MANAKLAL PORWAL Vs. COMMISSIONER OF INCOME TAX
LAWS(RAJ)-1985-1-71
HIGH COURT OF RAJASTHAN
Decided on
January 30,1985
MANAKLAL PORWAL
Appellant
VERSUS
COMMISSIONER OF INCOME-TAX
Respondents
Referred Judgements :-
CIT V. D.S. BOTTLEWALA [REFERRED TO]ESTHURI ASWATHIAH VS. INCOME TAX OFFICER MYSORE STATE [REFERRED TO]
INCOME TAX OFFICER A WARD SITAPUR VS. MURNDHAR BHAGWAN DAS [REFERRED TO]
STATE OF KERALA VS. KARIMTHARUVI TEA ESTATE LIMITED [REFERRED TO]
COMMISSIONER OT INCOME TAX GUJARAT VS. A RAMAN AND CO [REFERRED TO]
DAFFADAR BHAGAT SINGH AND SONS VS. INCOME TAX OFFICER A WARD FEROZEPURE [REFERRED TO]
COMMISSIONER OF INCOME TAX MADRAS VS. M K K R MUTHUKARUPPAN CHETTIAR [REFERRED TO]
COMMISSIONER OF INCOME TAX ANDHRA PRADESH VS. VADDE PULLIAH AND CO [REFERRED TO]
KALYANJI MAVJI AND COMPANY VS. COMMISSIONER OF INCOME TAX WEST BENGAL II [REFERRED TO]
BHAGWAN DAS SITA RAM H U F VS. COMMISSIONER OF INCOME TAX LUCKNOW U P [REFERRED TO]
MRIGANKA MOHAN SUR VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
BHUPATRAI HIRACHAND VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
M. CT. MUTHURAMAN V. CIT [REFERRED TO]
SIVALINGAM CHETTIAR V S VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
UNITED MERCANTILE COMPANY LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
GLEN LEVEN ESTATES LIMITED VS. INCOME TAX OFFICER [REFERRED TO]
BEVERLEY ESTATES LIMITED VS. COMMISSIONER OF INCOME TAX [REFERRED TO]
ADDITIONAL COMMISSIONER OF INCOME TAX VS. SETH HEMANT BHAGUBHAI TRUST [REFERRED TO]
JUDGEMENT
S.K. Mal Lodha, J. -
(1.)THE Income-tax Appellate Tribunal, Jaipur Bench, Jaipur (" the Tribunal" herein), has referred the following questions of law arising from its order for our opinion:
" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that proceedings in this case were validly initiated by the Income-tax Officer under Section 147(b) read with Section 150 and Explanation 3 to Section 153 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order dated January 31, 1965, filing the proceeding amounted to an order of assessment ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that opportunity of being heard was given to the firm, M/s. Manaklal Porwal ? "
(2.)THE assessee is a registered firm and the assessment year in question is 1961-62. THE assessee-firm filed its return for the year under reference declaring an income of Rs. 52,110. Shri Manaklal Porwal, a partner of that firm, had also filed an individual return of income. THE ITO came to the conclusion that the assessee-firm was not a genuine firm and the business of the firm, in fact, was exclusively that of Shri Manaklal Porwal. THE ITO, therefore, assessed the income which was earned in the name of the assessee-firm in the hands of Shri Manaklal Porwal (Individual) and passed the following order on January 31, 1965 :
" Firm is not genuine. Income of the firm to be assessed in the hands of Shri Manaklal Porwal. Hence, firm's case is filed."
