Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Dipak Kumar Sen
  • Ajit Kumar Sengupta, JJ.
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Judges
  • Dipak Kumar Sen
  • Ajit Kumar Sengupta, JJ.
Acts
See more information ...
Smart Summary

Case Summary — A.K. Sengupta, J.

Factual and Procedural Background

This appeal challenges the judgment and order dated April 2, 1985, by Padma Khastgir J., which dismissed an application under article 226 of the Constitution. The appellant had challenged notices issued under section 148 of the Income-tax Act, 1961, for the assessment years 1978–79 to 1981–82. The impugned notices were issued on October 13, 1982. Reassessment proceedings pursuant to those notices were completed. Before demand notices and assessment orders pursuant to the reassessments could be served, the assessee filed the writ application under article 226; the learned judge dismissed it on the ground that the assessee had an adequate alternative remedy under the Income-tax Act.

On appeal, counsel for the appellant argued that the notices were without jurisdiction and that the learned judge should have examined that question rather than dismissing the writ application in limine. Counsel for the respondents said reassessments had been completed (the assessee was heard on March 27, 1985), and demand notices, challans and assessment orders were sent on March 27, 1985; the assessee moved the High Court on March 29, 1985. The respondents submitted that the appellant should prefer appeals under the Income-tax Act and that the appellate authority could consider the jurisdictional question.

At the suggestion of the parties, the court perused the records and proceeded to decide the matter finally on the basis of those records.

Legal Issues Presented

  1. Whether the notices issued under section 148 (reopening under section 147) for assessment years 1978–79 to 1981–82 were valid and intra vires (i.e., whether the Income-tax Officer had jurisdiction to reopen assessments).
  2. Whether proceedings initiated and recorded as under section 147(b) could properly be treated or justified as proceedings under section 147(a), and more generally whether an Income-tax Officer may convert or justify proceedings under one clause of section 147 by reference to another.
  3. Whether the recorded reasons for issuing notices under section 148(2) satisfied the conditions precedent required by section 147(a) or section 147(b) (including the requirement that information relied upon under section 147(b) must have come to the officer after the original assessment).
  4. Whether the reassessment could be justified by reference to prior tribunal or appellate orders (in particular Tribunal order No. 1566 (Cal) 1981 and an order relating to assessment year 1976–77) as the factual or legal basis for reopening.

Arguments of the Parties

Appellant's Arguments

  • The notices under section 148 were without jurisdiction and the learned judge erred in dismissing the writ petition without first considering that question.
  • No demand notice or assessment order had been served on the appellant at the time of filing the writ petition, and therefore the appellant could not yet prefer an appeal under the Income-tax Act (i.e., the appellant contended that the writ remedy was properly invoked before service of assessment/demand).

Respondents' Arguments

  • The reassessments had been completed after hearing the assessee on March 27, 1985, and demand notices, challans and assessment orders were sent to the assessee on March 27, 1985; the writ was filed on March 29, 1985.
  • If aggrieved, the appellant should prefer appeals under the Income-tax Act; the appellate authority is competent to go into jurisdictional questions concerning the Income-tax Officer's power to initiate proceedings.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Tribunal order No. 1566 (Cal) 1981 dated March 10, 1982 Referred to in the reassessment order as indicating that the assessee had not accounted properly for recovery out of the wastage account. The reassessing officer relied on that Tribunal order in justification. The court noted the Tribunal order was referred to, but did not accept that the reassessment had been initiated on the basis of a specific finding in that order for the years in question; the court declined to treat it as a sufficient basis for the reopening in this case.
Order of the Tribunal in respect of assessment year 1976–77 (as referred to in the reassessment order) Referred to as upholding the Commissioner of Income-tax (Appeals) order and involving the rejection of the trading account invoking section 145. The court observed the Tribunal's finding, if any, appeared confined to assessment year 1976–77 and that it did not contain a specific finding that the assessee had not properly accounted for recovery from the wastage account applicable to the reopened years; further, the reassessment proceedings had not in fact been initiated expressly on the basis of any finding contained in that Tribunal order.

