Pushpa Rajawat Vs CIT (Rajasthan High Court)
Since, the original proceedings were pending before the Commissioner (Appeals), without entering into the question of jurisdiction of the Sawaimadhopur assessing officer, the fact remains that the adjudicating authority could not have issued second show cause notice under section 148. In that view of the matter, without entering into the matter whether the Gwalior or the Sawaimdhopur, assessing officer has jurisdiction or not, the second show cause notice is held to be not legal.
FULL TEXT OF HIGH COURT JUDGMENT / ORDER IS AS FOLLOWS:
By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal preferred by the assessee.
2. This court while admitting the appeal on 3-10-2016 framed following substantial questions of law :–
“(1) Whether on the facts and in the circumstances of the case, the Tribunal was justified in holding that issuance of second notice under section 148 for re-opening of the assessment during the pendency of appeal against the first notice issued under section 148, is valid and consequently order passed by the lower authorities is proper, such conclusion is proper?
(2) Whether the Tribunal was justified is holding that the appellant could not discharged the burden to provide the credit worthiness as required under section 68 of the Act while sustain the addition of Rs. 11,97,472 of cash credits merely on the basis confirmation filed by the appellant, evidence, namely affidavits PAN number payment through cheques and I.T. File numbers were available of the creditors such conclusion is proper?”
3. The facts of the case are that the assessee is a Transporter. The return has been filed on 30-8-1997 disclosing total income at Rs. 1,21,925 which was processed under section 143(1) of Income Tax Act showing loss from transport work & on account of capital loss. The notice under section 148 is issued on 21-1-2004 after obtaining prior approval of the Addl. CIT, range-III, Gwalior vide letter F. No. Addl. CTR/R- 3/approval/147/Gwl/2003-04/828, dt. 12-1-2004, the notice under section 148 is served on the assessee as per confirmation received through dak on 25-2-2004.
3.1 In this case the return of income was filed on 30-8-97 & was processed on 24-3-1999. The assessment proceedings were reopened under section 147 of the Income Tax Act by issuance of notices under section 148 on 25-10-1999 for the following reasons :–
3.2 The notices was served as per order dt. 30-10-1999 by notice server Sh. H.K. Pathak on 29-10-1999. Subsequently notices were issued under section 142(1) dt. 9-11-2001, 23-1-2002 & 13-1-2002, no compliance of the notices were made by the assessee therefore the assessment was completed under section 144 of the Income Tax Act determining total income at Rs. 14,26,040 and the unsecured loan of Rs. 14,12,040 were added treating the same as unexplained besides accepting Rs. 24,000 under section 44AE. The assessee has filed an appeal before the Commissioner (Appeals) pleading that assessee has never received the notices under section 148 issued by the assessing officer . Sh. Gopi Madan AR of the assessee strongly argued that the act provides for service of a notice on proper person as a condition precedent for making order of assessment. In support, he has quoted decisions of different courts. The learned Commissioner (Appeals) after consideration of the arguments put forth by the AR and the records has given the findings that the service of notice under section 148 is mandatory and is a condition precedent for valid initiation of re-assessment proceedings. It is held by the Commissioner (Appeals) that there is neither service report nor any evidence to show the identity of the person on whom service was effected. He therefore, held that re-assessment made is illegal & void and quashed the assessment order. The order of Commissioner (Appeals) is made as “Annexure B” of assessment order. Though the subsequent notices under section 142(1) bears signatures of the assessee however the jurisdictions was never challenged by the assessee through out the proceedings and has avoided to appear at the assessment stage.
4. In the proceedings under section 148 which was pending, the Local Commissioner ITO, Sawai Madhopur has issued notice.
5. In that view of the matter, counsel for the appellant contended that when the matter under section 148 was pending against jurisdiction of the Commissioner (Appeals), Gwalior, second show cause notice issued on the same subject is without any authority of law.
