CIT vs Padmani G. Thadani

This is the reference u/s 256(2) of the Income Tax Act, 1961 at the instance of the revenue raising the following questions of law:

(i) Whether on the facts and in the circumstances of the case, the learned Tribunal was legally justified in setting aside the assessment and holding that the Income Tax Officer was debarred from taking action u/s 147 of the Act?

(ii) Whether on the facts and in the circumstances of the case, the reassessment made u/s 148/147(b) was invalid United Mercantile Co. Ltd. Vs. Commissioner of Income Tax, Kerala,

(iii) Whether the note of the Audit Party was a valid information for initiation of proceedings u/s 147(b)? (Please see page 1004 in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, ?

(iv) Whether on a mere technical omission on the part of the Income Tax Officer in not mentioning the source of information, the Tribunal was justified in holding that there was no escapement of income within the meaning of Section 148/147(b)?

(v) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the proceedings u/s 147(b) of the Income Tax Act, 1961, for the assessment years 1975-76 and 1976-77 were initiated on mere change of opinion and were, therefore, not valid?

Brief facts of the case are that the Assessee and her husband are the partners in a firm in the name and style of M/s Basant Cinema. The dispute pertains to the assessment years 1975-76 to 1976-77, the relevant previous years ended on 30-6-1974 and 1975 respectively.

In the assessments originally framed, the Income Tax Officer had not considered the applicability of the provisions of Section 64(1)(i) of the Act even though all the material facts were before him. Thereafter, he initiated proceedings u/s 148/147(b) of the Act. The reasons recorded and the consequential effect taken by the Income Tax Officer are summarized by the Commissioner (Appeals) as under:

The reasons recorded by the Income Tax Officer of coming to this decision for the year 1975-76 reads as under:

Sri Gulu Thadani and his wife Smt. Padmani Thadani both were partners in the Basant Cinema but their share incomes were not clubbed as required by Section 64(1)(i) in the assessment years 75-76 and 76-77. It is further noticed that the income enjoyed by Smt. Padmani Thadani being much more than that of Shri Gulu Thadani, in terms of Explanation 1 of the said section the share income of Sri Gulu Thadani should have been clubbed in the hands of Smt. Padmani Thadani. The revenue impact of the omission is calculated as under:

1975-76

Total income assessed 89,720

Add: Share of Gulu Thadani 22,514

Total Income 1,11,904

Tax on the above income 62,766

Tax already assessed 45,688

17,076

I have, therefore, reason to believe that taxable income has escaped assessment by default of the Assessee.

Similar note was recorded by the Income Tax Officer for the assessment year, 1976-77 also with the difference that the figures for the year 1976-77 considered were as under:

Total income assessed 94,876

Add: Share of Gulu Thadani 20,895

1,15,771

Tax on the above income 65,700

Tax already assessed 49,617

Short charge 16,083"

The Assessee resisted the action of the Income Tax Officer on the ground that he could not have reopened the assessment without getting any information regarding the escapement of income. The Assessee also relied on a decision of the Hon''ble Allahabad High Court in the case of Commissioner of Income Tax Vs. Nem Kumar Jain Ratan Kumar and Others, . Overruling the objection raised by the Assessee, the Inspecting Assistant Commissioner (Asstt.) (who subsequently had jurisdiction over the Assessee) framed the assessments u/s 143(3)/148 of the Act, whereby he included the share of profit of the Assessees husband in the total income of the Assessee by invoking the provisions of Section 64(1)(i) of the Act. In appeal, the Commissioner (Appeals) upheld the action of the Inspecting Assistant Commissioner (Assessment).

Not satisfied with the first appeal order, the Assessee came up in appeal before the Tribunal. Inviting the attention of the Tribunal to the reasons recorded by the Income Tax Officer (reproduced above), the learned Counsel for the Assessee submitted that an attempt was made by the revenue to re-open the assessment merely on change of opinion on the material already available on the record. The learned Counsel for the Assessee also emphasized the fact that in the reasons recorded, the Income Tax Officer has not indicated what information he had in his possession by which he formed a belief that there was an escapement of income in the case of the Assessee. Under the circumstances, the learned Counsel for the Assessee vehemently argued that the entire proceedings initiated u/s 148 of the Act were bad in law and, therefore, the assessments framed on 28-3-1980 should be quashed. The learned representative for the department, on the other hand, strongly relied on the order of the Commissioner (Appeals) and justified his action. He also made a valiant effort to impress upon the Tribunal that the Income Tax Officer had re-opened the assessment on the basis of the audit parties objections, even though he had not referred to the said objection in the reasons recorded by him. According to the learned representative for the department, the re-opening was fully justified in view of the decision of the Hon''ble Supreme Court in the case of Indian and Eastern Newspaper Society, New Delhi Vs. Commissioner of Income Tax, New Delhi, . He also relied on yet another decision of the Hon''ble Supreme Court in the case of (1976) 102 ITR 287 (SC) .

