C/SCA/17021/2018 JUDGMENT IN HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17021 of 2018 FOR APPROVAL AND SIGNATURE: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO 1 Whether Reporters of Local Papers may be allowed to YES see judgment ? 2 To be referred to Reporter or not ? YES 3 Whether their Lordships wish to see fair copy of NO judgment ? 4 Whether this case involves substantial question of law NO as to interpretation of Constitution of India or any order made thereunder ? BHAVIK BHARATBHAI PADIA Versus INCOME TAX OFFICER WARD 3(3)(1) Appearance: MS VAIBHAVI K PARIKH(3238) for Petitioner(s) No. 1 MRS MAUNA M BHATT(174) for Respondent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR.JUSTICE A.C. RAO Date : 19/08/2019 ORAL JUDGMENT (PER : HONOURABLE MR.JUSTICE J.B.PARDIWALA) Page 1 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 1. Rule returnable forthwith. Ms. Mauna Bhatt, learned standing counsel waives service of notice of rule for and on behalf of respondent. 2. By this writ application under Article 226 of Constitution of India, writ applicant has prayed for following reliefs: 7. petitioner, therefore, prays that this Hon'ble Court be pleased to issue writ of mandamus or writ in nature of mandamus or writ of certiorari or writ in nature of certiorari or any other appropriate writ, direction or order and be pleased to: (a) quash and set aside impugned notice at Annexure 'A' to this petition; (b) pending admission, hearing and final disposal of this petition, to stay implementation and operation of notice at Annexure 'A' to this petition and stay further proceedings for Assessment Year 2011 12; (c) any other and further relief deemed just and proper be granted in interest of justice; (d) to provide for cost of this petition. 3. writ applicant is aggrieved by notice issued by respondent dated 30/03/2018 under Section 148 of Income Tax Act, 1961 [for short 'The Act, 1961'] for purpose of reopening assessment for A.Y.2011 12. reasons assigned by respondent for purpose of reassessment are as under: As per information available with this office during year under consideration assessee had made investment of Rs.50,00,000/ in pension policies of LIC of India. assessee has filed his return of income on for A.Y.2011 12 declaring total income at Rs.72.78. information was received from ITO, (I& CI) 1, A'bad on 27.03.2018. On perusal of information, it is found that assessee has made investment of Rs.50,00,000/ in pension policies Page 2 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT of LIC of India during F.Y.2010 11 relevant to A.Y.2011 12. During inquiries conducted by ITO(I & CI), investment of Rs.50,00,000/ made by assessee remains unexplained. Thus, there is escapement of Rs.50,00,000/ and case requires to be re open u/s.147 of Act. 4. writ applicant filed his objections to notice issued under Section 148 of Act pointing out that he had disclosed all income liable to be offered and to be brought to tax in its return of income. assessee further pointed out in his objections that as assessee did not have any business income during A.Y.2011 12, he was not obliged to disclose his investment of Rs.50,00,000/ in pension policies of LIC of India in his return of income. assessee further pointed out that he had salary income from other sources and capital gains and in such circumstances, he was required to file ITR 2 for A.Y.2011 12. It was also pointed out that Form ITR 2 does not include column for disclosure of investments. In such circumstances, assessee could not have expected to disclose his investments in his return of income. assessee further pointed out that his total income for A.Y.2011 12 was Rs.71.50 lakh. He had sufficient past savings and current year's income to make investment of Rs.50,00,000/ in LIC policies. He also pointed out to respondent that just because he had made investment of Rs.50,00,000/ , his case should not be reopened, as he could be said to have made full and true disclosure of his income. 5. objections raised by assessee ultimately came to be rejected vide order dated 08/10/2018. While rejecting objections, respondent observed as under: 3.1 contention of assessee that no assessment can be reopened beyond period of 4 years from end of assessment year unless there is failure on part of assessee to disclose truly and Page 3 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT fully all materials facts necessary for purpose of framing assessment is not acceptable. case of assessee has been reopened after following prescribed procedure laid down under Income tax Act after recording reasons for reopening assessment and after taking prior approval of competent authority notice u/s.148 of Act was issued. Therefore, impugned notice u/s.148 of Act is contrary to law. Further, assessee has stated neither discussed information, which has led to form belief that some income has escaped assessment. Reason to believe refers to prima facie or tentative belief which Assessing Officer is required to form at time of recording reasons and issuing notice u/s.148 of Act. Further, whether assessee has offered same for taxation or not is question of verification. Further, income which is believed to be chargeable to tax has escaped from assessment or not has not been verified, as there was no occasion for him to do so since assessment u/s.143(3) has not been made in instant case. Therefore, it cannot be ascertained that income escaped assessment has been offered for tax or not. In reasons recorded for reopening assessment, Assessing Officer has referred to reasons to believe which in his/her view is applicable. It may be that issue whether there is escaped assessment, but, fact remains that it could not be examined since return is not verified and