COMMISSIONER OF INCOME-TAX VS GULAM RASOOL
1999 PTD 385
[225 I T R 904]
[Madhya Pradesh High Court (India)]
Before A. K. Mathur, C. J. and S. K. Kulshrestha, J
COMMISSIONER OF INCOME-TAX
Versus
GULAM RASOOL and others
Miscellaneous Civil Cases Nos.546 to 551 of 1992, decided on 26/08/1996.
Income-tax---
----Revision---Reassessment---Notice issued for reassessment under S.147/148, Indian Income Tax Act, 1961---Jurisdiction of Commissioner of Income-tax to revise order of assessment is not taken away---Indian Income tax Act, 1961, Ss. 147, 148 & 263.
The operation of sections 147 and 263 of the Income Tax Act, 1961, is somewhat similar and it is the Income-tax Officer who under sections 147 and 148 of the Act can reopen the assessment on account of the income escaping assessment. As against this if the Commissioner under section 263 of the Act finds that the assessment order is prejudicial to the interests of the Revenue, then he can reopen the issue. Therefore, virtually, both these provisions are for reopening the assessment---one at the Income-tax Officer level and other, at the level of the Commissioner. Both can invoke their power after the assessment order, but both are not exclusive of each other. Under sections 147 and 148 of the Act, the order of assessment is not wiped out nor does it become non est. The order survives to a limited extent and is not wholly wiped out. It will remain in suspended animation till it is finally decided by the Income-tax Officer. On the issuance of notice under sections 147 and 148 of the Act by the Income-tax Officer the power under section 263 of the Act of the Commissioner is not denuded and both the provisions can exist without there being any conflict in the matter.
CIT v. Sun Engineering Works P. Ltd. (1992) 198 ITR 297 (SC) and Sharda Trading Co. v. CIT (1984) 149 ITR 19 (Delhi) fol. General Beopar Co. (Pvt.) Ltd. v. CIT (1987) 167 ITR 86 (Cal.); Jaganmohan Rao (V.) v. CIT/CEPT (1970) 75 ITR 373 (SC); Jawajirao Sugar Co. Ltd. v. CIT (1989) 176 ITR 182 (MP) and Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India (1971) 3 SCR 9 and AIR 1971 SC 530 ref.
V.K. Tankha for the Commissioner.
G.N. Purohit for the Assessee.
JUDGMENT
A.K. MATHUR, C. J.---All the aforesaid reference cases involve common questions of law and facts and, therefore, they are disposed of by this common judgment.
For convenient disposal of all the aforesaid references, the facts given in CIT v. Gulam Rasool (M.C.C. No.546 of 1992) are taken into consideration.
This is an income-tax reference at the instance of the Revenue and the following question of law has been referred by the Tribunal for opinion of this Court:
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in law in holding that mere issuance of notice under section 148 of the Income Tax Act, 1961, would take away the jurisdiction of the Commissioner of Income-tax under section 263 to revise an assessment order?"
The assessee alongwith other family members constructed a property at Mission Chowk, Katni, Investment in the said property was disclosed at Rs.7,09,777 and the assessee owns a 1/6th share in it. The assessee's valuer valued the cost of construction at Rs.9,12,000. The Assessing Officer referred the matter to the Departmental Valuation Officer, and the Departmental Valuation Officer (DVO) estimated the cost of construction at Rs.12,25,000, according to which the assessee's share in the difference between the cost of construction disclosed and the estimated by the Departmental Valuation Officer, worked out to Rs.85.830. Subsequently, the assessee filed a revised return under the amnesty scheme on March 31, 1986. In the said revised return, the additional income of Rs.33,500 from other sources was declared and offered for assessment. The Assessing Officer completed the assessment on April 12, 1986, under section 143(1) accepting Rs.33,500 only as against the actual difference of Rs.85,830. The said assessment order was cancelled by the Commissioner of Income-tax by his order under section 263 of the Income Tax Act, dated March 20, 1989.
