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  • Sachchidanand Jha
  • Aftab Alam, JJ.
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  • Aftab Alam, JJ.
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Smart Summary

Structured Summary of the Opinion (Sachchidanand Jha, C.J.)

Factual and Procedural Background

Two writ petitions raising essentially the same dispute were heard together. The petitioners are two minor sons of Jagdeo Pandey. Notices under section 148 of the Income-tax Act, 1961 were issued to the petitioners on March 13, 1991, seeking returns for reassessment for the assessment year 1988–89 on the ground that income chargeable to tax had escaped assessment within the meaning of section 147.

At the relevant time Jagdeo Pandey was a partner in Sachdeva and Company, Dhanbad. During completion of the firm's assessment for 1988–89 (March 30, 1989), certain additions were made. The Assessing Officer sought to explain portions of those additions in the hands of the petitioners (the minor sons) and also made protective additions in the hands of the firm on the ground that the firm had not discharged the onus to prove genuineness of certain loans.

The sums shown in the petitioners' returns and the contested additions (as recorded in the opinion) were:

  • Saurabh Kumar Pandey: Loan to firm Rs. 50,000; Deposits in bank account Rs. 1,10,000; Investments Rs. 1,55,000 — total Rs. 3,15,000.
  • Nitish Kumar Pandey: Loan to firm (amount not shown in opinion list for that item); Deposits in bank account Rs. 28,459; other shown amount Rs. 1,00,001 — total Rs. 1,28,459 (as presented in the opinion).
  • Total contested across both petitioners as set out in the opinion: Rs. 4,43,459.

Sachdeva & Company and Jagdeo Pandey appealed (Income-tax Appeals Nos. 70 and 71.JSR of 1989–90) before the Commissioner of Income-tax (Appeals), Jamshedpur. The Commissioner deleted additions in the hands of Sachdeva & Company but, as regards Jagdeo Pandey, taxed loans of Rs. 50,000 (pertaining to Saurabh) and Rs. 28,458 (pertaining to Nitish) in Jagdeo's hands on a substantive basis. Additions representing bank deposits and investments said to have been made by the petitioners were set aside by the Commissioner on the ground that the minors' assessments had already been completed and those amounts had been accepted earlier by the Department.

Jagdeo Pandey applied under section 144A and ultimately further appellate proceedings followed. The Income-tax Appellate Tribunal (Patna Bench), by order dated June 15, 1994 (brought on record by supplementary affidavit), deleted an addition of Rs. 2,10,000 pertaining to deposits allegedly made by the minor sons.

After the decision in Income-tax Appeals Nos. 70 and 71.JSR of 1989–90, the Assessing Officer of the petitioners decided to reopen the petitioners' assessment under section 147 and issued the impugned notices under section 148 (March 13, 1991), giving rise to these writ petitions challenging those notices.

Legal Issues Presented

  1. Whether the Assessing Officer was justified in reopening assessments of the petitioners under section 147/section 148 where the petitioners had filed returns and assessments had earlier been completed under section 143(1).
  2. Whether a subsequent decision of a superior authority (for example, the Commissioner of Income-tax (Appeals) or the Appellate Tribunal) can amount to "information in [the Assessing Officer's] possession" within the meaning of clause (b) of section 147, thereby justifying reassessment even in the absence of omission or failure by the assessee under clause (a).
  3. Whether the argument relying on CIT v. Simon Carves Ltd. (1976) precluded reopening in these circumstances.

Arguments of the Parties

Petitioners' Arguments

  • The petitioners' assessments for the year had been completed on the basis of returns in which all material facts were fully and truly disclosed under section 143(1), and therefore reassessment could not be justified.
  • Reliance was placed on CIT v. Simon Carves Ltd. ([1976] 105 ITR 212 (SC)) to contend that reassessment was impermissible where assessment was validly completed.
  • It was pointed out from the record (order sheet, annexure-4) that the Assistant Commissioner had advised the Assessing Officer to take action under section 263 (revision), but instead the Assessing Officer issued notices under section 148 — implying improper procedure or choice of remedy.