scrutinized. Thus, in instant case, there is reason to believe that income chargeable has escaped assessment. As already pointed out, at time of recording of reasons for reopening assessment, Assessing Officer is expected to form only prima facie opinion or belief regarding applicability of provision in question. At that stage, it is not necessary for AO to conclusively estbalish that his belief or opinion is correct even on merits. merits of matter will have to be decided in course of assessment proceedings after hearing assessee and in accordance with law. It is worthwhile to note that in all case laws of Apex Court as elaborately discussed hereunder, it is commonly held that what is required to re open case is Reason to believe but not established facts of escapement of income. sufficiency or correctness of material is not to considered because it is open to assessee to prove that facts assumed by Assessing Officer in notice were erroneous (Raymond Woolen Mills Vs. ITO [(1999) 236 ITR 34 (SC)]. 3.2 As regards, contention of assessee that it is sheer case of change of opinion and hence initiation of proceedings under section 148 is illegal, unlawful and liable to quashed, it is stated that case has been re opened only after following due procedures prescribed in IT Act and was based on tangible material leading to conclusion that there was escapement of income from Page 4 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT assessment. In objection filed, assessee has heavily relied on various judicial pronouncements. same were gone through and it is observed that said decisions are not squarely applicable in assessee's case. As regards decision of Hon'ble Supreme Court in case of CIT Vs. Kelvinator India Ltd. 320 ITR 561, relied upon by assessee, said decision is not applicable for reason that reasons for which case was re opened have never been disclosed by assessee at any point of time as assessment is being made for first time. It may also be pointed out that mere furnishing of details about income does not mean that all material facts have been fully and truly disclosed. In case of Indo Aden Salt Manufacturing and Trading Co.(P) Ltd. Vs. Commissioner of Income tax 159 ITR 624 (SC), Hon'ble Supreme Court has held that even if assessee had supplied details but if it had not disclosed true facts which ITO could have found by further probing, reopening of assessment was valid. In case of Shree Krishna (P) Ltd. Vs. Income tax Officer 221 ITR 538 (SC), Hon'ble Supreme Court reiterated that it was duty of assessee to disclose material facts fully and truly. 4. In view of above discussion and judicial pronouncements, objections raised by assessee against re opening of assessment cannot be entertained as same are without any basis and facts of cases in case laws mentioned in your Objection letter dated 10/09/2018 are different and are not squarely applicable in your case. It may be seen that while re opening assessment, proper procedure as per Income tax law has been followed by Assessing Officer. case has been re opened well within time limit prescribed as per provisions of Income tax Act, 1961 and also on account of fact that there was reason to believe that income chargeable to tax has escaped assessment. It is not case that there is no reason for reopening of assessment. 6. Being dissatisfied with same, writ applicant is here before this Court with present writ application. 7. Mr. Himani, learned counsel appearing for writ applicant vehemently submitted that respondent has resorted to reopening merely on count that certain investments made by assessee had remained unexplained. Mr. Himani submitted that respondent failed to consider that assessee had declared income of Rs.71,49,440/ and same is indicative of fact that assessee had substantial funds Page 5 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT for purpose of making investments in LIC policies. Mr. Himani submitted that mere fact that assessee had made certain investments during year under consideration, cannot be ground for reopening. He submitted that if such approach is approved then, each and every case, where assessee had made certain investments would be fit case for reopening merely on count that source of such investments is not explained. Mr. Himani would submit that respondent could have resorted to reopening only if he has reason to belief that such some income chargeable to tax has escaped assessment. 8. Mr Himani, learned counsel vociferously submitted that as assessee had no business income during year under review, assessee was not obliged to disclose his investment of Rs.50,00,000/ in his return of income. He further submitted that assessee had salary income from other sources and capital gains. In such circumstances, assessee was required to file ITR 2 for A.Y.2011 12. According to Mr. Himani, Form ITR 2, at relevant point of time, did not include any column for disclosure of investment. According to Mr. Himani, if assessee was not obliged to disclose such information in ITR 2, then he could not be said to have concealed his income or cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment. 9. Mr. Himani pointed out that very basis for reopening is information received from ITO (I&CI), Ahmedabad dated 27/03/2018. Mr. Himani pointed out that if so called information had been received on 27/03/2018, it is quite strange as to how such information received on 27/03/2018 could have been made basis for recording reasons for reopening on 15/03/2018. Page 6 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 10. Mr. Himani submitted that reopening is not permissible for carrying out roving and/or fishing inquiry or investigation, without there being any specific finding as to escapement of income. He submitted that no cause and effect relationship between reasons recorded for reopening and income escaping assessment is demonstrated. He submitted that reopening is based on borrowed satisfaction . Mr. Himani submitted that Assessing Officer himself must be satisfied that some income chargeable to tax has escaped assessment. Such satisfaction must be of concerned Assessing Officer himself. In case on hand, no such satisfaction has been recorded by respondent himself. It is submitted that respondent could be said to have been not applied his mind independently so as to reach conclusion that any income has escaped assessment. 