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Tara Chand Mundhra v. Union Of India And Others
Structured Summary of the Opinion (Bhagwati Prasad, J.)
Factual and Procedural Background
The petitioner filed his income-tax return for the year ending June 30, 1984 (assessment year 1985-86) and submitted a balance-sheet showing the value of a house property at Jaswantgarh at Rs. 2,75,000 (annexure 1). An assessment order dated August 7, 1987 was passed (annexure 3). Prior to completion of that assessment, the assessing authority (respondent No. 3) had on April 20, 1987 made a reference to the Departmental Valuation Officer to assess the value of the house (annexure 4). The assessing authority completed the assessment on August 7, 1987 before receiving the Valuation Officer’s report.
Subsequently, respondent No. 3 issued a notice under section 148 of the Income-tax Act, 1961 (annexure 7) proposing to reopen the assessment for AY 1985-86. The petitioner filed objections (annexures 8 and 10), arguing that the return already filed should be treated as the return required under the section 148 notice and praying that the proceedings be dropped. The Department's return in the writ proceeding indicated that after completion of assessment the Department received the Valuation Officer’s report, which weighed with the assessing authority and formed the sole basis for initiating reassessment under section 147(b) and issuing the section 148 notice. The reasons recorded for reopening were not disclosed to the assessee in the notice.
Legal Issues Presented
- Whether a valuation report prepared by the Departmental Valuation Officer, being essentially opinion evidence, can constitute "information" within the meaning of section 147(b) of the Income-tax Act, 1961, so as to justify reopening an assessment by issuing a notice under section 148.
- Whether an assessing authority may validly reopen an assessment when the only material said to be in its possession is the Valuation Officer’s report and no reasons for reopening have been disclosed to the assessee.
Arguments of the Parties
Petitioner's Arguments
- The Valuation Officer’s report is merely opinion evidence and cannot amount to "information" that would give the assessing authority a reason to believe that income has escaped assessment under section 147(b).
- The assessing authority had itself called for the departmental valuation report before completing the assessment and was aware of the assessment time limit; he could have expedited the report but proceeded to complete the assessment without it. Thus the valuation report did not first acquaint or enlighten the assessing authority regarding taxable income.
- There has been a change of opinion by the assessing authority based on the Valuation Officer’s report; a mere change of opinion is not a valid basis for reopening an assessment.
- Precedents (cited to the court) establish that a valuer's report can be considered only when books of account are unreliable or not supported by vouchers, which was not alleged here; therefore the valuation report alone cannot justify reopening.
- Because the sole basis for reopening was an impermissible foundation (the valuer’s report), the section 148 notice is without foundation and should be quashed under Article 226.
Respondent / Department's Position (as reflected in the record)
- The Department's return to the court indicates that the assessing authority had sought a valuation from the Departmental Valuation Officer while proceeding with assessment and, after receipt of the Valuation Officer’s report, reopened the case under section 148, having recorded reasons prior to issuance of the notice.
- The return suggests that the Valuation Officer’s report weighed with the assessing authority and formed the basis for initiation of reassessment proceedings; however, the specific reasons recorded and communicated to the assessee were not disclosed in the material before the court.
- Counsel for the Department was absent at the hearing; a senior advocate who had previously represented the respondents assisted the court but did not advance arguments opposing the petitioner’s submissions in a manner that overcame them, and did not file a note after examining the file.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| CIT v. Pratapsingh Amrosingh Rajendra ‘Singh and Deepak Kumar, [1993] 200 ITR 788 | Holds that a valuation report can be considered only where books of account are unreliable or unsupported by proper vouchers, or where the Income-tax Officer considers books unreliable; a valuer's report cannot singly constitute information to reopen assessment. | The court relied on this authority to conclude that the departmental valuer’s report alone cannot be the basis for reopening when the books of account were not shown to be unreliable. |
| Commissioner Of Income-Tax v. Smt. Prem Kumari, [1994] 206 ITR 715 | Affirms that a valuer's report does not constitute "information" and cannot form the sole basis for reopening an assessment under section 147(b). | The court treated this decision as bindingly supportive of the proposition that the valuer's report cannot singly justify issuance of a section 148 notice. |
| Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 (Supreme Court) | Establishes that a notice without foundation can be quashed; articulates the consequence when a notice is held to be without foundation. | The court held that once the notice was shown to be without foundation (because based solely on an impermissible valuer’s report), Calcutta Discount governed and the notice deserved to be quashed. |
Court's Reasoning and Analysis
The court proceeded by examining the chronology and the material placed on record. It noted that:
- The assessing authority had himself requested the Departmental Valuation Officer’s report on April 20, 1987 but completed the assessment on August 7, 1987 before receiving that report.
- After completion of assessment, the Departmental Valuation Officer’s report came into the Department’s possession and, according to the Department's return, it weighed with the assessing authority and formed the sole basis for initiating reassessment under section 147(b) and issuing the section 148 notice.
- The notice under section 148 did not disclose the reasons for reopening to the assessee; nor were the purported reasons communicated in a manner that appears in the record before the court.
