Delhi High Court
Shanti Vijay & Co. & Ors. vs Income Tax Officer. on 30 January, 1997
Equivalent citations: (1998)60TTJ(DEL)748
ORDER
N. S. CHOPRA, A.M. :
The assessee is in appeal against order dt. 29th September, 1995, of the learned CIT(A).
2. The assessee has taken as many as 16 grounds of appeal and during the course of hearing before us an additional ground has been taken while ground No. 14 has been modified. The assessee has challenged the initiation of assessment proceedings under s. 147 r/w s. 150 of the IT Act and has also challenged the validity of service of notice under s. 148. On point of quantum it is the claim of the appellant that the addition made at Rs. 24,15,000 as assessees income from undisclosed sources had never been received much less in the nature of income. The assessee has also challenged the levy of interest under ss. 139(8) and 215/217 of the IT Act. It is also the claim of the assessee as per additional ground taken that the addition made does not pertain to the assessment year under appeal.
3. This case has a chequered history and, therefore, for disposal of this appeal we consider it appropriate to bear in mind the background of the case. The appellant before us is an AOP which, according to the Revenue, was constituted of the following as members :
(i) Shanti Vijay & Co., 52, Janpath, New Delhi;
(ii) Lalji & Co. of Bombay; and
(iii) Maharaj Kumar Pratap Singh of Alwar.
4. Shanti Vijay & Co. was a partnership carrying on business in jewellery (partnership for short). In the case of the partnership assessment for asst. yr. 1972-73 was framed under s. 143(3) on 26th March, 1975, at an income of Rs. 29,30,010 as under :
Rs.
(a) Business income 4,93,513
(b) Income from undisclosed sources 8,15,000
(c) Disallowance of interest on the above 21,497
(d) Income representing unexplained investment in the form of alleged advances made by M. K. Pratap Singh 16,00,000 4.1 An appeal was filed against the order of assessment to the Asstt. CIT, Spl. Range-5, who disposed of the appeal on 21st May, 1976 (Appeal No. 194/75-76) deleting the additions of Rs. 8,15,000 and Rs. 16 lakhs, beside a sum of Rs. 21,497 disallowed on account of interest liability. Against this order the Department came in appeal before the Tribunal, which in its order dt. 18th November, 1980 (ITA No. 2065/Del/76-77) reversed the decision of the AAC and held that Rs. 8,15,000 and Rs. 21,497 had been rightly disallowed. As regards addition of Rs. 16 lakhs it was set aside for de novo consideration by the AO.
4.2 Subsequently the AO passed a fresh assessment order under s. 143(3)/144B/254 on 20th March, 1983, when he included a sum of Rs. 8,15,000 and Rs. 21,497 as already sustained by the Tribunal in their order dt. 18th November, 1980, and also included the amount of Rs. 16 lakhs holding the same as income representing unexplained investment in the form of alleged advances made by Maharaj Kumar Pratap Singh. The appeal of the partnership was disposed of by the CIT(A) on 3rd December, 1983 (ITA No. 112/83-84), who set aside the assessment to be made afresh. He also held that he did not consider it necessary to deal with the remaining grounds of appeal. Against this order, the Department came in appeal before the Tribunal, which passed its order on 15th May, 1985 (ITA No. 845/Del/1994) agreeing that the finding of the learned CIT(A) did not require any interference and, therefore, dismissed the appeal of the Revenue.
4.3 Thereafter AO [IAC (Asstt.) Range-xiv] framed assessment on 21st March, 1986 including the three amounts of Rs. 8,15,000, Rs. 21,497 and Rs. 16 lakhs. Being aggrieved, the partnership went in appeal before the learned CIT(A) IV, who vide his order dt. 26th October, 1987, in ITA No. 129/86-87, held that additions of Rs. 8,15,000 and Rs. 16 lakhs are not in accordance with the finding of the Tribunal in its order dt. 7th February, 1983 (ITA Nos. 3570 & 3771/Del/82) against order dt. 29th April, 1982, under s. 271(1)(c) for asst. yrs. 1972-73 and 1973-74). These two additions were, therefore, deleted by the CIT(A).
