed and cogent reasons have been stated by the assessing authority in its order to make that addition. This is a case where the assessee had not produced his stock register. The assessee had also not produced any records to explain the difference of 29,459 tins as loan taken from a sister concern. The finding of the Tribunal, in our view, is most unsatisfactory and no cogent reasons have been stated by the Tribunal to disturb the findings by the assessing authority which were confirmed by the appellate authority.

    16. Under such circumstance we are inclined to dismiss I.T.A No. 149 of 2001 and allow I.T.A No. 140 of 2002. The order of the Assessing Officer as modified by the Commissioner (Appeals) would stand and the order of the Tribunal is interfered with to the above extent. The questions posed are all answered in favour of the Revenue and against the assessee. Communicate the order to the Income-tax Appellate Tribunal, Cochin Bench.

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    Commissioner Of Income Tax v. N. Jayaprakash
    (Jan 20, 2006)