11. In such circumstances referred to above, Mr. Himani submitted that there being merit in this writ application, same may be allowed and impugned notice for reassessment may be quashed and set aside. 12. On other hand, this writ application has been opposed by Mr. M.R. Bhatt, learned senior counsel appearing for Revenue. Mr. Bhatt would submit that having regard to materials on record, it cannot be said that there is total non application of mind on part of Assessing Officer, while recording reasons for reopening of assessment. Mr. Bhatt further submitted that reasons recorded have direct nexus to subjective opinion formed by Assessing Officer regarding escapement of income. Mr. Bhatt submitted that if there is discovery of fresh facts or of new and important matter not present at time of assessment, which appears to be credible to honest and rational mind, then such disclosure would constitute Page 7 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT information as contemplated in Clause (b) of Section 147 of Act. In such circumstances referred to above, Mr. Bhatt submits that no case is made out for interference and writ application may be rejected. 13. Mr. Bhatt also placed reliance on following averments made in affidavit in reply filed on behalf of respondent. (II) With reference to paras no.3.2 to 3.2.3, petitioner's contention that there is no reason to believe that income chargeable to tax has escaped assessment is baseless and denied. I submit that assessing officer has formed belief after due application of mind to information received that income chargeable to tax had escaped assessment. Reason to believe refers to prima facie or tentative belief which Assessing Officer is required to form at time of recording reasons and issuing notice u/s.148 of Act. I submit that assessing officer has formed belief that petitioner made investments to tune of Rs.50 lac in pension policies of LIC of India which have remained unexplained. I submit that there is live ling between formation of belief and information made available to assessing officer. petitioner has also contended that petitioner had substantial funds to make such investments and reopening is based on surmises and assumptions. aforesaid contention is denied. I submit that at time of recording reasons for reopening assessment, Assessing Officer is expected to form only prima facie opinion or belief regarding applicability of provision in question. At that stage, it is not necessary for assessing officer to conclusively establish that his belief or opinion is correct even on merits. merits of matter will have to be decided in course of assessment proceedings after hearing petitioner and in accordance with law. Hon'ble Supreme Court in case of Raymond Woolen Mills Vs. ITO [(1999) 236 ITR 34 (SC)] held that what is required to be seen in case such as this is whether prima facie there was some material before Assessing Officer on basis of which he could reopen case of petitioner. sufficiency or correctness of material is not to be considered because it is open to petitioner to prove that facts assumed by Assessing Officer in notice were erroneous. (III) With reference to para 3.2.4, petitioner has contended that reasons are recorded on 15.03.2018 and information was made available to assessing officer on 27.03.2018. I submit that there is typographical error of date in reasons recorded supplied Page 8 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT to petitioner. I submit that reasons were recorded on 27.03.2018 after receipt of information from ITO (I&CI) as can be seen from proposal sent to higher authority for its approval under Section 151 of Act. (IV) With reference to para 3.2.5, contentions therein are denied. submissions made in foregoing paras are reiterated. (V) With reference to paras no.3.3 to 3.3.1, petitioner's contention that reopening has been resorted to for carrying roving inquiry is denied. contentions that reopening is based on suspicion and assessing officer has not at all established as to how investment in question can be treated as unexplained are baseless and denied. I submit that Assessing Officer is expected to form only prima facie opinion or belief regarding applicability of provision in question and assessing officer has formed rational belief that investment of Rs.50,00,000/ made by petitioner in pension policies of LIC of India during year under consideration has remained unexplained. Further more, this is case where return filed by petitioner was accepted under Section 143(1) without scrutiny. At that stage, it is not necessary for assessing officer to conclusively establish that his belief or opinion is correct even on merits. It is trite law that expression 'reason to believe' cannot be read so as to mean assessing officer should have finally ascertained fact by legal evidence or conclusion. merits of matter will have to be decided in course of assessment proceedings after hearing petitioner and in accordance with law. (VI) With reference to para no.3.3.2, contention of petitioner that particular transaction entered into by petitioner need not necessarily result into any income in hands