BHAGWATI CONSTRUCTION CO. v. INCOME TAX OFFICER
[Citation -1985-LL-0123]

Citation 1985-LL-0123
Appellant Name BHAGWATI CONSTRUCTION CO.
Respondent Name INCOME TAX OFFICER
Court ITAT
Relevant Act Income-tax
Date of Order 23/01/1985
Assessment Year 1971-72
Judgment View Judgment
Keyword Tags reassessment proceedings • erroneous factual aspect • income chargeable to tax • business of real estate • reason to believe • levy of interest • void ab initio
Bot Summary: 22nd Nov., 1982 passed by the Commissioner, Baroda and the assessee has taken various grounds in respect of upholding the assessment under s. 147(a) of the IT Act on the ground of jurisdiction as well as validity of the notice issued under s. 148. The assessee is partnership firm and was originally assessed on 16th March, 1974 in the status of URF. The firm is engaged in the business of real estate and the assessment was completed under s. 143(3). On a query from the Bench as to whether since no application under s. 146 for reopening the assessment originally made under s. 144 was preferred by the assessee where reopening the assessment originally made under s. 144 was preferred by the assessee where reopening could be challenged in appeal proceedings, it was submitted that under the New Act the same could be legally challenged and there was a direct decision in the case of Surajmal Ganeshram vs. CIT 120 ITR 715. Besides the reasons recorded by the Department on the basis of which jurisdiction under s. 147 was assumed were actually wrong because it was stated in the reasons of the parties stated on oath that they were not in a position to advance the sums to the assessee aggregating to Rs. 82,000. On the aspect of various defects in the notice it was fairly conceded that in one of the connected assessee s on similar facts this aspect was decided against the assessee. Only on the aspect of levy of interest under s. 217 it was submitted that the assessee should succeed especially in view of the recent amendment having been given retrospective effect only from asst. The case decided by the Supreme Court in Madnani Engineering Works Ltd. clearly supports the case of the assessee because the reassessment proceedings were initiated under s. the assessee because the reassessment proceedings were initiated under s. 147(a) of the Act.


P.J. GORADIA, A.M. Order Both these appeals pertain to same assessee and same assessment year and therefore, they were heard together and are disposed of by this common order. Appeal No. 383, is against order dt. 22nd Nov., 1982 passed by Commissioner (A), Baroda and assessee has taken various grounds in respect of upholding assessment under s. 147(a) of IT Act on ground of jurisdiction as well as validity of notice issued under s. 148. Appeal No. 2155 is directed against order dt. 8th Aug., 1983 which was passed by after receiving remand report on various aspects affecting quantum of income assessed. 2 . assessee is partnership firm and was originally assessed on 16th March, 1974 in status of URF. firm is engaged in business of real estate and assessment was completed under s. 143(3). Subsequently proceedings under s. 147(a) of Act were commenced on following details as stated in assessment order completed under s. 144 r/w s. 147(a) of Act. "Afterwards, on investigation, it was seen that assessee company shown cash credits in names shown below: Rs. 32,000 in name of Shir Muljibhai Kodabhai. Rs. 20,000 Ambaben Muljibhai and Shri Shankerbhai. Rs. 30,000 Bhuderbhai. These credits appeared in books of assessee firm. All these persons stated on oath that they were not in position to advance such large sums and did not advance these amounts to assessee firm. proposal under s. 148 was, therefore, submitted to CIT, Guj-IV, Ahmedabad and after obtaining approval from CIT notice under s. 148 was issued on 8th Feb., 1978 and served on 9th Feb., 1978. assessee filed return of income on 24th March, 1982." 2 . 1. In appeal various grounds were taken against assessment completed under s. 144 r/w s. 147(a) of Act and vide order dt. 22nd Nov., 1982, Commissioner (A) upheld action of ITO in respect of jurisdiction obtained under s. 147(a) of Act as also held that notice issued under s. 148 was proper and assessment completed after reopening was legal. On aspect of merits he had asked ITO to submit remand report on certain aspects of case and claim of assessee. After receiving remand report he passed final order on 8th Aug., 1983, giving partial relief of Rs. 2,250 from addition made of Rs. 82,000 by way of income from undisclosed sources. 3 . ld. counsel appearing on behalf of assessee reiterated submissions made before authorities below on aspect of jurisdiction as also validity of notice. On query from Bench as to whether since no application under s. 146 for reopening assessment originally made under s. 144 was preferred by assessee where reopening assessment originally made under s. 144 was preferred by assessee where reopening could be challenged in appeal proceedings, it was submitted that under New Act same could be legally challenged and there was direct decision in case of Surajmal Ganeshram vs. CIT (1979) 120 ITR 715 (Cal). On validity of notice reliance was placed on decision reported in case of ITO vs. Madnani Engineering Works Ltd. (1979) 12 CTR (SC) 144: (1979) 118 ITR 1 (SC) and in case of Ahmedabad Cotton Mfg. Co. Ltd. vs. Union of India (1974) 95 ITR 639 (Guj). Besides reasons recorded by Department on basis of which jurisdiction under s. 147 was assumed were actually wrong because it was stated in reasons of parties stated on oath that they were not in position to advance sums to assessee aggregating to Rs. 82,000. However, on perusing statements obtained from three parties, nowhere it is stated that they were not in position to advance such large sums and for this statements appearing at pages 35 and 37 were read out. Attack was also made on account of fact that though inquiries and investigations were made out and completed in 1975 no action was taken until 1978 and nothing was explained regarding time lag. Even CIT has not applied his mind while granting approval for opening on various vital aspects such as these very cash credits were subject matter of examination at time of original assessment as stated in order of CIT(A) and, therefore, not only reopening was illegal on this aspect but CIT even did not consider reasons whether they were correct or not. On aspect of various defects in notice it was fairly conceded that in one of connected assessee s on similar facts this aspect was decided against assessee. Reliance was also placed on CIT vs. Hyderabad Deccan Liquor Syndicate (1974) 95 ITR 130 as also Tribunal decision reported in (1984) Taxation Volume 68 page 15. 