H.S. Imam vs Commissioner of Income Tax

Y.V. Anjaneyulu, J.—This reference arises under the IT Act, 1961 (hereinafter referred to as ''the Act''). The Tribunal makes this reference at the instance of the assessee in connection with the asst. yr. 1974-75 and referred the following question of law for 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 s. 147(a) of the IT Act, 1961 ?"

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

For the asst. yr. 1974-75 the assessee had filed his return of income declaring income of Rs. 17,635 which was accepted under s. 143(1) of the IT Act, 1961. For the subsequent year 1975-76, when the ITO 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 asst. yr. 1975-76. The ITO investigated into the matter and found that the aforesaid sum of Rs. 20,000 represented two items of loans given by the assessee to the Birla Bazar. The loans were given on 10-9-1973 (Rs. 5,000) and 22-10-1973 (Rs. 15,000). It was found that the loan transactions related to the previous year relevant for the asst. yr. 1974-75. The ITO noticed that the balance sheet consisting of assets and liabilities filed for the asst. yr. 1974-75 as on 24-10-1973 did not include the debt of Rs. 20,000 and the interest outstanding thereon. On the aforesaid facts the ITO, 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 asst. yr. 1974-75. In that view, he initiated proceedings under s. 147(a) by issuing a notice under s. 148 of the Act.

During the course of reassessment proceedings for the asst. yr. 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 ITO treated the aggregate of the two loans amounting to Rs. 20,000 as income from undisclosed sources liable to be assessed under s. 69A of the Act.

The assessee appealed to the AAC challenging the reassessment under 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 AAC 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 under s. 256(1) of the Act and obtained the present reference for consideration of this Court.

Shri Habeeb Ansari, the ld. counsel appearing for the assessee, questions the validity of the reassessment proceedings on a short ground. He invites attention to s. 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 ITO brought to assessment the sum of Rs. 20,000 specifically under s. 69A by deeming the unexplained money to be the income of the assessee for the financial year 1973-74 corresponding to the asst. yr. 1974-75. The ld. counsel submits that it is not permissible for the ITO to clutch at the jurisdiction under s. 147 to bring to charge ''deemed income''. According to the ld. counsel the provisions of s. 147 can be availed 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'' under s. 69A, it is allege, the proceedings are not valid. The ld. counsel also pointed out that the assessment having been completed under s. 143(1), it was open to the ITO to take recourse to the provisions contained in s. 143(2) of the Act by issuing an appropriate notice to the assessee and an assessment under s. 143(3) of the Act could have been made for the asst. yr. 1974-75. Without availing the remedy available to the ITO, the counsel contends, the power to reopen the assessment under s. 147 should not have been exercised.

We are unable to accept either of the contentions urged by the ld. counsel. It may be borne in mind that during the course of the assessment enquiry for the asst. yr. 1975-76 all that the ITO 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 ITO 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 asst. yr. 1974-75. These ingredients at once give jurisdiction to the ITO to reopen the assessment. It is only after reopening the assessment that the ITO 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 are initiated under s. 148 taking the aid of s. 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 asst. yr. 1974-75.

The enquiry during the course of reassessment for the asst. yr. 1974-75 resulted in the sum of Rs. 20,000 being included in the assessee''s total income as deemed income under 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 s. 69A had come into operation and the ITO taxed the income. On these facts it is not possible to accept the contention of the ld. counsel that the jurisdiction invoked by the ITO after deriving prima facie satisfaction could be ousted because eventually after the reassessment proceedings were taken, the amount was assessed as deemed income under s. 69A of the Act.

It is true as contended by the ld. counsel that the ITO could have taken recourse to the issuance of a notice under s. 143(2) and corrected the assessment made under s. 143(1) by making an appropriate assessment enquiry under s. 143(3). That, however, is a matter for the ITO to choose. The power that can be exercised under s. 143(2) to correct the assessment made under s. 143(1) does not exclude the ITO''s power to reopen the assessment under s. 147. If the ingredients of s. 147 are satisfied, it is open to the ITO 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 under s. 148 is vitiated because the ITO failed to invoke his power to correct the assessment already completed under s. 143(1) by issuing a notice under 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 ITO. We answer the questions referred to in the affirmative, that is to say, in favour of the revenue and against the assessee. No costs.