Shri Manaklal Porwal went in appeal against his individual assessment. The AAC found that the Bombay Bench " B " of the Appellate Tribunal had held that the firm of M/s. Manaklal Porwal was a genuine firm, vide its order dated December 5, 1966, passed in I.T.A. No. 11925/1964-65. The AAC followed the aforesaid order and recorded a finding that Shri Manaklal Porwal could only be assessed in respect of his 1/4th share from the said firm as per allocation of the total income determined in the assessment of the firm, vide order dated March 13, 1969, The ITO initiated proceedings against the assessee-firm under Section 147 of the I.T. Act, 1961 (XLIII of 1961) (hereinafter called " the Act "), for the assessment year 1961-62 on the basis of the information which he gathered from the AAC's order dated March 13, 1969. The ITO has recorded the following reasons for reopening the assessment :
" In this case, the ITO in office during the course of assessment for the assessment years 1958-59, 1959-60 and 1960-61, noticed that the firm is not genuinely constituted and dropped the proceedings initiated in the case of the firm and assessed the income of the firm in the hands of the individual, Shri Manaklal Porwal. He, therefore, dropped the proceedings for the assessment years 1961-62 and 1962-63 in the case of the firm and following the above findings assessed the income in the hands of Shri Manaklal Porwal (individual). Later on, the decision of the ITO was upheld up to the AAC stage but was reversed by the Income-tax Appellate Tribunal, Bombay Bench-B, Bombay. The ITO in office following the Tribunal's decision reopened the proceedings in the case of the firm-under Section 148 and assessed the profits in the firm's case in the status of R.F. and the assessment proceedings for the assessment year 1961-62 remained dropped. The AAC, vide his order for the assessment year 1961-62 in the case of Shri Manaklal Porwal, held that income of Shri Manaklal Porwal should have been the share income from the firm and deleted the whole income. Now, in order to start proceedings to assess the income of Rs. 1,06,918 in the case of the firm already assessed in the hands of an individual, approval as contemplated in Section 147 read with Section 150 (Explanation 3 to Section 153) is solicited. "
A notice under Section 148 of the Act was issued to the assessee-firm. The assessee-firm did not file any return of income, but stated in a written reply that the return furnished earlier may be treated as return furnished in response to the notice under Section 148 of the Act under protest. The ITO overruled the objection of the assessee and completed the reassessment on February 28, 1974, on a total income of Rs. 1,01,750. An appeal was filed by the assessee-firm to the AAC and the AAC, by his order dated December 7, 1974, held that the notice under Section 148 of the Act was barred by limitation and was otherwise invalid. He, therefore, opined that Section 150 has neither any application nor Explanation 3 to Section 153 could be invoked in the case and further that Section 153 had nothing to do with the time-limit for initiating the proceedings under Section 147 of the Act. The Revenue went in appeal and the Tribunal held in its order dated February 28, 1977, that the assessment in this case was reopened by the ITO under Section 147(b) rather than under Section 147(a) of the Act and that the view of the AAC that it was reopened under Section 147(a) was not correct. The Tribunal addressed itself to the question whether reopening of the proceedings under Section 147(b)of the Act was valid and within limitation. While considering this question, it overruled the objection of the assessee-firm that there was no assessment of the firm for the assessment year 1961-62 as the proceedings were only ordered to be filed by the ITO. It rejected the contention of the assessee-firm that reopening of the assessment under Section 147(b) was barred by limitation. According to the Tribunal, the bar of limitation was saved by Explanation 3 to Section 153 read with Section 150 of the Act. A contention was also raised before the Tribunal that the assessee-firm was not given an opportunity of being heard but that was also found to be unsustainable. The Tribunal upheld the reassessment under Section 147(b) of the Act. An application under Section 256(1) of the Act was filed and the Tribunal was of the opinion that the questions of law referred to hereinabove do arise from its order and so, it has referred them for our opinion.
We have heard Mr. K. C. Bhandari, learned counsel for the assessee-firm and Mr. J. P. Joshi and Mr. J. L. Daga for the Revenue.
