Bookmark
PDF
Share
CaseIQ

Sri Gauri Shankar Choudhary v. Additional Commissioner Of Income-Tax, Muzaffarpur Range & Another

Patna High Court

May 9, 1997

Judgment

Subsequent
References

CaseIQ

Important Paras

Please sign up to view Important Paras.

Smart Summary (Beta)

Structured Summary of the Court's Opinion

Factual and Procedural Background

B.P. Singh and N.K. Sinha, JJ., heard a writ petition in which the petitioner sought quashing of:

a notice issued under Section 148 of the Income Tax Act for assessment year 1981-1982 (Annexure-1; issued 22.1.1996);
the assessment order passed on 13.3.1997 (Annexure-3), purportedly ex parte under Section 144 of the Income Tax Act, assessing the petitioner at Rs. 3,45,585/- for AY 1981-1982; and
a corresponding notice of demand raised pursuant to that assessment (Annexure-4).

The petitioner also sought a declaration that interest under Sections 139(8) and 217 of the Income Tax Act is not leviable in proceedings under Section 147. Upon receipt of the Section 148 notice, the petitioner objected by a letter dated 26.9.1996 on grounds that the notice was prima facie barred by limitation and that the notice did not state any basis or reasons; he also denied that any income in his name had escaped assessment. The Income Tax Officer proceeded to make the assessment without disposing of that objection.

Legal Issues Presented

Whether the notice issued under Section 148 for assessment year 1981-1982 was barred by limitation (having expired on 31st March, 1992) and therefore invalid.
Whether the notice complied with the requirement of sub-section (2) of Section 148 to record reasons for issuing the notice.
Whether a direction by the Settlement Commission could justify issuance of a notice under Section 148, or operate (through Section 150) to remove the limitation bar.
Whether concessions or findings in a Settlement Commission order in relation to another assessee bind the petitioner or otherwise justify issuance of the notice.

Arguments of the Parties

Petitioner's Arguments (Mr. Jain)

The Section 148 notice was barred by limitation in view of the limitation prescribed by Section 147 read with Section 149; the limitation period for AY 1981-1982 expired on 31.3.1992.
The notice did not state any reasons as required by sub-section (2) of Section 148.

Revenue's Arguments

The issuance of the Section 148 notice was justified by a direction in an order of the Settlement Commission arising from proceedings in respect of Sri Suraj Choudhary H.U.F.; the Settlement Commission had directed the assessing officer having jurisdiction to take action as per law to bring income of an association of persons (involving the petitioner) to tax for the years 1981-1982 to 1986-1987.
The Revenue relied on Section 150 of the Income Tax Act to submit that, in view of the Settlement Commission direction, limitation should not prevent issuance of a Section 148 notice.
The Revenue also relied upon a concession said to have been made by counsel for the assessee in the Settlement Commission proceedings about capital increase and resulting income.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court's Reasoning and Analysis

The court's analysis proceeds in several discrete steps, each based on material present in the record and the statutory framework:

Requirement to record reasons under Section 148(2):
The court noted that sub-section (2) of Section 148 requires that the assessing officer record his reasons before issuing any notice under Section 148. The court observed that, although the Settlement Commission's order might have been the motivating factor for issuance of the notice, the assessing officer could and should have recorded that reason either in the notice itself or separately in the office file. The counter-affidavit filed by the Revenue contained no averment that reasons had been separately recorded in the file. On this short ground alone the court held that the notice (Annexure-1) must be quashed for non-compliance with Section 148(2).
Limitation under Section 148 for AY 1981-1982:
The court observed that for assessment year 1981-1982 the period of limitation for issuance of a notice under Section 148 was ten years, which expired on 31st March, 1992. Therefore, the notice issued on 22.1.1996 was, on its face, barred by limitation.
Whether Section 150 can remove the limitation bar:
The Revenue's reliance on Section 150 was rejected. The court explained that Section 150(1) permits issuance of notices notwithstanding Section 149 "for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision, or by a court in any proceeding under any other law." The court read that provision as permitting revival only where the order giving rise to the need for reassessment is an appellate/reference/revision order or a court order in proceedings relating to the same assessee. The court emphasized that the appeal/reference/revision or court proceeding must relate to the assessee in question.

