RAKESH AGGARWAL VS ASSISTANT COMMISSIONER OF INCOME-TAX
1998 P T D 2291
[225 I T R 496]
[Delhi High Court (India)]
Before Y. K. Sabharwal and D. K. Jain, JJ
RAKESH AGGARWAL through Legal Heirs
versus
ASSISTANT COMMISSIONER OF INCOME-TAX
C.W.Ps. Nos.3796, 3797, 4092 and 4093 of 1992, decided on 18/07/1996.
(a) Income-tax---
----Assessment---Intimation to assessee under S.143(1)(a) after issue of notice under S.143(2)---Assessing Officer could issue fresh notice under S.143(2)-- Indian Income Tax Act, 1961, S.143.
(b) Wealth tax---
---- Reassessment under Income Tax Act and Wealth Tax Act---Law Applicable to assessment---Effect of amendment of 5.147 of Income Tax Act w.e.f. 1-4-1989---Reason to believe that income had escaped assessment-- Finding in assessment for another year that assessee was given a low rent for a property and as compensation had received certain benefits and perquisites---Reassessment proceedings were valid---Indian Income Tax Act, 1961, S.147---Indian Wealth Tax Act, 1957, S.17.
An intimation to the assessee under section 143(1)(a)(i) of the Income Tax Act, 1961, even after issue of notice under section 143(2), does not oust the jurisdiction of the Assessing Officer to issue a fresh notice under section 143(2), where he considers it to be necessary or expedient to ensure that the assessee has declared his income correctly.
Apogee International Ltd. v. Union of India (1996) 220 ITR 248 (Delhi) fol.
Section 147 of the Income Tax Act, 1961, as amended with effect from April 1, 1989, provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153 of the Act, assess or reassess such income and also any other income chargeable to tax which has escaped assessment. The section not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the unamended section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reason of: (a) omission or failure on the part of an assessee to make a return under section 139 of the Act for any assessment year, or (b) to disclose fully and truly all material facts necessary for his assessment for that year. As is evident from the amended section, in contradistinction to the unamended section, requiring fulfilment of twin conditions spelt out in clause (a) of section 147 or in clause (b) of the said section, as conditions precedent for issuing notice under section 148, the only condition for action now is that the Assessing Officer should have reason to believe that income has escaped assessment which belief can be reached in any manner, and is not qualified by the precondition of failure by the assessee to make full and true disclosure of material facts, as contemplated under the unamended section 147(a). An assessing officer can now legitimately reopen the assessment in respect of an income which has escaped assessment. Undoubtedly, under the amended section, power to reopen assessment is much wider and can be exercised even if an assessee had disclosed fully and truly all material facts.
The petitioner, who was assessed to income-tax and wealth tax, submitted his return for the assessment year 1989-90 which was accompanied, by a statement of taxable income, showing income from various sources including income from house property. The return was accepted and an intimation under section 143(1)(a) of the Act was sent. Subsequently, on August 2, 1991, the Assessing Officer issued a notice under section 148 of the Act, requiring the assessee to file the return as he had reason to believe that certain income chargeable to tax had escaped assessment within the meaning of section 147 of the Act, inasmuch as: (a) the rent from the property owned by the assessee was kept low and for the difference in rent was compensated by being given interest-free securities of Rs.8 lakhs and Rs.5,50,500 by the two companies, which fact came to light during the course of the assessment proceedings for the assessment year 1988-89, wherein the assessee had himself admitted that the correct rental income could be determined by adding 15 per cent. interest on the interest-free securities received by him, and (b) the value of the perquisites provided by Hotel Banjara Ltd., one of the tenants, in the form of residential accommodation had not been correctly shown in the return of income. In response to the notice issued, the assessee filed the return of income on October 21, 1991. In order to get information on certain points, the Assessing Officer issued a letter to the petitioner on October 25, 1991, calling upon him to appear before him and produce any document, accounts or any other evidence in