Question No. 1.--The original return for the assessment year 1961-62 was filed on August 29, 1962. On that return, on January 31, 1965, an order was passed that the firm is not genuine. It was also recorded in that order that income of the firm be assessed in the hands of Shri Manak-lal Porwal. The firm's case failed. After this, the Income-tax Appellate Tribunal, Bombay Bench " B", Bombay, in respect of the assessment years 1958-59, 1959-60 and 1960-61, held that the firm was genuine. It, therefore, directed the ITO to register the firm for the three assessment years 1958-59, 1959-60 and 1960-61. After that, the AAC in his order opined that Shri Manaklal Porwal (Individual) has to be assessed only in respect of his l/4th share from the said firm as per allocation of the total income determined. On the basis of the order dated March 13, 1969, a notice under Section 148 of the Act was issued and the assessment of the firm was reopened under Section 147 read with Section 150 and Explanation 3 to Section 153. The AAC was of the view that the notice under Section 148 was barred by limitation. The Tribunal, on appeal, was, however, of the opinion that the case was reopened under Section 147(b) as the conditions laid down therein were satisfied and not under Section 147(b) and that the reopening of the proceedings under Section 147(b) was valid and within limitation. The first question can conveniently be split up into two parts : (i) Whether the proceedings were validly initiated by the ITO under Section 147(b) ; and (ii) whether Section 150 and Explanation 3 to Section 153 are applicable to this case ?
(3.)THE assessee-firm questioned the validity of the reopening of the assessment under Section 147 of the Act. THE AAC was of the view that it was reopened under Section 147(a). THE Tribunal was of the view that the reopening was under Section 147(b) as from the reasons recorded by the ITO and other circumstances, it is clear that the ITO had gathered information from the order dated March 13, 1969, of the AAC which was passed in the case of Shri Manaklal Porwal (Individual) that income in the case of the firm, M/s. Manaklal Porwal, had escaped assessment. It may be mentioned here that in CIT v. Ayodhyakumari (D.B.C.I.T. Ref. No. 29 of 1971, decided on February 3, 1984-[1985] 154 ITR 604), a Division Bench of this court to which one of us (S, K. Mal Lodha J.) was a party, after considering various authorities, held as under (p. 611):
" Section 147 of the Act deals with reassessment. Section 147 empowers the ITO to assess income which escaped assessment in the relevant year, on the fulfilment of the requisite conditions laid down under Clause (a) or Clause (b) of Section 147. It is not necessary for the ITO to specify in the notice which is issued under Section 147 of the Act that whether he is issuing under Clause (a) or Clause (b) of Section 147. Section 147 empowers the ITO to reopen an assessment already made. That jurisdiction and power can be exercised by him if the necessary conditions laid down in Clause (a) or Clause (b) of Section 147 are satisfied. "
The Division Bench followed the view taken in Mriganka Mohan Sur v. CIT [1974] 95 ITR 503 (Cal) and Bhupatrai Himchand v. CIT [1977] 109 ITR 97 (Cal). It is clear from the reasons recorded by the ITO that he had initiated proceedings for reopening of the assessment on the basis of the information which he gathered from the order dated March 13, 1969, of the AAC. It was submitted by Mr. K. C. Bhandari, learned counsel for the assessee-firm, that this could not have constituted an information within the meaning of Section 147(b) of the Act. It may be recalled here that the order for filing the case in the matter of the assessee-firm was passed on January 31, 1965, whereas the Tribunal of the Bombay Bench " B " passed the order on December 5, 1966. Thus, there cannot be any dispute that the finding that the assessee-firm is a genuine firm was recorded for the first time in the order dated December 5, 1966, which could not be there when the order dated January 31, 1965, was passed.
The material part of Section 147 of the Act is as follows:
" 147. If--...
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year."
" (1) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that proceedings in this case were validly initiated by the Income-tax Officer under Section 147(b) read with Section 150 and Explanation 3 to Section 153 of the Income-tax Act, 1961 ?
(2) Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the order dated January 31, 1965, filing the proceeding amounted to an order of assessment ?
(3) Whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that opportunity of being heard was given to the firm, M/s. Manaklal Porwal ? "
(2.)THE assessee is a registered firm and the assessment year in question is 1961-62. THE assessee-firm filed its return for the year under reference declaring an income of Rs. 52,110. Shri Manaklal Porwal, a partner of that firm, had also filed an individual return of income. THE ITO came to the conclusion that the assessee-firm was not a genuine firm and the business of the firm, in fact, was exclusively that of Shri Manaklal Porwal. THE ITO, therefore, assessed the income which was earned in the name of the assessee-firm in the hands of Shri Manaklal Porwal (Individual) and passed the following order on January 31, 1965 :
" Firm is not genuine. Income of the firm to be assessed in the hands of Shri Manaklal Porwal. Hence, firm's case is filed."
