Commissioner of Income Tax vs V.P. Selvarajan

Ratnam, J.—The assessee, an individual, was formerly carrying on business in jewellery. On November 23, 1969, when the assessee and

his son were alighting from a taxi, they were intercepted by the Officers of the Customs Department and they were found to be in possession of

100 bars of gold, each bar weighing 10 tolas. In the statements made by the assessee and his son at that time, they stated that the gold had been

carried from Bangalore as per the directions of one Mahavir. In respect of the seizure of gold from the assessee and his son, proceedings were

initiated by the Customs and gold Control authorities and the Assistant Collector of Customs levied penalty for possession of gold bars with foreign

markings in violation of the provisions of the Customs Act and the Gold (Control) Act and the seized gold was also confiscated. In the criminal

proceedings initiated against the assessee and his son under the Customs Act, the Foreign Exchange Regulation Act and the Gold (Control) Act,

they were found guilty and fined and on a revision, the sentence was enhanced to rigorous imprisonment for six months for the commission of

offences under the Customs Act and the Gold (Control) Act and the sentences were also directed to run concurrently. The assessee had not been

assessed to Income Tax previously. Coming to know of the seizure of gold bars, etc., from the assessee, on December 19, 1969, the Income Tax

Officer issued a notice to the assessee u/s 139(2) read with section 175 of the Income Tax Act, 1961 (hereinafter referred to as ""the Act""),

requiring the assessee to file a return of his income within seven days of the date of receipt of that notice. The notice so issued was served on the

assessee on December 24, 1969. The notice mentioned the assessment year as 1970-71 at the top and, in the body, it was stated that the

assessee was required to furnish the income of the previous year relevant to the assessment year mentioned therein. On December 24, 1969, the

assessee filed an application praying for extension of time for filing the return till January 26, 1970 and, on January 19, 1970, the assessee filed a

return disclosing ""Nil"" income for the period from April 1, 1960, to January 19, 1970. After the filing of the return, though several hearings appear

to have taken place, no assessment was made. The Income Tax Officer seems to have felt on March 30, 1973, that the notice dated December

19, 1969, issued to the assessee u/s 139(2) read with section 175 of the Act was not valid and the return filed by the assessee in response to that

notice was also invalid and, accordingly, he filed the return without making an assessment, but at the same time, he issued a notice to the assessee

u/s 147(a) of the Act requiring the assessee to file a return of his income for the assessment year 1970-71 relating to the full previous years April 1,

1969, to March 31, 1970. In response to this notice, the assessee filed on May 1, 1973, a return disclosing ""Nil"" income and stating the period of

the previous year as the period from January 10, 1970, up to March 31, 1970. In the course of the assessment proceedings, the assessee

maintained that the income for the period April 1, 1969, to January 20, 1970, could not be considered as relating to the assessment year 1970-71,

as action had been taken earlier by the Income Tax Officer for assessing the income relatable to that period by the issue of a notice u/s 139(2)

read with section 175 of the Act on December 19, 1969 and a return had been filed in response thereto. A further objection was also raised that,

as the assessee had acted only as the carrier of gold and was not the owners thereof, the value of the gold could not be assessed in his hands u/s

69A of the Act. The Income Tax Officer took the view that, as the notice issued on December 19, 1969, mentioned the assessment year as 1970-

71, it was not valid and hence the return filed by the assessee in response thereto on December 19, 1969, was equally invalid and that the pervious

year for the assessment year 1970-71 should be taken as the period from April 1, 1969, to March 31, 1970, and as the assessee had not

explained his possession of the gold bars, he should be considered as the owner thereof. The Income Tax Officer thus completed the assessment

on the return and subjected to assessment a sum of Rs. 2,25,920, inclusive of the value of the gold bars seized and also the value of gold

ornaments and cash found in the premises of the assessee. Aggrieved by this, the assessee preferred an appeal before the Appellate Assistant