of petitioner does not have any bearing on challenge to validity of impugned notice issued under Section 148 of Act. I submit that issue is with regard to genuineness of transaction and creditworthiness of petitioner to make huge investments in pension policies of LIC. (VII) With reference to paras no.3.4 to 3.4.2, petitioner contention that there is no cause and effect relationship between reasons recorded and income escaping assessment is baseless and denied. submission made in foregoing paragraphs are reiterated. (VIII) With reference to para no.3.5, petitioner's contention that reopening is based on borrowed satisfaction is denied. I submit that respondent has independently applied his mind to information received to form rational belief that petitioner made huge Page 9 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT investments which have remained unexplained and income chargeable to tax has escaped assessment. In view of above, contention of petitioner does not hold any merit. 14. principles of law, governing subject of reopening of assessment under Section 147 of Act, may be summarized as under: (i) Court should be guided by reasons recorded for reassessment and not by reasons or explanation given by Assessing Officer at later stage in respect of notice of reassessment. To put it in other words, having regard to entire scheme and purpose of Act, validity of assumption of jurisdiction under Section 147 can be tested only by reference to reasons recorded under Section 148(2) of Act and Assessing Officer is not authorized to refer to any other reason even if it can be otherwise inferred or gathered from records. Assessing Officer is confined to recorded reasons to support assumption of jurisdiction. He cannot record only some of reasons and keep others upto his sleeves to be disclosed before Court if his action is ever challenged in court of law. (ii) At time of commencement of reassessment proceedings, Assessing Officer has to see whether there is prima facie material, on basis of which, department would be justified in reopening case. sufficiency or correctness of material is not thing to be considered at that stage. (iii) validity of reopening of assessment shall have to be determined with reference to reasons recorded for reopening of assessment. (iv) basic requirement of law for reopening and assessment is application of mind by Assessing Officer, to materials produced prior to reopening of assessment, to conclude that he has reason to believe that income has escaped assessment. Unless that basic jurisdictional requirement is satisfied postmortem exercise of analysing materials produced subsequent to reopening will not make inherently defective reassessment order valid. (v) crucial link between information made available to Assessing Officer and formation of belief should be present. reasons must be self evident, they must speak for themselves. (vi) tangible material which forms basis for belief that income has escaped assessment must be evident from reading of Page 10 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT reasons. entire material need not be set out. To put it in other words, something therein, which is critical to formation of belief must be referred to. Otherwise, link would go missing. (vii) reopening of assessment under Section 147 is potent power and should not be lightly exercised. It certainly cannot be invoked casually or mechanically. (viii) If original assessment is processed under Section 143(1) of Act and not Section 143(3) of Act, proviso to Section 147 will not apply. In other words, although reopening may be after expiry of four years from end of relevant assessment year, yet it would not be necessary for Assessing Officer to show that there was any failure to disclose fully or truly all material facts necessary for assessment. (ix) In order to assume jurisdiction under Section 147 where assessment has been made under sub section (3) of section 143, two conditions are required to be satisfied; (i) Assessing Officer must have reason to believe that income chargeable to tax has escaped assessment; (ii) Such escapement occurred by reason of failure on part of assessee either (a) to make return of income under section 139 or in response to notice issued under sub section (1) of Section 142 or Section 148 or (b) to disclose fully and truly all material facts necessary for his assessment for that purpose. (x) Assessing Officer, being quasi judicial authority is expected to arrive at subjective satisfaction independently on objective criteria. (xi) While report of Investigation Wing might constitute material, on basis of which, Assessing Officer forms reasons to believe, process of arriving at such satisfaction should not be mere repetition of report of investigation. reasons to believe must demonstrate some link between tangible material and formation of belief or reason to believe that income has escaped assessment. (xii) Merely because certain materials which is otherwise tangible and enables Assessing Officer to form belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar Assessing Officer from reopening assessment on basis of such material. expression tangible material does not mean material alien to original Page 11 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT record. (xiii) order, disposing of objections or any counter affidavit filed during writ proceedings before Court cannot be substituted for reasons to believe. (xiv) decision to reopen assessment on basis of report of Investigation Wing cannot always be condemned or dubbed as fishing or roving inquiry. expression reason to believe appearing in Section 147 suggests that if Income Tax Officer acts as reasonable and prudent man on basis of information secured by him that there is