Shri Manaklal Porwal went in appeal against his individual assessment. The AAC found that the Bombay Bench " B " of the Appellate Tribunal had held that the firm of M/s. Manaklal Porwal was a genuine firm, vide its order dated December 5, 1966, passed in I.T.A. No. 11925/1964-65. The AAC followed the aforesaid order and recorded a finding that Shri Manaklal Porwal could only be assessed in respect of his 1/4th share from the said firm as per allocation of the total income determined in the assessment of the firm, vide order dated March 13, 1969, The ITO initiated proceedings against the assessee-firm under Section 147 of the I.T. Act, 1961 (XLIII of 1961) (hereinafter called " the Act "), for the assessment year 1961-62 on the basis of the information which he gathered from the AAC's order dated March 13, 1969. The ITO has recorded the following reasons for reopening the assessment :
" In this case, the ITO in office during the course of assessment for the assessment years 1958-59, 1959-60 and 1960-61, noticed that the firm is not genuinely constituted and dropped the proceedings initiated in the case of the firm and assessed the income of the firm in the hands of the individual, Shri Manaklal Porwal. He, therefore, dropped the proceedings for the assessment years 1961-62 and 1962-63 in the case of the firm and following the above findings assessed the income in the hands of Shri Manaklal Porwal (individual). Later on, the decision of the ITO was upheld up to the AAC stage but was reversed by the Income-tax Appellate Tribunal, Bombay Bench-B, Bombay. The ITO in office following the Tribunal's decision reopened the proceedings in the case of the firm-under Section 148 and assessed the profits in the firm's case in the status of R.F. and the assessment proceedings for the assessment year 1961-62 remained dropped. The AAC, vide his order for the assessment year 1961-62 in the case of Shri Manaklal Porwal, held that income of Shri Manaklal Porwal should have been the share income from the firm and deleted the whole income. Now, in order to start proceedings to assess the income of Rs. 1,06,918 in the case of the firm already assessed in the hands of an individual, approval as contemplated in Section 147 read with Section 150 (Explanation 3 to Section 153) is solicited. "
A notice under Section 148 of the Act was issued to the assessee-firm. The assessee-firm did not file any return of income, but stated in a written reply that the return furnished earlier may be treated as return furnished in response to the notice under Section 148 of the Act under protest. The ITO overruled the objection of the assessee and completed the reassessment on February 28, 1974, on a total income of Rs. 1,01,750. An appeal was filed by the assessee-firm to the AAC and the AAC, by his order dated December 7, 1974, held that the notice under Section 148 of the Act was barred by limitation and was otherwise invalid. He, therefore, opined that Section 150 has neither any application nor Explanation 3 to Section 153 could be invoked in the case and further that Section 153 had nothing to do with the time-limit for initiating the proceedings under Section 147 of the Act. The Revenue went in appeal and the Tribunal held in its order dated February 28, 1977, that the assessment in this case was reopened by the ITO under Section 147(b) rather than under Section 147(a) of the Act and that the view of the AAC that it was reopened under Section 147(a) was not correct. The Tribunal addressed itself to the question whether reopening of the proceedings under Section 147(b)of the Act was valid and within limitation. While considering this question, it overruled the objection of the assessee-firm that there was no assessment of the firm for the assessment year 1961-62 as the proceedings were only ordered to be filed by the ITO. It rejected the contention of the assessee-firm that reopening of the assessment under Section 147(b) was barred by limitation. According to the Tribunal, the bar of limitation was saved by Explanation 3 to Section 153 read with Section 150 of the Act. A contention was also raised before the Tribunal that the assessee-firm was not given an opportunity of being heard but that was also found to be unsustainable. The Tribunal upheld the reassessment under Section 147(b) of the Act. An application under Section 256(1) of the Act was filed and the Tribunal was of the opinion that the questions of law referred to hereinabove do arise from its order and so, it has referred them for our opinion.