Aggrieved by the order of the Commissioner of Income-tax under section 263 of the Income-tax Act, the assessee preferred an appeal before the Income-tax Appellate Tribunal. The assessee contended that the Commissioner of Income-tax was not justified in invoking the jurisdiction under section 263, when the Assessing Officer had already issued notice under section 148 prior to the issue of notice under section 263 of the Income-tax Act. The assessee relied on the decision of the Calcutta High Court in the case of General Beopar Co. (P.) Ltd. v. CIT (1987) 167 ITR 86. As against this, the Departmental representative referred to a decision in the case of Sharda Trading Co. v. CIT (1984) 149 ITR 19 (Delhi). After hearing both the parties, the Tribunal held that the Commissioner of income-tax was not justified in invoking the jurisdiction under section 263 when the Income-tax Officer had already issued notice of reopening the assessment under section 147/148 of the Income-tax Act, and hence the Tribunal quashed the proceedings under section 263 and allowed the appeal Thereafter, the Department approached the Tribunal for referring the aforesaid question of law and the aforesaid question of law has been referred by the Tribunal for answer of this Court.
We have heard learned counsel for the parties and perused the records. The question is when the Income-tax Officer issued notice under sections 147 and 148 of the Income-tax Act, whether the power of the Commissioner under section 263 of the Income-tax Act stands denuded or not.
"263. Revision of orders prejudicial to Revenue.---(1)
?The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue. He may, after giving the '`" " assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify including an order enhancing or modifying the assessment, or cancelling the assessment r and directing a fresh assessment.
Explanation. ----
---For the removal of doubts, it is hereby declared that, for the purposes of this subsection.---
(i) an order of assessment made by the Assistant Commissioner or the Income-tax Officer on the basis of the directions issued by the Deputy Commissioner under section 144-A;
(ii) an order made by the Deputy Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or
Director-General or Commissioner authorised by the Board in this Behalf under section 120;
(b) 'record' includes all records relating to any proceeding under this Act available at time of examination by the Commissioner;
(c) where any order referred to in this subsection and passed by the Assessing Officer had been the subject-matter of any appeal, the powers of the Commissioner under this subsection shall extend to such matters as had not been considered and decided in such appeal.
(2) No order shall be made under subsection (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.
(3) Notwithstanding anything contained in subsection (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, the High Court or the Supreme Court.
Explanation-----
---In computing the period of limitation for the purposes of subsection (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any Court shall be excluded."
"Sections 147 and 148 of the Income-tax Act read as under:
"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):
Provided that where an assessment under subsection(3) of section 143 or this section has been made for the relevant assessment year, no action shall be taken under this section after the expiry of four years from the end of the relevant assessment year, unless an income chargeable to tax has escaped assessment for such assessment year by reason of the failure on the part of the assessee to make a return under section 139 or in response to a -notice issued under subsection (1) of section 142 or section 148 or to disclose fully and truly all material facts necessary for his assessment, for that assessment year.
Explanation 1.---Production before the Assessing Officer of account books or other evidence from which material evidence could, with due diligence, have been discovered by the Assessing Officer will not necessarily amount to disclosure within the meaning of the foregoing proviso.
Explanation 2.---For the purposes of this section, the following shall also be deemed to be cases where income chargeable to tax has escaped assessment, namely:
(a) where no return of income has been furnished by the assessee although his total income or the total income of any other person in respect of which he is assessable under this Act during the previous year exceeded the maximum amount which is not chargeable to income-tax;
(b) where a return of income has been furnished by the assessee but no assessment has been made and it is noticed by the Assessing Officer that the assessee has understated the income or has claimed excessive loss, deduction, allowance or relief in the return;
(c) where an assessment has been made, but--
(i) income chargeable to tax has been under assessed; or
(ii) such income has been assessed at too low a rate; or
(iii) such income has been made the subject of excessive relief under this Act; or
(iv) excessive loss or depreciation allowance or any other allowance under this Act has been computed."
