COMMISSIONER OF INCOME-TAX vs. KIRITKUMAR S MEHTA

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ITR/320/1983HC GujaratGJHC24011788198325 November 1996Author: HONOURABLE MR. JUSTICE R.K.ABICHANDANI,HONOURABLE MR. JUSTICE R.BALIA4 pages
AI SummaryRemanded

What did the High Court hold?

The High Court held that the Tribunal erred in its decision. The Supreme Court, in R.K. Upadhyay v. Shanabhai B. Patel (166 ITR 163), distinguished the provisions of the Income Tax Act, 1961 (Sections 147, 148, 149) from Section 34 of the 1922 Act. The Supreme Court held that once a notice is issued within the period of limitation, jurisdiction vests in the Income-Tax Officer to proceed with reassessment. The mandate of Section 148(1) requires service of notice, but this is a condition precedent to the making of the assessment order, not to the conferment of jurisdiction. In this case, the notice was issued on March 31, 1978, the last day of the limitation period. Therefore, the ITO had jurisdiction to proceed. The Tribunal's reliance on Shanabhai's case and Kundanlal's case (99 ITR 581) was misplaced, as Kundanlal's case dealt with the Wealth Tax Act and a different context of voluntary disclosure. The Court answered the reference in the negative, in favour of the revenue.

What were the facts?

The assessee's original assessment for AY 1974-75 was completed on January 20, 1974, with a total income of Rs. 19,000. The Income-Tax Officer (ITO) reopened the assessment under Section 147(b) based on information that the market value of 'Morvi House', co-owned by the assessee, was between Rs. 12 to 15 lakhs, significantly higher than the Rs. 4,75,000 disclosed at registration. A notice under Section 148 was issued on March 31, 1978, and served on the assessee on April 1, 1978. The ITO made an addition of Rs. 1,08,750 as the assessee's share of unrecorded investment. The assessee appealed, arguing the reassessment was invalid as the notice was served after the limitation period under Section 153, which expired on March 31, 1978. The Tribunal upheld this view.

What were the issues?

1. Whether, on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal was right in law in holding that the proceedings initiated by the Income-tax Officer were not valid since the notice under Section 148 dated 1-4-1978 was served after the period of limitation? 2. Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was justified in law in holding that the proceedings of re-assessment under Section 147(b) started in pursuance of notice under Section 148 were bad in law? Assessee's Contention: The reassessment proceedings were invalid because the notice under Section 148 was served on April 1, 1978, which was beyond the limitation period prescribed under Section 153 of the Act, which expired on March 31, 1978. Reliance was placed on the High Court's decision in Shanabhai B. Patel v. R.K. Upadhyay (96 ITR 141). Revenue's Contention: Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 147,Section 148,Section 148(1),Section 149,Section 153,Section 256(1)

AI-generated summary — verify with the full judgment below

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.HE 1

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

INCOME TAX REFERENCE NO. 320 OF 1983

The Commissioner of Income-Tax Gujarat-II, Ahmedabad .. Applicant

Versus

Shri Kiritkumar S. Mehta & 4 ors. .. Respondents

Date of Decision : 25th November 1996

For Approval and Signature

THE HONOURABLE MR. JUSTICE R.K. ABICHANDANI

THE HONOURABLE MR. JUSTICE RAJESH BALIA

Appearance:

Mr. Mihir H. Thakore, for the Applicant Mr. K.C.Patel for the respondents

1.

Whether Reporters of Local Papers may be allowed to see the judgement?

2.

To be referred to the Reporter or not?

3.

Whether Their Lordships wish to see the fair copy of Judgement?

4.

Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 or any order made thereunder?

5.

Whether it is to be circulated to the Civil Judge?

Coram : R.K. Abichandani and Rajesh Balia, JJ 25th November 1996

Oral Judgement (Per R.K. Abichandani, J)

1.

The following two questions have been referred to us by the Tribunal under Section 256(1) of the Income Tax Act:

1) "Whether on the facts and in the circumstances of the case, the Income-tax Appellate Tribunal has been right in law in holding that the proceedings initiated by the Income-tax Officer were not valid since the notice under Section 148 dated 1-4-1978 was served after the period of limitation?"

2) "Whether, on the facts and in the circumstances of the case, the Appellate Tribunal has been justified in law in holding that the proceedings of re-assessment under Section 147(b) started in pursuance of notice under Section 148 were bad in law?"

2.

The assessment was completed under Section 143(1) of the Act on 20.1.1974 determining the total income of the assessee at Rs.19000/- on the basis of the return filed by the assessee on 10.8.1978. Acting on information which was received by the Income-tax Officer that the market value of the property known as Morvi House of which the assessee was a co-owner was of Rs.12.00 to 15.00 lakhs as against the value of Rs.4,75,000/- disclosed by the assessee at the time of registration of the property. The Income-tax Officer reopened the assessment under Section 147(b) of the Act. Notice was issued under Section 147(b) by the Income-tax Officer on 31.3.1978 which was served on the assessee on 1.4.1978. The assessment was completed by the Income Tax Officer after making an addition of Rs.1,08,750/- to the originally assessed income. The said addition related to the assessee's share as unrecorded in Shanabhai's case held that the Income Tax Officer had no juri iction to reassess since the notice was not served within the time limit set by the provisions of Section 153 of the Act. The Tribunal also relied upon the decision of the Supreme Court in Kundanlal's case reported in 99 ITR 581 which was in context of the provisions of Section 18(2A) of the Wealth Tax Act.

3.

The decision of this Court in Shanabhai's case (supra) on which reliance was placed by the Tribunal has this Court in Shanabhai's case (supra) has also referred to the decision of the Supreme Court in Kundanlal's case in 99 ITR 581 in which it was held that the word, `issued' occurring in Section 18(2A) of the Wealth Tax Act had a wider meaning and it was not used in the narrow sense of `sent' and that it included service of notice which has been issued. It will be seen that this decision was rendered in context of the provisions of Section 18(2A) of the Wealth Tax Act which empowered the Commissioner in his discretion to reduce or waive penalty imposable on a person if he was satisfied that such person had prior to the issue of notice to him under subsection (2) of Section 14 of the Wealth Tax Act, voluntarily and in good faith

made full disclosure of his net wealth. In the said context unless the notice was served to the concerned person, he would not know that it was issued and therefore his disclosure prior to the notice being served on him would be treated as made voluntarily and in good faith. The decision in Kundanlal's case (supra) cannot therefore be relied on for construing the word `issue' in Section 148(1) of the Act of 1961, more particularly, when there is a direct decision of the Supreme Court in Upadhyay's case (supra) clearly holding that once a notice is issued within the period of limitation, juri iction becomes vested in the Income Tax Officer to proceed to reassess. Since the notice was issued under Section 147(b) of the Act by the Income Tax Officer on the last date of the period of limitation, he had juri iction to proceed to reassess and therefore the view of the Tribunal holding that the proceedings initiated by the Income Tax Officer were not valid cannot be accepted.

5.

We, therefore, answer the question referred to us in the negative and in favour of the revenue. The reference stands disposed of accordingly, with no order as to costs.

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