support of the return filed on October 21, 1991. No proceedings took place before the Assessing Officer on the appointed date or thereafter. On October 30, 1991, an intimation under section 143(1)(a) was sent to the assessee, accepting the return filed on October 21, 1991. Thereafter, on May 1, 1992, the Assessing Officer issued a fresh notice under section 143(2) calling upon the assessee to appear before him and furnish documents/clarifications on certain points. The assessee furnished information in respect of certain points but thereafter objected to the continuation of the proceedings on the ground that the Assessing Officer having made the assessment on October 31, 1991, when an intimation under section 143(1)(a) was sent after issuing a notice under section 143(2), he could not make another assessment under section 143(3). On a writ petition challenging the validity of the notices under sections 143(3) and 148 of the Income Tax Act and under sections 16 and 17 of the Wealth Tax Act, 1957:
Held, dismissing the writ petition, (i) that section 147 of the Income Tax Act as amended with effect from April 1, 1989, applied to the instant case. Therefore, the last lines of the note, dated August 2, 1991, recorded by the Assessing Officer, before issuing notice under section 148, namely "due to failure of assessee to disclose fully and truly all material facts necessary for his assessment", were of no consequence in so far as the amended section 147 was concerned;
(ii) that the reasons recorded for initiating the reassessment proceedings were, firstly, that the annual value of the property under section 22 of the Act was kept low and the assessee was compensated for it by advancing interest-free loan and, secondly, that the value of the perquisite had not been included in the total income. Those reasons by themselves constituted relevant and sufficient material to provide a foundation to the Assessing. Officer to form the belief that income chargeable to tax had escaped assessment for the relevant assessment years;
(iii) that, therefore, the notices issued under sections 148 and 143(2) of the Income Tax Act and sections 17 and 16(2) of the Wealth Tax Act were valid.
P.V. Kapur, Senior Advocate and Anurag Chawla for Petitioner.
Rajendra and R.N. Verma for Respondent.
JUDGMENT
D.K. JAIN, J.---Two of the writ petitions, taken up herein, involve the provisions of the Income Tax Act, 1961 (for short, "the I.T. Act'), and the other two involve the provisions of the Wealth Tax Act, 1957 (for short, "the W.T. Act."). All the four writ petitions raise common questions of law and even the relief sought in all, in substance being the same, these are dealt with under a common judgment. To appreciate the controversy, we shall treat the facts in C.W.P. No.3796 of 1992 as illustrative. The petitions pertain to the assessment years 1989-90 and 1990-91.
The petitioner, who was assessed to income-tax and wealth tax in his capacity as the legal heir of the late Shri R.S. Aggarwal, submitted the return of income for the assessment year 1989-90 on October 30, 1989, which was accompanied by a statement of taxable income, showing income from various sources including income from house property. The return was accepted and an intimation under section 143(1)(a) of the Income Tax Act was sent. Subsequently, on August 2, 1991, the Assessing Officer issued a notice under section 148 of the Income tax Act, requiring the petitioner to file the return as he had reason to believe that certain income chargeable to tax had escaped assessment within the meaning of section 147 of the Income Tax Act, inasmuch as: (a) the rent from the property owned by the assessee, R.S. Aggarwal, was kept low and for the difference in rent he was compensated by giving interest-free securities of Rs.8 lakhs and Rs.5,50,500 by the two companies, which fact came to light during the course of the assessment proceedings for the assessment year 1988-89, wherein the assessee had himself admitted that the correct rental income could be determined by adding 15 per cent. interest on the interest free securities received by him, and (b) the value of the perquisites provided by Hotel Banjara Ltd., one of the tenants, in the form of residential accommodation had not been correctly shown in the return of income. In response to the notice issued, the assessee filed the return of income on October 21, 1991. In order to get information on certain points, the Assessing Officer issued a letter to the petitioner on October 25, 1991, calling upon him to appear before him and produce