The court analyzed the legal significance of the Valuation Officer’s report. It accepted the petitioner’s contention that a valuer’s report is essentially opinion evidence. Relying on the court’s prior decisions (Pratapsingh and Prem Kumari), the court stated that a valuer’s report cannot alone constitute "information" within section 147(b) unless there is a demonstrable lack of reliability in the books of account or similar grounds that would require disregard of the books. In the present record there was no allegation or material showing that the books of account were unreliable or unsupported by vouchers at the time of the original assessment. Therefore, the departmental valuer’s report could not, by itself, supply the information necessary to form a bona fide "reason to believe" that income had escaped assessment.
Because the Department did not furnish separate reasons beyond the receipt of the valuer’s report, the notice under section 148 was found to be a notice "without foundation." The court further observed the absence of opposing robust argument from the Department at hearing (their counsel being absent and the assisting senior counsel not filing a follow-up note), which left the petitioner’s submissions unrepelled on the record.
Applying the authority of Calcutta Discount Co. Ltd., the court concluded that a notice without foundation must be quashed.
Holding and Implications
Holding: The writ petition is allowed and the notice (annexure 7) issued under section 148 of the Income-tax Act, 1961, is quashed.
Implications:
- Direct effect: The specific notice to reopen the assessment for assessment year 1985-86 (annexure 7) is set aside and the reassessment proceedings based solely on that notice cannot proceed. There will be no orders as to costs.
- Broader implications: The court applied existing precedents holding that a departmental valuer’s report, standing alone and when books of account are not shown to be unreliable, does not constitute "information" to reopen an assessment under section 147(b). The opinion does not purport to establish a new legal principle beyond the application of those precedents.
End of summary — based exclusively on the content of the provided opinion.
Bhagwati Prasad, J.:— The petitioner in the present writ petition has been assessed after he filed his income-tax return for the year ending on June 30, 1984, for the assessment year 1985-86. The assessment order has been filed by the petitioner as annexure 3 which is dated August 7, 1987. The petitioner filed his balance-sheet with the return before the assessing authority. The same is produced as annexure 1. In this balance-sheet, the petitioner has shown the value of the house property at Jaswantgarh at Rs. 2,75,000.
2. Prior to the completion of the assessment for the year 1985-86 and passing of the assessment order annexure 3, respondent No. 3 had made a reference to the Valuation Officer of the Income-tax Office, vide his letter dated April 20, 1987, to assess the value of the house. A letter of reference has been produced as annexure 4. Before this valuation report could come to respondent No. 3, as desired by him vide letter annexure 4, he proceeded with the assessment and on August 7, 1987, he completed the assessment. Subsequently, respondent No. 3 issued a notice under section 148 of the Income-tax Act, 1961 (referred to hereinafter as “the Act”), alleging that he proposes to reopen the assessment for the assessment year 1985-86. The petitioner filed his objections vide annexure 8. The objections of the petitioner were replied vide annexure 9 and the petitioner was asked to file his return and no reasons were disclosed for reopening of the assessment. The petitioner filed his objections on November 2, 1988, which were produced with the writ petition as annexure 10. In these objections it was submitted that the return already filed by him may be treated as a return as required by the notice under section 148 of the Act issued by respondent No. 3 on September 7, 1988, and prayed, inter alia, that the proceedings may be dropped.
3. A return has been filed by the respondent-Department and in the return it has been contended that respondent No. 3 while proceeding with the assessment had written to respondent No. 4 to determine the cost of the house of the assessee and to send his valuation report of the property. After the submission of his report by the Valuation Officer, the assessing authority reopened the case of the assessee under section 148 of the Act and prior to the issuance of the notice the reasons were recorded. What reasons have been assigned by the Department for reopening of the assessment and issuing the notice, have not been disclosed and communicated to the assessee. What appears from the return filed on behalf of the Department is that the report of the Valuation Officer has weighed with the assessing authority and forms the sole basis for initiation of the reassessment proceedings. From the reading of the reply filed on behalf of the respondents it appears that the only information in possession of respondents No. 3 appears to be the valuation report submitted by the Departmental Valuation Officer.
4. Counsel for the petitioner has urged that the notice under section 148 of the Act has been issued purportedly acting under section 147(b) of the Act. This means that the assessing authority as a consequence of the information in his possession has reason to believe that the income chargeable to tax has escaped assessment. As per the return filed by the respondents, the only information available with the assessing authority respondent No. 3 was the valuation report submitted by the official Valuation Officer of the Department. Can such information, i.e, the valuation report, be made the basis of reopening the assessment by issuing notice under section 148 of the Act is the sole question for determination in this writ petition.