6. Counsel for the appellant has relied upon the following decisions :–
6.1 In Aditya Medisales Ltd. v. Dy. CIT, Circle 1(1) (2016) 242 Taxman 228 (Gujarat), it has been held as under :–
9. As noted, for the assessment year 2005-2006, the assessing officer had issued first notice of reopening on 11-1-2011, which was based on the premise that the assessee having transferred its shares from stock-in-trade to investment, was liable to pay tax on the difference between cost price of such shares and the market value on the date of transfer. In the present case, the notice for reopening is founded on the allegations that the assessee had shown to have held only 20,10,198 shares of Sun Pharmaceuticals on 31-3-2004. However, on 1-4-2004, the assessee had shown to have converted 40,20,396 shares of the said company from stock-in-trade to investment. Further, the list of shares and securities that the assessee claimed to have converted into investment on 1-4-2004 submitted during the course of assessment did not include these 40,20,396 shares. These shares were redeemed during the year under consideration and instead of showing receipt as business income or short term capital gain, it was shown as long term capital gain. The assessee had thus paid tax at a lower rate and avoided tax on business income. Thus according to the assessing officer, the assessee had supplied wrong information and paid tax on the sale of shares claiming as long term capital gain which at best could have been short term capital gain.
10. With the petitioner’s contention of the issues having been scrutinised during the original assessment and true and full disclosure, we are not impressed. Though vehemently argued before us, we do not notice any direct reference to this transaction in the original assessment proceedings either in form of queries, replies or in the order of assessment itself. Equally with respect to full and true disclosure, even the learned counsel for the petitioner agreed that there was a clear error on part of the petitioner to show only 20,10,198 shares during the earlier proceeding though the assessee had received redeemable preference shares on its original shareholdings.
11. In the details of long term and short term capital gain during the year the assessee had shown sales of 40,20,396 shares of Sun Pharma and claimed long term capital gain thereof. The date of sale was shown as 2-7-2004 and date of investment was shown on 2-11-2002. In other words, the vital data of converting such shares from stock-in-trade to investment on 1-4-2004 did not form part of these details. Such data was undoubtedly relevant since the question of nature of capital gain, long or short term, to the investment portfolio of the assessee may depend on the date of conversion of shares from stock-in-trade to investment. By showing the date of investment as 2-11-2002 and date of sale as 2-7-2004, the assessee cannot be stated to have disclosed true and full facts. Merely because such date of conversion was available in some other remote or obscure material would not satisfy the requirement of true and full disclosure. One may refer to explanation(1) to section 147 of the Act which provides that 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 such provision.
12. Thus while claiming long term capital gain on sale of 40,20,396 shares of Sun Pharma, the assessee related to the date of investment of 2-11-2002 and the date of sale of 2-7-2004 completely withholding the fact that shares were transferred from stock-in-trade to investment only on 1-4-2004. On the ground of true and full disclosures therefore, notice cannot be quashed, nor can it be concluded that no income chargeable to tax had escaped assessment. This later issue of escapement of income must be left to be decided in the assessment proceedings if the notice is otherwise valid.
6.2 In CIT v. Jaideo Jain and Co. (1997) 227 ITR 302 (Rajasthan), it has been held as under :–
The Income Tax Appellate Tribunal, Jaipur Bench, Jaipur, before which the application under section 256(1) of the Act was made by the Revenue for referring the above two questions of law for the opinion of the High Court, dismissed the application on the ground that the answer to both these questions are self-evident and, therefore, it is not necessary to refer these questions for the opinion of the High Court. The judgment passed by the Tribunal is after discussion of all the facts and circumstances of the case. While deciding the case, the Tribunal has relied upon the judgment of the Supreme Court. The Tribunal also held that since the original assessment proceedings have got barred by time for both the assessment year’s , the fresh assessment proceedings initiated for the same assessment year’s , were invalid because they were completed on the basis of the fresh notice issued under section 148 of the Act and the notices were issued on 31-3-1980, and 17-3-1981, i.e., at the time when the original proceedings initiated under section 148 were still pending. After perusal of the order passed by the Tribunal, we are of the opinion that no referable questions of law arise out of the judgment dated 30-6-1993, passed by the Tribunal as the answers to both the questions are evident and the Tribunal was, therefore, justified in refusing to refer the above two questions of law for the opinion of the High Court.
6.3 In Trustees of H.E.H., the Nizam’s Supplemental Family Trust v. CIT (2000) 109 Taxman 193 (SC), it has been held as under :–
15. An order under section 237 of the Act is appealable as provided in Clause (k) of Sub-section (1) section 246 of the Act. Section 249 prescribes limitation for filing appeal. Sub-section (1) of section 249 is relevant and it is as under :–
249. (1) Every appeal under this Chapter shall be in the prescribed form and shall be verified in the prescribed manner.