"148. Issue of notice where income has escaped assessment.---(1) Before making the assessment, reassessment or recomputation 'under section 147, the Assessing Officer shall serve on the assessee a notice requiring him to furnish within such period, not being less than thirty days, as may be specified in the notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139. "
In fact, the operation of both these sections is somewhat similar and it is the Income-tax Officer, who under sections 147 and 148 of the Income-tax Act can reopen the assessment on account of income escaping assessment. As against this, if the Commissioner, under section 263 of the Act, finds that the assessment order is prejudicial to the interests of the Revenue, then he can reopen the issue. Therefore, virtually, both these provisions are for reopening the assessment---one at the Income-tax Officer level and other at the level of the Commissioner. Both can invoke their power after the assessment order, but both are not exclusive of each other.
Shri V.K. Thankha, learned counsel for the applicant/Revenue, has submitted that simply because notice under section 148 of the Act has been issued then it does not mean that the whole assessment proceedings made earlier are wiped out. In fact, learned counsel submitted that the assessment order will remain in a fluid state, i.e., it will lose its finality. Learned counsel has invited our attention to the case of CIT v. Sun Engineering Works, P., Ltd. (1992) 198 ITR 297 (SC), in support of his contention.
As against this, Shri G.N. Purohit, learned counsel for the assessee, has submitted that the fact of issuance of notice under sections 147 and 148 of the Act is that the whole proceedings stand wiped out and in that connection, learned counsel has invited our attention to various decisions of the High Courts, i.e., Calcutta, Rajasthan and Allahabad, in support of his contentions. We need not refer all these decisions because all these decisions were considered by the Supreme Court in Sun Engineering Works' case (1992) 198 ITR 297. The Supreme Court in Sun Engineering Works' case (1992) 198 ITR 297, after considering all the conflicting judgments of various High Courts and after reviewing the decision of the Supreme Court in V. Jaganmohan Rao v. CIT (1970) 75 ITR 373, laid down the law. In Sun Engineering Works' case (1992) 198 ITR 297 (SC), their Lordships have explained the principle as to what is the effect of issuance of notice under section 148. It was observed (page 319):
"The principle laid down by this Court in V. Jaganmohan Rao's case, therefore, is only to the extent that once an assessment is validly reopened by issuance of a notice under section 22(2) of the 1922 Act (corresponding to section 148 of the Act), the previous underassessment is set aside and the Income-tax Officer has the jurisdiction and duty to levy tax on the entire income that had escaped assessment during the previous year. What is set aside is, thus, only the previous underassessment and not the original assessment proceedings. An order made in relation to the escaped turnover does not affect the operative force of the original assessment, particularly if it has acquired finality, and the original order retains both its character and identity. It is only in cases of underassessment' based on clauses (a) to (d) of Explanation 1 to section 147, that the assessment of tax due has to be recomputed on the entire taxable income. The judgment in V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC), therefore, cannot be read to imply as laying down that, in the reassessment proceedings validly initiated, the assessee can seek reopening of the whole assessment and claim credit in respect of items finally concluded in the original assessment. The assessee cannot claim recomputation of the income or redoing of an assessment and be allowed a claim which he either failed to make or which was otherwise rejected at the time of original assessment which has since acquired finality. Of course, in the reassessment proceedings, it is open to an assessee to show that the income alleged to have escaped assessment has in truth and in fact not escaped assessment but that the same had been shown under some inappropriate head in the original return, but to read the judgment in V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC), as laying down that reassessment wipes out the original assessment and that reassessment is not only confined to escaped assessment' or underassessment' but to the entire assessment, for the year and starts the assessment proceedings de novo giving the right to an assessee to reagitate matters which he had lost during the original assessment proceedings, which had acquired finality, is not only erroneous but also against the phraseology of section 147 of the Act and the object of reassessment proceedings. Such an interpretation would be reading that judgment totally out of context in which the questions arose for decision in that case. It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be a complete 'law' declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and, while applying the decision to a later case, the Courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao Jiavaji Rao Scindia Bahadur v. Union of India (1971) 3 SCR 9; AIR 1971 SC 530, this Court cautioned (page 578 of AIR 1971 SC):
'It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.'
Although section 147 is part of a taxing statute, it imposes no charge on the subject but deals merely with the machinery of assessment and in interpreting a provision of that kind, the rule is that construction should be preferred which makes the machinery workable. Since the proceedings under section 147 of the Act are for the benefit of the Revenue and not an assessee and are aimed at garnering the 'escaped income' of an assessee, the same cannot be allowed to be converted as ' revisional' or 'review' proceedings at the instance of the assessee, thereby making the machinery unworkable."
The law which has been laid down by their Lordships after reviewing the judgment of V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC), is that under section 147/ 148 of the Act, the order of assessment is not wiped out nor does it become non est as was observed by the Supreme Court in V. Jaganmohan Rao's case (1970) 75 ITR 373. Therefore, the order survives to a limited extent and not wholly wiped out. It will remain in suspended animation till it is finally decided by the Income-tax Officer.
Now, the question is what is the effect of the notice issued under section 147 of section 263. This was considered by the Delhi High Court in the case of Sharda Trading Co. v. CIT (1984) 149 ITR 19. In that case, their Lordships referred to V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC) and took the view that it will not wipe out the earlier assessment order. However, V. Jaganmohan Rao's case (1970) 75 ITR 373 (SC) has already been explained by the Supreme Court in Sun Engineering Works' case (1992) 198 ITR 297 and the view taken by the Delhi High Court appears to be correct that the jurisdiction of the Commissioner under section 263 is not taken out. It was observed by the Delhi High Court (page 23):
"The scope of jurisdiction of the Commissioner under section 263 empowers him to make an order enhancing or modifying the order of assessment or cancelling an assessment and making fresh assessment. When that is done, the original order of assessment made by the Income-tax Officer ceases to exist and would merge in the order of the Commissioner in case of enhancement or modification. Once the Commissioner revises an order of assessment, the reassessment proceedings started under section 147 would come to an end as there is no (subsisting) order of the Income-tax Officer. If the reassessment is made by the Income-tax Officer in pursuance of the proceedings initiated under sections 147 and 148, then on reassessment, the entire original assessment is set aside and ceases to exist with the result that the original assessment order which the Commissioner was seeking; to revise becomes non est. By reassessment, the original order is substituted by an order of reassessment which is not open to revision under section 263 of the Act."
A similar view was taken by this Court in a very brief judgment in Jiwajirao Sugar CQ. Ltd. v. CIT (1989) 176 ITR 182 that the assessee was unable to satisfy that notice under section 147 of the Act will affect the jurisdiction of the Commissioner under section 263 of the Act. Be that as it may, now in view of the changed position of law as laid down by the Supreme Court in Sun Engineering Works' case (1992 198 ITR 297. All the judgments taking a contrary view are no more good law, therefore, we are not referring to those decisions. Therefore, we are of the opinion that on the issuance of notice under section 147/148 of the Act by the Income-tax Officer, the power under section 263 of the Act of the Commissioner is not denuded and both the provisions can exist without there being any conflict in the matter. Hence, we answer the aforesaid question in favour of the Revenue and against the assessee.
However, before parting with the case, we may mention that Shri G.N. Purohit, learned counsel for the assessee, has submitted that after the order was passed by the Commissioner of Income-tax under section 263, the Income-tax Officer had decided the matter and against that assessment, the assessee preferred an appeal before the Commissioner of Income-tax (Appeals). Meanwhile the Tribunal cancelled the order of the Commissioner income-tax and the Commissioner of Income-tax (Appeals) set aside the assessment order on account of the decision given by the Tribunal on this technical ground alone. Now, that order cannot survive because of the view taken by the Tribunal in the present case, and against that order, the Revenue has already preferred an appeal before the Tribunal which is pending. Therefore, learned counsel for the assessee has submitted that his right to agitate the matter after this answer will be prejudiced. Since we have already answered the aforesaid question in favour of the Revenue and against the assessee, the Tribunal shall reconsider the matter in the light of the answer given by us and decide the matter in accordance with law.
In the result, we answer the aforesaid question in favour of the Revenue and against the assessee. All other references are accordingly disposed of in the light of the above reference.
M.B.A./1783/FC??????????????????????????????????????????????????????????????????????????? Order accordingly.