The Order of the Court was as follows :
D.A. UPPONI, A.M.
The above appeals filed by the assessee for the asst. yr. 1962-63 are heard together and disposed of by a common, consolidated order for the sake of convenience.
2. The assessment for the asst. yr. 1962-63, according to the ITO, was reopened
since the assessee had not shown income from Ruia Chemical Industries. In response to notice under s. 148 , the assessee filed the returns of income showing the salary of Rs. 12, 000 from the firm of M/s. Ruia Chemical Industries. The ITO noticed from the certificate of the Registrar of Firms that M/s. Ruia Chemical Industries admitted as a partner Shri Chandraprakash Ruia since 1951. He noticed from the partnership deed that Shri Chandraprakash Ruia was having 8 1/2 Annas share in the firm. However, from the assessment order passed in the case of M/s. Gorakhram Gokuldas, the firm's income was shown in the return as income of a branch office. It was further observed by the ITO that the assessee was previously assessed by the 2nd ITO, Salaries Branch on the income from salary from M/s. Gorakhram Gokuldas. Thus, the ITO came to the conclusion that the profits of M/s. Ruia Chemical Industries were never assessed independently as a firm though the firm was incorporated and registered with the Registrar of Firms. During the relevant accounting year the assessee had given a loan of Rs. 90, 000 to M/s. Gorakhram Gokuldas and it was claimed by the assessee that the amount came from his past savings. The ITO estimated the past savings to be Rs. 40, 000 and treated Rs. 50, 000 therefrom as income from undisclosed sources. He taxed the assessee on the salary income of Rs. 21, 000. The result was that the assessee was assessed under s.147(a) for the asst. yr. 1962-63 on Rs. 71, 000.
3. The matter was taken up in appeal before the AAC, before whom it was argued that the ITO erred in reopening the assessment under s. 1 47. It was contended in the grounds of appeal that the assessee filed the return of income for the asst. yr. 1962-63 within time and that the assessment was not finalised within the stipulated time limit. It was, therefore, argued before the AAC that it could not be said that the assessee's income had escaped assessment. For this reason, the assessee asked the AAC to quash the assessment order under s. 144 r /w s. 147 . The assessee was called upon to produce evidence in support of the claim and in the absence of necessary evidences, the AAC came to the conclusion that the reopening was justified under s. 1 47. On merits, the AAC confirmed the taxation of Rs. 21, 000 representing salary income and reduced the addition of Rs. 50, 000 to Rs. 40, 000 as income from undisclosed sources.
4. Aggrieved by the decision of the AAC, the assessee has come up in appeal before us. Shri V.H. Patil, the ld. counsel for the assessee, placed in our hands a paper-book and took us through the affidavit dt. 8th June, 1979 as sworn to by the assessee. It was pointed out in the affidavit that the salary was drawn by the assessee from M/s Gorakharam Gokuldas and that the original return of income for the assessment year 1962-63 was submitted on 24th March, 1963 in the Salaries Section. In that return, the assessee had declared an income of Rs. 12, 000 being salary received from the M/s Gorakharam Gokuldas. In the affidavit, we find an averment that the assessment order was not received on the basis of which it could be said that the original assessment order had been passed. Despite several requests for the assessment order by the assessee, the affidavit goes on to state, the ITO failed to issue any reply. The IAC was approached and the assessee was directed to contact the 2nd ITO, B.S.D. Ward so that the assessee could take inspection of the file. The assessee could not find any paper or evidence to the effect that the assessment was completed on the basis of the original return submitted for the asst. yr. 1962-63.