(2) The appeal shall be presented within thirty days of the following date, that Is to say–
(a) where the appeal relates to any tax deducted under Sub-section (1) of section 195 the date of payment of the tax, or
(b) where the appeal relates to any assessment or penalty, the date of service of the notice of demand relating to the assessment or penalty: Provided that, where an application has been made under section 146 for reopening an assessment, the period from the date on which the application is made to the date on which the order passed on the application is served on the assessee shall be excluded, or
(c) In any other case, the date on which Intimation of the order sought to be appealed against is served.
16. There is difference in Clauses (b) and (c) of Sub-section (2) of section 249 of the Act.
17. Return of income filed in the form prescribed along with an application for refund under section 237 of the Act is a valid return. There is no stopping the Income Tax Officer to complete the assessment on the basis of return so filed. It may be that the Income Tax Officer may limit the scope of examination of the return to satisfy himself regarding the correctness of the amount claimed as refund. For that purpose, he will examine if the tax paid by the assessee exceeds the amount of tax for which he is chargeable. If it is found that the income was “nil”, he will direct refund be granted to the assessee for any amount of tax paid. That will certainly be assessment. Filing of return In the form prescribed under section 39 of the Act along with the application for refund is not an empty formality. It assumes importance if such return had not been filed earlier. We have reproduced the note/order dated 10-11-1965 on the file pertaining to assessment year 1963- 64. In the file for assessment year 1963-64 there is another note which is as under :–
Please see my note in 1963-64 file. Refund to be considered in the hands of the beneficiaries.
18. The mere glance at this note would show that it could not be said that the Income Tax Officer gave finality to the refund fence no refund is granted either in the hands of the trust or in the hands of the beneficiaries. It is an inconclusive note where the Income Tax Officer left the matter at the stage of consideration even with regard to refund in the hands of the beneficiaries. This note was also not communicated to the trustees. When we examine the note dated 10-11-1965 on the file of 1963-64 nothing flows from that as well. In any Case if it is an order, it would be appealable under section 249 of the Act. Since period of limitation starts from the date of intimation of such an order, it is imperative that such an order be communicated to the assessee. Had the Income Tax Officer passed any final order, it would have been communicated to the assessee within a reasonable period. In any case, what we find is that the note dated 10-11-1965 is merely an internal endorsement on the file without there being an indication if the refund application has been finally rejected. By merely recording that in his opinion, no credit for tax deducted at source is to be allowed the Income Tax Officer cannot be said to have closed the proceedings finally. Decisions referred to by the revenue are of no help in the present case. We are, thus, of the opinion that during the pendency of the return filed under section 139 of the Act along with refund application under section 237 of the Act action could not have been taken under section 147/148 of the Act. Our answer to the question, therefore, is in the negative, i.e., against the Revenue.
6.4 In Standard Chartered Finance Ltd. v. CIT, Bangalore (2016) 381 ITR 453, it has been held as under :–
After hearing the Learned Counsel for the parties, we are of the opinion that the High Court has wrongly not acted upon the ratio laid down in Trustees of H.E.H. the Nizam’s Supplemental Family Trust’s case which squarely applies in the instant case in favour of the assessee. The ratio of the said judgment is that in those situations where there is no assessment order passed, there cannot be a notice for reassessment inasmuch as the question of reassessment arises only when there is an assessment in the first instance.
6.5 In Metro Auto Corporation v. ITO (2006) 286 ITR 618 (Bombay), it has been held as under :–
While completing the assessment, the assessing officer held that the assessee has reduced Rs. 2,00,000 on account of old stocks, but there was no justification to it and, therefore, he made addition accordingly. On appeal, the Commissioner (A) deleted the said addition. During the pendency of revenue’s appeal before the tribunal, a notice was issued to be assessee under section 148.
The assessee filed instant petition challenging the said notice. It was contended that when the proceedings filed by the Department were pending and when the order impugned in the appeal before the tribunal was in favour of the assessee, surely, the notice under section 148 could not be issued.
6.6 In Dy. CIT v. Rohini Builders (2002) 256 ITR 360 (Gujarat), it has been held as under :–
8. Further, we may point out that section 68 under which the addition has been made by the assessing officer reads as under :–
“68. Where any sum is found credited in the books of an assessee maintained for any previous year, and the assessee offers no explanation about the nature and source thereof or the explanation offered by him is not, in the opinion of the assessing officer, satisfactory, the sum so credited may be charged to Income Tax as the income of the assessee of that previous year.”
