GULABRAI HANUMANBUX VS WEALTH TAX OFFICER/INCOME-TAX OFFICER
1991 P T D 238
[Gauhati High Court (India)]
Before A. Raghuvir C.J. and R.K. Manisana, J
GULABRAI HANUMANBUX and 3 others
Versus
WEALTH TAX OFFICER/INCOME-TAX OFFICER and another
Civil Rules Nos. 530 to 537 of 1980 and 981 to 987 of 1981, decided on 07/03/1989.
Income-tax---
----Reassessment---Wealth tax---Failure to disclose material facts necessary for assessment---Scope of duty to disclose material facts---Details regarding construction of building furnished---Authorised valuer's report submitted-- Original assessments both under Income-tax Act and Wealth Tax Act completed after inquiry---Reassessment under Income-tax Act and Wealth Tax Act on the basis of subsequent report by Special Survey Squad and District Valuation Officer---Not valid---Indian Income-tax Act, 1961, S. 147(a)---Indian Wealth Tax Act, 1957.
The assessee's duty is to disclose fully and truly material facts necessary for assessment. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate facts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee. Once the assessment order is finalised or issues in the inquiry are settled, the same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth later.
The assessees, two Hindu undivided families, had jointly purchased a piece of land in 1965. A building was constructed on it between 1968 and 1971. The assessees had disclosed all the details regarding the land and the building to the Revenue. The authorised valuer's report was also submitted. The amounts expended were the subject of assessments under the Income-tax Act, 1961, and the Wealth Tax Act, 1957. Long after the assessments were concluded, the Special Survey Squad informed the Revenue that the building was undervalued. Thereafter, the Revenue obtained a report from the District Valuation Officer. Based upon the report of the District Valuation Officer, reassessment notices were issued to the assessees under the Income-tax Act and the Wealth Tax Act. On writ pe6fions to quash the, notices:
Held, that the facts showed that the valuation of the building was the subject of inquiry before the assessments under the Income-tax Act and the Wealth-tax Act. The evidence tendered by the assessee as well as the report of the authorised valuer had been accepted. The Revenue could not change its opinion and reopen the assessments. The reassessment notices under the Income tax Act, 1961, and the Wealth Tax Act, 1957, were not valid and were liable to be quashed.
Abdul Rab Abdul Salam v. ITO (1988)-174 ITR 424 (Gauhati) fol.
Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191 (SC); CIT v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC); Hoystead v. Commissioner of Taxation (1926) AC 155 (PC); ITO v. Madnam Engineering Works Ltd. (1979) 118 ITR 1(SE); Narayanappa \IS.) v. CIT (1967) 63 ITR 219 (SC); Presidency Talkies Ltd, v. First Add]. 1T0 (195'1) 25 ITR .147 (Mad.) and Sirpur Paper Mills Ltd. v. ITO (1978) 114ITR 404 (AP) ref,
J.B. Bhattacharjee and A.K. Saraf for Petitioners.
D.N. Choudhury and K.H. Choudhury for Respondents.
JUDGMENT
A. RAGHUVIR, C.J.--The subject in this group of fifteen writ petitions relates to two Hindu undivided families, one is known as Gulabrai Hanumanbux with Karta Shri Laxmi Prasad and the other, Keshoram Radheshyam with Karta Keshoram Agarwalla. The two joint families together purchased in 1965, a plot of land measuring 14k, 14L, 28Ch. at 28C, Rowland Road, at Calcutta, for Rs. 1.69,500. Between the calendar years 1968 and 1971, the two together constructed a three-storeyed building. The two families own the land and the building in equal moieties. According to them, in 1966-67, they spent Rs. 5,139.04 before the construction commenced. In the calendar year 1968-69, they spent Rs.1,07,425.21, in 1969-70 Rs. 7'),142.09, in 1970-71 Rs. 1,03,019.11, in 1971-72 Rs. 61.764.65 and in 1972-73 Rs. 19,372.56. Thus, a total sum of Rs. 3,66,862.66 was spent over the construction of the building. The amounts expended were the subject of Income-tax assessments and assessments under the Wealth-tax Act, 1957. In the assessments, the valuation date was March 31,1971.
Long after the assessments were concluded, the Special Survey Squad at Calcutta appears to have informed the Revenue that the building was undervalued in the assessments. Thereafter, the Revenue obtained a report from the District Valuation Officer. Based upon the report of the District Valuation Officer, fifteen notices were served on the assessees to reopen the assessment orders. The notices thus served on the assessees are assailed in the fifteen writ petitions.