5. On the strength of the above affidavit, Shri V.H. Patil, contended that the reassessment proceedings were void as the reassessment could not have been started when the original return was not disposed of. He contended that there was no evidence to support the departmental contention that the assessment order had been passed earlier. The Department was not in possession of the original assessment order and that it could not be said that the original order was passed. The assessee produced a receipt in support of his having field the return of income on 24th March, 1964 (sic) in the Salaries Section. In support of the plea that the reassessment proceedings could not be initiated the assessee strongly relied upon the Supreme Court decision in the case of S. Raman Chettiar 1965 (55) ITR 630 (SC) and argued that the non disposal of the original return of income was a complete bar to the initiation of proceedings under s. 148 . He further pointed out that there was no omission on the part of the assessee to file his return of income and there was no non disclosure of material facts necessary for an assessment which could have given rise to a proper action under s. 147 (a). He then relied upon the Calcutta High Court decision in the case of Surajmal Ganeshram 1979 (120) ITR 715 (Cal) in support of his plea that he could take up the question of validity of the assessment proceedings under s. 147 even in an appeal against the exparte order under s. 147 even in an appeal against the expert order under s. 144 . On merits, he contended that there was no justification for sustaining the addition of Rs.40, 000 and also for taxing the salary income of Rs. 21, 000.
6. As for penalty, which was levied by the IAC on the strength of the additions made in the assessment order, he pointed out that there was absolutely no justification for sustaining any penalty. The additions were made only because the explanation adduced by the assessee in respect of the investment and the salary was treated as unsatisfactory No contumacious or dishonest conduct had been laid at the doors of the assessee. It was therefore, pleaded that the penalty order must be cancelled.
7. On the other hand Shri G.S. Bhargava, the id. Deptl. Rep relied upon the decision of the Allahabad high Court in the case of Jawaharlal Maniram 1969 (72) ITR 78 (All) and pointed out that even on the basis that the assessment order was not passed, the ITO could validly invoke the proceedings under s. 148 after the time limit for acting on the original return had run out. He hastened to add, how ever that the original assessment order was passed though a copy of the same might not be available in the departmental records. As for the question of the competence of the assessee to challenge the validity of the proceedings u./s 147 (a) he relied upon the decision of the Bombay High Court in the case of Gaurishankar Kedia 1963 (49) ITR 655 (Bom) and on the Punjab & Haryana High Court decision in the case of Gopal Singh 1968 (70) ITR 840 (P&H) He further referred to the Bombay High Court decision in the case of Mauladian Ayub Firm 1959 (35) ITR 449 (Bom) and pointed out that in an appeal against an ex-parte order, the validity of the assessment order reassessment proceedings under s. 174( a) could not be challenged. On merits, he defended the action of the lower authorities and pointed out that the AAC was more than fair in sustaining the addition of Rs. 40, 000. He similarly defended the taxation of the sum of Rs. 21, 000 by way of salary As for penalty, he pointed out that the Expln. to s. 271(1)(c) supported the penalty levied by the IAC and there was ample justification for doing so. The material for sustaining the addition in the quantum proceedings was good enough for sustaining the penalty.
8. We have considered the rival contentions advanced by both the sides In our opinion, the proceedings under s. 147 are liable to be quashed. Coming to the question of the validity of the issue regarding the proceedings under s. 147 we have a clear authority in the Calcutta high Court decision relied upon by Shri V.H. Patil. under the IT Act 1961 for purposes of appeal an assessment or reassessment under s. 1 47 is treated as a separate category distinct from assessments made under other section or provisions of the IT Act. A specific and separate provision for appeals against such assessment or reassessment under s. 147 has been provided for. Reference may be made, in this connection to the provisions of s. 246 (e)In the Indian IT Act, 1922 there was no separate provision for appeal from an assessment or reassessment under s. 34 of the IT Act In an assessment or reassessment under s. 147 the procedure or machinery for making an assessment under s. 143 or making a best judgement under s. 144 is to be followed. Nevertheless for the purpose of s. 246 an assessment made in a proceedings under s. 147 has been treated as a separate category and has not been equated with an assessment made an accordance with the provisions of s. 143 or s. 144 simpliciter.
9. Sec 246 ( e) does not limit the scope ambit of an appeal filed by the assessee. Therefore where a beset judgment assessment is made under s. 147 the appeal from such assessment is made reassessment would not be limited merely to the objection as to the amount of the income assessed or to the tax determined, but would extended to the question of reopening or initiation of assessment proceedings under s. 1 47. The Calcutta High Court has read s. 246(e) to mean that it does not limit and circumscribe the assessee s right to agitate all relevant questions arising out of the assessment or reassessment made under s. 147 It has specifically distinguished the Bombay High Court decision in the case Gaurishankar Kedia 1963 (49) ITR 655 (Bom) by saying that it arose under the Old Act, while the provisions of the new Act were clearly different. No other decision under the New Act relating to this issue has been brought to our notice We would therefore, uphold the assessee's right to challenge the validity of the assessment proceedings under s. 147 .
10. The second question that we have to decide is as to whether the proceedings under s. 147(a) were validly initiated. For this purpose four Supreme Court decisions come readily to our mind The first decision that we wish to notice is that in the case of Ranchhoddas Karsondas 1959 (36) ITR 569 (SC) In that case a return showing an income below the taxable limit submitted voluntarily in consider to a general notice under s. 22(1) of the Indian IT Act, 1922 was treated as a good return it was held that a return in answer to the general notice all can be filed at any time before the completion of the assessment and for this there is no limit of time where in respect of any year a return has been voluntarily submitted before the assessment the ITO cannot ignore the return and resort to s. 34 of the Indian IT Act, 1922 by ignoring the return as invalid. In this case, the notice under 34 of the Indian IT Act, 1922 was issue before the statutory time limit for completing the assessment proceedings had run out. The Supreme Court decision come was to the effect that until a return has been disposed of the ITO has no right Otto initiate proceedings under s. 34 .
11. The second decision is in the case of the Estate of Karuppan Chettiar 1969 (72) ITR 403 (SC) In that case the assessee, his son and grandsons formed an HUF till the asst yr.1948-49. In the course of the proceedings for the asst. yr. 1949-50, there was a partition between the assessee on the one hand and his son and grand sons on the other For the asst. yr.1950-51 1951-52 and 1952-53 pursuant to notices issued on the family, the assessee filed returns in his individual capacity including income from sources which came to his share on partition. The ITO rejected the claim for partition and treated the returns filed by the assessee as returns filed by the family and assessed the family On appeal the AAC held that there was a valid partition between the assessee on the one hand and his son representing the smaller family in the other He therefore recorded the partition under s. 25A of the Indian IT Act, 1922 and set aside the assessments observing that the income was required to be considered in the hands of the separate coparceners Thereafter the assessee, in his individual capacity filed returns for the asst yr.1950-51 and 1951-52 on 3rd Feb., 1955 He filed he return of income for the asst. yr.1952-53 in 30th June, 1956The ITO however issued notice under s. 34 for the asst. yrs. 1950-51 1951- 52and 1952-53 only on 2nd March, 1957 In compliance with these notices, the assessee submitted returns under protest and the ITO passed order on 31st March, 1957 assessing the income of the assessee or those years. It was held by the Supreme Court that the notices issued under s. 34 could not be issued against the assessee in his individual capacity unless the returns which had already been filed by him were disposed of and assessments made pursuant to the notice under s. 34 were valid It may be stated here that the notice under s.34 was issued by the ITO for the asst. yrs. 1950-51 and 1951- 52 after the statutory time limit for completing the original assessments had run out. Even so, the principle laid down the case of Ranchhoddas Karsondas (supra) as applied This would show that the principle laid down by the Supreme Court in Ranchhoddas Karsondas s case applies not only in cases where proceedings are initiated under s. 147 before the statutory time limit for completion of the original assessment has expired but would apply to cases where proceedings under s. 147 (a ) are initiated after the statutory time limit for completing the original assessment has run out.
12. The third Supreme Court decision is that the case of State of Assam & Another vs. D.P. Barua 1969 (72) ITR 403 (SC) In this case the principles laid down in the case of Ranchhoddas Karsondas (supra) were reiterated.
13. The last decision which we may refer to of the Supreme Court, is in the case of S. Raman Chettiar 1965 (55) ITR 630 (SC) In that case for the asst yr. 1944-45 the assessee had not filed any return On 3rd April, 1948 the ITO issued a notice under s. 34 for which he did not obtain the sanction of the CIT. In pursuance of this invalid notice the assessee filed return on 4th Sept., 1948 which was within the statutory time limit for completing the original assessment order. The return showed an income of Rs. 4, 055 which was below the taxable limit. The proceedings were dropped as infructuous. Later, in proceeding relating to the asst yr. 1945-46 the Tribunal held that the sum of Rs. 46, 760 was assessable interest the hands of the assessee for the asst yr. 1944-45 Thereupon, the ITO issued a notice under s. 34 on 27th Feb., 1953 in respect of the asst yr. 1944-45 and passed an order 30th June, 1953. The question was whether the assessment made under s. 34 on 30th June 1953 was in order. It was held by the Supreme Court that though the first notice issued under s. 34 was invalid, the return submitted in September, 1948 was a valid return under s. 22(3) of the Indian IT Act, 1922 That return could not have been ignored or disregarded by the ITO and a fresh notice under s. 34 on could not have been issued on the ground that there was an omission or failure on the part of the assessee to make a return of his income under s. 22 It was therefore, held by the Supreme Court that the assessment made under s. 34 on 30th June, 1953 was invalid. Now it must be stated here that for the asst. yr. 1944-45, the assessee had filed a valid return in Sept., 1958. The ITO issued notice under s. 34 for the second time only in February 1953 i.e. long after the statutory time limit for completing the original assessment order for the asst. yr. 1944-45 had expired. In other words the time limit for acting upon the return of income filed in September 1948 had run out when the notice under s. 34 was issued in February 1953. Here also the Supreme Court struck down the proceedings under s. 34 even though the proceedings under s. 34 were taken after the statutory time limit for acting on the valid return filed by the assessee had run out Therefore, the decision relied upon by the Deptl. Rep. In the case of Jawaharlal Maniram 19 6972 ITR 78 (All) runs directly contrary to the above Supreme Court decisions. We find that in the Allahabad High Court decision the Supreme Court decision, 1965 (55) ITR 630 (SC) was not notified. The other Supreme Court decision, also are contrary to the Allahabad High Court decision In the Allahabad High Court decision, the Supreme Court decision in the case of Ranchhoddas Karsondas case was distinguishing under s. 34 were taken when the return was pending and before the statutory time limit for completing the assessment had run out However, as we have discussed above, in atleast two Supreme Court decisions subsequent to t
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hat in the Case of Ranchhoddas Karsondas, the principle has been extended to cases where action under s. 34 was taken even after the statutory time limit for completing the assessment had expired The Bombay decision 1971 (81) ITR 84 (Bom) moreover is directly in point and supports the assessee. 14. In the light of the above discussion, we have therefore, to proceed to find out whether the assess s contention is correct. In the present case, the assessee has filed an affidavit and has produced a receipt in support of the return having been filed in time. There is no material or evidence on record to hold that the first assessment order was passed within time. In fact, the Depth. Rep stated that no such evidence was available in the records. The reasons for reopening the assessment no doubt state that the original assessment order was passed However, when the assessee has challenged it and there is not evidence in support of the departmental stand, we have to proceed on the basis that no assessment order was passed. In the circumstances, the stand taken by the assessee that the proceedings and under s. 147 (a ) were invalid has to be upheld in the light of the Supreme Court decisions and the Bombay decision discussed above. We would, therefore, quash the assessment order passed under s. 147(a) . It is not therefore, necessary to join to the merits of the case. 15. As for the penalty order it would naturally fall to the ground in the light of our decision in the quantum proceedings as discussed above in Even on merits, we find that it was only on the basis of unsatisfactory evidence that the penalty was levied. No contumacious or dishonest conduct can be laid successfully at the doors of the assessee. in any view of the matter therefore the penalty order cannot survive it is therefore cancelled. 16. In the result both the appeals are allowed