4.4 Against this order of the learned CIT(A), dt. 26th October, 1987, the Department came in appeal before the Tribunal, which in its order dt. 7th March, 1991 in ITA No. 36/Del/86, held that CIT(A)s finding is in conformity with the finding of the Tribunal recorded in its order dt. 7th February, 1983. The Departmental appeal was, thus, dismissed. The partnership moved a miscellaneous application before the Tribunal against its order dt. 18th November, 1980, which was disposed of on 14th February, 1984, in MA No. 205/Del/83 that the finding of treating Rs. 8,15,000 as income of the partnership be modified. The Tribunal directed the AO to consider the genuineness of the joint venture between the three parties, i.e., the partnership, Lalji & Co. and Maharaj Kumar Pratap Singh and in doing so he shall treat the loan of Rs. 8,15,000 as unproved loan.
5. In the meantime penalty levied under s. 271(1)(c) vide order dt. 24th June, 1981, was cancelled in appeal by the CIT(A) in his order dt. 29th April, 1982. The appeal of Department against the order of the CIT(A) was dismissed by the Tribunal in its order dt. 7th February, 1983 in ITA No. 3570/Del/82. The Tribunal also held that if the penalty was leviable it could only be done in the case of the AOP.
6. As will be seen the assessment in the case of the partnership was repeatedly completed by including three amounts, namely, Rs. 8,15,000, Rs. 21,497 and Rs. 16 lakhs and every time the first appellate and subsequently the Tribunal had set aside the assessment. In the various appellate proceedings the authorities directed that genuineness of the joint venture between the partnership, Lalji & Co. and Maharaj Kumar Pratap Singh is to be adjudicated.
7. The AO initiated action under s. 147(a) r/w s. 150(1) in the case of the AOP for the asst. yr. 1972-73 in consequence to the finding contained in order dt. 26th October, 1987, of the learned CIT(A)-IV. Thus, a notice under s. 148 was issued on 10th March, 1992, and was addressed to Shanti Vijay & Co. of New Delhi, Lalji & Co. of Bombay and M. K. Pratap Singh of Alwar with address at 52, Janpath, New Delhi, being the address of the partnership. The notice was received by one Shri Gopal Dutt. In reply, the partnership, which had undergone sea changes in its constitution, the original partnership as prevailed in asst. yr. 1972-73 having been dissolved and constitution changed many time more, informed the AO that there was no such person, as was addressed to in the notice at the address, i.e., 52, Janpath, New Delhi and, therefore, the said notice did not belong to them. The AO also addressed a notice under s. 142 to the AOP sending the same by way of registered letter at the same address, i.e., 52, Janpath where Shanti Vijay & Co. with partners Kashmir Chand and Nageen Chand Godah were carrying on business and in reply the partnership informed that there was no such AOP and the present partnership was not answerable for the acts of the AOP allegedly done about 20 years back. The AO was also informed that there being no books of accounts, the queries raised by him could not be answered. The AO, however, completed the assessment under s. 144 holding that no evidence has been furnished in support of genuineness of cash credits of Rs. 8,15,000 and no evidence has been furnished in respect of cash receipts of Rs. 16 lakhs from Maharaj Kumar Pratap Singh, one of the members of the AOP. He, thus, treated the sum of Rs. 8,15,000 as unexplained cash credit as income of the AOP from undisclosed sources and similarly treated a sum of Rs. 16 lakhs as unexplained investment and brought the same to charge in the hands of the AOP. He passed his assessment order on 30th March, 1994.
8. This was contested in appeal before the learned CIT(A) when the appellant took 13 grounds of appeal, including challenging the jurisdiction of the AO to initiate action under s. 147, as also questioning the validity of notice dt. 10th March, 1992, under s. 148 denying its service on any member of the dissolved AOP. It was also contended that initiation of proceedings under s. 147 was barred by time. It also challenged the applicability of the provisions of s. 150. Without prejudice, it challenged the additions made as also interest charged. The learned CIT(A) did not accept any of the submissions made by the appellant when she held that the order of the learned CIT(A)-IV contained a conclusive finding that the profits arising from the transaction did not represent income of the firm but the same of an AOP constituted of the firm, Lalji & Co. and M. K. Pratap Singh. According to the learned CIT(A) the issue of status attained finality only by said order of the CIT(A). She further held that as no return was filed in the status of AOP, action under s. 147(a) r/w s. 150(1), as taken by the AO, was justified. She further held action under s. 147(a) was initiated to give effect to the finding and directions contained in the order dt. 26th October, 1987, of the learned CIT(A)-IV and, therefore, time limit prescribed under s. 149 did not operate and the provisions of s. 150(1) became applicable and the provisions of s. 150(2) of the Act did not stand in the way of initiation of these proceedings. According to the CIT(A) the order dt. 26th October, 1987, of the then CIT(A) recorded a finding that the impugned income belong to the joint venture consisting of the firm, Lallji & Co. and M. K. Pratap Singh and, therefore, the dispute regarding assessability of the income in the hands of the appellant-AOP was resolved only by the said order of the CIT(A), when a clear direction that the AOP had been constituted with the specific object of earning profit on the sale of jewellery was recorded therein. The CIT(A) held that as the action has been initiated in consequence to the appellate order, the provisions of s. 150(1) are applicable.