Since the Settlement Commission order did not arise from an appeal, reference or revision in respect of an assessment order for the petitioner (and the assessee before the Settlement Commission was different and distinct), Section 150(1) could not be invoked to revive a time-barred proceeding for AY 1981-1982. The court also referred to sub-section (2) of Section 150, noting that it prevents application of sub-section (1) where the order which was the subject-matter of the appeal, reference or revision could not have been made because it was itself barred by limitation. The court found that no assessment order for AY 1981-1982 had been taken in appeal, reference or revision, and therefore the Settlement Commission order could not operate to revive a proceeding that was barred by limitation.
On the Settlement Commission concession and binding effect:
The court examined the Settlement Commission order and the alleged concession made by counsel for the assessee in those proceedings concerning combined capital increase of three H.U.F.s. The court held that a concession made on behalf of an assessee in Settlement Commission proceedings cannot be binding on a different assessee who was not a party to those proceedings. In that instance the concession was made by counsel in the Settlement Commission proceedings to protect his own client and was not persuasive as against the petitioner in the instant case.
Conclusion from the combined analysis:
On the dual grounds of (a) non-compliance with the requirement to record reasons under Section 148(2), and (b) the notice being ex facie time-barred for AY 1981-1982, the court concluded that the Section 148 notice and the assessment made pursuant thereto were invalid and without jurisdiction.

Holding and Implications

HOLDING: The writ petition was allowed. The court quashed the impugned documents: the notice under Section 148 of the Income Tax Act (Annexure-1), the assessment order passed on 13.3.1997 (Annexure-3) and the demand notice issued pursuant thereto (Annexure-4).

IMPLICATIONS:

Direct effect on the parties: The Section 148 notice, the assessment made pursuant to that notice, and the consequent demand notice stand quashed; the assessments and demand based on the challenged proceedings are set aside on the grounds of limitation and failure to record reasons as required by Section 148(2).
Scope and precedent: The opinion confines its reasoning to the statutory text and facts of the case (including the distinctness of the assessee before the Settlement Commission and the petitioner). The court did not purport to lay down a broader novel principle beyond the application of the cited statutory provisions to the facts, and the opinion contains no express holding that would operate as a new general precedent beyond the immediate circumstances (in particular, the decision turns on limitation and non-recording of reasons, and on the inapplicability of Section 150 in the factual matrix described).

This summary is based exclusively on the information contained in the provided opinion and does not add or infer facts beyond that text.

Show all summary ...

B.P Singh and N.K Sinha, JJ.:— The petitioner herein has filed the instant writ petition for quashing of the notice issued to him under Section 148 of the Income Tax Act for the assessment year 1981-1982 calling upon the petitioner to file return of income to assess the escaped income of the person named in the notice. He has also prayed for quashing of the assessment order passed on 13.3.1997 (Annexure-3) as also notice of demand raised in pursuance thereof. He has further prayed for a declaration that no interest under Sections 139(8) and 217 of the Income Tax Act is leviable in course of proceeding under Section 147 of the Act. The impugned notice (Annexure-1) was issued on 22.1.1996 On receipt of the said notice the petitioner by his letter dated 26.9.1996 objected before the Income Tax Officer and stated that the notice issued was prima facie barred by limitation, and further that no basis or the reasons have been stated in the notice for initiation of the proceeding in question. He also denied that he had received any income whatsoever in his name or that his income whatsoever had escaped assessment for the aforesaid years. Without disposing of the objection of the petitioner, the Income Tax Officer proceeded to make assessment and passed an assessment order on 13.3.1997 The order appears to have been passed ex parte under Section 144 of the Income Tax Act. The assessing officer assessed the income of the assessee at Rs. 3,45,585/- for the assessment year 1981-1982.

2. Mr. Jain appearing on behalf of the petitioner has urged before us that the notice issued to the petitioner under Section 146 of the Income Tax Act, 1961, was barred by limitation in view of the limitation prescribed by Section 147 read with Section 149 of the Income Tax Act.

3. The relevant assessment year being assessment year 1981-1982, the same was barred by limitation on 31st March, 1992 and, therefore, no notice under Section 148 could be issued.

4. His second submission is that the notice (Annexure-1) does not disclose any reason whatsoever and, therefore, the notice has been issued in breach of the provisions of sub-section (2) of Section 148, because the said sub-section requires that the assessing officer shall, before issuing any notice under this section, record his reasons for doing so.

5. On behalf of the Revenue it has been contended that there was a case Before the Settlement Commission in which the assessee concerned was Sri Suraj Choudhary H.U.F In the said proceeding the Settlement Commission had found that there was a complete partition in the H.U.F of Sri Suraj Choudhary as between him and his son on 9.11.77 and business carried on thereafter belonged to association of persons of the H.U.Fs of three separated sons of Sri Suraj Chaudhary including the petitioner herein. Since the association of persons was not before the Settlement Commision, but had earned substantial income during six years from 1981-1982 to 1986-1987, the assessing officer having jurisdiction was directed to take action as per law to bring this income to tax in the relevant assessment years. The submission urged on behalf of the Department is that it was pursuant to such direction that a notice was issued under Section 148 of the Income Tax Act. We have perused the order of the Settlement Commission, and counsel for the Revenue made much of the concession said to have been made by counsel for the assessee in that case, that during the relevant assessment years 1981-1982 to 1986-1987 the combined capital of the three H.U.Fs increased from Rs. 5 lakhs to 16.24 lakhs, and the difference was taxable as income of the three of persons consisting of association of Sri Suraj Chaudhary represented through respective H.U.Fs In our view, the concession made on behalf of an assessee in such a proceeding cannot be held to be binding upon any other assessee, who is not a party in that proceeding. In fact, in the proceeding before the Settlement Commission, the concession was offered on behalf of counsel for the assessee with a view to save his client from the liability. We, therefore, do not attach much importance to the concession made by counsel appearing for the assessee in that case, who was different from the assessee in the instant case.