We have heard Mr. K. C. Bhandari, learned counsel for the assessee-firm and Mr. J. P. Joshi and Mr. J. L. Daga for the Revenue.
Question No. 1.--The original return for the assessment year 1961-62 was filed on August 29, 1962. On that return, on January 31, 1965, an order was passed that the firm is not genuine. It was also recorded in that order that income of the firm be assessed in the hands of Shri Manak-lal Porwal. The firm's case failed. After this, the Income-tax Appellate Tribunal, Bombay Bench " B", Bombay, in respect of the assessment years 1958-59, 1959-60 and 1960-61, held that the firm was genuine. It, therefore, directed the ITO to register the firm for the three assessment years 1958-59, 1959-60 and 1960-61. After that, the AAC in his order opined that Shri Manaklal Porwal (Individual) has to be assessed only in respect of his l/4th share from the said firm as per allocation of the total income determined. On the basis of the order dated March 13, 1969, a notice under Section 148 of the Act was issued and the assessment of the firm was reopened under Section 147 read with Section 150 and Explanation 3 to Section 153. The AAC was of the view that the notice under Section 148 was barred by limitation. The Tribunal, on appeal, was, however, of the opinion that the case was reopened under Section 147(b) as the conditions laid down therein were satisfied and not under Section 147(b) and that the reopening of the proceedings under Section 147(b) was valid and within limitation. The first question can conveniently be split up into two parts : (i) Whether the proceedings were validly initiated by the ITO under Section 147(b) ; and (ii) whether Section 150 and Explanation 3 to Section 153 are applicable to this case ?
(3.)THE assessee-firm questioned the validity of the reopening of the assessment under Section 147 of the Act. THE AAC was of the view that it was reopened under Section 147(a). THE Tribunal was of the view that the reopening was under Section 147(b) as from the reasons recorded by the ITO and other circumstances, it is clear that the ITO had gathered information from the order dated March 13, 1969, of the AAC which was passed in the case of Shri Manaklal Porwal (Individual) that income in the case of the firm, M/s. Manaklal Porwal, had escaped assessment. It may be mentioned here that in CIT v. Ayodhyakumari (D.B.C.I.T. Ref. No. 29 of 1971, decided on February 3, 1984-[1985] 154 ITR 604), a Division Bench of this court to which one of us (S, K. Mal Lodha J.) was a party, after considering various authorities, held as under (p. 611):
" Section 147 of the Act deals with reassessment. Section 147 empowers the ITO to assess income which escaped assessment in the relevant year, on the fulfilment of the requisite conditions laid down under Clause (a) or Clause (b) of Section 147. It is not necessary for the ITO to specify in the notice which is issued under Section 147 of the Act that whether he is issuing under Clause (a) or Clause (b) of Section 147. Section 147 empowers the ITO to reopen an assessment already made. That jurisdiction and power can be exercised by him if the necessary conditions laid down in Clause (a) or Clause (b) of Section 147 are satisfied. "
The Division Bench followed the view taken in Mriganka Mohan Sur v. CIT [1974] 95 ITR 503 (Cal) and Bhupatrai Himchand v. CIT [1977] 109 ITR 97 (Cal). It is clear from the reasons recorded by the ITO that he had initiated proceedings for reopening of the assessment on the basis of the information which he gathered from the order dated March 13, 1969, of the AAC. It was submitted by Mr. K. C. Bhandari, learned counsel for the assessee-firm, that this could not have constituted an information within the meaning of Section 147(b) of the Act. It may be recalled here that the order for filing the case in the matter of the assessee-firm was passed on January 31, 1965, whereas the Tribunal of the Bombay Bench " B " passed the order on December 5, 1966. Thus, there cannot be any dispute that the finding that the assessee-firm is a genuine firm was recorded for the first time in the order dated December 5, 1966, which could not be there when the order dated January 31, 1965, was passed.
The material part of Section 147 of the Act is as follows:
" 147. If--...
(b) notwithstanding that there has been no omission or failure as mentioned in Clause (a) on the part of the assessee, the Income-tax Officer has in consequence of information in his possession reason to believe that income chargeable to tax has escaped assessment for any assessment year."
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