Court's Reasoning and Analysis

The court's analysis focused on statutory requirements and the factual record produced:

  1. Legal framework invoked: Section 147 contains two distinct bases for reopening an assessment:
    • Section 147(b): the Income-tax Officer must have information coming into his possession after the original assessment that leads to the belief that income has escaped assessment.
    • Section 147(a): the Income-tax Officer must have reason to believe that income has escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment.
    The court emphasized that these are distinct jurisdictional bases and that the reasons recorded under section 148(2) must correspond to the particular clause under which proceedings are initiated.
  2. On the facts before the court, the recorded reasons for issuing notices (dated October 13, 1982) simply stated a belief that the assessee "has not accounted for properly for recovery out of waste materials" and that income had escaped assessment; however, the reasons did not identify the source of any new information which had come to the Income-tax Officer after the original assessment, as required by section 147(b).
  3. The court reviewed the original assessment for assessment year 1978–79, which showed that the assessing officer had noted quantitative details (consumption and shortages) and had made an addition of Rs. 10,600 after considering explanations. The court took this as evidence that the original officer had considered the relevant material facts and had applied his mind at the time of the original assessment.
  4. The reassessment order purported to justify reopening by relying on the Tribunal's order No. 1566 (Cal) 1981 and, invoking Explanation 2 below section 147 and section 292B, sought to treat the case as falling under section 147(a) rather than section 147(b). The court held this approach to be impermissible where the proceedings were in fact initiated under section 147(b):
    • The reasons for initiating proceedings under one clause of section 147 cannot be used as the reasons for initiating proceedings under the other clause unless the recorded materials actually satisfy the specific conditions precedent of the clause relied upon.
    • Section 292B prevents technical invalidity from defeating proceedings, but it does not permit a change in the substantive jurisdictional basis (i.e., treating a proceeding begun under section 147(b) as one under section 147(a) where the specific factual preconditions for section 147(a) are not present).
  5. The court concluded that the officer was proceeding on a mere change of opinion rather than on any new information or newly discovered fact that had come to his knowledge after the original assessment. Because no new post-assessment information was shown and the original assessment demonstrated that relevant facts had been disclosed and considered, the court found the reasons insufficient to sustain a reopening under section 147(b) (and likewise insufficient to justify treating the proceedings as falling under section 147(a)).
  6. The court also examined the tribunal and appellate material cited in the reassessment order and found that any findings in earlier years were confined to those specific years (notably 1976–77) and did not provide the necessary basis for reopening the years in question. The reassessment proceedings had not been initiated expressly on the basis of any specific finding contained in the Tribunal order relied upon.
  7. The court thus held the impugned notices were without jurisdiction and ought to be set aside.
  8. Additional factual observations made by the court (drawn from the assessment orders) included that the assessments were made under section 143(3) despite recorded non-compliance with notices under section 142(1), and that there were substantial losses carried forward for all the assessment years involved, so that any small addition on reassessment would not result in loss of revenue in any event.

Holding and Implications

Holding:

The impugned notices under section 148 for the assessment years 1978–79 to 1981–82 are quashed.

The court ordered that the assessment orders and demand notices issued in pursuance of those reassessments are also quashed. The appeal was allowed. The court discharged the undertaking, dispensed with filing the paper book, and made no order as to costs.

Implications:

  • Direct effect on the parties: The reopening notices, the reassessment orders and the demand notices for the specified assessment years are set aside and of no effect as a result of this decision.
  • Jurisdictional principle reinforced: The decision underscores that section 147(a) and section 147(b) are distinct jurisdictional heads with different conditions precedent; a reopening recorded under one clause cannot be retrospectively treated as having been taken under the other unless the recorded material actually satisfies that other clause's conditions.
  • Broader precedent: The opinion does not purport to establish a novel legal rule beyond applying the existing statutory principles; it decides the case on the facts before the court and does not announce any broader new precedent beyond those statutory and established principles reiterated in the reasoning.

End of summary — based exclusively on the provided opinion.

Show full summary ...

