SRIRAMULU, J. -
(1.) BY this writ petition, filed under Art. 226 of the Constitution of India, the petitioner seeks a writ or direction prohibiting or restraining the ITO, Rajahmundry, from proceeding further in pursuance of notice dated December 11, 1970, issued under S. 148 of IT Act, 1961, proposing to reopen the assessment for the asst. yr. 1965-66 and requiring him to file a return of income for the said assessment year. The case as set up by the petitioner in his affidavit is as follows :
(2.) THE petitioner is a partner of Sri Venkateswara Ferry Company. His individual assessment for the asst. yr. 1965-66 was completed after a thorough scrutiny of the account books. On March 17, 1970, the income-tax officials raided the business premises of the said firm and also the houses of seven of its partners including that of the petitioner. No incriminating material was found in his house. THE firm did not conceal any income. THE incriminating material found in the possession of the managing partner of the firm, Mr. Ammi Reddy, had nothing to do with the firm.
The ITO had no reason to believe that income chargeable to tax in his hands had escaped assessment and the notice dated 11th December, 1970, served on him under S. 148 of the IT Act, 1961, was issued long after the expiry of four years from the last date of the assessment year. It was, therefore, time-barred and bad in law. The notice was also issued without any jurisdiction. The ITO should, therefore, be prohibited from proceeding further in the matter of reassessment in pursuance of the said notice.
The respondent, the ITO, filed a counter-affidavit alleging that from the business premises of the firm an agreement was found, wherein it was stated that the firm had purchased three launches for Rs. 58,000 but in the account books of the firm the sale price was shown at Rs. 30,700. The managing partner of the firm, Sri Ammi Reddy, in his deposition on October 19, 1970, admitted that the difference of Rs. 27,300 was paid by the firm out of its account books. The paper No. 13 recovered from the possession of another partner of the firm showed that the total net profit for the year 1965-66 was Rs. 7,24,000 which comprised of two items, one Rs. 2,62,000 indicated by letter "A", and Rs. 4,62,000 indicated by letter "B". The letter "A" indicated "accounted for" and the letter "B" indicated "black money". The above paper was in the handwriting of T. Narayanareddy, son of Ramireddy, who was another partner of the firm. In his sworn deposition Ramireddy had stated that his son, Narayanareddy, informed him that he received from time to time moneys of the firm, which were not disclosed in the accounts. Besides these incriminating documents, it was also found in the possession of the petitioner, an agreement of sale, dated April 4, 1967, in respect of certain sites in Vizag., for a value of Rs. 67,500. The actual sale deeds found in the petitioner's house were executed only for Rs. 51,000 in the names of his kith and kin. Some other slips were also found in his possession which were in the handwriting of the petitioner, showing that he had made private collections with the help of the clerk and cashier of the ferry company. The ITO recorded reasons in his report to the CIT on the basis of which he proposed to reopen the assessment of the assessee. After duly considering those reasons given by him, the CIT sanctioned issue of notice under S. 151(2) of the IT Act, 1961. In pursuance of the notice served on the managing partner of the firm, Ammi Reddy had filed a return of income of the firm declaring an income of Rs. 7,46,850 as against an income of Rs. 3,07,960 assessed previously, and that on the basis of these facts, he had issued the notice for reopening the assessment of the assessee for the asst. yr. 1965-66.
(3.) IT was further submitted in the counter that some of the partners of the firm including the petitioner filed writ petitions bearing Nos. 647 to 649 of 1971, questioning the validity of the notice issued for reopening the assessment of the firm for the asst. yrs. 1965-66, 1966-67 and 1967-68 and they were dismissed. As against the said orders of dismissal, the petitioner had filed writ appeals but after arguing for some time, the learned counsel appearing for the appellants did not press those writ appeals and they were accordingly dismissed. As per the revised return filed by Ammi Reddy, the managing partner of the firm, the petitioner, received a sum of Rs. 59,747 towards his share, but had returned only an income of Rs. 24,637. IT is on the basis of these facts the ITO considered that there was reason for him to believe that income chargeable to tax had escaped assessment in the hands of the petitioner. The notice issued by him was valid and cannot be quashed. We have heard the arguments of the learned counsel for the petitioner and also of the standing counsel, Sri P. Rama Rao, at some length.
The learned counsel, Sri Dasaratharama Reddy, appearing for the petitioner raised the following four contentions :(1) Since the notice dated December 11, 1970, issued by the ITO to reopen the petitioner's assessment for the year 1965-66, did not disclose the sub-section of S. 147, under which it was issued, the petitioner's case is that this case falls under S. 147(b) and, therefore, the notice, dated December 11, 1970, served on him was barred by time, as it was issued after four years from the end of the relevant assessment year. It was bad in law. (2) If the said notice has been issued under S. 147(a), then the petitioner's objection is that the ITO did not record his reasons in writing for his proposal to reopen the assessment. The CIT did not apply his mind in giving his sanction. The notice is, therefore, void and bad in law. (3) The only material on the basis of which the assessment of the petitioner was sought to be reopened was that the firm had concealed its income, which was chargeable to tax. Since the firm and the individual partners are different and distinct taxable entities, concealment of income by the firm would not justify the reopening of the assessment of the individual partners. Concealment of income by the firm justifies reopening of the assessment of the firm and not the assessment of the individual partners. (4) After reopening the assessment of the firm and after completion of the reassessment against the firm, the ITO can amend the assessment of the individual partners under S. 155 of the IT Act, 1961. Sec. 155, being a special provision, would prevail over S. 147, which is a general provision. The ITO had, therefore, no jurisdiction to reopen the assessment under S. 147 of the Act. In support of the above propositions the learned counsel relied upon the decisions in Chhugamal Rajpal vs. S. P. Chaliha (1971) 79 ITR 603 (SC) and Girdhardas Kothari vs. ITO (1971) 79 ITR 490 (Cal).;