A. Pusa Lal vs Commissioner of Income Tax

Y.V. Anjaneyulu, J.—This reference arises under the Income Tax Act. The Tribunal makes this reference at the instance of the assessee in connection with the assessment year 1974-75 and refers the following question of law for the consideration of this court :

"Whether, on the facts and in the circumstances of the case, the assessing officer is justified in reopening the assessment to make an addition of Rs. 20,000 by invoking the provisions of section 147(a) of the Act ?"

It is necessary to notice the facts relevant for the purpose.

For the Income Tax assessment year 1974-75, the assessee had filed his return of income declaring an income of Rs. 17,635 which was accepted u/s 143(1) of the Income Tax Act (for short the "Act"). For the subsequent year 1975-76, when the Income Tax Officer was scrutinising the balance-sheet filed by the assessee, it was noticed that there was a balance of Rs. 26,805 outstanding due from Birla Bazar at the end of the accounting year relevant for the assessment year 1975-76. The Income Tax Officer investigated into the matter and found that the aforesaid sum of Rs. 20,000 represented two items of loan given by the assessee to the Birla Bazar. The loans were given on September 10, 1973, Rs 5,000 and on October 22, 1973, Rs 15,000. It was found that the loan transactions related to the previous year relevant to the Income Tax assessment year 1974-75. The Income Tax Officer noticed that the balance-sheet as on October 24, 1973, consisting of assets and liabilities filed for the Income Tax assessment year 1974-75 did not include the debt of Rs. 20,000 and the interest outstanding thereon. On the aforesaid facts, the Income Tax Officer prima facie came to the conclusion that there was an omission or failure on the part of the assessee to disclose fully and truly all the material facts relevant for the assessment year 1974-75. In that view, he initiated proceedings u/s 147(a) of the Act by issuing a notice u/s 148.

During the course of reassessment proceedings for the year 1974-75, the assessee was called upon to explain the origin and the source of the two items of loans given to Birla Bazar. Apparently, the assessee was not in a position to offer any explanation whatsoever. In those circumstances, the Income Tax Officer treated the aggregate of the two loans amounting to Rs. 20,000 as income from undisclosed sources liable to be assessed u/s 69A of the Act.

The assessee appealed to the Appellate Assistant Commissioner challenging the reassessment u/s 147(a). There was no challenge on the merits of the assessment. The challenge was confined only to the validity of the reassessment proceedings. The Appellate Assistant Commissioner held that the reassessment proceedings were validly initiated and dismissed the appeal. Thereafter, the assessee filed a second appeal to the Tribunal but without success. The assessee made an application u/s 256(1) of the Act and obtained the present reference for the consideration of this court.

Sri Habeeb Ansari, learned counsel appearing for the assessee, questions the validity of the reassessment proceedings on a short ground. He invites our attention to section 69A of the Act which provides that any unexplained money, etc., shall be deemed to be the income of the assessee as relating to the financial year in which the assessee is found to be the owner of the money. It is submitted that, finding that the assessee is the owner of the two amounts of Rs. 5,000 and Rs. 15,000 lent to Birla Bazar and noticing that there is no explanation about the nature and source of acquisition of that money, the Income Tax Officer brought to assessment the sum of Rs. 20,000 specifically u/s 69A of the Act by deeming the unexplained money to be the income of the assessee for the financial year 1973-74 corresponding to the assessment year 1974-75. Learned counsel submits that it is not permissible for the Income Tax Officer to clutch at the jurisdiction u/s 147 to bring to charge "deemed income". According to learned counsel, the provisions of section 147 can be availed of only for the purpose of assessing the "real income" of the assessee. Inasmuch as the reassessment proceedings are initiated in the present case to bring to charge "deemed income" u/s 69A it is alleged, the proceedings are not valid. Learned counsel also pointed out that the assessment having been completed u/s 143(1), it was open to the Income Tax Officer to take recourse to the provisions contained in section 143(2) of the Act by issuing an appropriate notice to the assessee and an assessment u/s 143(3) could have been made for the assessment year 1974-75. Without availing of that remedy available to the Income Tax Officer, counsel contends, the power to reopen the assessment u/s 147(a) should not have been exercised.

We are unable to accept either of the contentions urged by learned counsel. It may be borne in mind that during the course of the assessment enquiry for the year 1975-76, all that the Income Tax Officer came to know was that the assessee had lent Rs. 20,000 to Birla Bazar and that there were grounds to think that the said loan transaction was not accounted for. The Income Tax Officer derived only prima facie satisfaction to come to the conclusion that there was an omission or failure on the part of the assessee to disclose fully and truly all the material facts relating to the assessment year 1974-75. These ingredients at once give jurisdiction to the Income Tax Officer to reopen the assessment. It is only after reopening the assessment that the Income Tax Officer makes a real enquiry into the origin and source of the sums lent, examines the matter with reference to the explanation, if any, furnished by the assessee and then comes to a proper conclusion whether or not the whole or any part of the sum of Rs. 20,000 was liable to be taxed as income. It cannot therefore, be said that, at the point of time when the reassessment proceedings were initiated u/s 148 taking the aid of section 147(a), the reassessment proceedings were taken specifically for the purpose of including the "deemed income" in the financial year 1973-74 corresponding to the assessment year 1974-75.

The enquiry during the course of reassessment for 1974-75 resulted in the sum of Rs. 20,000 being included in the assessee''s total income as deemed income u/s 69A because the assessee was unable to explain the nature and source of acquisition of the money lent. In view of that inability, the provisions of section 69A had come into operation and the Income Tax Officer taxed the income. On these facts, it is not possible to accept the contention of learned counsel that the jurisdiction invoked by the Income Tax Officer after deriving prima facie satisfaction could be ousted because eventually after the reassessment proceedings were taken, the amount was assessed as deemed income u/s 69A.

It is true as contended by learned counsel that the Income Tax Officer could have taken recourse to the issuance of a notice u/s 143(2) and corrected the assessment made u/s 143(1) by making an appropriate assessment enquiry u/s 143(3). That, however, is a matter for the Income Tax Officer to choose. The power that can be exercised u/s 143(3) to correct the assessment made u/s 143(1) does not exclude Income Tax Officer''s power to reopen the assessment u/s 147. If the ingredients of section 147 are satisfied, it is open to the Income Tax Officer to exercise that power notwithstanding the fact that there are other remedies open to him under the Act. It cannot, therefore, be accepted that the reassessment u/s 148 is vitiated because the Income Tax Officer failed to invoke his power to correct the assessment already completed u/s 143(1) by issuing a notice u/s 143(2).

Having regard to the aforesaid facts, we are satisfied that the Tribunal was justified in upholding the validity of reassessment jurisdiction invoked by the Income Tax Officer. We answer the question referred to us in the affirmative, that is to say, in favour of the Revenue and against the assessee. No costs.