    Sunrolling Mills P. Ltd. v. Income-Tax Officer

    A.K Sengupta, J.:— This appeal is directed against the judgment and order dated April 2, 1985, passed by Padma Khastgir J. in an application made under article 226 of the Constitution by the appellant challenging the notices under section 148 of the Income-tax Act, 1961, for the assessment years 1978–79 to 1981–82. The impugned notices under section 148 were issued on October 13, 1982. The assessment proceedings pursuant to the said notices had been completed. Before the demand notices and assessment orders pursuant to the said reassessments for the said assessment years could be served upon the assessee, the assessee moved an application under article 226 of the Constitution. The learned judge dismissed the writ application on the ground that the writ petitioner has adequate alternative remedy under the Income-tax Act, 1961, and as such the petitioner should not be allowed to invoke the writ jurisdiction.

    2. At the hearing before us, it has been contended by Mr. Anil Kumar Roy Chowdhury, learned counsel on behalf of the appellant that since the notices are without jurisdiction, the learned judge was not justified in dismissing the writ application in limine. The learned judge should have first considered whether the impugned notices under section 148 were without jurisdiction or not. He had further submitted that no demand notice or assessment order has been served upon the appellant and as such the appellant cannot prefer any appeal against such assessments. Mr. M.L Bhattacharjee, learned advocate on behalf of the respondents, has submitted that the reassessments had been completed after hearing the assessee on March 27, 1985. Thereafter, demand notices, challans and assessment orders were sent to the assessee on March 27, 1985, and the assessee moved this court on March 29, 1985. He had submitted that the appellant should prefer appeals against the assessments, if it is aggrieved and the appellate authority under the Income-tax Act is competent to go into the question relating to the jurisdiction of the Income-tax Officer to initiate the proceedings.

    3. The learned advocates appearing for the parties have suggested that this matter can be disposed of finally by us after looking into the records. At the suggestion of the parties, the records have been produced and we have perused the records.

    4. The assessments have been reopened in this case under section 147(b). The reasons which have been recorded for the issuance of notice under section 148 for each of the assessment years in question are in the following terms:

    “October 13, 1982: As the assessee has not accounted for properly for recovery out of waste materials, I have reasons to believe that income arising out of that has escaped assessment. Hence, proceedings under section 147(b) are initiated. Issue notice under section 148.

    (Sd.) Illegible.”

    5. It is now well-settled that the Income-tax Officer can invoke jurisdiction under section 147(b) if he has information in his possession to form the belief that income has escaped assessment. Section 147 postulates that information must have come to the possession of the Income-tax Officer after he had passed the original assessment order and it is only on such information that the Income-tax Officer is entitled to act. If the information was already with him and he did not act on the basis of such information before the assessment was completed, then section 147(b) would not permit him to apply his mind to the same assessment with a view to correct his own mistake. The Income-tax Officer cannot act on the basis of a change of opinion. The Income-tax Officer must have knowledge of any fact or law coming to his possession subsequent to the completion of the original assessment. The recorded reasons have been reproduced hereinabove. It has not been stated what is the source of information.

    6. In the original assessment order for the assessment year 1978–79, the assessing Income-tax Officer has recorded the following fact:

    “It is also found on verification of quantitative details that in consumption of 440.306 m.t of cuttings and scrap, the shortage was 47.515 m.t It was explained that the comparatively low G.P was due to increase in the price of raw materials and increase in the wages of labour and the shortage was at the normal rate. Such explanation is not at all satisfactory and considering the nature of manufacturing and materials used, I make an addition of Rs. 10,600 in trading and manufacturing account.”

    7. In the assessment order made pursuant to the notice under section 148 for the said assessment year, the Income-tax Officer has recorded as follows:

    “The fact of the case is that as per the Tribunal's order No. 1566 (Cal) 1981 dated March 10, 1982, the assessee had not accounted for properly for the recovery out of wastage account. And hence notice under section 147(b) was issued. In view of Explanation 2 below section 147 and section 292B, the case falls under section 147(a) and not section 147(b). Thus conditions precedent for the assumption of jurisdiction had been satisfied and the requirement of law had been fulfilled in the facts and circumstances of the case.”