In the case of the Hindu undivided family of Gulabrai, the Income-tax assessments for 1969-70, 1971-72 and 1972-73 are sought to be reopened. 1n the case of the Hindu undivided family of Keshoram Radheshyam, the Income-tax assessments for 1969-70, 1971-72 and 1972-73 are sought to be reopened.
Similarly, in the case of Wealth Tax assessment of Keshoram Radheshyam, assessments for 1971-72, 1972-73, 1973-74, 1974-75 and 1975-76 are sought to be reopened. (It is not shown as to why Gulabrai's Wealth Tax assessment for 1975-76 is not sought to be reopened). Now, we may set out the details of the assessments.
By a notice dated March 22, 1980, the Income-tax assessments for the assessment years 1971-72 and 1972-73 in respect of Gulabrai were sought to be reopened (the assessment orders in these cases were passed on December 31, 1971, and March 16, 1974, respectively, the Income-tax Officer recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred that sanction has been received on February 28, 1980, by telegram). By a notice dated April 9, 1980, the Income-tax assessment for 1969-70 in respect of Gulabrai was sought to be reopened (the assessment order in this case was passed on December 31, 1971, the Income-tax Officer recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred that sanction has been received on March 31, 1980).
By a notice dated April 9, 1980, the Income-tax assessment for the assessment year 1969-70 in respect of Keshoram Radheshyam was sought to be reopened (the assessment order in this case was passed on December 13, 1971, the Income tax Officer recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred that sanction has been received on March 31, 1980). By a notice dated March 22, 1980, the Income-tax assessments for the assessment years 1971-72 and 1972-73 in respect of Keshoram Radheshyam were sought to be reopened (the assessment orders in these cases were passed on December 18, 1971, the Income-tax Officer recorded the reasons for reopening on February 4, 1980, the sanction of the Commissioner was sought for and it is averred that sanction has been received on February 28, 1980, by telegram).
The Wealth Tax assessment order in respect of Gulabrai for the assessment year 1971-72 was passed on May 24, 1972, reasons were recorded on February 29, 1980, and notice was issued on February 29, 1980. As respects assessment year 1972-73, the order is dated November 5, 1973, notice was issued on March 13, 1981, and for the assessment year 1973-74, the assessment order is dated November 5, 1973, reasons were recorded on May 27, 1981, and as regards assessment. year 1974-75, the assessment order is dated March 19, 197,5, reasons were recorded on May 27, 1981, and notice was issued on May 27, 1981.
The Wealth Tax assessment order of Keshoram Radheshyam for the assessment year 1971-72 is dated December 23, 1971, reasons were recorded on February 29, 1980, and notice was issued on March 22, 1980. As respects assessment year 1972-73, the order was passed on November 5, 1973, reasons were recorded on March 13, 1981, and notice was issued on March 13, 1981. As respects assessment year 1973-74, the assessment order is dated November 5, 1973, reasons were recorded on May 27, 1981, and notice was issued on May 27, 1981. As respects assessment year 1974-75, the assessment order is dated July 24, 1975, reasons are recorded on May 27, 1981, and notice was issued on May 27, 1981. As respects assessment year 1975-76, the assessment order is dated November 5,1975, reasons were recorded on May 27,1981, and notice was issued on May 27,1981.
It is seen in the course of all these proceedings that the assessees submitted returns and relevant to the valuation of the building as on March 31, 1971, the Authorised Valuation Officer's report, dated October 28, 1972, was submitted and in that the plinth area of the three-storeyed building was shown as 13,319 sq. ft., garage and mezzanine 778 sq. ft., left room area 878 sq. ft. and, according to him, the land value is Rs. 2,40,000, that of the building Rs. 4,87,000 and the total was Rs. 7,27,000.
We have earlier referred to the report of the Special Survey Squad whereupon the Revenue referred the issue of valuation to the District Valuation Officer who, in his report, stated that the basement constructed was for erecting a nine-storeyed building. The value is Rs. 7,55,100. The three-storeyed basement is 14,081 sq. ft. (the Authorised Valuation Officer states this as 13,319 sq. ft.), the garage and mezzanine is 778 sq. ft. (the Authorised Valuation Officer states it as 780 sq. ft.), left room area 878 sq. ft. (the Authorised Valuation Officer states it as 800 sq. ft.), verandah ground floor is 515 sq. ft., back verandah ground floor is 366 sq.ft., foundation extra is 3,274 sq. ft., marble flooring and lining 4,000 sq. ft., at the rate of Rs. 7, Rs. 28,000, glazed tile lining 4,500 sq.ft. at the rate of Rs.4, Rs.5,200, compound wall 405 sq. ft. at the rate of Rs. 12, Rs. 4,860, C.C. pavement 2,600 sq. ft. at the rate of Rs. 2.50, Rs. 6,500, compound gate 2 Nos. Rs.2,000, structure near entrance gate Rs. 3,000, underground and overhead reservoir, tubewells, pumps, etc., Rs.15,000.
When the notices were served, one of the assessees protested on August 18, 1979, and repeated the protest on April 28, 1980, stating that the assessees be informed of the basis of reopening the assessment. The Revenue informed on May 13, 1980, that the assessees are not entitled to be informed of the basis for the initiation of the proceedings at that stage. It is in these circumstances that the assessees approached this Court and assailed the notices. The two assessees seek to quash the notices and the entire proceedings in this Court.
In this group of cases, the first question that was debated at great length was whether or not the Revenue should inform the assessee of the reasons for reopening the assessment. The subject was referred to in the correspondence between the assessee and the Revenue as stated earlier. The Revenue maintains that a decision of the Supreme Court, to which we would advert immediately, held that the Revenue need not set out their reasons for reopening the assessment. In the debate, what was suggested was that after notices are served on the assessee, in the event of the assessee approaching the Court under Article 226, the reasons will be disclosed in the Court. At one point of time, the Revenue threatened to claim privilege though it was not pressed later. Thereafter, having regard to the decision of the Supreme Court, the Revenue argued that the assessee need not to be informed of the reasons at the notice stage of the proceedings.
In our view, the better course of procedure for the. Revenue is to inform the assessee of the grounds on which the assessments are sought to be reopened. The grounds, if they are assailed in the Court, under Article 226, the tenability or otherwise of the grounds will be adjudged in the Court. Adoption of this procedure will result in an orderly proceedings.
In this regard, the decision of the Madras High Court in Presidency Talkies Ltd. v. First Addl. ITO (1954) 25 ITR 447 was referred to by the Revenue where it is held that the grounds need not be informed to the assessee at that stage of the proceedings. That Court observed (at page 448).
"The requirement regarding the communication of the reasons to the Commissioner is, in our opinion, intended to safeguard the interests of the assessee against any hasty action on the part of the Income-tax Officer under section 34 or an action without any justification. It is not intended by the proviso that the reasons should be communicated to the assessee. The satisfaction mentioned is the satisfaction of the Commissioner and the adequacy of the reasons is not a matter for the consideration of the Court, and it is not open to the assessee to agitate the question that the reasons were inadequate to sanction the initiation of the proceedings under section 34 by the Commissioner."
The decision of the Madras High Court was approved by the Supreme Court in S. Narayanappa v. CIT (1967) 63 ITR 219 and the issue was dealt with in the following manner (at page 222):
"The scheme of section 34 of the Act is that, if the conditions of the main section are satisfied, a notice has to be issued to the assessee containing all or any of the requirements which may be included in a notice under subsection (2) of section 22. But before issuing the notice, the proviso requires that the officer should record his reasons for initiating action under section 34 and obtain the sanction of the Commissioner who must be satisfied that the action under section 34 was justified. There is no requirement in any of the provisions of the Act or any section laying down as a condition for the initiation of the proceedings that the reasons which induced the Commissioner to accord sanction to proceed under section 34 must also be communicated to the assessee."''
We have expressed our opinion as to what would be a better and orderly procedure. We see that the subject at issue is covered by the decision of the Supreme Court directly. Therefore, we leave the question with our suggestion.
The principal question argued in this group .of cases is whether the Revenue is entitled to reopen the assessment. In our decision on the facts of the case, the Revenue is not entitled to reopen the two sets of assessments. The reasons are as under:
The two assessees disclosed to the Revenue in the returns when the landwas purchased, how much they paid towards consideration, what type of basement was raised, what is the plinth area of the floors, how many floors were constructed and what material was used. The authorised valuer's report was submitted. All the evidence was tendered. The Revenue accepted the valuation after enquiry and the assessments were concluded. It was, therefore, not open, at the instance of a Special Survey Squad's complaint or thereafter and/or at the report of the District Valuation Officer, to reopen the concluded issue. This aspect is covered by the numerous decisions of the Supreme Court and it is not necessary to cover all of them in the instant case. One of us (Chief Justice) considered the relevant cases in Abdul Rab Abdul Salam v. ITO (1988) 174 ITR 424 (Gauhati), and what is stated in that case covers the issue in the instant cases. In that case, it is held (at p. 427)
"The principle in such cases is culled out from the words in clause (a) of section 147 of the Income-tax Act. The words are whether the assessee disclosed `fully and truly all material facts necessary for assessment'. Once the assessee does that, what inferences are to be drawn is in the hands of the Income-tax Officer. It is open to the Income-tax Officer not to act on the representation of the assessee, call for additional information or further investigate acts and pass the assessment order. In doing so, he may totally reject the case of the assessee or partially accept the representation of the assessee or fully agree with the case of the assessee. Once the assessment order is finalised or issues in the inquiry are settled, the same issues cannot be reopened later stating that the Income-tax Officer has discovered the truth that the conclusion arrived at earlier was discovered to be wrong or that the assessee got away with false representation. The Income-tax Officer can reopen only if he records that true facts were not disclosed (like true, account books have not been filed ass in this case).