4. On aspects of ground in respect of merits it was stated that same may not be decided for time being if assessee succeeds on reopening. Only on aspect of levy of interest under s. 217 it was submitted that assessee should succeed especially in view of recent amendment having been given retrospective effect only from asst. yr. 1972-73 and since assessment year under consideration was asst. yr. 1971-72 levy of interest under s. 217 be deleted. 5. ld. departmental representative expressing his inability because of no records having been received, relied upon order of CIT (A). Reliance was also placed on decision in case of Jawahar Wollen Textile Mills vs. CIT (1973) 92 ITR 511 (P&H) on aspect of investigation of cash credits having been made after assessment was completed. 6 . We have considered submissions and have gone through relevant materials to which our attention was drawn. On legality of reassessment, we decide issue in favour of assessee. Our reasons are as under : 6. 1. In compilation submitted by ld. departmental representative at page 5 appear reasons for obtaining approval of CIT wherein it is mentioned as under : "11. Reasons for belief On investigation for year in that income has escaped question, three items of cash credits, i.e. assessment of Rs. 32,000 Rs. 20,000 and Rs. 30,000 were found to accounts of S/Shri Muljibhai Khodabhai, Ambalal Muljibhai and Shakerbhai Bheder, respectively in books o f assessee firm. All these parties stated on oath that they were not in position to advance such large sums, and did not advance these sums to assessee firm. Thus this amount of Rs. 82,000 represents assessee firm s income from undisclosed source. I have, therefore, reason to believe that by reason of omission or failure on part of assessee to disclose fully and truly all material facts necessary for its assessment for year in question, income chargeable to tax has escaped assessment for year in question Sd/- (S.B. Vonkhade) Baroda Income-tax Officer, 23rd Jan., 1978. Cir II, Wd-C(Rev.), Baroda" From above it is clear that reopening was based on plea that parties stated on oath that they were not in position to advance such large sums. From statements of parties it is clear that what is stated as above in reasons recorded is not fact and, therefore, reopening based on this erroneous factual aspect is illegal and, therefore, reassessment made is void ab initio and without jurisdiction. 6.2. CIT(A) in para 6 on dealing with facts, states that presumably at time of original assessment, existence of cash credits in books was taken note of. At that time, obviously cash credits were taken at face value and they were accepted without any probe. Subsequently, some investigations were made and statements of persons concerned were recorded but nothing is brought by way of evidence to suggest that cash credits were accepted without any probe. Nothing is evident from contents of assessment order completed under s. 147(a) of Act that originally these cash credits were accepted subject to investigation. Therefore, case decided by Supreme Court in Madnani Engineering Works Ltd. (supra) clearly supports case of assessee because reassessment proceedings were initiated under s. assessee because reassessment proceedings were initiated under s. 147(a) of Act. 6.3 . It is admitted fact that investigations in respect of cash credits were completed by April, 1975 and no plausible reasons, apart from being convincing, are given for long delay in initiating proceedings after recording reasons in January, 1978 inspite of grievances having been voiced by assessee at several stage of proceedings. Even if this aspect is not fatal to case of Revenue certainly it needs some weight to be given while considering stand of assessee especially when not plausible reasons are given but complaint of assessee has been summarily dealt with without any seriousness. 6.4. Looking to reasons recorded in context of statement of parties, it is also clear that approval of CIT is nothing but mechanical and without application of mind and with this aspect we are in agreement with strong feelings voiced by ld. counsel for assessee. ld. Sr. departmental representative was fair enough gracefully agree with fatal error in reasons recorded. 6.5. case of Jawahar Woollen Textile Mills (supra) relied upon by ld. departmental representative is not relevant to point considered here. That case was in respect of penalty under s. 271(1)(c)/274 of IT Act wherein conduct of assessee, viewed on basis of actions, intentions and omissions on part of assessee over period was taken as base for levy of penalty in respect of bogus entry in books of assessee treated as income from undisclosed sources. 7 . Since we have dealt with legality aspect of reopening of assessment and have decided case in favour of assessee we shall not deal with matters and grounds affecting quantum of assessment in respect of income assessed or tax computed, for time being. same shall be considered in future if need arises. 8 . We, therefore, set aside orders of Commissioner (A) and assessment completed under s. 147(a) of Act. 9. In result, ITA No. 363 is allowed and ITA No. 2155 is allowed for statistical purposes only. *** BHAGWATI CONSTRUCTION CO. v. INCOME TAX OFFICER
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