After hearing both the sides, the Tribunal accepted the Assessees plea in the following manner:

We have carefully considered the rival submissions of the parties and we find considerable force in the submissions made on behalf of the Assessee. In the reasons recorded by the Income Tax Officer (reproduced above), he has nowhere stated that he had certain information in his possession, which led him to believe that there was an escapement of income in the Assessees case. On the contrary, it appears from the reasons recorded by the Income Tax Officer. That he had all the particulars necessary for framing the assessment originally. But for reasons best known to him, he had failed to consider the implication of the provisions contained in Section 64(1)(i) of the Act. The reasons recorded by the Income Tax Officer clearly show that he intended to reopen the assessment on mere change of opinion on the material already available on the record when he framed the assessments originally. It is by now a well settled law that the assessing officer is debarred from taking action u/s 147/148 of the Act on mere change of opinion. In this view of the matter, we do not consider it necessary to discuss various reported decisions cited before us. On the material already available on record, we have no doubt in our mind that an attempt is made by the assessing officer to re-open the assessment on mere change of opinion on the facts already available on record, when he had framed the assessments originally. This action of the assessing officer is clearly bad in law and, therefore, the assessments framed by him on 28-3-1980 cannot stand. We have therefore, no hesitation in setting aside the orders of the IT Authorities. Before we part with this order, we may observe that the Hon''ble Supreme Court and the Hon''ble High Courts have time and again lamented that there should be some finality in the tax matters. The observations of the Hon''ble Supreme Court in the case of Parasram Pottery Works (106 ITR 10) last para are very illuminating. We wish that the IT Authorities would keep in mind the said observations whenever they think of re-opening the assessment u/s 147/148 of the Act.

Heard Sri A.N. Mahajan, learned Standing counsel and Sri Ashish Bansal, learned Counsel appearing on behalf of the Assessee/Respondent.

Sri Ashish Bansal, learned Counsel appearing on behalf of the Assessee/Respondent submitted that the issue involved in the present case is squarely covered by the decision of the Apex Court in the case of COMMISSIONER OF INCOME TAX Vs. LUCAS T. V. S. LTD., wherein on similar circumstances the re-opening of the case u/s 147 of the Act has been held illegal. He further submitted that the tax incidence for the assessment year 1975-76 is Rs. 17,076 and for the assessment year 1976-77 is Rs. 16,083. Therefore, in view of the provisions of Section 268-A of the Act, which has been introduced in the Statute by Finance Act, 2008 with effect from 1-4-1999 and the Circular issued by the Board, reference is not maintainable as the tax incidence is below the prescribed monetary limit.

In the case of Lucas T.V.S. Ltd. (supra), the case was re-opened on the basis of the information of the Audit Party to the effect that Income Tax Officer failed to apply Section 35 of the Act and on these facts, the Apex Court held that this would amount to pointing out the law and interpretation of the provisions of Section 35, which was clearly barred in view of the decision of the Supreme Court in Indian and Eastern Newspaper Societys case (supra) and accordingly, it has been held that the re-opening on the basis of the information of the Audit Party was bad in law.

In the present case also the case has been re-opened for both the assessment years 1975-76 and 1976-77 on the basis of the information of the Audit Party that while framing the issues, the provisions of Section 64(1)(i) of the Act has not been considered. This information amounts to pointing out of law and, therefore, in view of the decision of the Apex Court, it is barred.

In the circumstances, we do not see any error in the order of the Tribunal. In the circumstances, the questions referred are answered in affirmative, against the revenue and in favour of the Assessee. Moreover, the tax incidence for the assessment year 1975-76 is Rs. 17,076 and for the assessment year 1976-77 is Rs. 16,083, therefore, in view of Section 268-A of the Act read with Circular issued by the Board the reference is not liable to be entertained as the total disputed tax is much below the prescribed monetary limit.