8.1 The learned CIT(A) also upheld the validity of service of notice under s. 148 holding that while individual members of AOP could have separate addresses, but the address of the AOP as an entity was 52, Janpath, New Delhi, and, therefore, the notice was served at the correct address. He further recorded that Shri Kashmir Chand, present partner of the firm, was the continuing link between the old firm and the present firm and he had also signed agreements pertaining to the joint venture and, therefore, the notice has been served on the correct person. Thus, the learned CIT(A) upheld the order of assessment. The assessee is in appeal before us.
9. Shri Anil Chopra, the learned authorised representative for the appellant took us through the entire history of the case, which has already been referred to by us in our order above and submitted that while the AO has admittedly invoked provisions of s. 150(1) to seek jurisdiction based on order of the CIT(A), dt. 26th October, 1987, in the case of the firm, the provisions of said section are not applicable on facts and circ*mstances of the case when there is no finding or direction in consequence of, or to give effect to which the reassessment would lawfully be made in the case of the AOP. He invited our attention to the order dt. 26th October, 1987, of the learned CIT(A)-IV in which the CIT(A) duly took note of categorical finding recorded by the Tribunal in their order dt. 29th November, 1980, that there was a joint venture initially between the firm and Lallji & Co. and later between the firm and Maharaj Kumar. The learned CIT(A) also took note of order dt. 29th November, 1980, 14th February, 1984, and 7th February, 1983, and agreed with the stand of the firm that there was a clear finding given by the Tribunal in its order dt. 7th February, 1983, with regard to joint venture. This being the position, the learned authorised representative submitted that what is required to be seen is whether the proceedings on the basis of which the assessment has been framed are lawfully initiated. He submitted that the provisions of sub-s. (1) of s. 150 of the IT Act are not applicable on the facts of the case. Advancing his arguments the learned authorised representative referred to Expln. (3) of s. 153(3) of the Act and submitted that it provides that where income is excluded from the total income of one person and held to be the income of another person, then assessment of such income on such other person shall, for the purposes of ss. 150 and 150(3) deem to be one made in consequence or to give effect to any finding or direction contained in the said order, provided such other person was given an opportunity of being heard before the said order was passed. He submitted that no such opportunity was given to the appellant-AOP in the appeal of the firm and order dt. 26th October, 1987, of the learned CIT(A) based on which jurisdiction is sought by the AO under sub-s. (1) of s. 150. Accordingly, it was submitted that the Revenue could not apply s. 150(1) r/w s. 153(3), Expln. (3). In support of his proposition he referred to judgment of Honble Allahabad High Court in the case of Gupta Traders vs. CIT (1982) 135 ITR 504 (All), Gujarat High Court in the case of A. B. Parikh vs. ITO (1993) 203 ITR 186 (Guj), Gulabchand Motilal vs. CIT (1988) 174 ITR 117 (MP), CIT vs. K. R. Patel & Ors. (1969) 73 ITR 508 (Mys), Rajinder Nath vs. CIT (1979) 120 ITR 14 (SC), in the case of Raj Kishore Prasad vs. ITO (1992) 195 ITR 438 (All), Consolidated Coffee Ltd. vs. ITO (1985) 155 ITR 729 (Kar), Peico Electronics & Electricals Ltd. vs. Dy. CIT & Ors. (1995) 210 ITR 991 (Cal) and ITO vs. Murlidhar Bhagwandas (1964) 52 ITR 335 (SC). It was submitted that the time-limit upto which the AO could lawfully invest himself with the jurisdiction to assess the appellant by issue of notice under s. 148 r/w s. 150(1) was not available to him.