Revenue's Arguments

  • The basis for reassessment was the order of the Commissioner of Income-tax (Appeals) which had set aside additions claimed to be attributable to the petitioners on the ground they had already been assessed; in fact, as a matter of fact, the petitioners had not in truth been assessed to those amounts.
  • The decision of a superior authority subsequent to the original assessment has been held to be "information" for the purposes of section 147(b), and reliance was placed on Kumar Engineers v. Commissioner Of Income-Tax ([1997] 223 ITR 18 (P&H)) and ITO v. Purushottam Das Bangur ([1997] 224 ITR 362 (SC)) to support the legality of reassessment based on such information.
  • Accordingly, the notices under section 148 based on that information could not be said to be illegal or arbitrary.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
CIT v. Simon Carves Ltd., [1976] 105 ITR 212 (SC) Illustrates a situation where an assessing officer had discretion under rule 33 of the Income-tax Rules, 1922 to adopt one of several modes of computation; the Supreme Court held that selection of a permissible mode could not be treated as omission justifying reassessment merely because it resulted in a lower tax liability, absent oblique motive. The court held that the decision in Simon Carves was of no avail to the petitioners because the factual and legal circumstances in that case (discretion under rule 33) were different from the present case under section 147(b). The court therefore did not apply Simon Carves to invalidate the reassessment notices.
Kumar Engineers v. Commissioner Of Income-Tax, [1997] 223 ITR 18 (P&H) Holds that a decision of a superior authority subsequent to the passing of the original assessment can constitute "information" within the meaning of clause (b) of section 147. The court accepted the principle that appellate or superior authority decisions can amount to "information" leading to a reason to believe income has escaped assessment; this principle supported the legality of the impugned notices under section 148 in the present case.
ITO v. Purushottam Das Bangur, [1997] 224 ITR 362 (SC) Similarly held that decisions of superior authorities can amount to "information" under section 147(b), supporting reassessment proceedings even where there was no omission or failure on part of the assessee under clause (a). The court relied on the same line of authority to treat the Commissioner of Income-tax (Appeals)'s decision as information that justified reopening assessments under section 147(b), and therefore considered the impugned notices legal.

Court's Reasoning and Analysis

The court proceeded by examining the statutory basis for reassessment. It noted that the reassessment in the present case was sought under clause (b) of section 147 (and not under clause (a)). The opinion reproduces the operative portion of section 147(b) as it stood at the relevant time, which permits reassessment "notwithstanding that there has been no omission or failure as mentioned in clause (a)" where the Assessing Officer "has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment."

The court rejected the petitioners' reliance on Simon Carves on the ground that the facts and legal issues in that case (discretionary choice among modes of computation under rule 33) were materially different from the present situation. Consequently, Simon Carves did not prevent reassessment under section 147(b) on the basis of information arising from appellate decisions.

The court accepted the Revenue's position that the Commissioner of Income-tax (Appeals)'s order — which had set aside certain additions on the basis of the father's plea that his sons had already been assessed — amounted to information showing that, in truth, those amounts had not been assessed in the petitioners' hands. The court observed that although sums had been shown in the petitioners' returns and protective or substantive additions were made in various hands, the deletions by the appellate authority were made on the father's plea that the sons had been assessed. Because the appellate deletions effectively removed the assessment in the father's hands on that basis, the court concluded that those amounts remained unassessed in the petitioners' hands.

On that factual and statutory basis, and in light of authorities holding that a superior authority's decision can amount to "information" within section 147(b), the court held that the case fell squarely within the ambit of section 147(b). Therefore, the impugned notices under section 148 and the proposed reassessment proceedings were not illegal.

The court also noted that during the pendency of the writ petitions further orders had been passed by appellate authorities in proceedings initiated by the petitioners' father; if those appellate findings were of assistance to the petitioners, they could make use of them in the reassessment proceedings as permitted by law.

Holding and Implications

HOLDING: The writ petitions are DISMISSED.

Direct consequences for the parties:

  • The notices issued under section 148 and the proposed reassessment proceedings under section 147(b) were held to be valid and not illegal or arbitrary on the facts of the case.
  • The petitioners' challenge to the reopening failed and the reassessment may proceed; the petitioners remain able to raise and avail themselves of any favourable findings from the appellate orders during those reassessment proceedings.
  • The writ petitions were dismissed without any order as to costs.

Broader precedent: The opinion applied existing authorities (including Kumar Engineers and Purushottam Das Bangur) on the proposition that decisions of superior authorities can constitute "information" for the purposes of section 147(b). The court did not purport to lay down any new law beyond applying these principles to the facts before it.

Note: Chief Justice Aftab Alam concurred with the judgment (expressed agreement in the text of the opinion).

Show full summary ...

    Saurabh Kumar Pandey v. Nitish Kumar Pandey

    Sachchidanand Jha, C.J:— AS the dispute involved in these two writ petitions is one and the same and the facts are also almost the same, they have been heard together and are disposed of by this common judgment.