case for reopening, then Section 147 can well be pressed into service and assessments be reopened. As consequence of such reopening, certain other facts may come to light. There is no ban or any legal embargo under Section 147 for Assessing Officer to take into consideration such facts which come to light either by discovery or by fuller probe into matter and reassess assessee in detail if circumstances require. (xv) test of jurisdiction under Section 143 of Act is not ultimate result of inquiry but test is whether income tax officer entertained bona fide belief upon definite information presented before him. Power under this section cannot be exercised on mere rumours or suspicions. (xvi) concept of change of opinion has been treated as built in test to check abuse. If there is tangible material showing escapement of income, same would be sufficient for reopening assessment. (xvii) It is not necessary that Income Tax Officer should hold quasi judicial inquiry before acting under Section 147. It is enough if he on information received believes in good faith that assesee's profits have escaped assessment or have been assessed at low rate. However, nothing would preclude Income Tax Officer from conducting any formal inquiry under Section 133(6) of Act before proceeding for reassessment under Section 147 of Act. (xviii) full and true disclosure of material facts would not include that material, which is to be used for testing veracity of particulars mentioned in return. All such facts would be expected to be elicited by Assessing Officer during course of assessment. disclosure required only reference to those material facts, which if not disclosed, would not allow Assessing Officer to make necessary inquiries. (xix) word information in Section 147 means instruction or knowledge derived from external source concerning facts or Page 12 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT particulars or as to law relating to matter bearing on assessment. information anonymous is information from unknown authorship but nonetheless in given case, it may constitute information and not less information though anonymous. This is now recognized and accepted source for detection of large scale tax evasion. non disclosure of source of information, by itself, may not reduce credibility of information. There may be good and substantial reasons for such anonymous disclosure, but real thing to be looked into is nature of information disclosed, whether it is mere gossip, suspicion or rumour. If it is none of these, but discovery of fresh facts or of new and important matters not present at time of assessment, which appears to be credible to honest and rational mind leading to scrutiny of facts indicating incorrect allowance of expense, such disclosure would constitute information as contemplated in clause (b) of Section 147. (xx) reasons recorded or material available on record must have nexus to subjective opinion formed by A.O. regarding escapement of income but then, while recording reasons for belief formed, A.O. is not required to finally ascertain factum of escapement of tax and it is sufficient that A.O had cause or justification to know or suppose that income had escaped assessment [vide Rajesh Jhaveri Stock Brokers (P.) Ltd.'s case (supra)]. It is also well settled that sufficiency and adequacy of reasons which have led to formation of belief by Assessing Officer that income has escaped assessment cannot be examined by court. 15. Having heard learned counsel appearing for parties and having gone through materials on record, only question that falls for our consideration is whether respondent is justified in reopening assessment for A.Y.2011 12. 16. It is not in dispute that form of return of income i.e. ITR 2, then in force had no separate column for disclosure of any investment. question is whether assessee was under any legal obligation to disclose about his investment of Rs.50,00,000/ in LIC policies. In aforesaid context, we would like to refer to and rely upon decision of Supreme Court in case of CIT Vs. Smt. P.K. Kochammu Amma reported in [1980] 125 ITR 624 (SC). Page 13 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 17. In that case, assessee filed her return for assessment year 1964 65, disclosing therein income from property and income from other sources and against item (b), under column "Profits and gains of business and profession" stated: "please ascertain from firms' files". Though prescribed form of return did not contain separate column for that purpose, there was note in return stating that, if income of any other person is includible in total income of assessee under provisions of Income tax Act, 1961, inter alia, of Section 64, such income should also be shown under appropriate head. respondent, however, did not show in return amounts representing shares of her husband and minor daughter in two firms, though they were includible in her total income under Section 64(1)(i) and (iii). question was whether penalty could be imposed on respondent under Section 271(1)(c), on ground that assessee had concealed particulars of her income because she had not shown shares of her husband and her minor daughter in two firms as forming part of total income in return submitted by her. Supreme Court held (at page 627): "There is decision of this court which is directly in point and it concludes determination of question arising in this appeal against Revenue but before we refer to that decision, we might first examine question on principle as matter of pure interpretative exercise. Section 271, Sub section (1), Clause (c), provides for imposition of penalty on assessee if it is found, inter alia, that assessee has concealed particulars of 'his income'. question is what is scope and content of