any document, accounts or any other evidence which the petitioner may like to, in support of the return filed on October 21, 1991. It appears that no proceedings took place before the Assessing Officer on the appointed date or thereafter. Again on October 30, 1991, an intimation under section 143(1)(a) of the Income Tax Act was sent to the petitioner, accepting the return filed on October 21, 1991. Thereafter, on May 1, 1992, the Assessing Officer issued a fresh notice under section 143(2) calling upon the petitioner to appear before him and furnish documents/clarifications on certain points. The petitioner furnished information in respect of certain points but thereafter objected to the continuation of the proceedings on the plea that the Assessing Officer having made the assessment on October 30, 1991, when an intimation under section 143(1)(a) of the Income Tax Act was sent after issuing a notice under section 143(2) of the Income Tax Act, he could not make another assessment under section 143(3) of the Income Tax Act. The officer was told that the proceedings initiated on May 1, 1992, by issuing notice under section 143(2) of the Income Tax Act were without jurisdiction and was requested to drop the same. The officer declined to accede to the petitioner's request. Hence, the present writ petition in which the petitioner now seeks to challenge even the validity of notice under section 148 of the Income-tax Act issued on August 2, 1991, and further proceedings taken thereafter on the basis of the return file pursuant to the said notice.
The action of the Assessing Officer in issuing notice under section 148 is challenged on the ground that the petitioner having furnished to the Assessing Officer all the details regarding the tenanted premises, including the amount of deposits received from the tenants, the Assessing Officer could possibly have no "reason to believe" that any income chargeable to tax for the relevant assessment year had escaped assessment due to failure of the petitioner to disclose fully and truly all material facts necessary for his assessment and, therefore, in the absence of this vital ingredient, a condition precedent for exercising jurisdiction under section 147(a) of the Income Tax Act, the notice under section 148 was illegal and without jurisdiction. The re-initiation of assessment proceedings by issuing notice under section 143(2) on May 1, 1992, after issue of an intimation under section 143(1)(a) of the Income Tax Act, is assailed on the ground that on submission of the return under section 148, a notice under section 143(2) was issued on October 25, 1991, before the intimation under section 143(1)(a) was sent on October 30, 1991, and, therefore, the said order, though termed as intimation in fact was tantamount to a regular assessment under section 143(3) of the Income Tax Act. That being so, it is pleaded that the power of the Assessing Officer to issue a notice under section 143(2), with reference to the return filed on October 21, 1991, stood exhausted and, therefore, :here was no question of fresh assessment proceedings being commenced by issuing notice under section 143(2) of the Income Tax Act.
On the merits, it is claimed that the information furnished during the course of assessment proceedings for the assessment year 1988-89 has been misconstrued by the Assessing Officer inasmuch as no interest income was in fact earned by the petitioner on the said security deposits and the interest which the petitioner could possibly earn on the said deposits was mentioned as an opportunity cost to justify the rateable value of the property in question.
We have heard Mr. P. V . Kapur, learned,Senior Advocate, for the petitioner, and Mr. Rajendra, senior standing counsel for the respondent Assessing Officer.
Indisputably, section 147 as it existed after its amendment by the Direct Tax Laws (Amendment) Act, 1987, with effect from April 1, 1989, would apply to the facts in hands. Section 147, material for our purpose, reads as follows:
"S.147. Income escaping assessment. ---If the Assessing Officer, has reason to believe that any income chargeable to tax has escaped assessment for any assessment year he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment and which comes to his notice subsequently in the course of the proceedings under this section, or recompute the loss or the depreciation allowance or any other allowance, as the case may be, for the assessment year concerned (hereafter in this section and in sections 148 to 153 referred to as the relevant assessment year) ...."