    2. The petitioners seek quashing of the notice under section 148 of the Income-tax Act, 1961, asking them to file return within 30 days of the notice for reassessment on the ground that income chargeable to income-tax for the assessment year 1988–89, had escaped assessment within the meaning of section 147 of the said Act. Xerox copies of the notices have been enclosed as annexure-5 to the writ petitions.

    3. The petitioners are the minor sons of one Jagdeo Pandey. At the relevant time, he was a partner of Sachdeva and Company, Dhanbad. While completing his assessment for the year 1988–89 on March 30, 1989, he made certain additions, as detailed below, which his Assessing Officer had tried to explain in the hands of his minor sons, i.e, the petitioners herein.

    4. The amount was also added in the hands of the firm as protective assessment on the ground that the onus to prove the genuineness of the loans had not been discharged by it. The amount pertaining to Sau-rabh Kumar Pandey (CWJC No. 2828 of 1991-R)

    (Rs.) (Rs.) (i) Loan to firm 50,000 (ii) Deposits made in the bank account 1,10,000 (iii) Investments made 1,55,000 3,15,000 Amount pertaining Nitish Kumar Pandey (CWJC No. 2829 of 1991-R) (i) Loan to firm (ii) Deposits in bank account 28,459 1,00,001 1,28,459 ___ Total 4,43,459 ___

    5. Both Sachdeva and Company and Jagdeo Pandey preferred appeals being Income-tax Appeals Nos. 70 and 71.JSR of 1989–90 before the Commissioner of Income-tax (Appeals), Jamshedpur. The Commissioner deleted the additions made in the hands of Sachdeva and Company and allowed its appeals. As regards Jagdeo Pandey, he held that loans of Rs. 50,000 pertaining to Saurabh Kumar Pandey and Rs. 28,458 pertaining to Nitish Kumar Pandey should be taxed in his hands on substantive basis. The addition of amount of bank deposits and other investments said to have been made by the petitioners in the business of the father, however, was set aside on the ground that the assessment of the minor sons, i.e, the petitioners, had already been completed and their investments had been accepted by the Department; and the father, therefore, could not be assessed twice for the same amount. Jagdeo Pandey thereafter filed an application before the Deputy Commissioner of Income-tax, Dhanbad Range, under section 144A of the Act, who issued certain directions to the concerned Assessing Officer. In the light of the said orders, the assessment was completed on March 27, 1991. Jagdeo Pandey again preferred appeal before the Commissioner of Income-tax (Appeals), Jamshedpur, vide Income-tax Appeal No. 91.JSR of 1991–92 which was dismissed. He, thereafter, preferred further appeal before the Income-tax Appellate Tribunal, Patna Bench, vide ITA No. 464(Pat) of 1992. By order dated June 15, 1994, the Appellate Tribunal deleted the addition of Rs. 2,10,000 pertaining to the deposits allegedly made by his minor sons, i.e, the petitioners herein, as mentioned hereinabove. These facts have been brought on record by way of supplementary affidavit.

    6. In the meantime, after the decision of the appeals (Income-tax Appeals Nos. 70 and 71.JSR of 1989–90), the Assessing Officer of the petitioners had decided to reopen the assessment proceedings on being satisfied that the income chargeable to tax had escaped assessment within the meaning of section 147 of the Act and, accordingly, had issued notices under section 148, impugned in these writ petitions on March 13, 1991.

    7. Mr. Bino. d Poddar, learned counsel for the petitioners, contended that the assessment of the petitioners for the assessment year 1989–90 having been completed on the basis of the returns in which all material facts had been fully and truly disclosed under section 143(1) of the Act, there was no justification for the Assessing Officer to reopen the assessments. In support of the contention, he placed reliance on CIT v. Simon Carves Ltd., [1976] 105 ITR 212 (SC). Mr. Poddar pointed out that from the order sheet (annexure-4), it would appear that the Assistant Commissioner of Income-tax, Dhanbad Circle, had advised the Assessing Officer (of the petitioners) to take necessary action under section 263 of the Act, vide his letter No. 824, dated July 25, 1990, but instead of taking any such action, the Assessing Officer issued notice under section 148.