9. The phraseology of section 68 is clear. The Legislature has laid down that in the absence of a satisfactory explanation, the unexplained cash credit may be charged to Income Tax as the income of the assessee of that previous year. In this, case the legislative mandate is not in terms of the words “shall be charged to Income Tax as the income of the assessee of that previous year”. The Supreme Court while interpreting similar phraseology used in section 69 has held that in creating the legal fiction the phraseology employs the word “may” and not “shall”. Thus the unsatisfactoriness of the explanation does not and need not automatically result in deeming the amount credited in the books as the income of the assessee as held by the Supreme Court in the case of CIT v. Smt. P. K. Noorjahan.
6.7 In Aravali Trading Co. v. ITO (2008) 8 DTR 199 (Raj.), it has been held as under :–
18. The real question before the authority in Mangikd’s case (supra) was whether the primary gold and the gold ornaments found in possession of the assessee on 14-10-1987, were owned by the assessee. The assessee has explained the transactions through which the primary gold and the gold ornaments came in his possession when the search of the customs took place at his residence and the same were seized. In support of said explanation, he has produced said three persons, who had brought the ornaments to him and have furnished their affidavits admitting such fact. After finding that the explanation furnished by three persons and their affidavits admitting the ownership of gold found in possession of assessee (they) were asked about the sources of acquisition of said gold and the respective persons asserted them to be owners of gold found in possession of the assessee but the explanation furnished by each of them was not accepted as satisfactory by the assessing officer. On such premise value of the primary gold found in possession of the assessee during the search of the customs was added in the income of the assessee as income from undisclosed sources.
19. This Court held by the parity of reasonings which prevailed in Daulat Ram Rawatmull’s case (supra) that it can well be said that merely because the explanation furnished by Shri Bhopal Singh, Om Prakash Gupta and Shri Gauri Shanker Singhal, about the purpose for which the gold ornaments were delivered for making new ornaments and that the ornaments were belonging to their family was found to be not acceptable, could not have provided any nexus for drawing inference therefrom that the primary gold and gold ornaments belonged to the assessee.
6.8 In CIT v. Lovely Exports (P) Ltd. (2010) 14 SCC 761, it has been held as under :–
Income from undisclosed sources–Addition under section 68 Share application money–SLP was filed before Supreme Court and question before court was; can the amount of share money be regarded as undisclosed income under section 68 of Income Tax Act, 1961. Held: No merit is found in SLP for the simple reason that if the share application money is received by the assessee-company from alleged bogus shareholders, whose names are given to the assessing officer, then the department is free to proceed to reopen their individual assessments in accordance with law. Hence, no infirmity is found with the impugned judgment. Special Leave Petition is dismissed. It cannot be regarded as undisclosed income of assessee-company.
7. Counsel for the respondent has contended that the Tribunal while considering the matter has rightly decided in favour of the department and therefore no interference is called for in the reasoning adopted by the tribunal.
8. We have heard counsel for the parties.
9. Taking into consideration the provisions of section 148 of the Income Tax Act which reads as under :–
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, 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 :–
Provided that in a case–
(a) where a return has been furnished during the period commencing on the 1-10-1991 and ending on the 30-9-2005 in response to a notice served under this section, and
(b) subsequently a notice has been served under sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to sub-section (2) of section 143, as it stood immediately before the amendment of said sub-section by the Finance Act, 2002 (20 of 2002) but before the expiry of the time limit for making the assessment, re-assessment or recomputation as specified in subsection (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice :–
Provided further that in a case–
(a) where a return has been furnished during the period commencing on the 1-10-1991 and ending on the 30-9-2005, in response to a notice served under this section, and
(b) subsequently a notice has been served under clause (ii) of sub-section (2) of section 143 after the expiry of twelve months specified in the proviso to clause (ii) of sub-section (2) of section 143, but before the expiry of the time limit for making the assessment, reassessment or recomputation as specified in subsection (2) of section 153, every such notice referred to in this clause shall be deemed to be a valid notice.
10. Since, the original proceedings were pending before the Commissioner (Appeals), without entering into the question of jurisdiction of the Sawaimadhopur assessing officer, the fact remains that the adjudicating authority could not have issued second show cause notice under section 148. In that view of the matter, without entering into the matter whether the Gwalior or the Sawaimdhopur, assessing officer has jurisdiction or not, the second show cause notice is held to be not legal.
11. In that view of the matter, first issue is required to be answered in favour of the assessee and against the department. The second issue being consequential to first issue, the same is also to be answered in favour of the assessee.
12. Hence, both the issues are answered in favour of assessee and against the Department.
13. The appeal stands allowed.