6. A question still arises as to whether the notice issued under Section 148 can be justified on the basis of the directions of the Settlement Commission in its order dated 8.10.93

7. It may be observed that the Settlement Commission directed the assessing officer having jurisdiction in the matter to take action in accordance with law. Even if the direction issued by the Settlement Commission was the reason which impelled the assessing officer to issue notice under Section 148 of the Income Tax Act, he could have recorded that reason either in the notice issued to the assessee or even in the file maintained by him in his office. Though a counter-affidavit has been filed on behalf of the Revenue, counsel for the Revenue conceded that there is no averment in the counter-affidavit that reasons have been separately recorded in the file. On this short ground alone the notice issued under Section 148, which is Annexure-1 to the writ petition must be quashed.

8. There is yet another reason why the notice (Annexure-1) and the order passed consequent thereto, cannot be upheld. It was not disputed before us that so far as assessment year 1981-1982 is concerned, the period of limitation prescribed is ten years for the issuance of notice under Section 148 of the Income Tax Act. The said period, therefore, expired on 31st March, 1992. The notice is, therefore, ex facie barred by limitation. Counsel for the Revenue, however, relied upon Section 150 of the Act, and submitted that in view of the direction issued by the Settlement Commission, the question of limitation could not stand in the way of the assessing officer issuing a notice under Section 148 of the Income Tax Act. We have no doubt that the submission is misconceived. Section 150 of the Act provides that notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision, or by a court in any proceeding under any other law. We have no doubt in our mind that resort to sub-section (1) of Section 150 of the Act can be taken only in cases where it becomes necessary to make assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction pursuant to an appellate order passed by the appellate authority or pursuant to any order in reference or revision or by a court in any proceeding under any other law. Obviously, the appeal, reference or revision or any other proceeding before a court must relate to the assessee in question, and not any direction or assessment made in appeal, reference or revision in the case of any other assessee or in a proceeding in which the assessee in question is not a party. It was submitted by counsel for the petitioner that the order passed by the Settlement Commission under Section 245-D of the Act is not within the contemplation of sub-section (1) of Section 150 of the Act because it is not a proceeding by way of appeal, reference or revision nor is it a proceeding under any other law before a court. We need not go into this question because it is not necessary so to do. The assessee before the Settlement Commission was different and distinct from the assessee with which we are concerned in this case. Certain findings were arrived at by the Settlement Commission and that gave rise to a belief in the mind of the Settlement Commission that the petitioner and others may have earned income which has escaped assessment. It was, therefore, observed that necessary action be taken in accordance with law. Such an order cannot be construed to be an order passed under this Act by way of appeal, reference or revision so as to necessitate reassessment for the assessment year 1981-1982. Sub-section (2) of Section 150 of the Act makes it quite clear that the provisions of sub-section (1) shall not apply in any case if the order which was the subject-matter of the appeal, reference or revision could not have been made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken. It therefore, follows that if the original order which was the subject matter of the appeal, reference or revision could not have been passed, when it was purported to have been passed by reason of its being barred by limitation, the same cannot be revived under sub-section (1) of Section 150. In the instant case, that question does not arise, because there was no assessment order for the assessment year 1981-1982, which had been taken in appeal, reference or revision before any authority under the Act. As we have observed earlier, the order of the Settlement Commission may have only justified issuance of the notice, if that was the reason for issuance of the notice, but beyond that it could not operate to revive a proceeding which was barred by limitation.

9. In these circumstances, we find that the notice issued under Section 148 of the Income Tax Act, and the assessment made pursuant thereto is wholly without jurisdiction being barred by limitation. We also hold that the notice issued under Section 148 of the Act was bad for non-compliance of the provisions of sub-section (2) of Section 148, as the assessing officer failed to record his reasons while issuing the said notice.

10. This writ petition is, accordingly, allowed and the impugned annexures, namely, notice under Section 148 of the Act (Annexure-1), and the assessment order pursuant thereto (Annexure-3) as also demand notice (Annexure-4) are quashed.