    8. The decision in the case of Simon Carves Ltd., [1976] 105 ITR 212 (SC), is of no avail to the petitioners. The facts of that case, shortly stated, were that rule 33 of the Indian Income-tax Rules, 1922, permitted the assessment of non-resident company carrying on business as construction engineers by one of the three modes as mentioned therein. The Income-tax Officer computed the income applying one such mode which resulted in low tax liability. Subsequently, the assessment was reopened and applying a different mode of assessment, which also was permissible, the Income-tax Officer determined higher income. The High Court held, on a reference, that this was not a case of income escaping assessment, Affirming the decision of the High Court, the Supreme Court held that rule 33 vested discretion in the Income-tax Officer to select one of the three modes for determining the taxable income on the mere fact that the mode of computation had resulted in low tax liability. It was not sufficient to hold that the discretion was exercised or not exercised in a proper, and judicious manner specially when there was no suggestion that the Income-tax Officer was actuated by some oblique motive.

    9. The question as to whether the petitioners made full and true disclosure of all material facts in the return is not relevant as in the present case reassessment is sought to be made on the basis of the provisions of clause (b) of section 147 and not clause (a). Section 147(b) as stood at the relevant “time provided that,

    “If-….

    (b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the Assessing Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year,

    he may, subject to the provisions of sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance, as the case may be, for the assessment year concerned (hereafter in sections 148 to 153 referred to as the relevant assessment year).”

    10. Mr. K.K Jhunjhunwala, learned junior standing counsel to the Income-tax Department, submitted that the basis of the proposed reassessment proceeding is the order of the Commissioner of Income-tax (Appeals) whereby the addition of Rs. 2,65,000 in the hands of Jagdeo Pandey (amount pertaining to the petitioners herein) was set aside on the plea of the father, i.e, Jagdeo Pandey, that his minor sons, i.e, the petitioners, had already been assessed with respect to the said amount and, therefore, it could not be subjected to second assessment. But, as a matter of fact, the petitioners had not been assessed with respect to those amounts. Mr. Jhunjhunwala submitted that the decision of the superior authority subsequent to the passing of the original assessment order has been held to be “information” within the meaning of section 147(b) of the Act in Kumar Engineers v. Commissioner Of Income-Tax, [1997] 223 ITR 18 (P&H) and ITO v. Purushottam Das Bangur, [1997] 224 ITR 362 (SC). The impugned notice under section 148 of the Act based on the information received by the Assessing Officer from the decision of the Commissioner of Income-tax (Appeals), therefore, cannot be said to be illegal or arbitrary.

    11. I have considered the submissions of counsel for the parties. In the facts and circumstances, I am satisfied that the case falls within the ambit of section 147(b) of the Act and the impugned notices and the proposed reassessment proceedings are not illegal. As noted above, although the sum of Rs. 3,15,000 and Rs. 1,28,459 had been shown in the returns of the petitioners as loans and investments to Sachdeva and Company and the said amounts were added in the hands of both the firm on protective basis as well as in the hands of the father on substantive basis, the Commissioner (Appeals) accepted the addition of the amounts of only Rs. 50,000 pertaining to the petitioner, Saurabh Kumar Pandey, and Rs. 28,458 pertaining to the petitioner, Nitish Kumar Pandey, and assessed him for the same. The addition of the amount of Rs. 2,65,000 shown as bank deposits and investments in the returns of Saurabh Kumar Pandey and Rs. 1,00,001 as bank deposit in the return of Nitish Kumar Pandey was deleted. It is, thus, obvious that the said amount has not been subjected to assessment in the hands' of the petitioners. It is to be kept in mind that the aforesaid deletions were made on the plea of none else than the petitioners' father that his sons, i.e, the petitioners, had been assessed for those amounts. The additions having been set aside by the appellate authority, it is obvious that they have to be treated as income in the hands of the petitioners for which there has been no assessment. In these premises, I do not find any error in the impugned orders under section 147 or the notices under section 148 of the Act. As briefly indicated above, during the pendency of these writ petitions certain orders have-been passed by the Commissioner of Income-tax (Appeals) as well as by the Income-tax Appellate Tribunal, Patna Bench, in the appeals preferred by the petitioners' father. If the petitioners think that the orders passed by the Commissioner/Appellate Tribunal has any bearing or of any help to them, it is open to them to take advantage of the findings in the reassessment proceedings in accordance with law.

    12. In the result, I do not find any merit in the writ petitions, which are accordingly dismissed, but without any order as to costs.

    Aftab Alam, C.J:— I agree.

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    Comments

    Saurabh Kumar Pandey v. Nitish Kumar Pandey
    (Sep 8, 1998)