Mangalam Publications Vs CIT (Supreme Court of India)
The case of Mangalam Publications Vs CIT, heard by the Supreme Court of India, revolves around the legality of issuing reassessment notices based on evidence deemed unreliable. Additionally, the distinction between a defective and invalid return is explored. This analysis sheds light on the court’s interpretation of these critical aspects in income tax jurisprudence.
Sub: Whether reassessment notice can be issued simply on the basis of an evidence which itself was held to be not reliable and what is the difference between a defective and invalid return?
The Supreme Court in this case was dealing with a situation where reassessment proceedings were initiated for AY 1990-91, 1991-92 and 1992-93 on the basis of a balance sheet which was given to South Indian Bank ltd and the AO on comparison of capital accounts of the partners as appearing in the said balance sheet and the last balance sheet which was found with the department found abnormal increase in the capital of the partners. The partners explained that the balance sheet could not be prepared for these years as the books had been seized by the department, though for each of these years the assessment was completed u/s 143(3) after verification of books of accounts and profit& loss account. Moreover, the balance sheet found with South Indian Bank ltd which was relied was itself found unreliable by CIT(A) in relation to appeal for a different year.
On these facts, the Supreme Court relying on the decision of Calcutta Discount Co Ltd as well as Lakhmani Mewal Das , Kelvinator etc held that it could not be said that there was any omission or failure to disclose on part of the assessee and thus the decision of the high court was reversed in favour of the assessee.
In Calcutta Discount Company Limited (supra), while the duty of the assessee is to disclose fully and truly all primary and relevant facts necessary for assessment, it does not extend beyond this. Once the primary facts are disclosed by the assessee, the burden shifts onto the assessing officer. It is not the case of the revenue that the assessee had made a false declaration.
While so deciding the judges also highlighted the difference between an invalid return and a defective return by holding that it is only when the defective return is not accepted by the AO , that it can be held as invalid and not otherwise and in the instant case when the return was accepted even without balance sheet, the return could not have been treated as invalid.
Suffice it to say that a return filed without the regular balance sheet and profit and loss account may be a defective one but certainly not invalid. A defective return cannot be regarded as an invalid return. The assessing officer has the discretion to intimate the assessee about the defect(s) and it is only when the defect(s) are not rectified within the specified period that the assessing officer may treat the return as an invalid return. Ascertaining the defects and intimating the same to the assessee for rectification, are within the realm of discretion of the assessing officer. It is for him to exercise the discretion. The burden is on the assessing officer. If he does not exercise the discretion, the return of income cannot be construed as a defective return. As a matter of fact, in none of the three assessment years, the assessing officer had issued any declaration that the returns were defective.
Conclusion: In summary, the Supreme Court’s judgment in Mangalam Publications Vs CIT underscores the importance of reliable evidence in reassessment proceedings. The distinction between defective and invalid returns is clarified, emphasizing the assessing officer’s role in exercising discretion. This verdict provides valuable insights for both taxpayers and tax authorities, contributing to the evolving landscape of income tax jurisprudence in India.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
The perennial question in income tax jurisprudence, whether reopening of a concluded assessment i.e. reassessment under Section 147 of the Income Tax Act, 1961 (briefly “the Act” hereinafter) following issuance of notice under Section 148 of the Act is legally sustainable or is bad in law, is again confronting us in the present batch of appeals. The Income Tax Appellate Tribunal, Cochin Bench, Cochin (‘Tribunal’ hereinafter) had decided in favour of the assessee by setting aside the orders of reassessment. However, the High Court of Kerala in appeals filed by the revenue under Section 260A of the Act has reversed the findings of the Tribunal by deciding the appeals preferred by the revenue in its favour.
2. Aggrieved by the aforesaid orders passed by the High Court of Kerala (briefly “the High Court” hereinafter), the assessee had preferred special leave petitions to appeal before this Court and on leave being granted, civil appeals have been registered.
3. We have heard Mr. Raghenth Basant, learned counsel for the appellant/assessee (which would be referred to either as the appellant or as the assessee) and Shyam Gopal, learned counsel for the respondent/revenue (again, would be referred to either as the respondent or as the revenue).
4. A brief narration of facts is necessary.
5. For the sake of convenience, we may refer to civil appeal Nos. 8580, 8581 and 8582 of 2011 (M/s Mangalam Publications, Kottayam Vs. Commissioner of Income Tax, Kottayam).
6. The above three civil appeals pertain to assessment years 1990-91, 1991-92 and 1992-93.
7. The assessee was a partnership firm at the relevant point of time though it got itself registered as a company since the assessment year 1994-95. The assessee is carrying on the business of publishing newspaper, weeklies and other periodicals in several languages under the brand name “Mangalam”. Prior to the assessment year 1994-95 including the assessment years under consideration, the status of the assessee was that of a firm, being regularly assessed to income tax.
8. For the assessment year 1990-91, assessee filed return of income on 22.10.1991 showing loss of Rs.5,99,390.00. Subsequently, the assessee filed a revised computation showing income at Rs.5,63,920.00. Assessee did not file any balance sheet alongwith the return of income on the ground that books of account were seized by the income tax department (department) in the course of search and seizure operations on 03.12.1995 and that those books of account were not yet returned. In the assessment proceedings, the assessing officer did not accept the contention of the assessee and made an analysis of the incomings and outgoings of the assessee for the previous year under After considering various heads of income and sale of publications, the assessing officer made a lumpsum addition of Rs. 1 lakh to the disclosed income vide the assessment order dated 29.01.1992 passed under Section 143 (3) of the Act.