    8. Thereafter it is recorded that the assessee has not accounted for “properly for recovery out of wastage account”.

    9. It appears from the reassessment order that although the assessment was reopened under section 147(b), the Income-tax Officer sought to justify the reopening under section 147(a). On the materials disclosed before us, we are unable to sustain the impugned notices either under section 147(a) or under section 147(b). From the original assessment order, it will be evident that the assessee disclosed all material facts necessary for its assessment and the Income-tax Officer applied his mind to the facts and circumstances of the case in making the original assessment. The Income-tax Officer is now proceeding on a mere change of opinion. No new fact has been brought to our attention.

    10. Where the Income-tax Officer himself proceeds on the basis of section 147(b) and not on the basis of section 147(a), it is not open to him to justify the proceedings at the time of reassessment as if they were taken under section 147(a). Under section 147(b), the information subsequent to the making of the original assessment must lead to the belief of the Income-tax Officer that income has escaped assessment. Thus, the jurisdiction of the Income-tax Officer depends on the post-assessment information. But under section 147(a), the Income-tax Officer must have reason to believe that escapement of income has occurred by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment. In both the cases, the reasons are to be recorded by the Income-tax Officer under section 148(2). Therefore, the reasons for initiating proceeding under section 147(b) cannot be the reasons for initiating proceedings under section 147(a). Although, in the instant case, the assessments are sought to be reopened within four years and even if the proceedings had been initiated under section 147(a), no sanction of the Commissioner of Income-tax would have been necessary. But this cannot authorise the Income-tax Officer to convert a proceeding under section 147(b) into a proceeding under section 147(a) unless the facts and materials forming the basis of the reasons recorded under section 148(2) satisfy the conditions precedent for assumption of jurisdiction under section 147(a) also. Similarly, where the reassessment proceeding is initiated under section 147(a), the Income-tax Officer can very well justify his action under section 147(b) subject to the period of limitation as prescribed therefor, provided that the conditions of section 147(a) are satisfied.

    11. In this case, the Income-tax Officer has sought to justify his action by taking recourse to section 292B. This section is intended to ensure that on technical grounds the return of income, assessment, notice or summons or proceeding is not rendered invalid. This section does not empower the Income-tax Officer to treat a proceeding taken under section 147(b) as a proceeding under section 147(a). This is not a mere technicality. It is a question of jurisdiction. Unless the conditions precedent are fulfilled, no proceedings whether under clause (a) or (b) of section 147 can be initiated.

    12. We have also perused the order of the Tribunal for the assessment year 1976–77 as referred to in the order of reassessment for the assessment year 1978–79. There, the Tribunal upheld the order of the Commissioner of Income-tax (Appeals). The Commissioner of Income-tax (Appeals) rejected the trading account of the assessee for that year by invoking the provisions of section 145 of the Income-tax Act, 1961. It does not, however, appear from the order of the Tribunal that any specific finding was given that the assessee had not accounted for properly the recovery made out of the wastage account. The finding, if any, is confined to the assessment year 1976–77. Assuming there is any finding justifying the reopening of the assessments but the proceedings in this case have not been initiated on the basis of any finding contained in the order of the Tribunal.

    13. On the facts and circumstances of the case, we, are of the view that the impugned notices are without jurisdiction and must be set aside and quashed.

    14. In that view of the matter, the appeal succeeds. The impugned notices under section 148 for the assessment years 1978–79 to 1981–82 are quashed and the assessment orders and demand notices issued in pursuance thereof are also quashed. We may also note that the assessments were made by the Income-tax Officer under section 143(3), although it has been recorded in each of the assessment orders that the assessee did not comply with the terms of notice issued under section 142(1) of the Act. Another fact which also appears from the assessment order is that for all the assessment years involved in these proceedings, there were substantial losses carried forward from the earlier years. Therefore, in any event, there is no loss of Revenue even if the small income which has been added on reassessment is taken into consideration.

    15. The undertaking is discharged. The filing of paper book is dispensed with. There will be no order as to costs.

    Sen, J.:— I agree.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    Sunrolling Mills P. Ltd. v. Income-Tax Officer
    (May 16, 1985)