words 'his income' occurring in this penal provision. Do they refer only to income of assessee himself or do they also take in income of others which is liable to be included in computation of total income of assessee by reason of relevant provisions of Act, such as Section 64, Sub section (1), Clauses (i) and (iii) ? answer to this question obviously depends upon as to what is 'his income' which assessee is liable to disclose for purpose of assessment, for, concealment can only be of that which one is bound to disclose and yet fails to do so. Page 14 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT Section 139 provides for filing of return of income by assessee and Sub section (1) of this section lays down that every person whose total income during previous year exceeds maximum amount which is not chargeable to income tax, shall furnish return of his income in prescribed form and verified in prescribed manner, and setting forth such other particulars as may be prescribed. return of income is required to be filed in order to enable Revenue authorities to make proper assessment of tax on assessee. It must, therefore, follow fortiori that assessee must disclose in return every item of income which is liable to be taxed in his hands as part of his total income. charge of income tax is levied by Section 4 on total income of assessee, and 'total income' is defined in Section 2, Sub section (45), to mean 'the total amount of income referred to in Section 5 computed in manner laid down' in Act. It is no doubt true that definition of 'total income' in Section 2, Sub section (45), refers to Section 5 and this latter provision lays down that all income, profits and gains accrued or arising to assessee or received by or on behalf of assessee shall be liable to be included in his total income but this provision is subject to other provisions of Act, and, therefore, if income of any other person is declared by any provision of Act to be includible in computing total income of assessee, such income would form part of total income exigible to tax under Section 4 of Act. Now, Section 64, Sub section (1), is one such provision which provides for inclusion of income of certain other persons in computing total income of assessee. Clauses (i) and (iii) of this sub section provide that in computing total income of assessee there shall be included all such income as arises directly or indirectly to spouse of such assessee from membership of spouse in firm carrying on business in which such individual is partner as also to minor child of such assessee from admission of minor to benefits of partnership firm. It is clear from this provision that though share of spouse or minor child in profits of partnership firm in which assessee is partner is not income of assessee but is income of such spouse or minor child, it is liable to be included in computing total income of assessee, and it would be assessable to tax in hands of assessee. total income of assessee chargeable to tax would include amounts representing shares of spouse and minor child in profits of partnership firm. If this be correct legal position, there can be no doubt that assessee must disclose in return submitted by him, all amounts representing shares of spouse and minor child in profits of partnership firm in which he is partner, since they form part of his total income chargeable to tax. words 'his income' in Section 139, Sub section (1), must include every item of income which goes to make up his total income assessable under Act. amounts representing shares of spouse and minor child in profits of Page 15 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT partnership firm would be part of 'his income' for purpose of assessment to tax and would have to be shown in return of income filed by him. assessee then contended that return of income which was required to be filed by her under Section 139, Sub section (1), was return in prescribed form and form of return prescribed by Rule 12 of Income tax Rules, 1962, did not contain any column for showing income of spouse and minor child which was liable to be included in total income of assessee under Section 64, Sub section (1), Clauses (i) and (iii), and there was, therefore, no obligation on assessee to disclose this income in returns filed by her. This contention is also, in our opinion, fallacious and deserves to be rejected. It is true that form of return prescribed by Rule 12, which was in force during relevant assessment year did not contain any separate column for showing income of spouse and minor child liable to be included in total income of assessee, but did contain note stating that if income of any other person is includible in total income of assessee under provisions, inter alia, of Section 64, such income should also be shown in return under appropriate head. This note clearly required assessee to show in return under appropriate head of income, namely, 'profits and gains of business or profession', amounts representing shares of husband and minor daughter of assessee in profits of two partnership firms. But even so, assessee failed to disclose these amounts in return submitted by her and there was, therefore, plainly and manifestly breach of obligation imposed by Section 139, Sub section (1), requiring assessee to furnish return of her income in prescribed form. It is difficult to see how note in prescribed form of return could be ignored by assessee and she could contend that, despite note, she was not liable to show in her return amounts representing shares of her husband and minor, daughter in two partnership firms. contention of assessee, if accepted, would render note meaningless and futile and turn it into dead letter and that would be contrary to all recognised canons of construction. There can be no doubt that assessee was bound to show in her return amounts representing shares of her husband and minor daughter in two partnership firms and in failing to do so, she was guilty of concealment of this item of income which plainly attracted applicability of Section 271, Sub section (1), Clause (c)." 