9. Likewise, for the assessment year 1991-1992, the assessee did not file any balance sheet along with the return of income for the same reason mentioned for the assessment year 1990-1991. The return of income was filed on 22.10.1991 showing a loss of Rs.21,66,760.00. As per the revised profit and loss account, the sale proceeds of the publications were shown at 8,21,24,873.00. Assessing officer scrutinised the net sale proceeds as per the Audit Bureau of Circulation figure and the certified Performance Audit Report. On that basis assessing officer accepted the sale proceeds of Rs.8,21,24,873.00 as correct being in conformity with the facts and figures available in the Audit Bureau of Circulation report and the Performance Audit Report. After considering the incomings and outgoings of the relevant previous year assessing officer reworked the aforesaid figures but found that there was a deficiency of Rs.29,17,931.00 in the incoming and outgoing statement which the assessee could not explain. Accordingly, this amount was added to the total income of the assessee. Further, the assessee could not produce proper vouchers in respect of a number of items of expenditure. Accordingly, an addition of Rs.1,50,000.00 was made to the total income of the assessee vide the assessment order dated 29.01.2022 passed under Section 143 (3) of the Act.
10. For the assessment year 1992-1993 also, the assessee filed the return of income on 07.12.1992 showing a loss of Rs.10,50,000.00. However, a revised return was filed subsequently on 01.1993 showing loss of Rs.44,75,212.00. Like the earlier years, assessee did not maintain books of account and did not file the balance sheet for the same reason. However, the assessee disclosed total sale proceeds of the weeklies at Rs.7,16,95,530.00 and also advertisement receipts to the extent of Rs.40 lakhs. The profit was estimated at Rs.41,63,500.00 before allowing depreciation.
10.1 On scrutiny of the performance certificate issued by the Audit Bureau of Circulation, the assessing officer observed that total sale proceeds of the weeklies after allowing sale commission came to 7,22,94,757.00. Following the profit percentage adopted in earlier years, the assessing officer estimated the income from the weeklies and other periodicals at 7.50% before depreciation, adding the estimated advertisement receipts of Rs.40 lakhs to the total sale receipts of Rs.7,22,94,757.00. The assessing officer held that the total receipt from sale of weeklies and periodicals came to Rs.7,62,94,757.00. The profit earned before depreciation at the rate of 7.50% on the turnover came to Rs.57,22,106.00. In respect of the daily newspaper, the assessing officer worked out the loss at Rs.22,95,872.00 as against the loss of Rs.41,23,500.00 claimed by the assessee. Taking an overall view of the matter, the assessing officer estimated the business income of the assessee during the assessment year 1992-1993 at Rs.10,00,000.00 vide the assessment order dated 26.03.1993 passed under Section 143(3) of the Act.
11. It may be mentioned that for the assessment year 1993- 1994, the assessee had submitted the profit and loss account as well as the balance sheet along with the return of While examining the balance sheet, the assessing officer noticed that the balance in the capital account of all the partners of the assessee firm together was Rs.1,85,75,455.00 as on 31.03.1993 whereas the capital of the partners as on 31.12.1985 was only Rs.2,55,117.00. According to the assessing officer, none of the partners had any other source of income apart from one of the partners, Smt. Cleramma Vargese, who had a business under the name and style of “Mangalam Finance”. As the income assessed for all the years was found to be not commensurate with the increase in the capital by Rs.1,83,20,338.00 (Rs.1,85,75,455.00 – Rs.2,55,117.00) from 1985 to 1993, it was considered necessary to reassess the income of the assessee as well as that of the partners for the assessment years 1988-1989 to 1993-1994. After obtaining the approval of the Commissioner of Income Tax, Trivandrum, notice under Section 148 of the Act was issued and served upon the assessee on 29.03.2000.
12. In respect of the assessment year 1990-1991, the assessee informed the assessing officer that the return of income filed which culminated in the assessment order dated 01.1992 may be considered as the return in the reassessment proceedings. The assessing officer took cognizance of the profit and loss account and the balance sheet filed by the assessee before the South Indian Bank on the basis of which assessment of income for the assessment years 1988 – 1989 and 1989 – 1990 were completed. Objection of the assessee that the aforesaid balance sheet was prepared only for the purpose of obtaining loan from the South Indian Bank and therefore could not be relied upon for income tax assessment was brushed aside. The reassessment was made on the basis of the accounts submitted to the South Indian Bank. By the reassessment order dated 21.03.2002 passed under Section 144/147 of the Act, the assessing officer quantified the total income of the assessee at Rs.29,66,910.00 whereafter order was passed allocating income among the partners.
13. Likewise, for the assessment year 1991-1992, the assessing officer passed reassessment order dated 03.2002 under Section 144/147 of the Act determining total income at Rs.13,91,700.00. Following the same, allocation of income was also made amongst the partners.
14. In so far assessment year 1992-1993 is concerned, the assessing officer passed the reassessment order also on 21.03.2002 under Section 144/147 of the Act determining the total income of the assessee at Rs.25,06,660.00. Thereafter allocation of income was made amongst the partners in the manner indicated in the order of reassessment.
15. At this stage, we may mention that the assessing officer had worked out the escaped income for the three assessment years of 1990- 91, 1991-92 and 1992-93 at Rs.50,96,041.00. This amount was further apportioned between the three assessment years in proportion to the sales declared by the assessee in the aforesaid assessment years as under:
