Commissioner of Income Tax vs Bipin Vadilal

The following question of law has been referred by the Tribunal, Ahmedabad, for the opinion of this Court arising out of its appellate order in

ITA No. 1208/Ahd/80 relating to asst. yrs. 1967-68 and 1968-69 :

Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in coming to the conclusion that the ITO was not entitled

to reopen the assessment under s. 147(a) of the IT Act, 1961 ?

The facts necessary for the present purposes are as noticed by the Tribunal in affirming the order of the CIT(A) the assessments for the two

years have been reopened by issuing notice on 30th October, 1975. According to reasons recorded by the AO the assessment was reopened on

the basis of information which was in the form of law laid down by this Court in CIT vs. Navnitlal Sakarlal (1979) 125 ITR 67 : TC 44R.808. The

CIT(A) has found that as the reopening of the assessment was founded on the basis of information contained in an order and not on the satisfaction

of the ITO that the escapement of income from assessment is by reason of failure on the part of the assessee to disclose truly and fully all material

facts necessary for assessment the case fell within the precincts of s. 147(b) and not under s. 147(a) as it then stood. Under s. 149 limitation for

initiating proceeding under s. 147(b) is only four years from the end of relevant assessment year. The asst. yr. 1967-68 closes on 31st March,

1968, and asst. yr. 1968-69 closes on 31st March, 1969. The four years in respect of reassessment expired on 31st March, 1992, and 31st

March, 1973, respectively. The initiation of reopening proceeding on the basis of judgment delivered on 2nd July, 1974, in October, 1975, is

obviously a case falling under s. 147(b) and not under s. 147(a) and beyond four years from the end of relevant assessment year in respect of

which reopening proceedings were initiated. Thus the initiation of proceedings under s. 147 was held to be barred by time and assessment founded

thereon could not be sustained. On merit also, the Tribunal has held in favour of the assessee. Section 147 at the relevant time read :

If -

(a) the ITO has reason to believe that, by reason of the omission or failure on the part of an assessee to make a return under s. 139 for any

assessment year to the ITO or to disclose fully and truly all material facts necessary for his assessment for that year, income chargeable to tax has

escaped assessment for that year, or

(b) notwithstanding that there has been no omission or failure as mentioned in clause (a) on the part of the assessee, the ITO 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 ss. 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 ss. 148 to 153 referred to as the relevant assessment year).

Explanation 1 : For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped

assessment, namely :

(a) where income chargeable to tax has been underassessed; or

(b) where such income has been assessed at too low a rate; or

(c) where such income has been made the subject of excessive relief under this Act or under the Indian IT Act, 1922 (11 of 1922); or

(d) where excessive loss or depreciation allowance has been computed.

Explanation 2 : Production before the ITO of account books or other evidence from which material evidence could with due diligence have been

discovered by the ITO will not necessarily amount to disclosure within the meaning of this section"".

Section 149 lays down the time-limit within which notice is to be issued under s. 148 before making the assessment, reassessment or

recomputation under s. 147. It provide :

Section 149. That in cases falling under clause (a) of s. 147;

(i) for the relevant assessment year, if eight years have elapsed from the end of that year, unless the case falls under sub-clause (ii); and in cases

falling under it no notice shall be issued at any time after expiry of four years from the end of relevant assessment year.

Section 148(2) requires ITO to record his reasons for doing so before issuing notice under that section.

From the scheme of the statute it is apparent that condition precedent for the case to fall under s. 147(a), the ITO must have reason to believe

on two counts, firstly, that the income chargeable to tax has escaped assessment for that year and secondly such escapement of income chargeable

to tax from assessment is by reason of omission or failure on the part of assessee to make a return or to disclose fully and truly all material facts

necessary for assessment for that year and sub-s. (b) of s. 147 was applicable only where the applicability of clause (a) was excluded and

dependent on the formation of belief of the ITO that income chargeable to tax has escaped assessment which should be founded as a consequence

of information in his possession that is to say the information on the basis of which the belief is entertained must be subsequent to the making of

initial assessment. This necessitated that the statutory requirement about recording of reasons must disclose the necessary foundation on the basis

of which the ITO entertains the belief that income of the assessee chargeable to tax has escaped assessment.

As a matter of fact the Tribunal has found that reasons recorded by the AO disclosed that ITO has entertained belief as to escapement of

income chargeable to tax from assessment on account of information received by him in the form of a judgment of this Court declaring the state of

law, about the includibility of share that is to be received by beneficiary from the estate left by a deceased. It is not the belief as to the escapement

of income chargeable to tax from assessment was not entertained by the AO on the ground that there has been failure on the part of the assessee

to disclose truly and fully all material facts necessary for the assessment. In view of these findings the answer is apparent that no proceedings could

have been initiated under s. 148 beyond the expiry of four years from the end of relevant assessment year. As the case squarely fell under s.

147(b) and not under s. 147(a), we, therefore, are of the opinion that the Tribunal was right in reaching its conclusion that the initiation of

reassessment proceedings in the case of assessee for the two assessment years under s. 147(b) was barred by time.

It may be further noticed that since the submission of statement of case the decision of the Gujarat High Court in CIT vs. Navnitlal Sakarlal

(supra) has been reversed by the Supreme Court in Navnit Lal Sakarlal Vs. Commissioner of Income Tax, which would support the order of

Tribunal on merit as well though for different reasons.

In that view of the matter, truly speaking a question about the validity of reassessment prima facie appears to have become academic.

Accordingly the questions referred to us are answered in affirmative in favour of the assessee and against the Revenue. There shall be no order

as to costs.