18. Although, on this view, order imposing penalty on assessee could have been sustained but, in view of decision of Supreme Court in V.D.M.RM.M.RM. Muthiah Chettiar v. CIT [1969] 74 ITR Page 16 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 183, which is larger Bench decision where different view had been taken by Bench of three judges of Supreme Court, contention of assessee that imposition of penalty in his case is illegal had to be upheld. There, Supreme Court proceeded to hold (at page 629 of 125 ITR): "It was held in this case (Muthiah Chettiar) that even if there were any printed instructions in form of return requiring assessee to disclose income received by his wife and minor child from firm in which assessee was partner, there was, in absence in return of any head under which income of wife or minor child could be shown, no obligation on assessee to disclose this item of income, and assessee could not be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment within meaning of Section 34(1)(a) of Indian Income tax Act, 1922. With greatest respect to learned judges who decided this case, we do not think, for reasons already discussed, that this decision lays down correct law on subject, and had it not been for fact that since July 1, 1972, form of return prescribed by Rule 12 has been amended and since then, there is separate column providing that 'income arising to spouse/minor child or any other person as referred to in Chapter V of Act' should be shown separately under that column and consequently there is no longer any scope for arguing that assessee is not bound to disclose such income in return to be furnished by him, we would have referred present case to larger Bench. But we do not propose to do so since question has now become academic in view of amendment in form of return carried out with effect from July 1, 1972. We would, therefore, follow this decision in Muthiah Chettiar's case , which being decision of Bench of three judges of this court, is binding upon us, and following that decision, we hold that assessee could not be said to have concealed her income by not disclosing in return filed by her amounts representing shares of her husband and minor daughter in two partnership firms." next decision cited is in ITO v. Radheshyam Ladia. There Supreme Court affirmed decision of Calcutta High Court in Radheshyam Ladia v. ITO [1987] 166 ITR 135 which was relied on by Appellate Assistant Commissioner, In Radheshyam Ladia [1987] 166 ITR 135 (SC), assessment years involved were 1960 61, 1961 Page 17 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 62 and 1962 63. Supreme Court followed decisions in Smt. P.K. Kochammu Amma and Muthiah Chettiar's case in and Malegaon Electricity Co. P. Ltd's case . Supreme Court extracted aforesaid passage from Smt P. K. Kochammu Amma and observed (at page 141 of 166 ITR): "We agree with what has been stated in Kochammu Amma's case , and for reasons indicated therein, we do not propose to refer case to larger Bench. Following law as laid down in two cases in Muthiah Chettiar's case and Malegaon Electricity Co. P. Lid's case , we dismiss this appeal." 19. aforesaid two decisions of Supreme Court have been referred to and relied upon by Calcutta High Court in case of Commissioner Of Income Tax Vs. Sarala Devi Birla reported in [1993] 203 ITR 953 (Calcutta). 20. In said case before Calcutta High Court, original assessment for relevant assessment year was completed under Section 143(3) of Act. Later, reassessment was made on higher income. assessee had given cash gift to her minor daughter and said amount was invested in shares. Income tax Officer was of view that income arising from assets transferred to minor child was to be treated as income of individual under Section 64(4) of Act and, therefore, such income had escaped assessment due to failure on part of assessee to disclose fully and truly all material facts necessary for assessment. Since such income was not disclosed in original return, Income tax Officer initiated reassessment proceedings under Section 147(a) and included capital gains arising on transfer of shares and dividend income from shares in total income already determined. On appeal, Assistant Commissioner held that Income tax Officer had no jurisdiction to Page 18 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT reopen assessment under Section 147(a) of Act. On revenue's appeal, tribunal affirmed order of Appellant Assistant Commissioner. Revenue went in appeal before High Court. High Court framed following two substantial questions of law for consideration: "1. Whether, on facts and in circumstances of case, Tribunal is right in law in holding that assessee was under no obligation to disclose in her return of income, income of her minor daughter? 2. Whether, on facts and in circumstances of case, and on correct interpretation of Section 64(4) of Income tax Act, 1961, Tribunal misdirected itself in law in holding that Income tax Officer was not justified in reopening assessment of assessee under Section 147(a) of Income tax Act, 1961, in respect of her omission or failure to disclose income of her minor daughter in her own assessment ?" 