9.1 The learned authorised representative also submitted that there was no proper sanction for issue of notice under s. 148 by the prescribed authority. He submitted that the action to initiate reassessment proceedings was taken after 1st April, 1989, when the provisions, as substituted by Direct Tax (Laws) Amendment Act, 1987, w.e.f. 1st April, 1989, stood incorporated in the IT Act. He submitted that the appellant is admittedly not assessed to income-tax before and while the AO, i.e., the ITO sought sanction of the learned CIT under sub-s. (1) of s. 151, the provisions of sub-s. (2) of s. 151 are applicable in the case of the appellant. He submitted that sanction accorded being not proper the reassessment proceedings are rendered invalid. He submitted that the distinction between the provisions of sub-s. (1) and sub-s. (2) of s. 150 is apparent and makes a clear demarcation with regard to authorities prescribed for grant of sanction. Any transgression is without authority of law.
9.2 The learned authorised representative also submitted that the relevant amounts do not fall within the accounting period/previous year as could be in the case of the appellant-AOP. He submitted that in the case of the appellant the previous year is the financial year as it has not maintained any books of accounts. He submitted that the amounts involved as recorded in the books of firm, which follows Diwali as its previous year, i.e., ending 16th October, 1971, relevant to asst. yr. 1972-73, and while the amount of Rs. 8,15,000 appears as recorded between 1st February, 1971, and 8th February, 1971, the amount of Rs. 16,50,000 is recorded between 25th January, 1971, and 2nd February, 1971, which in the case of the appellant could not be brought to charge in the assessment year under appeal, the financial year being the previous year in the case of the appellant.
9.3 The learned authorised representative also argued that there was no valid service of notice under s. 148 of the IT Act, which is a precondition for lawful initiation of reassessment proceedings. The learned authorised representative also challenged the levy of interest under ss. 139(8)/217/215 of the Act.
9.4 On the other hand, the learned Departmental Representative duly supported the order of the learned CIT(A) and submitted that what the assessee has pleaded before us already stands discussed and decided against it by the learned CIT(A) and, therefore, no relief is available to the appellant. The Departmental Representative, in other words, mainly relied on the order of the learned CIT(A).
10. We have heard the learned representatives of the parties and have also perused the relevant record. We have also taken note of the judgments cited. While the assessee has taken various objections to the framing of assessment its major objection is that while it is the case of the Revenue that reassessment proceedings were started against the appellant to give effect to the order dt. 26th October, 1987, of the learned CIT(A) that the income assessed in the case of partnership in fact belonged to the appellant-AOP, yet no opportunity was given to the appellant-AOP, in the appeal of the partnership. He submitted that on facts of the case there could be no reopening of assessment in the case of the AOP in view of Expln. 3 to s. 153(3) r/w s. 150(1) of the Act. It is the contention of the appellant that without having been given any opportunity by the learned CIT(A), whose order is sought to be implemented by the Revenue in taxing the income impugned in the hands of the appellant-AOP, any assumption of jurisdiction to reopen the assessment by the AO is bad in law.
10.1 In the case of A. B. Parikh (supra), the Honble Gujarat High Court held as under :
“Sec. 149 of the IT Act, 1961, lays down the time limits for issuance of notice under s. 148. Sec. 150(1) forms an exception to it and provides that a notice under s. 148 could be issued at any time for the purpose of making an assessment or reassessment in consequence of, or to give effect to, any finding or direction contained in an order in appeal, reference or revision under the Act. Similarly, s. 153(3) (ii) using the same language, provides that no time-limit applies for completion of an assessment which is made in consequence of, or to give effect to, any such finding or direction. Exclusion of time limit will depend on the same contingencies in both the cases. The result is that, for the purpose of s. 150, so as to enable the authority to issue the notice under s. 148 at any time without being curtailed by the time-limit prescribed under s. 149, there must be satisfaction of the ingredients under Expln. 3 to s. 153. The first ingredient is that there must be a finding that the income excluded from the total income of one person is the income of another person. The second ingredient is that the order must be one which has come to be passed after the other person was given an opportunity of being heard. The person concerned must be put on notice that the consequence of the income being held as his is likely to follow in the proceedings prosecuted. Furthermore, he must be given an opportunity of being heard on that question. All these features must be borne out by records.
Held, that, in the instant case, there was an appeal by the firm in which the petitioner was a partner before the Tribunal for the asst. yr. 1981-82 and there findings had been given that the impugned transactions were those of the partner and not those of the firm. Consequently, notice under s. 148, had been issued to the partner. There was no presumption that the partner was aware of the appellate proceedings. There was no evidence to show that the partner represented the cause of the firm before the Tribunal in consequence of whose finding alone the present proceedings for assessment of escaped income were stated to have been initiated. Even if he had so represented, that position could not be straightaway equated to participation in the proceedings pursuant to an opportunity being afforded on the question before the order is passed, within the meaning of Expln. 3 to s. 153. The notice was invalid and was liable to be quashed.”