The section provides that if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year, he may, subject to the provisions of sections 148 to 153, assess or reassess such income and also any other income chargeable to tax which has escaped assessment. The new section not only merges clauses (a) and (b) of the pre-amended section 147 but also brings about a significant change in the preliminary requirement of certain mandatory conditions before reassessment proceedings could be initiated under the old section. Under the old section 147(a), the Assessing Officer could initiate reassessment proceedings if he had reason to believe that income chargeable to tax had escaped assessment by reason of: (a) omission or failure on the part of an assessee to make a return under section 139 for any assessment year, or (b) to disclose fully and truly all material facts necessary for his assessment for that year. As is evident from the amended section, in contradistinction to the original unamended section, requiring fulfilment of twin conditions spelt out in clause (a) of section 147 or in clause (b) of the said section, as conditions precedent for issuing notice under section 148 of the Income Tax Act, it is not so in the amended section and the only condition for action now is that the Assessing Officer should have reason to believe that income has escaped assessment which belief can be reached in any manner, and is not qualified by the pre-condition of full and true disclosure of material facts by an assessee, as contemplated under the old section 147(a) of the Income Tax Act. An Assessing Officer can now legitimately reopen the assessment in respect of an income which has escaped assessment. Undoubtedly, under the new section, power to reopen assessment is much wider and can be exercised even if an assessee had disclosed fully and truly all material facts.
This position in law is not disputed by learned counsel for the petitioner. However, laying emphasis on the last paragraph of the reasons recorded by the Assessing Officer that income chargeable to tax has escaped assessment due to failure of the assessee to disclose fully and truly all material facts necessary for his assessment", it is sought to be urged that the Assessing Officer having himself formed the belief that escapement of income is on account of failure on the part of the petitioner to disclose fully and truly all material facts, his satisfaction must be tested on the anvil whether there was any failure on the part of the petitioner in that behalf. It is asserted that the reasons have to be seen in totality and no part of it can be ignored.
In our view, the contention is stated to be rejected. Once it is conceded that it is the amended section 147 which has to apply for initiating proceedings for fresh assessment in respect of the assessment years 1989-90 and 1990-91, we fail to appreciate how the words, which do not find mention in the section, could be read into it. In a taxing stature one has to look squarely at the words of the statute and interpret them. The statute must be construed according to the plain language used by the Legislature. In our view, therefore, the last lines of the note, dated August 2, 1991 recorded by the Assessing Officer, before issuing notice under section 148 of the Income Tax Act, namely, "due to failure of assessee to disclose fully and truly all material facts necessary for his assessment", are redundant, meaningless and are of no consequence in so far as the amended section 147 is concerned.
The next question which arises for determination is whether on the basis of information coming on record during the course of assessment proceedings for the assessment years 1988-89, the Assessing Officer could entertain a reasonable belief about any income chargeable to tax having escaped assessment.
In the earlier part of the judgment, we have noted the reasons recorded by the Assessing Officer for initiating proceedings under section 147, viz., firstly, that the annual value of the property under section 22 of the Income Tax Act was kept low and the assessee was compensated for it by advancing interest-free loan and, secondly, that the value of perquisite had not been included in the total income. Having regard to the said reasons we have no hesitation in coming to the conclusion that those reasons by themselves constitute relevant and sufficient material to provide a foundation to the Assessing Officer to form the belief that income chargeable to tax has escaped assessment for the relevant assessment years
The contention, strenuously urged by Mr.Kapur, learned counsel for the petitioner, is that if ultimately after investigating the matter the Assessing Officer comes to the conclusion that there was no understatement of rental income and the assessee did not earn any income or interest from the security deposits given by the tenants, and the petitioner's stand that what was stated in the chartered accountant's letter, dated February 20, 1991, in respect of the assessment year 1988-89, was only an indication of opportunity cost, is accepted, it would knock the bottom off the Assessing Officer's stated belief and the petitioner would unnecessarily be subjected to the unwarranted drill of reassessment proceedings. We are afraid there is no merit in this contention as well.