Commissioner and the order of assessment was affirmed and the appeal was dismissed. On further appeal to the Tribunal by the assessee

contending that section 69A of the Act could not be invoked and that the loss suffered by the assessee by reason of the confiscation of the gold

should be allowed as a deduction and further that the notice issued to the assessee on December 19, 1969, u/s 139(2) read with section 175 of

the Act was valid and the return filed in response to that was also valid and not having processed the return so filed, it was not open to the Income

Tax Officer to consider the income for the period from April 1, 1969, to January 19, 1970, in the assessment made for the assessment year 1970-

71, the Tribunal found that section 69A of the Act was rightly invoked for including the value of the gold bars, as the assessee had not explained

his possession of such gold bars, and that the confiscation of the gold was not made during the relevant previous year. Adverting to the validity of

the notice issued on December 19, 1969, u/s 139(2) read with section 175 of the Act, the Tribunal found that though such a notice could have

been issued to the assessee only for the assessment year 1969-70, yet the mistake found in the notice in mentioning the assessment year as 1970-

71 did not in any manner mislead the assessee, who had filed the return in response to such a notice on January 19, 1970, showing the income as

Nil"" for the period from April 1, 1969, to January 19, 1970, and that would not, therefore, invalidate the notice issued in any manner. Referring to

the filing of a return pursuant to that notice, the Tribunal held that the return submitted by the assessee was a valid return and the Income Tax

Officer not having disposed of the return filed by the assessee on January 19, 1970, there was no justification for resorting to section 147(a) of the

Act for the purpose of assessing the same income and the issue of a notice u/s 147(a) of the Act was, therefore, invalid and the assumption and

exercise of jurisdiction was also improper. That is how the following question of law u/s 256(1) of the Act, at the instance of the Revenue, has

been referred to this court, for its opinion :

Whether, on the facts and circumstances of the case, the Tribunal was justified in law in holding that the proceedings initiated u/s 147(a) in this

case for the year 1970-71 is bad in law ?

Learned counsel for the Revenue submitted that the notice issued on December 19, 1969, u/s 139(2) read with section 175 of the Act in

respect of the assessment year mentioned therein, viz., 1970-71, was invalid and any return filed pursuant to such a notice was not a valid return

and as there was no proceeding pending for the assessment year 1970-71, the Income Tax Officer was in order in having issued a notice on

March 30, 1973, u/s 147(a) of the Act with reference to the assessment year 1970-71 requiring the assessee to file a return on the ground that

income chargeable to tax has escaped assessment. Reference was also made in this connection to several decisions. On the other hand, learned

counsel for the assessee contended that, even according to the finding of the Tribunal, the notice issued on December 19, 1969, u/s 139(2) read

with section 175 of the Act was a valid notice and the assessee had, in response to such a notice, filed a return and such a return, whether filed in

consequence of a valid or invalid notice, is a good return and, without giving a disposal to that, the Income Tax Officer cannot resort to section

147(a) of the Act with reference to the assessment year 1970-71 and the issue of such a notice had been resorted to only for the purpose of

gaining time, as the return ought to have been looked into and orders passed thereon before March 31, 1973, but nothing had been done till

March 30, 1973.

The assessee had not been previously assessed and it is the interception of the assessee by the officers of the Customs Department on

November 23, 1969, that marked the commencement of the proceedings against the assessee by the Revenue. Apparently, the Revenue was

under the impression that the assessee might have earned income liable to assessment during the period April 1, 1969, to December 19, 1969, and

that necessitated the issue of a notice u/s 139(2) read with section 175 of the Act on December 19, 1969. In the normal and usual course, if the

assessee had earned income during the period aforesaid, it could be brought to tax in the assessment to be made in the year 1970-71. However, in

this case, the Income Tax Officer also proposed to make an accelerated assessment in respect of the income of the assessee even in the year

1969-70. It was only for this purpose that the notice had been issued to the assessee u/s 139(2) read with section 175 of the Act. The Tribunal

has found that the conditions for invoking section 175 of the Act have been fulfilled in this case and that finding has not, in any manner, been

questioned before us. With reference to the mention of the assessment year as 1970-71 in that notice, obviously there had been a clerical mistake.