21. first question came to be answered in affirmative and second question in negative and both in favour of assessee. observations made by learned Judge of Calcutta High Court are as under: 10. Mr. Bajoria, learned counsel for assessee, contended that principles laid down in aforesaid decisions of Supreme Court will govern this case as assessment year involved in one of decisions was 1962 63 and in other 1964 65. This is, however, not relevant. question is whether, at material time, when return was filed by assessee, form of return contained separate column to include income under Section 64. Supreme Court in Kochammu Amma [1980] 125 ITR 624 mentioned that amendment in form of return was carried out with effect from April 1, 1972, long after original return was filed in this case. 11. It appears that Income tax (Second Amendment) Rules, 1967, came into force with effect from April 1, 1967. Rule 12 of Income tax Rules has been amended by said amendment which provides as follows (see [1967] 64 ITR (St.) 13): "12. Return of income. (1) return of income required to be Page 19 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT furnished under Sub section (1) or Sub section (2) or Sub section (3) of Section 139 shall, (a) in case of company, be in Form No. 1 and be verified in manner indicated therein; (b) in case of person not being company, be in Form No. 2 and be verified in manner indicated therein; Provided that in case of person, not being company or co operative society or local authority, whose total income (as computed by such person) does not exceed fifteen thousand rupees, return of income may be furnished in Form No. 3 and shall be verified in manner indicated therein. (2) Notwithstanding anything contained in Sub rule (1), (a) where return of income relates to assessment year commencing on April 1, 1961, or any earlier assessment year, it shall be furnished in appropriate form prescribed in Rule 19 of Indian Income tax Rules, 1922, and shall be verified in manner indicated therein; (b) where return of income relates to assessment year commencing on April 1, 1962, or April 1, 1963, or April 1, 1964, it shall be furnished in appropriate form in force immediately before April 1, 1967, and shall be verified in manner indicated therein." 12. Thus, for assessment year 1962 63, old return form which was considered by Supreme Court in those decisions remained in force. 13. return form which has been prescribed by said Amendment of 1967 Rules, also contains note which is as follows : "3. If income of any other person is includible in your total income under provisions of Section 60, 61, 62, 63 or 64 of Income tax Act, 1961, such income should also be shown in this return under appropriate heads." 14. But no separate column has been provided for inclusion of income under Section 60, 61, 62, 63 or 64 of Income tax Act, 1961. 15. rules were amended by Income tax (Amendment) Rules, 1971, which came into force on April 1, 1971. In return form prescribed by Rules, there is no separate column indicated but only note was appended being Note No. 1 which is as follows : "If income of any other person is includible in your total income under provisions of Section 60, 61, 62, 63 or 64 of Income tax Act, 1961, such incomes should also be shown separately in this return under appropriate heads." Page 20 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT 16. Surprisingly, even after judgment of Supreme Court in V.D.M.RM.M.RM. Muthiah Chettiar v. CIT [1969] 74 ITR 183, Central Board of Direct Taxes, while amending Rules, did not provide any separate column for inclusion of income under Section 64 of Act. In V.D.M.RM.M.RM. Muthiah Chettiar v. CIT , similar note was considered by Supreme Court and it was held that, in absence of any head under which income of wife or minor child of partner whose wife or minor child was partner in same firm, could be shown, by not showing that income, taxpayer cannot be deemed to have failed or omitted to disclose fully and truly all material facts necessary for his assessment ; it is only by Income tax (Second Amendment) Rules, 1972, which came into force on July 1, 1972, in return form prescribed thereunder, column has been added being column 12(b) where income arising to spouse/minor child or any other person as referred to in Chapter V of Act is required to be shown. This amendment was noticed by Supreme Court in Kochammu Amma [1980] 125 ITR 624. 17. In our view, therefore, at material time when original return was filed by assessee some time in 1962, form of return in force did not provide for any separate column to disclose income arising under Section 64 of Act. Even assuming that there was escapement in subsequent return filed in 1968, in response to notice under Section 148 read with Section 147(b), position would not be different inasmuch as 1967 Rules, which came into force with effect from April 1, 1967, did not also provide for any separate column for inclusion of such income under Section 64 of Act. On contrary, form with note continued to remain in force until new form with separate column came into force with effect from July 1, 1972. 18. For reasons aforesaid and in view of principles laid down by Supreme Court as mentioned hereinbelow, it must be held that there was no omission or failure on part of assessee to disclose all her income. 23. Applying aforesaid principle of law to facts of present case, we are of view that impugned notice for reopening of assessment is not sustainable in law. 24. In such circumstances referred to above, we hold that reasons recorded by Assessing Officer to form belief that income Page 21 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 C/SCA/17021/2018 JUDGMENT chargeable to tax had escaped assessment lack validity. impugned notice is therefore, set aside. writ application is accordingly allowed and is disposed of. (J. B. PARDIWALA, J) (A. C. RAO, J) aruna Page 22 of 22 Downloaded on : Wed Dec 04 10:54:33 IST 2019 Bhavik Bharatbhai Padia v. Income-tax Officer Ward-3(3)(1)