'Three decisions of the Supreme Court are cited and in those three cases the above principle is explained. The first one is Calcutta Discount Co. Ltd. v. ITO (1961) 41 ITR 191(SC) and in that case it was explained (at page 200): `there is no duty on the assessee to disclose further facts which, on due diligence, the Income-tax Officer might have discovered... which might have been discovered by the assessing authority if he had pursued investigation on the basis of what has been disclosed'. There was no further duty on the assessee. It was emphasised what inferences are to be drawn or for that matter what proper inferences are to be drawn. Again in CTT v. Burlop Dealers Ltd. (1971) 79 ITR 609 (SC) emphasiswas laid on the words `omission or failure' and how they are to be considered is discussed. The discussion shows that the duty postulated on the assessee is only to extent of disclosing fully and truly material facts necessary for assessment. What facts are material and what facts are necessary for assessment will differ from case to case. `Where, on the evidence and the materials produced, the Income-tax Officer could have reached a conclusion other than the one which he has reached' was juxtaposed to show that the assessee was under no obligation to inform the Income-tax Officer which inference may be raised against him. The above-cited two cases were relied on in the third case, ITO v. Madnani Engineering Works Ltd. (1979) 118 ITR 1(SC). In that case, what can be done by the Income-tax Officer was further explained. What is not the duty of the assessee in the discussion of the case is explained with reference to the contention raised in that case (at page 4): `the assessee contended that it has produced all the relevant materials and documents necessary for completing the assessment and it was under no obligation to inform the Income-tax Officer about the true nature of the transaction and there was accordingly no failure on its part to disclose fully and truly all material facts necessary for its assessment The assessee discharged his obligation so it was held, when he tendered books of account and evidence from which material facts could be discovered. It was for the Income-tax Officer to decide whether the documents produced by the assessee were genuine or false. All the aspects considered in the two earlier cases were explained and followed.
Thus, once the assessee disclosed the necessary material facts and assessment is finalised, later, on a different conclusion on the same facts, the assessment cannot be reopened. If this was not the law, as held by the Privy Council case from Australia in Hoystead v. Commissioner of Taxation (1926) AC 155, `litigation will never end'. The assessee can never rest in peace. The Revenue can always reopen and such a power to reopen the orders can be wielded to harass the assessee. Litigation can never be concluded finally. All assessments can be reopened with a view to `obtain another judgment upon a different assessment of facts.' The Privy Council further held (at page 165): `Parties are not permitted to begin fresh litigations because of new views that they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the Court of the legal result either of the construction of the documents or the weight of certain circumstances. If these were permitted, litigation would have no end, except when legal ingenuity is exhausted.' These aspects were applied by one of us (Raghuvir, J.) in Sirpur Paper Mills Ltd. v. ITO (1978) 114 ITR 404 1 (AP). The passage extracted above is found in the Privy Council case of Hoystead v. Commissioner of Taxation (1926) AC 155."
On the facts in the instant cases, the valuation of the building as on March 31, 1971, was the subject of inquiry before assessments were concluded.
The authorised valuer's report was considered as to the valuation. The Revenue could have rejected the evidence preferred by the assessees including the valuation submitted by the assessees. The facts in the case show that the valuation by the authorised officer was accepted and the evidence tendered was also accepted. The account books offered by the assessees as evidence could have been rejected. The Revenue instead, accepted the accounts. The assessments were thus concluded. Later, after passing the assessment orders, it is not open to the Revenue to contend that the assessees got away with undervaluation of the building in question.
The ratio of the decision culled out in the case apply on all fours to the facts of the case. We hold that the Revenue cannot change its opinion and reopen the assessments. The notices served in this group of fifteen cases for the aforesaid reasons are hereby quashed.
The assessees also raised the question as to limitation but the plea of limitation does not survive and the above question, therefore, need not be dealt with.
For the aforesaid reasons, the group of fifteen writ petitions are allowed. No costs.
P. K. MANISANA, J.--I agree.
Z.S./769/TPetitions accepted.