In terms of section 175 of the Act, in this case, the notice could have been issued to the assessee only for the assessment year 1969-70. Even so,

it is seen that the assessee had understood the assessment year mentioned in the notice as relating to the assessment year 1970-71 and has also

submitted a ""Nil"" return for the period April 1, 1969, to January 19, 1970, initially and later, for the period January 20, 1970, to March 31, 1970,

after the issue of a notice u/s 147(a) of the Act. The view taken by the Tribunal that there had been a clerical mistake, but that mistake had not

misled the assessee, in our view, appears to be correct, for, the assessee had filed a ""Nil"" return for the period April 1, 1969, to January 19, 1970

(a part of the previous year), relevant to the assessment year 1970-71. When the notice issued to the assessee had called upon him to file a return

in respect of the assessment year 1970-71 and the assessee, in response to such a notice, had also filed a return for a part of the period which

would fall within the assessment year 1970-71, though there was a clerical mistake in the notice in mentioning the assessment year as 1970-71

instead of 1969-70, that would not, in our view, invalidate the notice issued to the assessee on December 19, 1969, u/s 139(2) read with section

175 of the Act. We may also point out that the Tribunal, in paragraph 25 of its order, found that the notice issued to the assessee u/s 139(2) read

with section 175 of the Act of the Act was a valid notice and that the resort to section 175 of the Act was also valid and that finding had also not

been disputed before us. It would, therefore, follow that the return filed by the assessee on January 19, 1970, though an incomplete return in

respect of the assessment year 1970-71, would nevertheless be a return which deserved attention and disposal at the hands of the Income Tax

Officer, which, it is not disputed, had not been dealt with at all by the Income Tax Officer. In other words, the assessee had already filed a return in

respect of the assessment year 1970-71, which the assessee had been called upon by a notice to file, but the return so filed, though incomplete and

partial, was nevertheless a return which should have been dealt with by the Income Tax Officer. We may observe that in The Commissioner of

Income Tax, Bombay Vs. Ranchhoddas Karsondas, Bombay, , the Supreme Court pointed out that where, in response to a general notice, a

return had been submitted before assessment, the Income Tax Officer cannot choose to ignore the return and any notice of reassessment and

consequent assessment u/s 34 of the Indian Income Tax Act, 1922, ignoring the return, is invalid. Again, in Commissioner of Income Tax, Madras

Vs. S. Raman Chettiar, , the Supreme Court pointed out that although the notice u/s 34 of the Indian Income Tax Act, 1922, was an invalid notice,

the return submitted pursuant to that notice was a return which the Income Tax Officer could not ignore or disregard that return and issue a notice

u/s 34 on the assumption that there had been an omission or failure on the part of the assessee to make a return of his income and, therefore, the

assessment u/s 34 was invalid. Instead of proceeding to deal with the return filed, on March 30, 1973, the Income Tax Officer had issued a notice

u/s 147(a) of the Act requiring the assessee to file a return for the assessment year 1970-71. The Income Tax Officer, who had with him the return

filed by the assessee on January 19, 1970, in respect of the income for the period April 1, 1969, to January 19, 1970, ought to have dealt with the

return as filed before March 31, 1973, but he had not done so till about March 30, 1973, and there is, therefore, considerable force in the

argument of learned counsel for the assessee that the issue of notice u/s 147(a) of the Act was the outcome of a desire to get over that bar of

limitation. When the return filed by the assessee in respect of the income from April 1, 1969, to January 19, 1970, in response to the notice issued

by the Income Tax Officer u/s 139(2) read with section 175 of the Act had not been disposed of by the Officer and was pending, there was no

justification for the Income Tax Officer resorting to section 147(a) of the Act for the purpose of assessing the same income. We, therefore, hold

that the Tribunal was right in its conclusion that the issue of a notice u/s 147(a) of the Act and the assumption of jurisdiction by the Income Tax

Officer was not in order. Though our attention was drawn to several decisions by counsel on both sides, on a careful consideration of the facts of

this case, we are of the view that it is unnecessary to advert to those decisions. We, therefore, answer the question referred to us in the affirmative

and against the Revenue. There will be no order as to costs.