5. Counsel for the petitioner submits that the valuation report submitted by the official Valuation Officer is nothing more than a piece of opinion expressed by the Valuation Officer and opinion evidence cannot constitute an information so as to give respondent No. 3 an apprehension to comprehend that the income chargeable to tax has escaped assessment. Before any information can be said to be sufficient to enable the Assessing Officer to reopen the assessment order it should be of the nature so as to acquaint, enlighten or instruct the mind of the assessing authority for the first time concerning the matter relating to taxable income. As regards the valuation report of the Valuation Officer which has been made the basis of the notice for reopening the assessment it ‘can be said that the assessing authority himself had made a reference to the Departmental Valuation Officer on April 20, 1987, to send his report. Not only was the assessing authority aware of the fact that such report has been called for by him but he was aware that the assessment was likely to get time barred by March 31, 1988. He could have asked the Departmental Valuation Officer to have expedited the submission of the valuation report. Still the assessing authority had completed the assessment on August 7, 1987, though the assessment could be made up to March 31, 1988. The departmental authorities felt satisfied that the information sought by them from the official Valuation Officer is of no consequence and, therefore, the assessing authority had passed the assessment order as otherwise the assessment order could have been further delayed. Thus, the valuation report was not such a piece of document which can be said to have the nature so as to acquaint, enlighten or instruct the mind of the assessing authority for the first time regarding the dispute in relation to the valuation of the property.
6. Learned counsel for the petitioner has further urged that the conclusions of the assessing authority are based on change of opinion because the Valuation Officer's report cannot be termed to be better than an opinion evidence only and in this background the opinion of the assessing authority is based on a change of opinion which is again not a justifiable basis for passing an order as the impugned one.
7. Learned counsel for the petitioner has further relied upon a decision rendered by this court in the matter of CIT v. Pratapsingh Amrosingh Rajendra ‘Singh and Deepak Kumar, [1993] 200 ITR 788. In this case, a Division Bench of this court has held that the valuation report can be taken into consideration only when the books of account are not reliable or are not supported by proper vouchers or the Income-tax Officer is of the opinion that no reliance can be placed on such books of account. In the instant case, the notice under section 148’ of the Act does not disclose the reasons. In the reasons contained in the reply filed by the respondents, it has not been said on behalf of the respondents that the books of account, which were considered at the time of passing of the assessment order annexure 3 are not reliable. Once the books of account are held to be reliable, the respondent authorities cannot legitimately contend that the valuation report can be made the basis of reopening of assessment.
8. The petitioner has further relied upon a Division Bench judgment of this court in the matter of Commissioner Of Income-Tax v. Smt. Prem Kumari., [1994] 206 ITR 715, wherein this court has unequivocally, held that a valuer's report does not constitute information and cannot form the basis for reopening an assessment under section 147(b) of the Act and has, thus, contended that the only basis for the reopening being a report of the Departmental Valuer which cannot be made the basis of reopening the assessment made by the assessment order annexure, 3 is, therefore, without there being any foundation and so also the notice issued under section 148 of the Act which is not maintainable. A notice without foundation can be quashed by this court in exercise of its jurisdiction under article 226 of the Constitution of India.
9. The petitioner has, thus, contended that when the only basis for the re-opening was the report of the Valuation Officer of the Department, which could not be made the basis of reopening then there was no foundation to issue a notice under section 148 of the Act. As and when the foundation ground for issuance of notice under section 148 of the Act goes then what necessarily follows is that the notice is based on no ground and the notice without foundation cannot be sustained. This has been held by the Supreme Court in the case of Calcutta Discount Co. Ltd. v. ITO, [1961] 41 ITR 191 and, therefore, the notice annexure 7 deserves to be quashed.
10. Counsel for the Department being absent, this court was handicapped therefore, Mr. D.S Shishodia, senior advocate, who had earlier been counsel for the respondents, was requested to assist the court. Mr. Shishodia looked into the file and said that the arguments raised by learned counsel for the petitioner are not ipso facto such that they could be repelled. However, if anything is traced by him after study which he was to make on that day, he will submit a note to the court. He has not submitted any note in this regard and, therefore, this court is at loss. Probably it also suggests that the argument of learned counsel for the petitioner had a sound basis.
11. I have given my thoughtful consideration to the submissions made by counsel for the petitioner and have perused the record and have also kept in mind the submissions made by Mr. D.S Shishodia. In view of the law laid down by this court in the cases of Pratapsingh Amrosingh Rajendra Singh and Deepak Kumar, [1993] 200 ITR 788 and Smt. Prem Kumari Surana, [1994] 206 ITR 715, it has been conclusively held by this court that the report of a valuer cannot singly be made the basis of information as required under section 147(b) of the Act to issue a notice under section 148 of the Act. No separate reasons have been furnished by the Department. The only reason discernible from the reply filed by the Department is that subsequent to the filing of the return by the assessee, the Department came into possession of the report of the official valuer of the Department and, thus, came to issue the notice under section 148 of the Act. As the only ground available with the Department for issuing notice under section 148 of the Act was held bad by this court, it can safely be held that the notice issued for reopening the assessment is a notice without foundation. As and when a notice is held to be without foundation then what would necessarily follow is that the law laid by the Supreme Court in the case of Calcutta Discount Co. Ltd. [1961] 41 ITR 191, will govern the field and the notice deserves to be quashed. Consequently, the notice of reopening the assessment annexure 7 deserves to be quashed.
12. In the result, the writ petition is allowed. The notice (annexure 7) issued under section 148 of the Income-tax Act, 1961, is quashed. There will be no orders as to costs.
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