As noted above, the main stand of the Assessing Officer is that the facts regarding the furnishing of interest free securities by the said two companies to the assessee to compensate him for the difference between the market rent of the property and the actual rent paid to him, came to light only during the course of assessment proceedings for the assessment year 1988-89, when the assessee had sought to justify the actual receipt of rent at much lesser rate, viz., Rs.78,000 (declared for the assessment year 1988-89) as against the actual rateable value of Rs.1,62,400 determined by the Municipal Corporation for the purpose of property tax. The relevant part of the letter of the chartered accountant, dated February 20. 1991, filed during the course of assessment proceedings for the year 1988-89, relied upon by the Assessing Officer, has been placed on the record and it reads as follows-
"2. Rent received from:
| Gulmohar Estate | 12,000 | | |
| Banjara Hotels Ltd. | 66,000 | 78,000 | |
| Security received: Gulmohar Estate | 8,00,000 6,82,500 | | |
Banjara Hotels Ltd.
14,82,500
Interest at 15 per cent. Per annum on14,82,500 (opportunity cost ofsecurity received)
2,22,375
3,00,375
Actual rental value
Hence, the actual rent received including interest is more than the municipal valuation, because on the amount of securities received the assessee has earned something which is taxable in the hands of the assessee. We hope you would find the above in order and will complete the assessment.
From the above note it is evident that the question whether the assessee has earned any income on the deposits received by him or has derived any other benefit from these deposits, capable of being evaluated in terms of money has necessarily to be gone into and this aspect having not been considered earlier, the Assessing Officer had perforce to initiate reassessment proceedings under the Income-tax Act. For a moment we are not suggesting that there is no merit in the contention of the petitioner that the amount of interest indicated in the above note was only an opportunity cost simpliciter, having no element of income earned, which could be subject to tax. But, at this stage, it is difficult for us to hold that on the basis of material on record, in particular the aforequoted letter, the Assessing Officer could not entertain the belief he did. In our view, the belief entertained by the Assessing Officer cannot be said to be a mere pretence to reopen the concluded assessment for some ulterior purpose. We are, therefore, of the opinion that the issue of notice under section 148 of the Income-tax Act is not vitiated on the ground that no income chargeable to tax has escaped assessment.
The only other issue which survives for consideration is about the legality and validity of the notice issued under section 143(2) of the Income tax Act after an intimation under section 143(1)(a) had been sent to the petitioner. The question is whether the said intimation sent to the petitioner after issuing notice under section 143(2) tentamounts to regular assessment under section 143(3), exhausting the power of the Assessing Officer to issue a fresh notice under section 143(2) for the purpose of making another assessment under section 143(3) of the Act. We feel that the controversy may not detain us for long because we have already dealt with the issue in detail in Apogee International Ltd. v. Union of India (1996) 220 ITR 248 (Delhi) (CWP Nos.496 and 633 of 1994). In the said judgment delivered by us on March 4, 1996, after analysing the provisions of section 143(1), (2) and (3) of the Income Tax Act, we have held that an intimation to the assessee under section 143(1)(a)(i) of the Income-tax Act even after issue of notice under section 143(2), does not oust the jurisdiction of the Assessing Officer to issue a fresh notice under section 143(2) of the Income-tax Act, where he considers it to be, necessary or expedient to ensure that the assessee has declared his income correctly. Following the said judgment, we reject the contention.
For the forgoing reasons, we are of the opinion that in the facts and circumstances of the instant case, the impugned notices issued under sections 148 and 143(2) of the Income Tax Act and sections 17 and 16(2) of the Wealth Tax Act (subject-matter of the petitions under the Wealth Tax Act) are valid.
There is no merit in the writ petitions and the same are accordingly dismissed. The rule is discharged in all the petitions, leaving the parties to bear their own costs.
Before parting we may clarify that any observations made on themerits of the additions sought to be made to the income already assessed are only for a limited purpose to determine whether or not the Assessing Officer was justified in initiating proceedings by issuing the aforenoted impugned notices and the dismissal of these writ petitions will not preclude the petitioner from urging any question of fact or law before the appropriate forum.
M.B.A./1480/FC Petition dismissed.