Manifestly, the facts in appellants case are identical to the same as prevailed in the case of A. P. Parikh (supra).
10.2 In the case of Gupta Traders (supra), the Honble Allahabad High Court have taken similar view when it held that “Expln. 3 to sub-s. (3)(of s. 153) embraces within its scope persons other than the assessee as well, but lays down the condition that such third party should be given an opportunity of being heard before the order depriving him of the right of pleading limitation is passed.”
10.3 A plain reading of Expln. 3 indicates that where the appellate authority excludes an income, which has been assessed by the AO as income of one person, from the income of that person and holds it to be the income of another person, then the assessment of such excluded income in the hands of the third party is deemed to be made in consequence of or to give effect to, any finding or direction. The prerequisite, however, is that the third party has been given an opportunity to be heard in respect of that matter by the appellate authority. Therefore, while Expln. 3 embraces within its scope a third person in whose case that particular income is assessable, it also lays down the condition that the third person should be given an opportunity of hearing before order depriving him of the right of pleading limitation is passed. [See also CIT vs. Goel Bros. (1982) 135 ITR 511 (All)]. Explanation. 3, therefore, has no application unless the third party was given an opportunity of being heard before the order under cl. (ii) of s. (3) of s. 153 is passed. In Rajendra Naths case (supra) the Honble Supreme Court has held that finding contemplated by Expln. 3 is a finding given after an opportunity to the person to the effect that the amount in question represents the income of that person. This has been held to be incumbent on the IT authorities to be able to take advantage of Expln. 3. It is not the case of the Revenue that the appellant-AOP was given any opportunity by the learned CIT(A) in his order dt. 26th October, 1987. Manifestly, therefore, the assessment framed is barred by time as also without lawful jurisdiction and, therefore, the order of assessment is quashed on this count alone.
11. Now we come to the contention raised by the learned authorised representative that even for issue of notice, leading to reopening of assessment there was no proper sanction by the prescribed authority. It is nobodys case that there has been an assessment in the case of the appellant before. Admittedly this is the first assessment of the appellant. To Judge as to whether there has been proper sanction for issue of notice we have looked into the relevant provisions as contained in s. 151 of the IT Act inserted by Direct Tax (Laws) Amendment Act, 1987, w.e.f. 1st April, 1989, laying down a procedural law and plainly the provisions of sub-s. (2) of s. 150 are applicable in this case; whereas the AO, i.e., the ITO to the specific exclusion of sub-s. (2) of s. 150 obtained sanction of the prescribed authority under sub-s. (1) of s. 150, i.e., of the CIT, whereas under sub-s. (2) the prescribed authority is Dy. CIT. There has, therefore, been a failure to obtain previous sanction of the prescribed authority, thus, vitiating, the assessment. We are not impressed with the submission made by the learned Departmental Representative that the Dy. CIT, being subordinate to the CIT, the sanction could be treated as having been accorded by the Dy. CIT. Two distinct authorities for according sanction have been prescribed for the purposes of obtaining sanction under sub-s. (1) and sub-s. (2) and there can be no intermingling, no transgression since the very foundation of the assumption of jurisdiction to issue notice under s. 148 is grant of sanction by the prescribed authority. We have duly looked into the record and find the submission made by the learned authorised representative borne out from the same and, therefore, on this count also the reassessment proceedings are quashed being bad in law.
12. We also find substance in the submission made by the learned authorised representative that as the appellant is not maintaining any books of accounts, the two amounts added as its income do not fall in the previous year relevant to assessment year, which in the case of the appellant is financial year. We further find that the amount of Rs. 16,50,000 treated as unexplained investment made by the appellant under s. 69 is not on the basis of financial year while the amount of Rs. 8,15,000 added as unexplained cash credit under s. 68 could not have been added as such, there being no books of accounts as maintained by the appellant and the entries recorded in the books of partnership could not be treated as entries recorded in assessees books of accounts. Therefore, on this count also we find the assessment bad in law.
13. Having already quashed the assessment we do not think it necessary to go into the other grounds of appeal, the same having been rendered as academic.
In the result, appeal is allowed.
